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MUNITIONS INDUSTRY
NAVAL SHIPBUILDING
PRELIMINARY REPORT OF THE SPECIAL
COMMITTEE ON INVESTIGATION OF
THE MUNITIONS INDUSTRY
PURSUANT TO
S.Res. 206 (73d Congress)
A RESOLUTION TO MAKE CERTAIN INVESTIGATIONS
CONCERNING THE MANUFACTURE AND SALE
OF ARMS AND OTHER WAR MUNITIONS
Printed for the use of the
Special Committee on Investigation of the Munitions Industry
UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHINGTON : 1935
74th Congress I SENATE COMMITTEE PRINT
1st Session
MUNITIONS INDUSTRY
NAVAL SHIPBUILDING
PRELIMINARY REPORT OF THE SPECIAL
COMMITTEE ON INVESTIGATION OF
THE MUNITIONS INDUSTRY
PURSUANT TO
S.Res. 206 (73d Congress)
A RESOLUTION TO MAKE CERTAIN INVESTIGATIONS
CONCERNING THE MANUFACTURE AND SALE
OF ARMS AND OTHER WAR MUNITIONS
Printed for the use of the
Special Committee on Investigation of the Munitions Industry
UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHINGTON : 1935
PUBLIC
'Y200
1
THE SPECIAL COMMITTEE ON INVESTIGATION OF THE MUNITIONS
INDUSTRY
GERALD P. N'YE, North Dakota. CTiairmon
WALTER F. GEORGE, OeorRia ARTHUR H. VANDENBERG, Mirhigan
BENNETT CHAMP CLARK, Missouri W. WARREN BARBOUR, New Jersey
HOMER T. BONE, Washington
JAMES P. POPE, Idaho
Stephen Raushenbdsh, Secretujy
Alger Hiss, Legal Assisfcnt
Floyd W. LaRoucue, Special AtsistarU
u
CONTENTS
Page
Findings 1
Recommendations 11
Not covered 15
Section I: Agreements on naval bidding 18
Cruiser awards, 1927 19
Cruiser awards, 1929 32
Award of aircraft carrier Ranger, 1930 39
Cruiser award, Tuscaloosa, 1931 42
Cruiser award, Ouincy, 1932 46
Naval awards, 1933 52
Naval awards, 1934 124
Section II: Excessive profits 147
Section III: Prices increased with big Navy 153
Section IV: Navy yards as yardsticks:
(a) General 155
(6) Opposition of private companies 162
Section V: Navy's dependence on private yards:
(a) General 175
(6) Electric Boat's monopoly 194
(c) Delay 205
{d) The Marine Engineering Corporation 215
(e) The shipbuilders' dependence on the Navy , 220
Section VI: Influence and lobbying of shipbuilders:
(a) General power 223
(6) Disarmament 225
(c) Lobbying, general 258
(d) Jones- White (Merchant Marine) Act 307
(e) Securing of Public Works Administration funds for naval con-
struction 312
(/) Lack of control over ownership 318
Section VII: Attempts to limit profits 323
Section VIII: War-time attitude of shipbuilders 345
in
74th Congkess ) SENATE j Report
1st Session ) (No. —
MUNITIONS INDUSTRY
June ■ — , 1935.' — Ordered to be printed
Mr. Nye, from the Special Committee on Investigation of the Muni-
tions Industry, submitted the following
PRELIMINARY REPORT ON NAVAL SHIPBUILDING
[Pursuant to S. Res. 206, 73d Cong.]
The Special Committee on Investigation of the Munitions Industry,
authorized by Senate Resolution 206 of the Seventy-third Congress
to investigate the munitions industry, to review the findings of the
War Policies Commission, and to inquire into the desirability of
creating a Government monopoly in respect to the manufacture of
munitions, submits the following report:
FINDINGS
In submitting this preliminary report on naval shipbuilding, the
committee wishes to emphasize that it is interested mainl}^ in two
things:
The first of these is that the naval defense shall be provided for
without profiteering or collusion.
The second of these is that the national necessity for a purely de-
fensive Navy shall not be confused with the private necessity of the
shipbuilders for continuing profits as a consequence of the present close
interdependence of the Navj^ Department and these private ship-
builders.
The Navy is an instrument of national policy. Its growth and
activities are watched abroad and take part in changing the foreign
policy of other nations. Such changes work back to reshape our own
national policy. The growth of a Navy contaius within it the seeds of
armament races and wars as well as the legitimate seeds of a purely
defensive national life insurance.
Because of this fact the naval shipbuilders are in a different position
from road or building contractors who may move in on a Government,
hungry for "plunder", as one shipbuilder's lobbyist described a naval
appropriation. These private shipbuilders are part of the private
system of national defense which has grown up. Their activities
ultimately have a bearing on our foreign policy.
1
Z MUNITIONS INDUSTRY
Whenever the Navy becomes closely tied up to private shipbuild-
ing interests and asks for and is dependent on their support either in
the securing of appropriations or in the construction or designing of
necessary ships or in the crippling of our foreign policy, a dangerous
and delicate situation has been created, and one which the country
should go to full lengths to avoid and stop.
The technical developments of the present years are rapidly mak-
ing the armaments of this Nation, particularly in regard to naval
vessels and naval aircraft, approach those of European countries in
their effects. In Europe almost every major defensive weapon can
be used offensively, and is regarded by other European nations as a
distinctly offensive weapon. With recent developments we are
rapidly approaching that situation ourselves.
Tliis is an additional reason for providing for a cessation of any
dependence by the Navy on those who may be primarily interested
in their own profits and who may be unscrupulously glad to be in a
position where they can wrap the flag around those private interests.
Congress must never allow the people of tliis Nation to let them-
selves be confused betw^een the actual needs of the country in national
defense and the needs of the private shipbuilding and supplying
interests for continuing profits.
The record of our sliipbidlders in the war, in the post-war period,
and in the days from 1927 on, before and after the cruiser program was
begun, has not been an entirely pleasant or wholesome story. Some of
them are certainly not above suspicion of willingness to wave the flag
or to circulate war scares in the plain and simple interest of their
own pocketbooks, regardless of results.
It is clear that these results are not to be trifled with. Mr. Eugene
Grace, president of Bethlehem Steel Corporation, questioned on the
possible effect of another war on western civilization, testified:
I should think it was possible to destroy it; if not in its entirety, certainly in
its effectiveness. Just an anticipation of it is too terrible even to think of (galley
74 VW, Feb. 26).
With these possible results in mind, it is clear that the private
shi})builders should very (h^finitely be policed in any and all moves
made by them or through them to confuse public-defense needs with
their private profits, or should be cut ofl" entirely from the building
of ships for the Navy.
The committee is not unmindful of the naval race prior to the
World War between England and Germany and the self-interest part
played in it by Krui)p and other steel interests, and their Flotten-
verein. It is not unmindful of the fact, demonstrated in that naval
race, that few elements of international competition can be used more
effectively to scare other people into building larger fleets and spend-
ing more money on them than a Navy which has clearly outgrown
the purposes of national defense. The committee is not uiunindful
of the port played by Vickers and the Electric Boat Co., an American
company, in such a naval race in South America in the early twenties.
(See vol. 1, Connnittee Hearings.) It is not particularly impressed
with the thought that companies which have engaged in this sort of
activity, or in the business of trying to make the Ignited States
Government remit just taxes or to i)ay admittedly exorbitant claims,
are exactly the right people to allow to hang aroniid veiy close to the
powder keg of international relations.
MUNITIONS INDUSTRY S
If it were clear that the rush and pressure of the shipbuilders and
their associated subcontractors and suppliers toward a constantly
growing Navy had resulted in savings and economies to the Govern-
ment in the construction of these cruisers and other naval ships, a
case might be made for allowing them to live as close to the danger
zone as they do now. While the evidence is not all in, the indications
are, on the contrary, that the private yards cost the Government
from one to two million dollars more per cruiser than the navy yards.
I. AGREEMENTS ON NAVAL BIDDING
Specifically, the committee finds, under the head of Agreements on
Naval Bidding:
The Navy has become a big business. It is one of the largest
governmental contractors in the world.
During the vears 1933 and 1934 it gave out to private companies
contracts totalmg over $180,000,000.
The committee heard 9 companies, 67 witnesses, largely on the
subject of these contracts. It spent 38 days, and took 4,036 pages
of testimony.
The committee finds that the evidence indicates clearly that:
(1 ) In most cases the Navy wishes work to begin as soon as possible.
The result of this is that there is often not time to prepare designs,
let alone examine figures or to analyze the bids put before it by private
companies.
(2) The rush has made it impossible for the Navy to use its own
navy yards as current up-to-date yardsticks of private bids. The
navy yards do not even know such essentials of the bids of private
yards as the speed guarantees or oil guarantees until after the private
bids are opened.
(3) The Navy has never examined the underlying costs or profits
of the private builders. It makes no pretense of doing this. It has
no staff for it. The figures studied by the Munitions Committee
were all news to it.
The Navy makes no attempt to examine the costs of the private
companies to determine whether the profit limitation of 11.1 percent
in the Vinson-Trammell Act is enforced or evaded. That is left to
the Treasury to do after 3 years, after a job is done.
(4) Tliis rush, this lack of staff, tliis lack of acquaintanceship with
the strange ups and downs of bidding by the private companies on
the part of the Navy, leaves the Navy at the mercy of the shipbuilders.
A. series of bids are put before the Navy, and the Navy has to take the
low one, and the taxpayers have to hope and pra37" that the low one is
somewhere within a few million dollars of being reasonable and
proper.
(5) The evidence presented to the committee showed that in 1933
on contracts worth $130,000,000 to the private shipbuilders, there
was no hard-hitting competition among equally desirous bidders able
to take on the work: On the aircraft carriers, worth $38,000,000; on
the two light cruisers, worth $24,000,000; on the heavy cruiser, worth
$12,000,000. There was no competition of that character on the
heavy destroyer leaders, worth $30,000,000, nor on the Hght de-
stroyers, worth $18,000,000. On the submarines there may have
been honest competition, but one competitor possessed all the patents
and would not tell the other company how much those patents would
4 MUNITIONS INDUSTEY
cost them. That is the way $130,000,000 worth of work was given
out in 1933.
(6) From 1927 on when the cruiser program started, the record is
the same. If there was no collusion, there was a sympathetic under-
standing among the big companies of each other's desires.
If there were no conversations about bidding among them, there
was telepathy.
In 1927 the shipbuilders made profits of 35 and 25.4 and 36.9 per-
cent on the cruisers. That was too good to spoil by hard competition.
In 1929 the Navy asked for bids on two cruisers. Not one of the
"Big Three" yards obUged. They bid on 1 each, and got 1 each.
Their profits on these were around 22 percent.
The record is the same in 1931.
(7) In 1933 two shipbuilders knew and wrote down lists of the low
bidders weeks in advance of the time the bids were opened. Mr.
Bardo was one of them. Mr. Wilder was another. Mr. Bardo
admitted discussing his desires for certain ships only with his two
main competitors.
(8) The fact that many bids are submitted by shipbuilders does
not mean that there is real competition. It does not mean lower
prices. In fact, quite the contrary is true. When there is lots of
work to go around the charges go up. The shipbuilders know that
the Navy feels it has to have the ships, and they raise the prices.
They admitted this frankly.
II. EXCESSIVE PROFITS
The committee finds, under the head of Excessive Profits, that the
profit figures on the only naval vessels on which such figures are
available were 35 percent (Newport News, 2 cruisers); 36.9 and 33.4
percent (New York Ship, 2 cruisers) ; 25.4 and 21.8 percent (Betlilehem
Shipbuilding, 2 cruisers); 23.1 percent (Aircraft Carrier Ranger, New-
port News).
III. PRICES INCREASED WITH BIG NA"VY
The committee finds, under the head Prices Increased with* Big
Navy, that the need of the Navy for many ships in 1933 was the
main cause for the increase in ])rice.s charged by the private ship-
builders, and that they frankly admitted this, and that the Navy
recognized the fact.
Q. They (the shipbuilders) were frank enough to say they were putting up
prices because of the great amount of worli at the time? — A. (Admiral Robinson)
There is no question about that.
IV. NAVY YARDS AS YARDSTICKS
The committee finds, under the head of Navy Yards as Yardsticks,
that preliminary studies show the cost of building cruisers in navy
yards to have been $2,116,304 lower than in private vards in 1927
and $1,569,090 lower in 1929. It also finds that in 'l 933 the low
navy-yard estimate was $1,122,000 below the lowest private-yard
fixed-price bid and $5,351,000 below the highest fixed-price bid. It
also finds that the navj^-yard estimates on the cost of building light
destroyers averaged $1,240,459 lower than the average bids of the
MUNITIONS INDUSTRY O
private yards and $943,460 below the lowest private-yard bid on a
fixed-price basis.
The committee finds, further, that Navy officials have been trans-
mitting to congressional committees figures on comparative costs of
private and navy yards showing the profits on a privately built ship,
the cruiser Chester, as $983,000, whereas the New York Shipbuilding
Corporation informed the Munitions Committee that its profit on
this cruiser was $2,946,706.
The committee finds, further, that the opposition of the private
shipbuilders to navy-yard construction has been intense, reaching the
point where the vice president of Newport News thought it better
"to kill the Navy bill entirely" than to spend part of it in navy yards.
The committee notes the language used concerning a naval appro-
priation in 1931 by the Washington representative of Bath Iron
Works:
I understand the morning after the (appropriation) bill went through every
East-coast yard had its representatives in Washington with their tongues hanging
out and all teeth showing ready to fight for their share of the plunder, and the
only thing that stopped the West-coast 3^ards from being here was the fact that
they couldn't come bodily by telegraph.
V. THE navy's DEPENDENCE ON PRIVATE YARDS
The committee finds, under the head of The Navy's Dependence on
Private Yards, that at present light cruisers, aircraft carriers, light
destroyers, destroyer leaders, and submarines are being built largely
or entirely from the plans drawn by private companies, and that
there are very definite disadvantages to a system in which the Navy
has to depend on private companies for such an important part of the
national defense.
The committee notes the awareness of several of the shipbuilding
companies of the fact that the Navy is completely dependent on them
for this work.
The committee notes the statement by Commander E. L. Cochrane:
The Navy's developments of 15 years were — handed to the Electric Boat Co. on
a silver platter, so to speak, on the conviction that it was desirable to keep at
least one commercial company in the submarine game * * *
and also notes the statements of Sun Shipbuilding officials who
wanted to build submarines that they could not find out what the
Electric Boat patents would cost them prior to entering a bid. The
committee finds this apparent monopoly an unwholesome and un-
satisfactory situation, especially in view of Electric Boat Co.'s
foreign connections.
The committee finds further that a very considerable delay fol-
lowed the allocation of $238,000,000 of P. W. A. money to the Navy in
1933, and that a large amount of tliis was due to delay in the planning
work by these shipbuilding companies which had contracted to do
this part of the work for the others and for the navy yards. The
committee notes that this delay took place in spite of pledges by all
shipbuilders to begin work as soon as possible for the benefit of the
unemployed.
The committee finds, further, that while the Navy is dependent on
the private shipbuilders for ways and plans, the private sliipbuilders
are dependent on the Navy for special favors, and have received a
considerable number of them. Most notable among these are the
Q MUNITIONS INDUSTEY
adjusted price contracts of 1933 and 1934, the failure to use the navy
yards as yardsticks, the failure to make itself independent of the pri-
vate yards in planning work, and the Navy's opposition to profit
limitation in 1934.
The committee finds indications of the use by the Navy of the
shipbuilders as a lobby for its interests.
VI. INFLUENCE AND LOBBYING OF SHIPBUILDERS
The committee finds, under the head of Influence and Lobbying of
Shipbuilders, that the Navy contractors, subcontractors, and suppliers
constitute a very large and influential financial group.
The committee finds that three big shipbuilding companies had
$53,744,000 of work at stake in the Geneva Disarmament Conference
which the Navy had given to them a few months before the opening of
the conference in 1927. It notes the admitted interest of the com-
panies in the unfavorable outcome of that Conference. It notes Mr.
Shearer's testimony that he was urged to go to the conference by
Admiral Pratt, and was supplied with secret Navy information. It
notes the secrecy of his employment by the shipbuilders, and the
explanation for that secrecy. It notes his activities in the promotion
of a war scare with England in 1928 and 1929, while being paid by the
shipbuilders. It notes certain discrepancies between testimony given
by the shipbuilders at the Shortridge hearings and the hearings of the
Munitions Committee. It notes Mr. Shearer's claim that "as a result
of my activities, eight 10,000-ton cniisers are under construction."
Further, that owing to the failure of the tripower naval conference at
Geneva, there is now before the Seventieth Congress a 71 -ship building
program costing $740,000,000. It notes Mr. Shearer's further testi-
mony of his activities at the request of various Naval officials. It
notes his description of his Geneva campaign as "fast and vicious."
It notes his report at the "delight" of the shipbuilders at the result.
It notes the payment by the shipbuilders of the costs of a pamphlet he
wrote attacking certain private citizens, including Newton D. Baker
and Franklin D. Roosevelt. It notes the payments he received from
Mr. Hearst of $5,D00 in 1929. It notes the spreading through a friend-
ly newspaper syndicate of an alarmist story concerning alleged
Japanese intentions by the president of the Bath Iron Works, with
the intent and result of activity by a Senator and Representatives
from Maine in connection with an appropriation bill in 1932.
The committee finds, on the basis of this and other testimony,
that there is a clear and definite danger in allowing self-interested
groups, such as the sliipbuilders and their allied interests, to be in
the close position of influence, as they are at present, to such an
important instrument of national policy as the Navy is, and the
danger in allowing them to remain in a position where it is to their
financial interest to confuse public opinion between the needs of tlie
country for a purely defensive Navy and their own continued needs
for profits.
The committee finds, further, that there has been a large amount
of bipartisan political activity on the part of the shipbuilders locally,
in Congress, and also at the national headquarters of the two parties.
It makes no claim to have gone into tliis field thoroughly. The com-
mittee notes the claims of the Washington representative of I'^nited
Drydocks in 1934 that he could get a bill through Congress for $50,000,
MUNITIONS INDUSTRY 7
and that "there is no virtue in being Quixotic at this state." It notes
the placing of Congressmen on certain committees at the request of
the shipbuilders. It notes their claim to have helped the Navy on
certain bills and to have elected Members to the House Rules
Committee. It notes the reference to United Drydock Co. secur-
ing through Dave Hogan, secretary to Mr. McCooey, prominent
Brooklyn democrat, the award of $6,800,000 in destroyers in 1933.
The committee finds that the matter of national defense should be
above and separated from lobbying and the use of political influence
by self-interested groups and that it has not been above or separated
from either of them.
The committee finds, further, under this head, that the main lobby
for the Merchant-Marine Act of 1928 was conducted by the ship-
builders under the leadership of Mr. Laurence R. Wilder, then presi-
dent of American Brown Boveri (New York Shipbuilding Co.), and
that a sum of over $140,000 was spent in putting that bill over.
The committee finds further that New York Shipbuilding Co. was
acquired as a speculative investment by the Bragg-Smith-Cord
interests just prior to the 1933 naval awards; that the present owners
are not experienced shipbuilders and have since tried to divest them-
selves of the ownership, and that it is not a satisfactory situation to
have such an important part of our potentially necessary national
defense in the hands of people who are willing to sell it to the first
bidder. Speculators and speculation should have no place in our
national defense.
The success of the shipbuilders in securing an allocation of $238,-
000,000 for shipbuilding from P. W. A. funds has been their most
recent demonstration of power. In this their purpose was aided by
labor groups who later, when the expected employment failed to
materialize, spoke of the matter as a "double cross" to the Navy
officials who had solicited their support for the measure.
VII. ATTEMPTS TO LIMIT PROFITS
The committee finds, under the head of Attempts to Limit Profits,
that the failure of the Navy Department to turn the navy yards into
effective yardsticks by which the charges of private shipyards could
be measured and kept down has resulted in leaving the profits of the
shipbuilders practically uncontrolled.
The committee finds that the Vinson-Trammell bill of 1934 limiting
profits to 11.1 percent of cost cannot be enforced without a huge police
force of accountants and that disputes concerning its interpretation,
similar to those which delayed the payment of war-time taxes by the
companies for 12 years may confidently be expected.
The committee finds that the Navy's grant of adjusted price con-
tracts in 1933 with limitations on the amount of risk the Government
assumed for the benefit of the shipbuilders and in 1934 without any
limitation on the Government burden for increased costs has resulted,
in effect, in cost-plus contracts. It finds these cost-plus contracts
more profitable than the war-time contracts when only a 10-percent
profit over cost was allowed.
The committee finds that in the case of the 1934 adjusted-price
contracts on light cruisers, destroyer leaders, light destroyers, and
submarines, the Government has assumed all the risk of increasing
8 MUNITIONS INDUSTRY
prices, and has lowered the risk for which the companies received 11.1-
percent profit by an enormous amount.
The committee finds that the Navy, wliich has no responsibility
for enforcing the act, and which has no reliable figures about private
costs, is in a position to allow — and according to one company has
actually allowed- — increased overhead charges, which can invaUdate
the v/hole attempt by Congress to limit profits. The committee
notes that it was by the allowance of such theoretical overheads
during the war-years above actual overheads that New York Sliip-
building Corporation was paid $2,152,976 more by the Government
than it actually paid out itself.
The committee finds that the shipbuilding industry and its sub-
contractors and suppliers have united in efi'orts to find ways to avoid
the incidence of this law, and that \lr. Gillmor, president of Speriy
Gyroscope, Navy suppliers, told them, "If the shipbuilders, boiler
manufacturers, and electrical manufacturers act in accordance with
uniform rules, it will be so strong I think the Income Tax Bureau w^ill
have a hard time resisting it," The committee notes the unreliability
of the shipbuilders' figures as indicated by the wide dilTerences between
their w^ar-time reports and the audits of those reports by the Treasury
(sec. VIII). It notes also in tliis matter of reliability the recent
discrepancy of almost $2,000,000 out of a profit of $2,900,000 in the
reports furnished by the New York Shipbuilding Co., passed on by
the National Council of Sliipbuilders and circulated recently among
congressional committees by Navy officials. It also notes in this
matter the evidence tending to show that the Bath Iron Works
transferred an item of $60,000 incurred on a lighthouse tender to the
costs of the destroyer Dewey.
The committee finds that there is no enforcement of the profit
limitation law in effect until 4 years after the beginning of a cruiser.
It finds, from war-time experience (sec. VIII) enough evidence of the
difficulty of auditing thousands of old vouchers and of properly allo-
cating overhead which the companies may have improperly saddled
onto Navy vessels, to declare that there is no effective profit-limitation
law today.
It finds the price of real enforcement of the attempts of Congress
to limit profits to be a costly policing force of accountants and auditors
who would be in the yard for at least 3 years, and a series of costly
lawsuits after tliose audits have been completed. It finds that the
only way to prove that a company had not iniproperh" allocated
overheads from conuuercial jobs onto Navy jobs would be to audit
all the conunercial jobs being done by a private yard as well as the
Navj- work; in short, to audit all the work done by the yard and to
establish uniform accounting.
The comnnttee questions whether this additional cost for auditing
and policing, plus the cost of lawsuits after such audits, on top of the
1 to 2 million dollars extra cost of private construction, and- the
$300,000 spent by the Navy for inspection of the privately built
cruisers, justify the continuance of private yards as naval contractors.
They have the appearance of being expensive luxuries.
The committee reserves decision on tliis phase of the nuitter until
the completion of its investigation of the costs of governmental
construction.
MUNITIONS INDUSTRY i|
VIII. WAR-TIME ATTITUDE OF SHIPBUILDERS
The committee finds, under the head of War-Time Attitude of
Shipbuilders, that the record of the present shipbuilding companies
during the war, wherever examined, was close to being disgraceful.
They made very considerable profits. On Treasury audits they
showed up to 90 percent. They secured cost-plus contracts and
added questionable charges to the costs. They took their profits on
these ships after the war-time taxes had been repealed. They se-
cured changes in contract dates to avoid war taxes. They bought
from the Government, very cheapl}^ yards which had been built ex-
pensively at Government costs. In one case this was prearranged
before the yard was built. One yard did not build necessary addi-
tions until it was threatened with being commandeered. Knowingly
exorbitant claims were filed against the Government for cancelation.
Huge bonuses were paid to officers. Profits were concealed as rentals.
After the war was over keels for $181,247,000 worth of destroj^ers
were laid, which was probably the largest post-war favor done by any
Government to any munitions group.
The committee finds no assurance in the war-time history of these
companies to lead it to believe that they would suddenly change their
spots in the case of another war.
After the committee's hearings on shipbuilding had closed, Gen..
Hugh Johnson, at one time connected with the War Industries Board,,
later with B. M. Baruch, and later Director of the National Recovery
Administration, explained that the N. R. A. had grown out of the
plans developed by the War Department for the conduct of a future
war. It was, he stated, developed directly from the war plans and
was not shown to the industrialists for their approval until practically
completed. In view of this statement, the committee finds signifi-
cance in the testimony of a Department of Labor official concerning
the unwillingness of the New York Shipbuilding Co. to observe the
N. R. A. rules, with the result of a serious labor dispute in 1934. The
company did not raise the question of constitutionality, and all that
was involved was the question of observance or evasion of the law.
The committee finds in this evidence, taken together with the actual
war-time experience of the Government with these companies, little
hope for obedience by them of more stringent war-time provisions in
the case of another emergency.
RECOMMENDATIONS
1. The committee postpones its final recommendations on tlie
problem of removing or rendering harmless to the public interest
the close interdependence of the Navy and the financially interested
shipbuilding interests. The final report on tliis subject will be
rendered immediately upon the completion of its study on Govern-
:nent costs in private and navy yards and on the cost of purchasing
necessary private yards for public use.
In the interval the committee recommends an unusually strict
reporting of the activities of all the representatives of the sliipbuilders
and allied interests. This is contained in section 2, paragraph 3, of
the attached bill.
2. In the matter of collusion and profiteering, the committee rec-
ommends the immediate adoption by Congress of the following bills
"to prevent collusion in the making of contracts for the construction
of naval vessels in private sliipyards, to safeguard military secrets of
the United States, to make public the activities of the shipbuilding
lobby, and for other purposes," and to prevent profiteering in the con-
struction of naval vessels in private shipyards.
S. 3098
The main purpose of the first bill (S. 3098) is to prevent collusion
b}'' the sliipbuilders and to prevent their taking advantage of the
Navy.
It does this by directing the Comptroller General to examine the
navy yard estimates and the private yard estimates and bids before
the Navy makes any awards. He is directed to analyze them on the
basis of past bids and estimates and on the basis of the bids and esti-
mates of all other companies and navy yards. (The studies of the
Senate Munitions Committee on this subject are in this way to be
utilized, maintained, and made permanent by the Comptroller
General.) He is charged finally with the duty of recommending to
the Navy whether bids shall be readvertised or not before any awards
are made by the Navy Department.
This bill includes a provision for the registration of shipbuilding
lobbyists and a statement of their income and expenditures. It
includes a provision forbidding the sale abroad of naval inventions for a
period of 5 years. It includes a provision to make the Navy independ-
ent of the private shipyards in the matter of designing and planning.
The committee recommends the adoption of all of the provisions in
this bill as urgent and necessary to the public interest.
A copy of this bill (S. 3098), introduced June 19, is printed below
as part of the committee's recommendations.
(S. 3099)
The main purpose of this second bill is to prevent profiteering.
It is provided in this bill that the Navy shall be allowed to pay
to private shipyards a premium of no more than $500,000 per cruiser,
11
12 MUNITIONS INDUSTEY
,$1,000,000 per aircraft carrier, or $300,000 per destroyer or submarine
over and above the cost of building such a vessel in navy yards.
The committee believes that this is an adequate premium to pay to
the sliipbuilders, subject to its further studies of Government costs.
Since the Navy Department has at present assumed most of the
risk of the shipbuilding industry in the form of adjusted-price con-
tracts, and since the Vinson-Trammell Act was based on the assump-
tion of risks by the industry instead of by the Government, the com-
mittee recommends that whenever the Government assumes the risk
the profit be cut in half, i. e., to 5 percent instead of 10 percent of the
total cost to the Government. The idea of having the Government
assume all the risk of increasing prices for labor and material and in
addition pay a profit of 11.1 percent on top of cost is preposterous.
This bill provides therefore that whenever the Government assumes
all or a share of the busmess risk, as it does in the adjusted-price
contracts of 1933 and 1934, that the sliipbuilders, instead of being
allowed all .1-percent profit as they are under the 1934 act, be allowed
only one-half of that amount.
A copy of this bill (S. 3099) introduced June 19, is printed below,
as part of the committee's recommendations.
3. The committee recommends further that Congress refuse in any
way to weaken the provisions of the profit-limitation bill of 1934,
but, on the contrary, strengthen them as much as possible.
The bills containmg the constructive recommendations of the com-
mittee to effect these results were approved l)y the committee, and are
as follows:
[S. 3098, 74ih Cong. 1st Ses?.]
A BILL, To prevent collusion in the making of contracts for the construction of naval vessels ia private
shipyards, to safeguard military secrets of the United States, to make public tlie activities of the ship-
building lobby, and for other purposes
Be it enacted by the Senate and House of Representatives of the United States of
America in Congress assembled, That no vessel, the commencement of which is
authorized by the Act entitled "An Act Making Appropriations for the Navy
Department and the Naval Service for the Fiscal Year ending June 30, 1936,
and for other jiurposes", approved , 1935, or by any subsequent Act,
shall be built in any private shipyard unless (1) the Navy Department shall have
prepared, prior to the advertising for any bid therefor, estimates of the cost of
construction of such vessel in each of the navy yards; and (2) such private ship-
yard shall have agreed that all books, records, memoranda, docinnents, corres-
pondence, and papers of such shipyard and of its subsidiaries and afliliates shall
be subject to examination, during the usual hours of business, by representatives
of the General Accounting Office and/or of the Navy Department. The word
"subsidiary" as used in this subsection means any person, corporation, trust, or
business unit over whom or over which such private shipyard has actual or legal
control, whether by stock ownership, contractual relation, or otherwise; and the
word "afTiliate" means any person, corporation, trust, or business unit who or
which has actual or legal control over such private shipyard whether by stock
ownership, contractual relation, or otherwise.
Sec. 2. No part of any appropriation made by such Act of 1935, or by any
subsequent Act, shall be expended under anj- contract hereafter entered into
with any private shipyard unless the bid of such private shii)yard, upon the basis
of which such contract was entered into, has been certified to by the Comptroller
General as (I) fair, reasonable, and not excessive in amount, and {11) lower than
any bid that could reasonably be anticipated upon readvertisement for bids.
Such certification shall recite that it has been made after due consideration by
the Comptroller General of (1) the Navy Department's estimates of the navy-
3'ard cost of construction of the vessel covered by such bid; (2) estimates and
MUNITIONS INDUSTRY 13
reports prepared by the Navy Department and by the Comptroller General of
the costs of construction in navy yards and in private shipyards of similar vessels;
(3) previous bids and estimates made by private shipyards for similar vessels;
and (4) the liklihood of changing costs of construction during the period of
construction contemplated by such bid. Nor shall any part of any appropria-
tion made by such Act of 1935, or by any subsequent Act, be expended under any
contract with any private shipyard unless the Comptroller General shall, prior to
each payment under such contract, certify that such shipyard has complied with
all appHcable provisions of the Act of March 27, 1934 (Public, Numbered 135,
Seventy-third Congress), and of all similar Acts hereafter enacted, relating to
repayment of profits, insofar as previous contracts of such shipyards with the
United States, or of any agency thereof, are concerned; and as a basis for such
certification the Comptroller General shall cause examinations to be made of the
books and records of such shipyard relating to actual costs of construction of the
vessel or vessels built by such shipyard pursuant to such previous contracts,
and such actual examination of such books and records as is made shall be recited
in such certification.
Sec. 3. No part of any appropriation made by the Act entitled "An Act
making appropriations for the Navy Department and the Naval Service for the
fiscal year ending June 30, 1936, and for other purposes", approved ,
1935, or by any subsequent Act, shall be available (1) for paj-ment to any con-
tractor of the Navy Department which sells, or in any way imparts, to ar^y person
not in the em.ploy^ of such contractor or of a subcontractor thereof, any design,
plan, patent, machinery, or other equipment used by the Navy Department at
any time prior to five years after the first use thereof by the Navy Department;
(2)' for expenditure under any contract with any private shipyard unless such con-
tract, and each modification thereof, shall have been approved by tlie Comptroller
General; (3) for payment to any contractor of the Navy Department unless such
contractor shall have filed with the Secretary of the Senate on July 1, 1935, and
on each succeeding July 1, a list containing the names of all officials, ageu-ts, and
representatives of (a) such contractor, (b) all subcontractors engaged by such
contractor in the performance of any contract with the Navy Department,
including insurance companies and insurance brokers, and (c) any association of
which such contractor is a member or of which such subcontractors are members
or to vx^hich such contractor or subcontractors contributes or contribute, who dur-
ing the preceding year have interviewed, whether in person or by telephone, or
corresponded with any Member of Congress or any employee or relative of any
Member of Congress or any officer of the Navy or any official or employee of
the Navy Department or of any other Government department or agency upon
the subject of legislation relating to naval, military, or merchant marine matters,
or upon the business of such contractor or of such subcontractor, such list shall
contain statements of the subjects of such interviews and correspondence, the
total compensation, itemized V)y sources, received by each such official, agent,
or representative during the preceding year from all sources, the itemized dis-
bursements of such official, agent, or representative, including itemized state-
ments of amounts expended for entertainment or for the benefit of any Member
of Congress, or of any employee or relative of any Member of Congress, or of
any naval officer or of any official or employee of any Government department
or agency. The Navy Department shall also file on January 1 of each year with
the Secretary of the Senate a list of the names of all officials, agents, and repre-
sentatives of any private shipyard, and of any subcontractor, including any
insurance company or broker, of any private shipyard, which has submitted to
the Navy Department a bid for the construction of any vessel, who have inter-
viewed, whether in person or by telephone, or corresponded with any officer of
the Navy or with any official or" employee of the Navy Department with respect
to legislation or to the business of such shipyard, or of such subcontractor,
during the preceding year; such list shall contain statements of the subjects of
such interviews and correspondence and shall include detailed accounts of all
entertainment or benefit received by naval officers and by officials and employees
of the Navy Department from any such official, agent, or representative; all
such lists shall be published annually in full by the Secretary of the Senate as a
Senate document; and (4) for payment to any private shipyard for plans and
designs for vessels, whether as a part of the contract price for construction of
a vessel or otlierwise.
139387—35-
14 MUNITIONS INDUSTRY
Sec. 4. There shall be available for expenditure by the Secretary of the Navy
from the appropriations under the caption "Increase of the Navy" in the Act
entitled "An Act making appropriations for the Navy Department and the
Naval Service for the fiscal year ending June 30, 1936, and for other purposes",
approved , 1935, such sums as the Secretary of the Navy may from time
to time determine to be necessary for the establishment in the Navy Department
of a section of design and planning which shall prepare the plans and designs for
vessels constructed by or for the United States; and the Secretary of the Navy
is authorized to appoint and fix the compensation of such technical assistants,
clerks, and employees, without regard to the provisions of other laws applicable
to the emploj^ment and compensation of officers and employees of the United
States, and to make such expenditures (including expenditures for personal
services and technical services in the Navy Department and in the field, and for
drafting and other supplies, printing and binding, books of reference, and peri-
odicals), as he may deem necessary for carrying out the provisions of this section:
Provided, That, notwithstanding any other provision of this section or of such
Act of 1935, the President may by Executive order expend all or any part of the
appropriations made under the caption "Increase of the Navy" in such Act
for the expansion of existing navy yards.
[S. 3099, 74th Cong., 1st scss.]
A BILL To prevent profiteering in the construction of naval vessels in private shipyards, and for other
purposes
Be it enacted by the Senate and House of Representatives of the United States of
America in Congress assembled, That no vessel, the commencement of which
is authorized by the Act entitled "An Act making appropriations for the Navy
Department and the Naval Service for the fiscal year ending June 30, 1936,
and for other purposes", approved , 1935, or by any subsequent Act,
shall be built in any private shipyard unless such private shipyard shall have
agreed to build such vessel for an amount not greater than the Navy Depart-
ment's lowest estimate of the cost of construction of such vessel in a navy yard
plus (a) $500,000, in the case of a cruiser, (b) 81,000,000, in the case of an aircraft
carrier, and (c) $300,000, in the case of a destroyer or of a submarine; and unless
in the contract for such vessel, except in the case of a fixed price contract, such
private shipyard shall have agreed (A) to pay to the United States Treasury
all profit in excess of five per centiun of the total amount of the contract covering
such vessel, such excess profit to become the property of the United States, and
(B) to insert a like clause in all subcontracts, whether of purchase or of construc-
tion, in excess of $10,000 made by such private shipyard in the performance of
such contract.
NOT COVERED
For lack of funds and because of the other duties laid upon it by the
Senate, the committee reports no findings on the following subjects:
The possibility of monopoly and collusion among the big ship-
builders in the field of merchant-marine work was covered only in part
by the committee. Inasmuch as the many millions of dollars that
have been spent by the Government to build up its merchant marine,
have been obtained largely on the basis of national-defense needs,
this subject is germane to the investigation.
Sonie evidence is in the record showing the absence of competition
on important merchant work, the probability of resulting high costs
and inadequate ships. There was no opportunity for the committee
to make a complete inquiry in this matter.
Tie-ups between shipbuilders and shipowners constitute one phase
of the subject of collusion on merchant work. Preliminary studies
indicate that such relationships exist and that they may not be for
the best interests of the public.
The influence of the National Council of American Shipbuilders
was not fully revealed. An examination of the files of the council
were made by committee investigators and enough material was found
to indicate that the council, in cooperation with the Steamship Owners
Association, is able to influence public opinion in all parts of the coun-
trj. The council is affiliated closely with powerful trade groups and
has on its active membership list industrial groups with combined
assets of several billions of dollars. The council maintains a statistical
department which disseminates information of benefit to the shipping
interests. Some of this information is turned over to the Navy and
the Shipping Board, from whence it is sometimes issued as official
data. Its accuracy is seriously open to question. Its influence on the
public and on Congress can only be estimated.
Powerful interests other than sliipbuilders are engaged in the busi-
ness of supplying materials and parts for ship construction. These
interests, w^liich include United States Steel, Betlilehem Steel, West-
inghouse Electric Co., General Electric, Sperry Gyroscope, Babcock
& Wilcox, and many others, have much to gain by advancement of
shipbuilding. Their part in the activities of the shipbuilding fra-
ternity has been touched upon. A thorough examination of the files
of the important subcontracting firms would add considerably to the
sum of information already obtained. These subcontractors are
members of the National Council and work in close harmony with the
"Big Three" and certain of the smaller shipbuilders.
Only a preliminary examination was attempted in the field of
ordnance supply. This includes armor, armament, and ammunition.
In point of money the ordnance on a naval ship is equivalent to ap-
proximately one-tliird of the total cost. Thus it constitutes an im-
portant phase of the general problem of building and equipping ships
of war.
15
16 MUNITIONS INDUSTEY
In the field of ordnance it is interesting to note that the Government,
sliortly after the war, constructed a large armor plant to enable it to
procure steel armor at a reasonable cost. This plant was abandoned
after a comparatively short period of operation. It is within the
scope of tliis committee's functions to determine the reason for this
abandonment, particularly as to whether undue influence was brought
to bear to attain that end.
Any investigation of armor, shell, and gun making would be incom-
plete without an analysis of the war orders; these materials, not only
the war orders of the United States but also those of the European
belligerents, made and filled before tliis country entered the war. This
subject is one closely identified with the causes that led the United
States to enter the war, partly by reason of the huge sums that were
spent for ordnance during the years from 1914 to 1917, and partly
by reason of the apparent influence of the steel manufacturers and
their financial associates and backers.
Influence of the shipbuilders through campaign contributions was
not investigated in full. There is reason to believe that all possible
information on this subject was not unearthed. The reason for this
is that few records of such contributions are kept by the shipbuilders.
Witnesses, in at least two cases, were frank in saying (when not under
oath) that these contributions were made hj their firm m cash, and
that no receipts were given.
Other "donations" by sliipbuilders were in the form of jobs for
constituents of public officials. Entertainment also provided a means
of paying off obligations. Tliis was especially true in connection with
trial trips, keel layings, and launcliings, the bills for wliich were in-
cluded in the cost of the sliip and hence were paid by the Government.
Proof of large-scale "influencing" could not be established without
examination of the financial records of indi-vaduals and tliis the
committee did not feel justified in attempting.
An important field of inquiry touched upon only lightly is that
which concerns itself with the quality of the ships turned out under
monopoly conditions. Evidence was introduced to show that the
Government frequently receives inferior quality by reason of the
absence of hard competition in the industry. Testimony on the
faulty construction of the Morro Castle indicates that American
shipbuilding might be improved, but no fair conclusions could be
reached without far more thorough study.
Likewise, a comprehensive investigation was deemed unpracticable
in the field of labor conditions and wages in the shipyards of the
"Big Three". Suflicient evidence was introduced to indicate that
such a study might well be made. An incidental examination of the
comparative treatment of men in Government yards and private
yards indicated that the navy yards pay a higher wage than the
private yards and that the conditions of employment in the navy
yards are better. There is also evidence of concerted efforts by
certain shipbuilders to bring down navy-yard wages.
REPORT ON NAVAL SHIPBUILDING
From the time of the 1922 Naval Disarmament Conference to the
1927 Geneva Naval Disarmament Conference the United States
contracted for the following ships: Cruiser Salt Lake City, Cruiser
Pensacola.
The interests of American naval shipbuilding companies in the
1927 disarmament conference, and their influence on it, are described
in section (VI) below.
After failure of the Geneva Conference a naval building program
was undertaken which resulted in the addition of the following ships
to the fleet,^ according to years of award:
1926: Cruisers Pensacola and Salt Lake City (which were re-awarded
in 1927).
1927: Cruisers Northampton, Chester, Louisville, Chicago, Houston,
Augusta.
1929: Armored cruisers Portland, Indianapolis, Minneapolis, New
Orleans, and Astoria.
1930: xAircraft carrier Ranger.
1931: Cruisers Tuscaloosa and San Francisco; destroyers Dewey,
Farragut, Hull, MacDonough, Warden; submarines Cachelot and
Cuttlefish.
1932: Armored cruiser Quincy; destroyers Dale, Monaghan, and
Ayhoin.
1933: Armored cruiser Vincennes; light cruisers Savannah, Nashville,
Brooklyn, and Philadelphia; destroyers Porter, Selfridge, McDougal,
Winslow, Phelps, Clark, Mojffett, Batch, Mahan, Cummings, Drayton,
Lamson, Flusser, Reid, Case, Conyngham, Cassin, Shaw, Tucker,
Doivnes, Cushing, Perkins, Smith, and Preston; submarines Porpoise,
Pike, Shark, and Tarpon.
1934: Armored cruiser Wichita; light cruisers Phoenix, Boise, and
Honolulu; destroyers 380-393 (not named) ; submarines Perc^/, Pickerel,
Pinna, Plunger, Pollack and Pompano.
The amounts paid or promised to private shipbuilders for their
work on these ships amounted to $305,265,000, plus several millions
for changes, extras, and bonuses.
The estimated total cost of building and equipping these ships
including those built in navy yards including their armament is
$778,393,000, of which a considerable amount on the 1933 and 1934
program has not yet been paid.
1 Tolals: Cruisers, 25; aircraft carriers, 3; destroyers, 46, and submarines, 12. In addition there hr.s been
modernizption of battleships and construction of gunboats, patrol boats, etc.
17
18 MUNITIONS INDUSTRY
SECTION I— AGREEMENTS ON BIDDING
Summary. — Agreements on Naval Bidding
The Navy has become a big business. It is one of the largest
governmental contractors in the world.
During the years 1933 and 1934 it gave out to private companies
contracts totaling over $180,000,000.
The committee heard 9 companies, 67 witnesses, largely on the
subject of these contracts. It spent 38 days, and took 4,036 pages
of testimony.
The committee finds that the evidence indicates clearly:
(1) In most cases the Navy wishes work to begin as soon as pos-
sible. The result of this is that there is often not time to prepare
designs, let alone examine figures, or to analyze the bids put before it
by private companies.
(2) The rush has made it impossible for the Na\'y to use the navy
yards as current up-to-date yardsticks of private bids. The navy
yards do not even know such essentials of the bids of private yards as
the speed guarantees or oil guarantees until after the private bids
are opened.
(3) The Navy has never examined the underlying costs or profits
of the private builders. It makes no pretense of doing this. It has
no staff for it. The figures studied by the Munitions Committee were
all news to it.
The Navy makes no attempt to examine the costs of the private
companies to determine whether the profit limitation of 11.1 percent
in the Vinson-Trammel Act is enforced or evaded. That is left to the
Treasury, after 3 years, after a job is done.
(4) Tliis rush, this lack of staff, this lack of acquaintanceship with
the strange ups and downs of bidding by the private companies on
the part of the Navy, leaves the Navy at the mercy of the ship-
builders. A series of bids are put before the Navy, and the Na\'y has
to take the low one, and the taxpayers have to hope and pray that
the low one is somewhere within a few million dollars of being reason-
able and proper.
(5) The evidence presented to the committee showed that in 1933
on contracts worth $130,000,000 to the private shipbuilders, there was
no hard-hitting competition among equally desirous bidders able to
take on the work: On the aircraft carriers, worth $38,000,000; there
was no competition of that character on the two light cruisers, wortli
$24,000,000; there was no competition of that character on the lieavy
cruiser, worth $12,000,000. There was no competition of that char-
acter on the heavy destroyer leaders, worth $30,000,000, nor on tlie
light destroyers, worth $18,000,000. On the submarines there may
have been honest competition, but one competitor possessed all the
patents and would not tell the other company how nnich those
patents would cost them. That is the way $130,000,000 worth of
work was given o^jt in 1933.
(6) I'rom 1927 on when the cruiser program started, the record is
the same. If there was no collusion, there was a sympathetic under-
standing among the big companies of each other's desires.
If there were no conversations about bidding among them, there
was telepathy.
MUNITIONS INDUSTRY 19
In 1927 they made profits of 35 and 25.4 and 36.9 percent on the
cruisers. That was too good to spoil by hard competition. In 1929
the Navy asked for bids on two cruisers. Not one of the "Big Three"
yards obUged. They bid on 1 each, and got 1 each. Their profits on
these were around 22 percent.
The record is the same in 1931.
(7) In 1933 two shipbuilders knew and wrote down lists of the low
bidders weeks in advance of the time the bids were opened. Mr.
Bardo was one of then. Mr. Wilder was another. Mr. Bardo admitted
discussing his desires for certain sliips only with liis two main com-
petitors.
(8) The fact that many bids are submitted does not mean that
there is real competition. It does not mean lower prices. In fact,
quite the contrary is true. When there is lots of work to go around
the charges go up. The shipbuilders know that the Government
has to have tlie ships, and they raise the prices. They admitted this
frankly.
Cruiser Awards — 1927
When cruiser building was resumed after the break-down of the
1927 Naval Disarmament Conference, only three big companies felt
in a position to bid. These three were: Newport News Shipbuilding
& Drydock Co., Bethlehem Shipbuilding Co., and New York Ship-
building Co.
On the first series of cruisers, the 26-31 class, for which awards
were granted in 1927, the following bids were submitted:
Each of 2
cruisers
Newport News Shipbuilding Co.
Bethlehem Shipbuilding Co
New York Shipbuilding Co
$10, 642, 000
10, 675, 000
10, 815, 000
$10, 480, 000
10, 540, 000
10, 708, 000
Newport was awarded U. S. S. Augusta and U. S. S. Houston.
Bethlehem was awarded U. S. S. Northamjpton, and New York Ship
was awarded U. S. S. Chester.
At the same time the navy yards were given two ships on the basis
of their estimates of the cost, U. S. S. Louisville, U. S. S. Chicago.
These navy yard estimates were lower than the bids of the private
yards.
The Puget Sound Yard was given U. S. S. Louisville on the basis of
an estimate of $8,599,250.
The Mare Island Yard was given U. S. S. Chicago on the basis of an
estimate of $7,782,785.^ _
The prices on the cruisers bid by the private yards in 1927, 1929,
1931, and 1 932, were later taken by the Navy as a fair base on which to
judge later price increases in later cruiser building (gallev 26 YD and
"32 YD, Apr. 10.)
It is, therefore, important to point out certain facts concerning these
1927 cruiser awards which, taken together, nullify the Navy's propo-
sition that the 1927 bidding was a fair basis on which to justify later
cruiser awards.
1 Owing to the fact that at the time of the preparation of this preliminary report the hearings had not
been printed, it was necessary to refer to the galley sheets rather than to the final printed pages. Dates
have been given so that the sources may be located later ,
20 MU]S^ITIONS INDUSTRY
(a) Some evidence of the fairness of the prices bid for these cruisers
is given by the profits made by the companies on them. Newport
News made $5,601,851 or 35 percent profit over cost on U. S. S,
Augusta and U. S. S. Houston (Feb. 14, galley 91 ZO) ; Bethlehem Ship
made $2,200,000 or 25.4 percent profit over cost on U. S. S. North-
ampton (Feb. 27, galley 26 QD). New York Ship made $2,946,706
or 36.7 percent profit over cost on U. S. S. Chester (Exhibit No.
1540, p. — ).
Due to changes made by the Navj^ after the awards were granted,
both the cost of tlie cruisers in the private yards and in the navy
yards ran over the original figures, including the changes.
The navy yards completed the ships for less than their estimates
excepting for those changes. The Puget Sound Yard was $1,084,267
under its estimate on U. S. S. Louisville. The Mare Ishmd Yard was
$182,389 under its estimate on U. S. S. Chicago.
Mr. Homer S. Ferguson, president of Newport News, said:
I was perfectly amazed that we made so much,
referring to the cruisers Houston and Augusta (Feb. 14, galley 92 ZO).
Nobody on this committee is more surprised that I am on the profit we made on
those ships. I would not believe it because we had not done that before * * *_
I think it is rotten business in addition to not being right, so that the amount of
profit was a surprise to me for fair.
Mr. S. Wiley Wakeman, manager of Bethlehem Shipbuilding, said:
We figured our profit would be $938,000. It actually turned out to be
$2,200,000 (galley 26 QD). We estimated we would make a" profit of 10.2 percent
and we actually made a profit of 25.4 percent — which surprised us very much,
because we expected we were going to be stuck on weight. (Feb. 27, galley 27 QD.)
These figures make it clear that in 1927, at the beginning of the
cruiser-building program which developed so rapidly and on such a
large scale in the following years, the bids of the Big Three ship-
building companies were not only calculated to give a very large
profit to the companies but actually did give such a large profit that
the use of those figures as a fair base by the Navy Dei)artmeut to
judge later bidding (Apr. 10, galleys 26 and 32 YD) was completely
unjustified, even leaving out of consideration the other aspects of the
bidding in that year.
These other aspects should, however, not be left out of considera-
tion for a proper understanding of later cruiser contracts.
Prior to the 1927 awards when only three cruisers were contem-
plated, Ferguson wrote ll\intiiigt<^n. Newport News owner, that he
was trying to get New York Ship and Bethlehem Ship to bid on only
one each (Feb. 14, galley 90 ZO, "Exhibit 1574").
Mr. Raushenbush. You would say it did not. Back in October 192fi, Mr.
Ferguson, you were writing a letter to Mr. Huntington — and I call your attention
to it — which I otfer for the record us "Exhibit No. 1574."
Mr. Raushenbush. In which letter you say:
"About the first of the year bid.s will be opened for 3 scout cruisers. I
think we ought to got 1 and believe wo will only bid on 1 if all of the big
builders will do the same."
Do you remember about that?
Mr. Fergusox. I remembered it when I saw it here. I had forgotten it until
you got these letters.
Mr. Raushenbush. Ls there not a supposition there that the idea of having
the big builders agree on putting in 'm'Is f(tr 1 ship or 2, or what have you, was
not preposterous?
MUNITIONS INDUSTRY 21
Mr. Ferguson. I did not, so far as I can remember, go any further with it.
There were 4 big builders at that time, and 1 other builder who was in position
to undertake the work; and we later, the 4 of us — and I may have been the repre-
sentative of the fifth — went to see the Secretary of the Navy in regard to the 3
cruisers. Whether we asked him to — I do not think we did, because we did not
get that far — I do not remember discussing it with anybody, but what actually
happened was that when 3 cruisers were contemplated, the bids called for 1
cruiser and 2.
In the meantime, before the bids were opened, the Cramps shipyard, which
had been operating for many years, building warships, got m financial difficulties,
and the Department asked for bids on 1 and 2 cruisers. That used to be written
in the law, but it has been more or less discretionary with the Navy Department
as to how man}^ ships they would like each person to build, each bidder.
The cruisers were later increased from 3 to 6, and the builders were asked to
bid on 1 or 2 cruisers.
Mr. Raushenbush. But at the time when you were writing only three were
under consideration, and you were making this suggestion:
I think we ought to get 1 and believe we will only bid on 1, if all of the
big builders will do the same.
Then the situation changed later, and 6 cruisers were allowed, and everybody
bid on 2, did they not?
(b) There was discussion among the Big Three prior to the 1927
awards which apparently involved certain of the factors jnaking up
prices (galley 20 AS, Wilder, Jan. 31).
The following testimony is in point, in the course of which Mr.
Laurence Wilder, who in 1927 was president of New York Ship, one
of the Big Three, corrected his testimony of the previous day, and
stated that there was an understanding concerning the 1927 cruisers.
Mr. Wilder. The second point was that some of my associates have pointed
out that in relation to the 1927 program, the new cruiser program, it was generally
understood that we were to get, that is, New York Ship was to get, a cruiser, a
new cruiser in consideration of taking over that Cramp job.
I would like to correct that testimony.
Mr. Raushenbush. Among whom was it generally understood, Mr. Wilder?
Mr. Wilder. One of my associates, who was in the yard at the time, said that
it was generally understood in the organization. I presume, although I do not
definitely recall it, among the shipbuilders and the Navy.
Mr. Raushenbush. One cannot have an understanding that the yard is to get
a cruiser ahead like that without also having an understanding among the other
two big yards as to price, can one?
Mr. Wilder. That would be true.
Mr. Raushenbush. You are speaking of the 1927 scout-cruiser program?
Mr. Wilder. Yes, sir.
Mr. Raushenbush. It was in that connection that Mr. Bardo was asked a series
of questions concerning the fixing with Bethlehem of the oil guarantees. A letter
from you to Mr. Bardo^ labeled "Exhibit No. 1464", was entered in the record, and
I ask you to look at that and see what you remember about it. [Handing paper
to witness.]
Mr. Wilder. That had to do with the oil-consumption rate of those cruisers.
Mr. Raushenbush. The oil-consumption rate was an important part of the
valuation?
Mr. Wilder. Yes, sir; there are very high penalties on that.
Mr. Raushenbush. And had an important part in the price situation, did it
not?
Mr. Wilder. In evaluating the bid; yes.
Mr. Raushenbush. The point I am trying to make, Mr. Wilder, and get a
check from you on. is this: That if in 1927, in connection with the bids on the scout
cruisers, when the bidding was comparatively low related to bidding later on, it
developed that those bids were arranged between you and Bethlehem and Newport
News, as they must have been, if you had the advance understanding that you
were going to get one of these cruisers; then the bids in the following years, v.'hich
show what New York Ship has brought out in earlier testimony, had an estimate of
about $700,000 lower than it had in the year 1927, that therefore the bidding in
22 MUNITIONS INDUSTRY
1929 must have been equally prearranged, or New York Ship would not have been
able to jump over its 1927 bid and still count on getting the ship.
Mr. Wilder. Yes, sir.
Mr. Raushenbtjsh. Do you follow that?
Mr. Wilder. Yes, sir.
Mr. Raushexbush. Do you agree with it?
Mr. Wilder. I agree with it.
There were numerous meetings of the " Big Three " before the 1927
awards (Jan. 24, galley 66 GP).
Mr. Raushenbush. Leaving that aside at the moment, it does seem to be
the case that in shipbuilding you were trying to get Newport News, Federal, and
Bethlehem, and not only trying to but did get them, to promise to go along on
certain bidding. You were not startled, were you, at this apparent agreement
on the part of the four big companies, or startled on your part on being asked to
be the fifth in that arrangement? It was not so unusual, was it, that you remem-
bered it at all?
Mr. Bardo. I do not think I was asked. I am trying to make it perfectly
plain to you that I do not think that letter reached me, if that letter was ever
written. That is the point I am trying to make clear to the committee.
Mr. Raushenbtjsh. This is the first time you ever saw this?
Mr. Bardo. This is the first time I ever saw that letter; j'es, sir.
Mr. Raushenbush. Now, Mr. Bardo, we want to go into the question of the
bidding further on the cruisers 26 to 31 class in 1927. Will j'ou recall for us any
meetings you had with other shipbuilders, the other members of the "big three"
group, about this bidding by date and place and time?
Mr. Bardo. I recall no conferences we ever had as to the question of bidding.
The invitations to bid on those ships specified a new requirement, and that is
that a very large part of the propelling and auxiliary machinery of that type of
ship was to be identical duplicates, which was the first time in the history of the
industry that that sort of a provision had ever appeared in the inquiries for ships.
That immediately rai.sed the question as to just how our engineering forces
could be organized in order that we might carry out the requirements of the in-
vitation to bid, or the requirements of the contract when it was finally executed.
We had a number of conferences about that. We had conferences with the
admirals in charge of the Bureau of Construction and Repair and of Engineer-
ing, and I think it was Admiral Buret in charge of the Construction and Repair,
and Admiral Halligan, in charge of Engineering. We had conferences with them
in order that we could find an accommodation point between the Navy and the
shipyards.
Senator Vandenberg. Whom do you mean by "we"?
Mr. Bardo. The shipyards.
Senator Vandenberg. All the shii)yards?
Mr. Bardo. The shipyards who were interested and who were capable of
building these two ships.
Senator Vandenberg. Is that just the three big ones?
Mr. Bardo. Just the three yards.
Senator Vandenberg. No conferences with Federal or Sun in this connection?
Mr. Bardo. No. Sun definitely was not interested in Navy business and
Federal at that time was not.
So that the obligation really rested upon the three yards to find a way in which
we could carry out these requirements.
Senator Vandenberg. When you speak of "we", you are speaking of the
three big yards?
Mr. Bakdo. I am speaking of the three big yards.
Mr. C. L. Bardo, then vice president of New York Ship also
testified (galley 70 GP, on Jan. 24) concerning such discussions.
Mr. Raxsuexbtsh. Docs even this brief di.'^cussion, Mr. Rurflc, bring to your
mind further discussions tluit took place lietween the other shiplniilders and this
company al)out these bids between the time they were prepared and tlie time they
were finally awarded?
Mr. Bardo. There may have been discussions, and probably were — I would
not say there were no discussions, because there probably were. Here was a new
field and neither Bethlehem nor Newport News had Iniilt any cruisers for a long
time, and we were new, and I was particularly new in the shipljuilding business.
MUNITIONS INDUSTRY
23
It is perfectly obvious that I would and did, no doubt, discuss with them a good
many phases about this thing, for the purpose of educating myself so that I might
more intelligently supervise the job I had to supervise, because I lost the benefit
of the vice presidents who were there, and who had been familiar, and I lost the
works manager, and I had a new organization practically from top to bottom, and
I was new at the business myself.
Specifically there was an agreement on oil guaranties between New
York Sliip and Bethlehem. These are an important factor when the
bids come before the Navy for an evaluation. A bid price which is
lower than others, but which is based on a ship constructed to use
more oil per knot of speed, would be evaluated to have the increased
cost of the oil offset the price advantage.
The following letters indicate that agreement ("Exhibit Nos. 1464
and 1465"):
Exhibit No. 1464
[Interoffice correspondence]
American Brown Boveri Electric Corporation,
New York, N. Y., Apiil 21, 1927.
To: Mr. C. L. Bardo.
From: Mr. L. R. Wilder.
I had a very interesting discussion with Mr. Grace this afternoon, although
very difhcult to begin with.
Wylie, I think, is guilty of having put us in rather a nasty and untenable position
with Mr. Grace as regards the outcome of our understanding at a meeting which
I attended some time ago. I wish you would send back to me the chart which I
gave you on cross-section paper, as well as the details, particularly as to oil
consumption guaranties, which were finally presented by all three of us. I am
afraid when you talked to Wylie you were not well informed, as he has used what
you said, i. e., that you had made a mistake and that you had correspondingly
raised the price, as a serious argument not onl}^ against you but against the good
faith of this company. The center-field figure for oil consumption at cruising
speed was to have been within plus or minus 1 percent of 494. From report of
your telephone conversation from Washington of April 5 I understand the fig-
ures submitted by the center field was 475 instead of this 494. If these facts are
correct, you should have attacked rather than been on the defensive.
I want to go over this matter with Mr. Grace and should, therefore, appreciate
full detail.
L. R. Wilder.
LRW/HWS
Exhibit No. 1465
April 22, 1927.
Scout cruisers.
Mr. L. R. Wilder.
Mr. C. L. Bardo.
■ Your confidential memorandum from New York:
The oil guarantees as submitted in the bids for the three companies were as
follows:
Estimate X-2040, Scout Cruisers Nos. 26-31.
Guaranteed fuel consumptions, lbs. per knot, submitted by bidders:
Trial
ABBEC
Beth.
Newport
News
b .
3,015
1,836
1,095
643
449
3,133
1,950
1,117
726
475
3,113
c _. . . __ ...
1,859
d
1,150
e .
756
f
486
24 MUNITIONS INDUSTRY
You are correct regarding the cruising radius guarantee of 494 as discussed in
our meeting in New York. This was later changed by a conversation which I
had with Mr. Wakeman, to 475. There were one of two other changes in the
upper parts of the scale.
The guarantee as submitted by Newport News was above the guarantee
specified by the Department's general board and it was my understanding that
the guarantees in the new contract with the News will be modified downward.
As a matter of fact, the guarantees as submitted by the three companies in
their proposal for these new cruisers has had no bearing whatever on the decision
of the Department in making the award, since the Navy Yards were without
information as to the matter of guarantees the Department could not evaluate
price and guarantees. The award of the cruisers has therefore been made first, as
a matter of price to Newport News and to Bethlehem for one ship, and the award
to us, in my opinion, has been made in order that all of the yards might have some
support in this cruiser-building program and that their organizations might be
kept together for the benefit of future Navy work.
There was no disposition on our part to take any advantage. As a matter of
fact, upon a basis of evaluation, Bethlehem and ourselves were on a par as between
one and two ships insofar as evaluated value applied.
C. L. B.\RDO.
Mr. Bardo admitted that the alleged change in the oil guarantee
arrangement on the 1927 cruisers, made before the bids, involved
more than Bethlehem. \\Tien he was asked about the challenge to
the "good faith" of the New York Sliip Co. he stated it was raised
as against the other two companies (Jan. 24, galley 68 GP).
Mr. Ratjshenbush. Let us see whether you cannot remember something aliout
this, please, Mr. Bardo [continuing reading]:
I wish you would send back to mc the chart which 1 gave you on cross-
section paper, as well as the details, ])articu]arly as to oil-consumption
guaranties, which were finally presented by all three of us.
Mr. Bardo. Yes, sir.
Mr. Raushenbush. There was certainly some discussion about oil-consump-
tion guaranties, was there not?
Mr. Bardo. Yes, sir.
Mr. Ratjshenbush. Which is a largu part of the bidding, because the evalua-
tiu I of the bids goes up or down according to the oil guarantees, does it not?
Mr. Bardo. That is right.
Mr. Raushenbxjsh [continuing reading]:
I am afraid when you talked to Wylie —
Mr. Wakeman —
You were not well informed, as he has used what you said, i. e., that you
had made a mistake and that you had correspondingly raised the price, as
a serious argument not only against you but against the good faith of this
company.
Meaning the good faith of this company as against the other two companies?
Mr. Bardo. That is right.
Mr. Raushenbush [continuing reading]:
The center field figure for oil consum])tion at cruising speed was to have
been within plus or minus 1 percent of 494.
By "center field" may we take it that is the middle bid?
Mr. Bardo. The oil consumjjtion runs frcmi 10 knots, 15, 18, 20, 24. and up to
the top s})eed of the shij), ai'd there are a numtier of spots on the chart which
run throu^:;h the list.
Mr. RAiisHKNBtsii. It tL;r:ied (>ut latrr, did it not. that Bethlehem was the
middle bidder, Xewjjort News was the low bidder, so that Bethlelieni was the
middle or center field, and you were high?
Mr. Bardo. I do not recall the details.
Mr. Raushenbvsh. 1 will read off these figures which we put ii\ the record
yesterdav:
Newport News bid $10,642,000, Bethlehem bid $10,675,000, and vour bid was
$10,815,000 for one ship.
MUNITIONS INDUSTRY
25
The oil guaranties were important, for later when the Comptroller
General questioned the award of a cruiser (U. S. S. Chester) New
York Ship, which was the highest bidder, on the ground that Bethle-
hem was a lower bidder, the lower oil guaranties of New York Ship
were shown to have resulted in a valuation by the Navy which made
the award to New York Ship proper (exhibits 1468 and 1469).
The evaluated bids and the awards were as follows:
One cruiser
Evaluated
One of two
cruisers
Evaluated
Newport News.
Bethlehem
New York Ship
$10, 642, 000
2 10, 675. 000
» 10, 815, 000
1 $10, 480, 000
10, 540, 000
10, 708, 000
' Awarded two.
' Awarded one.
At the time of the awards, Mr. Bardo wrote Mr. Wilder (exhibit
1465):
The award of the cruisers has, therefore, been made, first, as a matter of price,
to Nevvport News, and to Bethlehem for one ship, and the award to us, in my
opinion, has been made in order that all of the yards might have some support
in this cruiser-building program and that their organizations might be kept
together for the benefit of future Navy work.
This thought, that price had little to do with the award to New
York Ship, was continued in the Comptroller General's protest. It
was directed to Betlilehem's bid of $10,540,000 for each of two. If
that bid had been accepted, the two cruisers (NorthamjJton and
Chester) would have cost $21,080,000 instead of $21,490,000, as indi-
cated on the face of the award of one to Betlilehem plus one to New
York Ship at the liigher price, a difference of $410,000. Actually the
Navy induced Nev/ York Ship to cut its price on the Chester from
$10,815,000, as bid, to $10,675,000. Furthermore, Bethlehem, on the
basis of its estimates, could have reduced its bid on two ships con-
siderably below $21,080,000, as is revealed by Wakeman's testimony.
(This is discussed in detail on p. 13 of this section.)
Mr. Raushenbtjsh. We had a situation with regard to the 1927 bidding on
cruisers that we talked about at various times. We have had testimony of
certain witnesses here about conversations on fairly important things, and in the
course of some correspondence Mr. Wilder referred to having talked with you
about that bidding. What can you tell us about that?
Mr. Grace. I remember the memorandum, I think, which you have in front
of you, and where Mr. Wilder speaks of a conference which he had with me, and
where I called him down for some kinds of engineering feature with respect to oil
consumption which was in his bidding; I cannot recall such a discussion with
Mr. Wilder. It may have taken place. I do recall Mr. Wakeman telling me,
after the results of the opening of those bids there, what he regarded a ridiculous
representation made by the New York Shipbuilding Co. for oil performance,
and if I had that in mind when Mr. Wilder came in to see me I very likely did
just what he said.
Mr. Raushenbush. What was the idea of talking over oil guaranties together?
Mr. Grace. I do not know anything about it. I do not know that they did.
I know Mr. Wakeman just told me — and I recall it just hazily — that New York
Ship has made a representation in an engineering feature of the ship with respect
to oil consumption which in his judgment was rediculous of obtaining. That is
all I know.
Mr. Raushenbush. It seems to be a good deal more than that in some cases.
There was apparently a left-, right-, and center-field arrangement on that.
26 MUNITIOiSrS INDUSTKY
Mr. Grace. I know that was referred to in that memorandum. I have no>
idea what Mr. Wilder was referring to there.
Mr. Raushenbush. Which turned up in the bidding, and since the oil guar-
anties are part of the evaluation and an important part of the final price, I want
to know about them.
Mr. Grace. He does not associate me, apparently, with the knowledge of
what he means. Although I was an old baseball player, I do not know what he
refers to there. I have no idea.
Mr. Raushenbush. Your best memory of your conversation with Mr. Wilder
is what? Did it have to do with these oil guaranties or not?
Mr. Grace. If what Mr. Wilder said took place with us in that conference —
and I am not denying that it may have taken place — I simply told him of the
instance that Mr. Wakeman had informed me of, that their company had put in a
ridiculous oil performance in their bid. That is all. That is the only part that
I could possibly have played in that, because that is all I could have known about
it, and I am basing that upon what I casually remember Mr. Wakeman told me
of the incident; and I may have said just what Mr. Wilder said, I called him down
for it, or referred to it with him and not called him down.
As I recall it at the moment, the purpose of Mr. Wilder's visit to me there, if
you want to know what I recollect, was that the discussion which took place was
for Mr. Wilder's seeking patronage from our companj^ on new lines of business,
which they were going into, electrical machinery and mechanical blowers and
that sort of thing.
Mr. Raushenbush. As far as jour memory goes, that is all on this oil-guaranty
business?
Mr. Grace. Absolutely. Mr. Wakeman can go into that in his examination,
and whatever he had in mind when he told me of it, and he will have to tell you
of that himself; but that is all that I had in mind.
Newport News admitted discussions about the oil guaranties on
these cruisers, wliich turned out to be the determining factor when the
Comptroller General questioned the awards. (Ferguson, Feb. 14, gal-
ley 90 ZO).
The president of the company wrote before the opening of the bids
(galley 90 ZO, exhibit 1574).
About the first of the year bids will be opened for three scout cruisers. I think
we ought to get one and believe we will only bid on one if all of the big builders will
do the same.
After the bids were in, Newport News secured the summaries of the
estimates used by New York Ship on these cruisers (galley 91 ZO).
(c) At about this time the Cramp Ship Co. (Philadelphia) de-
faulted on its contract for the cruiser Salt Lake City, and machinery
for the cruiser Pensacola, and New York Shipbuilding Co. took over
the contract. In reply to questioning on the relationship between
New York Ship's taking over that contract and securing an award
for one of the 1927 cruisers, Mr. Wilder stated (9 AS. Jan. 31, Wilder):
Mr. Wilder. The keel had been laid for the cruiser, but she was. done, if I
remember — do not hold me to that, because it is just a rough guess — she was
6 to 9 months late.
I told Mr. Wakeman and Mr. Ferguson that if they defaulted I was prepared
to take that contract over at the Navy's contract price with Cramp.
Senator Clark. You mean you told the Bethlehem and Newport News
executives that, on behalf of the New York Shipbuilding Co., that you proposed
to take over this cruiser?
Mr. Wilder. From Cramp, if Cramp defaulted, at the Navy contract price^
less the amounts paid by the Navy toward the construction. I would probably
get something out of the bondsman, because it is costly to pick up the keel and
move it across the river.
In addition to giving this information to possible competitors, it
is clear that New York Ship did its best to make its taking over of
the Cramp contract contingent upon receiving from the Navy the
award of one of the 1927 scout cruisers.
MUNITIONS INDUSTRY 27
Mr. C. L. Bardo, then vice president of New York Ship, later
president, testified on January 24 (galley 67 GP):
Mr. Ratjshenbush. And you had practically, or were in the process of mak-
ing a bargain with the Navy that you would not take that Cramp cruiser unless
they gave you one of the new scout cruisers. Is not that true?
Mr. Bardo. I would not go as far as that, because there was not such an
understanding. The Navy were very greatly embarrassed by reason of the
Cramp default. It was the first cruiser under their new program, and, as I
recall it, neither Newport News nor Bethlehem would take over the contract.
Finally, it rested in the discussion with us.
We finally reached a conclusion with the Cramp Co. and their sureties as to a
basis upon which we could undertake the job.
I transmitted that to Secretary Wilbur, and he was very much pleased to
know that the thing would be taken over and would be carried on and the De-
partment would not be embarrassed by reason of this default.
I do not have any hesitancy in saying that I think that did have a very sud-
den effect, possibly, on the decision of the Department in the awarding of these
contracts which came along, in awarding to us one of those, although I do not
now recall what the relation to price was, that is, as between ourselves and the
other yards. I do not recall that.
The last paragraph seems clearly to admit that there was an inti-
mate connection between the agreement of the New York Sliip to
take over the contract on the Salt Lake City and the Navy's desire
to give it one of the 1927 cruisers, the Chester.
Such a desire could not have been carried out without the coopera-
tion of at least one other private yard in addition to New York Ship.
The company addressed the following wire to Secretary of the
Treasury Mellon (exhibit 1454):
Exhibit No. 1454
[Outgoing telegram]
American Brown Boveri Electric Corporation,
Camden, N. J., April 15, 1927.
To: A. W. Mellon,
Secretary of the Treasury,
Washington, D. C.
(Copy to 18 St. & Massachusetts Ave., Washington.)
On April fifth we submitted bid for two scout cruisers out of six to be con-
structed; the understanding was that this construction would be done by three
remaining private yards. Acting in good faith and on this assumption we ex-
pended large sums of money in preparation for this work. Very unexpectedly
the Department announced after opening bids that Mare Island and Puget Sound
Navy Yards had submitted estimate for one each of these cruisers. These esti-
mates are much below their actual cost. Navy engineering bureau admits neither
navy yard or Navy Department are now or ever were equipped or manned to
engineer these jobs for themselves but must depend entirely on engineering skill
of the private yards. Chairman Butler vigorously protested as did others with-
out avail. Today Department announced awards giving two cruisers to Pacific
coast navy yards and only one to Bethlehem and ourselves. As you know all
private yards for last four years show an operating loss and we will continue
such loss with but one cruiser contract awarded us. The navy yards have more
than sufficient repair and rebuilding work to keep their forces fully occupied. It
is very poor policy for our Government thus to discourage private yards which
admittedly are an indispensable asset to our national security at the time of
greatest need. The recent default of Cramps and the elimination of their engi-
neering talent from shipbuilding is a clear indicant of what we remaining ship-
builders will be forced to do if the Navy Department does not support us at this
time.
New York Shipbldg. Corp.,
By Secretary.
28 MUNITIONS INDUSTRY
In questioning on this "understanding" no satisfactory explanation
of the building up of the yard in advance of the award was secured
from the company officials (galley 75 GP, Jan. 24).
Senator Clark. There was an understanding, to which you referred in your
telegram, Mr. Bardo.
Mr. Bardo. That was not to my understanding.
The Chairman. What was the understanding to which you referred?
Mr. Bardo. It was not to that understanding, and I want to be sure of it.
Senator Clark. What was the kind of understanding to which you were appeal-
ing to Secretary Mellon to make the Navy Department refrain from giving the
awards to the navy j^ards?
Mr. Bardo. I think that may have had its genesis more or less in the fact
that the private yards had gone on their standardization of engineering in the
organization of the Marine Engineering Corporation, and that on the things
which we had done were entitled to get this work.
Senator Clark. You say here:
A. W. Mellon, Secretary of the Treasury, Washington, D. C. (copy to
Eighteenth Street and Massachusetts Avenue, Washington).
On April 5 we submitted bid for 2 scout cruisers out of 6 to be constructed
the understanding was that this construction would be done by three
remaining private yards.
With whom did you have the understanding?
Mr. Bardo. If there was an understanding — and that may have been the
unfortunate use of language
Senator Clark. I would say so, Mr. Bardo.
Mr. Bardo. I only want to clear up the point that you arc trying to put
something into their hands or into the Navy here, that would be unfortunate
because I do not want that impression to prevail.
Senator Clark. What impression do you intend to create on Secretary
Mellon's mind by saying that the understanding was that this construction would
be done by the three remaining yards?
Mr. Bardo. Because 1 think, that is probably an unfortunate use of certain
language. I want to make clear that the Navy had notliing to do \\ith it, so far
as I am concerned.
Senator Clark. You did have an understanding?
Mr. Bardo. I do not know just what that particular language means.
Senator Clark. You go on and say:
Acting in good faith and on this assumption we expended large sums of
money in preparation for this work.
You must have relied on that understanding or you wouUl not have spent large
sums of money.
Mr. Bardo. We had to rehabilitate the yard, as it had gone dovni since that
timfe.
Senator Clark. You certainly must have known with whom the understanding
was or you would not have spent the money.
Mr. Bardo. I want to make sure it was not with the Navy Department on
the Cramp cruiser.
Senator Clark. With whom was it?
Mr. Bardo. I cannot say whom it was with.
Senator Clark. You were not in the habit of spending large sums of money
on understandings when you did not know with whom the understanding was,
were you?
Mr. Bardo. I will grant that is true, Senator. It is something that I do not
want to misinterpret.
The Chairman'. If the understanding was not with the Navv Department, was
it with Mr. Mellon?
Mr. Bardo. No; I never talked to Mr. Mellon — I say I never did; I did just
meet him once, incidentally.
The Chairman. Did Mr. Mellon reply to your telegram at all?
Mr. Bardo. I do not think he did.
Senator Clark. Did ynw uiidorst;ind he had control over the Navy Depart-
ment?
Mr. Bardo. No.
MUNITIONS INDUSTRY
29
Mr. Raushenbush. But you did receive one cruiser, and the other two yards
did not bid on the Cramp cruiser. You got the one scout cruiser, although you
were high and the other two yards did not bid on the Cramp cruiser.
Mr. Bardo. That is true. The record is clear, but I have no apologies to
make on that.
The suggestion of Mr. Bardo's that the work done by the three big
yards in combining on the Marine Engineering Corporation might
have "entitled" New York Ship to one of the cruisers is extremely
interesting,
(The matter of the Marine Engineering Corporation is covered in
sec. V on design.)
Neither Newport News nor Bethlehem put in a bid to take over
the Cramp job in 1927, which confirms the evidence that New York
Ship had arranged with Navy to take over this work (Jan. 24, gal-
ley 68 GP).
Mr. Raushenbush. Anyhow, you were the only bidder on this Cramp con-
tract, were you not?
Mr. Bardo. I think that wants to be cleared up.
Mr. Raushenbush. All right.
Mr. Bardo. After we had made this agreement with the Cramp Co., which
was approved by the Secretary of the Navy, it then became apparent, from a
decision, I think, of the Judge Advocate General, that that contract could not
be transferred and that, therefore, it would necessarily have to be rebid.
He said:
In view of that, I shall have to ask for bids on this ship over.
And he asked for bids, and with a very short period, and we bid essentially
the amount that we had agreed with him and with Cramps.
(d) The question of whether these bids were as low as possible for
honest forthright competition has been treated in. part of the above
section on the profits made on these ships.
There was some questioning of witnesses on this point.
It was developed further that Bethlehem had not been trying hard
to get the award for two cruisers, although its yard could easily have
taken them at the time. The Bethlehem Shipbuilding Co. estimates
showed this (galley, 21 QD, Feb. 27).
Estimate
1 cruiser
Estimate
each of 2
Diflerence
Bethlehem Shipbuilding Co
Newport News Shipbuilding Co,
New York Shipbuilding Co
$7, 492, 800
7, 585, 000
7, 950, 180
$7, 097, 200
7, 220, 000
None
$395, 600
365, 000
Bethlehem's estimates for labor and material for building two
cruisers were actually lower than Newport's estimates, by $122,800
per cruiser, or $245,600 for the two cruisers. They were $395,600 per
cruiser lower than their estimates for one cruiser, or a saving of
$791,200 on the two. Yet instead of making a real reduction in
price to the Government, Bethlehem lowered its bid for each of two,
below its bid for a single one, by only $135,000. If it had lowered
its bid by only a little more it could have secured the award for both
ships. It did not choose to do so.
139387—35-
30 MUNITIONS INDUSTRY
Mr. Wakeman, vice president of Bethlehem Ship, testified (Feb. 27,
gaUey 22 QD):
Mr. Raushenbush. Your evidence is, Mr. Wakeman, that you dropped less,
let us say, than Newport on the bid for two, because you were really concentrating
on the bid for one. Is not that a fair supimary?
Mr. Wakeman. That is the truth; yes, sir.
Again (galley 24 QD) Feb. 27, he testified. (Mr. Raushenbush,
continuing:)
Mr. Raushenbush. * * * j want to get back, Mr. Chairman, to the
question of the expectation of Bethlehem getting one cruiser in 1927. Will you
tell us once more what the status of your yard was? You said a ferry and oil
barge, car floats, and the Lexington?
Mr. Wakeman. Yes.
Mr. Raushenbush. Is that aU that you had in the yard?
Mr. Wakeman. That is all we had in the yard.
Mr. Raushenbush. And yet, with only that, there were several ways for
cruisers, but you only really counted on, and bid on, one?
Mr. Wakeman. No; we bid on one and bid on two.
Mr. Raushenbush. Yes; but you only counted on one?
Mr. Wakeman. We bid on one and then we bid on two. Your point is that
we did not make enough drop to reflect the second one?
Mr. Raushenbush. You did not try for the second one very hard.
Mr. Wakeman. No.
At this time when Bethlehem was not trying hard for a second
cruiser, it had in its yards the conversion job on the Lexington. New
York Ship, which had not even prepared an estimate on two cruisers
expected to secure for its yard at the time the defaulted contract on
the Salt Lake City, and did receive it. Newport News had no naval
work. The bidding and the consequent award of two cruisers to
Newport News and one each to the other two big yards evened up the
situation somewhat.
Bethlehem made plant extensions before the 1927 awards indicating
a prior loiowledge that it would receive a contract. These plant
extensions amounted to $115,000 in a period of 6 months before the
awards (Feb. 27, galleys 24 and 25 QD).
The fight of the so-called Big Three against navy yards is covered
in section IV — B.
It was the opinion of Mr. Metten, at the time head of the Marine
Engineering Corporation that in 1927 only the "big three" yards
could have built the cruisers awarded them.
Senator Vandenberg. I would like to get this clear in my mind. That is in
1927. Were there any other shipbuilders in the country competent to build
these ships besides the big three?
Mr. Metten. They would have had to put in considerable additional equip-
ment. I think that those three were perhaps the only ones who could have
undertaken the work without modifying the plan.
Mr. Raushenbush. You say that neither Federal nor United could have built
a cruiser in that year?
Mr. Metten. I do not think so.
MUNITIONS INDUSTRY 31
CONCLUSION — 1927 BIDDING
The committee find that there is enough evidence of prearrange-
ment to the cruiser bidding in 1927 to justify a statement that it was
collusively arrived at by at least two of the three bidders. No arrange-
ment to give New York Ship one cruiser could have been carried out
without the connivance of at least one other company on price.
The Navy was not necessarily a party to this collusion, although
New York Ship officials definitely had an impression that there was a
clear understanding in advance on the part of the Navy that it would
give New York Ship one of the 1927 cruisers as part of the bargain
by which New York Ship took over the defaulted contract on the
Salt Lake City.
The collusion, whenever it exists, consists of an arrangement before
the bids are submitted by which certain companies are low for one or
two ships and other companies are high, in accordance with a possible
rotation of awards worked out by them ahead of time. This leaves
the Navy, which may or may not have been aware of this situation,
in the position where it can point to the fact that it has always given
the award to the low bidder, and is therefore blameless for the con-
tinuance of the situation.
The committee finds further that the prearrangement in the 1927
bidding was such, and the profits on the 1927 cruisers were such as to
completely nullify the awards of those years as a basis for justification
of the awards of later years.
Denials by the company officials of any arrangements about the
1927 bidding were extended generally to the bidding in other years
and should be given the same weight throughout.
Cruiser Awards — 1929
In 1929 the Navy let awards for the cruiser Portland to Bethlehem
Ship at $10,753,000, for the cruiser Indianapolis to New York Ship at
$10,903,000.
To the New York Navy Yard it awarded cruiser New Orleans on an
estimate of $10,159,467. To the Puget Sound Navy Yard it awarded
the cruiser Astoria on an estimate of $9,046,055, to the Philadelphia
Navy Yard it awarded the cruiser Minneapolis on an estimate of
$10,851,925.
The combined 1927 and 1929 awards gave each of the "Big Three"
yards two cruisers.
There are certain circumstances surrounding the bidding on these
cruisers which bear out the evidence of prearrangement existing in
1927 and warrant the same characterization applied to the bidding in
that year.
(a) The record shows that the three big yards had effected a joint
arrangement for the successful promotion of merchant marine subsidies
during 1928. During that year and into part of 1929 they jointly
retained the services of their Geneva lobbyist in this country. They
were still working together in the Marine Engineering Corporation,
jointly owned by all three of them. They had the same financial
interests in opposing the extension of navy-yard work, and expressed
those interests to Congress. In these matters there was no competi-
tion. They were acting as a unified industry rather than as separate
competitors.
In addition, whatever prearrangement there was in the 1927 bidding
was working out to a very handsome profit for them all on the 1927
ships, and by 1929 this nmst have been clear to them. No criticism
by the Navy had been made of the prices charged by the three yards
on the 1927 cruisers, although by 1929 the Navy must also have
Imown that the navy yards were building their ships at costs even
below their estimates, which estimates had been lower than the bids
of the Big Three by considerable sums.
(6) In its call for bids on the 1929 cruiser program the Navy asked
each company to bid on one and two cruisers (exhibit 1575). Not one
of the Big Three comi)anies accepted that invitation. Each bid
on only one cruiser. The committee finds it difficult to characterize
such unanimity of action either as that consistent with hard-hitting
competition or calculated to give the Government the benefit of the
lowest price possible. It points oiit that it is much cheaper to build
each of two ships in one yard than a single ship by amounts ranging
into hundreds of thousands of dollars. Failure of the three com-
panies to bid on each of two cruisers deprived the Government of
such savings.
32
MUNITIONS INDUSTRY 33
Mr. Ferguson, president of Newport News, stated (galley 95 ZO,
Feb. 14):
We were not in a position at that time to undertake 2 cruisers and we were
hardly in a position to undertake i. * * * wfQ had only one way at that
time which was available for cruisers.
He was asked:
But you did not expect to get the work?
He replied:
I did not * * *^
New York Ship was also asked about this matter. The following
testimony was given on January 24 (galley 74 GP) :
Mr. Raushenbush. The 1929 bidding, in which you were able to jump $1,000,-
000 over your 1927 estimate, had this peculiar characteristic further about it,
did it not, Mr. Bardo, that although the Navy had requested the shipbuilders
to bid on one and two ships, they actually none of them did so? They only bid
on one.
Mr. Bardo. Now, that may be. I would have to go back and refresh my
memory a little as to that. I think it was in 1929 I had made a firm contract
with the Dawson people to build five ships for them, contingent upon their being
able to do certain financing, and I gave them, as I recall it — the contract was
made possibly in April or May — and I gave them until August or it may have
been later — I extended it once I know — to exercise their option on that building
space. My recollection is that with that over our head, I could not afford to
compete on more than one Navy ship, if I had the contract, if I had a firm con-
tract to build five ships with relatively short deliveries.
Mr. Raushenbush. And then the Manhattan and Washington were also coming
along?
Mr. Bardo. If they were not awarded until 1930, they were under discussion,
but I do not think they had gotten to any point where they were reasonably
imminent.
Mr. Raushenbush. You testified a little while ago that you were expecting
a very lowered overhead on that. Actually, by the way, I see, Mr. Bardo, in
1929, that you were expecting a lower overhead and the addition is a 52-percent
increase over your estimate, where the addition for profit and overhead in 1927
is only 35 percent.
So that if you were expecting a decreased overhead, that excess which you
were adding on to your 1929 bid leads to this question, Mr. Bardo, How could
you have ventured to have added on that much unless you had had some conversa-
tions with Bethlehem and Newport News as to what they were going to bid?
Mr. Bardo. I want to make sure that we had no conversation with the Newport
News or the Bethlehem as to what they were going to bid, and I want to make
equally sure that they did not know what I was going to bid.
I want the record perfectly clear on that. As to that particular question,^ I
could rather expect the situation was just the reverse from what you say it is,
and that is that the outlook in 1929 for new business was very light, and that is
one reason why we got the larger percentage of overhead applying to that par-
ticular business.
Mr. Raushenbush. It is contrary to what you said a little while ago, that you
expected a lowered overhead on account of coming business. I said
Mr. Bardo. I said we may have expected it. I would have to go back. My
recollection is not keen enough to remember what particular things we discussed
when giving that price.
34 MUNITIONS INDUSTRY
Bethlehem Ship was also asked about its reason for not bidding on
more than one cruiser. The following reply was made on February
27 (galley 31 QD):
The Chairman. Attention ought to be called to the testimony of Mr. Ferguson,
recorded when he was under oath before the committee a week or two ago. It
reads as follows:
Mr. Raushenbush. But, did you not expect to get the work?
Mr. Ferguson. I did not. If we had gotten it, we would have been very
glad. We put in a bid usually in these cases so that if we do not get it, we do
not mind it, and if we do get it, we are not overly elated.
Mr. Raushenbush. You spoke of it as a complimentary bid?
Mr. Ferguson. No; I said, "protective bid."
Mr. Wakeman, you did not know that Newport's practical withdrawal from
the field by a bid of $11,130,000 would leave the field free for New York Ship and
Bethlehem to take one cruiser each?
Mr. Wakeman. I did not; no, sir.
The Chairman. You had no reason to believe that there would not be a case
of the three companies bidding intently with the purpose of getting the contract?
Mr. Wakeman. No, sir; I did not.
The Chairman. The second question that arises, Mr. Wakeman, is as to how it
happened that none of the Big Three bid on more than one cruiser in that year,
although the Navy had called for bids for two. Could you not have used a second
contract in 1929?
Mr. Wakeman. No, sir; we did not have the ways. We had a merchant pro-
gram which brought our productive force up here to 4,700 people. Our designing
departments were jammed up chock-a-block full. We could not have built an-
other cruiser, within the time, and carried out our obligations to our merchant
contracts. There was a tremendous amount of bidding going on at that time in
the commercial vessels.
Mr. Raushenbush. Mr. Wakeman, this morning in explaining the bidding on
two cruisers, you pointed to that dropping line of productive force in the spring
of 1927, and said that in spite of that you were not particularly anxious to get
two cruisers then, as I took it. Now you are pointing to an ascending line.
Mr. Wakeman. It is an entirely different situation.
Mr. Raushenbush. Would you explain that?
Mr. Wakeman. In the first case, with the Northampton, it was a treaty cruiser.
There were conditions there that we had not had before in design of hull and
machinery, which we never had met before. We were going into something that
we did not know but very little about. It was the first of the 10,000-ton cruisers.
Mr. Raushenbush. Would you look for us there at the beginning of the sum-
mer of 1929, when you were bidding on the Portland, what ships you had on the
ways, what merchant ships you had contracts for?
Mr. Wakeman. It was not so much a question of what was on the ways as it
was the question of the obligations that we had in our design department. We
were absolutely limited in our engineering and technical forces.
Mr. Raushenbush. Doing what sort of work?
Mr. Wakeman. Designing merchant work. We had the two Matson con-
tracts.
Mr. Raushenbush. That is what I want to get at.
Mr. Wakeman. I think wc were in a position — I am not just sure what the
rest of the work was, but we eot some United Fruit boats. We had Borinquen
for tlie Puerto Rican Steamship Co. And we had two tankers for Sinclair.
Our design department was just chock-a-block with work. We could not take
any more work.
Mr. Raushenbush. Your ways were so crowded that
Mr. Wakeman. Our ways were not crowded at that time, but they were go-
ing to be crowded so that we could not put a second cruiser in our yard and get
it out within tl;e contract time.
(c) The actual bidding in 1929 had little relationship with the
estimates of the companies for labor and material as compared with
their estimates and bidding for 1927.
The following table, compiled from the companies' records and
entered into the committee record on February' 14 (galley 93 ZO),
MUNITIONS INDUSTRY
35
shows the estimates and bids for the two years and the differences
tween them:
1927 estimates and bids
1927 estimate 1929 estimate 1927 bid
1929 bid
Newport:
(D-
(2)
Bethlehem:
(1)
(2)
New York Ship:
(1)
(2)
$7, 585, 000
7, 220, 000
7, 492, 800
7, 097, 200
7, 950, 180
None
$7, 995, 000
7, 590, 000
7, 495, 000
7, 124, 570
7, 173, 000
None
$10, 642, 000
10, 480, 000
10, 675, 000
10, 540, 000
10, 815, 000
10, 708, 000
$11,130,000
None
10,753,000
None
10, 903, 000
None
DIFFERENCES
Newport:
(1)
(2)
Bethlehem:
(1)
(2)
New York:
(1)
(2)
+$410, 000
+630, 000
+2,875
+27, 370
+777, 180
None
+$488, 000
+78,000
+88, 000
Awards: 1927— Newport, 2; Bethlehem, 1; New York Ship, 1.
total— Newport, 2; Bethlehem, 2; New York Ship, 2.
1929— Bethlehem, 1; New York Ship, 1;
The Newport News bid was $488,000 higher for a single cruiser in
1929 than it was in 1927. The company officials contended that this
was because it was a different cruiser than was built in 1927 and more
expensive. Yet this table shows that Bethlehem thought the 1929
cruiser would cost only $2,875 more than the 1927 cruiser, and New
York Ship thought it would cost $777,180 less. _
The question was raised whether such an increase by Newport
News over its bid in 1927 did not result in protecting the bids of the
other two companies. The following testimony was given on Feb-
ruary 14 (galleys 95 ZO and 96 ZO):
Mr. Raushenbush. What I was interested in, Mr. Ferguson, was your state-
ment that you were hardly in a position to take one. That is exactly what you
have been saying, is it not?
Mr. Ferguson. We felt in dealing, and always do, with an old customer, whether
the Navy or other people, that being in the business, that it is our job to give
them a bid, and as we make our living off of the customer, the so-called "pro-
tective bid " which we give is a bid that protects the customer. People frequently
get prices when they have no idea of placing the work.
The point I wish to make is that this bid in 1929, and every other bid we have
ever placed with the Navy Department, was a bid that under the circumstances
it would be justified in accepting.
Mr. Raushenbush. But you did not expect to get the work?
Mr. Ferguson. I did not. If we had gotten it, we would have been very
glad. We put in a bid usually in those cases so that if we do not get it we do not
mind it, and if we do get it we are not overly elated.
Mr. Raushenbush. You spoke of it as a complimentary bid.
Mr. Ferguson. No; I said "a protective bid."
Mr. Raushenbush. A protective bid. I am sorry. You spoke of it as a,
protective bid and made, it seemed to me, the rather amazing statement that it
protected the customer. It protected the other competitors, did it not?
Mr. Ferguson. I beg your pardon?
Mr. Raushenbush. It protected the other competitors, did it not?
Mr. Ferguson. It had nothing to do with the protection of other competitors.
They mean nothing to me. They do not pay us any money. I have spent my
life fighting them.
86 MUK"ITIOISrS INBUSTEY
The man who is entitled to protection in dealing with a responsible contractor is
the man who has the money to pay for the job, and he is the man I am thinking of.
Of course we do not get all the bids. We have estimated on how many ships?
[Conferring with associates.] We get about 1 job out of 15 which we estimate on.
Senator Vandenberg. Mr. Ferguson, when you put in a bid on a contract
which you do not expect to get, does not that statement of the matter indicate
that your bid was higher than it would be if you did expect to get it?
Mr. Ferguson. This bid was on a low basis.
Senator Vandenberg. That is not the question. I am asking abstractly.
Mr. Ferguson. Abstractly; if you want work, you bid lower, and if you are not
so anxious for it you bid higher, certainly.
Senator Vandenberg. All right. When you bid on a job which you do not
expect to get, it is higher than the situation would warrant if the contract were
going to be let to you?
Mr. Ferguson. No; we bid higher than we would bid, if we were particularly
after the contract. In bidding on anything, if you need the work, in open bidding,
if you want the job, if it is required in the operation of the plant, your bid is natur-
ally lower^ — ■ —
Senator Vandenberg. That is correct.
Mr. Ferguson. Than it would be if you just as soon have it, but for a better
price.
Senator Vandenberg. All right.
Mr. Ferguson. Yes, sir.
Senator Vandenberg. This is what I cannot understand: If when you make a
bid on a job which you do not want it is higher than it would be if you did want
it, in what respect can that higher bid be said to protect the customer?
Mr. Ferguson. Because it is a fair bid.
Senator Vandenberg. Is it a fair bid when it is higher than the job would
warrant?
Mr. Ferguson. No; it is not higher than the job would warrant. You can
bid all the way from cost, as I did on the Leviathan, to our sorrow, to 10- or 12-
percent profit. That is our range. When we want a job, as on the last cruiser,
as on the two airplane carriers, we cut our percentage of profit.
Of course in bidding, you did — I have for 25 years — solely in accordance to
what I conceive to be the necessities of our own business.
Senator Vandenberg. Why certainly.
Mr. Ferguson. Yes, sir. Therefore it is almost as bad to have more work
than you can do, Senator, as to have too little.
Senator Vandenberg. I understand that.
Mr. Ferguson. Because in the operation of our plant we have to know, or we
think we have to know today, how many men of various kinds we are going to
need and 12 months from today. And that means a predicted schedule. We
deliver our ships on time, under heavy penalties, and therefore it frequently hap-
pens that we do not want a lot of work that we bid on, but with a customer like
the Navy Department, when they ask us to bid, we always bid. They asked us
for one or two shijjs in this case, and we bid on one because that was all we wanted,
and did not want that too liadly. But the basis of that bid was about 60 percent
overhead and 10 percent profit.
Senator Vande.nberg. If you were bidding, let us say, $11,000,000 for a cruiser
which you wanted to build, how much would you bid at the same time for a cruiser
that you did not want?
Mr. Ferguson. Maybe $11,500,000. * * *
In view of this last testimony, it can be seen clearly that bids sub-
mitted to the Navy Department are not all to be classified as bids
from companies actually wanting the ships they are bidding on. They
may be courtesy bids. WTiatever the intent of such bids is, either
that of pleasing the Navy or keeping a hand in, the result of such a
courtesy bid is a false picture of competition between equally desirous
bidders.
At the same time when the bidding for the 1029 cruisers was being
carried on, it was known that in 1930 the Navy would advertise for
bids on an aircraft carrier, the Ranger (galley 97 ZO, Feb. 14).
Newport News was interested in this sliip and later received the
award for it.
MUNITIONS INDUSTRY 37
The Bethlehem Shipbuilding Corporation increased its estimates by
only $2,875 over 1927 on a single cruiser and yet increased its bid by
$78,000 over 1927 (see table above on p. 19). The company officials
denied advance knowledge of Newport's increase (Wakeman, Feb. 27,
galley 31 QD).
The New York Shipbuilding Co. decreased its estimates by $777,180
and in spite of that increased its bid by $88,000 over 1927.
It was pointed out that in 1927 the company had added on to its
estimates $2,864,820 for overhead and profit, while in 1929 it added
on $3,730,200 for these items. This was an increase for profit over
estimated cost of $865,180.
The following discussion took place on January 24:
Mr. Bardo. I think if you will go through all the bids we have submitted, you
will find they have been very consistent all the way.
Mr. Raushenbush. In what respect?
Mr. Bardo. One following the other.
Mr. Raushenbush. Is that your information?
Mr. Bardo. I am quite sure it is.
Senator Vandenberg. You mean consistent as between the Big Three?
Mr. Bardo. No; consistency of bids as we ran along over this cruiser program.
We built the Salt Lake City, the Chester, the Indianapolis, and the Tuscaloosa,
and the new ships.
A little later on the same day the question was raised again in Mr.
Bardo's testimony (galleys 73 GP and 74 GP).
Mr. Raushenbush. Coming back to your statement a moment ago, Mr.
Bardo, that the additions which you made were always uniform — do you remem-
ber the statement?
Mr. Bardo. I did not say they were uniform.
Mr. Raushenbush. Qr consistent with each other. Was not that it?
Mr. Bardo. Yes. You are talking now about our bids?
Mr. Raushenbush. Yes, sir.
Mr. Bardo. Yes, sir.
Mr. Raushenbush. Always consistent with each other?
Mr. Bardo. I say relatively so.
Mr. Raushenbush. Let us look at the word "relatively." Here on the
Chester in 1927, which we have been discussing, your estimate, referred to by Mr.
Langell, was $7,950,180, and you added $2,854,820 and put in a bid.
Now in 1929, 2 years later, your estimate was way below your estimate on
the Chester.
Mr. Bardo. Surely.
Mr. Raushenbush. This is the Indianapolis. It was $7,173,000. That is
almost $700,000 lower.
Mr. Bardo. That is right.
Mr. Raushenbush. And yet, in that year, you added on $3,730,200.
Mr. Bardo. That is right.
Mr. Raushenbush. With an estimate down $700,000 you added on $900,000.
Mr. Bardo. That is right.
Mr. Raushenbush. A spread of $1,600,000.
Mr. Bardo. That is correct.
Mr. Raushenbush. What is there consistent in that?
Mr. Bardo. In one case — I do not recall the precise details^but I would say
in one case we probably had 1 ship, and in another case we had 3 or 4 ships, or a
lot of work in progress, over which we could allocate the overhead.
Mr. Raushenbush. In 1929, did you have a lot of other work in prospect?
Mr. Bardo. I think it was in 1929, some time in that year, that we took on the
Manhattan and the Washington; I am not sure.
Mr. Raushenbush. It was not until 1930, was it, that the awards were made
for the Manhattan and Washington^
Mr. Bardo. It may have been 1930. I would not be sure.
Mr. Raushenbush. You knew ahead of time that you were going to get the
Manhattan and Washington'?
38 MUNITIONS INDUSTRY
Mr. Bardo. We did not know until the contract was awarded.
Mr RAtrsHENBtrsH. We put in the bid of Betlalehem and Newport News
$9,750,000 each in 1930, and your bid was below that. Now you come along with
an explanation for an inconsistency of $1,600,000 between estimate and final bid
on these 1929 cruisers on the ground that you knew ahead of time that your over-
head was going to be lower during that period of construction. That all seems
to work together, does it not, Mr. Bardo?
Mr. Bardo. Here are other factors. In 1929 we were on a rising flood.
Prices, as I recall it, were going up, and likely to go, and we certainly knew that
labor was dissatisfied. It was a contract running over a period of 3 j^ears. You
have got to make the best estimate and best guess you can as to what is going to
happen to you in 3 years. As to the particular details upon which that final plan
was built up, I do not know that I could say now. I should have to go back and
review, if they are available, the figures which were used at that time in setting it
up
The evidence does not substantiate Mr. Bardo's claim of consistency
in bidding. Reversely, inconsistency of bidding (the absence of a
close and continued relationship between estimates and bids) indi-
cates that the final bids were offered with an eye to what the other
companies were doing rather than with an eye to what New York
Ship could afford to build the ships for.
lAt
Award of Aircraft Carrier — "Ranger" — 1930
In 1930 the only ship awarded was the aircraft carrier Ranger, which
went to Newport News at a price of $15,528,000.
The estimates and bids of the Big Three companies were as
follows:
Estimate
labor and
materials
Bid
For overhead
and profit
Newport News.
Bethlehem
New York Ship
$9, 815, 000
11, 522, 150
10, 819, 000
$15, 528, 000
16, 760, 000
16, 334, 000
$5,713,000
5, 238, 000
5, 515, 000
On the face of these figures it might seem at first glance that there
was competition between three equally desirous bidders, and that the
Navy had properly chosen the lowest of these. There are several
other features of this bidding to be considered before any such con-
clusion is drawn.
(1) Newport News, which received the award, made a profit of
23.1 percent on the job even on its low bid. At the time it put in
this bid it must have known that its bids on the 1927 cruisers were
rich in profit (35 percent on the Augusta and Houston combined).
(2) Bethlehem Ship testified that it could not have taken the
Banger. The condition of its yards precluded it (Wakeman, Feb.
27, galley 33 QD).
Mr. Wakeman. Now on the question of estimating at this particular time
on the Ranger we were in no position as you see here. We have only a certain
capacity in our district around Quincy. There are only so many shipbuilders.
The minute we go beyond a certain number of men we have to dilute our labor
to a point where our costs go right up in the air. We had about reached the maxi-
mum there. We could not have taken the Ranger. We could not have designed
it.
Mr. Raushenbush. Then this was just a protective bid?
Mr. Wakeman. There was no protective'bid about it.
Mr. Raushenbush. If you could not have taken the Ranger and put in a bid
Mr. Wakeman what was it but a protective bid?
Mr. Wakeman. We always bid on everything Mr. Raushenbush. We bid
on every ship in 1933 and 1934. We always bid on everything.
Mr. Raushenbush. When you cannot take a ship?
Mr. Wakeman. It does not make any difference. We bid on it. We want to
be in the picture. It is a matter of business.
Mr. Wakeman of Bethlehem Ship repeated the reasons why his
company did not want the Ranger (Feb. 26, galley 34 QD).
Mr. Raushenbush. Just stay with your own company for a minute. You
knew with that mounting line ahead of you that you did not particularly want
that ship. When you do not particularly want a ship, why bid?
Mr. Wakeman. I bid because I would have taken it at that price.
Mr. Raushenbush. If you had bid $20,000,000, you would have taken it at
that price, too?
Mr. Wakeman. Certainly; yes.
Mr. Raushenbush. But that still is not the thing I am driving at.
39
40 MUNITIONS INDUSTRY
Mr. Wakeman. I have told you that this Ranger was a brand-new design.
There was nothing like it at all in the United States Navy. The Lexington and
Saratoga — the Lexington which we built — were converted originally from battle
cruisers. While we had the redesign of the Lexington, there was nothing insofar
as we had any engineering skill or anything else in connection with airplane
carriers. I am pointing out to you that we were right in the middle of a great big
program, and we had some very serious problems on our hands to get out in
time and satisfy our customers.
Bethlehem's bid was $1,232,000 higher than Newports, although
in the cruiser bidding in 1929 it was $377,000 lower than Newport's
cruiser bid.
Bethlehem cannot be considered as an equally desirous competitor
on this bid.
(3) New York Ship found itself able to underbid Newport News
on the 1929 cruiser by $227,000. On the Ranger it was $806,000
above Newport News.
(4) The New York Navy Yard had put in an estimate of the cost
of the Ranger. Later certain changes were made and the navy yard
asked for permission to rebid on the job in view of those changes.
This permission was refused.
(5) It was known to the Navy in advance that the cost of this
ship, when the armament was added, would exceed the $20,000,000
appropriated for it by Congress. Nevertheless, construction of the
ship was proceeded with, after many changes had been made from
the original design intended to lower the cost. The contract price
was lowered $32,000 without rebidding. Nevertheless, a further ap-
propriation of more than $2,000,000 was later asked by the Navy to
furnish the ship, which was granted by Congress.
The significance, in part, of the bidding on the Ranger is that the
company receiving the award, in addition to making a 23.1 -percent
profit on the job, learned enough about the construction of aircraft
carriers and their designing, so that in 1933 when 2 aircraft carriers
were advertised it did not receive any substantial competition from
the other yards.
Later (galley 34 QD):
Mr. Raushenbush. It was a big job to undertake a new type of construction
like that, was it not?
Mr. Wakeman. Yes.
Mr. Raushenbush. A big designing job, a lot of trouble.
Mr. Wakeman. It was a big designing job.
Mr. Raushenbush. You had your yards pretty well planned ahead and full
at that time?
Mr. Wakeman. We were chock-a-block full, as far as engineering was con-
cerned.
Mr. Raushenbush. There is a further question that comes up along that line.
From that time on, Mr. Wakeman, Newport pot nil later aircraft carriers, did it
not? It got the only other award there was, in 1933, for aircraft carriers 5 and 6,
the Yorkiown and the Enlerfrrisc. Do vou remember that?
Mr. Wakeman. 1933, that was?
Mr. Raushenbush. In 1933.
Mr. Wakeman. Yes.
Mr. Raushenbush. When Mr. IVrguson was on the stand, he testified to the
general effect that they had the exiierience, that they had worked at this difhcult
prol)lem, and felt tlieniselves at a very decided advantage, naturally, over the
other companies which iiad not gone through the problem of desivriiinij and con-
structing tliis new ty])e of aircraft carriers. The ciuestion is this: Following along
the aircraft carrier line: Did you in 1933, when you bid on the aircraft carriers,
expect to get them at all?
Mr. Wakeman. Expect to get them?
Mr. Raushenbush. Yes.
MUNITIONS INDUSTRY 41
Mr. Wakeman. I do not think that we put in a figure where we knew what we
were going to get in 1933. That was the biggest naval program that had ever
been put out, and there were a great many different classes of ships.
In order to get our picture you have to go back and consider not only the air-
craft carriers but you have to take into consideration the destroyers, the leaders,
the heav}^ cruisers, and the liglit cruisers. I cannot say what I expected to get
or did not expect to get. I did not know what I was going to get.
Mr. Raushenbush. I am talking particularly about the aircraft carriers.
Mr. Wakeman. I put in a figure on the aircraft carriers which was high and
I knew it was high, or at least I assumed it was high. On the other hand, if we
had gotten the aircraft carriers, we had enough money to turn around and go over
all of the design work and all of the ground that Newport News had covered.
There is another interesting phase of the bidding on the Ranger.
Both Bethlehem and New York Ship had had experience in aircraft-
carrier construction, while Newport News had had none. Bethlehem
built the Lexington and New York Ship the Saratoga, both of which had
been begun as battleships and were finished as aircraft carriers.
Here we have a situation which the two firms most experienced in this
type of work fail to bid lower than the inexperienced yard. This is
particularly significant in view of the fact that the Newport News,
without experience, made a profit of 23.1 percent.
There has been a great deal of evidence showing the money advan-
tage possessed by a yard which has had experience in a certain type of
construction. This advantage has been estimated as high as a million
dollars on an aircraft carrier. Thus it appears that the bids of Bethle-
hem and New York Ship were actually far higher than necessary in
view of the probable savings from experience.
It is an assertion of the shipbuilders that these two earlier aircraft-
carriers were much different than the Banger and later carriers.
Nevertheless it is a fact that the Lexington and Saratoga provided the
only experience in aircraft carrier construction in this country and
obviously gave Bethlehem and New York Ship a considerable advan-
tage in experience over Newport News.
The Navy, therefore, received no financial benefit from the experi-
ence gained by Bethlehem and New York Ship on the construction of
the Lexington and Saratoga, although these ships were under con-
struction nearly 10 years and cost more than $35,000,000 apiece.
It is a logical inference that Bethlehem and New York Ship, for
reasons of their own, were not seriously competing for the Ranger, or
else that the "advantage" theory offered by Bethlehem does not hold.
Cruiser Award — "Tuscaloosa" — 1931
At the time of the bidding on the cruiser Tuscaloosa in 1931, each
of the "Big Three" yards had received awards for two cruisers, and
in addition Newport News had received the award in 1930 for the
aircraft carrier Ranger.
The following bids were submitted by the three companies on the
Tuscaloosa. The estimates were taken by the committee from the
companies' records.
Estimate,
labor and
material
1931 relation to—
Bids, 1931
Relation to
1929 bid
Relation to
1927 bid
1929 esti-
mate
1927 esti-
mate
Bethlehem.
$7, 741, 000
7,640,000
7, 249, 280
+$246, 000
-355, 000
+76,280
+$248, 200
+55,000
-700,900
$10, 695, 000
11. 300, 000
10, 450, 000
-$58, 000
+170,000
-453,000
+$20,000
Newport
+658,000
New York Ship
—365,000
It is difficult to study the changes in the cruiser bids of the three
big companies from 1927 through 1929 and 1931 without coming to
the conclusion that if there was no prearrangement in 1931 there was,
at least, amazingly fortuitous coincidence.
Newport News, which had made a profit of 35 percent on its 1927
cruisers, now bid $658,000 more than it bid on one cruiser in 1927 and
$170,000 higher than in 1929, when it did not in the least expect to get
the award. (See 1929 section. Testimony of Ferguson.) It increased
the bid price in 1931 by this $170,000 over 1929 at a time when its
estimates for labor and material dropped by $355,000. Considered on
the basis of its estimates for labor and material alone there was every
excuse for a lower bid and none for a higher bid. With such a bid
Newport, which had been able to underbid New York Ship in 1927 on
one cruiser by $173,000, was now unable to underbid New York Ship
by $850,000 (the difference between the 1931 bids of the two com-
panies).
Senator Vandenberg questioned company officials on the character
of this bid (Feb. 19, galley 35 FS).
Senator Vandenberg. Sometimes you bid to get a job and sometimes you bid
without the e.xpectation of getting it. Was this a bid to get the job?
Mr. Fekquson. You cannot tell what the end is going to be, Senator. Of course,
we bid 15 times to get one job.
Senator Vandenberg. I mean your own specifications, Mr. Ferguson. You
told us last week that frequently, when you did not have work you bid to get it,
and wlien you did have work, you bid pro forma.
Mr. Ferguson. Not exactly that, either. You bid on a basis so that if you get
it, you are all right, and if you do not get it, you are not particularly disappointed.
Senator Vandenberg. Which was this?
Mr. Ferguson. As I remember it, this was just a bid made on the usual basis,
and does not indicate a desire or any particular anxiety to get it. If we had bid on
net cost on this job, it would have been in the neighborhood around $10,300,000
or $10,400,000.
42
MITNITIOlsrS INDUSTRY
43
Company officials offered to explain the increase in bid price on
the ground that the calculation on overhead was increased from 60
percent in 1929 to 75 percent in 1931 (Feb. 19, galley 34 FS).
Mr. Ratjshenbush. The question was interjected there as to whether you had
less work in your yards than in 1929, and therefore the overhead had to be
higher. How did you answer that?
Mr. Ferguson. I should say that we did not have. What date was that?
Mr. Raushenbush. In 193i we are talking about bidding on the Tuscaloosa.
Mr. Ferguson. This was in 1931?
Mr. Raushenbush. Yes, sir.
Mr. Ferguson. The situation in 1931 was that we had a lot of work then.
We had the Acadia and Si. John, and our production, as the data showed to you
indicates, was high. It was above the 1928 period. And there was a good deal
of work in contemplation. We still had tentative acceptances on bids to build
four or five ships, which fell off in that period, but we were busy then, and the
bid was a perfectly normal bid. I had no idea what Mr. Bardo was going to bid.
Mr. Raushenbush. You were explaining it a moment ago, as I understood
you, that you raised your estimated overhead from 60 to 75 in 1931. Is that
correct?
Mr. Ferguson. Yes; I bid 75 percent overhead and 10. I do not pretend to
bid perfectly uniformly in every bid, do you not know? I certainly did not bid
with the idea of having to explain it. It would have been easy enough to go
down, if I had.
It is obvious that the overhead would be lower in 1931 than in
1929 on the basis of Mr. Ferguson's own testimony.
At the same time that Newport News was going down on its esti-
mate $355,000 and up on its bid by $170,000, Bethlehem was follow-
ing a different course. It went up $246,000 on its estimate and down
$58,000 on its bid. That bid, however, was still $245,000 above
New York Ship, the low bidder. The Bethlehem officials claimed
very emphatically that they wanted this ship (Wakeman, Feb. 27,
gaUey 36 QD). The company did get an award for one destroyer
and prepared the plans for it.
Bethlehem's estimate and bid history on the cruisers is now as
follows:
Estimate
(1)
Bid (1)
Profit and
overhead
1927
1929
1931
$7, 492, 800
7, 495, 000
7,741,000
$10, 675, 000
10, 763, 000
10, 695, 000
$3, 182, 200
3, 258, 000
2,954,000
This contrasts with New York Ship's history on estimating and
bidding almost as sharply as it contrasts with Newport's history.
New York Ship's history on cruisers shows:
Estimate
(1)
Bid (1)
Profit and
overhead
1927
$7,950,180
7. 173, 000
7, 249, 280
$10, 815, 000
10, 903, 000
10, 450, 000
$2,864,820
1929
3, 730, 000
1931
3, 200, 720
On the 1931 cruiser Bethlehem lopped off $304,000 from the
margin which it had in 1929 for profit and overhead. That put its
bid on a level with its 1927 bid. New York Sliip, on the other hand,
lopped off $529,280 from its margin for profit and overhead, or $225,-
44
MUNITIONS INDUSTRY
280 more than Bethlehem lopped off. It was by a little more than
that margin that it got the award from Bethlehem. The difference
between the Bethlehem and New York Ship bids was $245,000.
On the other hand Bethlehem's fuel guarantees were not so good as
New York Ship's, and the evaluated price, calculated by the Navy, on
the bids of the three companies was (Jan. 30, galley 6 QD):
New York Ship $10, 450, 000
Bethlehem 10, 804, 475
Newport News 11, 544, 375
While the most amazing feature of these figures is the fact that
Newport, which was so much below the other two companies in 1927
was now $1,094,375 more than New York Ship and $739,900 more
than Bethlehem, it is also important to note that the difference be-
tween Bethlehem and New York Ship is shown to be larger than on
the flat figures before oil guarantees are taken into consideration
($245,000). On an evaluated basis the difference between the bid of
the two companies is $354,475.
Looked at from the basis of what the three companies were offering
the Navy in actual comparable value of performance, the margins of
the companies in the years 1929 and 1931 show:
Bid on
compara-
ble value
Margin of
this bid
over esti-
mate
Newport:
1929
$11,130,000
11,544,375
10,753,000
10, 804, 476
10,903,000
10,450,000
$3,134,400
1931
3, 904, 375
Bethlehem:
1929
3,258,000
1931 ...
3, 063, 000
New York Ship;
1929
3,730,000
1931
3,200,720
In the course of discussion of Newport's 1931 bid on the Tuscaloosa
of $11,300,000, Mr. Ferguson stated the difference between a job
wanted and one not wanted in the following language (Feb. 19,
galley 35 FS):
Mr. Raushenbush. This is the first time that the high and low bidders have
been as much as $1,000,000 apart, and we wondered if this was another pro-
tective bid, such as you described in 1929.
Mr. Ferguson. Whose protective bid?
Mr. Raushenbush. Whether this was a protective bid, as the one vou de-
scribed in 1929.
Mr. Ferguson. Protective of what?
Mr. Raushenbush. You described it as being protective for the Government,
the customer.
Mr. Ferguson. This is a perfectly fair bid, on our basis, to the Government.
Mr. Raushenbush. That was not the question. The question was whether
you expected to get the bid, or was it a protective bid in that sense? That is,
if you got it, you would not lose money, but you did not particularly want it.
Mr. Ferguson. It was not protective of anybody else's bid.
Mr. Raushenbush. Leaving that aside for the moment, I am asking whether
it was protective of the Governmelit in the same sense, whether you descril>e it
as a protective bid in the same sense you described the 1929 bid as protective
of the Government.
Mr. Ferguson. I think it was protective to the Government. I think a bid
of 75 percent overhead and 10 percent profit is protective of the Government
interest, certainly.
MUNITIONS INDUSTRY 45
Senator Vandenberg. Sometimes you bid to get a job and sometimes you
bid without the expectation of getting it. Was this a bid to get the job?
Mr. Ferguson. You cannot tell what the end is going to be, Senator. Of
course, we bid 15 times to get one job.
Senator Vandenberg. I mean your own specifications, Mr. Ferguson. You
told us last week that frequently, when you did not have work you bid to get
it, and when you did have work, you bid pro forma.
Mr. Ferguson. Not exactly that, either. You bid on a basis so that if you
get it, you are all right, and if you do not get it, you are not particularly dis-
appointed.
Senator Vandenberg. Which was this?
Mr. Ferguson. As I remember it, this was just a bid made on the usual
basis, and does not indicate a desire or any particular anxiety to get it. If we
had bid on net cost on this job, it would have been in the neighborhood around
$10,300,000 or $10,400,000.
The evidence in 1931 indicates that Newport News took itself out
of the picture very definitely and that there may have been honest
competition between Bethlehem and New York Ship, both having
had an equal amount of work since 1927. When New York Ship got
the award Bethlehem automatically became entitled to the next
contract.
139387—35-
46
MUNITIONS INDUSTRY
Cruiser Award "Quincy" 1932
The bidding on the Quincy in 1932 is significant in that for the
first time since the post-disarmament conference naval building, a
competitor to the "big three" companies entered the field. That
competitor was United Dry Docks, Inc.
Its bid on the Quincy was considerably below the low bids of the
"big three" during the previous years. 1932, was, however, a depres-
sion year and labor and material costs were lower.
The low bids on one cruiser for the earlier years were:
1927 (Newport News) $10, 642, 000
1929 (Bethlehem) 10,753,000
1931 (New York Ship) 10, 450, 000
1932 (Bethlehem) 8, 196, 000
1932: Next low, United -._ 9, 525, 000
The award was given to Bethlehem at $8,196,000, which was
$2,264,000 below the low bidder in 1931; $2,557,000 below the low
bidder in 1929 ; and $2,446,000 below the low bidder in 1927.
United, with a bid of $9,525,000 for the Quincy, was lower in its
bid than the low bidder in 1931 by $925,000; lower than the low
bidder in 1929 by $1,228,000; lower than the low bidder in 1927 by
$1,117,000.
• A certain amount of the decrease in cost to the Government of this
cruiser is due to the depression. The committee, however, after con-
sidering the evidence, believes that a very considerable proportion of
this saving to the Government is due to the active competition of a
fourth company, and that this competition was of an entirely different
character than the competition, such as it was, wliich may have ex-
isted among the "Big Three" themselves from 1927 through 1929 and
1931.
The following figures give an indication of the extent to which the
drop in bid prices was due to the depression in the prices of labor and
material (Feb. 27, galley 37 QD).
Newport News
New York Ship
Bethlehem
Average "big three"
Estimates labor, and materials
1931
1932
Difference
$7,640,000
7. 249. 280
7. 741, 000
$6,990,000
6,813,000
6,615,000
-$650,000
-436. 280
-1,126,000
7. 543. 427
6,806.000
-737, 427
The average drop from 1931 in prices of labor and material for the
"big three" was $737,427. The drop for the low bidder, Bethlehem,
was $1,126,000 (revised figures, Feb. 27, galley 38 QD).
The bids declined from 1931 by considerable sums.
1931
1932
Difference
$11,300,000
10, 450. 000
10, 695. 000
$9,650,000
9, 616. 000
8,196.000
-$1,650,000
New York Ship
-834.000
-2,499,000
10.815.000
9.154,000
-1,661,000
MUNITION'S INDUSTRY
47
The reason for the far greater drop in bid prices than in estimates
is difficult to explain satisfactorily on any other ground than that a
new form of active, arm's length competition of a new and able in-
terest had entered the field for the moment.
To emphasize tliis it is interesting to note the relationship of bids
with estimates of the "Big Three" companies in earlier years.
NEWPORT NEWS
Estimate,
labor and
material
Percentage
of change
over pre-
vious year
Bid
Percentage
of change
over pre-
vious year
1927 -
$7, 585, 000
7, 995, 000
7,640,000
6,990,000
Percent
$10, 642, 000
11,130,000
11, 300, 000
9, 650, 000
Percenl
1929 -
+5.4
-4.37
-8.5
+4.58
+1.5
— 14 6
1931 -
1932
BETHLEHEM
1927 - ._
$7, 492, 800
■ 7,495,000
7, 741, 000
6, 615, 000
$10, 675, 000
10,753,000
10,695,000
8, 196, 000
1929
+0.73
— 53
1931
+3.2
-14.6
1932
—23 3
NEW YORK SHIP
1927
$7,950,080
7,173,000
7, 249, 280
6, 813, 000
$10, 815, 000
10, 903, 000
10, 450, 000
9, 616, 000
1929 -
-9.77
+1.06
-6.01
+0.81
-4.15
1931 -
1932
—7 98
In no other year prior to the entrance of United into the field did
the "Big Tliree" companies get so far away from a logical connection
between their estimates and their bids.
Bethlehem officials insisted that the desperate need for work made
their bid as low as it was, rather than the factor of new competition
(Feb. 27, galley 40 QD).
Mr. Raushenbtjsh. You knew United then, and possibly Federal, were in the
picture, and that that was competition?
Mr. Wakeman. I would not necessarily say that. That did not influence this
situation. The thing that confronted me was to get that contract or fold that
plant up. As to what the other shipyards did, what their reasoning was, I do
not know, but I knew I was going to have stiff competition, there was no question
about that. Everybody
Mr. Raushenbush. Everybody knew there was going to be stiflf competition,
did they not?
Mr. Wakeman. Everybody knew there was going to be stiff competition, if
you want. That was at the lowest point of the whole thing, and our outlook was
particularly dark.
Mr. Eugene Grace, president of Bethlehem Steel, was questioned
on February 26 (galley 10 QD):
Mr. Raushenbtjsh. Mr. Grace, do you remember reasonably well the naval
bidding of 1933 with relation to the fact that for the first time a competitor, a
fourth competitor, we will say, got into the picture on cruiser bidding, the United,
Powell's company, and that Bethlehem dropped about $3,000,000, as I remember
their bid, and got away down to $8,916,000, I think on its bid for a cruiser there,
and United was away down, and all the other companies dropped. Do you
remember the situation roughly at that time?
Mr. Grace. I remember generally the instance of taking the cruiser Quincy —
was that the name?
48 MUNITIONS INDUSTRY
Mr. Raushenbush. I think it was the Quincy.
Mr. Grace. It was a cruiser taken at a little over $8,000,000.
Mr. Raushenbush. That is right.
Mr. Grace. Yes, sir.
Mr. Raushenbush. Do you remember the instance?
Mr. Grace. I remember the situation at the time, and I remember what
prompted it, if that is what you are asking me. I mean, on whatever phase you
want me to comment, I remember the instance.
Mr. Raushenbush. How much were you in the calculation of these final bids?
How much did you have to do with them?
Mr. Grace. I had nothing to do with them, only Mr. Wakeman consulting me
on general policies of what the policy should be in respect to the bidding, in a
general way. I knew nothing about the final figure, even, which was put in on it.
Mr. Raushenbush. When vou sav the policy on bidding, what do you mean
by that?
Mr. Grace. I mean that Mr. Wakeman consulted me in respect to our policy
in anticipation of keen competition, what our policy should be, and I remember
very clearly in my discussion with him that the policy was defined that he should
use his very best judgment to ol)tain the contract for that particular ship offering
at that time. I went even so far as to say to him that the question of profit or
loss on the contract was to be entirely ignored; that he, from my standpoint, was
instructed to use his best judgment to make sure to get that particular contract.
And that was prompted by the necessity of having the work in our j'ard to keep
our organization employed, when we were right down to practically no work in
the yard.
Mr. Raushenbush. That was not the first time in late 1932 when your yard
was down to rock bottom, was it? You had very much the same situation in
1926 and 1927, and so on, there? You did not have much work to do?
Mr. Grace. We were doing everything we could to get work for the yard.
In that particular case I remember distinctly Mr. Wakeman asked me about
the general policy of what we should do, and I said, "Go the limit, in your judg-
ment, whatever it may require, of making sure of getting the work to hold our
organization together."
Mr. Raushenbush. Take it without regard to profit?
Mr. Grace. Yes, sir.
Mr. Raushenbush. Were there any other times when you told that to Mr.
Wakeman?
Mr. Grace. I have no concrete instance in mind like that, when he would
consult me with respect to general policies. Of course, we were always hopeful
of getting work for our shipbuilding company.
Mr. Raushenbubh. A statement like that, "to take it without regard to
profit." Do you remember any other times you ever told him that?
Mr. Grace. With respect to naval work, I could not remember. I may have.
But that was so impressed upon me at the time, the extreme necessity of getting
the work to hold our organization and "know how" and the men depending upon
the operation of oiu- Quincy plant, the Fore River plant.
Mr. Raushenbush. This is the first time in many j-ears^ — in fact, since the
war — was it not, that a fourth competitor, or fourth company, had come into the
field for bidding on cruisers? You knew ahead of time that the United was
going to bid?
Mr. Grace. Mr. Wakeman told me that he anticipated that the Unitcfi was
going to bid, but I think tlicre had been other bidders, more than three, prior to
that. Had not Batli been in?
Mr. Raushenbush. Not after 1926 when Cramps went bankrupt.
Mr. Grace. Did not the Bath Iron Works bid?
Mr. Raushenbush. We are talking about cruisers.
Mr. Grace. You are talking about cruisers? Mr. Wakeman can tell you
about that particular feature.
Mr. Raushenbush. I wanted to know about your own knowledge, how much
you knew ahead of time that United was going to come in and put in a bid which
would be a g^at deal lower than the bids of the other companies had been
putting in? He told you about that, liad he?
Mr. Grace. He had told me that there was another anticipated bidder in the
field, but, as far as I remember, he painted to me that everybody was so hungry
that there was going to be very keen competition for that boat. It was not just
a question of United, but he anticipated the keenest kind of competition, with
a new factor in the light of United, being very uncertain as to what they might
judge that class of work worth.
MUNITIONS INDUSTRY 49
Mr. Raushenbitsh. Did you see any objection to having a competitor,
another one in the field, besides the "big three"? Did you see anything re-
grettable about that at all?
Mr. Grace. From the business man's standpoint, I should say that it is re-
grettable to continue to overcapacity an industry which is already way in excess
of capacity necessary to accomplish the work. I think it would be all in the same
category as building another railroad from New York to Washington today, to
parallel the Pennsylvania or the Baltimore & Ohio. Nobody would consider
that a sound project or a desirable one.
Mr. Ratjshenbtjsh. Supposing that it were not a project like that one, of
United being unequipped to do it, but having the ways and saying that they
wanted to bid, and making a bid that would save the Government several mil-
lions of dollars on cost, in comparison with the other bids which had come in
during 1927 and 1929. From a business man's angle, you do not like the angle
of competition to the extent it produces overdevelopment?
Mr. Grace. I am not talking particularly from that standpoint. I am talk-
ing from the policy or the principle that vou said to me, "Would I regard it
favorably?"
Mr. Raushenbitsh. That is it.
Mr. Grace. To have some other interest coming into the naval shipbuilding
game, when the interests had already been developed and the capital invested
in it was capable of doing many times over the amount of work available. Cer-
tainly from the business man's point of view, I would have to say that that was
quite undesirable.
Mr. Raushenbush. I am saying that that is not the situation. I am asking
another question. Putting that aside and assuming that United did not have
to have any new development of the yard to any extent, and it is perfectly
capable, let us say, of producing that cruiser, is there any objection, just on the
straight-out competitive basis, of having a fourth competitor in the field that
three companies had held tightly prior to that time?
Mr. Grace. From the business man's standpoint, the more competition he
has the harder it is to get a piece of business. That is inherent in the conduction
of business, in competing for business. You have got 1 chance out of 3 in one
instance, and you have got 1 chance out of 4 in another instance.
Ml. Raushenbush. You did not want to welcome him with open arms into
the picture?
Mr. Grace. Certainly not. It just made the competition that much harder.
I do not recall, but I wonder what was the final result of Mr. Powell's company's
bid in that particular instance.
A little later the question of competition was raised again (Feb.
26, galley 11 QD).
Mr. Raushenbush. Was it not really a matter, Mr. Grace, of showing United
that it had better not stick its nose into this cruiser business?
Mr. Grace. Not from my standpoint, Mr. Raushenbush, and I am sorry to
hear you say that because I have really said to you what prompted us. We
could not afford to miss the getting of that ship, because of the very bad effects it
would have had on our employment situation at Fore River and the loss of our
personnel. We just had to have it, and that is all that prompted me in declara-
tion of that policy.
Mr. Raushenbush. It just seems a strange coincidence, Mr. Grace, that all of
these bids should shoot down, and yours should drop as much as $3,000,000 from
what is usually a $10,000,000 job, or $11,000,000, I think was the last bid, some-
thing like $3,000,000 at a time, and only at a time when United got into the
picture.
Mr. Grace. It was certainly an uncertain factor in it; and Mr. Wakeman
comes to me and says, "Here is an additional uncertain factor, additional compe-
tition on this job." I said, " Wakeman, you are authorized to use your judgment,
and be sure to get the work."
Mr. Raushenbush. You wrote Mr. Bardo to that effect on August 4, 1933,
after the 1933 bids were opened, Mr. Grace?
Mr. Grace. Expressing regret that anybody else had come into the business?
Mr. Raushenbush (reading):
It's unfortunate to see some new interests getting their hand on naval work
when there is so little normally to be distributed.
Mr. Grace. It was only the outpouring of my heart and my belief at that time.
'50 MUNITIONS INDUSTRY
Mr. Raushenbttsh. The whole practice of people who are in the business of
keeping out competitors — I am not applying this directly to you at the minute,
but keeping out competitors in general — is an old one. We have seen it in selling
gasoline and the like or in butcher-shop competition with the chain stores. If
you can cut under enough to prevent a new competitor coming in, the chances
are they will stay out.
Mr. Grace. Frankly, the only thing I had in mind was to get that project
against everybody, and here was another man, whom we were advised was going
to quote low, because he was new at it, and that made just that much more com-
petition for us. That is all.
In discussing the factor of a new competitor in the field, Mr. Fergu-
son, president of Newport News, testified concerning the situation
created (Feb. 18, galley 39 FS).
Mr. Ferguson. * * * In a case of this kind, of where a new bidder comes
in, who does not know the costs, and who cannot know the costs, that is, he can
know the price that has been bid, but he has no way of knowing how much it will
cost him, and to show you how little we knew of what it would cost us, whereas
in the 1927 bids — with a new competitor coming in, who does not know the cost of
bidding for ships, or post offices, or anything else, if he is responsible, the bids are
apt, some of them, to be lower on that account, not with the object of particularly
keeping him out of the business, but for the reason that when you know that he
does not know the cost you also know that he is liable to go below cost.
In other words, a competitive situation is introduced where a competitor has
come in who, through lack of knowledge of the costs, may go to almost any point
to get the job.
The shipyards did not want new competition, and the Navy sup-
ported them in this contention.
Mr. Bardo (Ex. 1489) speaking for the industry, protested to the
N. R. A. administration the awarding of any P. W. A. money to Gulf
Industries on the Gulf coast. Admiral Land, in the same exhibit
stated to the N. R. A. administration:
The Navy Department is of the opinion that some provision should be included
in the code such that it will avoid establishment of new shipbuilding yards,
reopening of those long since inoperative, or expansion of small yards and repair
plants for shipbuilding purposes.
Captain Wyman concurred, and stated that this was the sentiment
of the Department. Mr. Bardo utilized the good offices of Mayor
Hague of Jersey City, Governor Moore of New Jersey and others to
obtain assurance from President Roosevelt that the Gulf loan would
not be granted (Exs. 1493-1520).
In 1932, one of the companv officials (N. R. Parker, New York
Ship, Feb. 6, 1935, galley 27 ZO, exhibit 1528) wrote in regard to a
possible merger with Newport News that "governmental policy has
generally distributed the work fairly equitable between the three
active yards."
Mr. Raushenbush. Mr. Parker, in July of 1932 we find that you were con-
sidering the matter of a proposal of a merger with Newport News Shipbuilding «fe
Dry Dock Co. Could you tell us who was interested in that proposed merger?
Mr. Parker. The proposal was considered by the board of directors of the
New York Shipbuilding Corporation, and I was directed to furnish certain in-
formation to engineers making a survey for merger purposes.
Mr. Raushenbush. Why was that jiroposal dropped?
Mr. Parker. Because the board of directors, I assume, did not believe that it
was a feasible or advantageous proposition.
Mr. Raushenbush. I show you a copy of one of your comments on it, dated
July 20, 1932, which I offer for appropriate number. [Handing paper to witness.]
("The document referred to was marked "E.xhibit No. 1528" and is included in
the appendix on page .)
MUNITIONS INDUSTRY 51
Mr. Raushenbush. I call your attention to the second paragraph:
It is, of course, impossible to ascertain the general attitude of the Gov-
ernment toward the merger of two companies out of three available to afford
reasonable competition on Government contracts. This is believed to be a
controlling matter in the consideration of the method of the merger. The
governmental attitude is indirectly connected with the possible distribution
of new business. With but three shipbuilding yards available for compe-
tition and the announced desire on the part of the Government to maintain
those yards as an independent but nevertheless part of the national defense
system, governmental policy has generally distributed the work fairly
equitable between the three active yards. A merger of two of these yards
might very well divide the work into two parts rather than three, so that
while no Newport News Shipbuilding & Dry Dock Co. independently ob-
tains one-third and New York Shipbuilding Corporation independently
obtains one-third, or a total of two-thirds under independent operation, a
merger might very well reduce the combined distribution to one-half for the
combined yards. It is reasonably certain that if this was the result the loss
in combination would far offset any possible benefits through merger.
Do you remember that statement?
Mr. Parker. Yes, sir.
One possible explanation of the fact that Newport News and New
York Ship dropped their bids so much more than they dropped their
estimates is that they knew that this year it was Bethlehem's "turn"
to be awarded a cruiser, that they also knew that Bethlehem and
United would bid very low, and that they did not want their own
bids to stand out as high by contrast, as they would have stood out
if they had lowered their bids by no more than their estimates for
labor and material warranted.
It is also to be noted that this ship, the cruiser Ouincy, will cost the
Government more than Bethlehem bid for it. Shortly after the award,
the N. I. R. A. was passed and all governmental contractors were allow-
ed to add to their awards increased costs due to that act.
Naval Awards — General — 1933 *
In 1933 the Navy went into big business. It awarded $130,000,000
of contracts to private yards, out of a total of $280,000,000. In the
course of awarding this program it obligated itself to an additional
expenditure of $55,000,000 to finish the ships, which sum it did not
have appropriated or allotted to it at the time.
Of the total sums obligated by the Navy in the 1933 awards,
$238,000,000 was secured by a direct allocation of P. W. A. funds at
the direction of the President.
The following ships were awarded to various yards under the 1933
program:
Name or number of ship
Class
Yard
Estimated
cost of con-
struction
Yorktown and Enterprise
Vincennes
Airplane carriers. .
Cruiser
Newport News Shipbuilding & Dry
Dock Co.
Bethlehem Shipbuilding Corporation.
New York Shipbuilding Co
' $19, 000, 000
11,720,000
Savannah, Nashville
. . do..
' 11.677,000
Brooklyn . .
do.. .
New York Navy Yard
Philadelphia. .
Philadelphia Navy Yard
Hull
New York Navy Yard...
Aylwin
do .. .
Philadelphia Navy Yard
Porter
do
New York Shipbuilding Co
3.985.000
Selfridge
do—.
do -.-
3,965,000
McDougal
do.-..
do -.--
3, 9r.5, 000
Winslow .
do
do -
3,965.000
Phelps..
do-..
Bethlehem Shipbuilding Corporation ,
Fore River.
do
3. 896, 000
Clark
-. . do
3, 896, 000
Moffett
.. . do
do
3,896.000
Balch
-, do -
do
3,896.000
Mahan
do
United Dry Docks, Inc -
3. 400. 000
Cummings
do
do
3. 400, 000
Drayton
do
Bath Iron Works Corporation
3.429.000
Lamson
do .
do
3. 42<J. COO
Flusser
do . .
Federal Shipbuilding & Dry Dock Co.
do ---
3.410.800
Reid
do....
3.410.800
Case.
. do
Boston Navy Yard
. do
do -
Cassin .
. do
Philadelphia Navy Yard
Shaw
.. . do
do
Tucker
do
Norfolk Navy Yard
Downes
.... do .
.... do -
Gushing
do
Puget Sound Navy Yard—
Perkins
- do
do - -.-
Smith .
- do
Mare Island Navy Yard
do
.. do
Porpoise
Submarine
do .
Portsmouth Navy Yard
Pike
do -
Shark
. do .
Electric Boat Co
2. 566. 000
Tarpon
.. do
do- -
2, 566. 000
1 Each.
The size of this program created a situation where the Navy needed
the use of every private and navy yard instead of the private and
navy yards needing the Navy work to keep themselves gohig. The
usual picture was completely reversed. It was no longer a buyer's
> See appendix, for chart showing the rise in fixed-price bids by the various companies from 1927 to 1934.
52
MUNITIONS INDUSTRY 53
market as it was from 1927 through 1932. It was now a seller's
market.
The first result of this was a very considerable increase in the bid
price of cruisers, i. e., their cost to the Government.
The second result was that the private yards, in many cases,
divested themselves of practically all the risk of losing money, a risk
which had theoretically been involved in the earlier bidding. They
used the possibility of increased prices for labor and material under
the N. R. A. to have the Government carry that increase in case it
should take place.
The two subsidiaries of steel companies, i. e., Federal, the subsidiary
of United States Steel Corporation, and Bethlehem Shipbuilding, the
subsidiary of Bethlehem Steel Corporation, were in a slightly different
relation to the other bidders than the independent companies were to
each other.
In 1933, before bidding on the big program, W. A. Irvin, president
of United States Steel, advised the President of his subsidiary that an
expression should be secured from the regular shipyards before Federal
entered the bidding.
The regular shipyards could penalize the steel companies for any
unfriendly acts on the part of their subsidiaries by ordering steel from
one and not the other steel company. The letter is Exhibit No. 1767
as follows:
Exhibit No. 1767
United States Steel Corporation,
71 Broadway, New York, April 20th, 1933.
Mr. L. H. KORNDORFF,
President Federal Shipbuilding & Dry Dock Company,
Kearny, N. J.
Dear Sir: We have your favor of the 18th, relative to the possibility of Fed-
eral Shipbuilding Company getting into the Navy construction program. This
is a question that will have to be decided shortly. It is one that I think should
be handled carefully and that we should get an expression from the regular ship-
yards who have had to do with Navy construction in the past, to see just where
we will stand with respect to the steel used in such construction as compared
with the possible profit Federal would make out of going into this business.
I will be glad to discuss this matter with you some day next week.
Yours very truly,
(Signed) W. A. Irvin,
President.
EXPECTATIONS OF "ALLOCATION"
In 1933 the Navy's largest peace-time program was awarded in a
great hurry. There was enough work for practically every contrac-
tor. The Navy needed practically every contractor. During the
days before the opening of the bids the shipbuilders were constantly
conferring on the provisions of their N. R. A. code. They talked about
the "allocation" of ships to various yards. That "allocation" could
have been accomplished by the Navy's designating certain yards to
build certain ships. Or it could have been accompHshed by the
various shipbuilders engaging in a process of bidding high on all jobs
except those they wanted, and obtaining reciprocity from other ship-
builders in this procedure. The Navy was not allowed to use the
first method, since it was obUged to advertise for bids and to grant
awards to the lowest bidders. There was, however, nothing to stop
54 MUNITIONS INDUSTRY
the shipbuilders from arranging the bids to be presented to the Navy
in such a way as to secure the ships which each of them preferred to
have.
Some idea of the fact of the discussion of allocation is given below
in (a). The fact that Mr. Wilder, president of Gulf Industries, knew
ahead of time of the low bidders is indicated below in (b). The fact
that Mr. Bardo, president of New York Ship, wrote his chairman,
W. L. Flook, on June 22, a month prior to the opening of the bids,
exactly what jobs would go to each of the ''Big Three " is given below
in (c). Mr. Bardo's admission that he had discussed the ships he
wanted with his competitors is given below in (d). The evidence of
Mr. Yard concerning discussions among the "Big Three" prior to
bidding is indicated in (e). Mr. Bardo's explanation of his letter to
Mr. Flook is given in (f).
(a) Certainly the shipbuilders discussed possible allocation of the
available sums in 1933 (Feb. 19, galley 41-42 FS).
Mr. Ferguson. * * * j heard, of course, that this work was to be allo-
cated. It was common talk that the work would be allocated by the Department
to the people who could do the work.
But I wish to say that no responsible officer of the Government told me that
we would be allocated certain jobs.
It was also common talk that this program would naturally give, for instance,
a chance or an advantage to Newport News in the building of airplane carriers.
Later (galley 42 FS).
^ Mr. Raushenbush. Mr. Ferguson, let me interrupt you there. You have
said several things. You said there was common talk about this allocation.
Could you tell us specifically who talked to you about that matter then?
Mr. Ferguson. Yes; I think nearly everybody.
Mr. Raushenbush. Did Mr. Wakeman?
Mr. Ferguson. Mr. Wakeman; yes.
Mr. Raushenbush. Did Mr. Bardo?
Mr. Ferguson. Yes.
Mr. Raushenbush. Did Mr. Williams?
Mr. Ferguson. Yes. I mean it was talked generally. It was talked in the
code meetings, it was talked all around that under P. W. A. the President had
the power to place this work where it would meet the purposes of the N. R. A.
and would spread employment. In fact, that it should be carried out in connec-
tion with N. R. A. as stated in tlie proposal to bid.
But the thing which I could not understand was this: As to how price would be
fixed. For instance, when there was talk of securing these funds, this $238,000,000
from the Public Works Administration, and applying it to Navy building, there
went along with it, I think, some ships that were under the regular naval appro-
priation acts. I believe I am correct in that. But the thing that I did not
understand was how they were going to fix price, and in the beginning, when it
was just talked of and had not become a settled thing, the question of allocation
was mentioned, and I asked, "How do you settle price?"
And, as a matter of fact, the only discussion on the means of this work being
distributed, that I had with any ofhcial, responsible official of the Navy Depart-
ment, was in the beginning, before the bids were out, before the money had come,
Admiral Land talked to me about this work and about its allocation, but I said,
"How do you determine price?"
I said, "If it can be allocated, we are sure hard up for work. We have got the
Ranger and we have got nothing to do otherwise, and that if this work can be
allocated, I am perfectly willing, on the part of my company to take it at cost,
if you can determine what that formula is."
In other words, we were faced in our business with a ver}' desperate situation,
because with wages going up and with costs going up, the cost of doing merchant
work simply evaporated, and has been evaporated ever since.
Later (galley 43 FS):
Mr. Raushenbush. The talk about allocation was apparently going on here
in June and July.
MUNITIONS INDUSTRY 55
Mr. Ferguson. I think that the time when I made this statement, my recol-
lection is, was after the receipt of the proposals on June 24 at Newport News.
That was a month and 2 days before the bids were opened.
Mr. Raushenbush. Then it was in July sometime that you talked this over
with the shipbuilders, privately and in open meeting?
Mr. Ferguson. Yes.
Mr. Raushenbush. It was in July?
Mr. Ferguson. I just stated what I thought about it.
Mr. Raushenbush. I am trying to locate the dates. It was in July?
Mr. Ferguson. I do not know the particular dates.
Mr. Raushenbush. Did you on June 20 or 21, when you were here, talk to
anybody in the Navy about it?
Mr. Ferguson. I do not remember.
Mr. Raushenbush. You see, we are interested in that date because it was on
June 22 that Mr. Bardo wrote the chairman of his board that there had been an
allocation and Newport News would get two aircraft carriers for about $36,000,000,
Mr. Ferguson. Yes; I have seen the letter.
Mr. Raushenbush. Did you not have a pretty confident feeling before the
bids were opened that you were going to get the aircraft carriers?
Mr. Ferguson. Yes.
How talk about allocation could have gone on without a very
thorough explanation by each company as to what it would like to
have allocated to it, is difficult to understand.
(b) Mr. John P. Frey, President of the Metal Trades Department
of the A. F. of L. testified on January 25 (galley 85 and 86 GP) that
he had been given a list of the companies which would be low bidders
in 1933 some 10 days before the awards were made.
Mr. Frey. When Mr. Wilder was at my office, some 10 or 12 days before the
bids were opened, he made the statement that he could give the names of the
yards who would be the lowest bidders on all of the category of ships to be con-
tracted for.
I told him that that was interesting. I had heard so many rumors about vari-
ous things since I had been in Washington, that I had to have something more
substantial than that before I would give it any consideration. He said, "I will
give it to you now, and I will seal it."
So that on my desk
Mr. Raushenbush. Just a minute. Let me interrupt you a minute, Mr.
Frey. How many days was this before the bids were opened?
Mr. Frey. Ten or twelve days before the bids were opened.
Mr. Raushenbush. That placed the date somewhere in July 1933?
Mr. Frey. It would.
Mr. Raushenbush. And that was in your office?
Mr. Frey. That was in my office.
Mr. Raushenbush. Where?
Mr. Frey. In the presence of my associate, Mr. Calvin.
Mr. Raushenbush. Mr. Calvin was also present when this happened?
Mr. Frey. He was present when this took place.
Mr. Raushenbush. Will you continue, please?
Mr. Frey. Mr. Wilder then wrote out the names of the shipyards who he held
would be the lowest bidders on all of the categories of ships. I handed him an
envelop, and he sealed the envelop.
Some 3 days before the bids were opened, I was with General Johnson, in
connection with the Shipbuilding Code, and my personal thought as to the inten-
tion of some of the shipyards to live up to their own code, and I finally said,
"Well, it is my opinion that there is going to be collusive bidding, and I have in
my pocket a sealed envelop which purports to contain the names of the shipyards
who will be the lowest bidders."
Senator Clark. This was 3 or 4 days before the bids were opened?
Mr. Frey. Yes.
The Chairman. Let the record be clear. The sealed information was given
10 days before?
Mr. Frey. Yes; about 10 days or 12 days before. Three days before the bids
were opened I was in General Johnson's office, discussing the Ship-building Code
and my own impression as to the intentions of the shipbuilders, and I said,
66 MUNITIONS IISTDUSTEY
"They are all in collusion." I was talking then about the code. I said, "I think
they are also in collusion so far as the bids for these new vessels are concerned."
I said, "I have had given to me a list of names of the shipyards who would be
the lowest bidders for one type of vessel."
I said, "It is here in my pocket", and I took it out and I said, "Here, you take
this. This will be interesting to you."
Johnson said, "That is too hot. I am not going to get mixed up in anything
of that kind. I have got troubles enough of my own."
And General Johnson refused to take the sealed envelop. A great deal was
going on at that time to occupy my interest, and I put the envelop in my desk.
The day after the bids were opened and the bids published in the daily press, I
called Mr. Calvin into my office and said, "Let us find out whether Wilder was
filled with hot air or whether he really knew what he was talking about."
Mr. Frey. * * * We opened the envelop and we checked them off and
Mr. Wilder was accurate in every instance. He had named the lowest bidders.
Senator Vandenberg. Who were the three lowest bidders?
Mr. Frey. There were submarines to be built, and destroyers to be built, and
light cruisers, and armored cruisers, and aircraft carriers.
Senator Vandexberg. Who were the successful bidders which Mr. Wilder
identified?
Mr. Frey. There I have to depend on memorj-. I believe that the Bath Iron
Works, the Bethlehem Shipbuilding Co., the New York Ship Building Co., the
Newport News Shipbuilding & Dry Dock Co., and I think there may have been
one other.
In any event, as we checked up, we find that the statement which Mr. Wilder
had given to me 10 days before was right.
Senator Vandenberg. Did you mention Bethlehem?
Mr. Frey. Yes. Afterward I asked Mr. Wilder how he could give us so
accuratel}^ the information, and his reply was perhaps characteristic. He said,
"I have been in the game myself."
He was president of the New York Shipbuilding Co. for a while.
Senator Vandenberg. How many ships were involved in this contract letting.
Mr. Frey. All of the ships that were contracted for under the original
$238,000,000 appropriation.
Senator Vandenberg. It was a large number of ships?
Mr. Frey. Yes.
Senator Vandenberg. Thirty-odd ships?
Mr. Frey. Yes, sir.
Senator Vandenberg. In various tonnage categories?
Mr. Frey. Yes, sir; from submarines to aircraft carriers.
Senator Clark. The Bath Iron Works got one or two, Mr. Frey?
Mr. Frey. I think they secured two.
Senator Clark. A very small proportion of the whole?
Mr. Frey. Yes.
Senator Vandenberg. And with respect to all this diversified contractual
structure, all of these various types of shi])s, Mr. Wilder's estimate as to the
prophecy of who was to get the same, made 10 days before the bids were opened,
proved scrupulously accurate in every respect?
Mr. Frey. In every instance. I forgot to mcTition that — and Mr. Calvin has
refreshed my memory on this — that the Federal Ship Yard and the United Drv
Docks were also bidders and also secured contracts at that time.
Mr. Wilder, who submitted in advance of the bidding in 1933 a
list of low bidders to Mr. Frev , testified that the prearrangement in
1933 was known also to potential subcontractors (Jan. 30, galley 10
AS):
Senator Clark. Referring again to this transaction in 1933, Mr. Wilder, when
you supplied this list to Mr. Frey and Mr. Calvin, you say that that was a
matter of general information at that time?
Mr. Wilder. Yes, sir.
Senator Clark. Will you describe a little further what you meant by "general
information"?
Mr. Wilder. General knowledge would be a better word.
Senator Clark. General knowledge?
Mr. Wilder. Yes, sir. Such people as the Chicago Pneumatic Tool, Westing-
house, or any large corporation that is supplying the shipbuilders, knew what
the arrangements were.
MUNITIONS INDUSTRY 57
Senator Clark. What were the arrangements?
Mr. Wilder. Ivnew where to look for the business.
He also testified that he had been informed of a joint meeting of
the three big shipbuilders before the bids were submitted in 1933 at
which the low bidders on major bids were chosen. This testimony-
was controverted by officials of the three companies later. Mr.
Wilder's testimony was given on January 30 (galley 11 AS).
Mr. Wilder. Not that I know of; not that I have any knowledge of.
You asked, Senator, about the divide in 1933. Counting the cruiser that Beth-
lehem got down there on that particular bid, that, plus a new cruiser, plus 4
destroyers, equals 2 cruisers for New York Ship and 4 destroyers, and equals in
value 2 aircraft carriers for Newport News. It was just a shuffle. Anybody could
figure that out.
Senator Clark. As I understand it, Mr. Wilder, you divided up the awards in
the 1933 building program, so far as the value to the shipbuilding companies was
concerned, and, as you say, Newport News, New York Ship, and Bethlehem each
got approximately one-third the value?
Mr. Wilder. Counting that job, the 1932 job.
Senator Clark. In other words, counting in the bid which you say Bethlehem
took at a loss?
Mr. Wilder. I do not say that; no, sir.
Senator Clark. I understood you to say that.
Mr. Wilder. I said a "fighting bid."
Senator Clark. What do you mean by a "fighting bid"? I thought you said
that meant they were wilhng to take a job for the purpose of putting a competitor
out of business?
Mr. Wilder. Yes; but I do not think at that price there was any loss in it.
Senator Clark. Counting in the low bid which Bethlehem made in 1932 for the
purpose of forcing out United Drydocks, you say that the two transactions taken
together worked out approximately one-third to each one of them?
Mr. Wilder. Yes; they got between $35,000,000 and $38,000,000 each.
Senator Clark. Were there any other bidders on this 1933 program?
Mr. Wilder. Not on the cruisers or those destroyers — wait a minute. Did
Federal come in there, or not until later?
Mr. Raushenbush. Federal did not come in until 1934 on the cruiser bidding.
It was in on the destroyer.
Mr. Wilder. Now, if the Senator will permit, the reason I got that information
was because the shipbuilders are reported to have had one whale of a row, and
as a result of that row, this row being in the week prior to July 26, 1933
Senator Vandenberg. You mean the "big three" had a row?
Mr. Wilder. The "big three" had a row, and how. You had Charley Langell
on the stand the other day. If you call him again, ask him what happened; why
it was necessary for him to go out of the conference room and telephone Camden
and urge Ernest Cornbrook to get in a plane and come right down.
Senator Clark. Who is Ernest Cornbrook?
Mr. Wilder. Operating vice president of New York Ship. Bardo was getting
the worst of the argument. Langell is the estimator. Langell had sense enough
to go out and fly down. That was a week prior to July 26. It was reported that
the row was so severe that M. Cornbrook had a heart attack at 4 o'clock in the
morning, and was taken out on a stretcher at the Mayflower Hotel. That was
Thursday or Friday before the bids were opened.
Senator Vandenberg. That is at a meeting, an all-r»ight session in the May-
flower Hotel, between the representatives of the "big three", a week before the
bids?
Mr. Wilder. The week before. I cannot place it exactly.
Senator Vandenberg. The week before the bids?
Mr. Wilder. The week before the bids, Thursday or Friday. Mr. Ernest
Cornbrook flew down, and then at 4 o'clock was taken out on a stretcher. It
was reported to me that the subject of the row was that Bethlehem would not
accept the fighting ship and wanted something more out of it in addition. That
was the reason.
Senator Vandenberg. What else was reported out of the meeting?
Mr. Wilder. That is all.
Senator Clark. Was this before the bids were filed?
58 MUNITIONS INDUSTRY
Mr. Wilder. Before the bids were opened. It was on the basis that Bethle-
hem get one 8-inch-gun, 10,000-ton cruiser and 4 destroyer leaders of 1,850 tons;
New York Ship, two 6-inch- gun, 10, 000- ton cruisers and 4 destroyer leaders of
1,850 tons; and Newport News, 2 aircraft carriers.
Senator Bone. The bids had not yet been filed?
Mr. Wilder. No, sir.
Senator Bone. Manifestly, you could not have an understanding of that kind
without knowing the attitude of the Navy Department, because it involved two
different parties.
Mr. Wilder. That is just what I wanted to clear up Senator Clark on. This
had nothing to do with awards. This was the fihng of the bids.
Senator Bone. I understand, but the award is the important part. If they
were made in that way and there was collusion, the Navy Department would
have to be a part of it.
Senator Barbour. Awards can only be on the basis of a bid.
Senator Bone. I understand that.
Senator Clark. Mr. Chairman, I am glad Senator Bone brought that up.
Assuming collusion on any bid, the method by which that would be determined
would be for the party selected by the conspirators to make the low bid and for
the other parties to the understanding to make so-caUed "protective" bids?
Mr. Wilder. Yes, sir.
Senator Clark. SuflSciently higher so that the selected party would necessarily
be the low bidder. Is not that the customary method, Mr. Wilder?
Mr. Wilder. Yes, sir.
Senator Vandenberg. In other words, if at that midnight meeting it was
decided that Bethlehem is to get — what does Bethlehem get?
Mr. Wilder. One 8-inch gun cruiser and four destroj-er leaders.
Senator Vandenberg. All right. If they decided at that midnight meeting
that Bethlehem is to have that particular group of ships, then Bethlehem bids
low on that group, and the other two bidders bid high. Is that the way it works?
Mr. Wilder. Yes, sir; that is the way, the explanation of the 1933 situation.
Senator Bone. That is the explanation I wanted.
Senator Vandenberg. Then to reciprocate Bethlehem bids high upon what-
ever ships are allocated to the other builders?
Mr. Wilder. Yes, sir. They faced a rather definite situation there.
Senator Bone. They were parceling the country out? "All Gaul is divided
into three parts."
Mr. Wilder. Oh, yes; it is just the "great divide." They are quite accus-
tomed to that in Bethlehem. They used to do it, and called it "Bonus Hill."
■ Again, later, he developed an (Jan. 30, galley 12 AS) explanation of
averaging the low bid of 1932 with the higher bids of 1933.
Senator Clark (reading):
Dear Mr. President: I have been quite interested in analyzing the bids
opened by the Navy Department on July 26, 1933, which were submitted by
the shipbuilders on naval construction. I believe a thorough study of the
matter should be made.
It is my information that
On September 16, 1931, Bethlehem Shipbuilding Corporation bid for one
1,500-ton destrover, $2,728,500.
On July 26, 1933, Bethlehem Shipbuilding Corporation bid for an identical
destroyer, $2,670,000, or a decrease in price of $58,500,
On December 14, 1932, Bethlehem Shipbuilding Corporation bid for one
8-inch gun (heavy) 10,000-ton cruiser, $8,196,000.
On July 26, 1933, Bethlehem Shipbuilding Corporation bid for the same
cruiser, $11,720,000, or an increase in price of $3,524,000.
There appears to have been but 4 bidders on cruisers and 8 on destroyers.
Gulf Industries, Inc., of Pensacola, Fla., appears to have submitted bids on
the destroyers.
It is my information that, in addition to the facts outlined above, it was
known in advance which of the four concerns bidding on the cruisers would
be low on each of the several items, and it appears to have been known in
advance that the position of each of the said shipbuilders would be protected
bv bids submitted bv the remaining shipbuilders, for instance:
' Bethlehem Shipbuilding Corporation, $11,720,000.
New York Shipbuilding Co., $12,100,000.
MUNITIONS INDUSTRY 59
Newport News ShipbuUding & Dry Dock Co., $13,800,000.
United Dry Docks, Inc., $14,800,000.
The bid of the New York Shipbuilding Corporation on the 2 light cruisers
was protected by the other 3 bidders as follows:
New York Shipbuilding, $11,657,000; Bethlehem Shipbuilding Corpora-
tion, $12,780,000; Newport News Shipbuilding & Dry Dock Co., $13,900,000;
United Dry Docks, Inc., no bid.
I am unable to justify in my own opinion the increase in cruiser cost as
indicated by the 1932 and 1933 bids, particularly when those bids are com-
pared with the destroyer bids of 1931 and 1933. I am convinced that the
cruiser bids should be rejected.
Your attention is invited to the fact that Gulf Industries, Inc., of Pensa-
cola, Fla., in its letter to the Secretary of the Navy, dated July 29, 1933,
stated that it is prepared to submit bids on the cruisers which will save the
Government millions of dollars. And this is so whether the bidding is re-
opened by private negotiations or by a call for new bids.
I bespeak your careful and thoughtful consideration of this request that
the cruiser bids be rejected.
What is that letter from you to the Secretary of the Navy referred to here?
Do you have a copy of it?
Mr. Wilder. Can I get my book back?
Senator Vandenberg. Mr. Wilder, while we are waiting for the scrapbook, I
would like to get one thing clear in my mind about the advance memorandum
which you made and gave to Mr. Frey. Was that memorandum based upon
anything more than good guessing?
Mr. Wilder. And hearsay from those meetings at the Mayflower.
Senator Vandenberg. Was it substantially based on what Mr. Cornbrook had
told you?
Mr. Wilder. Yes; plus what I had learned from other people in other indus-
tries, and I speak of the contributing industries.
Senator Clark. You mean the subcontractors.
Mr. Wilder. Yes, sir. They all knew because they knew whom they were
going to do business with.
Senator Clark. In other words, the suppliers of various parts and materials
had information as to who was to secure these awards?
Mr. Wilder. Senator Clark, I knew it was absolutely accurate. It could not
have been anything but accurate. The shipbuilders were not asking the suppliers
to quote them on all the vessels. That is, New York Ship was taking no quota-
tions on aircraft carriers, nor was Bethlehem.
In connection with Mr. Frey's testimony that Mr. Wilder had
accurately predicted in 1933, before the bids were opened who the
low bidders would be on each category mentioned, it is interesting
to note that several witnesses (Calvin, Wilder, Kitchen), testified that
Mr. A. B. Gravem, an attorney of the Washington, D. C, bar,
offered to secure from 10 to 15 milhon dollars worth of work for one
of the competitors, Gulf Industries, if he were given $250,000. They
also testified that Gravem had spoken of a friend as "the fixer".
(See Calvin testimony, January 29, galleys 2, 3, and 4 AS; Eatchen
testimony, January 30, galleys 5 and 6 AS; Wilder testimony January
30, galleys 16 and 17 AS.)
Mr. Gravem denied this testimony in detail (January 31, galley
25 AS).
The record was certified to the district attorney of the District of
Columbia on February 21, March 7, 1935, for his examination in
regard to possible action involving charges of perjury.
Mr. A. P. Homer of Washington, D. C, one-time representative
of Bath Iron Works, denied that he had agreed to secure naval con-
tracts for Gulf Industries. His memorandum prepared in an attempt
to collect $50,000 from Bath Iron Works of Bath, Maine, for work
in securing two destroyers for Bath in the 1933 awards, was entered
as exhibit 1484 on January 31 (galleys 32 and 36 AS).
60 MUNITIONS INDUSTRY
Mr. Charles M. Hyde, an attorney of the New York and Florida
bar, filed a statement with the committee which said in part (Feb. 4,
galley 52 AS):
In the summer of 1933 Mr. Wilder consulted me in reference to a project
in Pensacola for which he wanted an R. F. C. loan, a drydock and shipbuilding
plant.
At the time I understood he bid on some light cruisers or destroyers, and
bids were low enough to warrant consideration, although that was not a matter
concerning which he had consulted me.
While he was talking with me one day callers were announced and, I being
about to leave, he asked me to remain.
One of the callers was A. B. Gravem, who stated that he was a lawyer asso-
ciated with a Mr. La Prete with offices in the Tower Building. He was introduced
by a gentleman whose name I do not remember but who I understood was a
friend of Mr. Wilder.
Mr. Gravem stated that he had been with the R. F. C. and had a wide and
intimate knowledge of departmental business and in position to secure contracts
in the Navy Department.
He was very bold in his assertion that a man he represented was so influential
that he took part in framing specifications and conditions for warship contracts.
He said he was not an official but was on intimate terms with practically every-
body of influence and called the President "Frank."
Personally I thought him one of those chiseling lawyers who swarm in Wash-
ington.
Wilder expressed interest and an appointment was made for another meeting,
Wilder asking me to be present.
At the second meeting Gravem was even bolder. He glorified the importance
of the man behind but would not identify him, although going into detail as to
his personal influence with him through family connections. He said he was a
high-price man and would want at least $250,000. He was quite sure that this
man could have an award made under Wilder's bid, and further stated that
other ships than those presently under consideration were soon to be advertised.
Mr. Thomas M. Cornbrooks, at one time associated with Gulf
Industries of Pensacola, Fla., testified that he had not furnished Mr.
Wilder with the information as to who would be the low bidders in
1933. Miss Julia M. Kitchen, secretary to Mr. Wilder, testified on
February 4 (galley 1 ZO-2 ZO) concerning this matter, as follows:
Senator Vandenberq. Do you recall an interview between Mr. Wilder and
Mr. Thomas Cornbrooks in which the subject of the probable successful bidders
upon the 1933 naval program was discussed?
Miss Kitchen. Yes.
Senator Vandenberq. This was before the bids were opened?
Miss Kitchen. Yes; it was.
Senator Vandenberq. Did you see Mr. Wilder prepare a memorandum pur-
porting to state who would be successful bidders on the naval contracts soon to
be let, in 1933?
Miss Kitchen. Yes. It was a green slip of paper.
Senator Vandenberq. It was prepared on a green slip of paper?
Miss Kitchen. Yes.
Senator Vandenberq. Was it prepared in the presence of Mr. Thomas Corn-
brooks?
Miss Kitchen. Yes.
Senator Vandenberq. Was this the memorandum subsequently givert by Mr.
Wilder to Mr. Frey?
Miss Kitchen. Yes. I believe he made his memorandum from that slip.
It was not that green slip.
Senator Vandenberq. You know that Mr. Thomas Cornbrooks saw it?
Miss Kitchen. Yes.
Senator Vandenberq. Did Mr. Wilder and Mr. Thomas Cornbrooks discuss
the matter together before Mr. Wilder %\Tote out his guess?
Miss Kitchen. Yes; they did. I remember that Mr. Cornbrooks did not want
Mr. Wilder to divulge the source of the information because he had gotten it from
Mr. Ernest Cornbrooks, who was at that time works manager of New York Ship.
Senator Vandenberq. In other words, you heard Mr. Thomas Cornbrooks
tell Mr. Wilder, or you heard him give Mr. Wilder the basic information upon
MUNITIONS INDUSTRY 61
which Mr. Wilder constructed his guess, and Mr. Thomas Cornbrooks indicated
that inasmuch as much of the information came from his brother, he preferred
that the source of the information be not divulged, lest it embarrass his brother.
Is that correct?
Miss Kitchen. Yes; that is true.
Senator Vandenberg. Did you hear a second interview between Mr. Wilder
and Mr. Thomas Cornbrooks, in which Mr. Cornbrooks again alluded to his
brother?
Miss Kitchen. Yes; I did.
Senator Vandenberg. Was this after the naval bids were opened?
Miss Kitchen. Yes; that was afterward. The conversation to which he
referred had been before the bids were opened, but he talked to Mr. Wilder and
to me afterward.
Senator Vandenberg. Did it relate to a conference of shipbuilders in the
Mayflower Hotel prior to the letting of the bids?
Miss Kitchen. Yes.
Senator Vandenberg. Relate what you heard Mr. Thomas Cornbrooks say in
that connection.
Miss Kitchen. He said that before the bids were opened there had been a
conference at the Mayflower Hotel, at which the executives of New York Ship,
Newport News, and Bethlehem Shipbuilding companies had been present, and
that time they were deciding which ships the different companies were to have,
who would have the aircraft carriers and the cruisers and the destroyers, and so
forth. And at that meeting Mr. Bardo was present, and Mr. Langell was present.
Mr. Bardo was not getting what he considered, or what Mr. Langell considered,
was New York Ship's share, so that Mr. Langell went out of the office, the room,
and talked to Ernest Cornbrooks at Camden, and said that he had better fly
down there because Mr. Bardo was not getting New York Ship's share.
So that Mr. Ernest Cornbrooks did fly down, and the meeting became such a
row that Mr. Cornbrooks was carried out of that room about 4 o'clock in the
morning with a heart attack.
Senator Vandenberg. You are now relating what you heard Mr. Thomas
Cornbrooks tell Mr. Wilder?
Miss Kitchen. Yes.
Senator Clark. When was that conversation, Miss Kitchen, please?
Miss Kitchen. It was after the bids were opened. I do not remember exactly
the time.
Senator Vandenberg. You are very clear in your recollection about it?
Miss Kitchen. Yes; I am.
Mr. Wilder on April 5 (galley 82 WC, seq.), reafiirined his earlier
statement that he had been given the information concerning the low
bidders in 1933 some 10 days in advance of the opening of the bids
by Mr. Thomas Cornbrooks.
Mr. LaRouche. There has been testimony introduced here to the effect that
you received certain information in advance on the 1933 bidding from Mr.
Thomas Cornbrooks, with whom you were associated.
Mr. Wilder. That is correct.
Mr. LaRouche. And who is the brother of Mr. Ernest Cornbrooks who is
employed by the New York Shipbuilding Corporation?
Mr. Wilder. Yes, sir.
Mr. LaRouche. Do you have any record or any evidence indicating that Mr.
Cornbrooks gave you knowledge of the outcome of the 1933 bidding in advance
of that award?
Mr. Wilder. Yes. I previously stated that Mr. Cornbrooks gave, oh, some
week or 10 days in advance of the opening of the bids, who among the three large
shipbuilders would be found on the opening of the bids to be the low bidders in
certain categories, and Miss Kitchen has dug out of her files on that matter, this
slip in Mr. Cornbrooks' handwriting, which carries that information [producing
document].
Mr. LaRouche. The slip is a memorandum written by Tom Cornbrooks to
you, based on information which he believed he has indicating the outcome of
the 1933 awards.
Mr. Wilder. If you will read it, Mr. LaRouche
Mr. LaRouche. Is that the fact?
1.39387—35 5
62 MUNITIONS INDUSTRY
Mr. Wilder. That is a fact.
Mr. LaRouche. Memorandum reads [reading]:
Navy program, as lined up by Big Three: N N.
That, I take it, means Newport News?
Mr. Wilder. Yes, sir.
Mr. LaRouche. Airplane carrier.
NYS is, I take it, New York Ship — light cruisers and four fleet destroyers (1,850
tons) .
F. R.
Mr. Wilder. Fore River.
Mr. LaRotjche (continuing reading). Heavy cruisers.
The NYS refers to New York Ship and four fleet destroyers, 1,850 tons, and indi-
cates what?
Mr. Wilder. The light cruisers and the four 1,850-ton destroyers.
Mr. LaRouche. F. R. refers to the Fore River plant?
Mr. Wilder. F. R. refers to the Fore River plant of the Bethlehem Shipbuild-
ing Corporation. That is incorrect merely in that Bethlehem, in addition to the
4(>— heavy cruiser got four of the 1,850-ton destroyers. Otherwise it is correct,
and that is the information I gave Mr. John Frey, president of the Metals Trades
Department of the American Federation of Labor, and he subsequently testified
he passed it on to General Johnson, prior to the opening of the bids, and I believe
his language was that the general said it was "too hot for him."
Mr. LaRouche. And the point is that you are telling us that Mr. Tom Corn-
brooks had this information about the award of those cruisers in advance?
Mr. Wilder. Not about the award, Mr. LaRouche. About the bids.
Mr. LaRouche. About the bids?
Mr. Wilder. Yes, sir.
Mr. LaRouche. That these people mentioned here would be low for these
ships?
Mr. Wilder. That is correct.
Mr. LaRouche. When did he give you this memorandum?
Mr. Wilder. Some time before the opening of the bids on July 26, 1933 —
shortly before that.
Mr. LaRouche. Shortly before?
Mr. Wilder. Yes; I imagine it was some time during the code hearings, and
the code hearings, if I remember correctly, open up on the 19th of July.
Mr. LaRouche. Did he tell you upon what his information was based?
Mr. Wilder. As I testified previously, it was rather general knowledge among
the subcontractors because of the nature of the inquiries they had had from the
various builders for the machinery.
Mr. LaRouche. Did he tell you he got any information from his brother Ernest
Cornbrooks, who is employed by New York Ship?
Mr. Wilder. He did not tell me direct, but I assumed that. That was Ernest
Cornbrooks. We assumed that.
Mr. LaRouche. Do vou know whether Mr. Cornbrooks' predictions were
fulfilled?
Mr. Wilder. Oh, ves; I would like to distinguish between the bids and the
awards. Mr. Tom Cornbrooks did not claim to have any knowledge of the
awards, but merely the bids which the big shipbuilders were going to put in.
Mr. LaRouche. The point is, to your knowledge, outside of the companies
involved, he told you as to who would be low on all the ships. Is that what you
are saying?
Mr. Wilder. Yes.
Mr. LaRouche. And that turned out to be that way?
Mr. Wilder. Yes.
The Chairman. In whose handwriting is that memorandum?
Mr. Wilder. Tom Cornbrooks.
The Chairman. Did you see it written by him?
Mr. Wilder. Yes; Miss Kitchen has a number of handwriting memoranda.
The Chairman. The Cliair will caution against loss of that memorandum.
Great care should be taken in preserving it in its present state.
Mr. Wilder. It will be found, Mr. Senator, that that reads almost exactly the
same on the letter from Mr. Bardo to Mr. Flook, which was put in evidence here
some time ago, the same information.
Mr. LaRouche. You are referring now to the letter of June 22, 1933?
Mr. Wilder. Yes, sir.
MUNITIONS INDUSTRY 63
Mr. LaRouche. In which Mr. Bardo told Mr. Flook
Mr. Wilder. What the great divide was going to be.
Mr. Raushenbush. May I interrupt?
Mr. LaRouche. Yes.
Mr. Raushenbush. Mr. Wilder, in the testimony of Mr. Cornbrooks before us,
the following colloquy took place:
Senator Vandenberg. You never talked with Mr. Wilder about the
probable outcome of the bidding?
Mr. Cornbrooks. Oh, I may have discussed what my guess was as to
who would be the lowest bidders, based on their experience.
Senator Vandenberg. Now, do you think that you perhaps did talk
with Mr. Wilder in a speculative sort of way about it?
Mr. Cornbrooks. I do not remember it. I may have.
Senator Vandenberg. Did you have some pretty fixed ideas about who
was going to get the bids?
Mr. Cornbrooks. No; only a guess. I think I made three guesses, if I
am not mistaken.
Senator Clark. You guessed right in each of those, did you not?
Mr. Cornbrooks. No; I did not.
Senator Clark. Where were you wrong in your guess?
Mr. Cornbrooks. It is pretty hard to remember just what the guesses
were, but, as I remember it, I guessed that Federal would get the 1,850-ton
destroyers. That is my recollection of one of the guesses I made.
Do you recall what that was? There is no guess about Federal on that partic-
ular slip, is there?
Mr. Wilder. No; there is not.
Mr. Raushenbush. Can you identify this evidence further; what he was
referring to there?
Mr. Wilder. Where he says four heavy cruisers? There was only one cruiser
for private yards, as I recall, and sa.vs nothing about the 1,850-ton destroyers,
so that he may have been correct in saying Federal did get them. I did not have
any particular interest in the three little yards.
Mr. Raushenbush. A little later this colloquy took place [reading]:
Senator Vandenberg. You never heard anything about a matter of that
nature?
Mr. Cornbrooks. I heard Mr. Wilder make a claim that there was.
That is the only place I ever heard it.
Senator Vandenberg. At that time you mean Mr. Wilder suggested it?
Mr. Cornbrooks. At some time later.
Senator Vandenberg. Mr. Wilder never said anything to you at the time
about the possibility of collusion?
Mr. Cornbrooks. I do not remember it. I said at the time — I cannot
tell you what time — but he made a remark of that sort, but I do not remem-
ber just when it was.
Senator Clark. How much later was it that you and Wilder discussed the
matter and he then made a claim of collusion?
Mr. Cornbrooks. I could not tell you that, sir.
Can you place this conversation a little better in time than he has?
Mr. Wilder. As regards the bids, as I have said, I would say a week or 10
days, sometime between July 19 and the opening, July 26.
Mr. Raushenbush. That is about when the conversation took place?
Mr. Wilder. Yes.
Mr. Raushenbush. I offer that slip for the record.
(The slip referred to was marked "Exhibit No. 1900" and is included in the
appendix at p. — .)
(c) One month prior to the opening of the bids on June 22, 1933, for
ships with $130,000,000 to the private yards, Mr. C. L. Bardo,
president of New York Shipbuilding Corporation, wrote to Mr. W. L.
Flook, the chairman of the board of the corporation (Feb. 11, galley
62 ZO) predicting the awards made 6 weeks later:
The Chairman. I hand you, Mr. Flook, a letter dated June 22, 1933, from
C. L. Bardo, addressed to yourself, and ask you if you can recall having received
this letter [handing paper to witness].
64 MUNITIONS INDUSTRY
Perhaps if we read it through you would better recall [reading]:
Mr. W. L. Flock.
Dear Mr. Flock: I spent the last 2 days in Washington in connection
with the shipbuilders' and ship-repairers' code required by the Industrial
Recovery Act. We finally worked out a code which was reasonably satis-
factory to the ship repairers, although there are some questions of a more or
less controversial nature which we will have to iron out between now and
the time the code is made effective.
Do you recall this letter?
Mr. Flcck. Not so far. I undoubtedly received it, but I do not recall it.
The Chairman (continuing reading) :
Three or four of these smaller j^ards, including the Todd and United Dry
Docks in New York who have never been engaged in Navy work, have
had their eyes set right along upon having allocated to them some of the
destroyers.
It was necessary for me to be here today and it was also necessary for
Ferguson to be in Newport News, so that the shipbuilders' code could not be
completed. In order, however, to set the ship repairers aright I sent the
attached telegram to Mr. Smith who was presiding at the meeting. I out-
lined our company's position on this matter of allocation to yards not hereto-
fore engaged in shipbuilding activities. I talked to Ferguson on the phone
this afternoon and he fully approved of this position.
I know from my talks with some of the representatives of the Navy, who
are keenly interested in this work, that they are desirous of finding some sub-
stantial reasons for awarding this work to the largest possible extent to
private yards upon whom they must rely for the necessary engineering to
complete the ships.
Do you recall this letter?
Mr. Flock. Yes; I do. Senator.
The Chairman*. You do recall it?
Mr. Flook. Yes; I received it.
The Chairman. I read on.
There was also expressed to us the desire that the builders themselves
should get together and agree as far as we could upon what each would bid
and then bid on nothing else. The situation as it now stands is substantially
as follows:
Newport News: The two airplane carriers, which while not duplicates of
the Ranger, are of similar type.
Bethlehem: The 10,000-ton 8-inch cruiser, a duplicate of the ship which
they are now building.
New York Ship: A new 10,000-ton 6-inch cruiser, and a distribution of the
eight destroyer leaders.
This new work would amount approximatelv to the following values:
Newport News: $30,000,000.
Bethlehem and New York Ship: $28,000,000 each, although the final
estimates may slightly change these figures.
Did the final estimates change those figures materially?
Mr. Flock. I do not know, Senator.
The Chairman (continuing reading):
I have a suspicion that the Department has clearly in mind ordering some
additional cruisers once this first lot is out of the way, and I am also clearly
of the view that they regard our cruiser output as being superior to that of
the other yards.
I am now of the opinion that we will probably submit a bid for 6 of the
8 destroyer leaders, although it may be necessary to reduce this slightly in
the final set-up.
We are preparing a clause to be inserted in the contract, which we think
will be acceptable to the Navy, to the effect that in the event labor and ma-
terial charges under these contracts should exceed the labor and material
estimates of the yard to a point where losses would acrue, that the con-
tractor will be authorized to apply to the President who in his discretion can
cancel the contract and order the work completed on the basis of a cost plus
a fixed fee.
Very truly yours,
C. L. Bardo.
MUNITIONS INDTJSTBY 65
P. S. — As near as we can figure out, the distribution of the new Navy
program will run about 60 percent to private yards and 40 percent to navy
yards, although this maj^ later be changed without further notice.
C. L. B.
There was some questioning of Mr. Flook on the subject, as the
allocations mentioned by Mr. Bardo a month before the bids were
opened were fairly exact (Feb. 11, galley 61 ZO).
The Chairman. Mr. Flook, you have told us that Mr. Bardo never made any
reports to you concerning activities with regard to bidding on these Government
contracts.
Mr. Flock. That is right.
The Chairman. As a matter of fact, did not Mr. Bardo report to you frequentlj^
concerning visits he had had in Washington with naval officials and with ship-
builders in connection with these bids?
Mr. Flook. Not with shipbuilders. He frequently mentioned in conversation
that he had been down to the Navy Department and had seen so-and-so and
so-and-so, and that the Government plans on so-and-so and so-and-so with
reference to ships.
The Chairman. That was in conversation, a verbal message to you?
Mr. Flook. Yes, sir.
The Chairman. But no letters?
Mr. Flock. No; to the best of my recollection, no letters.
The Chairman. How good is that recollection, Mr. Flook?
Mr. Flock. Pretty good.
The Chairman. If Mr. Bardo had upon occasion written you that he had been
in touch with naval officials and that the naval officials had rather suggested to
him that the shipbuilders ought to get together, would you not remember having
had such a letter?
Mr. Flock. I should think so. Maj' I ask what year this was?
The Chairman. In any of these years.
Mr. Flock. While I have no recollection of it, I should not be at all surprised
if that happened in 1933.
The Chairman. In 1933?
Mr. Flock. Because it was while I did not know. It was my clear understand-
ing in 1933 that the Government not only wanted but demanded that the work
be divided among the different yards.
Later, after the letter had been read, he was questioned further
(Feb. 11, galley 63 ZO):
The Chairman. What is the meaning of the letter, "There was also expressed
to us the desire that the builders themselves should get together and agree as far
as we could upon what each would bid and then bid on nothing else"?
Mr. Flock. The private yards are always up against the bids of the navy
yards.
Senator Bcne. That is not the point.
Senator Clark. Referring to the time element mentioned by Senator Barbour,
in actual practice the time element amounted to this, did it not: That the Gov-
ernment would depend on the New York Shipbuilding Co. to prepare the plans
for the light cruisers in the 1933 program, and as far as the time element is con-
cerned, the New York Shipbuilding Co. was so dilatory that this program has
been held up from that day to this. Is not that right?
Mr. Flock. That is all since I left the company, Senator.
Senator Clark. You know that as a matter of common knowledge, do you not?
Mr. Flcck. I do.
Senator Bone. That is not susceptible of interpretation but means what it
says, Mr. Flook. "There was also expressed to us the desire that the builders
themselves should get together and agree as far as we could upon what each
would bid and then bid on nothing else."
That is collusion if you ever saw it. Can there be any doubt in your mind, as
a business man, that that means collusion and nothing else?
Mr. Flcck. Collusion is a word of approbrium.
Senator Bone. It makes no difference what it is, but it was an invitation for the
shipbuilders to get together and fix up their bids in advance.
Mr. Flcck. If it were done at the request of the Government, I would not call
it collusion.
66 MUXITIOXS INDUSTRY
Senator Clark. That is collusion, if the Navy is a party to it.
The Chairman. That makes the Navy a party to the collusion.
Mr. Flock. It would seem that if each shipyard bid only on the ships which it
wanted
Senator Clapk. After agreeing on which ones they want.
Mr. Flock. At the request of the Government
The Chairman. The question was asked you by Senator Bone, as he read that
paragraph. "There was also expressed to us the desire that the builders themseves
should get together and agree as far as we could upon what each would bid and
then bid on nothing else." And he asked j'ou if the Navy was suggesting this.
You nodded your head but unfortunately the reporter cannot record a nod. Do
you mean to say that that was your understanding?
Mr. Flock. May I have the question again?
The Chairman. That the Navy was suggesting that they should get together.
Mr. Flock. As I read this letter.
The Chairman. Yes.
Senator Bcne. Paragraph 5 of the letter.
Senator Vandenberg. That means not only
Mr. Flcck. This seems very clear "expressed to us the desire" — I assume by
the Navy.
Senator Bcne. It could not mean anything else.
Mr. Flock. Of course it could not.
Senator Vandenberg. Mr. Flook, this says "expressed to us the desire that the
shipbuilders get together upon what each would bid. " Does that not incude not
only the categories but also the price?
Mr. Flock. I would not think so, Senator.
Senator Vandenberg. Upon what each would bid?
Mr. Flock. I would not think so.
Senator Vandenberg. And then bid on nothing else?
Mr. Flock. That is it — and then bid on nothing else. Agree as to which they
would bid on, and do not bid on anything else.
Senator Vandenberg. And, as a matter of fact, what actually happened was
that after they did get together, as indicated in this letter, and did agree on what
each was to have, ahead of the bidding, they did only bid in good faith upon
the things that tiiey wanted themselves, and each of the other shipbuilders in the
"big three" did not put in competitive bids against those categories which had
been agreed upon, but did put in so-called "protective" bids. That is what
happened, is it not?
Mr. Flock. I do not know sir.
Senator Vandenberg. But you were there in 1933.
Mr. Flock. Yes, sir; I was there.
Senator Vandenberg. And New York Ship got the contracts upon which it
actually prepared full sets of estimates and actually submitted good-faith bids.
You got everything you tried to get, did you not?
Mr. Flock. I do not know that. Senator. Mr. Bardo will know, of course.
Mr. Flook, was questioned further concerning 1933 and Mr. Bardo's
letter to iiini (Feb. 11, 1935, galley 64 ZO):
Senator Clark. As a matter of fact, the company started back uphill after the
failure of the Geneva Conference, accompanied by the naval building program
in 1927. Is that not a fact?
Mr. Flock. As to date, yes.
Senator Bcne. Mr. Flook, you say all this business was going on between the
Navy and Mr. Bardo, in fixing up tliese bids, was all open and aboveboard. Am
I correct?
Mr. Flock. No; I did not say that. Senator.
Senator Bcne. Do you care to connnent further on the character of it? Do
yoi tliink it was open and aboveboard?
Mr. Flock. I do not tliink anything about it.
Senator Bonk. Then one miglit be tempted to ask why it was that Mr. Bardo
said the Navy or naval oflicials are desirous of finding some substantial reasons
for awarding tliis work and petting the thing done, Mr. Flook, in paragraph 4.
You tliink Mr. Bardo and the Navy officials were anxious to find some sub-
stantial reasons for framing up the new deal? That is right, is it not?
Mr. Flock. It would seem so from the letter.
Senator Bone. It appears on the face of the letter.
Mr. Flock. Yes, sir.
MUNITIONS INDUSTRY 67
Mr. Bardo testified concerning his letter to Mr. Flook of June 22,
1933, announcing: in advance of the bidding what the situation would
be. (Apr. 5, galleys 94 and 95 WC.)
Mr. Raushenbush. Will you explain the next paragraph, after "I know from
my talks with some of the representative of the Navy" [reading]:
There was also expressed to us the desire that the builders themselves
should get together and agree as far as we could upon what each would
bid and then bid on nothing else.
That seems to convey, in view of the previous paragraph, that it all came from
the Navy.
Mr. Bardo. It all had its genesis in the group of men here trying to work out
a code, and everj^body talked about it in different ways. There was no direct
information that I had from the Navy.
Mr. Raushenbush. Did somebody discuss it with the Navy?
Mr. Bardo. I do not know. I am reciting the ordinary kind of conversation
which went around that table at the Mayflower Hotel, in that group, _ when
"we were discussing our code and the new program, and all the things which we
thought might happen. I must apologize for using that particular kind of
language, because it is not just what 1 wanted to convey. I was not particular
enough to say where the genesis of it all was.
Mr. Raushenbush. The letter goes on [reading]:
The situation as it stands now is substantially as follows:
Then you give on June 22 a list of what every body is going to get, which later
turns out to be right.
Mr. Bardo. Not what every body was going to get, but what they were going
to bid on. Ordinarily in bidding on a cruiser, we have 60 days to get it in, and
prepare our estimate.
Mr. Raushenbush. Pardon me. I did not understand your statement. This
states [reading]:
There was also expressed to us the desire that the builders themselves
should get together and agree as far as we could upon what each would bid
and then bid on nothing else. The situation as it stands now is substantially
as follows:
Newport News: The two airplane carriers which while not duplicates of
the Ranger, but of similar type.
Bethlehem: The 10,000-ton 8-inch cruiser, a duplicate of the ship which
they are now building.
New York Ship: A new 10,000-ton 6-inch cruiser, and a distribution of
the 8 destroyer leaders.
And then you evaluate it. My question was as to whether that was not
w'hat they bid on, but what they got. They did get these things.
Mr. Bardo. We decided we would have to divide up this work, and we could
not bid on all of it. for the practical reason I have outlined. We had to make
some division, and if we were going to cooperate with the Government, we had
to make some decision among ourselves as to what we could do. I could not,
for the life of me, and nobody else, if I wanted to be cooperative, say in this
situation that I was going to get designs on more than one type of ship. The
thing would be delayed interminably, and you would never get started. It was
a practical matter, and we looked at it as a practical thing. Each man wanted
to do the best he could, and do it the quickest, and we though we had a right to
do it, and proceed on that theory. There was no question at all about it.
Mr. Raushenbush. Do v/e gather at the time that this more or less big idea
was being discussed, that it might be up to the shipbuilders to decide about
allocation, which was later revealed, I take it?
Mr. Bardo. Yes, sir.
Mr. Raushenbush. But at the time it was being discussed the plans were
that Newport, Bethlehem, and New York Ship would proceed along the line
you outline here?
Mr. Bardo. That is the plan which we set up. If we were going to cooperate
and be limited by the things which we could not overcome, the bonding re-
quirements, that we had to decide the things which we could do, and do the
most intelligently, so that we v/ould get started without delay.
68 MUNITIONS INDUSTRY
Later, the question of approval of the tentative allocation was
raised (galley 95 WC):
Mr. Raushenbush. Coming back to the direct question, how could you write
the chairman of your corporation, Mr. Bardo, that this was the situation at the
time, when j^ou were opposing the business of having the ship companies them-
selves allocate business, and Mr. Ferguson was also opposing it, and yet you say,
in spite of that, "The situation, as it stands now, is substantially as follows", and
then you discussed what seems to be the division, which later on worked out to
be correct. How could you say that without having some authority for it, with-
out having at least the api:)roval of the Navy for that sort of thing? Who else
would there be to approve it?
Mr. Bardo. There would not be anybody else to approve it.
IMr. Raushenbush. How does the situation get to be that way?
Mr. Bardo. What is the particular application you want to make of the
language? Let us get that straight.
Mr. Raushenbush. I am a little confused myself. You see what I have got in
my mind is this: That apparently about the time you wrote this letter, you did not
think that this business of having the private shipyards do the allocating would
work.
Mr. Bardo. No.
Mr. Raushenbush. And Mr. Ferguson did not think it would work?
Mr. Bardo. No.
Mr. Raushenbush. And that being the case, you are by your letter saying that
if the shipj^ards were doing the allocation, that is the way they would allocate it.
It must be a letter saying something else. I mean, I am drawing the inference.
It must be a letter saying that somebody else has agreed on this sort of thing, or
this is the situation, other than the shipbuilders see it.
Mr. Bardo. You miss the point entirelj'.
Mr. Raushenbush. I may.
Mr. Bardo. Yes; you do. As I said at the beginning this was a practical
question, with the big problem of getting certain people to work. How could it
be more effectively done, was the problem with which we were confronted. It
would take me, or any other shipyard, 3 months to get ready and go ahead with
the airplane carriers. That was not going to help to do the job at all. It would
take any yard as long as that. As a matter of fact, it took us 3J^2 months to
get the contract plans for the 6-inch cruisers, but we did have other details to
work out, and I spent $40,000 in developing those plans up to that point, which
I did not want to throw away.
We did not have anj-thing on the 8-inch gun cruiser, because it was as bad as
a different ship.
Mr. Raushenbush. You bid both on the light and heavy cruiser in 1934, did
you not?
Mr. Bardo. I have got it here, and I think I can tell you what I did do.
August 15; yes, sir. We bid on a heavy cruiser and we bid on the light cruiser,
but I did not want the heavy cruiser and was not interested. I submitted a
quotation, that is all. It is not a price; it is a quotation.
(d) Later, the discussion with competitors was testified to by
Mr. Bardo (galleys 96 and 97 WC):
Mr. Raushenbush. Will you explain for us, as a matter of technicality, how
after the Navy threw out these bid.s for the armored cruiser, how you arranged
with them to get the award for the light cruiser? There has been some question
raised about that.
Mr. Bakdo. Admiral Land called me up one day, along about noon, on the
telephone, and said, "The Assistant Secretary wants to sec you and wants you
to come to Washington this afternoon", and I said, "Yes." And I jumped on a
plane and came to Wasliiiigton and went to see Admiral Land, and he said, "He
wants to see you about tlie light cruiser." And I said, "Yes." And 1 went in
to sec The Assistant Secretary, Roosevelt, and he said:
We would like to have you build tliis third light cruiser, which is different
from wluit you got, but I cannot pay you your price, and cannot pa}- you
over $12,000,000, because that is the limit in the appropriation for it.
We talked a few minutes about it, not over 5 at tlie outside, and I said, "I
want to accommodate you as far as I can. In view of what you sjiv, I will
undertake to build the job for $11,975,000", and he made the award on that basis,
and that is all there was to it.
MUNITIONS INDUSTRY 69
Mr. Ratjshenbush. How much reduction was that from your bid?
Mr. Bardo. Around $500,000, I would say.
Mr. Raushenbush. Suppose one of your competitors did that. Suppose the
Navy had, after all the bids were in, gone to one of your competitors and had
said, "If you wipe off $500,000 from your bid we will give you the ship", without
taking vour competitors into the situation; would you not be rather sore about
that?
Mr. Bardo. No; that has happened to me before- I would not have been
sore about it. Life is too short.
Mr. Raushenbush. You mean the Navy has done it?
Mr. Bardo. Yes.
Mr. Raushenbush. On what?
Mr. Bardo. The destroyers.
Mr. Raushenbush. Who is that?
Mr. Bardo. I do not want to go into that sort of discussion.
Mr. Raushenbush. These are definite questions.
Mr. Bardo. It was done on the destroyers.
Mr. Raushenbush. When?
Mr. Bardo. On the Farragut and Dewey.
Mr. Raushenbush. When?
Mr. Bardo. 1931 or 1932, whenever those ships were ordered.
Mr. Raushenbush. You mean a certain amount of price was lopped oflf?
Mr. Bardo. The price was not lopped off, but something else was done which
had the same effect.
Mr. Raushenbush. What was done?
Mr. Bardo. The invitation limited to a contract bid on the Navy's plan. We
were submitted an alternate plan. We had one, but we were told they did not
want any alternate plans. The Bethlehem submitted an alternate plan, better
than the one we bid on, with higher speeds and greater guaranties, and, very
obviously, the Navy took it, and I never raised any question about it.
Mr. Raushenbush. That is the only other instance you remember?
Mr. Bardo. That is the only other instance I remember in navy yards. It
has happened to me in merchant work several times.
Mr. Raushenbush. Have you said everything you want to say about the
1934 bidding?
Mr. Bardo. I do not think there is anything, Mr. Raushenbush. There may
be some things about which you want to know.
Mr. Raushenbush. Were there the same sort of talks as there were dis-
cussed here in this letter, or were there no such talks?
Mr. Bardo. No; there were no such talks on the 1934 program. There was
no such discussion, because there was not so much there, and it was free for all,
and everybody could go into it if they wanted.
Mr. Raushenbush. Coming back to 1933, there are a few questions there.
You said a few moments ago that you went to your competitors and told them
that you wanted to bid on the P. W. A. work and did not you have a conflict
between the increase of the Navy and the P. W. A., which is understandable?
Which competitor was that?
Mr. Bardo. Both Bethlehem and Newport News, because I did not know what
they were going to bid on.
Mr. Raushenbush. Whether they want the P. W. A. or the increase in the
Navy?
Mr. Bardo. Bethlehem's work was under the increase of the Navy work, and
they wanted to bid on the leaders, the leaders being under the increase to the
the Navy, and his work would all be under one appropriation.
Mr. Raushenbush. As far as the actual bidding goes, how does one do that?
Does one tell the Navy, "You are advertising so much, and I want those under
that?"
Mr. Bardo. I could only bid on 4 out of 8, and I made it low for the 4 I wanted,
and on the 4 I did not want, I just put in a complimentary bid, and I was not
interested in that at all.
Mr. Raushenbush. You have read the testimony of Mr. Langell pretty thor-
oughly, as to what he said was wanted in 1933 and 1934?
Mr. Bardo. I do not recall reading his testimony, but I think I heard some of
it.
Mr. Raushenbush. He substantiates exactly what you said here; on the things
you wanted real estimates were made.
Mr. Bardo. That is right.
70 MUNITIONS INDUSTRY
Mr. Raushenbtjsh. And you got them; and on the things you did not want
there were no estimates to speak of.
Mr. Bardo. If we had been required to make real estimates on all those — the
practical question, as I say, closed it out at the beginning — the bids could not
have been awarded before the 1st of January. You could not have done that in
3 or 4 months, the very best you could do. You just could not do it.
The Chairman. Now, Mr. Bardo, what is a "complimentary bid"?
Mr. Bardo. It is a bid put in high enough so that you know you won't get it.
The Chairman. Who is that a compliment to?
Mr. Bardo. I do not know.
Mr. Raushenbush. Here Mr. Langell says:
I was told to concentrate on the 1,850's and the light cruisers, with the
distinct understanding that was what the firm would like to have.
Mr. Bardo. That is right.
Mr. Raushenbush. You have been very frank today to me, Mr. Bardo. When
did you decide to do this gambling on the light cruisers and the destroyer leaders?
I gathered the impression that you dated that fact in 1932.
Mr. Bardo. We did. Working on the Tuscaloosa, the engineering work was
running out, being the only ship we had, and because we had a lot of men who
must go on the street otherwise, we decided to take the gamble on that. We
said, "This is a new job, a new program, and is the thing to concentrate on."
The whole matter of 1933 discussions prior to the bidding was
brought out again at the end of the hearings on April 5 (galley 3 YD).
Mr. Raushenbush. Just one more question.
Mr. Bardo, if we gather the testimony this morning correctly, you knew pretty
well what every other competitor was specializing in, and presumably what they
wanted. Did that apply the other way? Did they know pretty well what you
were specializing in and what you wanted?
Mr. Bardo. I had to disclose the fact that I wanted to bid on the N. R. A.
stuff. I went very frankly to them and told them that, because I did not want
a mixup of the two appropriations.
Mr. Raushenbush. That applies to Bethlehem and who else?
Mr. Bardo. Newport News.
Mr. Raushenbush. And gave them a very good idea of what you wanted and
what the}' wanted, did it not?
Mr. Bardo. Yes; it would not take a bright man to guess at what I wanted.
Mr. Raushenbush. They are not dumb at all?
Mr. Bardo. No; certainly not.
Mr. Raushenbush. So that the situation was, practically everybody knew
what everybody was specializing in and what they wanted? Is not that correct?
Mr. Bardo. Well, you say "everybody." I will say I know what I wanted.
Mr. Raushenbush. The others, not being so dumb, inside the "big three",
knew? Has not that been the case always?
Mr. Bardo. No, sir; it certainly has not.
Mr. Raushenbush. It began in 1933.
Mr. Bardo. That was the only time it started, and we carried out what we
thought the administration wanted, and we did the best we could to carry it out.
Mr. Raushenbush. We have information on the other years.
The Chairman. Do you not consider that fixing prices, Mr. Bardo?
Mr. Bardo. How is that?
The Chairman. If you can eliminate competition, you can fix prices, can
you not?
Mr. Bardo. You can, if the fellow buying considers it a fair price. You must
consider the fellow buying when you talk about fixing prices.
(e) In regard to the question of whether the shipbuilders consulted
with each other before putting in bids for naval vessels, there is this
evidence.
Mr. Yard, secretary to Mr. Bardo, of New York Shipbuilding, for
8 years, stated it was done. Mr. Bardo admitted he did it in 1933
(infra, p. 53), The other shipbuilding officials denied having done so,
except as to general discussions of allocation in 1933.
Mr. Yard's testimony was given on February 11 (galley 50 ZO).
MUNITIONS INDUSTRY 71
Senator Vandenberg. In connection with the letting of these various naval
contracts from time to time — and subsequently I want to go into each year with
you — what other shipbuilding corporations in the country were particularly in-
terested in these same contracts along with New York Ship?
Mr. Yard. You mean the main competitors of New York Ship — these so-
called "competitors"? It would be — Newport News, Betliiehem Shipbuilding
Corporation, Sun Ship, and Federal would probably be the main ones.
Senator Vandenberg. Did you say they wei'e the so-called "competitors"?
Mr. Yard. They were the competitors of the New York Shipbuilding Co. ; yes.
Senator Vandenberg. When Mr. Bardo was preparing the bids of New York
Ship upon these various naval contracts, was he in communication with Betliiehem
and Newport at any time?
Mr. Yard. Well, yes; I imagine so.
Senator Vandenberg. You are pretty sure of that, are you not?
Mr. Yard. Well, yes; he was.
Senator Vandenberg. Did you ever hear Mr. Bardo communicate for example,
with Mr. Ferguson, of Newport News Ship, regarding bids which were going to
be submitted on these contracts?
Mr. Yard. Well, of course, the shipbuilders were all bidding on the same class
of work, and they had their shipbuilders' association, and they probably talked
things over, I suppose, a little bit.
Senator Vandenberg. What was this association they had? Let us start at
that point. What was the nature of this association?
Mr. Yard. That was an association of shipbuilders which was, I imagine,
probably formed by the three largest shipyards, namely, New York Ship, New-
port News, and Bethlehem. Of course, all the others came into the picture.
The association was supported by contributions, I think on a per head basis.
In other words, there was a charge; each one contributed an amount in propor-
tion to the number of employees that that particular shipyard had.
Senator Vandenberg. Now, you sat in Mr. Bardo's office for 8 years, and
you know what was going on. Would you say that the members of this asso-
ciation were in more or less constant contact with each other in respect to business
of bidding?
Mr. Yard. If I answer that at aU — and I am under oath — I will have to say
that I think that that is probably so.
Senator Vandenberg. You are under oath, and the oath runs through the
entire series of questions. Let us take, for example, the 1934 contracts. Before
New York Ship's proposal was submitted in 1934, do you know whether Mr.
Bardo communicated with Mr. Ferguson or Mr. Wakeman of Bethlehem, ahead
of the bidding, in connection with what the bidding would be?
Mr. Yard. Well, as I say, through their association et cetera they were in
touch with each other quite often.
Senator Vandenberg. Were they not in touch with each other over the
telephone?
Mr. Yard. Yes; they would call each other up over the telephone quite
frequently.
Senator Vandenberg. And would they discuss their bids?
Mr. Yard. They would discuss business in general.
Senator Vandenberg. Would they discuss their bids?
Mr. Yard. Well, of course, that was their main line of business. Senator.
Senator Vandenberg. The answer is "yes", is it not?
The Chairman. They did discuss bids over the telephone, did they not?
' Mr. Yard. I believe they did. Senator.
The Chairman. Do you not know they did?
Mr. Yard. Yes; I know they did.
Senator Vandenberg. They would discuss bids before the bids were put in.
Is that the situation?
Mr. Yard. Oh, yes; yes.
Senator Vandenberg. Would they indicate to each other what they intended
to bid and the particular ships they were going to bid on?
Mr. Yard. Well, I think it was pretty generally understood among themselves
as to what they each preferred to receive, and I think there is not very much
doubt that they tried to come to some such conclusion; that is, as to what they
should want.
A little later he testified (galley 51 ZO):
Senator Vandenberg. Would there be frequent conversations when the Gov-
ernment was going to open bids on one of these jobs?
72 MTJl^riTIONS INDUSTRY
Mr. Yard. They seemed to keep in pretty close touch with each other.
Senator Vandenberg. Yes. And, so far as you know, each one of them knew
pretty much what the other one knew. Is not that about right?
Mr. Yard. Most of the time I think that is so.
The Chairman. Did Mr. Bardo indicate from time to time any knowledge of
what his competitor was going to do?
Mr. Yard. It was pretty common knowledge around what each yard was go-
ing to get, and it turned out that that was what they did get, almost 100 percent.
Senator Clark. Mr. Yard, you said a while ago that there had been conver-
sations over the telephone which indicated what each company wanted. But
each company was in the habit of submitting bids on all the ships, those they
did not want as well as those they wanted, were they not?
Mr. Yard. Yes, sir.
Senator Clark. For instance, if New York wanted cruisers, they would also
submit bids on destroyers and airplane carriers, which would be protective bids
for the other companies, would they not? They would be so high they knew
they could not get them.
Mr. Yard. If they did not want that class of work, that is probably the
procedure.
Senator Clark. If they did not want the work, they would submit a bid anyhow,
but would submit a bid which would be high enough that they knew that they
would not compete with the company which actually wanted the work?
Mr. Yard. Either kill that or kill "it by a long-time delivery.
Senator Clark. Do what?
Mr. Yard. Time delivery enters into the bid also.
Senator Clark. Either as to price or time delivery, or some other condition,
but they would make a protective bid, would they not, protecting the other com-
pany which was to get the work? Was not that common practice?
Mr. Yard. You might infer that. Senator.
Senator Bone. You could not draw any other inference from that sort of
situation, could you? You could only conclude from the facts that that was
actually done. Is not that the case?
Mr. Yard. That would be the inference you would draw.
Senator Bone. It would be a verv legitimate inference from the facts, would it
not, Mr. Yard?
Mr. Yard. Yes; it would.
Senator Vandenberg. Mr. Yard, when did Mr. Kaltwasser come with New
York Ship?
Mr. Yard. I think he came there towards the end of 1933.
Senator Vandenberg. And in what capacity?
Mr. Yard. Well, he came down there, it was generally understood, as Mr.
Cord's direct representative.
Senator Vandenberg. Did he have a good deal to say about what was going on?
Mr. Yard. We all thought he had a great deal to say.
Senator Clark. He was regarded throughout the plant as the "power behind
the throne", was he not?
Mr. Yard. Absolutcl\\
In regard to the bidding for naval vessels in 1927, 1929, 1931,
1933, and 1934, Mr. Yard testified that the "Big Three" conipanies
had conferred about how the bidding was to be done (Feb. 11, galley
54 ZO).
Senator Vandenberg. Mr. Yard, now there were big contracts let in 1927,
1929, 1931, 1933, and 1934, and, as I understand it, you were in a close con-
fidential capacity with Mr. Bardo during each of those five episodes. That is
correct is it not?
Mr. Yard. Yes, sir; I was there during that time.
Senator Vandenberg. During all of those five incidents, when the New York
Ship made up its bids, you knew all about it. You sat in at the conferences when
the matter was discussed?
Mr. Yard. They were discussed right in the presence of us there, and I was
in his office; yes. I had nothing to do with the preparation of the bids, however.
Senator Vandenberg. I understand that. But, based upon the knowledge
that you inevitably gained in that intimate cai)acity, what is your answer to
this question: Did the Now York Ship confer with Bethlehem and Newport
News in each instance in advance of bidding respecting the classification of ships
MUNITIONS INDUSTRY 73
upon which each was going to bid, which each wanted to get, and how the
bidding was to be done to produce that net result?
Mr. Yard. Do I have to answer that question, Mr. Senator?
Senator Vandenberg. Yes, sir; I find it necessary to ask you to answer it.
Mr. Yard. Well, of course, as I say, they had this association
Senator Vandenberg. Never mind the association. That question is sus-
ceptible of a yes or no answer.
Mr. Yard. I guess I will have to answer "yes", Senator.
Senator Vandenberg. That is all so far as I am concerned.
A little later he was asked specifically about 1933 by Senator
Vandenberg and Senator Clark. He testified (galley 54-55 ZO):
Senator Vandenberg. Now, Mr. Yard, just in conclusion, if we had had
testimony that there were no consultations between the "big three" preceding the
bidding in 1927, that testimony is not true; is that correct?
Mr. Yard. Well, as I say, they had their associations, Mr. Senator.
Senator Vandenberg. I understand. Never mind the association. But the
blunt basic fact, if there is testimony that there was no consultation between
New York Ship, Bethlehem, and Newport, respecting the 1927 bidding, prior to
the bidding, that testimony is not true? Is that your estimate of it?
Mr. Yard. You are going back to 1927 now?
Senator Vandenberg. I am starting at 1927; yes.
Mr. Yard. That is a long while to remember about that, Senator.
Senator Vandenberg. Do you remember a little better about 1933?
Mr. Yard. That is a little nearer by.
Senator Vandenberg. All right. I will ask you about 1933. If there is any
testimony that there were no consultations in 1933 between New York Ship,
Newport, and Betlilehem in advance of the bidding, that testimony is incorrect?
Is that right?
Mr. Yard. Well, it is very questionable in my mind.
Senator Vandenberg. The answer is that the testimony is incorrect, as j'ou
view it?
Mr. Yard. I would say it was very questionable.
Senator Vandenberg. As a matter of fact, that is a question you can answer
"yes" or "no", Mr. Yard, and just choose one or the other, will you?
Mr. Yard. You are forcing me to answer that one?
Senator Vandenberg. I certainlj^ am.
Mr. Yard. Will you state the question again, please, so that I do not answer
it the wrong way?
Senator Vandenberg. All right; I will state it again. In connection with the
1933 naval contracts, if we have testimony which asserts that there were no con-
sultations respecting bids and allocation of work between New York Ship,
Bethlehem, and Newport preceding the bidding, that testimony is incorrect?
Mr. Yard. To the best of my belief; yes.
Senator Vandenberg. That is all.
Senator Clark. You know, do you not, Mr. Yard?
Mr. Yard. I am rather sure. Senator, but it is a hard thing.
Senator Clark. You testified one waj^ here and if these other gentlemen
testified directly at variance with your testimony, then they are not telling the
truth according to your story. Is not that true?
Mr. Yard. Either that or they simply have mental paralysis.
Mr. Bardo denied Mr. Yard's testimony on April 5 (galley 97 WC).
Before the bids were opened in 1933 Mr. Bardo instructed the com-
pany treasurer to buy certain materials (Apr. 5, galley 1 YD):
Mr. Raushenbush. Under date of July 11, 1933, we find here a note from you
to Mr. N. R. Parker, Mr. Bardo, saying [reading]:
"I have authorized Mr. Meeker to purchase copper, tin, and cast iron to
meet our anticipated requirements for the Nav}' program at once, at an
estimated cost of about $75,000."
Then you write on the same note:
Dear Mr. Flock: This is in addition to about 80,000 pounds of copper
purchased a little while ago at 5 cents a pound, which is now on hand and
available for the new contracts.
"This is all we have been able to do at the present time in view of the
uncertainties of the administrative code."
74 MUNITIONS INDUSTRY
Do you identify your signature on that, Mr. Bardo [handing paper to witness]?
Mr. Bardo. Yes.
Mr. Raushenbush. I offer that for the record.
(The letter referred to was marked "Exhibit No. 1907" and is included in the
appendix on p. — .)
Mr. Bardo. I would like to comment on that.
Mr. Raushenbush. Yes, indeed.
Mr. Bardo. That is an ordinary process. Whenever the prices of the basic
metals were low, why, we would buy that stuff and turn it over to our men who
handled our contracts, because they did not have working capital to do it. So
that we would do it. Our money was lying idle in the bank, and we would buy
this material and turn it over to them, and if thej' manufactured that stuff for
us under the contract, the stuff would come back. There is nothing new or novel
in that. That is an ordinary procedure. We do that all the time.
Mr. Raushenbush. You must have had some certainty of getting the naval
contract.
Mr. Bardo. I had no certainty, but was going after it. I was willing to take
the gamble, however. That is an ordinary procedure and nothing new about it.
(J) It is hard to understand how any intelligent discussion could
have been carried on by one company without its being divulged to the
other two companies what each of the three wanted, were specializing
in, planned to bid seriously on, and planned to put in liigh bids on.
Air. Bardo, questioned about the letter, stated that he had told
his competitors what he wanted to secure from the bidding.
His testimony (Apr. 5, galley 92, 94 'WC) gives an explanation of
New York Ship's concentration on the hght cruisers and the destroyer
leaders in 1933 to the exclusion of other ships, although bids were
entered for all ships.
He also made the important point that no bonding company would
bond a yard for over $40,000,000, and it was therefore necessary for
the yard to decide "what part of that work necessarily would best
fit our situation."
The desire not only to get those particular ships but to get them
all under the P. W. A. appropriation led to the discussion with the
comi)etitors.
Mr. Bardo. I should be very happy to do that.
In 1932 — I will start there because that is where the program started — as the
work on the Tuscaloosa, that is, the engineering end of it, gradually reduced, we
were confronted with the problem as to what we would do with the drafting
forces that would otherwise be laid off. When after two or three conferences,
this conclusion was reached: There were only 2 more out of the group of 15 of
the original S-inch cruisers authorized to be built, 1 of wliich to be built in navy
jards and 1 of which to be built in private yards under the Dallinger amendment.
So that we concluded we would waste no time with our engineering force in
any furtlier rcfinoments of the 8-incli-class cruisers, but that we would devote
our time and our energies to developing, just as far as we could, information that
would be valuable to us in the development of a further program of 6-inch
cruisers.
So that our technical forces and scientific division, when relieved of work on
the Tuscaloosa, were delegated that work, rather than to lay them off. I think
early in 1933 we got some information, more or less indirectly, as to about what
the program would be as to destroyer loaders, and as to the C-inch-gun cruisers.
So we went to work on developing a plan which would permit of the largest
amount of duplication of machinery and auxiliaries, as between the 1,850-ton
destroyer leaders and the G-inch-gun cruisers.
As a result of that study we did develop a plan which standardized the boilers,
all their propelling machinery, and auxiliaries of those two classes of ships. In
other words, we had the same turbines; not the same gears, because we had a
different propeller speed, but all of the other auxiliaries that went with it. It so
happened that the destroyer leaders, the maximum horsepower to be developed
there, was just half of the maximum horsepower that was to be developed on the
6-inch-gini cruiser. So that it worked out that it made an ideal situation.
MUNITIONS INDUSTRY 75
And we proceeded on that theory of developing, just as far as we could, in the
absence of more definiteness, those plans to the fullest extent that we could go.
Now, we did not know anything about the program that finally came out of
the Public Works appropriations until, I think, it was announced in the press.
That was the first I saw it, and I think it was the first that anybody knew any-
thing about it.
The Chairman. You mean, you had no conception that any such thing as the
Public Works program was in mind?
Mr. Bardo. So far as Navy work is concerned. We had no knowledge until
it was announced in the public press. I know that is the first I had, and I do
not think anybody else had knowledge about it.
Early in May we received the first invitation to bid, and shortly after that I
think this pronouncement was made, and then we were told to hold off; that they
would rather put this program together and do it all at one time, rather than
make two bites at the cherry.
But we continued on and developed what turned out to be real competitive
plans for both these 1,850-ton destroyers and the 6-inch-gun cruisers, and our
plans were so much better than the plans submitted by our competitor, who
was working on the same thing, namely, the Bethlehem Shipbuilding Co., that
when the bids were finally submitted, that we were given the award for making
the plans, not only for the 1,850-ton destroyers, of which there were to be 8 built,
but only 4 of which any yard could bid on — you could not bid on more than 4 —
and there would be 2 cruisers in private yards and 2 cruisers of that type to go
into the navy yards.
When this program came out, we were faced with a very practical question.
In other words, there could not be any one yard bid on all of the work, and get it,
even if it did, and could not have it, if they did it. And no one yard could protect
themselves by a suitable bond. No bonding company would take the obligation
for that amount of work in any one yard. And we were definitely informed by
our bonding people that they would not go beyond $40,000,000 under anj^ cir-
cumstances. And we were then faced with the alternative of deciding what part
of that work necessarily would best fit our situation.
Having faced those facts, over which we had no control, we proceeded to
develop, just as carefully and as fully as we could, very careful estimates as to the
cost of building the destroyer leaders and the two 6-inch-gun cruisers.
Now there was another thing that embarrassed us, and that was the fact that
these 1,850-ton destroyers were divided under two appropriations. One was
an appropriation under the increase of the Navy, and the other was an appropria-
tion under the P. W. A. Act. That was the 6-inch-gun cruiser.
So that I went to our competitors and I said to them that I wanted to bid on
the P. W. A. work, because, if I got anything, I did not want to have in the yard
work carried under two different appropriations, because you can see it might very
necessarily follow that the P. W. A. would change their rates, change their hours,
as compared with what might be imposed upon us under a straight increase in
the Navy appropriation. So that I bid on the four 1,850-ton destroyers, that
were under the P. W. A. Act, and I bid on the 6-inch cruisers under the P. W. A.
Act, and we were awarded, as a result of the bids, that work.
Mr. Bardo was questioned further about the language he used in
the letter (Apr. 5, galleys 94, 95 WC).
Mr. Bardo. That letter, gentlemen, is something which has created a great
deal of consternation and havoc. The letter was written to Mr. Flook as a result
of conferences which we had here. If you wiU look at the letter, it dealt with
two things. First was the matter of allocation. As a result of the National
Industrial Recovery Act, and the President's Bulletin No. 1, the impression was
very general in the slypbuilding fraternity — and there were about 25 men here
from all over the United States engaged in our code work — that there was a
situation where the shipbuilders could do things they had never done before.
There was no question in their minds about it. They felt they had a right to go
on and do these things and allocate these ships. I opposed it, because I did not
think it was the thing to do. I felt that the Government was entitled to compe-
tition in price, regardless of where the work finally went, and if the competition
in price did not distribute it, it would be too bad to all. I opposed this because
I did not think it was sound. I wrote the letter to Mr. Flook, dealing with two
things: First, the allocation, and, second, about the Navy.
I was guilty of using some language there which was not entirely justified, as
far as the Navy is concerned, because I had no direct authority, or no direct
76 MUNITIONS INDUSTRY
contact with any officer of the Navy, wherein I would have been authorized to
make that particular statement.
Mr. Raushenbush. One paragraph of that letter reads:
I know from my talks with some of the representatives of the Navy, who
are keenly interested in this work, that they are desirous of finding some sub-
stantial reasons for awarding this work to the largest possible extent to
private yards upon whom they must rely for the necessary engineering to
complete the ships.
Do you mean to convey there was no such talk?
Mr. Bardo. They are one and the same thing; the substantial reason was the
engineering reason.
Mr. Raushenbxjsh. But were there such talks with representatives of the
Navy?
Mr. Bardo. It was generally talked. I cannot say that I had not talked with
a direct representative of the Navy, and I do not want to create that impressfon,
because it would not be fair.
The Chairman. You speak of your talks with the Navy.
Mr. Bardo. I say that was not true. I did not have those direct talks, but it
was talked around about in the group.
The Chairman. Is your memory as good now as it was on June 22, when you
were reporting these matters?
Mr. Bardo. I do not know whether it is or not. It depends on w'hat talks you
mean.
The Chairman. If you said you had talks with representatives of the Navy,
you must have had.
Mr. Bardo. I say, that was language which I had no authority to use in that
form.
The Chairman. It was very unwise using it, then.
Mr. Bardo. Yes.
The Chairman. You did not have talks with representatives of the Navj-?
Mr. Bardo. No.
The Chairman. Then your letter to Mr. Flook was a falsehood?
Mr. Bardo. No; it was not a falsehood.
The Chairman. What was it?
Mr. Bardo. I should have said what happened. If I said it was the conversa-
tions of the group, I would have told exactly what it was. That, I did not say.
Mr. Raushenbush. Will you explain the next paragraph, after "I know from
my talks with some of the representatives of the Navy [reading]:
There was also expressed to us the desire that the builders themselves
should get together and agree as far as we could upon what each would bid
and then bid on nothing else.
That seems to convey, in view of the previous paragraph, that it all came from
the Navy.
Mr. Bardo. It all had its genesis in the group of men here trying to work out
a code, and everybody talked about it in different ways. There was no direct
information that I had from the Navy.
Mr. Raushenbush. Did somebody discuss it with the Navy?
Mr. Bardo. I do not know. I am reciting the ordinary kind of conversation
which went around that table at the Mayflower Hotel, in that group, when we
were discussing our code and the new program, and all the things which we
thought might happen. I must apologize for using that particular kind of
language, because it is not just what I wanted to convey. I was not particular
enough to say where the genesis of it all was.
Mr. Raushenbush. The letter goes on [reading]:
The situation as it stands now is substantially as follows:
Then you give on June 22 a list of what everybody is going to get, which later
turns out to be right.
Mr. Bardo. Not what every body was going to get, but what they were going
to bid on. Ordinarily in bidding on a cruiser, we have GO days to get it in, and
prepare our estimate.
Mr. Raushenbush. Pardon me. I did not understand your statement.
This states [reading]:
There was also expressed to us the desire tliat the builders tlieniselves
should get together and agree as far as we could upon what each would bid and
MUNITIONS INDUSTRY 77
then bid on nothing else. The situation as it stands now is substantially
as follows:
Newport News: The two airplane carriers which while not duplicates of the
Ranger, but of similar type.
Bethlehem: The 10,000-ton 8-inch cruiser, a duplicate of the ship which
they are now building.
New York Ship: A new 10,000-ton 6-inch cruiser, and a distribution of the
eight destroyer leaders.
And then you evaluate it. My question was as to whether that was not
what they bid on, but what they got. They did get these things.
Mr. Bardo. We decided we would have to divide up this work, and we could
not bid on all of it, for the practical reason I have outlined. We had to make
some decision, and if we were going to cooperate with the Government, we had
to make some decision among ourselves as to what we could do. I could not,
for the life of me, and nobody else, if I wanted to be cooperative, say in this
situation that I was going to get designs on more than one type of ship. The
thing would be delayed interminably, and you would never get started. It was
a practical matter, and we looked at it as a practical thing. Each man wanted
to do the best he could, and do it the quickest, and we thought we had a right to
do it, and proceed on that theory. There was no question at all about it.
Mr. Raushenbush. Do we gather at the time that this more or less big idea
was being discussed, that it might be up to the shipbuilders to decide about
allocation, which was later revealed, I take it?
Mr. Bardo. Yes, sir.
Mr. Raushenbush. But at the time it was being discussed the plans were that
Newport, Bethlehem, and New York Ship would proceed along the line you outline
here?
Mr. Bardo. That is the plan which we set up. If we were going to cooperate
and be limited by the things which we could not overcome, the bonding require-
ments, that we had to decide the things which we could do, and do the most
intelligently, so that we would get started without delay.
Admiral Robinson was asked to comment on Mr. Bardo's statement
that he had consulted with Bethlehem and Newport News before the
1933 bidding (Apr. 11, galley 39 YD):
Admiral Robinson. It is perfectly obvious from the reading of that testimony,
that those shipbuilders had some sort of discussion before these bids were opened.
What they said, or what they agreed to, it would be very difficult or impossible
for me to say, from what I know of the testimony. I would like to reiterate here
what I have said before, that I am not at all familiar with the general run of the
testimony which has been given before this committee. I know of only the one
witness, Mr. Homer, whose testimony was sent down to me. But it is perfectly
obvious, from that particular testimony, that some particular discussions took
place. What it was, I do not know. It is quite impossible to say. It might
have been one thing or another, and it would be very difficult, without knowing
all the testimony that has been given before this committee, to express an opinion
that would be of much value.
In other words, I think the members of the committee are in a much better
position to draw a conclusion with regard to that than I am.
Mr. Raushenbush. One of the result-; Mr. Bardo described of this was that
he bid on the 1,8.50-ton destroyers in 1933, and did not bid against Bethlehem,
which was getting an increase of the Navy award, and that he put in a compli-
mentary bid, and he was asked what the phrase "complimentary" was, and he
said, "That means a bid so high we won't get it."
Then he describes going to Newport, the other competitor, which was a com-
petitor on cruisers, of course.
Here we have $38,000,000 worth of work being discussed between the different
competitors, with different results, that they would not get in each other's way.
With $38,000,000 worth of work, do you not think that was serious enough,
if you had known something of the discussion, that you would remember it, the
same way Mr. Bardo remembered it?
Admiral Robinson. I think so.
Mr. Raushenbush. Most certainly; would you not?
Admiral Robinson. Yes; surel3^
Mr. Raushenbush. Does not that sound reasonable? Mr. Chairman, I want
to point out that when Bethlehem and Newport were on the stand they denied
any such discussions, or forgot to remember them.
Senator Clark. Or remembered to forget it.
139387—35 6
CHARACTER OF BIDDING — 1933
The fact that New York Ship's bids on the ships other than those
they wanted were not well backed up by estimates was admitted by
the company's estimator, Mr. LangeD, and the then manager, E. I.
Cornbrooks (Feb. 4, galley 5 ZO).
Senator Vandenberg. Why was it that you decided that you only wanted
to build the light cruisers?
Mr. Cornbrooks. Because we had duplicate machinery on the 1,850 and the
light cruisers, absolutely duplicate machinery, except turned around and run
the shaft to the gear on one side of the cruiser, because the cruiser puUed in
closer and there was not room for the machinery and the gears there, and we put
the gears forward of the machinery and run the shaft between the bottom of the
two turbines.
Senator Vandenberg. What was the purpose of putting in any bid on the
ones j'ou did not want?
Mr. Cornbrooks. We thought the President wanted us to put in bids on the
whole thing. That was just our judgment of it. We thought we ought to — first,
we did not make the estimate so complete, because we thought we could use other
stuff that we had, and time was short. I came here from Europe and I found the
things before me, and I did the best I could.
I • Mr. Raushenbush. Mr. Chairman, in that connection, may I direct the
attention of the committee to Mr. Langell's testimony on that point, still on the
1933 bids, appearing at page 7194 of the record. [Reading:]
Mr. LaRoitche. You told me, I think, at one time that on the 1,500-ton
destroyers, you paid very little attention to your inquiries in your estimate
on that.
Mr. Langell. Right.
Mr. LaRouche. You did not expect the company was going to get those?
Mr. Langell. I did not even expect that they were going to bid on them.
Mr. LaRouche. That is the 1,500-ton destroyers?
Mr. Langell. Yes, sir.
Mr. LaRouche. Which, Mr. Raushenbush, they did not get. * * *
Here is the aircraft carrier on which you also made a sort of left-handed
estimate, did you not?
Mr. Langell. Right.
Mr. LaRouche. In other words, you just took a long running leap at the
estimate on the aircraft carriers Nos. 5 and 6, which you did not think the
company would get?
Mr. Langell. That is perfectly right.
Mr. LaRouche. And did not want?
Mr. Langell. I \mderstood they did not want that.
Mr. LaRouche. But they made a bid?
Mr. Langell. I did not.
Mr. LaRouche. The company?
Mr. Langell. Yes.
Mr. LaRouche. They did not want them, did not want the aircraft
carriers but they made a bid. On the 1,500-ton destroyers they did not
want them?
Mr. Langell. I do not think they did.
Mr. LaRouche. And they made a bid?
Mr. Langell. They made a bid.
Mr. LaRouche. And on the heavy cruiser Vincennes you made no
estimate at aU?
Mr. Langell. None.
Mr. LaRouche. And you did not get it?
Mr. Langell. Certainly not.
78
MUNITIONS INDUSTRY 79
Mr. LaRouche. On all the other jobs which the company did get
Mr. Langell. And wanted.
Mr. LaRouche (continuing). And wanted, you made very elaborate
preparation?
Mr. Langell. I did.
Mr. LaRouche. That is all.
Senator Vandenberg. I think the record should be very plain that these
files tell their own story to a very eloquent degree.
Does it not follow there pretty clearly that the company knew, and the esti-
mator knew, long ahead of time, before they were told to make those estimates,
even, Mr. Cornbrooks, that the company did want some and did not want
others?
Mr. Cornbrooks. We did not want the submarines, for instance. We did
not put a bid in on them.
Mr. Raushenbush. No; you never do.
Mr. Cornbrooks. Yes; we did put in one bid on them.
Mr. Raushenbush. But you did put in bids on the light destroyers and the
heavy cruisers which, according to that testimony, you did not want and did
not expect to get?
Mr. Cornbrooks. Yes.
Mr. Raushenbush. Now, asking Senator Vandenberg's question again, after
reading this testimony, what was the point in putting in a bid on ships you did
not want and did not expect to get?
Mr. Cornbrooks. We wanted to be represented, as we do at all bidding.
Senator Vandenberg. You said a moment ago that you assumed that the
President wanted you to bid on everything.
Mr. Cornbrooks. I won't say the President, but I mean the Government.
Senator Vandenberg. That is what I assumed.
Mr. Cornbrooks. Because it was an emergency proposition.
Senator Vandenberg. I was wondering what assistance you thought you
were rendering the Government by putting in a so-called "safe" bid. Wliat
assistance is that to the Government?
Mr. Cornbrooks. It was only in our judgment that it was a safe bid. It
might have been lower, for all we knew.
The fact that a company which bids on everything and wants only
a few jobs, gets what it wants, is evidenced by the testimony of Mr.
Charles Langell (Feb. 1, galley 43 AS).
Mr. LaRouche. I say, they know and you know what the company wanted
in the way of business at that time. You were interested in the l,S50-ton
destroyers?
Mr. Langell. Yes.
Mr. LaRouche. You were interested in the light cruisers Nos. 42 and -1.3 on
the list. Nothing else?
Mr. Langell. That is all I know.
Mr. LaRouche. It was all you wanted. That is what the companj- wanted,
and that is what the company got?
Mr. Langell. That is right.
This was a procedure other companies engaged in. The result was
that on almost every classification of work in 1933, the Navy had
before it a big list of high bids by companies which did not want the
work. That cannot be called honest, hard competition.
The success of a company in deciding what work it wanted to get
in 1933, and then getting it, is illustrated again in the testimony of
Mr. Langell (Feb. 1, galley 42 AS).
Senator Vandenberg. I would like to ask Mr. Langell a question: Returning
to this relative amount of labor in the preparation of these estimates, did the
New York Ship get the contracts for which the voluminous preparation was
made?
Mr. Langell. Yes, sir.
Senator Vandenberg. Did the New York Ship get any of the contracts for
which no serious preparation was made?
Mr. Langell. No.
80 MUNITIONS INDUSTEY
Senator Vandbnberg. Did it ever occur to you in any way remarkable that
the New York Ship was such a good guesser?
Mr. Langell. Well, as I said before, Senator, I have nothing whatever to do
with the bids.
Newport News officials stated their advantage on aircraft carriers
on February 18 (galley 32-33 FS).
Mr. Ferguson. In the later airplane carriers, Mr. Chairman, we definitely had
a position of advantage. Not only were v/e doing that work, but we could have
done any work on that list; but we were in a definite position of advantage, being
then engaged in designing this ship, which is not such a big advantage, but it
taught 3'ou about what it would cost. On these airplane carriers you can figure
for yourself the 15,000-ton carrier cost — let us cut off this one million and a half
and suppose it is a 15,000-ton carrier and would have a proper cost of $15,000,000.
A 20,000-ton carrier, with double the power, largeh^ if you double the power, you
would think t|ie cost around, say, one-third or more. The weight has gone up
and t^e power is doubled, so that a fair price on the basis of a 15,000-ton carrier
would, say, have been $20,000,000. A fair price on the basis of what we got for it
of $16,000,000 would be $21,000,000.
What we did was this: We estimated on this new carrier, and with the Govern-
ment agreeing that the adjustable-price basis would hold to protect us against
violent fluctuations of labor and material, and we estimated on the new carriers,
labor, material, and overhead, about 7 percent profit, and gave them a price of
$19,000,000. And that price gave to the Government the benefit of a cheaper
building cost.
Where our competitors were I do not know; but as I remember it there were
in the neighborhood of $1,800,000, or $2,000,000 more than that.
Mr. Raushenbush. It was not quite that. It was $1,456,000 Bethlehem was
above you and New York Ship $1,270,000.
Mr. Ferguson. That is over-all cost.
Mr. Broad. $1,920,000, was it not?
Mr. Raushenbush. That Bethlehem was ahead of you?
Mr. Bro.\d. Yes, sir.
Mr. Ferguson. The adjusted price.
Mr. Raushenbush. I am talking about the fixed price.
Mr. Wakeman of Bctlileliem was asked concerning the advantage
over other companies acquired by a particular company from the
experience of having built a special type of ship (Feb. 28, galley 47—
48 QD).
Mr. Raushenbush. How much does it really help a company, like Newport,
or somebody wlio has designs and practice on one particular type of ship, or your
own heavy cruisers — how much advantage is there in the "know how" and the
like, to your company?
Mr. Wakeman. How much is Newport News' estimate as to what their plans
will cost them?
Mr. Raushenbush. Designs and plans together, they figured $2,000,000.
Mr. Wakeman. I should say there was $2,000,000 worth of advantage, minus a
certain experience that we might have, having never taken up a design of an air-
plane carrier, but knowing something about ships. There is a tremendous advan-
age in being able to shift from the design of a plane carrier, saj', of 17,000 tons, to
20,000 tons, particularly at the present time, because the state of the art of ship-
building is changing very rapidly, not only in the Navy but it is changing in com-
mercial work.
Mr. Raushenbush. On top, then, of this $2,000,000 just in plain plans, you
say there is an advantage in experience which they have had?
Mr. Wakeman. A tremendous advantage.
The difl'erence between the Bethlehem bid on the light cruiser and
heavy cruiser in 1933 was discussed on February 2S (galleys 46-47 QD).
Mr. Raushenbush. Mr. Wakeman, in this statement you have spoken of
natural advantages to certain companies in certain vessels.
Mr. Wakeman. Yes, sir.
Mr. Raushenbush. That Newport News had an advantage in tlie aircraft
carriers. We have already had on record the amount of estimating tliat Bet_hle-
hem and New York Ship did not on those aircraft carriers. That New York
MUNITION'S INDUSTRY 81
Ship had an advantage on the light cruisers — and we will get into that question
in a moment — and that you had a definite advantage on the heavy cruisers, and
then we get into the destroyer situation.
Mr. Wakeman. I am sketching a picture of the condition of the industry at
that time.
Mr. Raushenbxtsh. Yes, sir.
Mr. Wakeman. And also pointing out that there was a tremendous amount
of work to be done in estimating in a very small time allowed for it.
Mr. Raushenbush. Now, these advantages which you described were not
hindsight, were they? You knew then before the bidding that Newport News
did have an advantage on the aircraft carriers, and New York Ship, building the
Tuscaloosa, had one on the light cruisers, and you had an advantage on the heavy
cruiser. That was known to you before, was it not?
Mr. Wakeman. You can call it an advantage or can call it anything you want.
That was the condition of the industry, as these bids were asked for.
I should like very much, in this connection, Mr. Chairman, to say this: I am
a member of the code committee, and I was in Washington a good part of the
time. Mr. Homer represented me in a number of these conferences, and I would
like to have Mr. Homer make a statement regarding what happened here prior
to the bids in Washington.
Mr. Raushenbush. You did not quite answer my question, though, on that,
Mr. Wakeman. You knew these advantages before the bidding, did you not?
Mr. Wakeman. I am pointing out a situation which existed, and practically
everybody who had any shipyard experience knew them.
Mr. Raushenbush. The question would be, then, for instance, if you did not
feel that your yard, under the time limitation the Navy imposes, could do several
jobs, such as the aircraft carriers and light cruisers, why did you bid on them at
all?
Mr. Wakeman. Because we bid on the whole program. We always do bid on
all the ships.
Mr. Raushenbush. We note some very definite contradictions, what seem to
be contradictions, between your bids, in the very same year, in 1933, on the
armored cruiser and the light cruiser. On the armored cruiser you bid on a
fixed-price basis.
Mr. Wakeman. What are you talking about?
Mr. Raushenbush. I am talking about the comparison between your bid on
the armored cruiser and the light cruiser. On the armored cruiser Vincennes, in
the same year, you bid $11,720,000, and on the Ught cruiser, $13,100,000. There
is a diff'erence of $1,380,000 on those fixed bids.
Mr. Homer. In 1933?
Mr. Raushenbush. Yes; on the fixed bids. And on the evaluated bids, as
the Navy evaluated them, there is a difference of $1,643,000, a difference far
larger. How can that be explained in any other way except on the ground that
you did not particularly want that light cruiser?
Mr. Wakeman. The origin of this whole naval program and, as I understand
it, the allocation of certain funds to the Navy, was for the purpose of putting
people to work. There was wide-spread unemployment all over the country, and
particularly in Quincy. What the Government, as I understand it, wanted to do
was to put men to work and put them to work quickly. We put in a bid on the
Farragut which would have allowed us to put a lot of men right to work, and there
was nothing done with it. Naturally, to concentrate on a duplicate of the
Quincy was the quickest way in which we could help this situation out.
Mr. Raushenbush. This difference between your bid on the two cruisers also
shows up on the evaluated prices which you put in.
Mr. W akeman. The evaluated prices are not a similar basis, Mr. Raushenbush,
because the Government paj's you there your bid. The only advantage there is,
in an evaluated price, is for the Government to decide who is the low bidder.
They do not take off your evaluation. They pay you what you bid.
Mr. Raushenbush. I am talking about evaluated price.
Mr. Wakeman. I beg your pardon.
Mr. Raushenbush. Also a similar situation, the contrast of this bidding, high
on one ship and low on the other, which is fairly comparable is shown on the
evaluated prices which you bid as well as the fixed prices.
Mr. Wakeman. In 1933 we bid on the fixed price for the Vincennes — the figure
was made up a certain percentage.
Mr. Raushenbush. $11,720,000.
Mr. Wakeman. And as laid out a fixed-price contract.
Mr. Raushenbush. Yes.
82 MUNITIONS INDUSTEY
Mr. Wakeman. What we wanted was an adjusted-price contract, which
we did not get.
Mr. Raushenbush. You were $865,000 on the plain basis, even on the adjusted
basis, above your bid on the adjusted-price basis on the Vincennes, and on the
evaluated you were $1,130,000 above.
Mr. Wakeman. The evaluated figure has nothing to do with it.
Mr. Raushenbush. It is the way the Navy calculates what you are oflfering
them. If you offer them less speed, less weight, delivery, and so forth, they will
evaluate it as costing differently. Either way you take it, either on a fixed-price
basis or adjusted-price basis, or plain or evaluated, you are very definitely
$1,000,000 above the other cruiser.
Mr. Wakeman. Which cruiser?
Mr. Raushenbush. You are above the heavy cruiser on your light cruiser bid.
Mr. Wakeman. Certainly; the light cruiser is a more expensive boat.
Mr. Raushenbush. Other plants did not seem to think so. They were
bidding juist about the same.
Mr. Wakeman. I do not care. In our judgment it was. I am not attempting
to say what other plants do.
Mr. Raushenbush. You say the heavy cruiser was a less expensive boat?
Mr. Wakeman. Yes; the estimates show that. We did not have any plans.
It v\'as a brand new design, so far as we were concerned, and we had the develop-
ment work.
Mr. Raushenbush. New York Ship bid only $100,000 more for the one rather
than the other.
Mr. Wakeman. Mr. Burns, do you know that situation?
Mr. Burns. I certainly do.
Mr. Wakeman. Will you ask Mr. Burns?
Mr. Raushenbush. Go ahead. What was the difference between these two
cruisers? Was it $1,380,000?
Mr. Burns. Something of that sort.
Mr. Raushenbush. Actual cost difference?
Mr. Burns. Actual cost difference.
On the circular of general requirements, which was pretty sketchy, which was
received from the Navy Department for the basis of the bid for light cruiser
No. 42, there were certain different tilings indicated in there, and one of the par-
ticular items was the introduction of a clause in there requiring the use of corro-
sion-resisting steel superstructure, instead of the usual medium-steel construction.
The specifications were not particularly definite as to the extent of this. It
said that this slumld be introduced into the structure wherever possible.
My estimate in the case, and it was my opinion at that time that practically
the entire upper structure was going to be made of this material. This material
is manufactured by people who have some proprietary interest in the thing.
And I wanted, so far as you will find in the quotation in connection with cruiser
No. 42, to get a statement from the vendors, in fact I wrote them and asked them
if they could give me any information as to what tliis corrosion-resisting steel
structure was going to cost. And they came back and they said it depended
on the extent, and they gave me a certain formula to use to establish the cost of
this. So, after starting off with the medium-steel structure and applying this
formula to it, I arrived at a figure which would indicate that the cost of this
cruiser, on this particular item, would involve over $1,000,000.
Now, going on to the labor situation, whioli, of course, involves labor rates,
with which I have nothing to do, on cruiser No. 42 we were required to include
in our estimate not only the cost of the usual development of the engineering plans
for construction purposes at the yard, but also to include in these figures in our
bid the cost of developing and design.
Now, on heavy cruiser no. 40, the Vincennes, which was a virtual duplicate of
the Quincy, that cost of plans was largely wiped out, and that cost of plans is a
considerable figure, particularly when you have to design the ship as well.
Mr. Raushenbush. We note that New York Ship did not consider it particu-
larly higher. It was $170,000 higher and not $1,380,000 higher, on its estimates,
and the final bids, too.
Here you have this situation, Mr. Wakeman you see, which leads to some
question: You have on the light cruiser what .seems to be a very small amount of
data from Newport, and a very small amount from yourself, and a heavy amount
from New York Siiip, which got the award. The same situation is true on tlie
aircraft carriers. You liave almost nothing, apparently a few envelops, from
Bethlehem, and a few envelops from New York Ship, and a lot from Newport
News, who got the award.
MUNITIONS INDUSTRY 83
Then you get this very definite difference in bids here, and it would seem that
Bethlehem was not particularly trying for the aircraft carriers or for the light
cruiser, but did want the heavy cruiser, and New York Ship, whicli had no
estimate at all on the heavy cruiser, and very meager ones on the aircraft carriers,
was well prepared on the light cruiser and the heavy destroyers, and looking at it
from the point of view of the third j'ard, Newport had only one book on the heavy
cruiser, and only one on the light cruiser, but a very considerable number on the
aircraft carriers. So that you get the picture there is a limit of each yard,
concentrating entirely on the one thing which you give here.
Mr. Wakeman. Which it could best do.
Mr. Raushenbush. Which it could best do.
Mr. Wakeman. It could best do.
Mr. Raushenbush. Surely.
In 1933 armored cruiser Vincennes was awarded to Bethlehem at a
fixed price of $11,720,000 and New York Ship was awarded two Hght
cruisers at $11,677,000 each, the Savannah and Nashville. Cruiser
Brooklyn was awarded to New York Navy Yard and cruiser Phila-
delphia to Philadelphia Navy Yard.
In considering the 1933 cruiser awards, the whole construction
program of 1933 should be taken into consideration.
The awards made prior to the summer of 1933 found Newport
having received 2 cruisers and 1 airplane carrier. New York Ship had
received 3 cruisers, and Bethlehem had received 3 cruisers and 1
destroyer.
The 1933 awards were as follows (Feb. 28, galley 43 QD):
Newport News, two aircraft carriers, §19,000,000 each on an adjusted-price
basis.
Bethlehem got one heavy cruiser at a fixed price of $11,720,000, and four heavy
destroyers at a fixed price of $3,896,000 each.
New York Ship got two light cruisers at a fixed price of $11,677,000 each and
four heavy destroyers at a fixed price of $3,775,000 each.
Electric Boat had two submarines at a fixed price of $2,770,000 each.
The light-destroyer awards were as follows:
Bath, two, at an adjusted price of $3,429,000 each, less $152,000 each for plans.
Federal, two, at an adjusted price of $3,410,800 each, less $200,000 each for
plans.
United, two at an adjusted price of $3,400,000 each, showing the totals for the
so-called Big Three on the 1933 bidding as follows (and let the figures be inserted
in the record at this point) and I shall note only the totals:
Bethlehem's total was $27,304,000; New York Ship, $38,454,000; Newport
News, $38,000,000.
A — Award on armored cruiser Jfi — Vincennes
The bids submitted to the Navy for the construction of the
Vincennes, together with the estimates of the companies, show a great
increase over the bids of the same companies in the latter part of
1932 on the Quincy (Feb. 28, galley 43 QD).
Newport
New York Ship.
United-
Bethlehem
Estimate
6, 977, 000
7, 856, 000
Bid (fixed
price)
Evaluated
bid (fixed
price)
$13, 800, 000
12, 100, 000
14, 600, 000
11,720,000
$13,797,000
12, 097, 175
14, 274, 750
11, 720, 000
' No estimate.
The term "fixed price" in the above table is used to designate
bidding of the same type as took place prior to 1933, in which the
company guaranties to charge the Government no more than it ac-
tually bids. It is in contrast to the term " adjusted price " which means
a price under which the ship may cost the Government considerably
more than actually bid. The ''evaluated bid" indicates the Navy
Department's calculation (based largely on oil guaranties) of the
comparable value actually being offered to the Navy. The lowest
bidder is taken as the norm for such evaluations.
The following table shows the difference between the bids of the
■companies in 1933 on the Vincennes as compared with the 1932 bids
on the Quincy.
The increases ranged from $2,484,000 to $5,075,000 (Feb. 28,
galley 43 QD).
1932
1933 eval-
uated bid
1933 plain
bid
Difference
evaluated
Difference
plain
Newport
New York Ship,
United
Bethlehem
$9, 650, 000
9, 616, 000
9, 5-25, 000
8, 196, 000
$13, 797, 000
12, 097, 175
14, 274, 750
11,720,000
$13, 800, 000
12, 100. 000
14, 600, 000
11.720,000
$4, 147, 000
2,481,175
4, 749, 750
3, 524, 000
$4, 150, 000
2, 484, 000
5, 075, 000
3, 524, 000
The two sliips Quincy (1932) and Vincennes (1933) were virtually
duplicates (Burns, Feb. 28, galley 44 QD).
It \vi\\ be noted that United, whose entrance into the competitive
field in 1932 played such a part in lowering prices in that vear, is now
no longer a serious competitor, being an extremely high bidder. Its
bid increased over 1932 by $5,075,000. In connection with its bid on
this cruiser, it is to be noted that United received an award of two
destroj'ers in 1933, and that its yard could not accommodate both the
two destroyers and the cruiser. Apparently the company concentrated
on the award for the destroyers (Powell, Apr. 4, galley 04 WC).
84
MUNITIONS INDUSTRY 85
Mr. LaRouche. All right. In that connection we will just point out that your
bid, not based on an actual rise in prices, jumped from 1932, December 1932 to
July 1933, jumped $6,975,000, nearly $7,000,000.
Mr. Powell. Yes, sir; and my labor went up 17 percent, and everything else in
the boat went up the same percentage.
Mr. LaRoxjche. That is a substantially higher percentage than 17, I think you
will agree.
Mr. Powell. No; the labor is exactly 17. The material went up very much
more than 17. Heavens, copper jumped frona 8 cents to 12, and I could go through
the list of materials, where the prices went out through the roof. You must
remember, on our material, because we do not build our turbines and our boilers,
that a very considerable percentage of our material comes as lump-sum bids from
outsiders, and those prices went up. If you are interested, I could get you those
figures. Those prices went up enormously between those 2 years and are reflected
in our bids.
Mr. LaRoxjche. I should like to point out, also, that in 1932 there was no
destroyer business, and in 1933 there was.
Mr. Powell. Mr. LaRouche, I have told you I would rather build a destroyer
than a cruiser. It suits my j'ard better, and I would prefer it. If I could have
picked out Avhat I wanted, 1 would have picked out the destroyers and not bid on
the cruisers. I did not know what anybody else was going to do. I tried to place
my bids by a physical shotgun method, so that I should not fail to be low on some
part of the program. I did it pretty well because I was low on the 1,850-ton
destroyers and the 1,500-ton destroyers.
New York Ship was not a serious competitor for this ship, making
no estimate at all (Langell, Feb. 1, galley 40- AS).
Mr. La Rouche. Except this was kind of a left-handed estimate on the
Vincennes, was it not?
Mr. Langell. I did not make any.
Mr. La Rouche. You did not make any?
Mr. Langell. I made none at all.
Mr. La Rouche. In other words, on a heavy cruiser involving roughly some-
thing like $12,000,000, you made no estimate at all?
Mr. Langell. None at all.
Newport News also bid on this cruiser, increasing its 1932 bid by
$4,150,000. It expected to get the two airplane carriers, having a
certain advantage over the other companies in this type because of its
work on the Ranger (Feb. 19, galley 42 FS, Ferguson; Feb. 20, galley
53 FS, Williams).
The real bidder on the Vincennes was Bethlehem. Its bid of
$11,720,000 was $3,524,000 above its 1932 bid— high enough to allow
for a profit on the ship and also to cancel any possible loss on the
Quincy.
In a statement read into the record by S. W. Wakeman, of Bethle-
hem Ship, he worked out an explanation of natural advantages to
certain shipyards which resulted in the distribution of awards as they
were finally made (Feb. 27, galley 46 QD).
There were, however, conditions in connection with the work under way in
certain shipyards which created a possibility of a natural distribution of certain
of the ships, which at first sight, might look like a prearrangement. These
conditions were as follows: * * *
Bethlehem was building the heavy cruiser Quincy. The Vincennes, to be bid
on, was a duplicate. Not only was there a natural advantage here in cost and
engineering but, by building a duplicate, men could be employed more quickly at
Fore River than at any other yard building the same vessel."
It is almost impossible to contrast the bid of Bethlehem for the
Vincennes ($11,720,000) with its bid for one light gun cruiser Nashville
($13,100,000) without coming to the conclusion that Bethlehem
wanted the Vincennes and did not want the Nashville.
86 MUNITIONS INDUSTRY
The "adjusted price" bids on the AC 40 Vincennes were as follows:
Adjusted
price
Adjusted
price
evaluated
Newport
New York Ship.
United
Bethlehem
$11, 800, 000
11, 050, 000
12. 000, 000
10, 824, 000
$11,797,000
11, 047, 175
11, 674, 750
10, 824, 000
In view of the statements of the companies of the risk involved
in submitting fixed price bids, it is interesting to note that Bethlehem,
the serious bidder for this cruiser, calculated the risk as $896,000
(the difference between its fixed price bid of $11,720,000 and its ad-
justed price bid of $10,824,000).
In the case of the light cruiser bids, discussed below, which it was
not particularly interested in, it calculated the risk as $1,085,000 (the
difference between its fixed price bid of $13,100,000 and its adjusted
price bid of $11,915,000).
New York Ship, the low bidder on the light cruisers, estimated the
risk on Vincennes, which it was not particularlv interested in, at
$1,050,000 (the difference between its fixed price of $12, 100,000 audits
adjusted price bid of $11,050,000). However, on the light ciiiisers,
which New York Ship wanted, it calculated the risk, on a single bid,
as only $401,000 (the difference between its fixed price bid of $12,-
271,000 and its adjusted price bid of $11,870,000).
The decreases in estimated risk on ships actiuiUy wanted l^y the
companies, tend to nullify the claim that the risk was as considerable
as the companies claimed it was in general.
The real indication of the comparative value offered to the Navy on
the Vincennes can be seen best in a table sho\^-ing the amounts by
which the unsuccessful bidders were above the low biddei"s on the
evaluation of the bids on both bases.
Evaluated Evaluated
flxed-price adjusted-
bid price bid
Newport
New York Ship
United
$2, 077, 000
377, 175
2, 554, 750
$973,000
223, 175
850, 760
On the face of these figures neither Newport nor United were serious
competitors.
To value New York Ship's interest in the Vincennes as compared to
the light cruisers, it should be noted that wliile it was unable to get
below Bethlehem by $377,175 (FPE) and $223,175 (APE) on the
Vincennes, on its bid for a single light cruiser, it was able to get below
Bethlehem by $1,092,250 (FPE) and $308,250 (APE). The range was
$1,469,425 (FPE) and $531,425 (APE).'
>F. P. E. is abbreviation for flxed-price evaluated bid and A. P. E. is abbr viation for adjusted-prfoe
evaluated bid.
B — Award on light cruisers — Savannah and Nashville
Awards for the two light-gun cruisers Savannah and Nashville were
given to New York Ship on a fixed price basis of $11,677,000 each.
The bids of the companies were as follows (galley 7 AS, Jan. 30):
Fixed-price bids (each of 2 cruisers)
Flat price
Evaluated
price
New York Ship
Bethlehem
Newport
United
$11,677,000
12, 780, 000
13, 900, 000
15, 600, 000
$11,677,000
13, 043, 250
14, 066, 900
15, 403, 150
On an "adjusted price" basis, under which the Government would
make up to the companies the increases in labor and materials, the
bids were, for each of the two cruisers:
Adjusted
price
Evaluated
New York Ship,
Bethlehem
Newport
United
$11, 515, 000
11, 610, 000
11,600,000
12, 975, 000
$11, 515, 000
11, 873, 250
11,766,900
12, 788, 150
The real indication of the comparative value offered to the Navy
on these two light cruisers can be seen best in the evaluated bids,
in which the supposed competitors were above the low bidder by
the following amounts, on each of two cruisers:
Bethlehem
Newport...
United
Evaluated
fixed price
$1, 366, 250
2, 389, 900
3, 726, 150
Evaluated
adjusted
price
$358, 250
251, 900
1, 273, 150
Bethlehem's explanation of how it underbid New York Ship bv
evaluated prices of $377,175 (F P E)^ and $223,175 (A P E) on the
Vincennes bJidi overbid New York Ship by $1,366,250 (F P E) and
$358,250 (A P E) on each of two light cruisers is contained in a
statement by S. W. Wakeman (Feb. 27, galley 46 QD):
New York Shipbuilding Corporation was building a cruiser, the Tuscaloosa.
They, therefore, had a natural advantage in the cruiser class and had proposed
in their 1933 bid for the light cruisers, to use the same turbines as they had pro-
posed for the destroyer-leaders. This was unknown to competitors and gave
New York Ship a distinct competitive advantage.
The Newport News explanation of the 1933 bidding also took the
form of natural advantage of certain companies over others. (Fer-
guson, Feb. 20, galley 53 FS):
Mr. Ferguson. At that time, with us building an airplane carrier, and with
New York Ship building a light cruiser, and with Bethlehem building a heavy
» See footnote preceding page.
88 MUNITIONS INDUSTRY
cruiser, it was perfectly natural that those companies had a distinct advantage
in the bidding. We certainly had in the airplane carrier; and our bid on the
airplane carrier, on the adjusted basis, which was accepted, was some $1,900,000
under the next low bid.
If it is true that the construction in progress of a ship of the same
type as one to be bid on gives the company constructing the ship a
natural advantage over the others, there is no real equality between
the bidders. They do not start from scratch. They do not bid on
a different type of ship with the same expectation of getting the job.
This was demonstrated in the bidding for the two aircraft carriers of
1933 (see 1933, Awards for C-V Yorktown and Enterprise).
In regard to the subject of the advantage of one yard over another,
Admiral Land was questioned on April 10 (galley 34 YD).
The Chairman. At page 10018 of the record, Mr. Raushenbush said, while Mr.
Korndorff was being examined [reading]:
This really should be explained a little more fully, Mr. Korndorff. Here
a while ago you testified that a company that had not been in the cruiser
business was at a disadvantage of between $500,000 and $1,000,000.
Mr. Korndorff responded, "Right."
Do you think that is representative?
Admiral Robinson. I do not know. It might be. I would hesitate to answer
that categorically.
Admiral Land. I think that is. That is a good spread. I gave you the testi-
mony this morning, something in the neighborhood of $500,000 plus. Navy ships
and merchant ships are not the same thing, any more than an IngersoU and a
Swiss watch. That is the reason these people do not come into it.
Newport officials were questioned concerning their relative interest
in the light and heavy cruisers (Feb. 20, galleys 47 FS, 48 FS):
Mr. Raushenbttsh. I find here a statement which I suppose is from Mr. Broad,
in the estimating book, addressed to Mr. Blewett, in preparing the statements
for 1934. He said:
We give you a statement of differences from last year's estimates, one for
the heavy cruiser and one for the 1,850-Ton dtatroyer. None was made for
the light cruiser, as our details last year were not so good and the light
cruiser was not considered as important as the heavy cruiser.
That seems to bear out the difference.
Mr. Broad. That is in 1934?
Mr. Raushenbush. Commenting on the 1933 estimates.
Mr. Broad. But the comment as to the light cruisers was in 1934, and we did
not consider in the estimating we were going as hard after the light cruiser as the
heavy.
Mr. Raushenbush. In 1934 you did not consider in the estimating you were
going as hard after the light cruiser as the heavy?
Mr. Broad. No, sir. When we estimated we concentrated on the heavy
cruiser more than on the light cruiser.
Mr. Raushenbush. Then, voti did actuallv bid on the heavy cruiser itself in
1934?
Mr. Broad. As it turned out, we got the light cruiser.
Mr. Raushenbush. You bid on the light cruiser?
Mr. Broad. We were prepared to bid on both.
Mr. Raushenbush (reading): *
We give you a statement of differences from last year's estimates, one for
the heavy cruiser and one for the 1,850-ton destroyer. None was made for
the light cruiser, as our details last year were not so good and the light cruiser
was not considered as the heavy cruiser.
Mr. Blewett. You must understand tliat we take, Mr. Raushenbusli, one job
and use it as a base and figuring from that for all other jobs.
Mr. Raushenbush. That seems to convey the impression that you were not
particularly out for the light cruiser.
Mr. Blewett. It means we used the heavy cruiser as the base.
MUNltlONS INDUSTRY 89
Mr. Williams. Mr. Raushenbush, may I remind you that we had built two
heavy cruisers and no light cruisers, and, looking at it from the standjjoint of our
experience, the preference naturally would be for a type of ship with which we
had had experience.
Mr. Blewett. It is not only our preference, but it was on the type of ship
which we previously had built.
Mr. Raushenbush. We had a statement l)y Mr. Ferguson a while ago, that
there was not present very much difference between the light and heavy cruiser,
and then we got into the question of how there happened to be a difference of
$1,100,000.
Mr. Woodward. The cruisers may be the same length, the same displacement,
and the same horsepower, and a vast difference in the arrangement of the details.
For instance, you have got
Mr. Raushenbush. Just a minute, Mr. Woodward. The other companies
were estimating just about the same on those cruisers, the heavy and light.
There also was not very much difference in their estimates, and the bids jumped
on account of another circumstance.
Mr. Woodward. There is a vast difference in the arrangement, Mr. Raushen-
bush. They have fifteen 6-inch guns in this light cruiser, which go through the
bottom of the ship, through your ammunition hoist, your ammunition handling,
the arrangement of your armament, and you had nine 8-inch guns in the other
class. The main particulars of the ship may be the same and there may be a
vast difference borne out by the fact that you have an entirely different set of
designs.
Mr. Ferguson. Mr. Raushenbush, I think I can explain the statement you
said I made, that the cost was about the same.
With these particular figures, in 1933, I did not have them in mind. Our
estimates in 1934 indicate that the costs were quite close. In 1933 I did not
remember that there was that wide variation, and that is why I was at some pains
to explain it from the estimates.
Mr. Raushenbush. By the way, did you really even want the heavy cruiser
there in 1933? We find only this one estimating book on it.
Mr. Broad. Mr. Raushenbusli, you will remember that the invitation for bids
came out on June 24, and the bids were called for on July 26. That gave us less
than a month to prepare estimates on all these ships. Now, of course, of the
whole program, it was considered that the airplane carriers were most desirable.
We gave most of our attention, therefore, to that.
Next we had been figuring on destroyers earlier than any of them, so that our
estimate on the destroyers is probably next best, because we had a longer time
on that.
In the time remaining, we bid what we could with the heavy and light cruisers,
and worked up the estimate first for the heavy cruiser and then applied the
values to the light cruiser.
Mr. Powell, of United Dry Docks, was questioned concerning the
large difference between his low cruiser bid in 1932 and his high bid
in 1933 (Apr. 4, galley 63 WC, 64 WC):
Mr. Powell. Our bid in 1932 was $9,525,000. Our evaluated bid was
$9,284,000, and that is really the figure that you must always use in comparing
these bids.
Mr, LaRouche. $9,284,000?
Mr. Powell. $9,284,000. That is the evaluated bid, because that is the
figure on which the contract is actually awarded by the Navy Department.
Mr. LaRouche. You were really out after that cruiser?
Mr. Powell. You bet I was.
Mr. LaRouche. In your bid in 1933, were you equally desirous of getting a
cruiser?
Mr. Powell. I was perhaps not equally desirous, because my yard was better
equipped, and required less capital expenditures to build destroyers than it did
cruisers, but I made my cruiser bid in 1933 on the basis that probably because
of the large volume of work the other yards would naturally raise their price,
and if they raised their price too much, I was going to be under them, to be low
on those cruiser bids.
Mr. LaRouche. If they raised their price too much. Did you have any knowl-
edge as to what thej^ were going to do?
Mr. Powell. I did not have the slightest knowledge in the world. I want to
tell you one thing, Mr. LaRouche, and I want to get this in the record right now:
90 MUNITIONS INDTJSTEY
In no bid that I have made to the Navy Department, since I started bidding in
1931, has anybody ever had any knowledge or intimation, direct or indirect, of
what I was going to bid, and neither have I had any knowledge or intimation,
direct or indirect, of what they were going to do. Every bid that I have put into
the Navy Department has been a good, straight effort to give them a price that
I thought at least had a reasonable chance of being the low bid.
Mr. LaRouche. It is a very interesting fact, and perhaps it will interest you,
although you are undoubtedly conversant with it, that your figure from 1932 to
1933 made a tremendous jump.
Mr. Powell. Yes, tremendous.
Mr. LaRouche. You were under some of the "big three" in 1932?
Mr. Powell. Yes.
Mr. LaRoitche. In 1933 you became, as we say, conveniently out of the
running?
Mr. Powell. I object to the word "conveniently" very much.
Mr. LaRouche. Then you were out of the running in 1933?
Mr. Powell. Yes, sir.
Mr. LaRouche. You jumped from a bid in 1932, which was below some of
the "big three", to a figure which was from 1 million dollars to four and a quarter
million dollars above the bids in 1933?
Mr. Powell. Yes.
Mr. LaRouche. The only point involved there is as to whether you had not
demonstrated to the "big three" in 1932 that you were a threat, and thereby
reduced their bids. From 1931 to 1932, your presence in the bidding reduced
the average of the bids more than ly^ million dollars, as perhaps you know. You
demonstrated that vou were a threat, a very definite threat, in the cruiser field
in 1932, did you not?
Mr. Powell. Well, I come pretty close to being the low bidder, if there had
not been one foolish bid. I would say that was a threat.
Mr. LaRouche. You would not be prepared to say that that foolish bid of
Bethlehem was put in deliberately, at all costs, to keep you out of the field?
Mr. Powell. No; I think it was put in deliberately because they had made
up their mind that they were going to have that ship. That is what they put it
in for, not to keep me out of the field, but because they were going to have it,
and they were not going to take any chance of not getting it.
Mr. LaRouche. In the preceding year they took strong steps to keep you out
of the destroyer field?
Mr. Powell. They were fighting for a destroyer themselves, and, if I had been
in their position, I would have fought just as hard as they did. It was fighting
for business. I do not blame anybody for fighting me as hard as the}' can to get
work, if they can get it. Conversely, if I think I am entitled to it, I am going
to fight them just as hard as I can to get it.
Mr. LaRouche. I only make this point, taking your own words, in 1932, you
were out to get the business?
Mr. Powell. Yes, sir.
Mr. LaRouche. And you cut the average of the bids down 1>4 million dollars
from the preceding year?
Mr. Powell. I did not cut them.
Mr. LaRouche. The bids were cut down, we will say, for whatever reason.
Mr. Powell. Yes, sir.
Mr. LaRouche. But you were in the picture in 1932 and you were not in 1931.
In 1932 there was a drop in the average cruiser bid of more than 1^2 million dollars.
We will not say it was due to your presence, but the fact is you were there in 1932
and were not in 1931.
Mr. Powell. Right.
Mr. LaRouche. And in the year in which you entered, the bids suddenly
dropped, indicating that there was a good deal of competition in the year 1932 for
cruisers. Now, not to dwell unduly on the point, in the ne.xt year we find a sudden
rise, 8 months later, in your own cruiser bid, from being a very low one, and under
some of the "big three", and suddenly, in 1932, 8 months later, it is from one
million to four and a quarter million dollars higher than the so-called "big three"
bids.
Mr. Powell. Now, Mr. LaRouche, I have before me my estimate on the 2
years. My labor estimate on the heavy cruiser in 1932, which is the cruiser we
are comparing with the Quincy, was $500,000 more than mv labor estimate in 1932.
In 1933 it was $500,000 more than in 1932. I had actually to raise my labor
rates on tlie 1st day of August 1933, by 17 percent. And if you multiply 3-
MUNITIONS INDUSTRY 91
million by 17, you will find that it comes just about to the extra $500,000 that
went onto my labor bid.
When it came to estimating the material, I used exactly the same method of
estimating the material that I had the year before, merely raising my coefficients
by the amount that the material had gone up in the meantime. The code had
come in, and all the materials had gone up to a very considerable extent.
I think I am right in saying that I used the same percentage for overhead.
There might have been a difference of 5 percent. I do not remember, but practi-
cally the same percentage for overhead.
The one difference in the bids for the 2 years was, from my point of view, and
with reference to what I believed the cost of the boats to be — the one difference
was that because of the big volume of business, I put a profit onto my estimate in
1933 of $958,000, which was verj' much less than 10 percent, as against $250,000
that I had — I should not say profit, but margin; instead of the $250,000 margin
that I had in 1932. If the rest of the people did not see the costs eye to eye with
me, I would like to make a bet right now that I am as closely right on that as they
are. At any rate, that represented my best judgment as to the cost of that boat in
1933, and the only difference is that there were $958,000 in the margin in 1933 as
against $250,000 margin in 1932.
Mr. LaRouche. It is just a little short of 1 million dollars, what you call margin?
Mr. Powell. Yes, sir.
Mr. LaRouche. In other words, when there is a lot of business
Mr. Powell. When there is a lot of business, the margin goes up. When I am
working my bids go up. See?
Later (galley 64 WC):
Mr. Powell. Mr. LaRouche, I have told you I would rather build a destroyer
than a cruiser. It suits my j^ard better, and I would prefer it. If I could have
picked out what I wanted, I would have picked out the destroyers and not bid
on the cruisers. I did not know what anybody else was going to do. I tried to
place my bids by a physical shotgun method, so that I should not fail to be low
on some part of the program. I did it pretty well because I was low on the
1,850-ton destroyers and the 1,500- ton destroyers.
Mr. LaRouche. You did not know in 1933 who was going to get what?
Mr. Powell. No, absolutely not; but I could have made a pretty good guess,
as anybody else could who knew the situation. Heavens, it did not take a very
good guesser to guess some of the stuff. A lot of newspaper stuff which I have-
read, simply showed ordinarily normal intelligence in predicting what would
probably happen.
He was also questioned concerning the difference between his bid
on the heavy cruiser and the light cruiser in 1933 (galley 64 WC):
Mr. LaRouche. How do you account for the fact that your bid in 1933, on
the armored cruiser, your adjusted-price bid, was $1,800,000 lower than your
bid on the "light cruiser", so-called?
Mr. Powell. Do you know, Mr. LaRouche, that we had almost nothing but
sketch information about that light cruiser? That cruiser was being designed
by the New York Shipbuilding Co. All the information that they had pre-
pared for the Navy Department, when the bids came out, was just outline
sketches. We had very indefinite specifications and very few weights, and that
was the biggest gamble. I would ratiier go to Bowie and play the horses or
put money on the roulette wheel, than to make an estimate on a ship, with the
amount of data we had available for that ship. She was quite a departure in;
type from anything that had been built. There was one item of corrosion-
resisting steel in that boat, that we estimated at IJ^ million dollars. The smoke-
stack in that boat was $250,000, out of this C. R. S. When I got up against
that problem, I frankly did not know what the boat was going to cost. In that
estimate I tried not to make a mistake and be on the low side. It was just too
dangerous, because if I made a mistake and was the low bidder and got the
contract, it would have been just too bad for my company, ff I got the contract.
Mr. LaRouche. You succeeded very well in not being low bidder?
Mr. Powell. Yes; I did. It was too high on the job, but with the informa-
tion available, that is the only position that I could actually take.
Mr. LaRouche. It was actually a protective bid?
Mr. Powell. It was not a protective bid. It was my best estimate of what
I deemed the figure of cost of that ship, and on top of it I had profit, or margin,
rather, of $1,260,000, as against $958,000, because there again I was afraid of
the situation because of the indefiniteness of the information.
C — Awards, aircraft carriers Yorktown and Enterprise
In 1933 two aircraft carriers were awarded to Newport News on an
''adjusted-price" basis, under which the Government makes up to the
companies for increases in labor and material, at a base price of
$19,000,000 for each of two ships.
The bids and evaluations compiled by the Navy Department are
as follows (Jan, 30, galley 7 AS):
Bids and evaluations, Aug. 1, 1933
AIRCEAFT CARRIERS NOS. 5 AND 6
Bidder
Basis of bid
Price
Fuel con-
sumption
evaluation
Evaluated
bid price
Newport News Shipbuilding & Dry
Fixed price, 1 ship
Fixed price, 2 ships.
Adjusted price, 1 ship
Adjusted price, 2 ships
Fixed price, 1 ship
Fixed price, 2 ships
Adjusted price, 1 ship
Adjusted price, 2 ships
Fixed price, 1 ship
Fixed price, 2 ships
Adjusted price, 1 ship
Adjusted price, 2 ships
$24. 700, 000
23. 000, 000
20, 600, 000
19, 000, 000
25, 930, 000
24, 265, 000
21,960,000
20, 200, 000
26, 140, 000
24, 185, 000
22, 700, 000
20, 920, 000
$24, 700, 000
Dock Co.
23, 000. 000
20, 600, 000
19, 000, 000
New York Shipbuilding Co
+5, 925
+5,925
+5,925
+5,925
+271, 200
+271, 200
+271, 200
+271, 200
25, 935, 925
Bethlehem Shipbuilding Corporation..
24,270,925
21,965,925
20, 205, 925
26,411,200
24,456,200
22,971,200
21, 191, 200
In the course of the discussion concerning; the bids for these
aircraft carriers Mr. Wakeman (Bethlehem Ship) stated (Feb. 27,
galley 34 QD):
Mr. Wakeman. I put in a figure on the aircraft carriers which was high and I
knew it was high, or at least, I assumed it was high. On the other hand, if we
had gotten the aircraft carriers, we had enough money to turn around and go
over all of the design work and all of the ground that New])ort News had covered.
In further explanation he read a prepared statement (Feb. 28,
galley 46 QD) in which he pointed outr —
Newport News was constructing an aircraft carrier, tlie Ranger. Tills required
special construction and a new develo]iment with whicli they were more experi-
enced tlian any other yard. No contract plans and specifications were furnished
to the bidders on this class of ship. Therefore, the yard that was constructing a
vessel of this type had a big natural advantage in cost and engineering.
Bethlehem had made very menuer estunates on the aircraft carriers
(Feb. 28, galley 47 QD).
New York Ship also had verj^ meager estimating data on the air-
craft carriers (Langcll, Feb. 1, gallev 39 AS; Conibrooks, Feb. 4,
galley 3 ZO).
Mr. Ernest I. Combrooks, in 1933, manager of New York Ship,
testified on Feb. 4 (galley 3 ZO) on the matter:
Senator Vandenberq. You knew that the only complete estimates that had
been made were on the four 1,850-ton destroyers and the two light cruisers nos.
42 and 43? You knew that those were the only bids ii])on which complete esti-
mates had been made?
92
MUNITIONS INDUSTRY 93
Mr. CoRNBROOKs. Yes. I probably fixed that myself.
Senator Vandenberg. That is what I am trying to get at. How did you
happen to fix that?
Mr. CoRNBRooKs. As far as the 1,500 tons are concerned, the way I reasoned
it out on the 1,500 tons, I thought that we could not do light work in that yard,
after doing the heavy work; see? And on the airplane carriers I did not want
the experience, after going through the Saratoga. On the heavy cruiser I thought
if we had the estimate on that, we had enough information from past experience
and past costs to estimate on that; but it was the last of the kind, or at least I
thought it was the last of the kind, and I did not make much of an estimate on that.
But on the light cruisers and on the 1,850-ton destroyers, before that one of
the yards beat us by pulling the machinery space together on a class 2 bid, and
I thought that we ought to put a class 2 bid in. They asked for a class 2 bid.
We had been working, so as to save space in the engine room, and we thought
that the Navy would be interested in that thing, because the Bureau of Construc-
tion and Repair always wants more room. And we pulled our machinery together
and saved 12 feet on that space; and, as the 1,850-ton destroyers were half of the
horsepower of the light cruisers, we found by turning the machinery around end
for end that we could also save space on the light cruisers. And I thought that
was the thing to go after — the 1,850 and the light cruisers — because we would
have duplicate machinery in the 1,850 and twice the units in the 6-inch cruisers.
139387—35-
V— Destroyer Leaders 356-366
New York Ship received four destroyer leaders at a fixed price
of $3,775,000 each.
Bethlehem received four destroyers leaders at a fi-xed price of
$3,896,000 each.
The bidding on these ships was as follows (Jan. 30, galley 7 AS):
Destroyers Nos. 356 to 363
Bidder
Basis of bid each of 4 ships
Price
Evaluation
Evalu-
ated bid
price
Bethlehem Shipbuilding Corporation-
Class I, fixed price
Class I, adjusted price
Class II, fixed price
Class II, adjusted price —
Class III, fixed price
Class III, adjusted price. .
Class IV, fixed price
Class IV, adjusted price- .
Class I, fixed price
Class I, adjusted price
Class II, fixed price
Class II, adjusted price
Class III, fixed price
Class III, adjusted price...
Class IV. fixed price..
Class IV, adjusted price...
Class III, fixed price
Class III, adjusted price.. -
Class IV(1), fixed price
Class IV(1), adjusted price.
Class IV(2), fixed price
Class IV(2), adjusted price.
Class IV(3), fixed price....
Class IV(3), adjusted price-
Class IV(4), fixed price
Class IV(4), adjusted price-
Class IV(5), fixed price
Class IV(5), adjusted price-
Class I, fixed price
Class I, adjusted price
Class III, fixed price
Class III, adjusted price. .
(1)
$3, 783, 000
3. 440. 000
3, 896, 000
3, 542, 000
4, 025, 000
3, 760. 000
4. 135. 000
3. 862. 000
3,916,000
3, 572. 000
3, 965. 000
3. 695. 000
3, 815, 000
3, 710, 000
3, 775, 000
3, 670. 000
4. 290. 000
3, 730. 000
4. 550. 000
3. 960. 000
4. 690. 000
4. 080. 000
4. 650. 000
4. 050, 000
4. 800. 000
4, 170, 000
5, 080, 000
4, 420, 000
4, 200, 000
3. 500. 000
4, 200, 000
3,500,000
New York Shipbuilding Co -
-$38, 425
-38, 425
-312, 250
-312, 250
-38. 425
-38. 425
-312,250
-312,250
-125,025
-125,025
-257, 125
-257, 125
-525, 425
-525. 425
-601, 675
-601, 675
-492, 600
-492, 500
-774, 200
-774,200
+38, 400
+38,400
+38, 400
+38, 400
$3, 877, 675
United Dry Dock
3, 533, 575
3, 652, 750
3, 382. 750
3, 776, 675
3.671,675
3, 462, 750
3, 357, 750
4, 164, 975
Newport News Shipbuilding & Dry
Dock Co.
Federal Shipbuilding & Dry Dock Co.
3, 604, 976
4, 292, 875
3. 702, 875
4, 164. 575
3. 654. 575
4. (H8. 325
3, 448, 325
4. 307, 600
3, 677, 600
4, 306, 800
3,646,800
4, 238, 400
3, 538, 400
4, 238, 400
3,638,400
• No bids for 4 ships.
Neither Newport nor United put in a bid under the class II cate-
gory, on wliich the award was given to Betlileliem. The only com-
petition under class II was between Bethlehem and New York Ship,
each of which received an award of four destroyer leaders.
Federal Shipbuilding & Dry Dock Co. told a linn of suppliers in
Mav 1933 that it did not intend to bid on hcavv destroyers (galley
17 WC, Apr. 2).
Mr. Raushenbush. Did you know before this bidding in 1933 which classes
and whicli categories your competitors wore going to bid on?
Mr. KoRNDORFK. I did not.
Mr. Raushenbush. Did they know what classes and categories you were
going to bid on?
Mr. KoRNDORFF. They did not.
94
MUNITIONS INDUSTRY 95
Mr. Raushenbush. We have here a letter from the Judd Co., asking you
back on May 27, 1933, which I ofifer for the record as exhibit no. 1786, together
with your reply of June 5, 1933.
(The two letters referred to were, respectively, marked "Exhibits Nos. 1785
and 1786", and are iticluded in the appendix at p. — .)
Mr. Raushenbush. There they were asking whether you were going to bid on
the heavy destroyers.
Mr. KoRNDORFF. That is correct.
Mr. Raushenbush. And you replied to them that you were not?
Mr. KoRNDORFF. Yes, sir.
Mr. Raushenbush. Now, that company was furnishing information on their
materials to the other shipbuilders, and had that information in their possession,
at least, that you were not going to bid on one group. Does it not follow, as a
good chance, that the information was disseminated around that you were not
bidding on this?
Mr. KoRNDORFF. No. Did I not ask Mr. Russell to keep the information
confidential that we were not going to bid?
Mr. Raushenbush. Yes, sir; that is true.
Mr. KoRNDORFF. That is the answer to that.
Mr. Raushenbush. I still want to persist in the question, unless this is a
subsidiary of yours.
Mr. KoRNDORFF. It is not a subsidiary at aU. We have no interest in it.
Mr. Raushenbush. Does not that stuff get around to the trade until they
know that Federal is not going to try for the heavy destroyers, but are going to
try to furnish something else?
Mr. KoRNDORFF. It might, but I do not think there is any assurance one way
or the other.
Mr. Raushenbush. I want to offer for the r^toord the summary estimates in
1933 as exhibit no. 1787. There are several sheets. They are from your files,
are they not?
Mr. KoRNDORFF. Yes, sir.
(The docket referred to is exhibit no. 1787.)
Mr. Raushenbush. There are just a few more questions, Mr. Korndorff. In
1928 you were being solicited by the National Council of American Shipbuilders
for assessments to pay for the extraordinary expenses incurred by the national
council in its endeavor to secure the enactment of legislation that will establish
a permanent merchant marine and aid to the shipbuilding industry. Do you
remember that letter?
Mr. KoRNDORFF. Yes; I remember it.
E — Light Destroyer Awards
Six light destroyers were awarded to private yards, as follows:
Bath Iron Works. — Two, at an adjusted price of $3,429,000 each^
less $152,000 each for plans; net, $3,277,000 each.
Federal. — Two, at an adjusted price of $3,410,800 each, less $200,000
each for plans; net, $3,210,800.
United. — Two, at an adjusted price of $3,400,000 each, including
plans.
The bids were as follows (Jan. 30, galley 7 AS):
Destroyers Nos. 634 to 379
Bidder
Basis of bid 2 ships
Price
Evaluation
Evaluated
bid price
United Dry Dock, Inc
New York Shipbuilding Co
Bethlehem Shipbuilding Corporation.
Bath Iron Works Corporation.
Federal Shipbuilding & Dry Dock Co.
Fixed price
Adjusted price.
Fixed price
Adjusted price.
Fixed price
Adjusted price,
.do.
Maryland Dry Dock Co.
Warwick Machine Co
Qnlf Industries, Inc
Pusey & Jones Corporation.
Fixed price
Adjusted price.
do...
Fixed price
Adjusted price.
Fixed price
Adjusted price.
(')
910,000
400.000
825,000
650,000
755,000
413,000
429,000
918,000
410,800
498,894
259,000
383,000
225,000
025,000
-$236, 525
-236,525
-120,275
-120, 275
-21,375
-21, 375
-141,275
-76, 245
-76, 245
-134,675
+139, 350
+139, 350
$3,673,475
3, 163, 475
3, 704. 725
3, 529, 725
3, 733, 625
3,391,625
3, 287, 725
3, 841, 755
3, 334, 555
3, 364, 219
5, 398, 350
4. 622. 350
3,225,000
3,025,000
»No bid (or 2 ships.
The amazing fact in this bidding is the closeness of it on the part
of those companies which received the awards. Two of these three
companies, United and Federal, had never built any of these des-
troyers. Yet their bids were within a fraction of one-tenth of 1 per-
cent of Bethlehem, which had built them.
New York Ship and Bethlehem were not in the running, although
they put in bids. New York Ship prepared no estmiates. Betlilehem
did not bid on the class which the Navy desired to award.
A summary of this CNadence is contained below in the section
"Navy's Comments on 1933 Bidding".
There was a meeting of shipbuilders at the Mayflower Hotel in
Washington on July 25, 1933, the day before the bids were opened
(galleys 20 and 21 WC (a), Apr. 3):
Mr. Newell. The Shipbuilding Code, which was to regulate the hours of work
and the rates of pay, was not signed by the President until about 10:30 p. m. on
July 25. Prior to that bidders did not know exactly what to expect in figuring
their labor costs. They did not know what the rates were going to be, and they
were not sure what the hours were going to be. We got that information late on
the night before the bids were opened.
Previous to that, in the afternoon, I at the time was staying at the Hay-Adams
House, and I went up to the Mayflower Hotel, on my own accord, and I ran into
some of the other bidders, and we were wondering and speculating as to just what
96
MUNITIONS INDUSTRY 97
the code had in store for us, and I do not remember now exactly what the parti-
cular item was, but there were some interpretations that we had differences of
opinion about. That perhaps in itself is not important because there was nothing
we could do about it, only we were naturally getting pretty close to the time when
the bids had to be put in, and we still did not know how to figure labor costs,
that is, to arrive at the amount of money that the labor would represent.
There was some discussion as to what the proper spread should be between a
fixed price bid — I might have prefaced this statement by stating that the Navy
Department had asked for bids two ways: One, for a fixed price. The bidder, of
course, under those conditions, was gambling as to how much the dollar would be
worth throughout the life of the contract. And the other form of bid was what
was called a bid on an adjusted basis, or with an adjustment clause in there, the
details of which were settled by the Navy Department, and those details I
think you know.
Mr. Raushenbush. But you said there were differences of interpretation
between you fellows.
Mr. Newell. No. There were differences of opinion. For instance, all the
bidders up to that time, of course, had figured the cost of these vessels on the basis
of the conditions that existed at the time the estimates were made up, which did
not, of course, provide for any code conditions which then were an unknown
quantity. That was the basic bid which had to be corrected for conditions
which were to be imposed upon the bidders, from sources over which they had no
control.
Mr. Raushenbush. All right; go ahead.
Mr. Newell. The discussion was whether, for instance, 5 percent, 10 percent,
or 15 percent, or what amount would be enough to protect the bidder against
possible and probable decrease in the value of the dollar and inflation, if that came,
or whatnot.
And there was a great divergence of opinion regarding that, and it was a thing,
of course, which nobody could prove.
Mr. Raushenbush. Was that all you talked about with the other shipbuilders
there in the apartment in the Hay-Adams House?
Mr. Newell. No; that was not at the Hay- Adams House. That will come
later.
Mr. Raushenbush. All right.
Mr. Newell. Those discussions were nothing more than anybody would have
who meet with a group of people in the same business, and naturally discussing
common problems and speculating as to what might happen with all that which
was immediately imminent. I mean by that, the code conditions.
The bids were put in at noon the following day, that is, July 26, and the Bath
Iron Works did not bid on a fixed-price proposition. We put a bid in under the
adjusted-clause proposition.
Mr. Powell, of United, testified on April 4 (galley 67 WC), concern-
ing the awards:
Mr. LaRouche. I will read a letter which you wrote, dated August 7, 1933, 4
days after the official contract, and something less than 2 weeks after the bids
were opened in 1933.
Mr. Powell. Yes, sir.
Mr. LaRouche. It is addressed to Mr. George P. Dyer, and I will read you
only a part of it and will make the whole letter a part of the record [reading]:
Your letter of the 8th came this morning. We finally pulled two des-
troyers, at $3,400,000 each, out of the melee. Our bidding was wonder-
fully good and if the whole thing had not been settled by the Navy Depart-
ment beforehand, they could not very well have failed to give us four boats.
Mr. Powell. Yes, sir.
Mr. LaRouche. What do you take that to mean?
Mr. Powell. I think it means that I thought that the Navy Department knew
who they wanted to have the boats.
Mr. LaRouche. Beforehand — before the bids were opened?
Mr. Powell. Yes, sir; they always know who they want to have them. I
thought from the final disposition of the business that the whole program had
been let as a war program, to get the Navy the ships that it needed at the earliest
dates. Now it is perfectly evident to me that if I were in a position of responsi-
bility, where the safety of the country depended on me, and I knew the Navy was
under strength and behind some other powers, that with a big program coming
98 MUNITIONS INDUSTRY
on, if I thought it was desirable to get those ships as quickly as possible, I would
use, to the very maximum, the capacity of the yards that had been doing that
class of work, and that I felt the surest of, as able to turn out the work.
My own theory is that that is the way the program was handled.
Mr. LaRouche. You would not be willing to pass judgment now as to the
wisdom of that allocation, I suppose?
Mr. Powell. No; that is outside my jurisdiction entirely.
(The letter referred to was marked "Exhibit No. 1853" and is included in the
appendix at p. — .)
Mr, LaRouche. I will read further [reading]:
However, I suppose they have their own reasons and I must saj' that under-
neath the surface I am inclined to feel that there is real uneasiness about
Japan which has led them to do the most extraordinary thing in connection
with the award of Government contracts that I have ever seen in my ex-
perience.
Mr. Powell. Yes; I referred to exactly that same thing, that the President,
instead of spreading this program, when the program of awards was turned over,
allowed the concentration of it in a comparatively small number of yards, with
the evident intention of getting the ships at the quickest possible time, and not
with the intention of spreading the work.
Mr. LaRouche. Do j'^ou think they were being done in the quickest possible
time?
Mr. Powell. That is something else. Our hindsight is not always the same
as our foresight.
Mr. LaRouche. You said something about the program being an unemploy-
ment-relief project, the expenditure of this huge amount of money, and that
certain things were justified because of that. Do you care to say that the great-
est concentration of unemployment was at Camden and Quincy and Newport
News?
Mr. Powell. The reason I figured I was sure to get four boats was I knew I
was in the area of the greatest concentration of unemployment.
Mr. LaRouche. And you only got two?
Mr. Powell. I got two.
Mr. LaRouche. I will read a little more of your letter. After you get through
talking about the real uneasiness about Japan, you say [reading]:
Of course, as an unemployment-relief program it is a joke to put millions
and millions of dollars of business in Newport News, Camden, and Quincy
and overlook the larger population centers, or pass them out the leavings
from the main program.
Do you think it was a joke?
Mr. Powell. I wrote that letter, believing exactly what I wrote in the letter,
Mr. LaRouche.
Mr. LaRouche. Do you still believe it?
Mr. Poweli,. Yes, sir.
Mr. LaRouche [continuing reading]:
The above is for your private car. Personally, I have merely expressed
myself in Washington as very much obliged for what thay have given me,
and now that we have our foot inside the door, I hope that in any future
business we will get full consideration.
Mr. Powell. Considering that was written for his private ears, it is doing
pretty well.
Mr. LaRouche. It might be considered a public matter.
Mr. Powell. I do not write any more letters for anybody's private ears,
Mr. LaRouche.
Mr. LaRouche. Are any of the shipbuilders writing any letters?
Mr. Powell. I am going to fire all my stenographers when I get home.
Mr. LaRouche. We will have to tap the wires.
Just another little point in connection with the award of those 1933 destroyers.
You had quite a struggle to get your foot in the door, did you not? I mean,
they tried to shut the door on vou two times?
Mr. Powell. Not in 1933.
Mr. LaRouche. Did you feel that it was pretty well set, that is, that your
chances of getting those destroyers were good?
Mr. Powell. I never know before I put in a bid whether we have got chances
or not. I figured, if I did not get some, it was going to be just too bad.
MUNITIONS INDUSTRY 99
Mr. LaRouche. Besides getting the 2 destroyers, you got the design work for
14 others?
Mr. Powell. Yes; but that was of no particular importance, except being a
feather in the cap of United. There was no financial advantage in that, but as
a matter of fact, it was a lot of extra trouble.
Mr. LaRouche. It helps you get your foot a little further in the door?
Mr. Powell. I think so.
Mr. LaRouche. Those designs were not only for use of your yard and other
private yards but the designs are also used in the navy yards?
Mr. Powell. Yes, sir.
Mr. LaRouche. In other words, the navy yards come to you for designs on
destroyers of that type?
Mr. Powell. Yes, sir; there are now a total of 28 destroyers building from my
designs.
Mr. LaRouche. Twenty-eight destroyers now building from your designs?
Mr. Powell. Yes, sir.
He included some comment on the effectiveness of the distribution
of work as an employment measure.
Bath Iron Works put in only an adjusted-price bid in 1933 and failed
to put in a fixed-price bid as required by the Navy. In spite of this
the firm received an award (Apr. 3, gaUey 22 WC).
Mr. Raushenbush. You said a moment ago that you put in a bid for a couple
of destroyers on the adjusted-price basis and no fixed-price basis. That was con-
trary to what the Navy had asked for, was it not?
Mr. Newell. I could not know. I would not say it exactly that way.
Mr. Raushenbush. The Navy had definitely asked for bids on both bases.
Mr. Newell. Yes; they asked for bids under two arrangements, and they
further stated that the Navy reserved the right to select either form of proposal,
whichever was to the best interests of the Government or the Navy.
Do you want to know why I did not bid a fixed price?
Mr. Raushenbush. No; what I want to know is, how it happened that you
did not do what the Navy wanted, and your bid was still considered good enough
so that you got awards. That is the question which came up in earlier testimony.
Mr. Newell. I cannot answer that because I put in the bid, and the Navy
elected to give us the work on the adjusted basis.
Further on we find that New York Ship, with considerable expe-
rience, was nearly a quarter of a million higher than Federal (Apr. 2,
galley 17 WC).
Mr. Raushenbush. Then any company which had experience ought to hit
pretty close to this, and yet, here is New York Ship, which had had experience,
getting $250,000 away from you, which is quite an item, compared with the close
ones here.
Mr. KoRNDORFF. I do not know anything about New York Ship's figure.
Mr. Raushenbush. But you are making the point here, Mr. Korndorflf, that
with very accurate specifications, the companies should come close, and I am
pointing out that the bidding in this list, which I offer for the record, shows that
New York Ship, which had had experience on some of this work, got $240,000
above you and $250,000 above United, which was not close. Does not that
destroy your contention?
Mr. KoRNDORFF. Thosc specifications were all for an entirely new design. _ I
doubt if New York Ship had any more data on that particular design than we did.
They were largely welded and the type of machinery was different, and the type
of power in those ships was different.
Mr. Raushenbush. That is more than a contention?
Mr. KoRNDORFF. Yes, sir.
Mr. PtAusHENBUsH. If it should happen here, it should happen on other de-
signs, should it not?
Mr. KoRNDORFF. It might. Bidding is not an exact science, and estimating
is not an exact science. There is always a certain amount of guesswork on those
things.
Mr. Raushenbush. Your statement, as I took it, was that you had not, in any
way, shape or manner, discussed with the other people bidding about what
roughly the prices might be, their prices might be on this destroyer bidding?
Mr. KoRNDORFF. Most assuredly I did not.
100 MUNITIONS INDUSTRY
In a letter to the Bath Iron Works on April 13, 1933, 3 months and
13 days before the awards, A. P. Homer predicted the allocation of
destroyers (Apr. 3, galleys 30 and 31 WC).
Mr. Raushenbush. I want to offer for the record, going on a little bit, a letter
that Mr. Homer addressed to the President of the United States on April 13,
1933, in which a plan is proposed to divide or allocate the work, the extra Navy
work which they supposed they were going to get from the P. W. A., among
various yards, and this is 1933, and I notice it begins upon the third or fourth
page:
The plan proposes 2 light destroyers for Bath, and you got 2, did you not?
Mr. Newell. Yes, sir.
Mr. Raushenbush. Do you find the part to which I am referring? Bath
Iron Works building, 1; proposed allocation new 2. We have got this 1 here:
Bath Iron Works 2, and you got 2; United Dry Docks, and thej^ got 2.
Mr. Newell. This is a typographical error in here.
Mr. Raushenbush. It must have been. Federal Shipbuilding, two.
Mr. Newell. I wonder where this came from?
Mr. Raushenbush. We found this in your files.
Mr. Newell. I mean this copy is not the same as this one [referring to paper
in hand of secretary]:
Mr. Raushenbush. No; this is an entirely different thing, that was worked out
later, but the one which was apparently enclosed with the letter.
Mr. Newell. They have got us down with a cruiser, and we did not build a
cruiser.
Mr. Raushenbush. Take this one [handing paper to witness]: This, of course,
came in later. Let us use this one. On that one, which he attached to his April
letter, he did fairly well allocate what happened, so far as the light destroyers
went, did he not, at least so far as Bath, United, and Federal went? They all got
two?
Mr. Newell. Yes, sir.
Mr. Raushenbush. I offer that for the record as "Exhibit No. 1812."
(The letter referred to was marked "Exhibit No. 1812" and is included in the
appendix at page .)
Mr. Raushenbush. How early did you know that there was going to be a big
allocation of public money to the Navy?
Mr. Newell. I do not remember when the date was, but
Mr. Raushenbush. Mr. Homer was communicating with you about it at the
time, was he not?
Mr. Newell. I think he was. I think he gave me the information of his own
accord.
Mr. Raushenbush. Mr. Newell, there has been some discussion of a suit against
you, based on the proposition that he was an agent of yours, has there not? There
has been some discussion of that?
Mr. Newell. Yes.
Mr. Raushenbush. And the whole case hinges on whether he was an agent of
yours — does it not?
Mr. Newell. Yes, sir.
Mr. Raushenbush. So that when I asked the question whether or not he was
an agent, and you answered " No ", that would be a determining question in such a
suit?
Mr. Newell. Right.
Mr. Raushenbush. And if you answered "Yes", it would throw the suit the
other way, would it not?
Mr. Newell. Yes, sir.
In spite of the admitted advantage of experienced yards, Bath and
Bethlehem, both with destroyer e.xperience, bid very close to Federal
on destroyers in 1933 though Federal had had no experience on de-
stroyer (Apr. 2, galley 16 WC).
Mr. Raushenbush. Now coming to 1933 and your bidding, up to that time
you had not built any destroyers?
Mr. KoRNDORFF. That is right.
Mr. Raushenbush. This is the first time you were getting into it. You said
that on cruisers the advantage between a conipanv which had built them and one
which had not built them was between $500,000 and $1,000,000. What would it
be on destroyers?
MUNITIONS INDUSTRY 101
Mr. KoRNDORFF. I do not think that it would apaount to so much on destroyers,
particularly where the design was new, as it was in this case.
Mr. Raushenbush. The people who had built destroyers were Bath, Bethle-
hem, and New York Ship. That is right, is it not, at that time?
Mr. KoRNDORFF. I think Newport News had built some.
Mr. Raushenbush. I do not remember Newport competing on those 1933
destroyers.
Mr. KoRNDORFF. They did not on the 1933.
Mr. Raushenbush. But of the competitors, Bath and Bethlehem and New
York Ship had expeiience, and the rest of you did not?
Mr. KoRNDORFF. That is right.
Mr. Raushenbush. Did you discuss with the other companies about how
much they were going to bid, roughly, what sort of a figure would be a fair figure
for bidding on those light destroyers?
Mr. Korndorff. Positively not.
Mr. Raushenbush. Here is the one thing which is somewhat hard to explain
for us: That you made up an estimate here on these light destroyers, what each
of two would cost, just for labor and manufacturing.
Mr. Korndorff. Yes, sir.
Mr. Raushenbush. And that was $2,520,700 for labor and material, and then
you add some expense ip, and that got up to $3,113,000, and then you and all
the other companies, apparently, got so very close to one another, and that is
the question. Bath, which had built destroyers, and Bethlehem, which had built
destroyers, bidding one $3,429,000 — that is, Bath — and Bethlehem bidding
$3,413,000. They are fairly close there. Now Federal comes in and bids $3,410,-
000, and United comes in at $3,400,000. What you actually are doing there is
getting within six-tenths of 1 percent of Bath and one-tenth of 1 percent of
Bethlehem. It is such an amazingly close case of bidding, I mean. Let me show
that to you.
Mr. Korndorff. I have the figures in my mind.
Mr. Raushenbush. You remember the figures?
Mr. Korndorff. Yes, sir.
Mr. Raushenbush. How do you explain that?
Mr. Korndorff. Those figures do look close, but when you have the detailed
and definite specifications, which you have in connection with Navy work, and
when you have to go to the same sources for your material, for your machinery,
and all the stuff which goes into those ships, it is not surprising that those figures
would be so close together. We have bid on jobs where we have been to the
dollar the same as other shipbuilding companies. The more accurate your speci-
fications, and the more complete your specifications are, the closer the bids
should be.
In connection with these destroyer awards Mr. A. P. Homer, of
Washington, D. C, indicated (in a memorandum to be used in a
proposed law-suit against Bath Iron Works) the extent to which he
thought he had helped the company secure its 1933 awards. The
officials of the company and the Navy officials denied his statements.
The memorandum is Exhibit 1484 as follows:
Exhibit No. 1484
Mr. Homer, talking with Captain Ormond L. Cox of the Navy, discovered
that a rumor had been started around the Navy Department that the Bath
Iron Works Corporation was not an equipped shipyard, Ixad no machinery or
facilities for the building of destroyers, and that, therefore, their bid would not
be considered. Checked on this rumor with Captain Oberlin, technical advisor
to the Secretary of the Navy, and Captain Stark, aide to the Secretary of the
Navy, and found that this rumor was general. Called Mr. NeweU at Bath and
explained this situation to him. He asked for suggestions as to how to overcome
it. Mr. Homer suggested that a series of photographs of the shops be taken
showing the workmen, tools, etc. These pictures were taken, and on a Sunday
in November 1932, at 144 East 24th Street, New York City, Mr. Newell brought
the pictures in, and Mr. Homer laid out a plan for their presentation to the
Navy Department. The suggestions made were carried out on the following
Monday. Mr. Homer left New York for Washington Monday night, and on
Tuesday checked around the Navy Department and found that the rumor had
been kiUed, and that the Bath bid would be considered. Result: On December
102 MUNITIONS INDUSTRY
11, 1932, contract was awarded to Bath Iron Works Corporation for the destroyer
Dewey, contract price about three million dollars.
April 6, 1933: Mr. Homer, having conceived an idea for allotment of work for
relief of unemployment, called Mr. Newell at Bath and asked him to come to
Washington for a conference.
April 7, 1933: Mr. Newell arrived and spent two days at Mr. Homer's oflSce
going over the labor situation, the relief of unemploj'ment, etc., and a plan was
prepared, including charts, etc., for presentation to the President.
April 13, 1933: This plan was submitted to the White House by Mr. Homer,
who delivered same to Mr. Marvin H. Mclntyre personally, who, in turn, sub-
mitted it to the President.
April 16, 1933: This plan was returned by Mr. Mclntyre with the approval of
the President, who asked that the matter be taken up with Assistant Secretary
of the Navy Henry Roosevelt, and the idea sold to him.
April 17, 1933: Mr. Homer talked with Mr. Newell at Bath and told him what
had happened, and that he had arranged for a conference with Assistant Secretary
Roosevelt on the morning of April 18.
April 18, 1933: At 9:30 a. m. Mr. Homer had a conference with Assistant
Secretary of the Navy Henry Roosevelt; Admiral Land, Chief of the Bureau of
Construction and Repair; Admiral Robinson, Chief of the Bureau of Engineering;
Admiral Brinser, in charge of navy yards; and Admiral M. Lurfin, Judge Advocate
General of the Navy. This conference lasted for several hours, and, at the end,
it was agreed that the plan was practical, and it was turned over to the Navy
Department without obligation, to be used as they saw fit.
Early in July a rumor having started around the Navy Department that the
Bath Iron Works wished that they did not have the Deivey to build, as they
found that it was a large job to handle and were having difficulty in financing it,
and felt that they should not go in for any further work of this kind, Mr. Homer
immediately called Mr. Newell by telephone, and he came to Washington and
succeeded in refuting these rumor^.
July 24, 1933: Mr. Newell conferred at Mr. Homer's office with Mr. L. C.
Rosenkrans of the Fidelity and Deposit Company of Maryland. While in Mr.
Homer's office on this date, Mr. Newell told Mr. Homer that he had figured
Mr. Homer in on the bid for the destroyers, and that he was deeply appreciative
of what Mr. Homer had done not only on the new bid but also on the Dewey.
July 26, 1933: Bids for the naval program destroyers were opened; and Admiral
Murfin, Judge Advocate General of the Navy, rejected the Bath Iron Works
bid as being illegal, on the grounds that they had not presented fixed-price bid
as well as adjusted-price bid. Mr. Newell said that afternoon that he was going
home and that he hoped he would have better luck next time; that he had felt
that he was doing the right thing, and that it was unfortunate that the matter
had come out that way. At Mr. Homer's urging, Mr. Newell stayed here to
confer as to what could be done to overcome the situation.
July 27, 1933: Mr. Homer called Admiral C. J. Peoples, Paymaster General
of the Navy, who is the President's closest friend in the Navy Dejiartment, to
luncheon and they conferred with him as to the best method to he followed in
overcoming this awkward situation. Admiral Peoples concurred in the sugges-
tions of Mr. Homer, and made further suggestions which were imniediatelj- carried
out: Ten telegrams were jirepared in Mr. Homer's office and they were trans-
mitted to Bath by Mr. L. E. Theljcau to his secretary, who, in turn, transmitted
them to the parties who were to send them to the President. At 6:30 p. m. Mr.
Homer called Mr. Marvin Mclntyre in the presence of Mr. Thebcau and asked
that these telegrams be segregated from the mass of telegrams and delivered to
the President at breakfast. "This was done.
July 28, 1933: At 2 p. m. the President called to the White House Admiral
Stanley, Chief of Operations; Admiral Murfin, Judge Advocate General of the
Navy; Admiral Robinson, Chief of the Bureau of Engineering; Admiral Land,
Chief of the Bureau of Construction and Repair; and Admiral Peoples, Paymaster
General of the Navy, for a conference.
July 29, 1933: Mr. Newell, acting under the advice of Mr. Homer went to
the Navy Department, where he was told to call to a conference Mr. J. W.
Powell, president of the United Drydocks Company, and Mr. L. I. KorndorfF,
President of tlie Federal Sliij)huilding and Dry Dock Company. Mr. Newell
called these gentlemen and asked them to come to Washington and confer with
him and insisted that they do so. (It will be noted at this point, tliat Mr.
Newell's situation is completely reversed, that he is now in command of the
situation, instead of being out.)
MUNITIONS INDUSTRY 103
July 30, 1933: Mr. Powell, Mr. Korndorflf, and Mr. Newell spent the entire
day until 6:30 at night in Mr. Homer's apartment, #722 of the Hay Adams House,
and reached a definite agreement as to procedure and that each would have two
destroyers to build. Mr. Homer this day took Admiral Peoples, Mr. Thebeau,
treasurer of the Bath Iron Works, and Mr. Nugent, of the Public Works Adminis-
tration, to Harper's Ferry for an all-day trip.
July 31, 1933: Mr. Newell, Mr. Powell, and Mr. Korndorflf went to the Navy
Department at 9 o'clock and saw Captain Claude Jones, of the Bureau of Engi-
neering; there they met Admiral Robinson and Admiral Land and ofifered to
work together, building from one set of designs.
August 3, 1933: The Navy Board went to see the President at Hyde Park
for his decision in regard to the contracts, which came out exactly as planned
regarding the three above-mentioned yards.
August 4, 1933: Mr. Homer went to Captain Stark's oflBce and secured for
Mr. Newell word of the award of the contracts and got an advance copy of the
news release and delivered same to him.
Between August 4 and August 26, Mr. Newell and Mr. Thebeau were working
in New York endeavoring to get bond.
August 26, 1933: Mr. Newell returned to Washington with Mr. Homer.
September 5 and 6, 1933: Mr. Newell and Mr. Thebeau here in regard to bond.
Constantly in conference with Mr. Homer's partner, Mr. Perkins, and with Mr.
Homer by long distance telephone.
September 7 and 17, 1933: Either Mr. Newell or Mr. Thebeau was in daily
conference with either Mr. or Mr. Perkins, relative to the contract and bond on
the destroyers.
September 18, 1933: Mr. Newell wrote a letter in the office of Mr. Homer to
the Secretary of the Navy asking for an extension of time for the securing of
bond. The Navy Department said that the time had expired and they did not
care to hold the matter up or to have any publicitj^ by granting a further extension
of time, but that they would hold the matter in abeyance.
September 19, 1933: Mr. Homer was given a full power of attorney covering
these destroyers, copy of which is herewith attached.
Contract was finally signed and bond secured on or about Sept. 22, 1933, and
the work was completed.
Mr. Howell, before leaving for Bath, made the statement that the fee he
figured to pay Mr. Homer for this work was so large that he would have to spread
it over the life of the contract. Mr. Homer agreed to that, and asked what
figure he had in mind. To this question, Mr. Newell replied that they would
discuss it later, but that he was sure Mr. Homer would be perfectly satisfied.
Mr. Newell also stated, on being asked what he expected the profit to be on
naval work in the Bath yards, that the profit on the Dewey would be about
$450,000, and the profit on the other two destroyers would be a little over a
million dollars.
The total amount of contract awarded to the Bath Iron Works Corporation
as a result of Mr. Homer's eflforts, as outlined above, is about $9,000,000.
navy's comments — 1933 BIDDING
Admiral Land, on April 10, Galley 17 YD, invited the attention of
the committee to the number of bidders in 1933 (12) and 1934 (14)
as "increased competition".
He denied for the Navy the statement in Air. Bardo's letter to
Mr. Flook: "There was also expressed to us the desire that the build-
ers themselves should get together and agree as far as we could upon
what each would bid and then bid on nothing else." He stated that
no such statement had been made by anybodv in the Navy to Mr.
Bardo (galley 17 YD).
He denied meetings with shipbuilders on possible allocation of
ships (galley 19 YD).
He denied, seriatim, certain allegations in Mr. A. P. Homer's
memorandum concerning Mr. Homer's activities in behalf of Bath
Iron Works (galley 19 YD seq.).
He also stated that there had been decision by the Judge Advocate
General of the Navy that Bath's bid, which was an adjusted price
basis only, was illegal (galley 21 YD).
Admiral Robinson, on April 10 (galley 22 YD seq.), also denied
certain of Mr. A. P. Homer's statements.
Some idea of the reahty of the competition in 1933 is indicated in
part of Admiral Robinson's statement (galley 23 YD).
As a matter of fact, owing to the shortness of time available for preparing bids
and owing to the fact that plans were not available for all types of ships, many of
the shipbuilders expressed their doubts as to their ability to get in bids on all
types of ships. They were all urgently requested to do so and it was pointed out
to them that it was particularly desirable to have as much competition as possible
on each type of ship and the bids actually submitted bear this out.
Admiral Robinson stated that certain companies had advantages
over others in the bidding (galley 24 YD):
Admiral Robinson. I do not think I have seen that letter of Mr. Bardo's,
which gave an allocation of the ships.
The Chairman, Let us read from the letter which was made a part of the
record [reading]:
I know from my talks with some of the representatives of the Navy who
are keenly interested in this work, that they are desirous of finding some sub-
stantial reasons for awarding this work to the largest possible extent to pri-
vate yards upon whom they must rely for the necessary engineering to com-
plete the ships.
There was also expressed to us the desire that the builders themselves should
get together and agree as far as we could upon what each would bid and then
bid on nothing else. The situation as it stands now is substantially as
follows:
Newport News: The two airplane carriers, which, while not duplicates of
the Ranger, but of similar type.
Bethlehem: The 10,000-ton, 8-inch cruiser, a duplicate of the ship which
they are now building.
New York Ship: A new 10,000-ton, 6-inch cruiser, and a distribution (^f the
8 destroyer leaders.
This new work would amount approximatelv to the following values:
Newport News: $30,000,000.
Bethlehem and New York Ship: $28,000,000 each, although the final esti-
mates may slightly change these figures.
104
MUNITIONS INDUSTRY 105
Now, he proposed there in a letter precisely the findings, did he not, that were
reached when the bids were opened 10 days later?
Admiral Robinson. A part of that is approximately correct; and in the first
part of bis letter, where he refers to the division as between navy yards and
shipbuilders, that is in error because, as a matter of fact, while there was no law
governing the situation, the Navy Department actually did divide these ships
approximately half to the shipbuilders and half to the navy yards. So that he is
incorrect in that part of his statement.
Now, in regard to the next, Newport News did get two airplane carriers;
Bethlehem and New York Ship got cruisers, as allocated here, and each of them
got one-half of the destroyer leaders.
Now, there are many reasons, entirely aside from this letter, why that would
probably have been the case in a big shipbuilding program. As the committee
knows, Newport News is the only shipbuilding concern in the country that has
built airplane carriers, and the probability was that on two ships of that character
they would be able to put in a bid that would be under anything anybody else
could put in.
The same thing applies to the Bethelhem 8-inch cruiser. For the rest of it,
the destroyers, there is no particular reason why they should have gone to any-
body. The division among the small shipbuilders, that he refers to here, which
he seems to think were going to be left out, he says, "have had their eyes set right
along on having allocated some of the destroyers, although they have never been
engaged in Navy work."
As a matter of fact, 6 of the destroyers were allocated or awarded to those
yards, and one of them, as a matter of fact, had that work before. That is the
JBath Iron Works.
Now, regarding the latter part of this letter here, the actual awards that were
made, of course the Navy Department has no method of knowing just exactly
why these shipbuilders put in bids on the ships that they did, or why they put in
some of them. We had no means of knowing it. The bids, as they arrived,
looked perfectly in order. They were in every way legal, and we had no means
of going behind the actual returns. Whether there was any reason for going
behind them, I do not know, and I do not think anybody else in the Navy Depart-
ment knows. There was certainly no indication whatever in the bidding that
there was anything irregular about it whatever, and I do not know myself whether
there was or not. There was nothing to indicate that there was.
Senator Vandenberg questioned Admiral Robinson on the Navy's
ability to check collusion if it were present (Apr. 10, galleys 24, 25,
and 26 QD).
Senator Vandenberg. Before you leave that particular subject, Admiral,
suppose there had been something by way of collusion which produced improper
prices, would you have had any way of knowing anything about that?
Admiral Robinson. Not unless the prices had been a great deal higher than
thej' were.
Senator Vandenberg. Did you ever reject any bids because they were too
high?
Admiral Robinson. Yes, sir; just last year. Another thing which added to
this whole thing was that there were so many shipbuilders involved. There
were many more than just these three shipbuilders, to whom Mr. Bardo refers in
his letter. There were a number of other shipbuilders who had never been in
on this work before. Two of those, at least, got contracts on this particular
bidding in 1933, or particular list of bids.
Senator Vandenberg. Would not an increase in the Bethlehem bid in 6
months from $8,100,000 to $11,700,000, on a cruiser, be a sufficiently startling
increase to challenge inquiry?
Admiral Robinson. No, sir; it was not, because the $8,000,000 bid was the
one that startled and surprised us. It was so much lower than any other bid
received at the time, that we could not believe the figure at first. As a matter of
fact, the company, of course, claimed, in later representations to the Navy
Department, that they were going to lose money on the thing. That is some-
thing about which we know nothing, of course. My point is, it was a much lower
figure than anybody else submitted. We knew the reason for it. It was the only
ship available, and competition was much keener than it had ever been before.
When the bids were submitted in 1933, every one of the shipbuilders knew, owing
to the large number of ships to be awarded, if their bids were reasonable they
would probably have a chance to get a ship, even though their price was a good
deal higher than before.
106 MUNITIONS INDUSTRY
In the meantime other things had come in which were expected to increase
the cost of ships, I mean the cost of materials, cost of labor, and everything of
that kind, it was expected would go up on account of the codes.
Senator Vandenberg. But in this same bidding, July 26, 1933, Bethlehem
reduces its relative bid on destroyers, yet increases its bid on cruisers by this
estimated figure. Does not that create a challenge somewhere in the situation
that should have called for review?
Admiral Robinson. As a matter of fact, we did review the bids. The chair-
man of the Senate Naval Affairs Committee called our attention to the fact that
he had heard a rumor that there was collusion in this bidding, and we made an
effort, by checking the source of the information, and so forth, to run this down.
But the Navy Department had before it nothing that it could rely on. There
was nobody who could say positively that he knew anything of the kind. We
had no way of seeing that these bids were illegal, and the actual bids, by the
shipbuilders, did not seem to be unreasonably high.
Senator Vandenberg. When Senator Trammell wrote the Department on
August 1, 1933, and challenged your attention to this apparently outrageous
increase in bids, and the Department responded 8 days later, it would appear
to me that the only inquiry that the Department had made was into the validity
of these rumors, that somebody had made inquiry of a statement about collusion.
It appears that you simply ran down these various rumors to see whether or not
the source of the gossip could be identified. Was that the extent of the investiga-
tion that was made?
Admiral Land. No, sir.
Admiral Robinson. No; it was not. Senator.
Admiral Land. I have got a statement analyzing that letter, if you would like
it, and I will give it to you, because the information in Senator TrauimeU's letter
is erroneous.
Senator Vandenberg. I would be very glad to have it.
Admiral Land. The Bethlehem bid of 9-16-31 of $2,728,500 was for each of
two ships, and not for a single shi|3, as stated. The bid for a single ship was
$3,034,500 and the Farragut was awarded at this price.
(b) The Bethlehem bid of 7-26-33 to duplicate the Farragut design throughout
at $2,670,000 was for each of three ships, and not for a single ship, as implied.
This 1933 bid from Bethlehem to duplicate the Farragut should not include
prices for a single ship or for two ships, which would necessarily have been
considerably higher, hence no direct comparisons with the 1931 bids of this
company are available.
(c) The Bethlehem bid referred to (July 26, 1933) was for a design of destroyer
on which the Department did not ask for bids.
The bid submitted by Bethlehem in 1933 to duplicate the Farragut design was
not in accordance with the provisions of the advertisement, and not in accordance
with the plans and specifications furnished to bidders as a basis for bidding. To
have made awards to Bethlehem on the basis of this modified bid would have
been out and out negotiations, without competition, and therefore in violation
of the principles of placing Government contracts. It would have been unfair to
all other bidders. Aside from the legal aspects, to construct additional vessels to
the old design, instead of to the improved Department design of greater military
value, would have been indefensible. And additional point, not inherent in the
Department's plans and specifications, developed from the bidding. Guaranties
of fuel consumption accompanying the bids submitted on the basis requested
were considerably lower than those provided for in the Farragut design.
With respect to cruiser figures given in Senator Trammell's letter, he is in error
in stating no bid for light cruisers was submitted in 1933 by United Dry Docks.
This company bid $15,600,000 for each of two light cruisers, fixed price, the basis
on which figures quoted by Senator Trammell for the other companies were
submitted.
So that all those bases of comparison are based on erroneous data.
Senator Vandenberg. Let me see. I am afraid I failed to follow you in one
point. Let me refer specifically to the statement in Senator Trammell's letter,
that the Bethlehem bid for one heavy 10,000-ton cruiser on December 14, 1933,
was $8,196,000.
Admiral Land. That is correct.
Senator Vandenberg. And Bethlehem's bid for the same cruiser on July, 26
1933, was $11,720,000.
Admiral Land. That is correct.
Senator Vandenberg. An increase of $3,524,000.
Admiral Land. That is correct.
MUNITIONS INDUSTRY 107
Senator Vandenberg. What is your comment upon that?
Admiral Land. I have no comment to make on that.
Senator Vandenberg. I mean as to the accuracy of the figures.
Admiral Land. I have no criticism of the accuracy of them. That is correct,
so far as I know. But the other information was erroneously furnished to Senator
Trammell, with regard to the rest of that paragraph in the first part of the letter.
Senator Vandenberg. Let us eliminate the other comments, then, since we
agree on this bit of arithmetic.
Admiral Land. Yes, sir.
Senator Vandenberg. Is not an increase of $3,524,000, on the identically same
cruiser, in 18 months' time, a challenging increase?
Admiral Land. Yes; except, as I started to say, I have only to confirm whom
Admiral Robinson said. The bid on the Quincy, this $8,196,000 bid, was a tre-
mendous surprise to everybody in the Navy Department and to all the shipbuild-
ers in the United States. The intimation is that the company took the thing on
to keep from going into bankruptcy and closing up shop. Whether that is true
or not, I do not know. I believe it, but whether that is true or not does not make
any difference. Also, through rumor, the entrance of a new bidder scared them
down — in other words. United Dry Docks' bid. United Dry Docks also bid in
1933, and I invite your attention respectfully to what they bid 18 months later
as compared with tne bids formerly, or any other bids.
The Chairman. Admiral, it was not 18 months later, but 7.
Admiral Land. I was quoting the Senator.
Senator Clark. December 1932, to July 1933.
Admiral Land. Six months or 7 months later, whatever it may be.
Senator Vandenberg. That makes the comparison even more challenging.
Then, as I understand it, when you found an increase of 3)^ million dollars on
$8,000,000 bid, in 6 months, you were satisfied that Senator Trammell was not
justified in challenging it, because it was believed that the previous bid had been
too low? Is that your statement?
Admiral Robinson. That is part of it.
Admiral Land. That is part of the statement. I won't say that it was too low,
but it was taken, presumably, at a loss to the company to keep from closing up
shop.
Senator Vandenberg. Now we have what purports to be reliable testimony,
Admiral, indicating that the increase in this 6-month period for labor and ma-
terials, and other major essentials, by no means justifies any such increase in the
bid price itself. Does the Navy Department make any such calculations when
it surveys a bid of this character?
Admiral Land. We have reasonably complete data on the cost of ships in
private yards and navy yards, not a definite break-down of every individual
tradesman, because, by law, we have no chance of getting any wage boards any
more. You gentlemen up here closed the books on that in 1929. But we have
the over-all costs of ships, and we do analyze that, and we have their cost in front
of us every time we make an award here.
If you will go back over the series of 10,000-ton cruisers, you will find plenty of
reason for our being greatly surprised at the low bid of Bethlehem on the Ouincy,
because it was lower than any previous bid, going back for a number of years.
The increase that might have been expected was great. There is no question
about that, and it was a jolt to us.
But although the labor may not have increased in the 6 months, they were
faced with codes, they were faced with the installation of the new law of N. R. A.,
and the stability of contract conditions extending over a period of 2% to S%
years, was such as to make any business man watch his step when he put in a bid,
to be concluded that far ahead.
Senator Vandenberg. Admiral, all of the other cruiser bidders in 1933 were
similarly extravagantly high, were they not?
Admiral Land. Yes. Admiral Robinson has the bids and the cost of a half
dozen ships previous.
Admiral Robinson. I have the cost of the same type of cruiser, the average
cost of which was $10,765,000.
Senator Vandenberg. Over what period of years?
Admiral Robinson. They run over a period of 4 years, possibly 5.
Admiral Land. At least 5.
Admiral Robinson. About 5 years. The average cost had been $10,765,715.
That is why this $8,000,000 bid looked so low, and the $11,000,000 bid did not
look so high. It was really what we had been actually paying for ships in the
last 5 vears.
108 MUNITIONS INDUSTRY
Senator Clark. How about the awards in 1934, Admiral? They jumped up.
to around $16,000,000?
Admiral Robinson. They were somewhat higher, and one of them was thrown
out. We did not think it was reasonable and we threw it out.
Senator Clark. The awards were $16,000,000?
Admiral Land. No, sir. We have got them all right here, any ship which
you want in the 1933-34 program. I have got all the awards and all the bids.
Senator Vandenberg. Getting back to the correspondence between Senator
Trammell and the Department, certainlj'- it is an important thing when the
Chairman of the Senate Naval Affairs Committee challenges, or virtually chal-
lenges, the integrity of the bidder. That is an important thing, is it not?
Admiral Land. Yes, sir; and the Department, as you indicated in your open-
ing remark, took the question of collusion and traced it very definitely back
through everybody concerned -n-ith the thing, to one man, and it all came back
to one man every time, and that seemed to clear up the serious part of the letter,
from the Department's point of view.
Senator Vandenberg. That is what I want to know. The Department's
investigation, in response to Senator Trammell's letter, was largely a pursuit
of this gossip to see where it originated. Is that correct?
Admiral Robinson. That is correct; yes, sir.
Senator Vandenberg. And there was no inquir}' into the physical facts of
the bidding itself?
Admiral Land. We had all the data that I have got here. That was all
available at the time, and it was not put in the letter because it seemed to me
that the Department had answered the important part of it. The figures in
detail were not put in there, but they were definitely understood by us, and it
is sometimes not a very pleasant thing to do, to fit in a lot of figures presented
here, because somebody had given somebody misinformation.
Admiral Robinson. Furthermore, we asked the chairman of that committee if
he could give us any inkling as to what was his reason for believing there was
collusion, beyond this, or anything that would help the Navy Department in
coming to a conclusion on the question, and the Senator's correspondence shows
that that is the only thing he had in mind. And we knew of no reason to believe
there was any collusion. There was nothing to indicate there was any collusion
to us, and there was not anything possible to investigate, that I could see, other
than the prices.
Senator Vandenberg. Admiral, it seems to me that the letter lays this problem
squarely before the Department: That the bids uniformly are inordinately high,
and, therefore, that the Government is about to be defrauded; that the reason
for it is collusion. It seems to me, from the Department's reply, that it is satisfied
to dismiss the charge of collusion by running down the source of the gossip, and
fails utterly even to pretend to justify the bidding itself.
Admiral Robinson. There is the point, sir, that we could not understand.
When tlie average cost for cruisers for 5 years had been nearly $11,000,000, we
could not see that a bid of $11,000,000 was an inordinate price.
Mr. Raushenbush. Is that the average bid for the cruisers or the average cost?
'Admiral Robinson. Average cost.
■ Admiral Land. These things were discussed on the telephone, and many of
these points were cleared up, just on the basis of this arithmetic, and it did not
seem necessary or pertinent to put a lot of arithmetic in there, when it was quite
evident and apparent to the Navy Department that misinformation had been
given to Senator Trammell; and the source of that misinformation was probably
the same source as the collusion. So that the whole thing goes by default, as
being erroneous.
Senator Vandenberg. Does it not strike you as quite amazing that Mr.
Wilder was able to prophesy so accurately where these contracts finally would go?
Admiral Land. It is just like any other guessing game. There are thousands
of people in Washington and all over the country interested in the shipbuilding
trade, interested in guessing at it, and anybody could make a 50-pcrcent correct
answer, because 50 percent would go to the navy yards. That gives you 50 per-
cent on 100 percent. As Admiral Robinson expressed, you have got a big ad-
vantage in Newport News getting airplane carriers because thev have the "know-
how." You have got anything from $500,000 to $1,000,000 in the case of Bethle-
hem, because they have got a similar ship. It does not take any great knowledge
of shipbuilding to know that, with that advantage, who would be the low bidder.
Maybe the company was surprised that they were out, but there i.s just no sur-
prise at all. You can run down the line, knowing who was bidding, having dim-
MUNITIONS INDUSTEY 109
inated some of the people here, and it is just guesswork as to how you would come
out.
Senator Vandenberg. It is not a fact that there was any collusion among the
shipbuilders?
Admiral Land. To the best of my knowledge and belief there was not, but I
have no knowledge about that, and it is perfectly natural that I should not, in the
position I hold. They are not going to confide in me on anything like that.
Senator Vandenberg. I understand that, but I am asking you as to your infor-
mation on the record as it is disclosed to you now, I am asking you whether you
think that the record itself indicates that there may have been something more
than gossip in the matter?
Admiral Land. The best evidence I can give is to invite your attention to the
first or second page of my testimony, showing the bids for the number of ships in
1931, 1932, 1933, and 1934. And when we brought this up from 35 to 70 per cent
in number, my guess is they would not have much of a chance at collusion with this
increased number of bidders. If you are going to assume that all shipbuilders are
colluders, or all poultry raisers, or all milk people are coUuders, they might do it.
I do not know. I do not think they did.
The Chairman. Some of them have caUed themselves not "milk dealers" but
"plunderers."
Admiral Land. That may be true. I am not here to defend the shipbuilder. I
am in an unfortunate position, between the upper and nether millstones. We
fight them all our life. I have no defense of them. If they have done any crooked
thing, I hope this committee gets them. When you talk about the shipbuilding
trade, I am interested in it from a national defense point of view, and I would like
to see what goes on.
You gentlemen must recognize that the shipbuilding industry since the war has
degenerated into a smaller number, from 100 shipbuilders down to 3, 4, or 5, and
there is not enough business to support them.
Now, then, when a Navy program is up, you cannot give it to somebody who
cannot produce a bidder's bond or a performance bond, because that is the law.
If the "big three", "little three", or anybody else is involved, or whoever it may
be, it cannot be helped, but it is not the fault of the Navy Department nor is it
the fault of the shipbuilders, because they cannot make a living. For every one
builder who has made money I can name you two shipbuilders who have gone
broke since the war — and I will make that three, if you like. That is the ship-
building industry's worry, and I am in no way called upon to defend them except
as a backlog of national defense. That is my only interest in shipbuilders.
In the course of this examination Admiral Land again offered the
proposition that the increased number of bidders lessened the chances
of collusion (Apr. 10, galley 26 YD).
A great deal of the evidence showing the character of the bidding
in 1933 to have been one-sided on each of the main categories, was
read to Assistant Secretary Koosevelt, Admirals Land and Kobinson
for their comment (Apr. 11, galley 41 YD, seq. 44).
Mr. Raushenbush. I do not need the exact figure at the moment. Simply
I want to point out in a big program, of about $280,000,000, so far as this evidence
or analysis of it by us seems to show, that there was no effective bidding except
among those people who finally got the awards.
I want to start first with the light cruisers, nos. 42 and 43. I believe you have
all those bids and quotations before you. I want to cite the evidence that
Newport News, which put in a bid, did not want the light cruiser very much.
You will remember, for the record, that Mr. Bardo talked with this company
about these matters, on galley 47 FS. Mr. Broad, the estimator, in his estimating
book a year later, described to the cliief of operations there, Mr. Blewett:
We give you a statement of differences from last year's estimates, one for
the heavy cruiser and one for the 1,850-ton destroyer. None was made for
the light cruiser, as our details last year were not so good and the light
cruiser was not considered as important as the heavy cruiser.
Then he refers again, on Mr. Ferguson, refers in the middle of galley 48 FS
[reading]:
In the time remaining we did what we could with the heavy and light
cruisers, and worked up an estimate first for the heavy cruiser and then
applied the values to the light cruiser.
139387—35—8
110 MUNITIONS INDUSTRY
Apparently the light cruisers were the last ones they worked up out of the
whole program, and the discussion seemed to indicate that they were not particu-
larly interested in that.
United was bidding. United has been the heavy competitor in the early part
of 1933 and the late part of 1932, and United's witness was very, very definite
on the extent to which they wanted to bid, and the extent to which they did not.
Here is Mr. Powell, on Thursday, April 4, 1935, after describing that when there
was a lot of business, the margin went up, and explaining his increase, who then
said:
Mr. LaRouche, I have told you I would rather build a destroj'er than a
cruiser. It suits my j-ard better, and I would prefer it, if I could have picked
out what I wanted, I would have picked out the destroyers and not bid on
the cruisers. I did not know what anybody else was going to do. I tried
to place my bids by a physical shotgun method, so that I should not fail to
be low on some part of the program. I did it pretty well because I was low
on the 1.850-ton destroyers and the 1,500-ton destroyers.
So far as the light cruisers go, Mr. Powell said:
Do you know, Mr. LaRouche, that we had almost nothing but sketch in-
formation about that light cruiser? That cruiser was being designed by the
New York Shipbuilding Co. All the information that they had prepared for
the Navy Department, when the bids came out, was just outline sketches.
We had very indefinite specifications and very few weights, and that was
the biggest gamble. I would rather go to Bowie and play the horses or put
money on the roulette wheel, than to make an estimate on a ship, with the
amount of data we had available for that ship.
Admiral Land. What year is that, please?
Mr. RAUSHENBrsH. Talking about 1933, the light cruisers.
Admiral Robinson. That was not correct. New York Ship did not prepare
any bidding plans for that. Those plans were prepared afterward, and Mr.
Powell had just the same data that anybody else did on that bidding.
Mr. Raushenbush. The point he says about New York Ship designs is less
important than his statement that he had only sketchy information on this
cruiser, and that lie says:
I would rather go to Bowie and play the horses or put money on the rou-
lette wheel, than to make an estimate on a ship with the amount of data we
had available for that ship.
Admiral Robinson. They all had the same amount of information, Mr.
Raushenbush. It was all the same.
Admiral Land. They are talking about contract plans, and they did not have
contract plans in 1933 for the light cruisers.
Admiral Robinson. They all had the same treatment there.
Mr. Raushenbush. There is no intent to charge discrimination there. The
point is, that Mr. Powell is telling that he did not want that ship.
Admiral Robinson. I see.
Mr. Raushenbush. Also on page 10359 of the record he was asked:
You succeeded very well in not being low bidder?
Mr. Powell. Yes; I did. I was too high on the job, but with the informa-
tion available, that is the only position that I could actually take.
Then the figures backing that up show that United did not want this, because
they bid $9,525,000 in late 1932, and in 1933 went to $16,500,000 on this light
cruiser, or a jump of 73 percent, whereas New York Ship, which wanted it, only
increased 27 percent.
Now there was another competitor in there, Bethlehem, and the question is,
whether they wanted it or not, or really bid for it.
Mr. Wakeman was asked [reading]:
Here you have this situation, Mr. Wakeman, you see, which leads to some
questions: You have on the light cruiser what seems to be a very small amount
of data from Newport, and a very small amount from yourself, and a heavy
amount from New York Ship, which got the award. The same situation is
true on the aircraft carriers. You have almost notliing, apparently a few
envelops, from Bethlehem, and a few envelops from New York Sliip, and a
lot from Newport News, who got the award.
Then you get this very definite difference in bids here and it would seem
that Bethlehem was not particularly trying for the aircraft carriers or for
MUNITIONS INDUSTRY 111
the light cruiser, but did want the heavy cruiser, and New York Ship, which
had no estimate at all on the heavy cruiser, and very meager ones on the
aircraft carriers, was well prepared on the light cruiser and the heavy de-
stroyers, and looking at it from the point of view of the third yard, Newport
had only one book on the heavy cruiser, and only one on the light cruiser,
but a very considerable number on the aircraft carriers. So that you get the
picture there is a limit of each yard, concentrating entirely on the one thing
which you give here.
Mr. Wakeman. Which it could best do.
Mr. Raushenbush. Which it could best do.
There are some more quotations. When New York Ship was building a cruiser,
:the Tuscaloosa, Mr. Wakeman described they—
had a natural advantage in the cruiser class and had proposed, in their 1933
bid for the light cruisers, to use the same turbines as they had proposed for
the destroyer leaders. This was unknown to competitors and gave New York
Ship a distinct competitive advantage.
Then they go on to describe their own interest on the heavy cruiser.
They also had very meager estimating data on this ship, as their testimony
shows, on this light cruiser. I think they admitted pretty thoroughly that they
were uninterested in that.
Now, Mr. Bardo again had talked with this company, Bethlehem, about the
bidding in 1933. So with Newport, the United, and Bethlehem, covered in this
way, by the figures, they show they were high, by figures in contrast with previous
bids, but also by their own quotations, and we come to the conclusion that it was
not the heavy cruiser that these other three companies wanted in that case, and
that therefore New York Ship, which got the award for two, was the only com-
petitor that was really out to get that ship in a really serious way.
Do you have any comment?
Admiral Land. I have a comment on that. It is the most natural and logical
thing in the world for a man to bid on what he wants in his plant. That is his
business. It is governed by the load there, what he thinks he can rnake money
on, and whether or not he wants the ship in his business. The premise you take
and the conclusions you draw are something no one could know, except in the
mind of the bidder himself, and he is the only one who can come to such a con-
clusion. By circumstantial evidence, your premise and conclusion may be
correct, but it is absolutely inferential and not factual.
Mr. Raushenbush. When these people say themselves that this is the situa-
tion, that is something else. On galley 48 FS, the estimator for Newport News is
commenting on other light cruisers in 1934. His comment on the light cruisers
in 1934 was, as with the heavy cruisers, taken together, and that with the evidence
in the record describing these companies putting in protective bids; and then you
get. Admiral Land, not only the statement of these people but the figures year
by year, showing exactly what you said — that they wanted what they could best
do in their own yard. We will agree on that?
Admiral Land. And that is humanly natural, is it not?
Mr. Raushenbush. It is not only humanly natural but economically natural.
Admiral Land. Let me ask you a question on submarines. Why do not they
bid on submarines?
Mr. Raushenbush. We are going to get to them.
Admiral Land. The answer is, they do not want them. The Navy Department
is helpless to make these people put in bids.
Mr. Raushenbush. Our only explanation is, everybody not bidding on sub-
marines is because it would be a little too much gall, but we will get to that in a
little while.
Admiral Land. All right; but I will be glad when you do.
Mr. Raushenbush. You see the point of this, Admiral Land?
Admiral Land. I see the point of this.
Mr. Raushenbush. The Navy is confronted with a situation and has to put
out a building program involving $280,000,000, and the shipbuilders come along
and say, "Naturally there is a lot of business, and naturally they will give us
some." They have put up their prices, as they have admitted themselves, and
they find each other bidding for their own natural advantage, and each one know-
ing what the natural advantage of that company is and even talking together
about how they will divide P. W. A. work and increase of the Navy work; and
then you prove by their own statement and by the figures that in the case here
of this category of light cruisers, the only people who really wanted them and
bid here on them was the company which got them.
112 MUNITIONS INDUSTRY
Then the Navy is faced with a situation which grows increasingly serious as it
piles up. I mean, if that is the situation in every case, you cannot come back
here every time and say, Admiral Land, that "We did have full and honest com-
petition." You cannot write letters to Senator Trammell to the effect that "We
have investigated the situation in 1933 and find that the bidding was at arm's
length."
Admiral Land. We can put them in navy yards, and that was what was done
in 1933, when there was no law on the statute books excepting one type of ship.
Mr. Raushenbush. What type of ship?
Admiral Land. Cruisers. On all the other ships we had perfect freedom to
put them where we chose, and we did. In the program of 1933 there were 27
ships in the navy yards and 27 ships in private yards.
Mr. Raushenbush. Was that an act of virtue or an act of necessity?
Admiral Land. You better ask the Secretary of the Navy that.
Mr. Raushenbush. All right. How about that, Mr. Secretary? Could you
possibly — if you had thrown the whole Navy program in 1933 into private yards —
could you have gotten that out in the time you needed it?
Mr. Roosevelt. I think very probably.
Mr. Raushenbush. The whole program?
Mr. Roosevelt. I should not be very surprised, with the normal capacity of
those big yards. But we take it up, as a matter of virtue, if that is the word you
used a minute ago, because it was the proper thing to do. Congress had decided
that for the cruiser every alternate ship should be built in a navy yard. Person-
ally, I felt very strongly that that ought to go right straight through the whole
program.
Senator Vandenberg. Did I understand you to say, Mr. Secretary, that, in
your opinion, the whole program could have been built in private j'ards?
Mr. Roosevelt. I think it could be, sir, but I would like to have that answered
by the experts. I know they have great capacity.
Senator Vandenberg. The program which you did put in private yards is not
very far along now, is it?
Mr. Roosevelt. I do not think it is very much behind our anticipation, sir;
but I would like to have that answered by either Admiral Land or Admiral
Robinson, who know more about the capacity of the yards.
Admiral Robinson. The delay is not due to the number of the ships, but it is
due to the difficulty that people have had, shipbuilders and everybody else, in
getting plans.
The Chairman. I suggest that there be brought into evidence a chart showing
the capacity and ability of the yards to take on anything more than what they
had at a given time.
Mr. Roosevelt. Mr. Chairman, may I say this: That regardless of what their
capacity was — I had not even given that very much consideration, because I was
strongly of the opinion and belief that we should build at least half the program in
the navy yards — that was my reason
Admiral Land. May I interject something off the record? Senator Vanden-
berg mentioned private yards; and, if I understood the Secretary, he was talking
about navy yards. You were testifying we could put them in navy yards.
Mr. Roosevelt. No; I did not.
Admiral Land. I beg your pardon.
Mr. Roosevelt. Private yards, I thought.
Senator Vandenberg. Do you think you could have put it all in private yards,
Admiral Land?
Admiral Land. I know you could, because I gave the Naval Affairs Committee
in the House in January and February 1934 a complete break-down and set-up
of the capacity of the yards of the United States, and it is in my hearings showing
what the capabilities of the navy yards were in the spring of 1933, in the summer
of 1933, and also the capacity of the private yards at the same time.
Senator Clark. Could you have built the whole program in navy yards?
Admiral Land. It is possible, but it would have been bad business from an
economic point of view.
Senator Clark. I am trying to find out the proportion of the capacity of the
navy yards actually used.
Admiral Land. The capacity of the navy yards is up to the limit at the present
time, unless you add additional ways or utilize dry docks for building purposes,
which wore not intended for that purpose.
Senator Clark. Wliat proportion of the capacity of the navy yards was used
by this program?
MUNITIONS INDUSTRY 113
Admiral Land. The full capacity and the full facilities of all the navy yards
in the continental United States are now employed in the building program,
unless you build some additional ways or use dry docks which were not constructed
for that purpose.
Admiral Robinson. I would like to add one thing to which the Secretary has
said, as to the question of virtue, as to whether the Navy Department was doing
this because it thought it was right or had to. In all the discussions which took
place before this building program was divided up, I never heard the question
of the capacity of the private yards raised at any time. In every discussion in
which I took part, the question was whether or not we should be guided by the
express intent of the Congress, on a type of ship which was already covered in the
law, and apply that to other types of ships, or whether we should not. That was
the only thing that was ever discussed.
And the Navy Department officials finally came to the conclusion that it was
the wish of the Congress, although it was not yet a matter of law, covering all
kinds of ships, that we should do that. That was the thing which governed the
Navy Department, and it was dealing with a matter of virtue and not one of
being forced to do it.
Mr. Raushenbush. Mr. Secretary, we have here a letter of September 22,
1934, signed by the Secretary of the Navy, and addressed to the president of the
(New York Shipbuilding Co., in which the letter cites the national emergency,
with the promise of a contractor that he will prosecute the work with the utmost
vigor and dispatch, and then there is the following paragraph on the second page
reading]:
The Department has not been satisfied with the progress made_ at your
plant with particular reference to the light cruisers. The situation with
regard to plans is clearly understood but it is a matter of vital importance that
all practicable pressure be brought to bear on this plan situation in order that
it may be practicable to put men to work not only in your plant but also
in the two navy yards which are building cruisers from the plans prepared
by your company.
That is "Exhibit No. 1479." I put that before you, Mr. Secretary, to show
that sort of delay, and to show that that kind of "balling out" took place in
September 1934, and only one-half of the program being in the jjnvate yards,
and do you still stick to your statement that the whole program could have been
put into private yards, without delays, that would have cluttered up and held
up the program for years longer than it is being held up now [handing paper to
witness]?
Mr. Roosevelt. As I said, and as Admiral Robinson stated, I personally at
least have not given very great consideration to the total capacity of the private
plants with respect to this program. I never even considered giving them the
entire program. So that it was not in my mind at all. It might have taken
longer, but that is something which we should give considerable thought to.
Mr. Raushenbush. Mr. Ferguson was pretty definite on the proposition that
the time element made it impossible to take more than a small amount of the
program for himself, and that was the explanation of why he bid on the whole list.
Admiral Land. I have a complete statement in one paragraph about ship
building facilities, if you care to have it in the record.
iVir. Raushenbush. I should think that should be incorporated.
The Chairman. Let us have it.
Admiral Land (reading):
In order that the committee may have a reasonable picture of
Mr. Raushenbush. Pardon me. Admiral.
Admiral Land. Do you want me to insert it? I have got the statement about
the shipbuilding facilities of the United States, if you want it.
Mr. Raushenbush. I am content to have it inserted.
The Chairman. He said it was only a paragraph,
Mr. Raushenbush. I am sorry.
Admiral Land (reading):
In order that the committee may have a reasonable picture of the ship-
building facilities of the United States, we have reviewed the situation from
the best information available, and find that, if required, existing facilities
are such that we could start the entire Navy building program to bring us up
to treaty strength on July 1, 1934. The Department is not recommending
such action, but the shipbuilding facilities actually exist for 110 ships. Such
114 MUNITIONS INDUSTRY
a program would only be undertaken in great emergency, and would require
reconditioning of about 13 buildmg ways and the addition of about 7 building-
ways in private plants where space and other facilities exist. From the-
navy yard point of view, such a program would require the utilization of 3.
drydocks and rebuilding 4 sets of ways.
Let us omit the utilization of docks, rebuilding ways, and new ways. We
still have available facilities for 81 ships (110 minus 29 equals 81).
Breaking this down into concrete form, we have in navy yards a maximum
of 22 building ways and a minimum of 13; in private yards a maximum of 88-
and a minimum of 68 building ways; which gives us a total of 110 maximum
and 81 minimum.
Mr. LaRouche. I would like to ask Admiral Land where those private ways
are.
Admiral Land. Throughout the United States.
Mr. LaRouche. The ones you spoke of, the minimum number, are readily
available in the private yards; are they available and ready?
Admiral Land. Yes.
Mr. LaRouche. You would not care to tell us where they are; what yards?
Admiral Land. Yes; I cannot name them off, up to the total of 68, but they
include the weU-known shipbuilding plants that have Navy contracts. They
include four or five plants upon the Delaware; they include some shipbuilding
plants on the west coast. It is merely a war-plan survey of the country which we
keep up to date year in and year out.
Senator Bone. Admiral Land, there has not been a ship built on the Pacific
coast since 1917 in private yards, has there?
Admiral Land. I do not think there has been, Senator; but the ways exist.
Senator Bone. You are including those ways in the 88 you mentioned?
Admiral Land. Absolutely; they exist. I am giving you the existing facilities.
That is all. Of course, I include those in San Francisco,. Seattle, Oakland, Los
Angeles.
Mr. Raushenbush. You are somewhat in contradiction there, it seems to me,
with Mr. Ferguson, when he said, "Of course, so far as time goes Newport could
not handle more than a certain share of the program" — and I assume the share
they got, and the letter addressed to Mr. Bardo, complaining about the delay,
even on what they got. I just submit, as a generally reasonable proposition, that
any more work in those yards would have caused a great deal more delay. Does
not that seem true, on the face of it?
Admiral Land. Yes; that is a fair conclusion to draw from your premise.
Any more work in a yard which has got maximum work would cause dela\', whether
navy yard or private yard. It does not make any difference.
Mr. Raushenbush. Now, going on to the armored cruisers in 1933, the next
item in the program, we find four companies bidding, Betlxlchem, New York
Ship, Newport, and United, with Bethlehem getting the award. Now, the
question is about the other three competitors, so-called "competitors", New
York Ship, Newport, and United. New York Ship had almost no estimates,,
according to their evidence. Mr. Langell, the estimator, was asked:
Mr. Langell, on a cruiser on which about $4,000,000 or $4,500,000 worth of
material is involved, you certainly do not make it a practice to make up
estimates for the company to put in bids unless they know what they are
going to pay for that material?
Mr. Langell. True.
He was asked further:
Tt would be an exceptional case where they were willing to make uj) an
estimate or put in a bid without that? Would not that be true?
Mr. Langell. True.
He was asked:
Very exco]itional?
Mr. Langell. Ahsolutoly.
Mr. Langell was asked about that. That is the heavy cruiser Viucenues, is
it not? He was asked:
And on the heavy cruiser Vincennes you made no estimate at all?
Mr. Langell. None.
Mr. LaRouche. And you did not get it?
Mr. Langell. Certainlv not.
MUNITIONS INDUSTEY 115
Mr. LaRottche. On all the other jobs which the company did get
Mr. Langell. And wanted.
Mr. LaRouche (continuing). And wanted, you made very elaborate
preparations?
Mr. Langell. I did.
Mr. LaRouche. That is all.
Senator Vandenberg. I think the record should be very plain that these
files tell their own story to a very eloquent degree.
Mr. Bardo described that set-up, too, on page 10567, and was very frank about
it. He said:
We did not have anything on the 8-inch-gun cruiser, because it was as
bad as a different ship.
He had just explained that they were concentrating on the light cruisers and
the l,S50-ton destroyers. There is a further quotation on 39AS that they had
no estimates at all. Mr. Langell was asked:
Heavy cruiser No. 40, which later became No. 44, and is now named
Vincennes.
Mr. Langell. Right.
Mr. LaRouche. And this is the cruiser upon which you did not even make
an estimate. Is that right?
Mr. Langell. Let me see that. What is the number of that estimate
[examining paper]? No; it was based on another estimate.
Mr. LaRouche. But you made no estimate on heavy cruiser No. 40 at
any time?
Mr. Langell. No.
Mr. LaRouche. That was the one you told me that the management
made itself?
Mr. Langell. That is right.
Mr. LaRouche. You had nothing to do with that?
Mr. Langell. Not a thing in the world.
Mr. LaRouche. Was not that a little unusual?
Mr. Langell. Well, that is up to the management and not up to me.
That is New York Ship, on its great desire to get that job. United, appar-
ently, did not want it on the figures, because it bid $5,075,000 more than it did
in 1932, or jumped 53 percent, whereas New York Ship, which did not want it
either, jumped 26 percent. United was very clearly out of the running on this
and said so in their own words.
Mr. Powell was being asked about how it happened that he was so far over the
1932 bid, and he admits it was a tremendous jump, and he was asked:
You were under some of the "big three" in 1932?
Mr. Powell. Yes.
He was asked:
In 1933, you became, as we say, conveniently out of the running?
Mr. Powell, I object to the word "conveniently" very much.
Mr. LaRouche. Then you were out of the running in 1933?
Mr. Powell. Yes, sir.
Mr. LaRouche. You jumped from a bid in 1932, which was below some of
the "big three" to a figure which was from $1,000,000 to four and a quarter
million doUars above the bids in 1933?
Mr. Powell. Yes.
There is more on that question and Mr. Powell definitely admits this. On
pages 10351 and 10352 he was asked:
Mr. LaRouche. In your bid in 1933 were you equally desirous of getting
a cruiser?
Mr. Powell. I was perhaps not equally desirous, because my yard was
better equipped and required less capital expenditures to build destroyers
than it did cruisers, but I made my Cruiser bid in 1933 on the basis that
probably because of the large value of work the other yards would naturally
raise their price, and if they raised their price too much I was going to be
under them, to be low on those cruiser bids.
116 MUNITIONS INDUSTRY
Then, there is a further quotation by Mr. Powell in which he said, on page
10358 [reading]:
Mr. LaRouche, I have told you I would rather build a destroyer than a
cruiser.
And the question that is raised in our mind is, that if a company wanted a
cruiser, they would not jump their bid 53 percent from the latter part of 1932 to
the early part of 1933.
Now, at this time it was known to various people that Bethlehem had an
advantage on the heavy cruisers, and they all told us, that is, United and New
York Ship.
Newport testified here that they have an advantage of about one-half million
dollars on labor (galley 47 FS) and that they knew that Bethlehem wanted it,
and in spite of that they put in the bid, as in 1934, when they got it, that it was
a price of $1,000,000 higher than Bethlehem.
Now, there is an additional question on that, raised bj' Senator Vandenberg,
which perhaps you could throw some light on. Mr. Cornbrooks is the manager
of the New York Ship, and he was asked [reading]:
But you did put in bids on the light destroyers and the heavy cruisers
which, according to that testimony, j'ou did not want and did not expect
to get?
Mr. CoRNBEOOKs. Yes.
He was asked:
Now, asking Senator Vandenberg's question again, after reading this testi-
mony, what was the point in putting in a bid on ships you did not want and
did not expect to get?
Mr. CoHNBROOKS. We wanted to be represented, as we do at all bidding.
Senator Vandenberg. You said a moment ago that you assumed that the
President wanted you to bid on everything.
Mr. Cornbrooks. I won't say the President, but I mean the Government.
Senator Vandenberg. That is what I assumed.
Mr. Cornbrooks. Because it was an emergency proposition.
Senator Vandenberg. I was wondering what assistance you thought you
were rendering the Government by puttmg in a so-called "fake" bid. What
assistance is that to the Government?
There was other testimony to that effect. Can any of you gentlemen tell us
whether the companies were made to feel that they were in any way assisting
the Government by putting in bids on which they were not particularly interested
in getting?
t~ Mr. Roosevelt. I cannot tell you anything about it; no, because I was absent
all that time, on the 1933 awards; but I do not think it is anything that the
Department had very much to say about, what these various shipbuilding com-
panies were going to bid on. It is a matter that I think was in their discretion,
it seems to me.
Mr. Raushenbush. This came up time and again, Mr. Secretary, and the
companies were asked: " What was the idea of putting in low bids on things you
did not want, and were not prepared to take, and had no estimates on?"; and
they described them as "protective bids", "complimentary bids", and admitted
they could not do it, and here you get a statement that apparently this one com-
pany is under the impression that the Government wanted them to do that. I
wanted to raise the question whether there would be any assistance to the Govern-
ment in that. If you were out on the west coast when this happened, Mr.
Secretary, perhaps one of the admirals can answer that.
Mr. Roosevelt. I would like to say that tlie Government is only interested
in receiving or getting competition. I do not tliink there had been any indi-
cation to any shipbuilder — certainly not within my knowledge — that would lead
them to believe that complimentary bids of that nature were sought by the
Department.
Admiral Robin.son. I can answer that question, Mr. Ruushenbush.
Mr. Raushenbush. If you please.
Admiral Robinson. For my own purposes, I can state that I never encouraged
any shipbuilder to take such action as you have outlined.
Mr. LaRouche. Whom do you think they meant by "the Government",
Admiral?
Admiral Robinson. I have no idea, sir. I do not think they meant anybody,
because I am quite sure that nobody in the Government encouraged shipbuilders
MUNITIONS INDUSTRY 117
to put in fake bids, or to camouflage competition, or to do anything of that kind.
In fact, our actions were just the contrary to that.
Mr. RAtrsHBNBTJSH. Certainly, if the builders only hid because the Govern-
ment wanted them to, or they were under the impression that the Government
wanted them to, in spite of the fact that they did not want certain ships at all,
the argument as to the fact that the bidding was honest, because there were lots
of bids, would drop right away, would it not?
Admiral Robinson.^ I do not think anybody would claim that the number of
bids would make that honest.
Admiral Land. That is the same as occurs in the opening of bids for beans, oil,
gas, and so forth. People put in bids to keep their hands in, and know what the
other fellow is bidding, and they are at the opening, and there are a thousand
and one reasons why they want "to know what is going on in their particular line
of work. There is nothing unusual about it on ships. It is the standard prac-
tice in all this Government business, where people put in bids, whether they
want the work or not. When the time comes, depending on whether they need
the work, they will put in a price accordingly.
Mr. Raushenbxjsh. I do not want to have to be in a position of apologizing^
for this line of questioning, but you can see, on a naval program involving $280,-
000,000, if a whole series of bids were put in for sport, for the purpose of keeping
it in their hands and the like, it causes the appearance to be that there was a great
deal of bidding and it was honest bidding and good competitive bidding; that
is the appearance which is created, and the facts behind it do not back it up.
That is of interest to taxpayers anyhow, the interest is a little larger in connection
with a $280,000,000 program, more than it would be in the case of beans, is it not?
Admiral Land. Of course. I am taking no exception to what you say, but I
am merely indicating that is the standard practice and procedure on all kinds of
Government bidding, and if your contention is proven — I do not know whether
it is or lot — but if it is proven, it does not prove anything except what I stated
before, that every man who puts in a Government bid has the right to bid on
what he chooses and nothing else. That is his business and not ours. There i&
no compulsion there.
Senator Vandenberg. We seem confronted with the situation that while they
bid to keep their hands in, there is usually something in their hands when they
pull them out.
Admiral Land. That is for the committee to determine. I have got no juris-
diction, and I do not think anybody in the Navy has. We are not in position ta
adjudicate the merits of the testimony before this committee. The only testi-
money sent to the Navy was the testimony given by Admiral Robinson and my-
self, 2 months ago, and 1 brochure of testimony by Mr. Homer.
Later (Apr. 11, galley 45-48 YD): '
The Chairman. Admiral, is not this another one of those cases that squares
up fairly well with the action of the Navy Department at the time that Senator
Trammell filed his complaint and his allegations that there appeared to be
collusion, and according to your testimony yesterday, you ran down as many
strings as you could get hold of to ascertain who was responsible for those charges,
and finding who was responsible you just said, "There is nothing to it."
Admiral Land. It all emanated from one source. The source of information
was entirely incorrect. There was a lot not in the record, which went on over
the telephone, which I cannot attempt to repeat, so that the matter was entirely
cleared up to the satisfaction of the gentleman concerned, although it may not
appear in your record.
The Chairman. When you ran it down in every instance to one source, in
that case, you were satisfied, and you made no further investigation to ascertain
whether or not there was collusion?
Admiral Land. We made all the efforts to ascertain that that were practicable
for us to make. We have not the facilities of this committee to do, as you do,
to find out this thing. It is absolutely impossible for the Navy to do that.
Senator Bone. If there were collusion. Admiral Land, would the Navy be
absolutely helpless?
Admiral Land. Not at all.
Senator Bone. You say you have no facilities whatever for ascertaining the
truth about that.
Admiral Land. I said we had no facilities for determining collusion.
Senator Bone. To use a vulgarism, if these companies "gang up" on you and
take you for a cleaning, is the Navy Department helpless in determining a matter
of that kind?
118 MUNITIONS INDUSTRY
Admiral Land. No; we are not helpless in the matter at all.
Senator Bone. I thought your statement implied that much.
Admiral Land. No; I said we have not the facilities this committee has to
determine the actions of private shipbuilders with regard to their preparation of
bids and submission of bids, or any of their working organization in their private
set-up. We have no authority to go in and find out that, as this committee has
done. I think that is a perfectly fair statement, and you gentlemen know that
we cannot do it.
Senator Bone. Then, if that is true, in the absence of an inquiry of this kind,
the Navy Department might be really "cleaned" by these gentlemen, without
any recourse w^hatever, and it would have to depend upon an inquiry of this
character to bring the facts to light? That is a sad picture, Admiral.
Admiral Land. That does not necessarily follow. That statement and con-
clusion is not correct.
Senator Bone. Then you may clarify it.
Admiral Land. I say we are not helpless by any means. We have the option
of accepting or rejecting a bid. We have a fairly good idea what the cost of the
ships is. We keep records. We can always fall back on the navy yards, if we
have any doubt in the matter. The Secretary of the Navy has the right to accept
or reject all bids, and that is called to the bidder's attention. He has a right to
kick out anything, and it is so stated and called to the bidder's attention, a copy
of which has been brought up. We are not helpless but have the whip hand.
However, we are not in the position to determine the honestv of somebody in a
bid.
Admiral Robinson. I would like to add to that that in 1934 we did that. The
prices of the cruisers seemed too high and we threw them out and put them in the
navy yards.
Senator Bone. I want to go back to this navy-yard matter a little later, but
go ahead.
Mr. Raushenbush. Has not the Navy had a representative here every day?
Mr. Roosevelt. Yes, sir.
Admiral Land. Mr. Secretary, may I say that that has only been true from
a given date?
Mr. Raushenbush. As soon as we got into the shipbuilding testimony.
Admiral Land. No, sir. Off the record, please.
Mr. Raushenbush. All right.
(At this point an informal discussion occurred off the record, after which the
proceedings were resumed as follows:)
Mr. Raushenbush. Now, coming to these destroyers in 1933, we are going
through these item by item, and we find that United, Federal, and Bath were
each awarded two. We have had something in the record about their getting
together on their plans after they knew they were going to get the awards.
Now, there were some other bidders. New York Ship did not expect to bid
and prepared no estimates. We have here the testimony of Mr. Cornbrooks
and Mr. Langell to that effect, on pages 7295, 7296, and 7297 of the record.
Mr. LangeU and Mr. Cornbrooks both testified on that to the effect that they
did not expect it. Bethlehem, according to the statement. Admiral Land, at
page 10766, was in this position. Bethlehem's bid was not in accordance with
what you wanted. Is that right?
Admiral Land. Is this 1933?
Mr. Raushenbush. Relating to destroyers in 1933.
Admiral Land. They bid on the Farragut class, and we did not want it, and
naturally rejected it.
Mr. Raushenbush. That was not a bid, in principle, was it?
Admiral Land. No, sir.
Mr. Raushenbush. The Gulf Industries' bid, which was apparently the low
bid at the time, $3,025,000, was considerably below the others, and was not
accepted by the Navy, on the ground that the company was not financially
equipped to handle the work. Is that correct?
Admiral Land. That is i)artly correct. There was an elaliorate statement
which was i)resented to tlio Secretary, and of which the committee has a copy, as
to why the Gulf Industries' bid was rejected, and it was more than that thing.
They were not a reliable bidder.
Mr. Raushenbush. You do not consider them an active competitor in this
case?
Admiral Land. They may be a competitor, but I do not consider them a
reliable bidder.
MUNITIONS INDUSTRY 119
The Chairman. If they are not a reliable bidder, and have not a chance to get
a bid in, how could they be considered a competitor?
Admiral Land. By a great many instances. None of the shipbuilders know
how to consider it, whether they are a perfectly good competitive bidder until the
Navy Department adjudicates the matter.
Mr, Raushenbush. The answer is that two other competitors gave prices,
Warwick, which bid $1,000,000 fully above the "little three", which got the
award, and also Maryland. Now, neither of those companies built destroyers or
had been consulted about plans at all, since the war, had they, neither of these
two companies, Maryland and Warwick?
Admiral Land. They have never built any Government sliips siiace the war —
no; so far as my knowlege goes — no combatant ships.
Mr. Raushenbush. They did not have planning staffs, did they, of the im-
portance, let us say, or of the kind United was working up at the time, and Bath,
and so forth?
Admiral Land. I do not think they have. I am not familiar with the com-
pany; that is, the staff of Maryland. I know Warwick has no complete technical
staff for that kind of work.
Mr. Raushenbush. Just a question, in passing. We noticed that these bids
of the "little three" were within a fraction of a tenth of a percent of each other.
Here is United, $3,400,000; Federal, $3,410,800; and Bath with $3,429,000.
Now, United and Federal up to that point had not built any destroyers at all,
Admiral Land, and Bath had, and, of course, Bethlehem had. How can you
account for that closeness of bidding among two people — Federal and United —
that had not built any destroyers up to that time and did not know how much
the cost was? How do thay hit so close to a company that had buUt them, like
Bath? They hit Mathin one one-thousandth of a percent, practically.
Admiral Land. I would not attempt to account for the bids put in, because I
am not capable or competent to know what is in the mind of the man who puts
in the bid. I do not attempt to account for it.
Mr. Raushenbush. Wait a minute. Before we get into that, whether you
have to go into a man's mind before you can perform your functions of protecting
the public interest by analyzing the bids, let us take the reverse, and say you can
never get into a man's mind; but, certainly, when figures are put before you is
it not your daily function to look at those and see what they amount to in terms
of past bidding and earlier bidding and the like? Do not those problems auto-
matically come to you when people who have not bid before bid within a fraction
of a tenth of a percent of each other? Is not that a real problem that you can
solve without having to be a psychologist or a psychiatrist?
Admiral Land. Certainly that is a part of our problem. Let me ask j'ou a
question. Suppose you go to an opening of bids which are all tie bids. What
will you do? What would the Government or the Navy Department do?
Mr. Raushenbush. Throw them out with a large excitement.
Admiral Land. I would like to see you try it.
Senator Vandenburg. Or repeal N. R. A.
Admiral Land. All right; that is a different story.
Mr. Raushenbush. Do you think these bids were influenced by N. R. A.; is
that the reason why they were so close?
Admiral Land. I have no doubt about it at all. There naturally is closeness.
They are bound to be influenced by N. R. A.
Mt. Raushenbush. Labor?
Admiral Land. Not only labor, but materials.
Mr. Raushenbush. The steel companies have to bid the same price, do they not?
Admiral Land. I do not know what they have to do. I know what they do,
to a large extent. I am not a lawyer, but merely a materialman down there.
You say the steel companies have to bid the same. Supposing they bid the same
to these people; that gives them a pretty good idea what the cost of steel wiU
be in the ship, which is mostly steel.
Mr. Raushenbush. They say it is not.
Senator Vandenberg. Was there a code at this time?
Admiral Land. Yes; the Shipbuilding Code went into effect the 26th of July
1933, I believe, and the bids were opened on July 26, 1933. There may have
been 24 or 28 hours there, but they knew, and the contractors knew, that the work
was under N. R. A., and it specifically covered not only the contractors but all
the subcontractors were kept to the N. R. A., all the way down the line, and the
shipbuilders protested loudly and long about certain features of that, but accepted
it finally, by duress, if you like.
Mr. Raushenbush. Going on into the next category of destroyer leaders, you
remember Mr. Bardo's testimony the other day, AprU 5, 1935, to the effect that
120 MUNITIONS INDUSTRY
he went and discussed that question with Bethlehem, and that he decided to bid
on the N. I. R. A. ships, and the reverse was true of Bethlehem; that is, the bid
on the increase of the Navy, and then he said he put in a complimentary bid
against Bethlehem.
Admiral Land. That would not have the slightest merit with me, because ships
are ships. Whether N. R. A. or increase of the Navj' did not make the slightest
bit of difference, because they were in competition, anyway. Any complimentary
bid he may have put in on increase of the Navy means nothing, in my mind, at all.
They were competing. Despite Mr. Bardo's letter, they were not permitted to
bid on those eight ships. The Navy Dejiartment never intended to let any
shipbuilder bid on the eight. The differentiation between N. R. A. and increase
of the Navy ships was not made.
Mr. Raushenbush. You don't get the point.
Admiral Land. I understand perfectly.
Mr. Raushenbush. He wanted one kind of work in his yard. His testimony
is clear. There were to be four of each. On page 10577 of the record he goes on
to explain what happened. [Reading:]
Bethlehem's work was under the increase of the Navy work, and they
wanted to bid on the leaders, the leaders being under the increase to the
Navy, and his work would all be under one appropriation.
Then he was asked:
As far as the actual bidding goes, how does one do that? Does one tell the
Navy, "You are advertising so much, and I want these under that"?
Mr. Bardo. I could only bid on 4 out of 8, and I made it low for the 4 I
wanted, and on the 4 I did not want, I just put in a complimentary bid, and
I was not interested in that at all.
Admiral Land. That is a confusion of terms, because he was not permitted to
bid on the eight. He put in so much under N. R. A., and it meant nothing at all
to Admiral Robinson or me, because he could not have had them, no matter if
he put in any bid.
Mr. Raushenbush. You agree that this was purely a complimentary bid?
Admiral Land. Probably was; but it did not mean anything in this case.
Admiral Robinson. He did not put in any on eight, as far as I remember.
Admiral Land. I cannot remember such a bid, but he may have added some-
thing.
Admiral Robinson. It was contrarj' to the schedules.
Mr. Raushenbush. Then he was asked [reading]:
You have read the testimony of Mr. Langell prettv thoroughly, as to what
he said was wanted in 1933 and 1934. * * * fle substantiates exactly
what you said here; on the things you wanted, real estimates were made.
Mr. Bardo. That is right.
Mr. Raushenbush. And you got them, and on the things you did not want,
there were no estimates to speak of.
Then he was asked by the chairman:
Now, Mr. Bardo, what is a "complimentary bid"?
And he replied:
It is a bid you put high enough so that you know you won't get it.
The Chairman. Who is that a compliment to?
Mr. Bardo. I do not know.
Admiral Land. There is no reason, so far as I can find from the record in the
Navy Dejiartment, for any bidder differentiating between N. R. A. and increase
of the Navy, and Admiral Robinson is 100 percent correct, I think, that he did not
put it in. I do not care what his testimony is; here is the record.
Mr. Raushenbush. Again the question was asked about Mr. Langell'a testi-
mony; that he was concentraling on the l,S50's and the light cruisers, with the
distinct understanding that was what the firm would like to have, and he says,
"ThatisriRht."
On the destroyer leaders, the result was that New York Ship got 4 and Bethle-
hem got 4, an award of about $15,000,000 each. United, Federal, and Newport
also put in bids, but in no class 2 bids, and since the awards were on a class 2
basis, you cannot consider them as actual competitors on the destroyer leaders.
Is not that correct? You gave out awards on class 2 basis?
Admiral Land. What competition was there before we made the award?
MUNITIONS INDUSTRY 121
Mr. Ratjshenbush. Wait a minute.
Admiral Land. The competition takes place before bids are opened and not
after. Anything done by the Navy Department, after, you cannot phrase it
that way and state it correctly. Competition takes place before bids are opened
and not afterward.
Mr. Raushenbush. If you are allocating the ship, to be built in accordance
with the company's own plans, and another company comes along and says,
"We will bid on your past plans rather than our own", you cannot really say
that that is competition in the category in which you finally give the award.
And here you have the other three people, who also put in bids, but did not put
in class 1 bids, United, Newport, and Federal, but who put in class 2 bids. Three
was certainlj^ before these bids were opened, a great deal of work on the part of
Bethlehem and a great deal of work on the part of New York Ship in preparing
plans. Mr. Bardo's testimony was to the effect that late in 1932 or early in 1933
he decided to concentrate on the plans for these and the light cruisers.
Admiral Land. Just a minute. Are you making a statement that there were
no class 2 bids submitted by United, Federal, and Newport?
Mr. Raushenbush. In that particular category, on which the awards were
made.
Admiral Land. There are on class 3. That is a different thing.
Mr. Raushenbush. There were on classes 3 and 4.
Admiral Land. Yes, sir.
Mr. Raushenbush. But on that on which the awards were made, there were
no bids by others. United stated they could not handle more than one category.
Admiral Land. You are wrong about United. United put in class 2; Bethle-
hem, class 2; and New York Ship, class 2.
Mr. Raushenbush. New York and Bethlehem, all right.
Admiral Land. United had it then. It is not all right unless you put United
in there.
Mr. Raushenbush. United was in this additional category, was it not?
Admiral Land. I am only saying United had a class 2 bid.
Mr. Raushenbush. Here United definitely told you, did it not, Admiral
Land, that it could take 2 heavies, 2 lights, or 1 cruiser, but could not take more
than that?
Admiral Land. Which year are you in?
Mr. Raushenbush. 1933.
Admiral Land. That is true in 1934. I do not know anything on that in 1933.
In 1934, that is correct, and in 1933 I cannot follow it.
Admiral Robinson. I guess that is right.
Mr. Raushenbush. I may have in mind some testimony which they gave here
as to the size of the yard.
Admiral Land. I think, Mr. Raushenbush, you are a year out on that partic-
ular thing.
Mr. Raushenbush. That may be.
The question, then, is whether United was a competitor there. I am perfectly
willing to wait until we get our own papers and see why we decided they did
not put in a class 2 bid.
Holding that in abeyance, and going on to the submarines, did you happen —
let us go to the aircraft carriers first. The competitors there, supposedly, the
people putting in bids, were Newport, New York Ship, and Bethlehem. Were
you under the impression, Admiral Land or Admiral Robinson, that New York
Ship or Bethlehem could really take those aircraft carriers without a very con-
siderable loss?
Admiral Land. I have no impressions whatsoever. I know they could build
them if they wanted to.
Admiral Robinson. On the bids put in, Mr. Raushenbush?
Mr. Raushenbush. Yes.
Admiral Robinson. I certainly never expected that any shipbuilder would
submit a bid on which he expected to lose money, particularly in a case where
there are lots of ships. In a case where there is a very limited number of ships,
he might do it, but I would not expect him to do it in a case where there were as
many ships to be built as there were in this program.
Mr. Raushenbush. Here is Mr. Bardo speaking about the aircraft carriers,
on page 10595 of the record. He was asked [reading]:
After a company has specialized on aircraft carriers, it is pretty hard to go
in and bid against them and expect to get it?
Mr. Bardo. Unless they are willing to take a loss, but no man in his right
senses is going to do it.
122 MUITITIONS IliTDUSTRY
Then the question of how much advantage New^jort had on the aircraft
carriers came up the other day, and I think we agreed it might be as much as
$1,000,000.
Admiral Land. Somewhere between $500,000 and $1,000,000.
Mr. Raushenbush. $500,000 on the cruisers.
Admiral Robinson. The question which came in there would be just as to
how much he would be allowed for profit. If one man allowed a considerable
amount for profit and another man allowed none, he might get the business,
even though the other man had had the experience. That would depend on
how much he needed the work. That determines the greatest part of the work.
Mr. Raushenbush. On page 7295 of the record, Mr. Langell was asked
[reading]:
Here is the aircraft carrier on which you also made a sort of left-handed
estimate, did you not?
Mr. Langell. Right.
Mr. LaRouche. In other words, you just took a long running leap at the
estimate on the aircraft carriers nos. 5 and 6 which you did not think the
company would get?
Mr. Langell. That is perfectly right.
Mr. LaRouche. And did not want?
I understood they did not want that.
Mr. Raushenbush. They had practicallj' no estimates on that matter as is
shown by galley 39 AS, and as Mr. Langell's testimony shows.
Bethlehem was confronted vrith the same question, and admitted very meager
estimating data, and stated that Newport had such a large advantage as com-
pared to theirs, an advantage of around $2,000,000, that they did not feel that
they were able to compete.
We can read this, if you have any question about that. I will call your atten-
tion to the galley in which that appears. We have here the joint letter, Admiral
Land, and wliile we may have made some mistake in it, we do not see here on the
Ust of bids, which you put before the Secretary, any class II bid from United Dry
Dock [handing paper to Admiral Land]:
Admiral Land. All I have got here is the record.
Mr. LaRouche. We were unable to find it on that.
Admiral Land. All I know is the record here. It may not be here. I do not
know. I cannot differentiate between a number II and a number IV here, as far
as this thing is concerned. I would have to look up the bids and see what they
are calling for on that.
Mr. Raushenbush. We can get the information on that from you later, can
we not?
Admiral Land. Surely, you can get everything we have got.
Mr. Raushenbush. This summary was from your own files, and we assumed
it was correct.
Admiral Land. That is correct.
Admiral Robinson. It undoubtedly is correct, I think. Do you not think so?
Admiral Land. Yes; surely.
Mr. Raushenbush. If it is correct, that takes out United as a competitor on
that category, on the basis of class II.
We have run through everything except the submarines, and I do not know
whether you noticed the testimony by Mr. Haig and Mr. Pew, the other day, that
they apparently could not bid on their own designs, and you made an award on
class II designs, that is their own designs. Actually they were low, apparently,
on the class I bids, and the idiea of somebody else's designs, but on that category
you gave they made no bid at all. And we considered that that eliminated them
as competitors on the one thing on which you gave the award. We have some
quotations here.
Admiral Land. What year is that, please?
Mr. Raushenbush. Still on 1933. We are going through the whole 1933
program.
Admiral Land. You say the Sun was low?
Mr. Raushenbush. Was low on one ship.
Admiral Robinson. No, sir; they were not low on any kind of ship. They
were s.i high we could not possibly give them an award.
Admiral Land. I have all the bids and classes in one cohimn.
Mr. Raushenbush. Again, this is the joint letter wliich was turned over to us.
We have class I: Sun, $2,931,000; and Eiectric Boat, $3,200,000.
Admiral Land. That is on one ship?
MUNITIONS INDUSTRY 123
Mr. Raushenbush. They were low on one ship. But you gave the award
on a class II basis, which they were not bidding at all.
Adnriiral Land. You might give the whole story: That we gave it on more than
one ship, on which they were not low.
Mr. Raushenbush. There is no criticisnn of that at all. The award was given
on the basis of the cheapest price. That is not the precise point.
Admiral Land. I wanted to make it clear.
Mr. Raushenbach. The question is whether Sun could be considered an equal
competitor with Electric Boat. Mr. Haig and Mr. Pew were here the other day,
and they told us they were unable to get from Electric Boat how much they would
have to pay for patents, page 102225 of the record.
Admiral Land. Did anybody ask them what patents they were talking about?
Mr. RAXJSHENBtTSH. Ycs.
Admiral Land. I would like to know what those patents are.
I have been in the submarine game for a long time, and the patents E. B.
have long since gone out of the picture under the 17-year law. I am at a loss to
know what that refers to.
Admiral Robinson. We were unable to find any patents in this submarine busi-
ness at all, Mr. Raushenbush. As a matter of fact, the Navy Departm.ent made
every effort to get real bona fide competition on this submarine matter, and if
the prices had been at all reasonable, unquestionably they would have gotten an
award. Now, a shipbuilder who is breaking in on a new game, undoubtedly has
to trim his prices pretty closely in order to compete ■with a man in the game a
long time. Everybody knows that. We knew it, and he did, and he was urged
to do it. As a matter of fact, we did not feel that he had trimmed far enough,
and the result was we did not see how we could give him an award, although there
was every desire to do so.
Mr. Raushenbush. The question on that particular matter was whether a
submarine bidding in 1933, when they had some plans of their own, whether that
sort of competition is one that you can call serious competition?
Here is Mr. Pew saying that he wrote the Electric Boat Co. about these patents
and got no answer. That is on pages 10224 and 10225, but I do not want to
read it. He was asked [reading]:
Are you telling the committee that you are at the mercy of one company
which has those patents?
Mr. Pew. We believe we are.
Does that answer your question?
Admiral Robinson. I do not think there were any patents on engineering.
I can say for the whole ship, so far as my Bureau is concerned, I can say there
were no patents. We feel we saved the Government a great deal of money by
having them bid on those boats because, if that company had not been bidding,
they would have been higher.
The Chairman. Where would they have been, if they had been awarded the
contract?
Admiral Robinson. I think they would have been all right.
The Chairman. He was stating that they had no patents.
Admiral Robinson. There were no patents involved.
The Chairman. He was very emphatic.
Admiral Robinson. I can only speak for my own Bureau. In the first place,
if we are buying the machinery and furnishing it to the shipbuilders, there would
not be any bureau engineering in it. Admiral Land will have to answer that.
Admiral Land. We pay no royalties to the E. B. Co., and there are no patents
involved. They cover themselves and make an allowance for these patents.
They had some chance, and probably still have. My judgement is thac they
are probably not justified in this, but that is their business and not mine.
Mr. Raushenbush. Let us rest on your own testimony and Admiral Robinson's.
A competitor who does not have to pay anything for patents is not a competitor
that is very much upon his toes, is he?
Admiral Land. We are not going to tell you anything except we have very
little competition in submarines. The only competition we have is in our navy
yards.
Mr. Raushenbush. That is all right.
Admiral Land. It is open and shut.
Admiral Robinson. We do not have as much as we would like. We would
like to have more.
Mr. Raushenbush. We can understand that.
Naval Awards — 1934
In 1934 awards amounting to over $50,000,000 were given to private
yards, covering 11 sliips.
One light-gun cruiser was awarded to Newport News and one to
New York Ship. Two destroyer leaders were awarded to Federal.
Two light destroyers were awarded to United, and two to Bethlehem.
Three submarines were awarded to Electric Boat Co. One heavy-gun
cruiser was advertised, but the Navy gave the award to a navy yard
on the ground that the bids of the private companies were high. In
its place an additional Ught cruiser was awarded to New York Ship.
At the same time the navy yards were given the following sliips:
Philadelphia yard, the heavy gun-cruiser Wichita (CA 45); New York
Navy Yard the Hght-gun cruiser Honolulu (CL 48); Norfolk Navy
Yard light destroyers 386,387 and 388; Boston Navy Yard, Ught
destroyers 389 and 390 ; Mare Island Navy Yard, light destroyer 391 ;
Puget Sound Navy Yard, light destroyers 392 and 393; Portsmouth
Navy Yard, submarines Plunger (179) and Pollack (180); and Mare
Island Navy Yard, submarine Pompano (181).
The bidding situation in 1934 is not quite as clear as it was in 1933.
The program was not quite as large as it was in 1933.
In spite of the fact that a considerable number of companies bid on
the Ught crvuser, the only real competition lay between the Newport
News and New York Ship. In the end both of them received one
ship. On the armored cruiser, which was finally given to the Philadel-
phia Navy Yard, the only real competition was between Bethlehem
and Federal, although here again a great many other bids were put in.
On the destroyer leaders there may have been real competition be-
tween Federal, New York Ship, and Newport, although Newport was
$454,000 above Federal, a very large difference, and $225,000 above
New York Ship. On the light destroyers there was no real competi-
tion in the class I bids or the class II bids. On the submarines there
was no effective competition with Electric Boat Co. In practicaUy
every classification, except submarines, a great number of high bids
were entered by companies which did not want the work at a reason-
able price and did not put in bids wliich can be seriously characterized
as competitive bids. The effect of the great number of such bids was
to give to the public a spurious impression of competition and to con-
ceal the underlying tendency of the shipbuilders to arrange their bids
in such a manner as to force the Navy to parcel out the awards in ac-
cordance with the preferences of the shipbuilders.
124
MUNITIONS INDUSTRY
125
BIDDING — 1934, LIGHT CRUISER
The bids on the Hght cruisers in 1934 were as follows:
Company
Newport News.
New York Ship,
Federal
United
Bethlehem
Gulf
Bid
Fixed price
$13, 700, 000
15, 000, 000
13, 997, 000
16, 800, 000
16, 600, 000
12, 600, 000
Adjusted
price
$11,900,000
12, 550, 000
13,043,000
13, 440, 000
13, 224, 000
12, 250, 000
Apparently Newport News and New York Ship were competitors,
although New York Ship was $1,300,000 higher on a fixed-price basis
and $650,000 higher on an adjusted-price basis. These figures seem
to destroy the "advantage" theory offered by Bethlehem as an ex-
planation of the bidding in 1933, since New York Ship had received
an award for two light cruisers in 1933, and supposedly, according to
that explanation, should have had an advantage over Newport of
about $500,000 a cruiser.
Were the other companies actual matter-of-fact competitors?
Gulf Industries was held by the Navy to be unprepared at the time
to undertake a cruiser. United Dry Dock had stipulated it could not
take more than two destroyers or one cruiser. Its bid of $16,800,000
fixed price was $300,000 higher than its fixed price bid on one cruiser
in 1933.
Federal bid low on two destroyers, and there is at least a question
whether they could have taken a cruiser at the same time. Bethlehem
admitted it did not want the light cruiser as compared to the heavy-gun
cruiser.
That left as actual competitors, Newport and New York Ship,
although it is clear that New York Ship was in no true sense a com-
petitor on a fixed-price basis. Its fixed-price bid was raised $2,450,000
over its adjusted-price bid, while Newport's fixed-price bid was raised
only $1,800,000.
BIDDING — 1934, HEAVY DESTROYERS 881 AND 383
The bids on the destroyer leaders 381 and 383 in 1934 were as
follows, on a basis of bids for each of two ships:
Company
Bid
Fixed price
Fixed price
evaluated
Federal
United-- -..
New York Ship
Bethlehem
Newport News-
$4, 608, 000
5, 000, 000
5, 060, 000
5, 510, 000
5,100,000
$4, 458, 000
4, 738, 950
5, 018, 800
5,461,450
5,109.700
Note.— The evaluations also took into consideration deductions for plans furnished.
139387—35 9
126
MUNITIONS INDUSTRY
On an adjusted-price basis, on which the awards were given, the
bids were as follows:
Company
Bid
Adjusted I ^-^^^d
P"** evaluated
Federal-
United
New York Ship
Bethlehem
Newport
$4, 096, 000
4,000,000
4, 225, 000
4, 410, 000
4,450,000 I
$3, 946, 000
3, 738, 950
4, 183, 800
4, 361, 450
4, 459. 700
It will be noted that United was the low bidder, but in view of
United's low bid on the hght destroyers and its unwillingness to take
more than two destroyers or one cruiser, the award was given to
Federal, the second low bidder. The difference between the two
bids, on an evaluated basis, was $209,050 on each of the two ships.
Bethlehem did not really want these destrover leaders. Mr. Wake-
man stated (galley 52 QD, Feb. 28):
The conditions of overlapping, outfitting, and trial trips was also an objection
to our receiving contracts for destroyer leaders. Furthermore, destroyer leaders
gave no work for our design department.
BIDDING — 1934, LIGHT DESTROYERS 385, 387, 389, 391, 393
Awards on these destroyers were made as follows: Two to United
Dry Docks on class I, plans furnished on an adjusted-price basis of
$3,430,000 each; and two to Bethlehem Sliipbuilding Corporation,
on their own plans, class II, on an adjusted-price basis of $3,784,000
each.
BIDS ON CLASS I
Company
United
Federal
Bethlehem
New York Ship
Bethlehem (Union)
Bid
Adjusted
price
$3,430,000
3. 736. 000
4, 462. 000
4,500,000
4. 840, 000
Evaluated-
adj listed
price
$3,305,150
3. 486, 150
4, 354. 350
4. 546, 000
4, 732, 350
BIDS ON CLASS II
Bethlehem:
11 A -
$3,820,000
3,870,000
3.784.000
4,000.000
$3. 597. 225
HB
3. 553, 825
II C
3,657.625
New York Ship
4.007,125
MUNITIONS INDUSTRY
127
BIDDING — 1934, CRUISER (AC 45)
The bids on AC 45 in 1934 were as follows:
Company
New York Ship
Newport News.
Federal
United
Betbelbem
Bid
Fixed price
$16, 000, 000
(')
13, 889, 000
16, 880, 000
16,200,000
Adjusted
price
$13,750,000
(')
12, 889, 000
13, 510, 000
12, 970, 000
» No bid.
Bethlehem stated that it centered its efforts on this cruiser. It
was, however, not at aU competitive on the fixed-price bidding, in
which its bid was $3,230,000 above its adjusted-price bid. It wanted
the cruiser only on an adjusted-price basis.
Federal, with a fixed price bid only $1,000,000 above its adjusted-
price bid, was apparently a real competitor for this cruiser. Here
the two steel company subsidiaries were in competition.
Newport News prepared estimates on this ship but submitted no
bid. Its explanation for this is given below.
New York Ship did not want the heavy-gun cruiser. (Cornbrooks,
galley 5 ZO quoted below.) Mr. Bardo said (galley 96 WC quoted
below): "I did not want the heavy cruiser and was not interested."
United did not want this cruiser on top of the destro5^ers, and bid
low on the destroyers, and liigher on this cruiser than on the light
cruiser.
The only real competition, therefore, was between Bethlehem and
Federal, and that competition was confined to one type of bidding,
that on an adjusted-price basis.
The Navy considered these prices too high and gave the ship to the
Philadelphia Navy Yard, and gave New York Ship a light cruiser
which had not been advertised.
Again, the "natural advantage" theory of Bethlehem should have
resulted in making Bethlehem (which was building the heavy-gun
cruiser Quincy) about $500,000 lower than a company like Federal
which had not built a cruiser. Instead, Bethlehem's bid was higher.
Some of the evidence of this situation is submitted herewith:
Evidence that the subcontractors were aware of what bids the yards
were specializing in was given by Mr. Wakeman of Bethlehem on
February 28 (galley 56 QD-57 QD).
Mr. Raifshenbush. At that point the Navy apparently threw out that whole
contract and instead gave another cruiser, another light cruiser, to the second
high bidder on the light cruiser. New York Ship. Have you any explanation of
why that happened?
Mr. Wakeman. I have not.
Mr. Ratjshenbush. You were interested in it in a very definite way. You
had had hopes of getting that armored cruiser, had you not?
Mr. Wakeman. Yes.
Mr. Raushenbitsh. Did you not follow it through to find out why that bid
was thrown out?
Mr. Wakeman. No, sir; I did not. I have no explanation or no understanding
of what happens in the Navy Department.
128 MUNITIOISrS INDUSTRY
Mr. Raushenbtjsk. So that we might go over these various things and without
taking too nauch time up in details, the summary is a picture, is it not, Mr.
Wakeman, that if a company is particularly interested in getting one kind of job
it is that which it feels particularly qualified for?
Mr. Wakeman. Not necessarily. I sketched the situation, in 1933 and 1934,
which existed at the time the bids were put in.
Mr. Raushenbttsh. Yes.
Mr. Wakeman. And I have explained to you, or have attempted to explain to
you, what was the natural situation, insofar as we were concerned.
Mr. Raushenbush. Yes.
Mr. Wakeman. I have also attempted in that explanation, and I think I have
made the statement before, that this whole situation was a matter of rather com-
mon knowledge.
Mr. Raushenbush. Yes.
Mr. Wakeman. Anybody who had been studying the shipbuilding situation
would have known it.
Mr. Raushenbush. Anybody in the trade would know about it?
Mr. Wakeman. Not in the "three."
Mr. Raushenbush. In the trade, I said.
Mr. Wakeman. In the trade?
Mr. Raushenbush. In the shipbuilding business.
Mr. Wakeman. Anybody in that, the 20 or 30 bidders, all the trade knew the
general situation, insofar as that was concerned. They did not know, probably,
what was in our minds.
We asked a great many subcontractors for prices. Statements have been made
here that the subcontractors knew what we were going to get. They knew a lot
more than I did.
Mr. Raushenbush. Of course they knew, the trade knew, that you were
interested in one job particularly?
Mr. Wakeman. Naturally the trade knew.
Mr. Raushenbush. That is what I am trying to get at.
Mr. Wakeman. They would come to us on destrojers; the subcontractors
interested in supplying machinery for destroyers would come to us. Particularly
in view of what the Navy Department had said about awarding us the Farragitt,
they had come to us, and they would naturally spend more time with us attempt-
ing to sell us destroyer material than they would possibly attempting to sell us
carrier material.
Mr. Raushenbush. All right. Now the trade also knew, did it not, reversing
that, that when you were specifically interested in one major job that, reversely,
you were not terribly interested in the others? Just as you say they did not try
to sell you airplane-carrier material.
Mr. Wakeman. They would naturally try to do it.
Mr. Raushenbush. But not compared with the way they tried to sell you
destroyer material.
Mr. Wakeman. We never told anything to our subcontractors. They would
come around, buzzing about, and trying to find out what we were concentrating on
but we never told them. It was none of their business.
Mr. Raushenbush. If the trade felt they knew what you were qualified for,
then, reversely, they knew what you did not want particularly?
Mr. Wakeman. I would not say that the trade knew, but I would say the
trade would come to us and say, "We have certain things in the shipbuilding
business."
Mr. Raushenbush. By "trade" I meant the other shipbuilders rather than
the subcontractors.
Mr. Wakeman. I am not talking about shipbuilders but I am talking about
subcontractors, who are people such as the General Electric, Westinghouse,
Babcock & Wilcox, and so forth.
Mr. Raushenbush. I realize all you are talking about.
Mr. Wakeman. They are the subcontractors, I am talking about.
Mr. Raushenbush. I want to talk about the trade, the other shipbuilders.
Now the other shipbuilders knew what you were qualified for and wanted par-
ticularly?
Mr. Wakeman. They did not know what we wanted particularly.
Mr. Raushenbush. I thought you just testified to that a little while ago.
Mr. Wakeman. I am talking about subcontractors. This information, all
this statement and picture which I have given you, insofar as I am concerned and
my company is concerned, is the point of view that I had before these prices
were bid. Now as to what the other shipbuilders had, I do not know.
MUNITIONS INDUSTRY 129
Mr. Raushenbtjsh. You knew your own angle, and each one of them knew
theirs?
Mr. Wakeman. Or should know it.
Mr. Ratjshenbush. And to the extent you knew about Newport News'
experience in aircraft carriers and New York Ship's experience in light cruisers,
you have given all that in your statement.
Mr. Wakeman. Yes, sir.
Mr. Raushenbtjsh. And you knew roughly what they were interested in, and
you knew, reversely, what they were not interested in by that, let me say again?
Mr. Wakeman. Not necessarily.
Mr. Raushenbush. You could add up fairly simply, could you not? Then
under such a situation with that sort of knowledge, it seems a system of pro-
tective bidding grew up, and each company, on the job it wants, puts in a tight
bid, and on the others puts in a protective bid, which apparently protects itself
from any losses.
Mr. Wakeman. The situation on these 1933 and 1934 ships was that the pro-
gram was all bid, that no one shipyard could have done the whole job. They
simply could not have done it. Furthermore, there was not time enough to
make a detailed estimate all the way through the program. Furthermore, the
question of asking for a postponement was talked of, and in the light of the con-
ditions which existed at that time it just did not seem possible. We were con-
fronted with getting men to work just as quickly as possible, and our contribu-
tion was to get bids into the Navy Department so that they could assign
this work and put men to work. That is what was back of the 1933 and 1934
program.
The question of whether the yards were bidding vigorously or only
perfunctorily on certain ships came up again on February 1 1 . (galley
5Z0).
Mr. LaRouche. Did the same thing follow in 1934 as to light destroyers, for
instance?
Mr. Cornbrooks. I do not know whether we put in a bid; yes, we discussed
that. We were not going to put in a bid, and then we did put in a bid.
Mr. LaRouche. According to your records, there, again, the estimating data
was very meager on the 1,500-ton destroyer which you did not expect to get?
(Mr. Cornbrooks, the witness, nods assent.)
Mr. LaRouche. And did not get?
(Mr. Cornbrooks, the witness, nods assent.)
Mr. LaRouche. Was not that true of the heavy cruiser in 1934, as well?
That was cruiser No. 45.
Mr. Cornbrooks. We wanted a light cruiser, if we could get one.
Mr. LaRouche. You wanted a light cruiser, if you could get one?
Mr. Cornbrooks. Yes; because we had a light cruiser in our yard and it would
save drawings.
Mr. LaRouche. And you did get it?
Mr. Cornbrooks. Yes.
Mr. LaRouche. You did not want the heavy?
Mr. Cornbrooks. No.
Mr. LaRouche. And did not get it?
Mr. Cornbrooks. No.
Senator Barbour. I do not vv-ant to lead j^ou into some answer, because it is
not fair to you or to the committee, but, as I understand this thing — and I want
to get at the practical side of it — there was very little time for all the estimating,
taking it over the whole program submitted to you?
Mr. Cornbrooks. There was not enough; not nearly enough.
Senator Barbour. And it was quite natural that you went more exhaustively
into the estimating of the ships that, from your own point of view, you felt were
more acceptable to your yard?
Mr. Cornbrooks. Yes, sir.
Senator Barbour. And then did the best you could on the others?
Mr. Cornbrooks. Yes, sir.
Senator Barbour. And that made a very obvious contrast between certain
estimates that were made?
Mr. Cornbrooks. Yes, sir.
Senator Barbour. And it was quite natural that you went more exhaustively
into the estimating of the ships that, from your o-rti point of view, you felt were
more acceptable to your yard?
130 MUNITIONS INDUSTRY
Mr. CoRNBROOKS. Yes, sir.
Senator Barbour. And then did the best you could on the others?
Mr. CoRNBROOKs. Yes, sir.
Senator Barbour. And that made a very obvious contrast between certain
estimates that were made?
Mr. Cornbrooks. Yes, sir.
Newport News explained its failure to bid on AC 45 in 1934 on
February 20 (galley 64 FS).
Mr. Raushenbush. How did it happen that after you prepared rather elaborate
estimates on the other cruiser, the armored cruiser No. 4^ in 1934, that you did
not put in any bid on that, Mr. Ferguson?
Mr. Ferguson. In the first place, the estimating department, in estimating on
the heavy cruiser, I had given no definite instructions about it. The heavy
cruiser was estimated, and then the light cruiser estimate made from that. But
the reason why we changed was this: We were having a good deal of diflBculty
with our airplane carrier designs in getting plans approved. We were behind on
them. The drafting room, and particularly the machinery drafting room was
engaged fully on the carriers. The heavy cruiser had to be designed. The light
cruiser had already been designed by Xew York Shipbuilding Co., and so we went
after that so as to get the plans without having to make them in our own drafting
room, because we had more work in our own drafting room than we could do, by
taking on an extra cruiser. So that we bid on the light cruiser only, and if we
could handle but one cruiser, there was a little doubt in my mind as to whether,
with the tremendous volume of work coming on with the airplane carriers, we
could even handle one, because the work on the three ships would come to a peak
in the finishing-up period, around when you need electricians and all that sort of
thing.
So that we bid on that ship, and we bid a price which we thought would get it.
Later (galley 64 FS):
Mr. Raushenbush. What I was trying t<i establish at the moment was that
you knew pretty well that Federal was going to get into the picture again?
Mr. Ferguson. Oh, yes; I knew.
Mr. Raushenbush. I was wondering if that had an influence, Mr. Ferguson,
on your decision not to put in a bid on the armored cruisers.
Mr. Ferguson. Xot at all. We considered it and decided that we would bid
on that cruiser, the plans of \Vhich would be furnished us so that we could go
ahead with the airplane carriers. We were obligated on both contracts to prose-
cute the work with iircatest dispatch.
Mr. Raushenbush. I n^te here in a memorandum from the files August 24,
1934, there is a statement written out by Mr. Blewett:
Previous to the time of the submission of the bids, it was rumored that
Federal anticipated breaking into the field of building the larger naval
shijjs, which in tl;is case were the heavy and light cruisers. Under the con-
ditions it was as.sumcd that they would submit as low a price as their costs
would permit, probably material, labor, and overhead not only on the de-
stroyers but also the heavy and light cruisers. It was thought that Fore
River would make an effort to obtain the heavy cruiser and NYS the light
cruiser, although at this time NYS was recovering from tlie effects of a strike.
However, light cruiser No. 47 was verv similar to the other cruisers then
being built by NYS.
Mr. Blewett. What is the date of that?
Mr. Raushenbush. August 21.
Mr. Blewett. That was written way after the bidding, and is what was talked
over after the bids were in.
Mr. Raushenbush. You say, "Previous to the submission of the bids it was
rumored."
Mr. Ferguson. We hear through the supply people, or we get the information
on that.
Mr. Raushenbush. You get a fairly good idea ot what they want from the
jobs they expect. New York Ship has built light cruisers and wants them again,
and Bethlehem built heavy cruisers and wants them again, and you built aircraft
carriers and want them again. That sort of talk is quite current, is it not?
Mr. Ferguson. Yes; there is a good deal; but the fact that we bid on a light
cruiser instead of a heavy is for the exact reason why I told you; we could get the
MUNITIONS INDUSTRY 131
plans of the light cruiser, and we did not have the draftsmen available to get
them for the heavy cruiser, and whoever got the heavy cruiser had to get them
for that. We are' using today the New York Ship plans for the heavy cruise
for which we allowed the Government 8250,000 and we deducted that from our
contract price.
In 1934, when Federal was low bidder on a cruiser, the Navy threw
out all the bids and allocated the work to a navy yard. Federal had
hoped to enter the cruiser field and had made the low bid in spite of
the advantage other companies had in experience. (Apr. 2, Galley 14
WC, 15 WC, and 16 WC.)
Mr. Raushenbush. There are some features of the estimating and bidding
which you perhaps can explain.
Mr. KoRNDORFF. All right, sir.
Mr. Raushenbush. Take the armored cruiser in 1934, you bid low, and got
under the next lowest by ?81,000.
Mr. KoRXDORFF. ^Yhich was that?
Mr. Raushenbush. The armored cruiser no. 45 in 1934. Then after you had
done that, that was the first time you had gotten into the cruiser picture at all,
and you were the lowest, and United was next, and Bethlehem and New York
Ship were considerably above j-ou— I am sorry, Betlilehem was next. You were
lowest, Bethlehem next, and United and New York Ship were considerably above.
This is on the adjusted-price basis I am talking about.
Mr. KoRNDORFF. Yes, sir.
Ml. Raushenbush. Then the Navy threw out the bid. Will you explain
why that was?
Mr. KoRNDORFF. No; I think you will have to ask the Navy.
Mr. Raushenbush. Let us have it from you. You did something and knew
something in the matter. Here, for the first time in your history, you put in a
cruiser bid, and you apparently decided to go more or less whole-heartedly into
the business of building ships for the Navy, and, in addition to destroyers, you
decided to take the big one, the cruiser, for the first time, and you put in a bid
below Bethlehem, and then all of a sudden the Navy took it into its mind to
throw out the bid entirely. You must have had a good deal of discussion back
and forth with the Navy about that. What is the whole story on that?
Mr. KoRNDORFF. I think that is a question you ought to ask the Navy Depart-
ment. They were the people who allocated the job. That is water under the
bridge. I made a shot at the target and missed it.
Mr. Raushenbush. You hit it; you were low.
Mr. KoRNDORFF. You do not cry over spilled milk, if you can help it.
The Chairman. Did j'ou not look into it to see why you were not awarded
the contract, in the light of the fact that you were the low bidder?
Mr. KoRNDORFF. Not ofEciall}'.
Mr. Raushenbush. You mean j^ou did not take that up officially with the
Navy?
Mr. KoRNDORFF. You have a letter there which I wrote the Assistant Secre-
tary of the Navy, which was my last spiel on the thing.
Mr. Raushenbush. Your last; but, after all, would you let almost 13 million
dollars' worth of business, which, according to contract rights and competitive
rights you had a perfectly clear title to, to go overboard with a smile and say,
"Thank you for spilling the milk"?
Mr. KoRNDORFF. No; but you take it and go out to the next job.
The Chairman. How much money was spent in estimating so that you could
present your bid?
Mr. KoRNDORFF. About $10,000.
The Chairman. Your bid was not then a casual matter on your part?
Mr. KoRNDORFF. If you see the papers. Senator, I think you will agree it was
quite a serious situation.
The Chairman. I think, before Mr. Korndorff leaves the stand, there should
be brought into evidence, Mr. Raushenbush, the exhibit showing the extent to
which this company did go in estimating, so that we may have it for comparison
with other companies that were bidding at the same time.
Federal failed to get a cruiser award in 1934, though it had esti-
mated a profit of only 1.8 percent. It did get contracts on heavy
destroyers (on which it was not low bidder) on an estimate of 10-
percent profit (galley 16 WC, Apr, 2).
132 MUNITIONS INDUSTRY
Mr. Raushenbtjsh. All right. I notice here, on one of your estimate sheets,
or, rather, being two in number, which I offer for the record, as exhibits nos. 1781
and 1782, that you only took 1.8-percent profit, figuring it on your adjusted-price
basis on the armored cruiser, and a little bit more, very little more, 2.06 percent,
on the light cruiser: but when it got to the destroyers, you were planning to take
10-percent profit on the heavy destroj^ers and, as we get it, 7.6-percent profit on
the light?
Mr. KoRNDORFF. Yes, sir.
Mr. Raushenbtjsh. You did not get the heavy cruiser with the low profit, and
you did not get the light cruiser vvith the low profit. What did you get there?
Mr. KoRNDORFF. In the 1934 program?
Mr. Ratjshenbush. You got the two heavy destroyers?
Mr. KoRNDORFF. Right.
Mr. Raushenbush. On those you had provided for a profit of 10 percent?
Mr. KoRNDORFF. Yes, sir.
Mr. Raushenbush. You were not low on the bid for the heavy destroyers,
were you?
Mr. KoRNDORFF. As I recall it, we were not.
Mr. Raushenbush. No; United was lowest.
Mr. KoRNDORFF. Yes, sir.
Mr. Raushenbush. But, nevertheless you got the award. Was that cus-
tomary?
Mr. KoRNDORFF. Yesj the Navy Department always reserves the right to
place the bids.
(The two statements referred to were marked, respectively, "Exhibits Nos.
1781 and 1782" and are included in the appendix on p. — .)
Mr. Raushenbush. We have the same case in 2 years: One you are low on
the armored cruiser and do not get it, and the whole bid is thrown out; and on the
heavy destroyers United is low and it does not get it, and instead you get it, the
low bid being thrown out.
Later:
Mr. Raushenbush. This really should be explained a little more fully, Mr.
Korndorflf. Here a while ago you testified that a company that had not been
in the cruiser business was at a disadvantage of between $500,000 and $1,000,000.
Mr. KoRNDORFF. Right.
Mr. Raushenbush. As against a company that had been in the business.
Mr. KoRNDORFF. Yes, sir.
Mr. Raushenbush. Now, Bethlehem had gotten the other armored cruiser,
the Qiiincy, and was building it, and had all the advantage, and yet j'ou undercut
or you go into that cruiser picture and you cut below Bethlehem by $81,000.
Mr. KoRNDORFF. Ycs, sir.
Mr. Raushenbush. Then you do not get the award. Now, what is your inter-
pretation of that?
There are several which could be brought, but we want yours.
Mr. KoRNDOKKF. The inter])retation of our figure is sinii)ly that wo put a
price on it, which was about our estimated cost, or a little bit more. There was
a very nominal profit. I think the figures we gave you show it.
Mr. Raushenbush. They show you were counting on 1.8-percent profit.
Mr. KoRNDORFF. Right.
Mr. Raushenbush. Was that on honest bid that you wanted and were willing
to take at that price?
Mr. KoRNDORFF. Pcrfectlj' willing to take it at that price.
Mr. Raushenbush. If you were willing to take it at that price, and wanted
to take it, what possible explanation did the Navy give you for taking it away
from you?
Mr. KoRNDOKFF. I do not think I can explain that. I would like to have you
get an explanation from the Navy. I would like to hear it myself.
Mr. Raushenbush. Do not worry about that, Mr. Korndorff.
Mr. KoRNDORFF. I am not worrying about it.
Mr. Raushenbush. The question being addressed to you is, What did the Navy
offer you by way of ex])lanation?
Mr. KoRNDORFF. The Navy does not make many explanations of what they
do. When they make up their mind to do something, they do it.
Mr. Raushenbush. Here a little while before the United Co. had felt that it
was low on a certain bid, and Bethlehem was being jireferred there, and it put up
a whole series of protests and went to the Comptroller General and maybe carried
MUNITIONS INDUSTRY 133
it up to the President, and put up a scrap on the entire thing. You decided not to
put up any scrap on that 13 million dollars' worth of business?
Mr. KoRNDORFF. Absolutely.
Mr. Ratjshenbush. No scrap?
Mr. KORNDORFF. No.
Senator Barbour. Do I understand you wrote a letter to the Assistant
Secretary of the Navy about that matter?
Mr. KoRNDORFF. Yes.
Senator Barbour. Do you have that letter here?
Mr. Raushenbush. I think so.
Senator Barbour. Is there any reason for not reading it? Is there any
answer to it?
Mr. Raushenbush. The questions I have asked here are not answered in that.
The Chairman. Were you surprised with the Bethlehem bid at that time?
Mr. KoRNDORFF. I really had not thought much about that, Senator. Of
course, we took a dive for that ship. There is no question about that.
The Chairman. Would you have lost money had the contract been awarded
to vou?
Mr. KoRNDORFF. I think we would, being the first of the type, with which we
were not very famihar; I think it is barely possible we might have lost money on
that contract.
The Chairman. How extensively might you have lost?
Mr. KoRNDORFF. It is pretty hard to say with a contract running into the
future for 3 years, with the varying conditions ahead of us. I think we might
lose, conservatively, 5 percent. I think you could very readily lose that.
The Chairman. What were you hoping to gain?
Mr. KoRNDORFF. We were hoping to gain experience and standing as likely
builders of class A line ships for the Navy.
Mr. Raushenbush. Anyway, here in this bidding at that time the other serious
contender was Bethlehem, and the other two companies which were bidding were
United and New York Ship, who were a considerable amount above that; in
fact. New York Ship was $900,000 above you, and United was also very consider-
ably above. So that the real competition was between two steel companies on
that one ship, and Bethlehem had apparently been getting the armored cruisers,
and at that point, with your low bid, being the first time you had ever bid on
cruisers, the Navy Department decided not to build that cruiser, although bids
were asked which were apparently in order. Did they throw them out because
the prices were too high?
Mr. Korndorff. That contract was allocated to the Philadelphia Navy Yard.
Mr. Raushenbush. On the ships that were k) go to private yards, how did
they compensate? Did not they give the private yards another extra ship?
Mr. Korndorff. Yes.
Mr. Raushenbush. What was that?
Mr. Korndorff. A light cruiser.
Mr. Raushenbush. It gave New York Ship a light cruiser?
Mr. Korndorff. Right.
Mr. Raushenbush. Although
Mr. Korndorff. They were under us, their bid was under us.
Mr. Raushenbush. On the light cruisers? .
Mr. Korndorff. Yes, sir.
Mr. Raushenbush. By the way, I offer your letter to the Assistant Secretary
of the Navy, dated August 21, 1934, in which you do discuss the question of the
price of that armored cruiser, compared with your bid of last year on the same
type, showing the difference
[ Mr. Korndorff. Not our bid, because we did not bid.
r Mr. Raushenbush. Comparable with the bid of a similar type for about
$11,700,000, and you end up this letter, which I offer for the record [reading]:
Fourth, by the encouragement and experience which the award of this ship
to our company would offer, the Navy Department would be providing itself
with an additional and highly responsible source for capital ships in the
future. Considering that since the war Cramps have dropped out of business,
it would seem to us that this is a matter of particular importance to the
Navy.
(The document referred to was marked "Exhibit No. 1780" and is included in
the appendix on p. — .)
Mr. Raushenbush. Did you not mean there that it might reduce the bid
prices somewhat to have a fourth company in there?
134 MUNITIONS INDUSTRY
Mr. KoRNDORFF. Well, I really meant that it would provide them with
additional facilities for major ships.
Mr. Raushenbush. You had seen what had happened before in 1932, when
United went in and lowered the price, by a fourth company coming in, lowering
the price of Bethlehem by about two and a half million dollars, and the other
companies about 1 million dollars?
Mr. KoRNDORFP. I remember that.
Mr. Raushenbush. And you were getting into the picture again, a fourth
company, and the price was again lowered. Was not that what you were trying
to tell the Secretarj- of the Nav}-?
Mr. KoRNDORFF. Not particularly, not as much as I was about the possibility
of getting additional physical facilities, which I think is a matter of importance.
Mr. Raushenbush. And you had to have the experience?
Mr. KoRNDORFF. And we liad to have the experience; that is correct.
Mr. Raushenbush. But the other one was of some importance?
Mr. KoRNDORFF. Xaturallv there is a question of economics in those things,
too,
Mr. Raushenbush. I mean that tliey would get a b etter type of bidding and
perhaps lower bidding if there was more competition. Now, there was not any
particular justification for throwing out that bid, was there, on the ground tliat
they were verj- much higher than the light cruiser bids at the same time?
Mr. KoRNDORFF. I caunot discuss that.
Mr. Bardo frankly admitted that in 19 34 what New York Ship
submitted on the heavy cruiser to the Navy was not a price, but a
quotation (Apr. 5, galley 96 WC).
Mr. Raushenbush. You bid both on the light and heavy cruiser in 1934, did
you not?
Mr. Bardo. I have got it here, and I think I can tell you what I did do.
August 15; yes sir. We bid on a heavy cruiser and we bid on the light cruiser,
but I did not want the heavy cruiser and was not interested. I submitted a quo-
tation, that is all. It is not a price; it is a quotation.
Mr. Bardo stated that his company was not competing with Bethle-
hem, although it put in what was generally supposed to be a competi-
tive bid (galley 99 WC).
Mr. Raushenbush. In 1933 and 1934, you knew what the advantages of al'
the other yards were? You knew what they were qualified to bid for, and knew
what the chances were of them getting it?
Mr. Bardo. In 1933 there was no question. In 1934 it was a small program
and everybody could bid. We bid on tlie 6-inch because it was a duplicate of
what we were building.
Mr. Raushenbush. You knew Bethlehem was bidding on the heavy cruiser?
Mr. Bardo. I did not know, but I knew we wore not competing with thorn.
The manner in which a light cruiser was given to New York
Ship in 1934 was described by Mr. Bardo (galley 90 WC).
Mr. Raushenbush. Will you explain for us, as a matter of technicalitj-, how,
after the Navy threw out these bids for the armored cruiser, how you arranged
with them to get the award for the light cruiser? There has been some question
raised about that.
Mr. Bardo. Admiral Land called me up one day, along about noon, on the
telephone, and said, "The .\ssistant Secretary wants to see you and wants you
to come to Washington this afternoon", and t said, "Yes." And I jumped on a
plane and came to Washington and went to see Admiral Land, and he said,
"He wants to' see you al)out the light cruiser." And I said, "Yes." And I
went in to see The Assistant Secretary Roosevelt, and he said:
We would like to have you build this third light cruiser, which is different
from what you got, but I cannot i)ay you your price, and cannot pay you over
$12,000,000, because that is the limit in the appropriation for it.
We talked a few minutes about it, not over 5 at the outside, and 1 said, "I
want to accommodate vou as far as I can. In view of what you say, I will under-
take to build the job for $11,975,000", and he made the award on that basis, and
that is all there was to it.
MUNITIONS INDUSTRY 135
Mr. Raushenbtjsh. How much reduction was that from your bid?
Mr. Bardo. Around $500,000, I would say.
Mr, Raushenbush. Suppose one of your competitors did that. Suppose the
Navy had, after all the bids were in, gone to one of your competitors and had
said, "If you wipe off $500,000 from your bid we will give you the ship", with-
out taking your competitors into the situation; would you not be rather sore
about that?
Mr. Bardo. No; that has happened to me before. I would not have been
sore about it. Life is too short.
Mr. Raushenbush. You mean the Navy has done it?
Mr. Bardo. Yes.
Mr. Raushenbush. On what?
Mr. Bardo. The destroyers.
Mr. Raushenbush. Who is that?
Mr. Bardo. I do not want to go into that sort of discussion.
Mr. Raushenbush. These are definite questions.
Mr. Bardo. It was done on the destroyers.
Mr. Raushenbush. When?
Mr. Bardo. On the Farragut and Dewey.
Mr. Raushenbush. When?
Mr. Bardo. 1931 or 1932, whenever those ships were ordered.
Mr. Raushenbush. You mean a certain amount of price was lopped off?
Mr. Bardo. The price was not lopped off, but something else was done which
had the same effect.
Mr. Raushenbush. What was done?
Mr. Bardo. The invitation limited to a contract bid on the Navy's plan. We
were submitted an alternate plan. We had one but we were told they did not
want any alternate plans. The Bethlehem submitted an alternate plan, better
than the one we bid on, with higher speeds and greater guaranties, and, very
obviously, the Navy took it, and I never raised any question about it.
Mr. Raushenbush. That is the only other instance you remember?
Mr. Bardo. That is the only other instance I remember in navy yards. It
has happened to me in merchant work several times.
Mr. Raushenbush. Have you said everything you want to say about the 1934
bidding?
Mr. Bardo. I do not think there is anything, Mr. Raushenbusli. There may
be some things about which you want to know.
Mr. Raushenbush. Were there the same sort of talks as there were, dis-
cussed here in this letter, or were there no such talks?
Mr. Bardo. No; there were no such talks on the 1934 program. There was
no such discussion, because there was not so much there, and it was free for all,
and everybody could go into it if they wanted.
NAVY S COMMENTS ON 1934 BIDDING
A great deal of the testimony showing the character of the bidding
in 1934 was read for their comment to Assistant Secretary Roosevelt,
Admiral Land, and Admiral Robinson (Apr. 11, galley 54 YD et. seq.)
Mr. Raushenbtjsh. Mr. Chairman, as we understand it, we have gone through
the various categories of ships in the $270,000,000 or $280,000,000 program in
1933, and have given extracts of the evidence we have, to the effect that on prac-
tically each one of those categories onh' one company really wanted it, and bid as
hard as it could. Others put in complimentary bids, which Mr. Bardo defines
were bids so high they knew they could not get it, and there were other definitions.
On the light cruisers. New York Ship was the only real one, and on the armored
cruisers, Bethlehem was the only real one, and on the 1,500-ton destroyers, only
the three which got the awards. I note here there was some dispute about that.
On the 1,850-ton destroj^ers, only the two companies which got the awards, and
on the submarines, only one companj', and on the aircraft carriers, only one real
competitor.
We would like to go through the same thing on the 1934 program, which was a
definite situation, as we said before.
Before doing that, let me interrupt; Admiral Land, did you reply to Com-
mander Cochrane's letter?
Admiral Land. Surely.
Mr. Raushenbush. May we have the reply for the record?
Admiral Land. If I can locate it.
Mr. RAUSftENBUSH. If you can locate it; all right.
(The letter to be supplied and when supplied to be given "Exhibit No. 1942"
and will appear in the appendix at p. — .)
Mr. Raushenbush. Now, the 1934 program involved how much money,
approximately?
Admiral Land. First, there was an increase in Navy emergency construction,
of which about $24,000,000 for the first year's work was involved.
Mr. Raushenbush. All right. The whole allotment which was given out in
1934 was how much?
Admiral Land. $40,000,000, broken down into ship construction and aircraft
work.
Mr. Raushenbush. Just on the ship construction, on the light cruisers, and
on the destroyers and submarines?
Admiral Land. The first year
Mr. Raushenbush. I do not want the first year. I want the whole amount
which was" awarded. Do you remember. Admiral, roughly?
Admiral Land. I know what the estimated cost is, if that is what you are
after.
Mr. Raushenbush. All right. I guess we can add it up.
Admiral Land. We have got that. On the light cruisers, if you want to add
it up
Mr. Raushenbush. I want the whole thing. Could we roughly describe it
at about $50,000,000?
Admiral Land. You mean the awards?
Mr. Rausenbush. The whole thing, in 1934?
Admiral Land. Those, of course, are just C and M and A and AA. I can add
it up. There were 24 ships involved, 20 under increase of the Navy, emergency
construction, and 4 under straight increase of the Navy.
Mr. Raushenbush. If you could put in the figure, I would appreciate it.
Admiral Land. The amount involved in the awards to private yards is
Mr. Raushenbush. You will fill that in?
Admiral Land. Yes, sir.
Mr. Raushenbush. As we gather the picture in 1934, on the light cruisers,
nos. 46 to 48, there was a considerable number of bidders, but that Newport
136
MUNITIONS INDUSTRY 137
and New York Ship were the only real competitors; and on the armored cruiser
no. 45 there was only real competition between Bethlehem and Federal; and on
the 1,850-ton destroyers there was real competition, among competitors who
actually could take it, between Federal, New York Ship, and possibly Newport.
We are not sure of Newport. On the 1,500-ton destroyers there was no real
competition on class 1 bids and on the class 2 bids Bethlehem was the only one;
and on the submarines there was competition only to the extent we described
before.
As Admiral Robinson said this morning, there was no real competition except
Portsmouth. We would like to go over that in detail, if you care to make any
comments, and again read to you, for comment, any excerpts of testimony.
Admiral Land. May I interrupt? Are we to accept what you are stating,
without repl}"? Because I do not differentiate in the competition here, and I
take exception to it because I do not understand it. I do not know what is in
your mind. In other words, I am not subscribing to the premise which you are
putting in the record.
Mr. Rattshenbush. Let us try to define it a little bit.
Admiral Land. I am perfectly willing to have you say that as a statement
from you.
Mr. Raushenbush. We want comments from all three of you on this.
Admiral Land. I do not accept the adjective which modifies "competition",
because I do not know how real it was.
Mr. Raushenbush. On the basis of the shipbuilders' own words, that in
certain cases they did not want things and they put in what they called "com-
plimentary bids", meaning bids so high they would not get it, or protective bids,
meaning in effect the same, and they concentrated on other things.
We are trying to get at the number of people who put in prices for you and did
not particularly want that, and eliminate those. In all cases they were high
bidders. And the firms say, "Now, here it boils down to just a few."
The 1934 situation is different. Do you see what we want to get at?
Admiral Land. I want to say, we got the best competition humanly possible
to get on that in 1934. We followed the law. Beyond that I do not know
whether it was real competition, honest competition, or anything.
Mr. Raushenbush. Then stop at that, Admiral Land. You can follow the
law prevailing. You can give the award to the lowest bidder before you, and
I think you have said quite adequately to the committee you have had no means
to go into it, no power of subpena to go into the records of the com.pany. But I
thought the Secretary and the others of us agreed that that is pertinent, and
that if information was put before you in both 1933, and to a certain extent in
1934, tliese companies knowing each other's natural advantages, in some cases
tried to go over, had definitely bid higher on type, with estimates before them on
certain things; I mean, had been higher on other things and put in meaningless
bids on others, that that would be a situation which would be unimportant to
the Navy. Do you see that, Mr. Secretary?
Mr. Roosevelt. I see it, but it takes a very close analysis of the bids.
Mr. Raushenbush. We have been spending about 2}^ months giving a very
close analysis to the bids.
Mr. Roosevelt. I appreciate that.
Admiral Land. I would like to make my position plain. I will sign on the
dotted line and agree 100 percent to the Assistant Secretarj^'s statement with
regard to the work of this committee.
I have stated repeatedly I am not here to defend the shipbuilders, and they are
my arch enemy, so far as doing business is concerned, all the time.
Mr. Raushenbush. Why do you say that?
Admiral Land. Because we fight them all the time.
Mr. Raushenbush. Because they are trying to get more money than they
should have?
Admiral Land. They are trying to get something which we do not think they
should have, whether money, a nut here, or something. We spend much of the
time in arguments. I mean, when I say fighting, controversial arguments with
shipbuilders on designs and construction of the ships. I do not want to come to
their defense in any way.
Mr. Raushenbush. 1 think the committee understands that.
Admiral Land. I want to make it plain.
Mr. Raushenbush. Do I make myself clear on that? Without you knowing
about it at all, with a whole bunch of figures net put before you, which you have
to look at, or have so far been looking at, without any understanding of what
138 MUNITIONS INDUSTRY
went before it, you see what appears to you, or you see from the statements of
the shipbuilders that they are not interested in that, and bv putting in protective
JDids they are helping out other people; if you have that situation before you, it is
important to the Navy, and to the taxpayers and the administrative officers of
the Government to be able to say, "We are here protecting your interests, and
we are getting the lowest possible price." It has importance.' does it not?
Admiral Land. Undoubtedly.
Mr. Raushenbtjsh. All right.
Admiral Robinson. It has importance in another way, Mr. Raushenbush.
Knowing the facts brought out here, we will be in a position to run down a good
many things; clews which have been given, and so forth, and take every safeguard
on that sort of thing. As a matter of fact, there will probably be other bidders
next year. You are looking to the future, I presume.
U Mr. Raushenbush. On the other bidder proposition, we have had considerable
comment from the builders that, after having produced a definite type, they have
a definite advantage preparing a duplicate. Bethlehem said the advantage runs
about $500,000. Newport put its advantage at having done the job on aircraft
carriers at about $1,000,000 apiece. Other companies gave other estimates, and on
submarines it was a little lower, and on destroyers it was a little lower. They
said that. We have a feeling, if you can get in just a few more yards, that they
will know enough about it necessarily to give you a very low price.
Admiral Robinson. In spite of the fact that it is true, with one exception,
aircraft carriers for these various categories of ships, in the past 15 years they have
shifted from one yard to another, in a way which would indicate that there is no
stress on any particular yard. There is not a single yard that has built all that
category of ships, of the Big Three, I mean.
Mr. Raushenbush. To the extent that you ascertain the extent, if you please,
that they are concentrating on this, because they have an advantage, you would
wipe out that?
Admiral Robinson. . It comes down to this: Where you have a lot of ships to
build, it only is of more or less importance, because it would undoubtedly influence
the bidding. Where there is a small number of ships, of course, the thing is
different. Some of the shipbuilders submit bids which they believe to be cost
bids, or below cost, or anything to get the business. It depends a good deal on
the circumstances. It so happens that in 1933 and 1934, it was a Httle bit unusual
and we were building more ships and catching up for what we had not done for
years gone by, and the bidding situation will probably be different from that
from now on.
Mr. Raushenbush. They were frank enough to say they were putting up
prices because of the work at the time.
Admiral Robinson. There is no question about that.
Admiral Land. What is your suggestion, Mr. Raushenbush, if the Navy is not
to increase competition? Admiral Robinson says we may have increased com-
petition, and you say that may not be of any help.
Mr. Raushenbush. Increased number of bidders may not be of any help.
Admiral Land. What suggestion have you to make?
Mr. Raushenbush. The chairman, before he left, asked the Secretary: "Has
the Navy worked out any plan to get a different kind of bidding?" And the
answer, I think quite properly was, "We have not gotten around to considering
that at the moment."
I f Admiral Land. Does anybody know of any different kind of bidding? We
have got the alternative of putting them in navy j'ards or putting them in private
yards. There may be some other way of building ships in the United States, but
I have been kicking around a long time and I do not know it.
Mr. Raushenbush. The chairman made one further statement. He said:
"If your conunandants in the navy yards went ahead in making up their estimates
and you publish those at the same time you publish the bids of the private com-
})anies, you will have not only furnished for the public a comparison but a yard-
stick that might be worth having." That was the only suggestion.
Admiral Robinson. We have followed that for our own information.
Mr. Raushenbush. It has never been put in parallel columns.
Admiral Robinson. The people working on that have always taken that into
consideration.
Mr. Raushenbush. In the more recent years, in 1933 and 1934, you did not
have it liefore you, I take it?
Admiral Land. Yes; we did.
Mr. Raushenbush. I thought the statement was made you did not.
MUNITI0X3 IXDUSTIIY 139
Admiral Robinson. We have those on the previous years right along, and they
are always taken into consideration, absolutely. That is one of the reasons why
I explained in the 1934 program, which you are just talking about, we did not like
the Federal Co. bid, because we thought the price was too high and threw it out
and put it in the navy yards.
Mr. Raushenbush. Was that on the basis of the navy yards' estimates?
Admiral Land. Yes, sir; but better than its actual cost.
Admiral Robinson. We knew the one price was too high, and we frankly
threw it out and would not consider it. We have letters from the president of
that company protesting it.
Mr. Raushenbush. We have had those in the record.
Admiral Robinson. You have seen those and know of our action in that
connection?
Mr. LaRouche. I want to make a comment, not pertinent to that particular
question, but in the case of the New York Ship in 1934 you called them in and
asked them to reduce their bid, and you did not do that with a shipbuilder which
was not a member of the so-called Big Three.
Mr. Roosevelt. I can explain that. Let me take up the other first, because
I happen to have it before me, if you do not mind.
That heavy cruiser, the lowest bid for the heavy cruiser was $12,889,000, and
our price on the Philadelphia Navy Yard was $11,500,000. Therefore, we gave
it to the Philadelphia Navy Yard in that particular case. There is an example
of where we would not take a bid because we felt it was too high.
Mr. Raushenbush. How about the light cruiser? Did you have an estimate
from the yard on that, too?
Mr. Roosevelt. I want to get the whole data.
Mr. Raushenbush. By the way, the Philadelphia yard's estimates are usually
higher than those of the west coast and some of the other yards, are they not?
Mr. Roosevelt. I am not prepared to answer that, because I have not got
the data.
Admiral Robinson. I would not want to answer it without looking at the figures.
Mr. Raushenbush. That is my impression.
Admiral Robinson. It varies, Mr. Raushenbush. One year one yard is
higher than the others, and the next year it may be the other way about. I think
the west coast yards usually are a little bit lower than any of the east coast yards.
That is my general impression.
Mr. Roosevelt. At all events, bids for the two light cruisers were opened on
August 15, 1934. The lowest reliable bidders, on the adjusted-price basis, were
the Newjjort News Shipbuilding & Dry dock Co., which submitted a bid of
$11,900,000 for one vessel, and they got that.
The next lowest reliable bidder was the New York Shipbuilding Corporation,
who submitted an adjusted-price bid of $12,550,000.
The bid of the Nevrport News Co. of $11,900,000 for one vessel permitted a
deduction of $250,000, if certain plans were furnished to this company, either t^
the Navy Department or a private contractor. It was ultimately determined
by the Department that these plans should be furnished by the New York Ship-
building Corporation, and the deduction of $250,000 from their bid price was
made, their actual price being $11,650,000.
The New York Shipbuilding Corporation had contracts for and was building
two light cruisers, the Savannah and the Nashville, of the 1933 program. These
cruisers were generally similar to the light cruisers called for in the 1934 program.
In analyzing the bids it was noted that under the item "planned design", which
you asked for, no allowance was made by New York Ship. Also, the average
allowance of the five other bidders was $520,000.
As a result of the foregoing, a price of $11,975,000 was concluded on the
adjusted-price basis, the deduction being $575,000.
Mr. Raushenbush. I still do not follow one thing in that, Mr. Secretary.
The bids for the light cruisers called for only 1 ship, and actually you awarded 2
ships under that.
Mr. Roosevelt. Is that right?
Mr. Raushenbush. So far as fairness to the other so-called "competitors"
in the matter is concerned, could you not have called in and put in bids on the
light cruisers for two? They had all that data available.
Admiral Land. Surely.
Mr. Raushenbush. Could you not have done that?
Admiral Land. Certainly, we could have.
Mr. Raushenbush. Why was it not done?
140 MUNITIONS INDUSTRY
Admiral Land. If you will read the National Industrial Recover}' Act you will
find that that contemplated the distribution of work. That is the preamble of
the thing.
Mr. Raushenbush. One of the others might have gotten it equally well. If
you had given Federal a chance to lop off a certain amount, and get down to a
final price of $ll-,975,000, they might have been glad to do it.
Admiral Land. They had a chance and did not.
Mr. Roosevelt. As I recall it, they asked what they had to deduct if plans
were furnished to them. There was nothing to be deducted.
Admiral Land. $600,000; you have it in your own files.
Admiral Robinson. That is a legitimate price. That is not a juggled piice,
but is also a legitimate deduction which should be made from their price, because
the}' had included this particular arrangement of plans in their bid.
Mr. LaRouche. I think the fact stands that New York Ship's bid was $12,500,-
000 plus, as things stand.
Admiral Land. That is correct. That is their bid. You will recall in their
bid, where allowance for plans was called for, they allowed "zero."
Mr. LaRoxjche. They were making the plans.
Admiral Land. That is the reason they should have allowed for them, because
it was a duplicate.
Mr. LaRouche. That was their bid, $12,500,000?
Admiral Land. That is true.
Admiral Robixson. No, sir; those things had not all been taken into consid-
eration. I do not think they had been taken into consideration.
Mr. LaRouche. But the bids were in, and they were supposed to stand on
them.
Admiral Robinson. They did stand on them, but we were not going to pay
them for plans which they already had, and we deducted it from their V)ids, which
we had a perfectly good right to do, because we told them in the schedule going
out to them that we were going to do it as we had done before.
Mr. Roosevelt. I can find it in a minute, but from my recollection I know
that that company was the only one which failed to fill in tliat column for the
deduction allowed for plans. So that from their bid they showed no advantage
whatever of having made any deduction for plans.
Admiral Land. You gentlemen have that letter.
Mr. Roosevelt. I think you have got it here.
Admiral Land. I know I have. There is the recommended award and the
column in which appears the allowance for plans, and, as the Secretary has just
stated, there is shown in that column nothing. There are $250,000 for Newport
News and there is allowance on this company of $050,000 on the other bidders.
The average of those is $520,000 or $510,000. Tlierefore the over-all average for
allowing for bids for New York Sliip is sometliing in the neighborhood of $520,000.
All actually agreed at $575,000.
Mr. Roosevelt. The otliers had nothing to deduct for plans and liad shown
that in their column.
Mr. Raushenbush. With that explanation I would like to run over the cate-
gories.
Mr. Roosevelt. Mav I show that here [producing paper]?
Mr. Raushenbush. Surely.
Mr. Roosevelt. Here is the abstract. You can see from this that every one of
those bidders gave in that column, except those people, what the deduction was.
There was nothing further which we could deduct from tlie others to bring their
price lower. They had already taken that into consideration.
Mr. Rausenbush. On the light cruisers in 1934, coming back to the successful
bidders, they were Newport and New York Ship. Now, the question remains
about the other bidders, the other people who put in prices — t'nited. Federal,
Bethlehem, and Gulf. Gulf was eliminated by yourself, although second lowest
in price. United stipulated, I think, in 1934 that it could not handle a cruiser on
top of destroyers and bid accordingly on destroyers?
Admiral Land. That is correct.
Mr. Rausenbush. There is evidence that they were not equally desirous of a
cruiser.
Could Federal take two cruisers and get them through in the time limit?
Admiral Land. Federal?
Mr. Raushenbush. Yes.
Admiral Land. I think they probably could. They are a fairly good yard.
They are not very familiar with Navy building, but they are doing fairly good
work, and my estimate is they could get away with two cruisers. They would
have some trouble.
MTJNinONS INDUSTRY 141
Mr. Ratjshenbush. And destroyers?
Admiral Land. That is a question. I am not capable of saying that.
Mr. Raushenbush. They got an award for 2 destroyers, and we figured they
could not take 2 cruisers in addition to 2 destroyers.
Mr. LaRouche. Having two destroyers on the way?
Admiral Robinson. I think that is a reasonable assumption.
Admiral Land. I think that is a reasonable assumption.
Mr. Raushenbush. So that if they wanted a new cruiser at all, they wanted the
armored cruiser, on which they bid lower than the light cruiser. It was on that
ground that we figured they did not want this one as much as the other. Page
8939 of the record, Bethlehem felt no inducement on the light cruiser, and it is
explained in various places that they had for the armored cruiser.
New York Ship was one of the companies getting it, and we have evidence that
that was the one they wanted.
Turning to the armored cruisers, we think there is real competition between
Federal and Bethlehem there. That is true, is it not?
Mr. Roosevelt. What were the bids?
Mr. Raushenbush. $12,889,000 for Federal, and Bethlehem $12,970,000.
Mr. Roosevelt. It looks as though they wanted it.
Mr, Raushenbush. Bethlehem wanted it on an adjusted price, but not fixed
price, because they jumped up to $15,200,000 on a fixed price.
Again, it is our contention about the others: United said they did not want a
cruiser on top of the destroyers, and bid lower on the destroyers and bid higher
here on the armored cruiser than they did on the light cruiser, so that they take
themselves out of the running.
Record page 10353 again.
New York Ship was not interested at all. Mr. Bardo's testimony at pages
10570 and 10594 and 10595. Mr. Langell, the estimator, said they h^d no esti-
mate and Mr. Cornbrooks said, "We did not want it", record, page 7298.
That takes New York Ship and United out, as far as our work goes here.
Therefore we have a competition between Federal and Bethlehem, with
Bethlehem having an admitted advantage of $500,000, and still was not low, and
the bids were thrown out, and the lowest bid was about $1,000,000 below the bid
on the light cruisers.
Coming to the 1,850-ton destroyers, Federal received the award for two.
Here is a case where United was the really low bidder and did not get it. Is that
not right?
Admiral Land. Not when you consider its rider, which j'ou must consider.
United Dry Docks limited itself on the awards to contracts for 2 destroyers or 1
cruiser, in consideration of the award of two 1,500-ton destroyers being made to
this company
Mr. Raushenbush. There is no question about that, Admiral, but the point
is, they were low with $4,000,000, and they were also low on the other destroyers
and got them, and got the other destroyers because they could not take these?
Admiral Land. Because they could not take these.
Mr. LaRouche. And eliminated this?
Admiral Land. And eliminated this; that is what I want to make clear.
Mr. Raushenbush. New York Ship, you think, was probably an honest com-
petitor on it. Bethlehem was very frank in saying they did not want these
because no design work was involved, record, page 8940. That is in their testi-
mony. I call your attention to that.
Newport may or may not have been in. We do not know. You have a bid
there of $4,410,000, and Newport bid about $40,000 above the bid of Bethlehem,
which I have just given, $4,410,000. So that if a bid above what somebody
wanted was an honest or a desirable bid, Newport is in.
So, that the only real competition between those who could take the work,
where the Federal got the award, was New York Ship possibly and Newport
doubtfully.
On the 1,500-ton destroyers. United was awarded 2 on class 1 and Bethlehem
got an award on class 2. Now the other competitors were Federal, New York
Ship, and Cramp. Federal did not want this badly, because on their figures
they went up $325,200 over 1933, while United, by contract was only going up
$30,000; and yet they were able to bid so closely together on it as to be within
one-tenth of a percent, as we brought out.
New York Ship, according to Mr. Bardo's testimony on page 10550, did not
want a class I job badly because it was concentrating on the 1,850's, and it went
up $840,000 over 1933, and had very meager estimating data. I call your atten-
tion to Cornbrooks' testimony, pages 7298 and 7299.
139387—35 10
142 MUNITIONS INDUSTEY
Did you consider Cramps financially competent at the time?
Mr. Roosevelt. I do not think they could qualify.
Mr. Raushenbxjsh. That probably takes out Cramps?
Mr. Roosevelt. They could not qualify under the law.
Admiral Land. Do not forget, Mr. Raushenbush, you are comparing the 1,500-
ton bids between United and Federal.
Mr. Raushenbush. Yes.
Admiral Land. Are not they actually closer together in 1934? It looks to me
they are almost identical; United $3,726,000 and Federal $3,720,000.
Mr. LaRouche. There are two tables, Admiral.
Admiral Land. I know.
Mr. Raushenbush. Here is what we think about that, Admiral. United went
up from its class I bid in 1933 to 1934 only $30,000. Very Uttle. Apparently
they wanted it and they were the ones who got the award.
Admiral Land. Yes, sir.
Mr. Raushenbush. Federal, who had bid so close, so tight in connection with
Bath and United — do you remember — in 1933?
Admiral Land. Yes.
Mr. Raushenbush. Instead of going up $30,000, with United, they actually
went up $674,000. Do you see?
Admiral Land. Yes, sir.
Mr. Raushenbush. That takes out Federal, New York Ship, and Cramps;
and Bethlehem, they told us, did not want the class I badly because it went up
$1,049,000 over 1933, at the time that Bath was going up only $30,000.
On class I, there was no real competition for United. Bethlehem, on class II,
was anxious to get the work, according to Mr. Wakeman's testimony, page 8939,
and did get the award on class II.
I do not want to go into the submarine bids again, because I think we covered
that in 1933 for the Electric Boat. That is 1934, so that we feel, on the light
cruisers, only Newport and New York Ship were really competing, and on the
armored cruisers only competition between Federal and Bethlehem. On the
1,850-ton destroyers there was real competition among competitors who could
take the work between Federal, New York Ship, and Newport, possiV)ly.
On the 1,500-ton destroyers there was no real competition on class I bids. In
class II bids Bethlehem was alone. And on submarines the competition was
inadequate.
There is one more thing, in a constructive way, in regard to this. Admiral
Land: You were asking how competition could be any better, by which I think
you mean, how can one hold up a standard, in a way to be sure it is all right? I
think that is probably your job to work out.
Admiral Land. We are appealing for your help. We are hoping to have
another program coming along.
Mr. Raushenbush. The committee is not yet ready, but, I think, will have
something constructive to offer along that line.
Yesterday you sort of got off the track, it seemed to me, in your colloquy with
Senator Vandenberg when you were explaining the rise in prices in 1933 and say:
"Well, it is true that there was some four and a half million, or whatever it was —
three and a half million — between 1932, but 1933 was exceptional and was passed
on before that." Do you remember?
Admiral Robinbon. Yes, sir.
Mr. Raushenbush. If you go back and look at those ships you will find that
those earlier ships were ships that had a terrific amount of i)rofit in them. In this
1929 bidding, for instance, of Bethlehem that was a ship where tliey made 21.8 per-
cent profit by their own figures. And on the earlier cruisers, 1927, 1929, 1931, and
1932, they not only made a profit but an unexpected profit of $3,620,000.
Newport made 35 percent on aircraft carriers, and here jou have i)roof of very
high profit on cruisers which you are using as a yardstick.
Admiral Land. Just a minute.
Mr. Raushenbush. Yes, sir.
Admiral Land. I am not using that as a yardstick. If you want the essential
details, the cruisers, coming down to 1933 and 1934, are up 900 tons heavier right
off the but, and the only thing you need to do is to find your cost i)er ton, and there
is a verv marked increase, to which you do not even give consideration.
Mr. "Raushenbush. Let me make a statement there. We have the Newport
estimates for 1932 and 1933.
Admiral Land. Yes.
Mr. Raushenbush. Thev would show the diflference, would they not?
Admiral Land. Yes; but I mean combatant designs.
MUNITIONS INDUSTRY 143
Mr. Raushenbush. Do not accuse me of not giving consideration to it.
Admiral Land. I want to give you my position. I came in the Bureau October
1, 1932. I am not competent to discuss figures of allocation prior to that, but will
get any information the committee desires. But I cannot discuss them, due to the
fact that I was not on the job — cannot discuss the figures that you may present
prior to the time that I took office.
Mr. Raushenbush. These are in the committee's records. At the time there
was supposedly a terrific increase taking place in the cost of cruisers, and the
Newport estimate from 1932 to 1933, so far as actual labor and material goes, did
not go up at all, but dropped $13,000.
Admiral Land. Yes, sir.
Mr. Raushenbush. It is that sort of thing which makes us think the 1932 ves-
sels were too low in price or there was an unju-stified increase in price in 1933.
Bethlehem had three and a half million dollars, and Newport $4,000,000 plus,
and New York Ship $2,484,000; and on the basis of the Newport estimates we do
not find that that is an adequate explanation of the increase for these 1933 and
1934 cruisers. Then we go back and look at the earlier cruisers. In 1927 one
of the companies admitted they got an agreement with other companies. In
1929 we have evidence along that line, which is in the record, and the cruiser
was finally given at 21.8 percent profit. On some of the early work Newport
admits having made 35 percent profit; Bethlehem 25.4 percent on the Northamp-
ton.
All those cruisers, which are used as a comparison with the present prices,
to a certain extent to explain them as being justified, are all loaded with a profit.
Perhaps you did not know these figures before until they came into the record.
But, with that situation before you, Mr. Secretary, and with the Navy figures
on the early ships in 1927 and 1929, showing costs, even with the statistical costs
added, of $2,000,000, and on the 1927 cruisers over $2,000,000, and on the 1929
cruisers over $1,400,000, as I remember it in the private yards, do you see a suffi-
cient reason why, and from this other evidence you have heard this morning
why this whole question should be gone over again by the Navy?
Mr. Roosevelt. I think it would be very helpful. I think the evidence
produced before this committee will be very helpful to the Navy.
Mr. Raushenbush. The matter is one which runs into considerable money,
of course. If it should turn out that the navy yard figures and the figures which
could be produced by eliminating those high profits were as much as one million
and a half dollars or $2,000,000 lower than we are getitng, on 14 cruisers we have
had so far, that would run over $20,000,000; and if the same thing runs through
the rest of the program, you have got a matter which runs into a very considerable
sum of money, have you not?
Mr. Roosevelt. Yes; of course, if you have taken into consideration in all
this analysis the change in the characteristics of the ships, which you say you
have in a careful way.
Mr. Raushenbush. We have on certain estimates; yes.
Mr. Roosevelt. And also the rise in prices and the cost of labor, and that
kind of thing. I do not know them, myself, but it certainly is going to be thor-
oughh'^ studied by us.
THE THEORY OF NATURAL ADVANTAGES
Mr. Wakeman of Bethlehem explained the differences in bids on
cruisers in 1934 on February 28 (galley 49 QD).
Mr. Raushenbush. The same situation seems to have happened on the bid-
ding on the two cruisers in 1934, Mr. Wakeman. The bids on the light and heavy
cruisers again show that you apparently wanted the heavy one, or bid far lower
on the heavy one than on the light one.
Mr. Wakeman. I have a statement which I would like to read into the record
of the general situation in 1934.
Mr. Raushenbush. All right.
Mr. Wakeman. When bids were being prepared in August 1934, prior to their
opening on the 15th, we had been operating for a year under the shipbuilding and
ship-repairing code.
We were still faced, however, with the same general uncertainties that were
before us in 1933. The N. R. A. had not, contrary to expectations, served to
stabilize economic conditions and to bring about the much-hoped-for normal
times. We were certain, however, that our labor costs during the next year
144 MUNITIONS INDUSTRY
would be definitely higher, for our actual experience had shown an increase of
better than 40 percent from 1933 to 1934, with indications pointing to even
further increases.
Later (galley 52 QD).
Mr. Wakeman. Your accounting methods vary in different plants, I imagine.
The vessels called for in the 1934 program consisted of: One heavy cruiser, two
light cruisers, two destroyer leaders, five 1,500-ton destroyers, three submarines.
Of these ships under the Vinson Act only approximately one-half could be
awarded to private yards. Due to the work in hand from contracts awarded
prior to 1933 and the 1933 program, our interest centered itself on certain ships
in the 1934 program.
Our design department was rapidly completing its work on the cruiser Quincy
awarded in 1932, and on the ships awarded in the 1933 program, with the result
that if this essential portion of our organization was to be held together, work
involving new design was most desirable. It was also clear that by the end of
1936 all the construction work in hand would be virtually completed and a
contract involving extending delivery time would be desirable.
Reviewing the situation, it seemed that we had best center our efforts on the
heavy cruiser, which in many respects was like the cruiser under construction in
our yard, but which would also afford a considerable amount of design work of
a type with which our staff was familiar. This cruiser also had the advantage
that it could not be completed prior to the end of 1937, thus conforming with the
London Naval Treaty of 1931, as well as our own specific building needs.
Our second preference was 1,500-ton destroyers of a new design, since they too
would provide the necessary work for our designing staff. It further appeared
that for the next few years, in accordance with the provisions of the Vinson Act
and the London Naval Treaty, that the United States Navy would be built up
in its cruiser and carrier categories but would have a deficiency for some time to
come in destroyers. This further increased the desirabilitj' of a new destroyer
design, which, if accepted by the Navj^ Department, might give us the advantage
of the 1935 program of bidding on duplicate designs.
The airplane carriers, likewise submarines, involved considerable specialized
technique which would be acquired only through expensive experience. With
Newport News having specialized in airplane carriers and having secured the
contracts for all the carriers in recent j'ears, it seemed probable that the many
advantages of their experience would be too great for us to overcome in bidding.
The light cruisers were duplicates of ships then under construction by New
York Shipbuilding, who were preparing their plans, and therefore offered no in-
ducement in the way of furnishing design work. They further had the disad-
vantage of having delivery times which would coincide with delivery dates of
some of the vessels then under construction in our yard. This in itself is a
serious matter, since the final fitting out and trial trips of ships must be staggered
for proper handling.
The condition of overlapping outfitting and trial trips was also an objection
to our receiving contracts for destroyer leaders. Furthermore, destroyer leaders
gave no work for our design department.
Insofar as submarines are concerned, this company at no time has contracted
for the construction of this type of vessel in its entirety, and because of the ex-
perience and equipment necessary for their building it was not in a position to
seriously consider bidding for them in 1934.
From the foregoing, it is apparent that what we wished most of all, and which
would be most advantageous to us, was a heavy cruiser, and failing that the next
best thing for us to obtain would be 1,500-ton destroyers of a new design. Upon
these two things our efforts were concentrated, as is evident from the number of
designs submitted under class II for 1,500-ton destroyers.
The contracts awarded us in 1933 were on a fixed-price basis.
Bids were required on both a fixed- and adjusted-price basis in the 1934 pro-
gram. In view of the greater uncertainties existing in 1934 and the better estab-
lishment of the adjusted-price contract through its operations since its inception
in 1933, a contract on a fixed-price basis was not acceptable to us. The Navy
Department, however, again required us to submit bids on both bases and a bid
on adjusted price only would have been rejected. We, therefore, were obligated
to put in a fixed price against our desires, which price was made sufficiently high
to insure us against receiving an award on that basis.
Mr. Raushenbush. Will you read that last paragraph again? I am not sure
I understood that.
MUNITIONS INDUSTRY 145
Mr. Wakeman (reading):
"Bids were required on both a fixed- and adjusted-price basis in the 1934
program. In view of the greater uncertainties existing in 1934 and the better
estabUshment of the adjusted-price contract through its operations since its
inception in 1933, a contract on a fixed-price basis was not acceptable to us.
The Navy Department, however, again required us to submit bids on both
bases and a bid on adjusted price only would have been rejected. We,
therefore, were obligated to put in a fixed price against our desires, which
price was made sufficiently high to insure us against receiving an award on
that basis.
Mr. Raushenbush. All right.
Early in the hearings, several weeks before the theory of ''natural
advantages" was advanced to account for the bidding of the various
companies, Mr. Bardo explained identical bids on two large merchant
ships hj the fact that information on labor costs was exchanged
between the yards (Jan. 24, galley 64 GP):
The Chairman. Mr. Bardo, are you wanting us to conclude that there really
is nothing in this, then, about the fact that three companies would bid and that
two of them would bid an identical figure, $9,750,000?
Mr. Bardo. Senator, that is true. And I think this will help to enlighten you
on how this thing works: There are two principal phases. First, you have got
labor, and j'ou have got materials. There are these three yards that were bidding
upon an identical ship. We made the same investigation. We made the same
inquiries to all of the suppliers of steel, auxiliary facilities, and auxiliaries of
every kind, and it is fair to assume that we got the same quotation from all of
them. You would not find very much difference there, if any. You might
find a little in the way that the thing was assembled and put up.
Now when it comes to the question of labor, that is always a very important
question, and the three yards kept very close in touch with one another as to
our labor costs and our labor wages and our labor conditions, because we wanted
to know and we wanted to keep tabs on what was going on, and what was hap-
pening, and what was likely to happen.
Mr. Raushenbush. Were you the one which kept in touch with the other
yards on labor and material?
Mr. Bardo. No; one of the men on my staff did that.
. Mr. Raushenbush. Who was that?
Mr. Bardo. Mr. Taylor.
Mr. Raushenbush. What capacity did he have?
Mr. Bardo. I think he had the title of assistant comptroller.
Mr. Raushenbush. He was the one who kept finding out what the other yards
were paying for labor and material?
Mr. Bardo. He did not know anj^thing about the material. He did not get
that figure because that was out of his line, but that is the man who kept the
record for us on labor costs and labor wages.
Mr. Raushenbush. When he got that information, did he communicate it to
you or the estimating department?
Mr. Bardo. It came to me.
Mr. Raushenbush. The estimating department did not have that?
Mr. Bardo. They did not have that information.
Senator Vandenberg. Would he be advised as to what the labor element
would be on a given bid?
Mr. Bardo. No. He simply reported the facts. That is all.
Senator Vandenberg. You did not need an N. R. A. to standardize your
practices?
Mr. Bardo. No, sir; we did not.
Senator Vandenberg. You beat the N. R. A. to it.
The "natural advantage" theory was apparently not approved by
Mr. Bardo who gave testimony that there was no reason why the
company bids should differ from each other by very much (Jan. 24,
galley 71 GP):
Mr. Raushenbush. We had testimony the other day that bids from Bethlehem
and Newport News were such-and-such figure, and Bethlehem was only $33,000
146 MUNITIONS INDUSTRY
above Newport News. Is not that very close for a bid on a ship involving that
figure, for one company to come within $33,000 of the other?
Mr. Bardo. Not necessarily so, when you are dealing with exactly the same
factors. You are bidding on an identical ship.
Mr. Raushenbush. You think they can get that close, within a very small
fraction of 1 percent?
Mr. Bardo. The facts seem to indicate that they did. I do not see any reason
why they should widely differ.
Discussing the advantage possessed by a yard which has had
experience in building cruisers, L. H. Korndorff, president of Federal
Shipbuilding & Drydock Co., testified (galley 8 WC, Apr. 2):
Mr. Raushenbush. There is a lot of rather miscellaneous stuff, Mr. Korndorff.
Here in November 1932, before you got into the shipbuilding picture, you were
writing a memorandum to Mr. Irvin, under date of November 4, 1932, which I
oflfer for the record as "Exhibit No. 1762", about bidding on the cruiser for the
United States Navy, saying:
I have reviewed this matter father with Admiral Land and other officials
of the Navy and find that the proposed vessel is substantially a duplicate of
those previousl}' built. This would give the yards that had built such ships
a tremendous advantage in cost of plans and development, which will amount
to around $500,000.
Do you remember this statement?
Mr. Korndorff. Yes.
Mr. Raushenbush. Is that about right, Mr. Korndorff?
Mr. Korndorff. I think it was low.
Mr. Raushenbush. How much advantage do you think a yard which has
built a cruiser has over one which has not?
Mr. Korndorff. I think in this particular case that that advantage would be
nearer $1,000,000 than one-half million dollars.
Mr. Raushenbush. $1,000,000. That was on the armored cruiser, Quincy,
was it not?
Mr. Korndorff. Quincy; yes, sir; 1929.
Mr. Raushenbush. So that the yards do not start at all even, from scratch,
on bidding, do they?
Mr. Korndorff. Not if j'ou are starting in a new game as we were.
Mr. Raushenbush. Or somebody who has not built a cruiser before is about
$1,000,000 worse off than somebody who has?
Mr. Korndorff. I would like to say between one-half million dollars and
$1,000,000. There is not only the question of plans but the "know how"
which takes vears to accumulate.
SECTION II.— EXCESSIVE PROFITS
The profit on ships awarded after 1930 has not been determined by
the companies to date.
On all ships for 1927 to 1930 the profits are as follows :
Percent
/Cruiser Augusta (Newport) $2,800,9451 o^,
\Cruiser Houston (Newport) 2, 800. 94nj "^^
Cruiser Chester (New York Sliip) 2,940.700 36.9
Crmser Northampton (Betlilehem) 2,200,000 25.4
Cruiser Indianapolis (New York Ship) 3,007,049 33.4
Cruiser Portland (Betlilehem) 2, 058, 79<5 21.8
Aircraft carrier i^a^rg^er (Newport News) 3,050,000 23.1
Newport News officials described themselves as " perfectly amazed "
at the profit made on the 1927 cruisers Ait^gusta and Houston^ 35 per-
cent (Feb. 14, 1935, galley 92 ZO) :
Mr. Raushenbush. In 1929 your bids were a good deal higher than in 1927.
Mr. Ferguson. They were, because we did not know until these cruisers were
completed the cost of them, and I was perfectly amazed that we made so much.
The cost of cruisers between 1929 and 1934 had gone down, because the ships
themselves have got approximately $1,800,000 more in them for the contractor in
cost than the first ships had.
* * * * 4: « it
Mr. Ferguson. I am talking between 1927 and 1934. The cost of our cruiser,
under a contract with the Navy Department for $11,650,000, represents an esti-
mated profit of 6 percent, as the figures will show. And although we did make
35 percent, as Mr. Raushenbush says, profit on the carriers in 1927. we have done
with that just what we have done with any other customer, they have gotten the
advantage of it on future bids. We did not know, and we were amazed, and
Mr. Woodward and our people can explain that difference, and I wish to submit
for the record a letter which Mr. Raushenbush has, written by Mr. Palen, who
was vice president of the company, to Mr. Huntington, out of this same confi-
dential file, to the owners, in which he states :
Our bid for this work is only a fair price and should result in a moderate
profit to the yard in case everything goes along smoothly in connection with
the construction of the vessel.
The subject was touched on later (Feb. 14, 1935, galleys 94-95 ZO).
Mr. Fekguson. I think if you will take SO-percent overhead and 10-percent
profit, it would be a figure that we would naturally bid. It is a figure that
we would build the ship for without bidding. I cut the price to some 8-percent
profit to bring it in line, or 71/2 or 8 percent, to bring it in line with the bidding.
Nobody on this committee is more surprised than I was on the profit we made
on those ships. I would not believe it, because we had never done that before.
It is true, I underbid on the Leviathan and lost $1,400,000, but that was not
as big a surprise as these cruisers. The type was different, and I went into
the estimating department and asked the gentlemen estimating if any outside
infinence had been put on them to make their figures high, because we do not
figure on receiving 35 percent on anything, and never have. I think it is rotten
business, in addition to not being right.
So that the amount of the profit which was 26 percent on the cost to the Gov-
ernment, and 35 percent as we ordinarily figure it on operation, was a sur-
prise to me for fair, and finally I went after the head estimator, Mr. Dimm,
who is now dead, and he said he could not tell until the ships were finished,
because it was our experience in warships that as long as they were around
147
148 MUNiriONS INDUSTRY
they put things in them and filled them up. It was a gross overestimate of cost,
and it is just as bad from my vie\\T)oint to overestimate a job as it is to
underestimate it, because what we require of our estimating department is the
truth. And we want to get their best judgment, and these men have been
there for years. And they formed their best judgment, and I and no one else,
so far as I know, ever knew on what they bid in the figures that we made, and
wliich Mr. Raushenbush now has.
The treasurer of the New York Shipbuilding Co. vras questioned
on the subject (Jan. 31, 1935, galley 35 ZO).
Mr. Raushenbush. After the war, you did make money on your naval vessels,
did you not?
Mr. Pakkeb. On the cost-plus contracts, of course, you made money.
Mr. Raushenbush. Since that time you have made money on naval vessels
and charged the loss against the merchant-marine vessels, did you not?
Mr. Parker. Since what date, sir? We were awarded no naval contracts
from the war time up to 1927.
Mr. Raushenbush. From 1927 on you did not report any loss on any ships,
did you?
Mr. Parker. We had no naval contracts except the completion of the .'?ara-
iogn, which was in 1916, sir.
Mr. Raushenbush. From 1916 on, I am talking about.
Mr. Parker. From 1916 on we made money on naval ships.
Mr. Raushenbush. Yes.
Senator Ci.ark. You made a good deal of money, did you not, Mr. Parker?
Mr. Paeker. Yes, sir.
Upon the resignation of Mr. Bardo as president of the New York
Shipbuilding, he pointed to unexpected profits of $3,620,000 on these
cruisers. (Jan. 31, 1935, galley 35 ZO.)
Senator Clark. I have here a letter from Mr. Bardo to the board of directors
of the New York Shipbuilding Corporation, dated October 18, 1934, in which
he says :
Sirs: Having today submitted my resignation as president of this cor-
poration, it seems only fitting that I should leave as a matter of record
a brief account of my stewardship.
When I first became c<»nnected with this corporation ha the latter part
of 1925, the shipbuilding activities were only a part of a wide prospective
field, including construction of transformers, circuit breakers, electric loco-
motives, public-utility equipment, etc. These extended activities, together
with the change of management which had taken place, resulted in the
serious demoralization of the nKu-ale of the shipbuilding organization and
further resulted in such a falling-off in the quality and character of the
work that the corporation and its officers were subjected to very severe
criticism and condemnation by the Navy Department for the work which
was then in progress.
In the ensuing months, while efforts were being made to reorganize the
shipbuilding personnel, the financial affairs of the corporation grew rapidly
worse and reached a crisis during the year of 1927.
That was the year on which this new naval building program was put Into
effect, was it not?
Mr. Parker. Yes, sir.
Senator Bonk. Was that the year of the Geneva Conference?
Mr. Parker. I do not recall, sir.
Mr. LaRouche. It was.
Senator Bone. A very abortive conference, too.
Mr. Parker. It may have been.
Senator Clark (continuing reading) :
Following this crisis, progress was steadily nmde from the standpoint of
the corporate organization, financial condition, and reorganization of
personnel.
The progress that was made was following on step by step with \\w inmased
naval building program, was it not, Mr. Parker?
MUNITIONS INDUSTRY 149
Mr. Pakker. Mr. Bardo wrote the letter, Senator.
Senator Clark. I am asking you from your familiarity with the company
whether that is true or not, and if it is not a fact that the progress and im-
provement in the company's financial condition went along step by step with
the increase in naval building authorization?
Mr. Parker. It went along coincident with it.
Senator Claek (continuing reading) :
It is not necessary to review in detail what has been accomplished in
each of these fields. I content myself in pointing out certain pertinent
factors of the present situation as compared with that at the end of 1926,
as follows :
1. Net current assets increased from $1,300,000 to $5,000,000.
(Note.— At the end of 1926 there was a tax claim of $3,800,000 which
later was settled for $2,350,000.)
2. Fiuided debt of the corporation reduced $1,500,000.
3. Preferred stock reduced from $4,000,000 (including $1,000,000 of pre-
ferred stock of a subsidary afterward sold) to $2,000,000.
4. Participating and founders stock, 695,256 shares, reduced to 500,000
shares of $1 par value. In doing this we were able to establish the equity
relationship between the founders and participating stock so that except
for voting rights the stocks are equal in every respect.
b. (a) Balance sheet intangible assets — contract and patent rights,
patents, goodwill, etc.— $4,432,845.21, written down to $1.
(ft) Corporate reorganization and electrical division development ex-
penses, $532,653.89, written off.
6. Surplus increased from $1,654,000 to $6,804,000.
7. Net profit during this period was $6,075,607.70. The average income
during this period far exceeds that of any similar period in the corpora-
tion's existence, with the exception of the period during and immediately
following the war when all work was on a cost-plus basis.
8. (a) Cumulative dividends defaulted on preferred stock in 1927 and
1928 were paid, and preferred-stock dividends have been earned and main-
tained since 1929.
(ft) Common-stock holders have received 40 cents per share per year
since March 1933.
9. The value of uncompleted contracts on hand at the present time exceeds
those at the end of 1926 by more than $40,000,000.
In other words, during this period the management which came into full
control early in 1927 and the reorganized personnel have been able to
eliminate the highly dangerous actual and contingent liabilities on the one
side and the intangible and highly questionable assets on the other side, and
to provide a balance sheet for all the stockholders of which, in my judgment,
any company may well be proud.
During the same period the reorganization of the supervisory personnel
took place. It is significant, however, that except for two positions this was
accomplished by promotions within the plant, the two exceptions being
expei-ienced executives from other shipbuilding organizations.
Following this reorganization the spirit and morale of the officers and
employees progressively improved, and it is due to that fact, as well as to
the efforts of the officers and department heads, that great progress was
made in improving the quality of the work and in radically reducing the
expenses of the accomplishment. As to the quality of the work, I refer to
the contract as between the severe criticism made by high officers of the
Navy in 1926 and the letter in December 1933, from The Assistant Secretary
of the Navy, which, as you will recall, commends in the highest terms the
technical skill and efficiency of the organization and expresses appreciation
for the fine cooperation given by the organization to the Navy Department.
I also refer you to the letters and telegrams from Mr. P. A. S. Franklin,
president of the International Mercantile Marine Co.. expressing his appre-
ciation and admiration for the results of the organization's efforts in build-
ing the Manhattan and Washington. The highly satisfactory performance
of the ships in service more effectively emphasizes the skill of our technical
and operating forces.
The satisfaction of our customers, the Navy Department, the Export
Steamship Corporation, and the United States Lines, is an asset of immeas-
urable value to the corporation. This has not been obtained at the expense
150 MUNITIONS INDUSTRY
of the stockholders, as evidenced by the substantial income earned during
this period. Such net earnings have been increased through the efforts of
the staff in reducing costs below the estimates. For example, the actual
cost of labor and material upon the three cruisers constructed during this
period was $3,620,000 below the estimate or a saving of 15 percent. On the
balance of the work a similar comparison shows favorable results. In the
case of each Navy contract we have earned substantial bonuses and have
incurred no penalties.
Now, those estimates, I mean the bids submitted on those three cruisers,
allowed a very large margin of profit above the estimates, did they not, Mi.
Parker? The figures were put in evidence here in previous hearings, and
there was a very large allowance for a margin of profit between your esti-
mates of cost and the bids which were actually submitted to tlie Navy Depart-
ment and awards made as the result of those bids. Is not that correct?
Mr. Pakkee. There was a margin of profit there.
Senator Clark. There was a very large margin of profit. In all it was
$3,000,000, was it not?
Mr. Parker. That was not pi-ofit.
Senator Clark. Take the difference between your estimate of labor and
material and the award given you.
Mr. Parker. The contract price, but that includes overhead, administrative
expenses, contingency allowance, penalty guarantees, and your profit is after
that.
Senator Clark. Then this $3,620,000— do you agree with that?
Mr, Parker. It is the saving on labor and material.
Senator Clark. That was the saving below the estimate?
Mr. Parkbir. Labor and material estimate.
Senator Clark. And that 15 percent simply represented " velvet " to the
company, did it not?
Mr. Parker. That is right.
There was indication of some awareness that profits on merchant-
marine ships (naval auxiliaries) were considered high in certain
quarters (Feb. 19, 1935, galley 40 FS) :
Mr. Raushenbush. At this time, very shortly after the award of the con-
tracts to Bethlehem in the early part of 1933, we find a notation on New
York Ship Co.'s stationery about Fred Gauutlett. Will you tell us, Mr. Fer-
guson, or Mr. Williams, what Mr. Gauutlett was doing down here at the
time, what his job was?
Mr. Ferguson. Mr. Gauntlett has been the representative of our company
in Washington for I suppose 20 or 25 years — 25 years. He has been in our
employ for 39 years. I gave it as 43 the other day.
Mr. Raushenbush. Well, was he a sort of contact man with the oth«^r
shipbuilding companies?
Mr. Ferguson. No.
Mr. RAusnENBUsii. He represented you and the Aluminum Co. of America
and a few others, you said the other day.
Mr. Fekquson. And the Matson Navigation Co.
Mr. Raushenbush. And Matson. Here is this letter which is from Addi-
son Foster, who was then the representative of New York Ship down here,
to vice president I. Coruibrooks. Ilere is a copy, which I offer for the record
as exhibit no. l.")!KS.
(The letter referred to was marked " Exhibit No. 1593 " and is included
in the appendix at p. — .)
Mr. ILvrsuENBUSH (reading) :
Fred Gaunt'ett ju;»t »'anie into my office to report a ('(Hiversation he had
with Adniir;il Cone yesterday. If seems tliat Cone expressod liims(>lf in no
uncertain terms abdut the exce.ss jirofits the shi|tbuililt'rs liavo made since
the 1928 act.
That is the Jones-White Act, is it not?
Mr. Fkkguson. Yes.
Mr. Raushenbush [continuing reading] :
Gauntlett said he pointed particularly at the New York Shipbuilding Co.,
in particular reference to the Manluittan and the M'afihiniftou, wliere he is
MUNITIONS INDUSTRY 151
quoted as having said we liad 25 percent or 30 percent if not more. And
if the shipbuilders didn't get together and reduce the cost of construction,
he would lend his influence in preventing the private yards from getting
any of the proposed naval building. I will drift into his office in a day or
so and see if I can confirm this attitude.
There is a case where your representative was talking things over with New
York Ship, ai)parently, is it not?
Mr. Ferguson. Oh, yes ; he told him what Admiral Cone had said.
Mr. Eaushenbush. About the high profits made since the 1928 act?
Mr. Fekgijson. Yes ; apparently.
Mr. Rausheniutsh. Did he do that often? Was that a part of his job?
Mr. Ferguson. I do not know that he told them often. He told me of con-
versations like that.
In discussing the profit (23.1 percent) on the Ram^ger^ Mr. Fergu-
son testified that the profit was clue in laree part to the falling
market (Feb. 18, 1935, galley 32 FS) :
Mr. Ferguson. Oh, yes ; and, as a matter of fact, Senator, we made a very
much greater profit tlian we anticipated, due primarily to the building of a
ship of that character on a falling market. Due also to the fact that in the
last 8 years we have increased the efliciency of our plant and building ships
of this or any other character through the adoption of methods of cost control,
predicated not on experience but which run throughout the life of the ship
from start to finish. So that I can tell you today, barring accidents, when the
new airplane carriers will be launched and when they will be finished that
there are no more changes. That has resulted in a saving. If I can just tell
you about this cost on the Ranger. Of course, the Ranger was a new type.
We had never built an airplane carrier, our prospective airplane carriers being
scrapped by the first Disarmament Conference.
He continued with a detailed explanation (galley 32 FS) :
A little later he stated that there was a further advantage to the
company in that it prepared the company for its bid on the two air-
craft carriers of 1933. (The almost complete absence of serious
bidding on these by other companies has been noted elsewhere.)
I will say this : That in the preparation of bids for the two large airplane
carriers, contracted for as a result of the 1933 bidding, that we had a distinct
advantage in that we knew more nearly what the cost was.
The profit of Newport News on the Ranger^ the aircraft carrier
authorized in 1931, was 23.1 percent. Mr. Feguson (Feb. 18, 1935,
galley 30 FS) :
Mr. Ferguson. The Senator will understand that I did not write the letter.
Mr. Raushbnbush. The statement is interesting in connection with the com-
parison furnished.
We wanted the committee this morning to go into the estimates on the Ranger
and the bidding there, although it is getting late. * * *
Mr. Raushbnbush. * * * Now, the bid of Bethlehem was $1,232,000 above
Ne^vport's bid and New York Ship's bid was $806,000 above.
Now, on that, Mr. Broad, according to the figures furnished the committee on
this sheet, it shows that you expected a profit of 10.9 percent on that ship when
you put in your bid.
Mr. Ferguson. 10.4.
Mr. Raushbnbush. 10.4 percent on that ship, on top of your estimate of labor,
plus material, plus overhead, when you put in the bid, and that when you actually
finished the job that the profit was 23 percent. Is that correct?
Mr. Ferguson. 23.1.
Mr. Broad, 23.1.
The president of Newport News put the difference between a cruiser
which a company was really bidding on and wanting to bid on a
cruiser it did not want as $500,000 (Feb. 14, galley 96 ZO).
152 MUNITIONS INDUSTRY
The contention of the companies that the costs of the cruisers has
gone down (on the ground that a better cruiser is now being built
than before) is refuted in part by the estimates of the companies.
Newport News contended that (1) the Navy had gotten the advan-
tage of the large profit in 1927 on later bids (galley 92 ZO) and (2)
the cost of actual cruisers had gone down (91 ZO) from 1927 to 1934.
It claimed the 1929 cruiser had $349,500 more work in it than the
1927 cruiser (96 ZO). There were no wage-rate changes from 1927
to 1929 (galley 97 ZO).
In regard to (1) the company admitted that the Navy did not get
the advantage in 1929 because the profits on the 1927 ships had not
been calculated at the time the 1929 bids were made out (galley
96 ZO).
SECTION III— PRICES INCREASED WITH BIG NAVY ^
Unlike other industries, large-scale production and crowded
yards do not, apparently, mean lower costs. In fact the shipbuilders
were not hesitant in admitting that they simply increased prices with
the rush of work. Navy officials admitted this situation (Apr. 10,
1935, galley 32 YD) :
The Chairman. Are not we in something of tliis dilemma : That when there
is no work for the shipyards tliey come down here to CongTess, howling about
their being starved to death and asking, as one United Shipbuilding representa-
tive put it, aslxing for tlieir share of the " plunder ", and then when they are
busy and their yards are occupied, they straightway put the prices up?
Admiral Kobinson. I suppose, Senator, there is no question but what the
scarcity of work has some bearing on price of ships, just as it does in the
price of wheat. Because, whether it is wheat, or whatever it is, there is no
question that if the shipyards are absolutely out of work, they are going to
give us a better price than if they have got some work ahead. I do not think
there is any doubt about that.
The Chairman. Of interest to the committee was the testimony of Mr. Powell
concerning the time when they added $708,000 for profit in 1933 over their
3932 bid, and at which time he said: "When there is a lot of business, the
margin goes up."
Admiral Robinson. I think that is unquestionably correct.
The Chairman. Mr. Ferguson, testifying along the same line, told us that
when work is plentiful their prices are higher.
Admiral Robinson. Without any doubt ; but I do not think that is restricted
to ships at all, sir. We could take all sorts of things and we find the same
thing happens in regard to everything. For example, during this depression
we had iieople who submitted bids to us for auxiliaries that we had never
heard of before, and prices went down accordingly.
Mr. Raushenbush. The point. Admiral, is whether that is true. We thought
it would happen that when a yard got more ships, their overhead would be
lower and the prices would come down.
Admiral Robinson. It is the other way around.
Mr. Raushenbush. For instance, it is then on a mass-production quantity
basis. They can produce cheaper when they are producing a lot of stuff, and
is that not true of anything else. The more there is the cheaper it is per unit
to produce, unless there is some artificial intervention. But here the reverse
seems to be true, which is a I'ather amazing situation : that when there is
plenty of work, both Mr. Powell and Mr. Ferguson stated prices go up.
Admiral Robinson. I find that is true of everything. When there is a
great scarcity of work, we pay very little, comparatively for anything we buy —
wheat, or ships, or anything— and where there is prosperity, and people can
get business anywhere, we pay a great deal more for the same wheat, the
same pump, or the same ship. I do not know about things outside the Navy,
but on stuff in our Department, we do pay less in times of depression, when
there is more scarcity, than in times of plenty.
Mr. Raushenbush. I do not mean that. In 1933 and 1934, which might be
considered times of depression, when things were cheap and low, both Mr.
Ferguson and Mr. Powell explained why ships went up in 1933 and 1934, and
with the statement that work was plentiful around shipyards, putting that
rather brutally, do you not think it true, as the chairman stated in his ques-
tion, that we are faced with this dilemma : When there is lots of work the
prices are higher than when there is little work?
Admiral Robinson. There is no question about that. I answered " yes ",
but I cannot interpret that. I can tell you what the Navy Department has
done for 10 years, and it follows the same cycle. It is not restricted to any
one thing.
Mr. Raushenbush. Putting it the other way, if the Navy needs a lot of
ships, and it has to get them out of fixed sources, such as P. W. A. or some-
thing, and these people increase their prices, could not that be considered a
holdup?
Admiral Robinson. I suppose it could. I am not familiar enough with the
previous history of the shipbuilding concerns to know what they have made
or anything of the kind, so that I could not know whether that would be con-
stituted too much profit or not. But what you say is perfectly true. There
1 See footnote p. 36.
153
154 MUNITIONS INDUSTRY
is not any doubt that there is a tendency to boost prices all along the line,
when there is plenty, and everybody knows if he puts in a fair price, he will
get something to do.
Mr. Ratjshenbush. And knovvs the Navy needs his work?
Admiral Robinson. And knows the Navy needs his work.
Mr. Raushenbush. And has to give it out?
Admiral Robinson. There is no question about that. You are perfectly
right about it.
Mr. Raushe:nbush. The Navy is not able to handle it themselves, and the
private shipbuilders know they will get some of the work.
The increase of work failed to lower the charges to the Navy
on account of lower overhead and actually caused increases. One
case in point is Bethlehem Ship in 1929 (Feb. 27, 1935, galley 31,
32 QD):
Mr. Raushenbush. Is there any other explanation, Mr. Wakeman, of the
circumstances of this 1929 bidding as compared with the 1927 bidding? Your
estimate on one ship was only $2,SU5 or so above the estimate on your 1927
ship, and yet you raised your bid $78,000. What explanation is there on that?
Mr. Wakeman. I have no explanation of that. That is simply a question
of your overhead expense and your margin would easily make a difference
like that.
Mr. Raushenbush. With all these ships coming on, you knew that your
overhead would be less per ship, did you not, than what it was before?
Mr. Wakeman. We Knew that the overhead might be less. We really put
more nmrgin on, on that particular ship.
Mr. Raushenbush. Even with this big merchant-marine program you were
talking about coming on, you figured more margin instead of less?
Mr. Wakeman. We might have figured more margin, yes; actually did, from
what the results show.
Mr. Raushenbush. So that the Navy was not getting any particular advan-
tage of your lower overhead, then?
Mr. Wakeman. No.
Mr. Raushenbush. By having your ways crowded with the merchant-mariue
program?
Navy officials admitted this situation (Admiral Robinson, Apr.
11, 1935, galley 55 YD) :
Admiral Robinson. It comes down to this: Where you have a lot of ships to
build, it only is of more or less importance, because it would undoubtedly in-
fluence the bidding. Where there is a small number of shiiis, of course, the
thing is different. Some of the shipbuilders submit bills which they believe
to be cost bids, or below cost, or anything to j:et the business. It depends a
good deal on the circumstances. It so happens that in lU.'JS and 1934, it was
a little bit unusual and we were building more ships and catching ui) for what
we had not done for years gone by, and the bidding situation will probably
be different from that from now on.
Mr. Rauhiiknbush. They were frank enough to say they were putting ui>
prices because of the work at the time.
Admiral Robinson. Thei-e is no question about that.
Senator Clark questioned Assistant Secretary Roosevelt on the
usual result of an increased number of bidders (Apr. 11, galley
40 YD).
Senator Clark. If there were real competition, would it not be a singular
fact, with an increased number of bidders, meaning increased competition, that
the bids steadily increased in price? In other words, that is not the ordinary
effect ot real competition, is it?
Mr. RoosKvia,T. Not as a rule ; no, sir.
Mr. Raushenbush. Senator, in reply to your question, we had a good deal
of testimony here yesterday from Mr. Ferguson and Mr. Towell to tlie effe<'t
that when there was lots of busine.ss prices went ui» ; and I l>elieve Admiral
Robinson ass»*ntiHl to that, that that was what generally hapj)ene<l. When
yards were busy prices went up.
Senator Cl^vkk. When there is a lot of competition, prices generally go down.
At least that is supposed to be the universal experience.
SECTION IV.— NAVY YARDS AS YARDSTICKS^
A — General
One very valuable service which the navy yards could furnish
would be that of functioning as yardsticks to the private yards in
regard to costs. Another function they could serve would be to
render the Navy independent of private yards in regard to designing
and planning.
The committee intends, in a later report, to publish full figures in
regard to the relative costs of private-yard and navy-yard production
of naval vessels, and the cost of making the Government completely
independent of private yards. This duty was laid upon the com-
mittee by the Senate.
At the moment such figures as have been produced before the com-
mittee are given, subject to further study.
Preliminary studies indicate that on the 1927 cruisers the average
cost of the two built in the navy yards was $9,483,542, and the aver-
age cost to the Government of the four built in the private yards was
at least $11,599,846.
The difference in favor of the navy -yard construction was at least
$2,116,304 per cruiser. Almost enough could have been saved, at
this rate, on the four cruisers actually built in private yards, to have
built an extra cruiser for the Navy.
Preliminary studies show that in 1929 the three cruisers constructed
in navy yards cost an average of $10,423,621, while the two cruisers
built in private yards cost the Government $11,922,711.
This is a difference in favor of the navy yards of $1,569,090 per
cruiser.
The costs on cruisers which were begun in 1927 or 1929 could not
be determined until 3 years or more later, yet, in 1931, when it was
clear that the navy-yard ships were costing only $9,483,542, and the
private yards were showing profits of around 35 percent, the Navy
did not use these figures to secure any reductions in the prices charged
by private yards in that year.
It is important for the Navy to have estimates from its yards on
which it can rely. The cost of the Louisville was very close to the
estimate, being $137,610 below the estimate. The cost on the Chicago,
however, was $933,859 above the estimate. The cost of the New
Orleans was $138,301 below its estimate. The cost of the Astoria
was $134,068 below its estimate. No figures were obtained on the
Minneapolis.
A comparison of final costs on navy yard and private-yard ships
must be confined to the years 1927 and 1929, the only years on which
final costs on cruisers are completely reported.
1 See appendix, for chart showing comparison of costs.
155
156
MUNITIOl^S INDUSTRY
Cost of 1927 cruisers (navy yards)
Louisrille
(Puget Sound
Navy Yard)
Chicago
Mare Island
Navy Yard)
Labor
Material.
Overhead:
Appropriation.
Industrial
$3, 205, 825. 30
3, 780, 437. 52
1,333,116.80
741,889.71
$3, 260, 100. 03
3,923,965.60
1, 439, 383. 95
729, 095. 81
Subtotal, Navy work.
Private contract services
9, 061, 269. 33
270, 068. 03
9, 352, 545. 39
283,202.06
Total cost of ship.
9, 331, 337. 36
9. 635, 747. 45
Average cost _ _
$9, 483, 542
Cost of 1927 cruisers (private yards)
Chester (New
York Ship)
Northampton
(Bethlehem
Ship)
Newport News
Houston
Augusta
$10,918,864.52
624. 5fi8. 12
$10,791,319.72
898, 655. 36
$10,671,360.32
924, 7%. 36
$10,660,518.84
909, 312. 44
Navy work (Government expen.se)
Total cost of ship
11, 543, 432. 64
11, 689. 975. 08
11,596.146.68
11,509,831.28
Average cost $11,599, 846. 42
Average cost above navy-yard ships 2, 116, 304. 42
In this connection, however, it must be pointed out that the ships
were not completely identical by the time they were finished, and to
that extent they are not completely comparable. Some changes
ordered by the Navy involved increases, some involved decreases.
Net changes (exhibit 1624)
Louisville (Puget Sound) +$127, 807
Chicago (Mare Island) +190,008
Chester (New York ship) +40, 080
Northampton (Bethlehem) +37, 331. 50
Houston (Newport) +56, 828. 54
Augusta (Newport) +75, 990. 30
It must also be pointed out that the Navy pays for a considerable
amount of inspection work at the private yards, which is not covered
in these figures on the costs of sliips built in private yards. The total
inspection cost in all private vards from the middle of 1927 through
December 1934 was $3,769,493 (Galley 09 FS, Feb. 21). The amount
paid on private construction work during that period was approxi-
mately $146,000,000. The ratio of inspection costs to this total indi-
cates that on a $10,000,000 cruiser, the inspection cost was approxi-
mately $258,184.
Since a great share of this was spent in 1933 and 1934 on work for
plans and designs, for which no yard inspection charge is made, the
figure of $258,184 is very low, and will be raised by the time the ships
are completed. We estimate at least $300,000 inspection charge per
cruiser.
Tliis amount should be added to the total cost of cruisers built in
private yards.
MUNITIONS liSTDUSTRY
157
ESTIMATES AND COSTS NAVY YARDS
The Navy estimated the probable cost (except for industrial over-
head ^) on the Louisville at $8,599,250, not incliidino; changes of
$168,178. The industrial overhead was $741,889.71. Deducting this
sum from the total cost of the ship ($9,331,337.36) the remainder,
$8,589,447.65 represents the figure estimated on by the Navy, except
for the changes. The net changes increased this cost by $127,807.
Eliminating this item, the Navy cost on the items included in its
estimate was $8,461,640 or $137,610 below the estimate.
The Navy estimated the probable cost, except for industrial over-
head, on the Chicago at $7,782,785, not including changes of $248,000.
The industrial overhead was $729,095. Deducting this sum from the
total cost of the ship ($9,035,747), the remainder, $8,906,652, repre-
sents the figure estimated on by the Navy, except for the changes.
The net changes increased this cost by $190,008. Eliminating this
item, the Navy costs on the items included in its estimate was
$8,716,644, or $933,859 above its estimate.
Cost oj 1929 cruisers {Ncvy yards)
Neir Orleans
(New York
Yard)
Astoria
(Puget Sound)
Minneapolis
(Philadelphia
Yard)
Labor $4,224,363.22
Material.
Appropriation overhead.
Industrial overhead
Subtotal Navy work 11,595,972.40
Private contract services 18,843.68
4, 222, 538. 09
1,794,716.88
1, 354, 354. 21
$3, 637, 8.53. 88
4,223,961.02
1,327,111.49
1, 193, 979. 47
S3, 157, 473. 60
3, 923, 355. 51
1, 421, 450. 84
743, 049. 89
10, 382, 905. 86
19, 071. 76
9, 245, 329. 84
12, 339. 57
Total cost of ship | 11,614,816.
10, 401, 977. 62
9, 257, 669. 41
Average total cost $10, 423, 621
Cost of 1929 cruisers {private yards)
C ontract price - -
Navy work (Government expense).
Total cost of ship.
Portland
(Bethlehem
Ship)
Indianapolis
(New York
Ship)
$11, 425, 505. 87 $11, 970, 640. 22
546, 288. 52 632, 192. 70
11,971,794.39 12,013,618.20
Average cost $11,992, 711
Average excess of cost in private yards over navy yards, 1929
cruisers 1, 569, 090
Here again, as in 1927, the ships are not quite identical, as different
changes were made on each of them.
N^et changes (exhibit 1624)
New Orleans (New York Yard) +$239, 295
Astoria (Puget Sound) +296, Oil
Minneapolis (Philadelphia) +166, 631
Portland (Bethlehem Ship) +524, 795
Indianapolis (New York Ship) +840, 684
1 Industrial overhead is defined by the Navy as those items of overhead which would be paid out in the
course of maintenance of the Navy regardless of whether the ships were being built or not. (See testimony
Captain du Bose.)
13'9387— 35-
-11
158
MUNITIONS INDUSTRY
Here again the cost of Navy inspection on the two cruisers was not
included in the final statement of costs. It adds an estimated
$258,000 to the total private-yard cost.
The Navy estimated the probable cost (except for industrial over-
head) to build the New Orleans at $10,159,467, not including charges
of $396,294. The mdustrial overhead was $1,354,354.21. Deducting
this sum from the total cost of the ship ($11,614,816.08), the remainder,
$10,260,461.87, represents the figure estimated on by the Navy,
except for the changes. The net changes increased the cost by
$239,295. Elimmating this item, the Navy cost was $10,021,166 on
the basis of the items included in its estimate, or $138,301 below its
estimate.
The Navy estimated the probable cost (except for industrial over-
head) to build the Astoria at $9,046,055, not including changes of
$448,632. The industrial overhead was $1,993,979.47. Deducting
this sum from the total cost of the ship ($10,401,977.62), the remain-
der, $9,207,998.15, represents the figures estimated on by the Navy,
except for the changes. The net changes increased the cost by
$296,011. Eliminating this item, the Navy cost was $8,911,987 on
the basis of the items included in its estimate, or $134,068 below its
estimate.
No figures were obtained from the Navy on the estimates for the
Minneapolis.
1933 ESTIMATES NAVY YARDS
It is interesting to note that in 1933 the Navy secured estimates
from its yards wliich showed the New York and Philadelphia yards
putting in estimates which were under the fixed-price bids of the
private yards by from $1,122,000 to $5,351,000. It must be stated
that the navy yards were not being held to their figures in the same
way the private yards would be held on fixed price contracts.
It is also interesting to note that on the liglit destroyers in 1933 the
Navy secured estimates which averaged $2,611,540.25. This com-
pared with fixed-price bids by private yards averaging $3,852,000.
The difference in favor of the navy yards was $1,240,459.75.
Again, it should be noted that the navy yards were not held to the
estimates.
In 1933 the Navy secured estimates from the navy yards as follows:
Light Cruiser {1}
Labor
Material
Indirect
Drafting
and plans
Total
New York Navy Yard...
Philivldphia Navy Yard
$4,241..'>44
4,001.000
$4,379,615
5. Ml, COO
$1. 79?, 982
2.030,500
$734. 878
139,875
fl 1,149.01(1
11,767,800
These compare with the private yard estimates and bids as follows:
Labor
Material
Profit and
overhead
Total (fixed
price bid)
$2,911,000
a, 823. 143
$4,422,000
4, 622, 888
$7,767,000
3.024.069
$15,100,000
New York Ship ... ...
12,271.000
13.100,000
16,500,000
MUNITIONS INDUSTRY
156^
Navy yard estimates on the 1,500-ton destroyers were as follows,
on each of two ships:
Philadelphia Navy Yard.
Puscr. Sound Navy Yard.
Norfolk Navy Yard
Mare Island Navy Y'ard .
Labor IMaterial Indirect Tlans
$887, OOC
983, 820
743. 536
$1,415, 150
1, 263, 720
1, 094, 321
$377, 230
504, 205
280, 423
122, 180
127, 200
Total
$2, 715, ir.c,
2,011,298
2, S73. 925-
2, 245, STS'
These compare with the private yard estimates and bids as follows:
Labor
Material
Profit and
overhead
Total (fixed
price bid)
United .- -
$721, 000
1, 137, 235
$2, 027, 000
1, 227, 400
$1, 102, 000
1,460,?fi5
$3, 910, 000
New York Ship _.__
Bethlehem
3. S25, 000
3, 755, 000
Bath
Federal
3918, OOff
The number of navy yard ways were given by Admiral Land
(galley 18 YD) as a maximum of 22 building ways and a minimum of
13. Not ail of tliese can take cruisers. Cruisers have been built in
the New York, Philadelphia, Pugei Sound, and Mare Island Yards,
Destroj^ers are built at Norfolk, Boston, as well as at the cruiser
yards. Submarines are built at Portsmouth Navy Yard.
COMPARABLE COSTS
At the moment, prior to further study of the question, it can he
seen that the figures customarily used in comparing private yard costs
with Government costs are based on grossly inaccurate figures
emanating from the private yards.
These figures, furnished by Admiral Land to the House Naval
Affairs Committee in hearings in January 1935, were entered into the
record of the Senate Munitions Committee on Februarj^ 21 by Cap-
tain DuBoise (gaUey 75 FS). On questioning he stated that they
were furnished by the National Council of American Shipbuilders,
This is the trade association of the industry.
The figures furnished purport to show a comparison of the costs and
profits of the Chester, built by New York Shipbuilding Corporation
and the actual costs of the Louisville, built by Puget Sound Navy
Yard, together with the theoretical cost of the latter, if items for
taxes, depreciation, etc., were added.
In the course of that compilation the profit is shown as $983,000.
The actual profit reported to the Munitions Committee by New
York Shipbuilding Corporation on the Chester was $2,946,706 (exhibit
1540).
Here is a difference of almost $2,000,000 on one item alone.
It is hard to believe a writing down of the profit from $2,946,706 to
$983,000 could have taken place unintentionally.
This renders all the other figures in the compilation suspect, and
thoroughly deserving of further study and analysis. These figures
were all seriously presented to the House Naval Affairs Committee.
160 MUNITIONS INDUSTRY
The figures furnislied to the Navy by the National Council are as
follows, subject to the above comments:
Chester — huilt by the New York Shipbuilding Co., Camden, N'. J.
Total cost to
No. and brief of item. Governicent '
1. Labor, material, and items of overhead not specifically noted
below 1 $7, 552, 040
2. Government-furnished material 432, 351
3. Transportation paid by Government 1, 358
4. Bonuses (for fuel consumption and weight savings) 100, 000
5. Depreciation of buildings and equipment 461, 700
6. Insurance on the vessel 35, 500
7. Fire insurance on the plant 3, 760
8. Plans and engineering 478, 670
9. Supervision and administration 663, 750
10. Taxes 111,040
11. Performance bond 26, 140
12. Interest on investment 499, 400
13. Profit 983,000
14. Changes under the contract 40, 080
15. Trial board items 187, 839
Total 11,576,628
' Based upon drita furnished by the president of the National Council of Americ-tn Shipbuilders and also
upon costs records in the Xavy Department.
The difficulty at present of comparing navy yard costs with private
yard costs is indicated by the fact that the Navy does not have full
information concerning wages in private yards, one of the simplest
forms of information available (galley 72 FS).
Senator Bone. Since 1929 or 1930 there is not a bit of evidence existent which
will permit us to make a careful study of the wages paid in the private yards
and in the Government Navy Yards? Am I accurate on that?
Captain DuBdsE. I think you are, as far as concerns the Navy Department,
because we have no information as to private shipyard wages.
The Navy does not know the cost of the private companies and
has no basis of comparing private costs and navy-yard costs until
a ship is completed (Feb. 21, galley 77 FS):
Senator Clark. Let us take another case, Captain. Suppose the bid of the
private shipbuilder is .*♦; 10,000,000 and the estimate of the navy yard is
$7,000,000 — and tiiat^ is more ncjarly the spread, according to the figures which
we have had presented liore than the illustration you used — unless you know
the elements that are figured into that $3,000,t)00 the Navy Department has
no method whatever of knowing whether that sj^read between the estimate of
the navy yard and the bid of the i)rivate shipbuilder is fair or not, have they?
In other words, unless you have sjme method of fletermining what the elements
of profit and of interest and of overhead and interest on overhead and taxes,
and unleas you have some yardstick to measure it, you have no method of
knowing whether the spread between the estimate of the navy yard and the
bid of the private shipbuilder are similar, have you?
Captain DttBose. You have got to compare the two on the ba>:is of the total
price and the total estiiiuite.
Senator Clark. You have got to go on a guess, then.
Captain DuBose. I do not think it is just that. Senator.
Senator Clark. Unless you do have some information. Captain, as to what
these private shipbuilders are figuring in over and above what is being figured
by your own competent estimators — and wc will assume they are competent,
the estimators of the navy yards — then you have no method of knowing whether
they are making an extortionate profit or whether they are really in "iie i>u the
elements they are entitled to incliule, have you?
Captain DuBose. I can only repeat that we have no basis of comparing
except on total cost; but as respects this question of excess profit, that has
MUNITIONS INDUSTRY 161
recently been taken care of by Congress, so that the present contracts very
definitely take care of any profit in excess of 10 percent.
Assistant Secretary Roosevelt submitted a statement in which he
referred to the use of the navy yards as yardsticks in 1934, where the
estimated cost at the Philadelphia Navy Yard was $11,500,000, and
the lowest private-yard bid was $12,889,000 (Apr. 11, galley 38 YD):
As allocations to navy 5'ards may have both a ciirect and an indirect bearing
on the prices submitted by private jards it has been the general policy not to
make final decisions with regard to allocations to navy yards until after the
private bids are opened, evaluated, and the contract awards determined. This
policy secures the best competition and permits the best results in connection
with a given shipbuilding program, as it is thus practicable to increase alloca-
tions to navy yards when private-yard bids are un. satisfactory. This procedure
is exemplified in the allocation of heavy cruiser 45, Wichita, to the Navy Yard,
Philadelphia, because it was considered that all the private bids for this vessel
were too high, the private bids ranging from $16,890,000 to $12,889,000, against
the Bureau's estimated cost for construction at Philadelphia of $11,500,000.
On AprU 11 (galley 50 YD), Admiral Robinson testified that "usu-
ally the statistics for navy yards are obtained long after the awards
have been made to private contractors" (galley 50 YD — MF).
The Chairman. Mr. Secretary, if you cannot answer, one of the admirals may:
Why does not the Navj' publish the estimates of the navy yards at the same time
that it publishes the bids of the private companies, so that the public can have
some conviction concerning thejairness of the bidding?
Mr. Roosevelt. That is a practice which has been in existence long before I
came in, sir. I would like to have Admiral Land or Admiral Robinson answer
that.
Admiral Robinson. In a number of instances awards have been made. Senator,
without any estimates from navy yards. Sometimes estimates are obtained, and
sometimes they are not, and usually the estimates from navy yards are obtained
long after the awards have been made to the private contractors. It takes time
to go over the plans carefullj' and get up an estimate, and that comes in to the
Government later. It never occurred to anyor.e in the Navy Department that
anybody would be interested in those. We would be very glad to do that.
The Chairman. Do you not think that would be highly enlightening?
Admiral Robinson. It could be done. They are prepared later.
Mr. Raxjshenbush. In connection with the Senator's question, the ship-
builders keep coming in and saying, "You can get it from the Navy. The Navy
k)iows everything about costs." Then it turns out you do not know until later
about the firm's profits on ships. It would seen>, if the estimates were made
by the Navy at the same time, and published with this statistical overhead data,
that there would be a larger guarantee than you have now.
Admiral Land. After all, they are just estimates. They are not factual.
The Chairman. These estimates are revealing.
The shipbuilders hold a different idea of what the Navy knows
about costs than the Navy officials. Mr. Bardo, on April 6 (galley
99 WC), informed the committee that the Navy knew the cost of
building the ships.
Mr. Raushenbush. There is one more question on the bidding. You and
Bethlehem, when they were here, and Mr. Ferguson, have told us pretty clearly
that they knew what they wanted to get and had a pretty good idea what their
competitors wanted. Would you explain once more — I think you were asked
this befoi'e, for some of the other years — ^that being the case, and this bonding
situation being as you have described, where no bonding company would bond
up more than $40,000,000 — I presume that applied to the other companies?
Mr. Bardo. I presume it did, but I could not say positively.
Mr. Raushenbush. With those situations and with your specializing in
certain things, and as Bethlehem says, having a natural advantage because of
that, what v/as the point of bidding the whole list when you did not have the
estimates for the other ships, when you knew that the other companies had the
advantage on them, and advantages running, in the case of the aircraft carriers ,
to $2,000,000, and when your bonding limitations were such that you could not
162 MUNITIONS INDUSTRY
possibly have taken everything, and as long as the P. W. A. provisions were such
as you have told us, what was the point, the purpose, of bidding on the whole
list?
Mr. Bardo. I think the only point of it all was to keep yourself in the picture.
There was no particular point, so far as I know, in it. That is all. It was the
■practice which we usually followed. There was nothing new about it. We not
only bid on what we were asked to bid but sometimes made a supplementary
bid on a different basis. I do not see that it had any particular point one way
or the other.
Mr. Raushenbxjsh. The Navy certainly knew that that was a custom in the
trade, to put in high bids on ships the individual companies were not prepared
to take.
Mr. Bardo. The record is perfectly plain. The Navy had it all. The bids
were all opened.
Mr. Raushenbush. So that in a case where there was a lot of big companies,
there was a lot of competition, it would not prove that the bidding was neces-
.sarily tough, would it?
Mr. Bardo. I think you must recognize this fact: The Navy knows what it
.costs to build these ships. You are not kidding them.
Mr. Raushenbush. They may be kidding us.
The Chairman. Do they know?
Mr. Bardo. Of course they know. They know exactly what it costs. They
build some themselves, and know exactly what they cost, and they know what
the ships cost which we built, and know whether it is an honest and fair price,
and if it is not a fair price they throw it out and give it to somebody else. A
private shipbuilder has no monopoly, and if he does not bid on a proper basis his
bid is thrown out.
Mr. Raushenbush. Newport made 35 pereent on a couple of ships, and if the
Navy had known that ahead of time they would have thrown that out?
Mr. Bardo. Gentlemen, when you start building a ship, you do not know what
your estimating is going to be. You can make an awful mistake.
The Chairman. If the Navv knows, whv does not the shipbuilder know?
Mr. Bardo. What?
The Chairman. The company.
Mr. Bardo. Wc know what we think it is. We are talking about something
going to be finished in 3 years, and not tomorrow or next month. It is a 3-year
program. If you can go ahead and build the ship normally, without inter-
ferences, you can make money. If they come along with some interference you
can lose your shirt and cannot help it. If yon have good luck you make some
money, and, if not, you arc out of luck. That is all.
Mr. Raushenbush. The point you made was that the Navy knows what it ~
cost to build them.
Mr. Bardo. There is no question about that.
B. Opposition of Private Companies
The hoifjht of the opposition to the navy yards on the part of private
shipbuilders was probably reached by F. P. I^alen, then vice president
of the Newport News Shipbuilding and Dry dock Co., when he said:
I think it will be better for the Government and for the shipbuilding industry to
kill the Navy bill entirely ratlior than use if for building up further Government
competition with the shipbuilding industry (Feb. 18, galley 27 FS).
There was constant interest on the part of the private yards in pre-
venting work from going to the navy yards.
There is evidence that shipbuilders fought the fulfdlment of the
expressed wisli of Conerress tbat private vards compete with navy
yards in 1931. (Galley 24 WC, Apr. 3.)
Mr. Raushenbush. Did United have a similar connection with you? Did
they have a connection with some other company?
Mr. Newell. I have no idea.
Mr. Raushenbush. Did Federal?
Mr. Newell. I do not know anything about it.
Mr. Raushenbush. Coming to this letter of March 5, 1931, it says [reading]:
MUNITIONS INDUSTRY
163
Dear Newell: The sooner you take the senior Senator from Maine out
and sink him the quicker you will get destroyer business in your yard.
The naval appropriation bill went through the House with the Daliinger
amendment omitted.
The Daliinger amendment is the one which would give one-half of the work to
the navy yards is it not?
Mr. Newell. I think that is correct, but I am not sure.
Mr. Ratjshenbush (continuing reading):
The Naval Affairs Committee of the Senate, under the able and progressive
management of the senior Senator from Maine, proceeded to insert that
noxious piece of legislation that has appeared m the last few bills.
I take it that is irony on the part of Mr. Southgate.
Mr. Newell. Yes; I think so.
Mr. Raushenbush (continuing reading):
Of course he was aided and abetted by Senator Swanson, and I suppose
that probably he may claim that the Senator from Virginia was responsible
for all the trouble, but I rather doubt it. At any rate, it is now m the bill,
and the only way that you are going to get any destroyers built m Bath
Maine, is for you to compete in price with the navy yards. In the words or
the act, you must be able to contract at a price that is not "appreciably
higher than the navy-yard bids. , , , + +
I understand the morning after the bill went through every east-coast
vp,rd inxd its representatives in Washington with their tongues hanging out
knd all teeth showing, ready to fight for their share of the plunder, aiid the
only thing that stopped the west-coast yards from being here was the tact
that they couldn't come bodily by telegraph.
The interest in 1926-27 in regard to the navy yards was described
in Mr. Ferguson's testimony, February 14 (galleys 89-90 ZO).
Mr Ratjshenbush. We want to get into the bidding on cruisers in 1927 and
1929, Mr. Ferguson, and we find that in the latter part of 1926 you were coming
down and talking with the President about the possibility of getting all those
cruisers into the private yards instead of having some of them go to the navy
yards. Were you alone in that, or were the other shipbuilders active m doing
the same thing at the same time?
Mr. Ferguson. All together.
Mr. Raushenbush. They were all pushing that!" _
Mr Ferguson. There were, first, 3 cruisers mentioned, and then later, tnat
was increased to 6, and it was the same old fight between the navy yards and the
^ iK^^Vaushenbush. You had a common interest with the other private ship-
builders in getting those cruisers into the private yards?
Mr. Ferguson. Oh, yes. ., , , . 4. +v„„ a^a
Mr Raushenbush. And in that fight you often had conferences together, did
vou not to figure out what was the best way of accomphshmg that object.^
Mr Ferguson. I would not say we did often. Every time the question came
up on the division of the work, either in Congress or the Navy Department, we
were generally on hand, some of us or all of us. ^^ ^ r ^-v, + „+„
Mr Raushenbush. Even quite a less time than 6 months before the contracts
were finally let— way back to November 192&— you were active in that matter,
were you not?
Mr. Ferguson. I think so; yes. „ -.no.. i • i t h^„,
Mr raushenbush. I have here a letter of November 6, 1926, which I show
you, and offer for the appropriate number, to Mr. Huntington, stating [reading] :
I was in Washington on both Thursday and Friday relative to the scout-
cruiser situation. Representatives of the four main shipbuilders who can
build these cruisers, including myself as your representative, went to see
the Secretary oi the Navy on Thursday in regard to building all three ot
these cruisers in private instead of in navy yards. There is a good deal ot
talk of building one or two of them in navy yards, and, of course, the
American Federation of Labor is making strong efforts to so build them.
(The letter referred to was marked " Exhibit No. 1573 " and will be found in
the appendix on p. — .)
164 MUNITIONS INDUSTRY
Mr. IlAXT.siiENr.usn. Why slioukl tlio American Federation of Labor be par-
ticularly interested in navy yards instead of private yardsV
Mr. Fki«jii80n. I tliink ycai better ask tlieni. Tliey always have been.
Mr. RyVusiiENBUSii. W<M-e none ot the private yards unionized? Is that why
they (lid not want them in j)rivMte yards?
Mr. Fkkguson. I cannot answer, M'-. Uaushenbush, but our place is not or-
ganized. At tliat lime I tliink that we liad certain departments orsauized, just
as we probably have now.
Mr. liAusiiKNUusH (continuiii.u" reading) :
Mr. Wilbur gave us a very cordial hearing, but made no promises. Of
the last two cruisers — and only two are building — ^he did place one at the
Breoklyn Navy Yard without C'>iii))elitiou.
Yesterday niorninfr I went to see the Presid(>nt in regard to this question
and ex])lain(<(l the situation to him as representing the shipbuilders and
particularly your company. After next summer all work Ixnng done in shii>-
yards will be completed except the scout cruiser at Cramps and our I. M. M.
.ship, which will be delivered in November. I told the President that this
so-called " cmnpetition " with navy yards was unfair, and he innnediately
said that they did not take account of capital cliarges such as depreciation
and have no taxes. I told him he had put his linger on the exact spot, and
that any plant which coukl be oiterated witheiit capital charges. s\ich as inter-
est, deiireciation. iax(>s, insurance, and had its olhcials furnished free, could
take all the work there was. lie setMiied in entire symp.-itby. and I think
has di.scussed the matter with Mr. Mellon. He said he would give it his
most earnest consideration.
*******
lie asked about you. was much interested to know that the Huntington
fajuily still owned the shipyard, and seemed pleased to know that >ou are
recovering your health. He was \^ry jileasant and looked well and did
not seem to have any worries at all. in spite of .some of the election returns.
When 1 left he asked me to call again, .ind 1 came away with the distinct
impression that he would be helpful to the shipbuilding industry.
Now, Mr. Fergu.son. a little later, when it came around to really U-tting these
cruisei's, do you remember about what figures the navy yards estimated they
coubl do this work for?
Mr. Fkkci'son. No; I have seen some records since.
Mr. KAi'siiENnxTSH. It was down around ;fS,(HH),(XK), was it not?
Mr. Fkkoiso.n. I remember one or two yanls on the west coast which sub-
milted a figure around $S.(Mi(>.(XX>.
Mr. KArsiiKMUi.Mii. Around .$S.(HH).000?
Mr. Fkkciuson. That was the t'stimate.
Mr. UArsiiKMusu. That was the estimate. Was that the sort of thing you
were referring to as being "unfair competition" because they did not include
any bond interest, ilepreci.ition. or the like?
Mr. Fkimiuson. There are a great many. I have a very complete statement of
nunc in the record, in a letter I wrote to someone in Congress, as to what I
thought of the navy-yard building. It is a right long story. It goes further
than the estimate.
Mr. Kaumiik.nbush. You thought that the estimate of $8,000,000 was ridic-
ulous
Mr. Fkkoi'.son. I di<1.
Mr. Fei-o;tis()n. df Xe\vi)oi-t Ne\vs, was questioned concornino: po-
litical iitdiUMires (Feb. la. ^'alleys 84-SO ZO). A letter of hi.s (exhibit
intU)) spoke of the tiirht of the shij) repairers to keep repair Avork out
of the navy yards, even if the navy yards were lower (pilley 80 ZO).
Mr. Fer'oiison, of Newport News,' otlered to take .ships at the cost
estimated by the navy yards, if properly deternuneil. He e.^timated
that the theoret ical cost's, which would <rive a jiroper ti<;nre (for taxes,
insurance, etc.), would aniount to about $500,000 on a cruiser (Feb.
18, •^'alleys 20-27 F;S).
MUNITIONS INDUSTiiY 165
SeiKitor Pope. What other items are not inclmled tlieroV
Mr. Fi'monsoN. The items whieli are not inchided njiturally are insurance, the
item of taxes, hoth h)CHl and Federal, supervision vvliieli is furnished hy the
commissioned personnel of the Navy, and bond for performance, which they do
not liave to give.
Now, as to their items of plant depreciation and that sort of thing, I am not
acquainted with it, but there are certain items which tlie Government do(\s not
take into account, because that is Ivorne by the general exiiense of the Govern-
ment. The item, for instance, of i>lant. The navy yard shipbuilding possi-
bilities were brought about by an expenditure of some $71i,()0iKKX) during the war
to tit out the navy yards to build ships.
Now, in any comparison it seems to me that any people who pay, say, in local
and State taxes $;{()0,0(Hf or .s;jr)(>,(KK> a year, who pay one-seventh of what we
earn back to our customer, through another department, it is true, who have to
give bond for ]ierfornmnce, which is given by tlie I'liited States itself; who have
to give insurance protection, which is given by the (rovernment itself — that those
things together form a ))asis of comiu'tition Ihat it looks to me like in fairness
should be all taken into account. Tbat is the way we feel about it.
Senator VANOBNiiKRO. Just roughly t(> sjiot it on a $10,<K)0,000 job, how much
would you say that those items represented?
Mr. FbugusO'N. The ones that are probably not included?
Senator Vandenhekci. Yes.
Mr. Ferottson. I should think they would run aroutul one-half million prob-
abl.v — il would be more tiian that. The taxes would be that much. I can
give you an estimate. I had not thought of it in detail before.
Mr. liAusHENHUSH. The reason for the question was this: That back in
1028 when you were lulking with the President, or in 1!)27, you were telling
him that the estimates of the Navy were wrong, by underestimating 2 or 'A
milliim dollars, were irresponsible. (;r the like, and then it turned out you
built ihose cruisers yourself for one shi)) at ,$S,ir)i),O0O, tlu> Jf<)iint<m, and the
Atiffusla for $7,800,000, which is just about what the Navy estinmte was.
Mr. Fekguson. That is ([uife true, but I would ordinarily figure that we
would build a ship for about 30 percent less in labor cost than the navy
yard.
Mr. llAUSHENBt'SiT. Do you build less for labor costs than the other ship-
building yards, the big ones?
Mr. Fkuguson. I have suspected that we do, on account of the results of the
bidding, l)ecause after this list of bids, which I read t(> you on these ships,
why, I got a terrible drubbing from many of our coniiietitors for taking the
work at less than cost. The records in tlie hands of the conunittee will show
how much less than cost they were. I do not know for sure, but I rather
think so. Put I do not mind saying that if the cost of the navy yard could be
determined upon a fair basis, we would be delighted to accept that cost as our
contract i)rice, if they would allow us, I will say, the privilege, or would allow
tlie conunittee the privilege of having an auditor to see that their costs were
so entered. I could not imagine myself seeing a fairer thing, if it could be
done, and I would be perfectly delighted to take as our profit
Mr. IlAusHBNiu'sH. You would want certain prolit on it, would you not?
Mr. Fkhsguson. I wouhl be perfectly delighted to take it for the Govermnent
on the bi'Sis of a fairly defined governmental cost in a navy yard.
It vs'ill be better for the (Tovenmient and for the shii)bun(ling
industry to kill the Navy bill entirely rather than use it for buildin<r
np further Government" competition with the shipbuilding industry
(Feb. IS, o-alley 29 FS).
One shipbuilding oflicial, F. P. Palen, then vice president of New-
port News, expressed the tliought in 1929 that:
Senator Clauk. Who is Mr. F. P. Palen?
Mr. FioiGusoN. He was the vice president. He is dead now.
Senator Clark. Was he authorized to comnumicate the views of the New-
port News Shipbuilding (S: Dry Dock Co. to the Bethlehem Shii)building Co. and
the New York Shipbuilding Co.?
Mr. FEWinsoN. Yes, sir.
166 MUNITTONS INDUSTEY
Senator Clark. I have here a letter dated April 24, 1929, from Mr. Palen
to Mr. C. L. Bardo, of the American Brown Boveri Electric Corporation, with
a copy to Mr. S. W. Wakeman, vice president, Bethlehem Shipbuilding Co.
[reading] :
Dear Mr. Babdo : I note witli interest the copies of the correspondence
you have carried on with the Senate Naval Affairs Committee and Mr.
Wakeman in regard to the Dallinger amendment to the Navy bill.
As you know, we have filed protests with the Senators and Representa-
tives from our section.
I have also discussed this with Mr. Hunter
Who is Mr. Hunter?
Mr. Ferguson. He was the chairman of the board.
Voices. No.
Mr. Fekguson. Mr. Hunter? I beg your pardon. Mr. Hunter was the counsel
lor the National Council of Shipbuilders.
Senator Claek (continuing reading) :
and I think the shipbuilding industry, and all allied industries should
protest against this competition in particular and also against Govern-
ment competition with its citizens in general. In fact, I think it will be
better for the Government and for the shipbuilding industry to kill the
Navy bill entirely rather than use it for building up further Government
competition with the shipbuilding industry.
Does that intimate that it was the view of your responsible vice president
that it was better not to have ships than to have them built in the Government
navy yards?
Mr. Ferouson. No ; I do not think it means that.
Senator Clark. What does it mean then?
Mr. Febguson. It says "kill the Navy bill." He was speaking of a particular
bill.
Senator Clakk (reading) :
In fact, I think it will be better for the Government and for the ship-
building industry to kill the Navy bill entirely rather tiian use it for
building uj) further Government competition with the shipbuilding industiT-
What does that mean?
Mr. FERfirsoN. It means, I take it, to kill the Navy lull which was \inder
consideration.
Senator Clark. The Navy bill was authorizing the construction of warships,
was it not?
Mr. FF3t!;T'sox. I have never seen the Utter that I know of.
Senator Clark. Mr. Palen was your vice president?
Mr. FEitorsov. He was vice president of the company.
Senator Clark. He was authorized to connnunioate the views of your com-
pany to New York Ship and Betlileiiem?
Mr. Ferguson. I do not know whether his authority covered this, l>ut I had
nothing to do with it. His office was in New York and I was in Newport News.
Senator Clark. I am not trying to hold you personally responsible.
Ml". l?"to{GUSON. I am not. Senator.
Senator Clark. Was this Palon the same fellow who hired Shearer?
Mr. Ferguson. Yes.
On the same question he wrote in 1928 (galley 30 FS) of
February 18 :
Judging from what has gone before on this matter of navy-yard build-
ing, I assume that it is the intentinn to use this data with the Members
of Congress, since this is really the only place where relief from the
Dallinger amendment can be obtained, if it can be had at all.
Judging tile Congressmen from my experience with then> h\st winter,
it would be usel(>ss to furnish them with a stnteuKMit of this length. There
is not one in 100 of them who would take the time to read it, aiul not
more than this proportion have the brains and the intelligence to correctly
understand it if they did.
Is this the attitude of shipbuilders generally about Congress?
The Chairman. We better have that read again.
MUNITIONS INDUSTRY 167
Mr. Raushexhush. This is the comparison which Admiral Rock used and
which was based on data furnished by the Council of Shipbuilders, and then
there is a question of getting a statement out about it.
Mr. Bardo wrote Mr. Palen, with copies to Mr. Smith, who was then of the
Bethlehem Shinhuilding Corporation, and to Henry C. Hunter.
The fourth paragraph reads :
Judging the Congressmen from my experience with them last winter, it
would be useless to furnish tliem with a statement of this length. There
is not 1 in 100 of them who would take the time to read it, and not more
than this proportion have the brains and intelligence to correctly under-
stand it if they did.
Then it goes on :
I strongly feel that the council should take a positive stand in connection
with the building of Navy vessels in navy yards. We are opposed to it in
principle and opi»osed to it in every phase, and why not say so and say it in
the strongest possible dignified language we can use? In President Coolidge
and President Hoover we have fine supporters.
Mr. Fre}^ testijfied that the private shipbuilders had interested
themselves in fixino; wage scales for employees in navy yards (Jan,
25, galley 86-87 GP).
Mr. Raushenbush. Mr. Frey, will you explain once more in what eounectioa
you mentioned this matter to General Johnson originally and offered him this
envelop? What connection with any possible agreements between shipbuild-
ers as to who were to get ships would there be with the co'le matter? Were
you trying to prove that they were together on the labor policy, or other things,
or what was the luirpose?
Mr. Fkey. I was trying to convey to the general my belief that as far as
the code was concerned, that they were acting as a unit. I believe that they
were, liecause I had found them acting as a unit in the past. My personal-
experience had been that in matters affecting their interests, so far as the
Navy Department was concerned, that they took an official interest in the fixing^
of the wage scales for the employees in the navy yards. For a number of years,
in fact, at the present time, I am the lay member of the Navy Wage Review
Board, which makes recommendations to the Secretary of the Navy, fixing
the scale for wages.
During the period that I have been a member of that Naval Wage Review
Board, which consists of two representatives of the Navy and one of the
American Federation of Labor, the National Council of American Shipbuilders
has every time officially objected to the Navy Department giving any advance
in wages.
In 192'9 their president, and other representatives, appeared before the Wage
Board — not at a public hearing; they asked for a private liearing, and the
public hearing was over, and it was granted — and they insisted that the Navy
must not increase the wages of employees in the navy yards because, if it did,
it would be competing with them in securing competent mechanics.
A certain General Marshall, not identified, was described as lobby-
ing for the yards (Feb. 26, galley 29 QD, exhibit 1648).
Mr. RAUSPIEINB^■SH. Do you place General Marshall?
Mr. Wakbman. I do not know who he is. A copy of that letter was appar-
ently sent me.
Mr. Raitshenbush. The last paragraph reads :
General Marshall felt there was a good chance of getting this legislatiorR
through and that it would be much better to take up the subject along this
line than it would be to develop an extensive campaign throughout the coun-
try on the subject. He thought, however, it would be unwise to take any
steps on the matter until Congress opens and then to take up the subject
matter carefully. He felt that it had a fair chance of success.
You do not identify this at all?
Mr. Wakbman. I do not identify what?
Mr. Raushenbush. The activity.
168 MUNITIONS INDUSTRY
Mr. Wakeman. I cannot say that I did not get that lettei-. I assmue that I
did because my name is marked on the bottom of it, but I do not recall at the
present time General Marshall.
Mr. Raushenbush. The paragraph above that explains the lei;islation ap-
parently. [ Reading : ]
General Marshall had talked with members of the Senate and certain
Representatives relative to including the single word " shipbuilding " in
their bill, which would really accomplish what we are aiming to do, i. e., to
confine the building of naval vessels to private yards.
Mr. Wakeman. What?
Mr. Raushenbush (reading) :
to including the single word " shipbuilding " in their bill, which would really
accomplish what we are aiming to do, i. e., to confine the building of naval
vessels to private yards.
Mr. Wakeman. Yes, sir.
Mr. Raushenbush. That is a letter signed by Mr. Smith and a note of a
copy sent to you.
Mr. Wakeman. These were evidently not very successful.
Mr. Raushenbush. You do not locate this General Marshall?
Mr. Wakeman. I do not, but I will look it up and see what that is.
Mr. Raushenbush. I offer that letter.
(The letter referred to was marked " Exhibit No. 1648 " and is included in
the appendix on p. — .)
In the course of his testimony, the Xew York Shipbuihling repre-
sentative, Mr. Humphreys, was informed by ^Ir. Bardo of the com-
pany's intere,st in defeating the Dallinger amendment, which split
the Nav}' work 5()-.")0 between private and navy yards, and Mr.
Smith, of Bethlehem, and Mr. Ferguson, of Newport News, were han-
dling that light (Jan. 23, 1935, galley 58 GP).
Mr. Raushenbush. We have here a letter dated l>ec(>ii'ber 10. 1928, addressed
to you.
Mr. Ht:mphi5Eys. What date?
Mr. Rai\shenbx'sh. December 10. 102S, addressed to you ai tiio Rac(iuet Club,
Washington. That letter reads in part :
Dear Harry : Yours of the 7th, enclosing exi)ense account received. Same
has been passed lor pajment.
I note that you are now pn pared to devote all of your time when not
needed in Camden or Trenton
By the way, were you doing work at Trenton for the con)pany at the capital
of New Jersey?
Mr. Htmi'hreys. If they would have a bill which they wanted to get through
up tiiere. or soiuethiiig detrimental, I would take up something like that there,
the same as I did here.
Mr. R.MsHKNUTSH. The same as in Washington?
Mr. Hi^Mi'HiiKvs. Yes.
Mr. Raushenbush (continuing reading) :
I note that you are now prepared to devote all of your time, when not
needed in Camden or Trenton, at Washington for at least the balance of
the session. What we are most interested in now is the defeat of the
Dallinger amendment to the cruiser bill, * * *.
What was that?
Mr. HuMPHKEYs. I am not sure. Mr. Raushenbush, but I think it was to
put all the work in the navy yards. Mr. Dallinger, as I remember it, was
always trying to put all the shipbuilding work in the navy yards.
Mr. Raushenbush. Do you remember whether it was all or half of it?
Mr. Humphreys. He was always trying to put it all there.
Mr. Raushenbush (continuing reading) :
and this is being hantlled by Mr. H. G. Smith, vice president of the
Bethlehem Co. —
That is another one of the big shipbuilding companies, is it not?
Mr. HuMPHREHTS. Yes, sir.
MUNITIONS INDUSTRY 169
Mr. Raxtshenbush (continuing reading) :
although Mr. Ferguson —
Who is Mr. Ferguson?
Mr. Humphreys. I do not know, unless It is Mr. Ferguson, the president
of Newport News.
Mr. Raushenbush (continuing reading) :
and I have devoted some time and have interviewed a substantial number
of Senators on the matter.
Is that the president of Newport News?
Mr. Humphreys. I do not know. It might be. That is Mr. Bardo's letter
to me.
Mr. Raushenbush (continuing reading) :
We are working in Washington with Messrs. Frank A. Lord, Hotel
Blackstone, and James Barnes, who has an ofBce on the sixth floor of the
Aibee Building. You no doubt know them both. I suggest that you keep
in close touch with tliem, so that our cooperation may be complete.
Do you not know that these two men were employed by New York Ship to
take up where you left off?
Mr. HUMPHEEYS. Who?
Mr. Raushenbush. Lord and Barnes.
Mr. Humphreys. No ; I do not know that because I paid no attention to it.
When I was free there, I did not pay any more attention to what they did or
what was going on.
Mr. Humphreys kept no detailed accounts of his expenditures
(galley 58 GP).
In 1927 the private yards built the three cruisers at about the same
cost as estimated hj the navy yards. This was in conflict with state-
ments that the navy yards were underestimating costs (Feb. 18, 1935,
galley 29 FS).
Mr. Raushenbush. Let that letter be marked.
(The letter referred to was marked "Exhibit No. 1588" and is included in
the appendix on p. — . )
Mr. Raushenbush. There is one other thing which you said a while ago
which interested me, Mr. Ferguson. You said thiit this navy yard coiniiecition
had no connection with appropriations. Now, you said before, somewhat con-
tradictory, that the navy yards had partly been put into this business to
furnish a yardstick to your people ; in other words, to keep you honest, let us
say. And the cost of that is considerable, and the committee is interested and
v\^ill get into the testimony on Thursday when the Navy representatives will
be here on that. I>ut the point I was making a while ago simply was, that
you had said in 1927 that the navy yards were underestimating by - or 3
million dollars, and then actually you produced the shiiis for just about the
cost the Navy was estimating it.
Mr. FEitGUSON. Yes.
Mr. Raushenbush. I was wondering whether, as a result of that, you had
changed your idea about the reliability of the navy yards' estimates?
Mr. Ferguson. Not at all. I do not think their estimate included, in my
judgment, could have included, many of the items.
Mr. Raushenbush. Those were all your items before profit?
Mr. Ferguson. Yes.
Mr. Raushenbush. You had $8,154,000 on the Houston and $7,800,000 on the
Augusta, just about what the navy yards were estimating at the time.
The shipbuilders generally admitted their combined interest in
taking the available work from the navy yards.
One case was in 1926 (Bardo, Jan. 24, galley 67 GP).
Mr. Raushenbush. About that time do you remember meeting with the
others, late in 1926, when this cruiser program was first up — that is, do you
remember meeting with the other representatives of the shipbuilders and going
to the Secretary of the Navy and the President and fighting for the proposition
that the private yards, rather than the navy yards, get these ships?
Mr. BaPvDO. We did.
170 MUNITIONS INDUSTRY
In 1931 the Bath Iron Works worked with other shipbuilding firms
and suppliers in a political effort to keep naval work out of navy
3^ards. It was in connection with this fight that the Washington rep-
resentative of Westinghouse Electric Co, referred to the naval busi-
ness as " plunder " (galleys 23 and 24 WC, Apr. 3).
Mr. Raushenbush. In 1931 you were trying to get Senator Hale of Maine to
vote against the amendment to tlie naval bill, putting work into the navy yards.
Do you remember that at all?
Mr. Newell. Yes, sir.
Mr. Raushenbush. I would like to offer that for the record, being a letter
to Senator Hale on that subject, as exhibit no. 1791.
(The letter referred to was marked "Exhibit No. 1791" and is included in
the appendix on p. — .)
Mr. Raushenbush. And Mr. Spear of the Electric Boat Co. was writing you
about this whole subject, and I offer for the record, and put before you, a letter
from him, which will be exhibit no. 1792, in which he describes apparently
wliat is the fight against this bill which would have put some of the work into
the navy yards, and makes a couple of comments about which I would like to
ask you.
(The letter referred to was marked " Exhibit No. 1792 " and is included in
the appendix on p. — .)
Mr. Raushenbush. In the middle of the second paragraph he says :
* * * that all the east coast builders ought to get busy and remain
busy in organizing opposition to both these moves. As I see it, this is
not a proper matter for the conucil to mix itself up in, and in any event
any action through the council would ha embarrassed by the fact that
Bethlehem has yards on both coasts. I have written Homer Ferguson
about the matter, telling him that I would get in touch with you and
asking him to get in touch with all the other east coast yards.
No\\'. why would not that business of trying to keep ships out of tlie navy
yards be a proper matter for the council? How do you explain that comment
in (hat regard?
Mr. Nkwf.li-. Do you know what the council is, which is referred to?
IMr. Raushenbush. That is your National Council of Shipbuilders, is it not?
Mr. Newell. That is right.
Mr. Ratshenbush. Why woulil not that be a proper matter for the council
to take up?
Mr. Neweix. I do not know.
Mr. R auhhenhuspl You ilid not understand that comment?
Mr. Newei.!.. No ; I do not. Mr. Spear jirobably does.
Mr. Raushenbush. He has asked Mr. Ferguson to get busy and get in
touch with the other yards. ;ind in tho last paragraph of that letter says
[reading] :
I suppose that you may he interested in some destroyer constiniction if
the pending authorization bill goes through.
This was in 1931?
Mr. Neweix. Yes, sir.
Mr. Raushenbush (continuing reading) :
In that connection
Mr. Newell. That is about 7 months l>efore the awards were made.
Mr. Raushenbush. Yes: tlu> bill was still up, the appropriation, was it not?
Mr. Newfxi^. Yes. sir.
Mr. Raushenbush (reading) :
In that connection, I wonder if you know that Senator Hale is apparently
not sound on tlie question of navy-yard versus private-yard construction.
Since the war. of eourse, his iiriine interest has been to secure submarines
for the I'ortsnioutli yard, and i)crhaps he does not realize that a private
yard in .Maine might be strongly interested in destroyer construction.
MUNITIONS INDUSTRY
171
What did you do after that? Was this letter from Senator Hale a result
of that?
Mr. Newell. What is the date? „ . -c, , o iqqi ,„,i th^
Mr. Raushbnbush. That letter from Spear is on February 3, 1931, and the
letter to Senator Hale is February 9, 1981. t n ,. t ti,5,.v t
Mr. Newell. I would say it was. It must have been._ I do not think 1
would have written Senator Hale unless I had a little inspiration like that.
Mr Raushenbush. Mr. Spear was sort of furnishing you intonuati"n on
the matter. We found some letters down here by a man named Southgate, ot
Westinshouse. What is his relation to your company?
Mr Newell. None. His only relation is that of a potential purveyor of com-
modities, if you miyht say that, or we were a potential customer ot his. Ihac
is all He has no connection with our company.
The Chairman. Westinghouse does have an interest, more or less direct, m
^^^Mv^NewIll Oh yes ; because they are builders of electrical machinery, which
is reauired in ships, in the matter of propulsion, turbines, gears, condensers,
and other forms of heat-exchange apparatus like feed heaters, fuel-oil heaters.
Mr Rvushenbxj'sh. Do they get as much business out ot a destroyer as the
steel company does, let us say? Is the money which AVestin,;;house or General
Electric machinery amounts to about the same as steel for the vessel i
Mr. Newell. Considerably more. . ^ . -, <. ^i , fi,^
Mr. Raushenbush. Westinghouse is more interested m destroyers than the
steel company would be, let us say? ^ •, ^ ^ • f i
Mr. Newell. There is only about $55,000 wortli of plates, shapes, rivets, and
welding wire on a destroyer. , „r .. , ■ m v.
Mr. RAUSHENBUSH. How much machinery is it that Westinghouse would be
interested in, roughly?
Mr. Newell. Somewhere around one-half million dollars per destroyei. I do
not like to be rough on that.
Mr Raushenbush. About four times as much money m the machinery that
one of the supplving ccmpanies produces as for a steel company?
Mr. Newell. Yes, sir ; the steel in the hull of a destroyer is a very, very small
itciTi of cost
Mr Rvushenbush. This man Southgate, Mr. Newell, seems to take a very
definite interest, in that he wants your bills to go through and your orders filled
quickly and all tliat. You trusted him and asked him to do certain things tor
you. There was a kind of business relationship, was there not? You both
profited, if you were both successful?
Mr Newfll Ob ves : but no business relation in the sense there was any defi-
nite a-reement. It was .just the same as anybody, you for instance, might be
in the business of supplying certain things that we used, and you might be a
friend of mine, and it is the natural thing forme to say, "Now. what t1«i you
think about this?" and vou in turn hear things which you think would be
interesting to a possible customer, and you want to give them that information.
That is iust natural. , . , i,
Mr rIushenbush. Did vou get equivalent information of the kind he was
giving you from other suppliers, or was this the most outstanding illustration?
Mr Newexl. Oh. this is the most outstanding.
Mr" R\u8Henbush. I put before you a letter from Mr. Southgate, dated
March 5. 1931, on the letterhead of Westinghouse Electric, which I offer for
the record as " Exhibit No. 1793." . , , , •
(The letter referred to was marked "Exhibit No. 1793" and is included m
the appendix on p. — .)
Mr. Raushenbush. That letter reads : Dear Newell
Mr Neiweix. I might add to this, so that the committee will perhaps get a
clea'-er picture so far as this Westinghouse situation is concerned: I had ap-
proached Mr. Southuate in the beginning and had told him that we were not
buildin«- turbines or gears, and, in view of our friendship over a fairly long
period of vears and the fact that we had gotten business immediately precexlmg
the date of this correspondence, we had purchased considerable machinery from
the Westiup-house Co., and there were business relations, we as a customer
And I said,' " Now, with this destroyer busine>:>s comU-..? j.loug, we have to £:et
172 MUNITIONS INDUSTRY
our turbines and gears from somebody ", and I told him that if Westinghouse
would go along with us in what you might say was the fonnative stage of
making the estimate and the design, to see what they had to offer, they might
have had something to offer which would not be suitable, in my opinion and
of course, we want always to present the bes.t kind of a m-oposaf to a customer'
The V. estinghoiise Co. got into gear on that situation, and I went to Soutli
Pniladelphia and discussed the matter with their engineers, and this question
of the type ot machinery, the weights of the machinery, tlie water rai^p* which
in turn, would gel back, of course, to what we would guarantee to' the Navy
on performance, and we worked together. I told them that I was workin-
solely with them because I did not think it was a fair proposition to <^o
hocking this thing all over the country. I decided that v.-e would go aloS*'
on a combination of Bath ."nd Westinghouse, for reasons which I have indicated"
JMr. Raushexbush. And then there was the other situation namelv Beth-
lehem cuuld make its own turbines, could they not?
Mr. Newem.. Riglit.
:*.Ir. R.vusnEXBusH. How about New York Ship?
Mr. Xe-^veix. They were in the same position as Bethlehem.
Mr. Raushenbusii. They could make their own turbines?
Mr. Newell. They would, and they would not buy 1 hem from anybody
Mr. Raushexbush. Did United have a similar connection with'vou' Did
they have a connection with some other company?
Mr. Nevv'ell. I have no idea.
Mr. RAUsHEXBtrsH. Did Federal?
Mr. Newell. I do not know anything about it.
Mr. Raushenbush. Coming to this letter of March 5. 1931. it .says [reading] :
Df.\r Newell : The sooner you take the senior S<>nator from Maine out and
sink him the quicker you will get destroyer business in your yard
The naval appropriation bill went through the House with the Dallincer
amendment omitted.
The Dallinger amendment is the one which would give one-half of the work
to the navy yards, is it not?
Mr. Newei^l. I think that is correct, but I am not sure.
Mr. RATTSHEn^BusH (continuing reading) :
The Navy Affairs Committee of the Senate, under the able and nro-res-
sive management of the senior Senator from Maine, proceeded to insert
that noxious piece of legislation that has appeared in the last few bills.
I take it that is irony on the part of Mr. Southgate
Mr. Newet-L. Yes: I think so.
Mr. Raushexbush (continuing reading) :
Of course he was aided and abetted by Senator Swanson, and I suppose
that probably he may cl;nm that the Se2,ator from Virginia was responsible
for all the rouble, but I rather doubt it. At any rate, it is now in the bill
and the only way that you are going to get any destrovers built in Rath
Maine, is for ycm to compete in price with the navy vards In the words
of the act. you must bo able to contract at a price that "is not " appreciablv "
higher tlian the navy yard bids. v.iuij
I understand the morning after the l>in went through every east-coast vard
had Its representatives in Washington witli their tongues hanging out" and
all ttvth showing rea.ly to figlit for their share of the plunder, and the onlv
thing that .-^topped the west-coast yards from being here was the fact th-iV
they couldn t come bodily by telegraph.
The Chairman. Will you please read that again?
Mr. Raushenbush. I am sorry. FRpading:]
I understand the morning after the bill went through everv east-coa^t
yard had its lepre.sentatives in Washington with their tongues hangim; out
and all teeth sliowmg ready to fight for their share of the plunder, and ?he
only thing that stopped the west-coast yards from being here was the fact
that they couldn't come bodily by telegraph.
MUNITIONS INDUSTRY 173
[Laughter.]
How do you explain that, Mi'. Newell, that with the Dalliuger amendment
going through for one-half the work in the navy yard, that, therefore, the
amount for the private yards would be smaller, and the fight for it would be
tougher? Is that why these people were all down here "with their tongues
hanging out * * * to fight for their share of the plunder " V
Mr. Newell. I do not know.
Mr. Raushenbush. Is that the way you interpret it?
Mr. Newki.l. I tell yuu, when I get a letter like that, I just huigh like the
rest of you do, and there is nothing you can do about it.
Mr. RAUS3IENBUSH. You kept corresponding with Southgate, did you not?
I'ou kept writing letters, did you not?
Mr. Newell. He started writing me letters.
Mr. llAusHENBUSH. Regardless of that, you started this thing?
Mr. Newetx. Yes ; it is kind of enjoyable. I rather liked it.
Mr. Raushenbush. I can see that you could.
The Chaikman. Is there any general agreement among you so that these
naval construction bills are a thing to be plundered, or just so much plunder?
Mr. Newell. I would not say that.
The Chairman. I am asking you. Is there a general feeling among you to
that extent?
Mr. Newell. You mean that we think that the navy yards are plundering
upon our preserves?
The Chairman. Mr. Southgate was referring to the construction programs
as plunder.
Mr. Newell. Oh, you mean the work?
The Chairman. The work.
Mr. Newell. We do not. It is vei-y necessary for our existence.
The Chairman. I assume that Mr. Southgate would say it was necessai-y to
their existence, too, because they furnish the machinery for the ships. And
yet he considered it plunder.
Mr. Newell. No.
The Chairman. He was calling it "plunder."
Mr. Newell. I know ; but I have no idea why he chose certain words to ex-
press his feelings. Certainly the shipyards do not look upon it as " plunder."
The Chairman. That is the question I was asking.
Mr. Newell. Yes. sir.
The Chairman. You do not agree with Mr. Southgate, then, that the ship-
building program is a program of plunder?
Mr. Newell. I guess not.
Mr. Raushenbush. The letter goes on [reading] :
All this looks as though you had your work cut out, and also have to do
some hustling right here in Washington to develop a situation that will
enable you to see that the Secretary interprets the word " appreciable " in
the proper way.
"Appreciable " not being higher than the Navy costs, I take it.
Mr. Newell. I do not know. I would think that whether an appreciable
amount of work would be put in the navy yards versus the private yards was
meant.
Mr. Raushenbush. I call your attention to the end of the first paragraph
there, reading :
In the words of the act, you must be able to contract at a price that is
not " appreciably " higher than the navy-yard bids.
Mr. Newell. I am wrong. It does mean " cost."
Mr. Raushenbush. The next phrase :
and also have to do some hustling right here in Washington to develop a
situation that will ennble you to see that the Secretary interprets the word
" appreciable " in the proper way.
That is, therefore, apparently creating a political situation.
Mr. Neweix. I never did anything there. I never got down to Washington
on this destroyer business but once iiefore the bids were opened, and that was
to get some information.
] 3n387~C5 12
1/4 MUNITIONS INDUSTRY
Mr. Raushenbush (coutinuiug reading) :
The Westingbouse Co. is going after the job bard. We would like these
11 sets of propelling machinery and I want to work with you on the job,
because I honestly believe that if you put up the right kind of a fight and
don't try to make so much money that you will break yourself paying the
income tax, that you will be able to compete with at least some of the
navy yards. Only three of them, Puget Sound and Mare Island and
Charleston, as far as I know, have had any destroyer experience, and the
others may be a little !)it careful in their estimating, although any amount
of money will not make up for lack of knowledge and experience.
Be sure and let me know when you are coming down as we must get
together and see if we cannot work up something on this proposition.
Mr. Newell. The only thing we got together on was what I told you, a
definite thing for a definite purpose, the destroyers on which Bath was bidding
on this 1931 program. On this other gratuitous advice. I did nothing about.
I did not know what to do about it. I do not think it meant anything anyway.
SECTION v.— THE NAVY'S DEPENDENCE ON PRIVATE
YARDS
A. — General
Several members of the committee were surprised to learn that the
Navy was relying on private yards for the designing and planning
work on certain important categories of warship. It seemed im-
portant to them that the Navy should be at all times in a position of
power where it can, if it wishes, part company with private ship-
builders and do its own work from the first stroke of the pencil to the
final hoisting of the ensign.
Light cruisers, aircraft carriers, light destroyers, destroyer leaders,
and submarines are being built largely or entirely from the plans of
private companies. (See a.) The Navy finds an advantage in using
outside designing ability. (See b.) Mr. Bardo did not think the
Navy had the ability to do the designing itself when the cruiser
program was begun in 1927. (See c and h.) Mr. Calvin of the
Metal Trades Council also spoke of this dependence. (See d.) In
1931 the Comptroller General recommended that the Navy make
itself independent of private designing on the ground that contracting
was impossible when the intangible element of comparing the designs
submitted by various companies was involved, stating that "charges
of favoritism and fraud may too frequently follow." (See e.) Ad-
miral Land admitted some degree of dependency. (See f.) In 1933
some of the shipbuilders (Mr. Bardo, Mr. Flook) held that the Navy
was dependent. (See g.)
The fact that a company once securing the design work on a par-
ticular type of warship such as aircraft carriers, has a definite ad-
vantage over other companies was stated by Mr. Ferguson of New-
port News. (See i.) The fact that the designing part of shipbuild-
ing is the "bottle neck" which tends to slow up the work was stated
by Admiral Land. (See j.) Mr. Frey of the Metal Trades Council
took the same view. (See k.) He testified that the 1933 plans on
light cruisers had not been delivered by New York Ship in January
1935, a delay of 17 months. (See 1.) The Navy reprimanded New
York Ship for the delay and a document from the New York Ship
files was introduced detailing the delay 9 months after the 1933
awards. (See m.) The larger companies felt at an advantage oyer
the smaller ones because they could afford to maintain designing
staffs. (See n.) At the time of the 1933 bidding and the N. R. A.
code, Mr. Bardo wired H. G. Smith, president of the National Coun-
cil of American Shipbuilders:
We are unwilling to concede the allocation of naval construction to yards not
heretofore engaged in this work unless. * * *
and proposed to charge the smaller yards in certain ways. (See o.)
Mr. Metten, now president of New York Ship stated that the Navy
was somewhat at the mercy of the private designers. (See p.) The
175
176 MUNITIONS INDUSTRY
question of standardization was discussed by Mr. Metten, who was
formerly president of the Marine Engineering Corporation. (See q.)
The impossibility of having the navy yards standardize ships with
the private yards was also discussed by Mr. Newell, president of
Bath Iron Works. (See r.) The difficulties of having private yards
compete in designs was discussed by Mr. Powell, president of United
Dry Docks. His company protested a 1931 destroyer award tc the
Comptroller General. (See s.) The significance of Mr. Bardo's
letter to Mr. Flook of June 22, 1933, was raised again. In this letter
he spoke of the Navy officials as "desirous of filiiding some sub-
stantial reason for awarding this work to the largest possible extent
to private yards upon whom they must rely for the necessary engi-
neering to complete the ships." (See t.) The English system was
reported to be that of having the Government yards do all the de-
signing. (See u.)
(a) The question of design control was raised again by the chair-
man (Apr. 10, 1935, galley 30 YD).
The Chairman. Suppose you were wholly dependent upon the Navy for
elanning, ship designing, anrl had no dependence at all on the private yards.
[ow embarrassing would that be?
Admiral Robixsox. It would be embarrassing to this e.xtent, Senator: That
owing to restrictions by lavv that are placed on salaries in the Government, there
are a certain few individuals in the shipbuilding business whose services we
would not be al)le to command, and those people are so outstanding in their
profession that the lack of their contribution to the art would be seriously felt,
so that I do not believe we would get as good ships as we would with their assist-
ance. The number of these people is not very great.
Mr. Raushexbush. Coming Ijack a minute, actually, as far as any preparing of
plans on any of these categories goes, aircraft carriers. I mean, between the
navy yards and the private yards, there is none on the aircraft carriers. That is
originated In- a private comjiany?
Admiral Robinson. Yes, sir.
Mr. Rait^hexbush. There is none on the 1,850-ton destroyer which is origi-
nated by a private company?
Admiral Robixsox. That is right.
Mr. RArsHENBUSH. There is none on the l,500-t')n destroyers?
Admiral Robin'sox". T do not know what you mean l>v sayiiig there is none on
the 1,500-ton destroyers.
Mr. Raushexbush. 'Wliat I am trying t«> get at is this: The question of the
Senator, was tl.at the navy yards arc not drawing plans for various categories.
The reply of .\dmiral Land was "yes", on submarines.
Admiral Robinson. I see.
Mr. Raushexbush. On the other kinds, it was not.
Admiral Robixsox, We are not Iniilding any 1,850-ton destroyers at navy
yards and are not building any aircraft carriers at navy yards; no necessity.
Mr. R.\usHENBUSH. How about light cruisers?
Admiral Robinson. We are building light cruisers at navy yards.
Mr. Raushexbush. I mean the plans. Thcv are New York Ship plans, are
they not?
Admiral Robinson. Largely. We have built from Bethlehem Shipbuilding
plans also.
Mr. Raushexbush. That is the armored cruisers?
Admiral Robinson. We call them all cruisers. We have ''C.\" and "CL".
We are building one at Philadcljiliia now.
Admiral Land. Entirely our own plans.
Admiral Robinson. The navy yard at Philadelphia is doing the whole thing.
That was produced at the New York central drafting office.
Mr. Raushenbush. Tlien on sul)marines ;nul light cruisers the Navy produces
the plans and on all the others the private shipbuilders? Is that correct?
Admiral Land. You have left out gunbo;ii.-! and Coast tlu.ard cutters.
Admiral Robixsox. Tliose phiTis which we got from the shipbuiJicrs are not
by any means C(>mplete. For example, the lay-out of the machinery is altogether
different, because we buy our machinery under contract, and usually it is not the
MUNITIONS INDUSTRY 177
same machinery that the private contractors are putting in. So thiat the plan
actually is nothing but a guide, and our central drafting office has to take the plan
and make the set-up accordingly, and the navy yards will make the plans on all
types except the 1,500, and the aircraft carriers, which they are not building.
(b) Later:
The Chairman. The fact remains that today the Navy is incapable of planning
what it wants and getting it without some reliance on the private company?
Admiral Robinson. No, sir; I do not think so. We can design and complete a
ship without any reference whatever to a private shipbuilder; but if we did that I
do not believe in the end that, taking the engineering which is at our front door,
v/e would get as good p, ship as we would by consulting those people. So far as
thr..t is concerned, the Bureau of Engineering is capr.ble of getting out a splendid
turbine-propelled ship; but to do that, without taking iato consultation the
various turbine buildery in tliis country, would be cutting off our nose to spite our
face and would give us an inferior turbine. The naval officers can supply certain
things which nobody else can supply.
On the other hand, the man who has done nothing but work on ship designs all
his life c.':i.n supply something that the average naval officer cannot turn out. It is
this method which makes for tlie best ships. We could do this without going
through the process I have outlined, but, after all, it is our duty to see that we
get the best ships we c?.n for the national defense, and we want to use every
possible bit of information we can get hold of. It is not only the shipbuilders.
The design (.i the sliipliuilders has been mentioned to a great extent, but vv-e use
the design talent of everybody in connection with shipbuilding, the west coast,
including the Middle Vfest. They contribute just as much to the designs of these
ships as the naval architect in the shipbuilding plant. It is a conglomerate
design, for which no one man is responsible.
Mr. Raushenbusk. Admiral Robinson, piitting the chairman's question
another way, if, at any timC; it is put on the Navj' Department, that would mean
a lot of delay?
Admiral Robinson. A lot of delay, which would result in an inferior ship.
The Chairman. So that there is deyiendence npon the private yards?
Admiral Robinson. T would make it mu<;h broader than that. T think we are
dependent upon the entire talent of the United States. For example, if we want
to get a submarine engine, where do we go to get th.at design. We have half a
dozen places where can get out the plans or the designs of that macliinerj', and,
at the s.anie time, we collaborate vith naval architects for getting tb.e best hulls,
but a ship really represents thousands of engineers, and the naval off.cers' dut}'
is in coordinating this design. He has gr,* at his beck and nod the entire engineer-
ing talent of the United States, and he is very foolish if l.e does not use it.
Mr. Raushenb u-H. Going back a minute, Mr. Chpiirman, if I may, to the state-
ment of Admiral Land that the Philadelpiiia Navj' Yard was so swamped with
designs that it could not enter the 1935 program that is somewhat in reply to your
question of a while ago, as to whether this delay, described as from 3 to 6 months
ordinarily, vronkl not operate to the advantage of the private compaiv;es. They
say tliat they are so svv-amped with designs now on the ships in 1933 and 1934
that they cannot take part in the 1935 program.
Admiral Land. Wait a minute; I take exception to that statement. I did not
make that statement. When you say they could not take part in that program,
you are in error.
■ Mr. Ratjshenbush. Did not they say that?
.\dm.iral Land. They said they could not take in designs. Designs and pro-
gram are different work. Piiiladeiphia is looking for work and hoping to get it,
but do not want design work.
Mr. Ratshenbush. That throws the designing work into private hands,
further, does it not?
Admiral Land. No, sir; not necessarily.
Mr. Raushenbush. In that event, do you not have to give it to the private
companies?
Admiral Robinson. Or the central drafting office in New York.
Mr. Raushenbush. Is not that pretty swamped, too?
Admiral Robinson. We do a lot of our designs work.
Admiral Land. No; it is not swamped now, but is as busy as it can be.
(c) The dependence of the Navy upon private companies for designs
was considered at various times (Jan. 24, galley 66 GP, C. L. Bardo).
its ■ MUNITIONS INDUSTEY
Mr. Bardo. I am speakmg of the three big yards. Yes, sir; to carry out this
requirement. While the bids were being prepared, this matter was "discussed,
I do not know how many times, because it was a difficult thing to find a common
denominator upon which the engineering forces of the three yards were inclined
to agree to begin with.
As a matter of fact, I think it is only fair to say that the competition on this
type of ship is competition in brains rather than in price. What the Navy De-
partment wants all the time is the very best that they can get, the best perform-
ance for the least money. So that we had to harmonize those very difficult situa-
tions with the engineering groups in the first place.
Senator Vandenberg. The Navy Department does not possess this engineering
capacity itself?
Mr. Bardo. They did not at that time.
Senator Vandenberg. In other words, the Navy Department had to rely upon
external cooperation?
Mr. Bardo. That is correct. They had to depend upon us, because they were
not equipped to go on and carry through the intricate designs for a ship of this
type.
I do not recall whether it was after the contracts were awarded or before, that
as a result of these prior discussions, it was agreed that we would set up a separate
engineering organization to handle the plans for all the yards.
(d) W. A. Calvin, secretary of the metal trades department of the
American Federation of Labor, testified on January 25 (galley 77 GP)
to the dependence of the Navy on private designs.
Being aware of that, and being interested in restoring our men to gainful
employment, I obtained copies of the progress reports of the Navy Department
per month, and I could not help but notice that in no instance were the contractors
meeting the estimated degree of completion. Consequenth', I protested the
delay in the construction of the naval vessels, because our members were still
unemployed, both in private and navy yards. The navy yards, being dependent
upon private yards for plans from which they might proceed with construction,
had a large number of men on rotative leave and furlough.
Senator Vandenberg. Mr. Calvin, do you consider that the navy yards are
still dependent upon private contractors for designs?
Mr. Calvin. The contracts for the preparation of the designs and engineering
plans have been awarded to private contractors. That is not an evasive answer,
but that is the best one that I can give at the present time.
Senator Vandenberg. I wondered if you liad any information on the subject.
I am very much interested in this apparent inability of the Navy Department
in the matter of construction of private design. I was wondering if you, from
your general contact with the problem, can tell us whether it is your opinion that
the Navv is dependent upon private designs?
Mr. Calvin. I would assume that the Navy is dependent upon the private
contractors for designs, in view of the fact that the new naval vessels are being
constructed under designs prepared by private contractors and the ships being
constructed in navy yards are built from tliose designs.
Further tcstimonv was given on this point by Mr. Calvin on Jan-
uary 25 (galley 79 GP).
Senator ^'A^•^E^'BERG. Mr. Calvin, will you say it again, why you think tlie
progress in the navy yards is so much slownr th.an in the |)rivate yard.s?
Mr. Calvin. It is a personal opinion, that it is duo to tlie dependence of the
navy yards on the private yards tor onpinerring i)lans and desi<ms.
Senator VANDEXHEKr;. Exactly.
(e) The Comptroller General recommended in 1931 that the Navy
make itself independent of private designing firms (Jan. 29, gallev 99,
100 GP).
The Comptroller General's opinion on this subject of design was
discussed on January 29, 1935 (galley 99 GP, 100 GP).
Senator Vanm>exher>;. 1 would like to ask .\dniirtil Land one further question.
Did yo' ever hear of a criticism, an official criticism, by the Comi^troller General
of the United States in 10.31 upon this jjractice of letting ship contract.s to private
yards ujion their own private designs?
MUNITIONS INDUSTRY 179
Admiral L\nd. I have heard of it; yes, sir.
Senator Vandenberg. What did the Comptroller General have to say on that
subject? Do you recall?
Admiral Land. I was not in the Bureau of Construction and Repair at that
time.
Senator Vandenbrrg. Do you remember in a general way what the attitude of
the Com])troller General was?
Admiral Land. Only in a very general way
Senator Vandenbekg. Mr. Raushenbush, is this a statement of the Comp-
troller General [exhibiting paper]?
Mr. Ratisuenbush. Yes, sir; at the time the United Drydocks had put in a
bid, and felt that it was low, and Bethlehem was given the award on its own
design. There was correspondence back and forth, and you hold in your hand
the final letter from the Comjitroller General to t!\e Secretary of the Navy insist-
ing that the Navy do certain things to remedy the situation.
Senator Vandenberg. I think, Mr. Chah-man, I better read this into the
record. It is a communication from the Comptroller General, Mr. McCarl,
dated December 10, 1931, addressed to the Secretary of the Navy. The entire
document is pertinent, and we will mark it as an exhibit.
(The letter referred to was marked "Exhibit No. 1481" and is included in the
appendi.x on p. — .)
Senator Vandenberg. I read as follows:
It is realized, of course, that the United States should obtain the best
possible vessels for the money expended, and that in connection with con-
struction work of this character the Navy Department has its problems and
would find it advantageous to utilize the best skill of the countrj^ in designing
hull, machinery, etc. The results reported as obtained in the instant matter
suggest the benefits possible through obtaining the views and suggestions of
experts not in the Government service, but the procedure followed not only
fails in fully meeting the requirements of section 3709, Revised Statutes,
but will invariably breed dissatisfaction among bidders. Each bidder sub-
mitting an alternate design will doubtless believe, and honestly, that his is
superior to all other designs submitted, and it would seem most difficult, if
not quite impossible, to work out in advance and without intimate knowledge
of the details of designs to be submitted, an evaluating formula that would
be considered fair by any bidder whose design was not accepted, and charges
of favoritism and even fraud may too frequently follow, with protests raising
questions going to the availability of the appropriation proposed to be
charged.
The law requires that specifications state the actual need of the Govern-
ment and that award be made to the low responsible bidder proposing to
supply such need. Considering the administrative problem to be as stated
in matters of this character there is suggested for your consideration and as
a means to enable the Navj^ Department to lawfully obtain the assistance
of the skill in private industry when new vessels are to be designed and
constructed, the advisability of acquainting the Congress with the situation
and need with a view to securing authority to employ a reasonable amount
of the appropriation to secure from competent sources outside of the Govern-
ment a limited number of designs of hulls, machinery, etc., to supplement
or for purposes of comparison with plans and specifications drafted by the
engineers or the Navy Department, to the end that there may be worked
out in every detail the best possible design and the final result submitted for
competitive bids and construction by the low responsible bidder.
It is understood that on the assumption the procedure followed was suffi-
cient compliance with the applicable law there has been adopted for building
in two navy yards the design submitted by the Bethlehem Shipbuilding
Corporation, and award made to said corporation for the construction of
a vessel of such design. In such circumstances and in view of the apparent
good faith of the Navj' Department in following the procedure herein dis-
cussed and which should hereafter be otherwise, this office will make no
further objection thereto.
The final sentence. Admiral, would seem to be virtually an order from the
Comptroller General to change your procedure, would it not?
Admiral Land. It appears that way from that. I am not sufficiently legally
advised to know exactly what that means, Senator.
180 MUNITIONS INDUSTRY
(J) Further discussion of planning and design control took place on
January 29, 1935 (galleys 97 GP and 98 GP).
Senator Vandenberg. If you are asking me, I am not trying to detail this
thing down to the boiler room. I am interested in the general inquirj^ as to
whether the Navy is dependent upori the private shipyard for designs, speaking
abstractly and generally, and it is my understanding that utider the set-up today
they are absolutely dependent upon the private shipyards. Is that correct?
Admiral Land. I v.ould not saj" absolutely. Senator. We are, in a way,
dependent upon them, but, as I saj-, by a great augmentation of our forces, we
could do this. It would not be economical apd probably would not be efficient,
because we would then become standardized in the Navy, and would not have
the benefit of the design and engineering information which exists in the ship-
building world in the United States.
Senator Vandenberg. I ui;dcrstand that. Let me get back to this matter
again. I understand you to say that you might augment your forces and become
independent.
Admiral Land. That is possible.
Senator Vandenberg. All right. That still leaves us with this contemplation,
as I understaTid it, that during the last 20 years, and at the present moment, you
are dependent upon outside shipbuilders for design.
Admiral Land. In a sen.se of the term, that is correct.
Senator Vandenberg. Actually that is a fact, is it not?
Admiral Land. We are not dependciit for contract plans except our Navy
program. We are dependent upon detailed design; yes.
Senator Vandenberg. Now, to what extent does that put you at the mercy
of the outside shipbuilder?
Admiral Land. I do not think it puts us at their mercy; no, sir, as I understand
the term. We always have the whip hand in any situation of that kind, and, if
anybody tries, through vicious attributes, to perpetuate something o;i the Navy
Department, we are in a position to go ahead and do it ourselves. We have been
doii g it now, for years. I can cite instances in the manufacturing game where
it looked as if we were being treated pretty hard, and we talked it over and found
out the reason.
Senator Vandenberg. You could not take over the i)lanning when it was
dragging due to any such conditions?
Admiral Land. We could not take over 7 different designs, a greater number
than we have ever had in the Navy Department.
(g) This dependence of the Navy upon private companies was ad-
mitted in the course of a letter from Mr. Bardo, of New York Ship, to
Mr. Flook, chainnan of his board. His phrase was (Feb. 11, 1935,
galley 62 ZO):
I know from my talks with some of the rei)resentatives of the Navy, who
are keenly interested in this W(Tk, that they are desirous of finding some
substantial reasons for awarding this work to the largest possible extent to
imvate yards upon wlmm they nnist rely for the necessary engineering to
comi)lcte the ships.
There was further questioning of Mr. Flook at this point (Feb. 11,
1935, galleys 62-63 ZO).
Seiuitor Bo.VE. Don't forget the language, '"they arc desirous of finding some
substantial reasons" — meai'ing the Navy.
Mr. Flook. May I ask where that is?
Senator Vandenbeuo. In the fourth paragraph uf tlie letter.
The Chaihma.v. They want "some substantial reasons."
Senator Bone. "They", meaning the Navy otliciiils, "are desirous of finding
some sub.stantial reasons for awarding this work to tiic largest j)ossil)le extent" —
meaning the building of the ships, and that might mean up to 100 percent —
"to i)rivate yards upon wiiom tliey nuist rely for the necessary engineering to
conii)lete tlie shij)s." That is for the i)lans.
Mr. Flook. For the necessary engii\eoring to complete the ships.
Senator Clark. You understand that to n)ean that the Navy Department
understood that the Navy Deimrtmcnt's engineering personnel was incapable
of com])leting the ships?
Mr. Flook. I would not say that.
Senator Clark. What does it mean?
MUN-ITIONS INDUSTRY 181
Mr. Floor. They liked the engineering skill of the private yards better.
Senator Clark. What did you understand Mr. Bardo meant when he said
"for awarding this work to the largest possible extent to private yards upon
whom they must rely for the necessary engineering to complete the ships"?
Did it not mean that the Navy could not complete the engineering work
themselves?
Mr. Flook. Yes, sir. I have he.ird to that effect.
Senator Clark questioned again on this point a little later (Feb. 11,
1935, galley 63 ZO).
Senator Clark. Referring to the time element mentioned by Senator Barbour,
in cvctual practice the time element amounted to this, did it not: That the Gov-
ernment would depend on the New York Shipbuildins: Co. to prepare the plans
for the light cruisers in the 1933 program, and as far as the time element is con-
cerned, the New York Sliipbuilding Co. was so dilatory that this program has
been held up from that day to this. Is not that right?
Mr. Flook. That is all since I left the company, Senator.
Senator Clark. You know that as a matter of common knowledge, do you
not?
Mr. Flock. I do.
(h) Mr. Bardo testified concerning the dependence of the Navy on
the private companies at the time of the beginning of the cruiser
program (Jan. 24, galley 66 GP).
Mr. Bardo. I am speaking of the three big yards. Yes, sir; to carry out this
requirement. While the bids were being prepared, this matter was discussed, I
do not know how many times, because it was a difficult thing to find c, common
denominator upon which the engineering forces of the three yards were inclined
to agree to begin with.
As a matter of fact, I think it is only fair to say that the competition on this
type of ship is competition in brains rather than in price. What the Navy De-
partment wants all the time is the very best that they can get, the best per-
formance for the least money. So that we had to harmonize those very difficult
situations \\ith the engineering groups in the first place.
Senator Vandenberg. The Navy Department does not possess this engineer-
ing capacity itself?
Mr. Bardo. They did not at that time.
Senator Vandenberg. In other words, the Navy Department had to rely
upon external cooperation?
Mr. Bardo. That is correct. They had to depend upon us, because they were
not equipped to go on and carry through the intricate designs for a ship of this
type.
(i) The experience of the private companies in designing certain
types of ships results in a considerable advantage to that company
over other private companies.
The same advantage is given that company over the navy yard.
(See Feb. 19, 1935, galley 44 FS.)
Senator Bone. Mr. Ferguson, did I understand you to say a moment ago that
you were confident that your company would get two aircraft carriers?
Mr. Ferguson. I thought we had the best show, yes. I was not entirely con-
fident until the bids were opened.
Senator Bone. I was wondering upon what you based that conclusion.
Mr. Ferguson. On the fact that we were building 1, the only aircraft carrier
as such designed and built after the war; in fact, the only one ever designed and
built as an airplane carrier. We were familiar with that work, and we had a
decided advantage in the preparation of the plans and in our knowledge of the
details of the construction.
Senator Bone. What is there about an airplane carrier that would make the
plans, the detailed plans and specifications, cost 2 million dollars to prepare?
Mr. Ferguson. I should say that there are around 5 or 6 thousand of them,
and it takes a force of 300 men about 2 years to 2% years.
Senator Bone. To prepare the plans?
Mr. Ferguson. Yes; it is a tremendous job. The plans of an airplane carrier,
too, Senator, include many, many things that are not common to and do not
belong in other ships.
182 MUNITIONS INDUSTRY
(j) Again (Jan. 29, galley 97 GP):
Senator Vandenberg. When the American Federation of Labor constantly
protested to your Department over the faihire of this Navy program to take up
unemployment in the degree they thought it should, what was the reason that
the Navy Department always gave the American Federation of Labor for the
delay and for the comparatively small amount of employment provided? What
was the reason that the Navy Department always gave the American Federation
of Labor?
Admiral Land. We gave them, in many conferences, simply the same reasons
I have endeavored to give this committee this morning.
Senator Vandenberg. I do not want to go into detail, but, in a word, was
there not always, or almost always, delay in plans?
Admiral Land. That is always the neck of the bottle in a shipbuilding program,
so far as the start is concerned.
Senator Vandenberg. Precisely.
Admiral Land. Yes, sir; that is correct.
Senator Vandenberg. Therefore, the responsibility for the delay, if there was
a delay, was on the failure of the designs to be produced expeditiously in the
private yards?
Admiral Land. To a certain extent. Some of that responsibility belongs on
our shoulders.
Senator Vandenberg. Why? ,
Admiral Land. Because we did not have contract plans, which has been the
practice of tlie Navy Department for years.
Senator Vandenberg. I do not want to leave any misunderstandiiig on the
record, and let me ask you this: You do not mean that there is any responsibility
on you because you did not jjursue the shipyards for these plans?
Admiral Land. Not at all. I hate to repeat, but I again must state that we
had precipitated upon us seven new designs in 1933.
Senator Vandenberg. They were not precipitated upon you. You were very
eager and solicitous of getting the privilege of having them precipitated upon you,
were you not?
Admiral Land. Absolutely; but they were precipitated just the same.
Senator Clark. You were standing around waiting for the invitation.
Admiral Land. Surely; with a large blanket to catch them all.
(k) Further testimony on the designing problem was given by John
Frey, president of the Metal Trades Department of the American
Federation of Labor (Jan. 25, 1935, galley 85 GP).
Senator Bone. Tl\en, Mr. Frey, you want to give us the imi)rcssion, I take it,
which seems to be a fact, thj^t this whole j)rogrf!,m must pass through this bottle
neck created by the "big throe" for the designing and drafting?
Mr. Frey. Yes, sir; as far as the light cruisers arc concerned.
Tlie Chairman. Is not tlic light cruiser the large p.i,rt of our jirogram?
Mr. FuEY. No; it is a material part. The heavy cruisers and the aircraft
carriers and the submarines and destroyers are quite a large part of the whole
program.
SenatC)r Clark. What i^roportioii of the emplnyment which was oonteniiilated
to be establislied by this allotment of $238,000,000 was represented by the work
on wliich the plans were to be drawn by tiie "big three"?
Mr. Frey. I could not answer that without going over all the ships and making
an estimate.
Senator Clark. Will you sui)i)ly us with that information?
Mr. Frky. That will f)e supplied.
Senator Clark. We would be glad to have it, if you will.
Mr. Frey. I would like to juld now, so th;it there will be no misap prehension
that until May «)f last year, tlic Metal Trades Department was of the »ipinion
that the Navy Departnunit was not pressing tlie construction work and pressing
for the designs fn>m the New York Ship Buikiiug Co. as actively as it n;ight. 1
have no rca.ion to feel tJiat the Navy Department, since then, has not dt)ne all
that it could.
Senator Clark. What do you mean by "doing all that it could", Mr. Frey?
Do you mean to say that tlie Navy Department is absolutely at the mercy of the
New ^iirk Sliip Building Co. to suiinly it with pl.uis, whenever it chooses, and
withhold them as long as they please?
Mr, Frey. My understanding is that the contract with the New York Ship
Building Co. included supply the Navy with the designs for the light cruisers.
MUNITIONS INDUSTRY 183
Senator Clark. Was there any time stipulation in there?
Mr. Frey. I believe there was no time stipulation in there.
Senator Clark. In other words, the Government obligated itself to accept
these plans whenever the New York Ship Building Co. chose to supply them,
without any limitation of time whatsoever?
Mr. Frey. If it is so that there was no time limitation for the plans in the
contract.
(l) Testimony was also given by Mr. Frey on this question (Jan. 25,
galleys 89 GP, 90 GP):
The Chairman. What do you see that might be done to expedite the utility
of this Public Works money that has already been allotted?
Mr. Frey. That is a difficult question, Senator. If the Navy Department now
should undertake to prei:)are the designs for these light cruisers, they would have
to start all over again, or largely all over, and it might take 6 months or 9 months'
additional delay before they would have plans.
Senator Bone. What do you mean by starting all over? They have the plans
available, have they not?
Mr. Frey. No; they would be laying down the keels for these cruisers if they
had the plans which the Government contracted for with the New York Ship-
building Co.
Senator Bone. Are they building these cruisers under those plans in private
yards?
Mr. Frey. Yes.
Senator Bone. Why are not those plans available to the Government?
Mr. Frey'. I cannot say.
Senator Bone. In a preparedness program to get ready for war, why are not
those plans available to the Government?
Mr. Frey. I do not know.
Senator Bone. You do not know?
Mr. Frey. No.
Senator Bone. Is there anything in the law which precludes the Government
using tliose in its own yards in a progrr.m of national defense?
Mr. Frey. I cannot answer that. Senator. I am not a lawj^er.
Senator Bone. Do you know of any reason why this Government should not
use those plans? Is there anything sacred about them? Do they belong to any-
one?
Mr. Frey. No. I presume that if their plans were completed for the two light
cruisers to be built in navy yards, the Navy Department or Government would
have begun construction some time ago.
Senator Bone. You understand, do you not, that t!ie Government pays for
those plans?
Mr. Frey. Oh, yes.
Senator Bone. Then why cannot it use them in its own yards and go ahead
with this program?
Mr. Frey. I understand that the plans are not completed for these light cruis-
ers, if they were to be built in navy yards.
The Chairman. The cruisers to be built in the navy yards could not be built,
then, upon the same plans that the larger cruisers in the private yards are being
built on?
Mr. Frey. Oh, no. Every type of ship has to have its own design.
Senator Bone. Then it is your understanding that the Government waits upon
these private companies to create the plans for these ships, and has no planning
board of its own at all?
Mr. Frey. So far as my testimony goes, it has indicated that the reason that
these light cruisers have not been laid down in navy yards is because the Navy
Department contracted 17 months ago with the New York Shipbuilding Co. for
designs and has not received them yet.
Senator Bone. Seventeen months ago?
Mr. Frey. Yes, sir.
Senator Bone. Can you, from your experience, tell us how long it takes to
create a set of plans of that type?
Mr. Frey. No.
f Senator Bone. What would we do in case of war, if we had to have plans. We
could not wait 17 months.
Mr. Frey. I made the statement. Senator, that it was my opinion, from long
contact with chiefs of bureaus in the Navy Department, that the American Navy
has as competent designers and constructors as any navy in the world.
184 MTJNITIOI^S INDUSTEY
Senator Bone. Does the Navy Department agree with you in that connection?
Mr. Frey. It would all depend on what question would he up.
Senator Bone. Did you ever put it up to them squarely?
Mr. Frey. Yes; I have.
Senator Bone. What was the answer?
Mr. Frey. The answer was that certain designers in private industry had been
giving so much more of their time to designing that their helpfulness was neces-
sary. They also said that it was necessary to have a certain number of private
designers occupied so that if there ever came a national emergency, it would not
be necessary for the Navy to depend wholly upon its own technical staff.
The Chairman. Mr. Frey, do you know emphatically that the plans are not
now in the navy yards?
Mr. Frey. I know emphatically that they were not a few weeks ago.
The Chairman. You know that?
Mr. Frey. When I was discussing the question with the Navy Department,
they were not.
The Chairman. If they are there, they have come in in recent days?
Mr. Frey. They have come in in the last few days.
(m) Admiral Land was questioned about a reprimand on delay in
plans addressed by the Secretary of the Nayy to New York Sliip on
September 22, 1934 ((exhibit 1479) Jan. 29, galleys 92 and 93 GP).
Admiral Land. We have been endeavoring to speed up plans from October
1933 until to da-te, and the Secretary and Assistant Secretarj^ have written letters
to various contractors, endeavoring to expedite not only plan work but all work,
and the Chief of the Bureau of Engineering and myself have constant pressure
on the superintendent of construction and the inspector of machinery- to do the
same, as well as putting all the pressure we know how on everybody in the
respective companies from the president down.
Mr. Raushenbush. We have a letter here from the Secretary of the Navy to
the New York Ship, dated September 22, 1934, which I show you, and which
you will probably recognize [handing paper to witness].
On the second page of that letter it states:
The Department has not been satisfied with the progress made at your
plant with particular reference to the light cruisers. The situation with
regard to plans is clearly iniderstood, but it is a matter of vital importance
that all practicable pressure be brought to bear on this plan situation in
order that it may be practicable to put men to work, not only in yovir plant,
but also in the two navy yards which are building cruisers from the plans
prepared by your company.
Admiral Land. Yes, sir; I am familiar with that letter.
Mr. Raushenbush. The letter continues:
A rosurvey of the situation will uiul()ul>tcdly iiuiicate to you ways and
means for more thoroughly carrying out the spirit and letter of the contract
requirements and it is hoped that you will see your way clear to make this
resurvey in order that the 1933 program may be more rapidly advanced as
well as making as rapid progress as possible on the light cruiser awarded to
you under the 1934 program.
I olTer that for the record.
(The letter referred to was marked "Exhibit No. 1479" and is included in
the ap])endix at ]). — .)
Mr. Raushenbush. The question there was whether within the date after
September 22, 1934, when an official reprimand was addressed to the company
for the delay, the plans came speeding in after that time.
Admiral Land. There has been a materinl imprcvcuient, and constant pressure
is being applied by the Navy Department to make that improvement greater.
Mr. Raushenbush. Can you give us the status of the plans, either in numbers
or percentages, about that time when this reprimand was addressed to the
Comjiany?
Admiral Land. I can furnish it for tlie record. I have not it witli me.
Mr. Raushenbush. We have here a dcicument from the files of the New York
Shipbuilding Corporation wliich I would like to read and ask you as to its
correctness. It is dated May 15, 1934.
After jxinting out tlie clauses in the New York Shipbuilding Corporation's
C'-ntracts, urging speeding up, it says:
MUNITIONS INDUSTRY 185
This clause applies with equal force to the contract to supply the design
for the vessels and to the contract for the construction of vessels; New
York Ship offered in its bids for this work, to have the Savannah 30 percent
complete at the end of the first j^ear and the Nashville 20 percent complete
1 year after the award of the contract. On May 1, 1934, or 9 months after
the award, the Navy progress reports indicate that the New York Ship has
defaulted on its contract. The figures are as follows:
It goes on and shows that the Savannah was supposed to be 30 percent com-
plete; and the first hull is 1.9 percent and the machinery 3.5 percent completed,
in comparison with 30 percent promised.
On the Nashville, wliere thej' promised 20 percent in the first 12 months, tlie
first hull is 1.9 percent and the machinery 2.9 percent.
And on the Brooklyn, the first hull is 1.5 percent and 0.1 percent on the
machinery. [Continuing reading:]
All of these vessels are in the early design stage. No material for their
construction can yet be safely fabricated in the shipyards or elsewhere until
the main designs are completed. The onl}^ men now emploj^ed are those
working on the design in the New York Ship drafting room.
On May 12, 1934, New York Ship had completed the following drawings:
It gives the total number of drawings required: Hull, 2,500; machinery, 1,780;
and as compared with that, the total number of drawings completed of 25. That
is 1 percent. And it shows the machinery with the total number of drav.ings
completed of 40 out of 1,7S0.
Is that approximately the situation as you remember it as of the middle of
May 1934?
Admiral Land. That reference to the contract is entirely in error.
Mr. Kaushenbush. What reference was that?
Admiral Land. The reference about being a certain percent completed at a
certain time. There is no such clause in the contract.
Mr. Raushenbush. They were not supposed, under this special arrangement
for getting men back to gainful employment in the use of P. W. A. funds and
the like, and they did not make any promises that the plans for the vessels
would be 30 percent completed?
Admiral Land. There is nothing in the contract which requires that. There
is a clause requiring extraordinary effort in the first and second year, but it does
not require specification of completion.
Mr. Raushenbush. Is that in the bid, that they expected those percentages
of completion?
Admiral Land. I do not know. I will find out.
Mr. Raushenbush. I think that would be pertinent to have at this moment.
The memorandum goes on to state :
In the week of May 5, 1934, the Navy Department is reported to have
rejected New York Ship's design for the machinery pieces of these vessels.
Do you remember that?
Admiral Land. There were some parts of some plans which were not approved
about th.-it time. It would not be a rejection in our sense of the word. We do
not use that term. We approve or disapprove. We modify and we alter. The
basis is merely redrawn.
Mr. Raushenbush. You would call those alterations which took place?
Admiral Land. In this case it would be a modification, something that they
proposed wdiich we did not approve.
Mr. Raushenbush. That memorandum then goes on to say :
Change in this fundamental design will dictate changes in the design of
the entire vessel and makes all former detailed plans worthless. Progress
reports for May 12, 1934, should therefore be amended to read :
Machin-
ery
C. L. Savannah _ 0 0
C. L. Nnshville 0 0
C. L. Brooklyn _. 0 0
v.\ L. Philadelphia 0 0
186 MUNITIONS INDUSTRY
Admiral Land. I do not recognize that letter. There are a lot of things there
that I do not know what they are talking about. Certainly the statement that
they made that all these plans are worthless is incorrect.
Mr. Kaushenbush. They only apparently turned over at that time 25 draw-
ings on the hull and 40 on the machinery, in May 1934, according to this
memorandum.
Admiral Land. I do not recognize that memorandum. Has that ever been
given to the Navy Department?
Mr. Kaushenbush. It is from the files of the New York Ship.
Admiral Land. I know nothing about their files.
Mr. Raitshenbush. The memorandum continues :
No men can be put to work in the New York and Philadelphia Navy Yards
on the cruiser construction assigned to them, until after designs have been
received by the Navy Department from the New York Ship acceptable to
the Department. Nor can these vessels be designed by the navy yards
themselves, as they lack the necessary skilled and experienced design
personnel.
Failure of New York Ship to live up to its contracts is not only causing
delay in the building of the vessels, but delay in the reemployment in its
own yard, and in the two most important navy yards dependent on it for
design.
The causes for this inexcusable delay in cruiser design are in no way
related to the shipbuilders' strike just settled at New York Ship, as their
draftsmen did not leave their work. The delay is due primarily to New
York Ship's having too much design work on hand, and its contractual obli-
gation to get out certain private contract work ahead of the cruisers.
Let me interrupt theie a minute, Admiral Land. Do you know how much
outside non-Navy work the New York Shipbuilding Corporation had at this
time?
Admiral Land. They had two tankers.
Mr. Kaishenbush. And were tliey also drawing designs for Brazilian ships
they expected to get?
Admiral Land. I do not know. That was in the picture, hut wliat they did I
do not know.
Mr. Rai-shenbush. Did each of tho.se two tankers for Standard Oil take up
one each of their ways?
Admiral Land. Yes. When the keels were laid, tliey each took up one way.
Mr. Rausiienbush. How many active ways are there at New York Ship?
Admiral Land. I am not sure when you .say "active ways" what yoii mean.
I have the data. I would have to i<K)k it up, though, because I do not re-
niemher dflhand. I h;i\e got it in the ship's data ImoU and I have also got it
in another form. I will have to jiut it in because I cannot tell from memory
as to " active ways."
Mr. Kaushenbush. All right. I was simply making this ix>int: Here is the
picture of the New Y(irk Ship industry from the progress report of the Navy,
dated January 1, 11)3"), slmwiug a very considerable degree of incoiiipletion on
I he V.YA'A and 19.'>4 cruisers; and, in addition to tliat, tlie picture should really
include two tankers more, which would ciowd their ways to that extent.
Admiral I>amj. You know that New York Ship has three sets of wa.vs. They
have the north plant and the south plant and the old war plant. Tlie old war
plant is in no way active.
Mr. KAusHENBi'sH. Tlie S(,uth yard is not being used?
Admiral Land. Not in any way. so far as I know.
Mr. KAUsHKNutTsH. Not since the war?
Admiral Land. No: not since the war.
Mr. Kaushenbish. So that we can talk about the north yard and the live
active ways there.
The memorandum goes on to state:
The Navy itself furni.shed rather complete designs and specifications for
the destroyers awarded New York Ship, but a sketch design only for the
cruisers. It is therefore necessary for the New York Ship engineers to
Work up the finidamenials involved in the cruiser design, such ms space and
weight to be allocated to boilers, maihinery, Mniniuiiition, su|)plles, and
having made such allocation, determine the dimensions and strength of
till' liull. All of this must be checked and apjtroved by the Navy Depart-
ment before detail design work can commence in the drawing rooms, as any
MUNITIONS INDUSTRY 187
change in any one of the above fundamentals would necessitate change in
design throughout the vessel, and each detail design must be approved by
the Navy Department before it can be sent to mold loft.
The comment here, as I take it. Admiral Land, is that a change in any one
(if the fundamentals of those designs would necessitate change in the design
throughout all the others. Is that approximately correct?
Admiral Land. If you and I understand the term "fundamentals" the
same way; yos ; that is correct.
Mv. Raushenbush. Then it tall^s about having an exception in the code for
the draftsmen, but even then they would not work them full time.
Then, do we gather roughly the picture that when contract for the light
cruisers was signed — and I show you numbers 41 and 42, and here is 43 — it
says on the second page, article 4:
Time being of the essence of the contract, it is agreed that plans sub-
mitted to the Department will be acted on and returned to the contractor as
promptly as possible —
and so forth.
Does the Navy feel at all that there has been undue delay on the part of
New York Ship in supplying those working plans?
Admiral Land. We feel there has been delay. I would not state undue delay.
They are behind. They have been behind. Their present progress is between
4 and 5 percent behind the check curve which we have. It is not as good as
we would like. And it is not as good as we had hoped for. But it is a fair
approximation to what was anticipated, but not what we would like to have.
(n) The larger companies, which can afford designing staffs, have
at times felt themselves at an advantage over the smaller companies
(Feb. 19, galleys 35 and 36 FS).
Mr. Raushenbush. I want to digress a moment to get into the destroyer
bidding of 1931. There are a few questions which we will have coming up
here in the question of designs on that work which we simi)ly and frankly do
not understand and would like to have some explanation about. This destroyer
bid, as you will remember, later on turned out in Bethlehem getting some ships
on the basis of its own designs, for which the Comptroller General reproved
the Navy and told them not to do it again. These questions came up on July
15, 1931, in a memorandum to Mr. Ferguson from your New York office,
signed G. A. P. Who would that be?
Mr. Blewett. From the New York office?
Mr. Raushenbush. It is on the letterhead of the New York office. That is
the only copy tliat I have [handing paper to witness]. Do you recognize that
"G. A. P."Y
Mr. Fekguson. That is JNIr. Parker.
Mr. Pajrker. That was written from Newport News.
Mr. Raushenbush. The letterhead " New York office " misled me. It reads :
Mr. O. F. Bailey has just called up from Washington —
Mr. Bailey was your engineer?
Mr. Ferguson. He was our director of engineering until he was retired,
. Mr. Raushenbush (reading) :
Ml". C. F. Bailey has just called up from Washington, and said that he
had seen Admirals Rolnnson and Itock about the destroyer work and they
are both anxious to have this company undertake the hull and machinery
drawings for the destroyers. Mr. Bailey said that he indicated to them
that he v.'ould probably be w^illing to do this, having in mind that the
Navy Department, Fore River, and New York Ship would furnish their
best technical advisers in doing the job. A careful record of cost would
be kept.
In referring to "Fore River" it means Bethlehem, I take it. [Continuing
reading:]
Mr. Bailey also said that he understood ivum Admiral Robinson and
A<luural Rock that they exi)ecied that a nuii'lKU' of (-(mipanies, such as
Baili, Sun, Maryland Dry Dock, and United Dry Dock, would be asked
lo bid on this work. Pickering hari been to the Navy Department about
bidding.
188 MUNITIONS INDUSTRY
Who is Pickering?
Mr. Williams. Maryland Dry Dock.
Mr. Raushenbush (coutinuing reading) :
Mr. Bailey's idea, while not so expressed to the Navy Departmeiir, would
be to charge these outsiders, who know nothing about designing, a good
price for the drawings and to have Fore River and New York Ship par-
ticipate in any profits that might accrue from this. The Navy Department
would not want our name to appear on the drawings, and would issu3 them
as coming from the Navy Department.
Mr. Bailey thought that you might have an opportunity to discuss this
matter with Messrs. Bardo and Wakeman w'hen in New York Friday, and
he told the Navy r)epartmeut that, of course, the final decision would have
to come from you.
He is at the Carlton Hotel and will return to the yard ou Friday morning.
Do j'ou remember what happened here?
Mr. Fekguson. All I know of it is contained in the memorandum. I never
saw it before. Mr. Bailey was up there as an engineer, talking to these people
about an engineering problem. It sounds somewhat like a conuiion drafting-
room project, but you would have to ask Mr. Bailey what he meant by it.
Mr. RATjsriENErsH. It is a memorandum for you. Mr. Ferguson?
Mr. Fekgusox. It was sent to nie. yes; but I did nothing about it, as I remem-
ber it. I had forgotten it.
Mr. RAUSHE^'BUSH. The third paragraph says [reading] :
Mr. Bailey's idea, while not so expressed to the Navy Department, would
be to charge these outsiders, who know nothing about designing, a good
price for the drawings —
meaning, I suppose, the small companies.
Mr. Ferguson. The people who did not have the stafifs for designing.
(o) The attitude of the larger yards toward the smaller ones in
regard to design is also indicated in a telegram from ]Mr. Bardo of
New York Ship to H. G. Smith, president American Council of
Shipbuilders, which was entered bv 5lr. Williams, of Newport News,
on February 19 (galley 50 FS).
Mr. Williams. I have tliat telegram here. It was addressed to Mr. H. G.
Smith, and it arrived during our meetings, and I see at the bottom a copy sent
to me.
That is the telegram about which Mr. Bardo is alleged to have had discussion
with Mr. Ferguson.
This telegram reads as follows :
Camden. N. .7., 10: 50 A., June 22, 19S3.
H. G. Smith,
Mapfloircr Hotel:
For your information in connection with the discussion of the matter of
the Shipbuilders' C"de. tl.c New York Shipbuilding Co.'s position is substan-
tially as follows. We are unwilling to concede the alliM'ation of naval con-
struction to yards not heretofore engaged in this work uidess Ihey are
willing to agree to assume as an appropriate charge for any plans which
the Navy Department may require us to fur:d>h not only a proper jii'opor-
tion of the cost of furnishing the.se specific plans but also an approi)riate
proportion of the current overhead in engineering expense which we main-
tain in tlie form oi jechnical staff in order to he able to carry on this
technical work when it offers. Our consent to this provision is piedicated
upon the further provision that no allocation of Navy work will be made
to plants not heretofore engaged in new Navy construction until after
sufficient new work has been awarded to our yard to resti>i(' th(> nundier of
employees to a normal basis. It is distinctly unfair botli to tlie company
and to its emiiloyces to deprive tlieni ui" the work which tlu-y are especially
qualified to do wiihout assuming the full quota of exiiense. This is the
position of our company and of the committee representing our employees
and will be so stated to the Administrator in support of this provision of
the Shiiibuilders' Code. Tl)e allocation of any part of this Navy work to
yards not heretofore engaged therein upon any basis otlier than as out-
MUNITIONS INDUSTRY 189
lined above is nothing short of first-decree unfair competition. Copy of this
telegram to Ferguson, Williams, and Wakeman.
C. L. Bardo.
(p) The dependence of the Navy on private designing was dis-
cussed by Mr. Metten, now president of New York Ship (Jan. 22,
galley 37 GP) :
Senator Yandenbekg. Excuse me, that goes bacli to my original inquiry, in
which I am very much interested. Is not that still the situation?
Mr. Mktten. Yes, sir.
Senator Yandeniserg. That the Navy's equipment is so scattered, that it is
not useful in the production of a completed net result?
Mr. Metten. There has always been a scarcity of really competent designers
on this class of work.
Senator Yandenbekg. In other words, it would be difficult today for the
Navy, in a self-contained way, to produce these designs, would it not?
Mr. Metten. It would be difficult, I think.
Senator A'andenbekg. Yes ; certainly.
Senator Bone. How long has that condition existed?
Mr. Metten. It has existed ever since, you might say. the general lull in
Navy building. They are highly specialized ships and they require a lot of
experience in the various classes of work.
Senator Yandenbekg. So long as that condition maintains, I ask again, is
not the Navy more or less at the mercy of private designers?
JNIr. ]Mktten. That is being reduced now, Senator. They are recognizing
Senator Yandenbekg. The answer is " yes ", and they are trying to meet it.
Is that it?
Mr. Metten. Yes, sir.
(q) The principal advantage of a central design department
among private yards is to standardize ships, according to the testi-
mony of Mr. Metten (galley 35 GP, Jan. 22).
Mr. Raitshenbush. What advantages were there, both to the Navy and the
big shipbuilders, in having this Navy Department designing pooled, j'ou might
call it?
Mr. Metten. In the ordinary course of events, each ship would have been
different. You see the Newport News contracts were, the detailed plans, had
been worked out by them, and in case of the New York shipbuilding contract,
the details of that had been worked out by them ; in the case of the Bethlehem
contracts, the same thing would have lieen done.
Mr. Raushenbush. One advantage was a standardized ship. What other
advantages would either the shipbuilders or the Navy get out of this arrange-
ment ?
Mr. Metten. I think that was the principal object. As I understood it at the
time, that was the whole oliject in that set-up, to standardize the ships.
Mr. Ratjsheneush. Did not this corporation do combined purchasing for the
shipyards?
Mr. Metten. Yes, sir ; they had to do that because they wanted the auxiliary
duplicated as far as possible. Instead of having one type of auxiliary in one,
and another in another, they naturally had to standardize the auxiliary
machinery.
Mr. Raushenbush. You did then purchase from Westinghouse and General
Electric, Babcock & Wilcox, and all the other big suppliers of machinery, not
only for the Big Three but for the navy yards, too, did you not?
Mr. jMetten. No.
Mr. Raushenbush. No?
Mr. Metten. You see that had to come through the Navy. Duplicates of all
orders were sent to the Navy so that they could follow the Navy routine.
Mr. Raushenbush. Then the Navy did not get any advantages of common
buying on these purchases which you were making through this Marine Engineer-
ing Corporation, for the benefit of the Big Three?
Mr. IMetten. Y"es.
Mr. Raushenbush. Did it?
Mr. IMetten. Of course, here would be, for instance, five units. Take some-
thing like generating sets, and so forth. Naturally the Navy, in asking for a bid
for those ships, would get the benefit of quantity production, because they were
to be duplicates of those they were building through these private yards.
139387—35 13
190 MUNITIONS INDUSTRY
(r) This idea of standardization is contradicted by other ship-
builders. William S. Newell, president of Bath Iron Works, said
(galley 27 WC, Apr. 3) :
Mr. LaRouche. The fact is, they were not standardized at all?
Mr. Newexl. What do you mean, they were not Chinese copies?
Mr. LaRouche. They really were not standardized after all the negotiation.
Mr. NEWE2.L. No, sir ; not exactly, but substantially they were. It is impos-
sible for the Navy to build an absolute Chinese copy of what is built in a
private yard. The private builders have to do it. They have no choice in the
matter. But when a vessel is built in a navy yard, the Navy, under the law,
has to go out and get bids on all the apparatus that goes into the ship they do
not make themselves. It is perfectly possible — and in many cases it happens —
that the design — take the pumps for instance in a navy-yard-built job, and
they won't be the same, from the same builders, as the pumps in a privately
built ship.
Mr. LaRouche. You made quite a point of having these ships standardized a
few moments ago. You said it would not do to have 1 destroyer of one kind
and 4 others of another kind.
Mr. Newell. The fact that the pumps might be from different builders does
not make any difference. A feed pump might be the shape of that, or it might
be this shape [indicating] and the piping system is the same, and the disposition
of the machinei"y is the same. But the Navy wanted the five ships as near
alike as possible. They cannot always do it themselves, as much as they
might like to, because they have to take the lowest bid. They try to, and they
want to, but under the law they cannot do it.
(s) The procedure of having private yards submit original designs
raises certain problems difficult to solve on a competitive basis. Mr.
Powell, of United Dry Docks, w^as questioned on this subject on
April 4 (galley 51 WC seq.).
The Chairman. I am offering as an exhibit, to be given proper identifica-
tion, copy of a letter addressed by the United Dry Docks, Inc., to the Comp-
troller General, under date of October (J, VJ'Sl, to which I will refer only in
part [reading] :
On September 16, 15)31, United Dry Docks, Inc., submitted a proposal ta
the Secretary of the Navy to build one or two torptilo-boat destroyers nos.
348-358. This proposal was with the exception of one from the Bath Iron
Works, Bath. Maine, the lowest of any tender submitted by an private
shipbuilding company, and lower tlian any estimate received from any
United States navy yard. Notwithstanding this fact, on Tuestlay, the 2!)th
ultimo, the Secretary of the Navy aniioiiiu'od the award of contracts for
4 destroyers, I each to Bremerton Navy Yanl, the Boston Navy Yard, tho
Bath Iron Works, and Bethlehem Shii)building Cori)oration.
Toward the end of the letter is a paragraph to which I wish to refer.
Would you wish a copy of this. Mr. I'oweHV
Mr. I'owELL. I have it before me, Senator.
The Chairman. You have stated in this letter to the Comptroller [reading] :
It is quite evident that under the Navy Department's call lor class II
proposals real competitive bidding is impossihUv .Judgment as to the
value of different designs is introduced into the bidding, whi'-h, in the case
of a toriiedo-boat destroyer leaves the widest i)ossil)le latitude for the
difference of opinion.
I wish, Mr. Powell, you would discuss for the information of the conmiittee,
the points involved there, more particularly the unfairness, what you considered
the unfairness, of the awarding at tliat timr.
Mr. I'owBij.. The Navy Di'oarlnu'iit ]ia-> only called for class II bids on
torpedo-boat destroyers. In the case of all oiher vessels, that is. within recent
years, they have submitted de>»igns complete, and l)idilers have all suhmitled
prices on exactly tlie same thing. The reason why there has i)een a difference
in the destroyers is due t<» the niarhinery of a destroyer lieing an extremely
complicated engineering problem. whi<li re(piires the packing of a very large
power into a very snniU space, and also lecpiires the obtaining of tliat jiower
of a very low weight. There is a great iUmI of latitude fur iniprovenient in
MUNITIONS INDUSTRY 191
one design as against another, and the skill that isi shown in putting together
the machinery units, and the Navy Department has evidently felt that it
would benefit by getting the experience of outside engineers.
Now. so far as the design of the hull goes, that is likely a military matter,
and they have never considered that outside bidders could do that as well as
thev can do it themselves, very properly.
When thev call for class II bids, however, and this also applies to class I
bids, the call to bidders has stated that class II bids would be evaluated on
the basis of so much per knot for the speed guaranteed, and so n)uch per pound
for the fuel oil required at different powers and speeds, and have ostensibly
stated to bidders that the bids would be awarded on the basns of the lowest
price on this evaluation.
In the case of this bid, however, although my bid was below Bethlehem's on
the evaluated basis, they threw out the designs that we submitted, in favor
of Bethlehem, because they said the machinery arrangement suited them better.
Bethlehem did not guarantee better speed or consumptions, but they gave them
an arrangement of material which the Navy said they liked. The ques>tion of
arrangement of machinery is your judgment against mine. I may like to have
the condensers up against the side of the ship, and you may like to have them
down under the engines, and if next week another set of officers would come
to tbe Navy, they might like the condensers where I liked them, and not where
you liked them.
There is. therefore, a wide latitude for the use of individual judgment, indi-
vidual opinion, rather than judgment ; if designs are to be compared on any
basis of that sort, and it results in throwing out of a low bidder in favor of
another one. which is exactly what happened in my case, then the bidder feels
he has received a raw deal, and he is going to do all he can, if he has my
disposition, to see that he gets what is coming to him.
The Chairman. You had, in your opinion, rather large concurrence by the
Comptroller General, did you not
Mr. Powell. My opinion was that he concurred wath me about what was
offered, up until I read the last paragraph of his letter.
(Tiie letter referred to was marked "Exhibit No. 1833" and is included in
the aiipendix at p. — .)
The Chairman. There Is offered for the record, for appropriate identification,
the report of the Comptroller General, in the form of a letter to the Secretary
of the Navy, under date of December 10, 1931.
(The letter referred to was marked "Exhibit No. 1834 " and is included in
the appendix at p. — ).
The Chairman. The concluding two paragraphs of that letter, to which you
referred, Mr. Powell, state [reading] :
The law requires that specifications state the actual need of the Gov-
ernment and that award be made to the low responsible bidder proposing to
supply such need. Considering the administrative problem to be as stated
in matters of this character, there is suggested for your consideration and
as a means to enable the Navy Department to lawfully obtain the assistance
of the skill in private industry when new vessels are to be designed and
constructed, the advisability of acquainting the Congress with the situa-
tion and need, with a view to securing authority to employ a reasonable
amount of the appropriation to secure from competent sources outside of
the Government a limited number of designs of hulls, machinery, etc., to
supplement or for purposes of comparison with plans and specifications
drafted by the engineers of the Navy Department, to the end that there
may be worked out in every detail the best possible design and the final
result submitted for competitive bids and construction by the low respon-
sible bidder.
It is understood that on the assumption the procedure followed was sufl3-
cient compliance with the applicable law there has been adopted for building^
in two navy yards the desi.gn submitted by the Bethlehem Shipbuilding Cor-
poration and award made to said corporation for the construction of a vessel
of such design. In such circumstances and in view of the apparent good
faith of the Navy Department in following the procedure herein discussed
and which should hereafter be otherwise, this ofBce will make no further
objection thereto.
Respectfully,
J. R. McCarl,
Comptroller General of the United States^
192 MUNITIONS INDUSTRY
Did you at any time question the good faith of the Navy in awarding these
contracts?
Mr. Powell. No, Senator ; I do not question the Navy's good faith in this
matter at all. I think they did what they thought was best for tlie Navy,
but I do question their judgment. I thinls their judgment was rotten.
(t) The question of the Navy's interest in having the engineering
done by j^rivate companies was touched on in Mr. Bardo's testimony
on April 6 (galley 98 WC). Mr. Bardo stated that the substantial
reason in awarding work to private yards was " the engineering
reason."
Mr. Raushenbush. You deny that in detail?
Mr. Bardo. Absolutely; and I would like to know what the other fellows
stated. Did they ever admit it went on?
Senator Pope. Mr. Bardo, I find myself utterly confused by yC'Ur testimony.
In the third paragraph of your letter of June 22, 1933, to Mr. Flook, you made
this statement [reading] :
I outlined our company's position on this matter of allocation to yards not
heretofore engaged in shipbuilding activities. I talked to Ferguson on tlie
plione this afternoon and he fully approved of this position.
Mr. Bardo. That is right. That had nothing to do with bids. That had to
do with the matter of allocation. I told him my purpose. I said, " Here is an
allocation that I am going to send to the meeting in Washington", and I wanted
his opinion on it.
Senator Pope. That had nothing to do with bids?
Mr. Dauuo. No.
Senator Pope. Let us proceed \\ith this a little further, and perhaps you can
remove my confusion.
My. P>AUDO. Yes.
Senator Pope (continuing reading) :
I know from my talks with some of the representatives of the Navy
you say you had no talks?
Mv. P>Aiu)o. I had ny talks.
Si'uator Pope. Thac is rjither important. What would be your purpose
in advising Mr. Flook, the president of the board, of talks with Navy people
when you did not have them?
Mr. P.ARDo. I did not have thorn ; but it was the current conversation among
the 25.
Senator Pope. What Avas your purpose in making a false statement to Mr.
Flook V
Mr. Bakdo. I hail no purpose in making a false statement to Mr. Flook. I
would noi make a false statement, under any intention, to him.
Senator Pope. You did.
Mr. Baudo. IJteraily, it is so; but practically, it is not.
Senator Pope. What was the purpose of making a false statement?
Mr. Bardo. I would not have any purpose in making a false statement.
Senat(tr Pope. Why did you make it?
Mr. P.AKiK). Literally, it is; but practically, it is not. The genesis of that
letter was tliis conversatiim going around the table.
Senator Pope. I understand that. Let us go a little further.
Mr. Baudo. All right.
Senator Pope. You also state in the same paragraph of that same letter,
referring to the Navy officials [reading] :
who are keenly interested in this work, that they are desirous of finding
some substantial reason for awarding this work to the largest possililp
extent to private yards upon whom they must rely for tlie necessary
engineering to complete the ships.
Mr. B.vRDO. That is right.
Senator Pope. You make the statement that they were desirous of finding
some substantial reasons.
Mr. Bakik). Yes, sir.
Senator Pope. Were they, or were they not?
Mr. Baiux). Yes. sir ; the substantial reason was the engineering reason.
Senator Pope. Did they tell you that?
MUNITIONS INDUSTRY 193
Mr. Bardo. This group around the table discussed that. It all came from
the group arouud the table.
Senator Pope. Did the Navy officials, as you stated in the letter, make any
such statement?
Mr. Babdo. No, sir ; they did not.
The Chairman. Were any naval officials around this table?
Mr. Bardo. I do not know. Captain Williams was the contact man between
the shipbuilders and the Navy in the preparation of the code. He never made
that statement. It was a common discussion around the table, and that is the
genesis of the whole thing.
Senator Pope. I want to get this clear. Did the Navy officials express what
that says:
They are desirous of finding some substantial reasons for awarding this
work to the largest possible extent to private yards, upon whom they must
rely for the necessai-y engineering to complete the ships.
Mr. Bakdo. No ; not the Navy officials.
Senator Pope. Why did you state that to the chairman of the board of di-
rectors? The answer to that would be the same, " You had no reason " ?
Mr. Baedo. The genesis of that whole letter was the conversation going around
the table.
Senator Pope. In the next paragraph is stated [reading] :
There was also expressed to us the desire that the builders themselves
should get together and agree as far as we could upon what each would bid
and then bid on nothing else.
Was such a desire as that expressed to you by the Navy?
Mr. Baedo. No ; it was not.
Senator Pope. Why did you make that statement?
Mr. Bardo. I say, the genesis of that was what went on around the table.
Senator Pope. Why did you not say to the president of your board of directors
the facts about the matter, that it was stated by the other shipbuilders instead
of the Navy?
Mr. Babdo. That is just careless use of language. Senator. That is all there is
about it. I want it to be fairly clear that I would not say or do anything that
was going to convey a wrong impression as to the attitude or the position of the
officials of our Navy.
PRIVATE CONTROL OF DESIGN
Mr. Wilder pointed out what he considered the superiority of the
Enghsh system in regard to design, which avoids the expense of change
(Jan. 31, galley 25 AS).
Mr. Wilder. If you had a consistent naval building; program, no advertising
would be necessary. If you followed the English system— we have no system,
and let us say the "English system is probably the best one — what would happen?
They build in the navy yard a leader ship, first of a series of ships, and they work
out the errors and they make the changes on one ship, and then on the following
ships they open them up for competitive bidding, and the builder knows what he
is up against exactly.
Senator Vandenbbrg. They make the complete design?
Mr. Wilder. Yes, sir.
Senator Vandenberg. The Government makes it?
Mr. Wilder. The Government makes it and takes the first ship, with all the
extras and changes, and they are not made on a flock of ships, but only on one
ship.
Senator Vandenberg. There is no outside aid there?
Mr. Wilder. No, sir. If you want 20 destroyers, you build one and get it right
and you can eliminate sales expense, and your vessels would not cost you one-half
as much as if you have got to do it the other way. You have a known design,
which is not going to be changed in the course of construction, but they carry out
a consistent program.
Now we are faced with the fact that for 10 or 12 years we have not built any
vessels, and we have got to build some and have no designs. Obviously the boys
get their hands in and this sort of thing occurs.
B. — Electric Boat Company's Monopoly
The record of Electric Boat Company and its peculiar methods of
operation both domestically and abroad are contained in volume I of
the committee hearings. They are not summarized here.
The charge was made by an officer formerly attached to Portsmouth
Navy Yard that in order to keep this company in operation the Navy
had handed over its own development work of 15 years to the com-
pany on a silver platter. This charge was discussed at some length.
(See a.) The dependence of possible competitors on Electric Boat
patents was discussed by officers of Sun Shipbuilding Co. (See b.)
(a) Evidence on this matter was presented in part in the form of a
letter from Commander E. L. Cochrane, formerly connected with the
Portsmouth Navy Yard. He used the phrase, "The Navy's develop-
ment of 15 vears were thus handed to the Electric Boat Co. on a silver
platter * "^ * *" (Apr. 11, 1935, galley 48 YD).
Mr. LaRouche. Perhaps this will refresh your memory. Do you remember a
letter written September 5, 1934, from the Portsmouth Navy Yard, from Com-
mander E. L. Cochrane? We have what seems to be a copy of it, and I thought
you might like to furnish the original from your files, or at least identify this as
having been received [handing paper to witness].
Admiral li.^ND. Yes; I recognize that letter.
Mr. LaRouche. I should like to offer this for the record.
(The letter referred to was marked "Exhibit No. 1940" and is included in the
appendix on p. — .)
Mr. Raushenbush. What is the purpose of it?
Mr. LaRouche. The purpose of the letter is indicating that the competition
of the navy yards is perhaps not undiluted.
The Ch.\irman. Is not what?
Mr. LaRouche. The letter speaks for itself. I will read some extracts from it.
It deals with the competition furnished by the navy yard.
Mr. Rai'shenbush. Who is this letter from?
Mr. LaRouche. It is from Commander E. L. Cochrane, Portsmouth Navy
Yard, and is written to Admiral LaTid.
Admiral Land. You might as well get it straight. He is not a commander of
the Portsmouth Navy Yard. He is at sea, on the staff of one of the admirals of
the fleet, but he is very much interested in the Portsmouth Navy Yard, and he is a
member of my corps, and I have no objection to that letter, but he is not at Ports-
mouth, but was on duty there.
Mr. Raushenbush. To get this straight, Mr. LaRouche, you did not get this
letter from him?
Mr. LaRouche. I did not get this letter from him.
Mr. Raushenbush. The sender of the letter does not know you have it?
Mr. LaRouche. Oh, no.
The Chairman. Does the writer pretend to be the commander of the navy
yards?
Mr. LaRouche. It is written with the inference he was there.
Mr. Raushenbush. What is the date?
Mr. LaRouche. September 5, 1934, and Admiral Land said he was there.
Admiral Land. What is the heading? Southern Drill Grounds?
Mr. LaRouche. Southern Drill Grounds.
Admiral Land. He is not at Portsmouth. That is what I want to straighten
out.
Mr. LaRouche. I think the letter will clear up some of the misunderstanding.
The Chairman. Proceed.
194
MUNITIOlSrS INDUSTRY ' 195
Mr. LARotrcHE (reading):
It is with great reluctance that I undertake this letter, because I realize
first, that I am not fully advised on the Department's present decisions
and, second, that it is not directly my business in any case. If, however,
a proposal to do all the detail designing for the new submarines at Groton
is being considered, as I have heard, the question seems to me to be suffi-
ciently serious to necessitate some observations from me in advocacy of
retaining the design organization at Portsmouth.
Groton is the Electric Boat Co., I take it?
Admiral Land. Correct.
Mr. LaRouche (continuing reading):
As you know, I followed in your footsteps in the old submarine desk at
the Bureau and then in Saunders' at Portsmouth. I have been therefore
thoroughly familiar with a large measure of the submarine design work done
since the war and I know the ])ersonnel in the organizations at both Ports-
mouth and Groton verj' intimately. I was also a party to, and advocate
the agreement by which ostensibly in exchange for their plans, but actually
for almost no real consideration at all, the Navy (Portsmouth) turned over
to the Electric Boat Co., a very large number of the Narwhal (ex V-5) plans,
most of the Dolphin (ex V-7) plans, and practically a complete set of Cachalot
plans. During many visits of the various members of the Electric Boat Co.
organization to Portsmouth most full and frank discussions and exj^lanations
of methods and experience were given to them.
The Navy's developments of 15 j^ears were thus handed to the Electric
Boat Co. on a silver platter, so to speak, on the conviction that it was desir-
able to keep at least one commercial company in the submarine game and
that it was obviously advantageous to the Navy to get the best submarine
possible from them. The Portsmouth civilian force were fully alive to the
challenge of competition from the Electric Boat Co., and were willing to spot
them their own knowledge and experience on the conviction that they were
smart enough to keep ahead of the Electric Boat Co. and in the belief and
expectation that they would be allowed to continue to compete with them.
I know the personnel at the Electric Boat Co. very well and have great
admiration for them. I know also that they are the same crowd who carried
us through a series of boats from the A's to the S's with miserably slow
progress and that little forced upon them. I know also that it is a commer-
cial organization and that the profit motive has been long unnourished, and
I predict with full conviction that development in submarine design will not
continue at its present rate if a Government agency is not retained which
can furnish detail design competition with them.
I am convinced that such competition in design work is as effective as
competition in costs. I believe that from the point of view of development
of man-of-war designs, it is even more valuable.
I hope that you will pardon the length and frankness of this letter. I have
been impelled by a sense of duty and loyalty to an organization from which,
during 4 years, I received only the most cheerful and continuous loyalty in
return. I should feel derelict did I not attempt to present their case. I feel
equally that it is also the Navy's case.
Admiral Land. Do you want us to comment on that. Senator?
The Chairman. If there is any comment to be oflfered.
Admiral Land. There is a great deal of comment. His premise is correct. He
is away from the yard and does not know what is going on. He does not know
the Department's policy. He is a fine and enthusiastic partisan for the Ports-
mouth Yard, and very properly so, and I admire his enthusiasm, but he is not
cognizant of the Department's attitude. What he says as to principles is prob-
ably correct, but when he delves into past history, he may not be right, because
he is rather young. When you go back of 1899, then most of us do not know.
The Department is cognizant of the rivalry and cooperation existing, and that
must be taken together. Rivalry and cooperation is being considered by those
of us who have the matter in hand, to be for the most efficient and best interests
and the most economical procedure in naval service which, after all, is our job,
to get the best boats, and we are utilizing both yards, with a cooperative, cross-
fire plan, back and forth, between Groton and the Portsmouth Yard. All you
have to do is to look at the progress reports. As I stated yesterday, Portsmouth
can take care of itself, at any jump in the road, and vice versa, the Electric Boat
Co. is being pushed and may be a little ahead of what we predicted they could do.
196 MUNITIONS INDUSTRY
Mr. Raushenbxjsh. This letter states [reading]:
The Navy's developments of 15 years were thus handed to the Electric
Boat Co. on a silver platter. * * *
Is he completely incorrectly informed about that?
Admiral Land. I did not say that he was. I expect his expression may or may
not be 100 percent correct, but by the same token we have been given and paid
for what the Electric Boat Co. produced. I say it is merely an exchange of ideas,
involving talent and skill in design, which we have talked about here, and which
Admiral Robinson and I thoroughly believe in. Sometimes one gets the better
of it and sometimes another, but it is Government cooperation with private
engineering and using the abilit^y and technique and design genius of competitive
concerns, one being a navy yard and one being a private yard.
Senator Bone. Admiral Land, he suggests in this letter that the Government's
work was given to the Electric Boat Co. When the Electric Boat Co. supplies
plans for a ship, the Government pays for them. Is not that correct?
Admiral Land. That is correct, generally speaking, but there is an interchange,
and it works both ways. We pay for plans furnished to us by private yards,
and if the shoe is on the other foot thej^ pay for plans furnished them. As a
matter of fact, the producing of plans may simply involve cost of labor, material,
and the necessary printing, and perhaps what we call "C. B.'s", and it is done on
a very sound and practical basis, entirely agreeable to each other.
Senator Vandenberg. Does the Electric Boat Co. in turn make submarines
for other countries?
Admiral Land. During the course of its history it has; yes, sir.
Senator Vandenberg. Does it have the advantage of this interchange with
the Navy when it deals with foreign governments? I assume it does.
Admiral Land. Undoubtedly.
Senator Vandenberg. Docs that mean that any submarine development under
the Navy Department is at the use of any foreign government which wants to
deal with the Electric Boat Co.?
Admiral Land. There are certain restrictions on that, which are also covered
in the contract, covered by regulations and covered by departmental instructions.
Certain tilings are secret and certain things are confidential, and certain things
are for service use only. There are three categories wliich the Department
attempts to safeguard the vital parts of that form of construction.
Admiral Robinson. If I may, I wouki like to acid one remark about the
letter there, which is perfectly all right, but the inference might be drawn from
that letter that the Government had allowed an imjiroper exchange of informa-
tion between the Electric Boat Co. and the Portsmouth Navy Yard, for which
the Government was getting nothing in return. And that inference is incorrect.
The interchanges of information between the Electric Boat Co., of which the
writer cannot possibly be aware, because the question took place with the Navy
Department itself and the assistants from that company, have been very, great.
One should not draw the inference, if he does, that there has been any improper
interchange of information there or interchange of information which was not
to the Government's interest, because it has been to the Government's interest
in every case.
Senator Bone. Admiral Robinson, does the Navy Department make any
inspection of a submarine built for a foreign power by the Electric Boat Co.?
Admiral Robinson. I am afraid I cannot answer that question.
Senator Bone. It does not seem to be indicated by the testimony.
Admiral Robinson. It docs not come under our Department, and I would not
know about it. If you mean, do we know about it, those boats would be built
in the same yards, if thej' were built for a foreign j)ower, as our boats, and, of
course, our inspectors would have full access to them. But, as a matter of fact,
so far as I know the Electric Boat Co. has never built any submarine for a major
power. They have for some minor powers, which did not have shipyards of
their own, except during the war.
Senator lioNE. The officials testified here that an overwhelming majority
of the submarines they built have been built for foreign governments.
Admiral Robinson. That must have includod the period of the war.
Senator Bone. Three hundred and some submarines, if my memory serves me
correctly. They afterward sued the German Government, if I remember the
testimony correctly, for the use of their own patents, employed on a German
submarine.
Admiral Robinson. I do not know what they did during the war.
MUNITIONS INDUSTRY 197
Senator Bone. If the Navy followed that, that would be very clear. They had
the use of our American patents, or the American patents were freely used in
German submarines.
Admiral Robinson. Of course, the Germans used any patents durmg the war
they wanted, and so did we. Nobody paid any attention to patents.
Senator Bone. This free exchange between the Electric Boat Co. and the Gov-
ernment might readily lead to the use of the submarines by the foreign govern-
ments in defense, which has been made clear from the testimony.
Admiral Robinson. There are certain restrictions as to what the contractors
can do for foreign powers. That applies not only about submarines but every
conceivable sort of apparatus, radios, and a number of sound apparatus, and all
sorts of things, which they sell to the Government, and which, when theywant to
soil to a foreign power or citizen of a foreign power they must get permission from
the Navy Department before doing it.
Senator Bone. The testimony here as to the restrictions placed on the x^merican
mtmitions maker supplying munitions to a foreign power indicates that the re-
strictions are quite vagiie. The restrictions imposed on the munitions makers in
this country seem to be very thin, very vague, and very tenuous.
Admiral "Robinson. You may be quite right, but I am speaking only of the
Navy Department's relation, and only the equipment about which I know. Of
course, naturally, I do not know anything about ordnance materia,l. I can state
in our own instance, where there is the slightest question of secrecy involved,_there
is a clause in the contract which specifically states that the manufacturer is not
entitled to sell this equipment to citizens of foreign powers or to foreign powers,
and we have hundreds and thousands of them every year just like that, and we
get letters in connection with that. In other words, when that equipment be-
comes obsolete, we allow it to be sold. The same thing applies to submarines.
When you get back to the war, I am afraid I am a little out of my depth. I do
not know much about conditions obtaining then.
Senator Bone. Patents employed in the munitions business were made avail-
able freely to foreign powers. That is true on airplanes and almost the entire
field of munitions. .
Mr. Roosevelt. Senator, may I say, since I have held the position of Assistant
Secretary of the Navy, I have signedmany letters denying tliem the right to use
certain specific parts" of airplanes, or certain tvpes of ordnance, or whatever it
may be. We watch it pretty carefully, I think, sir, in the Navy Department,
and we deny them the right to use them.
Senator Bone. We found letters giving releases for foreign sales. There is
convincing evidence to me, as a lawyer, that these concerns and manufacturers
were making free use of these patents and materials which were being shipped
abroad. That convinced me. Tf I were on a jury, I would convict a fellow on
the evidence before me, having in mind the instructions of the court that I could
convict onlj' on evidence that was beyond a reasonable doubt.
Mr. Roosevelt. The only exception to that rule is when the devices become
obsolete, or, of course, when the patent runs out. Then we have no control.
Admiral Land. Might I say a word in answer to Senator Bone? You are
undoubtedly correct, but I should like to invite your attention to the fact that the
Government furnishes its own ordnance for submarines. It furnishes its own
guns; it furnishes its own machine guns; it furnishes its own torpedoes; it furnishes
its own periscopes, to a large extent; and it furnishes much of its radio and special
things Admiral Robinson mentioned. And those things are ours and not the
Electric Boat Co.'s. That, after all, is the purpose of the submarine,^ to carry
this particular torpedo or that particular weapon, and the patents involving
primarily these construction details, of all kinds, of v.'hich, when I was younger
there were a good manj' of them, but they have long since expired.
Senator Bone. I would not undertake to dispute with a technical man some
aspects of that business, particularly with reference to the shape and type of the
hulls, or the machinery in a vessel, but I would think that the very heart of a
submarine would be in driving equipment, the type and shape of its hull, and the
capacity to keep the air fresh, clean, and sweet in a submarine. As to guns, of
course, foreign powers probably make guns just as good as we make them, but
the vital thing in a submarine, I would think, would be the machinery driving it
and the machinery to keep the air fresh and clean and sweet in a submarine.
I think you will agree with me, at least to that extent. Those things, I take it,
are largely, if not almost entirely, controlled by patents, except those which have
run out. Of course, the old war patents have probably expired.
Admiral Land. I do not recognize anything you say there as being patents in
this day of our Lord. They were patented at one time.
198 MUNITIONS INDUSTRY
Senator Bone. What does this naval officer mean in stating:
The Navy's developments of 15 years were thus handed to the Electric
Boat Co. on a silver platter, and the Government's plans were turned over
for "actually almost no real consideration at all"?
Admiral Land. He refers to the perfectly legitimate interchange of plans for
utilizing the plans of both establishments. There is that arrangement between
the two, and we have egged it on to the best of our abihtj^, because it is very
efficacious in getting results.
Admiral Robinson. Whether it be a navy yard or contractor building ships,
we give every bit of information which would tend to make a better ship. We
do not make any interpretations at all because those who are interested do it.
We cannot let a contractor turn out a ship which competes in some regards, but
if there is any such information, that we can give him which would make it
better, we do. Of course, once the ship is built, we get information about it,
and that becomes common knowledge to everybody interested in the art. That
is the only way you make progress.
Senator Bone. Is it not almost an impossibility to keep one of the military
secrets about equipment and the like, because it will be passed all around? If
you are going to give to a shipbuilder the latest design 3-ou want incorporated
in a ship, the officers and officials of that company know all about it?
Admiral Robinson. Senator, if you are asking me for a personal expression of
opinion, I think it is more or less impossible for any country to keep any secrets,
very much.
Senator Bone. That is what I mean.
Admiral Robinson. Everybody- knows what everybodj- else is doing in the
entire world, when you come right down to it, and there is very little secrecy
about it. In fact, engineering is the hardest thing to keep secret. It is like
trying to hide the bass drum; it just cannot be done.
Senator Bone. There is a great deal in the press about military secrets.
Admiral Robinson. There is no such thing, really.
Senator Bone. I have decided that there is no such thing as a military secret.
Admiral Robinson. I think you are quite right, sir.
(b) Sun Shipbuilding Co. and the Navy are at the mercy of Elec-
tric Boat Co. lor submarine patents, and on bidding on naval work,
Sun was unable even to learn how much Electric Boat would charge
for the right to use the patents. The testimony shows that Sun
officials had previously thought the Government owned these basic
patents (galleys 45, 46, and 47 WC, Apr. 3).
Mr. LaRouche. Now, Mr. Pew, will you tell the committee what you can about
the situation as to submarine plans and patents, as briefly as you care to?
Mr. Pew. All right. In 1933 the Navy Department asked us if we wanted to
bid on submarines, and we told them "yes." We sent in a bid on submarines in
1933, and I will have to admit we did not know much about the patents.
Mr. LaRouche. At the time yon sent in your bid?
Mr. Pew. No, sir; and we were low bidder, but we were not low bidder on two
submarines. The Navy Department could save about $100,000 by taking the
two submarines from one company rather than one from us and one from the
other company.
On account of the fact that in the meantime the code liad gone into effect,
and that we would have to keep our men who were working on this one submarine
working 30 hours a week, and would have to have the balance of the men in the
yard who were doing merchant work or other work at 30, and could not pay more
for the Navy men, or the work being done for the Navy, than we could for public
work, I told Mr. Haig, our vice president, who had gone to Washington on this
account, to stay away from Washington, that it was to the advantage of the
Government to give the other person the two boats, and we never heard from
the Government afterward.
Mr. LaRouche. That was in what year?
Mr. Pew. 1933. In 1934 we heard about the patents and took up the question
of patents, and you will find the correspondence on that, which I think I have
given to you right there. If I have not, I will give it to you. Tliey agreed that
they would permit us to build under their patents, but they did not give us a
price, and said they would take it up with the Board. We had the estimate
of price, and we were not low bidders the second year.
MUNITIONS INDUSTRY 199
Mr. LaRotjche. You had an estimate of price on plans?
Mr. Pew. Yes, sir.
Mr. LaRouche. But not on patents?
Mr. Pew. On patents. We put in there, in our figures, what we considered it
to be worth. I do not remember the exact amount, and, in the meantime, labor
had gone up in the shipyard a little bit, so that the facts were we were not low
bidders. We did write to the Secretary of the Navy, hoping that he would give
us one, to distribute the work, and his answer was that he could not do so because
we were not the low bidders.
The answer would be handed to you.
Mr. LaRotjche. The situation on patents, as I gather it, is that they are all
in the hands of one company?
Mr. Pew. My understanding is so.
Mr. LaRouche. And that you could not make a bid without an arrangement
with them?
Mr. Pew. We so understood it.
Mr. LaRouche. Your bid in 1934 was based purely on your guess?
Mr. Pew. It had to be a guess entirely, upon what we might have to pay for
these patents.
Mr. LaRouche. Are you telling the committee that you are at the mercy of
one company, which has those patents?
Mr. Pew. We believe we are. Does that answer your question?
Mr. LaRouche. Unless you can make it stronger.
Mr. Pew. I say, we believe we are.
Mr. LaRouche. Did the Navy ask you at any time to enter competition in the
submarine field because they thought'it would 'be a good thing for the Navy?
Mr. Pew. I believe they did.
Mr. LaRouche. And vou did enter that competition?
Mr. Pew. We did.
Mr. LaRouche. But you got no contract in either j-ear?
Mr. Pew. We did not get a contract in either year. The Navy did what they
should have done, like any business man would, take the lowest price for the
Navy, and as we were not very anxious to have them then, we did not at all
press it.
Mr. LaRouche. You were not very anxious to have them at that stage because
you were at the mercy of the Electric Boat Co. as to patents?
Mr. Pew. We did not know it then.
Mr. LaRouche. You did not know it then, when you put in your bids?
Mr. Pew. No, sir; we did not.
Mr. LaRouche. But, as it turned out, if you had gotten that contract
Mr. Pew. We would have had to go through with it and would have gone
through with it, if there was any method to get the right from them to use them.
And I believe they would have given them to us at a price.
Mr. LaRouche. At a price?
Mr. Pew. Yes; but I do not know what that price was.
Mr. LaRouche. And they would have set it to suit themselves?
Mr. Pew. I imagine so.
Mr. LaRouche. Did any of the naval officers tell you. or anyone in the Navy
tell you, that the Navy needed some competition, and had to have it in the
submarine field?
Mr. Pew. I would like to have Mr. Haig answer that for me, but. I believe
they did. They did not so tell me that they would like to have it.
:): 4: * * * • 4i
Mr. Haig. My name is Robert Haig. I am the vice president of the company.
Mr. LaRouche. Mr. Haig, I will ask you the question which I just asked of
Mr. Pew; whether the Navy Department, in the person of naval officers, or
others in the Navy, told you that competition was necessary in the submarine
field, and that they did not have it?
Mr. Haig. Just made that comment, that is all, and we expressed our interest
to build those submarines.
Mr. LaRouche. And they felt that you could supply that competition?
Mr. Haig. Yes, sir.
Mr. LaRouche. Did you feel that you had brought down the price of subma-
rines bv entering a bid in the vears 1933 or 1934?
Mr. Haig. Not in 1933. B'ut in 1934, substantially. And I so stated in my
letter to Acting Secretary Roosevelt.
Mr. LaRouche. And that you had made these bids in response substantially
to their request?
200 MUNITIONS INDUSTRY
Mr. Haig. Yes.
Mr. LaRouche. And, having made a bid, you felt that you had substantially
lowered the price that the existing company, the Electric Boat Co., were charging
the Navy for submarines?
Mr. Haig. Speaking from memory, the price in 1934 was, I think, about $400,-
000 lower than it was in 1933, and yet
Mr. Pew. You mean the reverse.
Mr. Haig. No.
Mr. Pew. Yes; j^ou do.
Mr. Haig. That the price to the Electric Boat in 1933, our bid was substan-
tially lower, and the boats were rather more diflBcult to build, and perhaps the
costs of labor were considerably higher.
The Chairman. Now, Mr. Haig, although you were bidding on these sub-
marines, you vvere not in possession of the right of manufacture under basic
patents, vv^ere you?
Mr. Haig. We were not, sir, and that was not disclosed to us by the Govern-
ment, that that firm had the master patent.
The Chairman. You assumed, wlien you were bidding, that the Government
possessed those patents?
Mr. Haig. We certainly did.
The Chairman. Then you found that the Electric Boat Co. exclusivelv had
them?
Mr. Haig. May I explain that situation? In 1933 the Government undertook
to supplv the plans.
The Chairman. In 1932?
Mr. Haig. 1933. In 1934 they distinctly put it in the instructions to the
bidder that he must get the plans from another contractor, that the Government
did not desire to assume the responsibility of securing the plans. Then we wrote
to the other contractor, which was the Electric Boat, asking for a price which
they would put upon supi)lying us the plans, and then they intimated to us that
while thoy would supply the plans at a price, they woulci have to take it up with
the board as to whetlier they would allow us to operate or build under the patents.
The Chairman. Did they report to you after they had taken it up with the
board?
Mr. Haig. No; it was too late; and we never got a contract.
The Chairman. It seems to me we have this situation: An American com-
pany, wanting the access to patents and designs which are basic to submarine
constrncti<>n, cannot obtain them, but I do not know of any foreign manufacturer
of submarines who has not been able, if he wants to paj' for it, to get those same
American-owned patents from that company who owns them. Is that about *
fair statement?
Mr. Haig. That is correct, as I understand it, that the principal submarine
plans are their i)roperty under those patents — Mr. Pew and I have discussed
this, and that we would have to go to the Government to get relief for us, if they
assigned us a contract, to empower us to carrv out the contract, because they
might have charged us $20,000, $40,000, or $100,000 for the type.
The Chairman. But they have never quoted you any prices?
Mr. Haig. No, sir.
The Chairman. You have been imable to get them to quote a price for you?
Mr. Haig. We did not ask, becau.se tliey said it was a matter of p<«licy for
them to take up with their board — that is, the Electric Boat — as to the per-
mission for us to operate under their patents.
The Chairm.xn. Nov.-, as respects submarine purposes, for submarine war-
fare, our Government is utterly at tlie mercy of the Electric Boat Co?
Mr. Haig. No; I think tliat will be corrected, because during the late war, as
you will recall, the Government took preemptive right of all patents.
The Chairman. That would be true in time of war.
Mr. Haig. Yes.
The Chairman. Now, what of our preparation for war?
Mr. Haig. That would be something on which the Government would liave to
take authority.
The Chairman. As it is now in peace times the Government wanting to buy
submarines is com])letely at the mercy of the Electric Boat Co. to give the right
to manufacture under their basic patents?
Mr. Haig. If they decide to build the submarines in accordance with the
Electric Boat's plans, which tliey are doing today.
The Chairman. They are not doing today?
MUNITIONS INDUSTRY 201
Mr. Haig. They are. I understand all the navy yards today are being supplied
with the plans from Electric Boat for the last submarines.
The Chairman. Yet the navy yard could not sublet those plans to you?
Mr. Haig. No, sir. The Electric Boat has to undertake in its contract with the
Government for a submarine that they will supply the plans to another contractor,
but plans are very different from patent rights.
The Chairman. Just how are they different? The plans are drawn under those
patent rights, are they not?
Mr. Haig. True; but I must get the right to operate under that patent.
Mr. LaRouche. Is it not a further fact, Mr. Haig, that the patents which you
have been discussing were developed, in large measure, by the Navy itself?
Mr. Haig. That I cannot tell you. That is, our entry into the submarine field
was very shortly before. Prior to 1933 we were not interested.
The Chairman. Are you going to continue to bid on submarines, the situation
being what it is?
Mr. Haig. I would like to have you read my letter to The Assistant Secretary
of the Navy. You have got it.
Mr. LaRouche. We have it before us.
Mr. Haig. I have just raised the point.
The Chairman. It occurs to the Chair that you might be dealt with most
unmercifully, if you would bid and were granted the award, and the owners
of the patents held you up. You would be in a terrible predicament, would you
not?
Mr. Haig. Absolutely.
Mr. LaRouche. Let the letter be read. The letter is a long letter, but I will
read it all.
The Chairman. I do not care how long it is. If it deals with this question,
and is pertinent, I think we should have it all.
Mr. LaRouche. It is very pertinent. It was written August 21, 1934, to
Hon. H. L. Roosevelt, which was 6 days after the bids on the submarines and the
whole program were opened. [Reading:]
Hon. H. L. Roosevelt,
Assistant Secretary of the Navy,
Navy Department, Washington, D. C.
Dear Sir: With reference to my visit to Washington on August 20, and
my interview with you regarding our recent bids on two submarines for the
United States Navy, I wish to place before you as a matter of record the
following facts.
In July of 1933 we bid on one submarine, but as there were only two to
give out to the private yards and our bid was not considered favorable, the
contract for the two submarines at that date was awarded to the Electric
Boat Co., Croton, Conn., for the sum of $2,770,000 each.
This year when the bids were submitted the Electric Boat Co., and the Sun
Shipbuilding & Dry Dock Co. were again the only two bidders for the sub-
marines.
The submarines on which we bid were slightly larger than those tendered
for in 1933, but in most essentials they were identical with the boats con-
tracted for last year. We very carefully and with considerable diligence
made out estimates with due regard to the increased cost of labor and ma-
terial since 1 yeai' ago as favorable for the Government as was possible with
the knowledge at our command, in regard to the cost of building submarines.
The low price todaj^ made by our competitor, the Electric Boat Co., shows
a very substantial reduction in cost and to an unmistakable degree the benefit
the Navy Department have obtained by reason of the active competition
between the two bidders for this work will result in a most substantial sav-
ing to the Government in the cost, of these vessels. Without the active com-
petition of the Sun Shipbuilding & Dry Dock Co. the cost would have been
in excess of $1,000,000 more for the three vessels.
It should be noted that in our tender we agreed to remit $200,000 to the
United States Navy Department on the two boats as a reduction in purchase
price for the plans that we would receive from them, and that sum should
show a reduction in our figures and receive full consideration.
We are asking your consideration before awarding those contracts on the
following points:
We are anxious and desirous to participate in this work, because we think it
is to the advantage of the United States Navy Department that more than
202 MUNITIONS INDUSTRY
one private yard should be capable and engaged in the building of submarines,
and so long as the contracts are awarded all to one firm it will be difficult
for another firm to break into this work and produce healthy competition
with reduction in cost unless they are afforded an opportunity to engage in
the work and thereby acquire a closer familiarity with the production that
would become available on subsequent contracts.
The Government has now the placing of 6 submarines, of which, no doubt,
at least 2 will go to the Portsmouth Navy Yard, and we feel that we have a
claim on the Government to consider our position in this matter and feel
that the awarding of one or two submarines to our yard will be distinctly
to the advantage of the Navy Department.
We have the capacity and financial standing to perform any contract the
Government may require. We have the technical and designing staff and the
tools and facilities needed for this work in the highest degree. We have the
reputation for high-class work and for reputable business dealings, and we
are assured that in placing our claim before you for consideration it will
receive fair and equitable treatment.
If it is not the interest of the Government to encourage other private bid-
ders, then we would not be interested in further bidding on submarines, but
we feel perfectly certain that it is the Government's desire to encourage reput-
able builders to take up this class of work, and we are therefore encouraged to
ask that the Government give this matter serious consideration as a matter
of policy to strengthen their hands in the production of a high-class and at
the same time complex unit in yards that have a standing and ability to per-
form the work and which will at the same time extend the Government's
capacity beyond a single yard, as the condition is today.
There is one further point that we will be glad to have you give careful
consideration and that is the question of unemployment. At the present time
our shipyard is entirely empty and, although we have a large and very
efficient shipyard, there is no merchant work at the present time to be ob-
tained, with the consequence that Chester and the surrounding vicinity is
very sadly off for lack of employment, and the awarding to us of one or
two submarines would bring about in Chester, which is a densely populated
industrial center, a strong and encouraging feeling that the business revival
had some tangible result in this district at last.
Last year, when the Government bids were opened for the combatant ships,
there was then a very strong expression of opinion that supply ships for the
Navy Department, which no doubt they require, would be built and which
would furnish prompt and desirable shipyard work, but up to the present
time nothing has been done, although there is no other type of construction
on which the Government could spend money at this time that would more
quickly result in substantial reemployment than the construction of a number
of supply ships for the Navy Department.
In submitting this claim, we would urge that you ])resent it in the highest
quarters for consideration. I beg to tender you my sincere thanks for your
courtesy and kindness on my recent visit to your office, wlijch I assure you is
appreciated.
Faithfully yours,
The CuAiuMAN. What is the date of that letter?
Mr. LaRouche. That was August 21, 1934.
The Chaiuman. Has there been an acknowledgment or a response from the
Assistant Secretary of the Navy?
Mr. Haig. Yes, sir; quite a short letter.
Mr. Pew. You have it there.
The Chairman. Why ought not that be read now, in connection with the
matter?
Mr. LaRouche. I will read it. This letter is dated August 21. 1934, bearing
the letterhead of the .Assistant Secretary of the Navy, Washington, addressed
to Mr. Rt)bort Haig, vice president, Sun Shipbuilding & Dry Dock Co., Chester,
Pa. [Reading:]
My Dkar Mr. Haig: Your letter of August 21 has received careful con-
sideration. The points raised in your letter were not only considered by
me but by all concerned in connection with the awards of contracts.
As you recollect, many of these points were discussed in our interview,
and similar points were discussed in your interviews with other representa-
tives of the Navy Department.
MUNITIONS INDUSTRY 203
In order to split the awards of contracts to private yards for submarines,
it would cost the Government about $1,400,000 more than obtains by
awarding the contract for three of these boats to the lowest bidder.
After full consideration by all concerned, the Department, on August 22,
awarded and allocated contracts for submarines as follows:
Three to the lowest bidder, the Electric Boat Co.
Two to the Navy Yard, Portsmouth.
One to the Navy Yard, Mare Island.
In view of the foregoing, it is regretted that your request in connection
with this matter cannot be granted.
Sincerely yours,
H. L. Roosevelt,
Assistant Secretary of the Navy.
I presume you are thoroughly familiar with it?
Mr. Pew. Yes; we have a copy of that. It is all right.
The Chairman. Were you or was the Sun Shipbuilding Corporation quite
content with the reply that you got?
Mr. Pew. I do not know that we could do anything else than be content.
The Chairman. Sometimes we have to make ourselves content.
Mr. Pew. We were not the low bidders. They had a patent that we did not
know what we would have to pay for it, and the Government stated the thing
that they were to do, what was best for the Government, and we said nothing
more about it.
The Chairman. And yet you were, as I see it, performing a pretty genuine
service.
Mr. Haig. We thought we were.
The Chairman. In bidding as vou did. The result seemed to be a saving to
the Government of nearly $1,000,000.
Mr. Haig. We thought so.
The Chairman. And yet you were taking extremely great chances by bidding
at all.
Mr. Haig. Mr. Pew suggested I go down and talk it over with Mr. Roosevelt,
which I did, and which you have just read. It iray be a long letter, but I had to
cover it all as a matter of record. I thought at that time he was satisfied we had
some claim on the work, but when the award came out it was 3 vessels to the
Electric Boat again, in all 5 they got in 2 years, and no other private bidder got
any.
The Chairman. What was your thought -SNith respect to the basic plans which
are being pursued in submarine building now? Are there better plans in existence?
Mr. Haig. I do not know; I am not an authority on submarines.
The Chairman. Mr. Pew, what is your thought?
Mr. Pew. I could not say.
The Chairman. Mr. Raushenbush wishes to ask a question.
Mr. Raushenbush. Mr. Haig, the other day we had trstin-ony here from the
president of the Federal Shipbuilding Co. to the effect that he thought that on a
cruiser a company which had never built one was starting at a disadvantage, which
he put somewhere between $500,000 and $1,000,000 behind a company that had
already built one. Could you give us an idea of how far behind, in that sense,
you were, behind a company which had the practice and experience of building
submarines?
Mr. Haig. The fact that we put aside $200,000 in our bid just indicates where
our mind went. We would be that much at least out before we would come on a
level with the other men.
Mr. Raushenbush. You would put it at about $200,000?
Mr. Haig. Yes, sir.
Mr. Pew. I or two; $100,000 each.
Mr. Haig. If you developed one, you had the stuff the next time for the
second one.
Mr. Raushenbush. Yet, in spite of the disadvantage of $200,000, you were the
low bidder on one, were you not?
Mr. Haig. Yes, sir.
Mr. Raushenbush. So that you take that to be a sort of prima facie evidence
that the bidding was a little high on the part of the other company, was it not?
Mr. Haig. We bid direct on the specifications.
Mr. Raushenbush. Yes.
204 MUNITIONS INDUSTRY
Mr. Haig. But the other bidder, with his wide experience and the number of
ships he handled, bid on their specifications something like three alternates;
not that I am saying this unfairly, but he gets away from the specifications to a
certain degree, and puts up a lower bid, which the Government probably takes,
but we are only able to bid on the specifications.
Mr. Raushenbush. As long as there is no other company in this country
which has the experience and practice building submarines, there is no other
company who could duplicate their stunt? That is, of having alternate bids
which might go lower than the ones executed in accordance with the specifications.
Mr. Haig. I cannot see that any other one could go in. We did it for two
reasons: Mr. Pew thought that we should get into it, since some other shipyard
should be in that work also.
Mr. Raushenbush. With a disadvantage that you think is at least $200,000,
and perhaps more, in mind, I would like to restate the question which Senator
Nye asked a little while ago. Is there any likelihood of your being ableto
repeat what you have done before, saving the Government some money by bidding
on submarines?
Mr. Haig. It all depends on what work we have in the yard, and what our
thought is about it. If we had other work in the yard, I think not. It is almost
hopeless.
Mr. Raushenbush. It is almost hopeless?
Mr. Haig. Yes, sir. It costs you money; not only that but holds up your name
as being unsuccessful, and we do not like it. If you are running your head up
against a wall, and if you cannot get through that wall, I mean.
C. — Delay
The delay in the designing of ships by private yards was discussed
in section A, above, at various times. The importance of this delay
is that when one yard is preparing plans to be used by several other
private and navy yards, a whole program can be held up very defi-
nitely.
A chart in the appendix shows the degree of completion of ships on
January 1, 1935, and indicates that the work in the navy yards has
been delayed somewhat more than that in the private yards.
Considerable evidence of this delay was given by W. A. Calvin,
Secretary of the Meta.1 Trades Council of the American Federation
of Labor (Jan. 25, galley 78 GP, see also sec. A above). He stated
that the keel of Cruiser 4i, Philadelphia Navy Yard, had not been
been laid 16 months after its award, also the same situation was true
of Cruiser 40, New York Navy Yard. The same statement applied
to Cruiser 43 at the New York Shipbuilding Yard.
Navy officials held that the delay in construction work was not
due to monopoly of design by the private yards. (See a.) The
Navy apparently lent its support to a code provision to prevent the
establishment of new shipbuilding facilities. (See h.)
Mr. C. L. Rosemund, president of the Federation of Technical
Engineers', Ai'chitects', and Draftsmen's Unions, testified concerning
the union activities in making Public Works Administration funds
available to the Navy in order to provide employment for mechanics
and draftsmen. He described the delay following the allocation of
$238,000,000 in P. W. A. money as—
the most complete job of double-crossing I ever experienced in my life. * * *
We thought this was our unemployment relief measure. The Navy Department
and the shipbuilders thought this was just another shipbuilding program. * * *
He gave evidence of delay due to private design work on the 1931
destroyers. His evidence on connected angles of the matter is given
below in some detail. (See c.)
(ft) The question of the relation between design and delay was
raised again on April 10 (galley 28 YD, et seq.), and Admiral Land
stated that the delay, in his opinion, was not due to a monopoly of
design by the private yards:
The Chairman. Are the navy yards behind in their production, by comparison
with the private yards, at the present time?
Admiral Land. They are.
The Chairman. How long has that been true?
Admiral Land. It has always been true, under a system of this kind, and it is
inherently of necessity true, the time varying from 2 to 6 or 7 months, depending
upon conditions and circumstances.
The Chairman. There has been testimony. Admiral, that the navy yards are
behind the private yards in the construction of steel ships, due to the fact that
there is a practical monopoly of designing. Do you agree that that is the case?
Admiral Land. Of course that statement is not true. Admiral Robinson and
I discussed it, when we were before the committee before, and I attempted to
answer the question three times, unsatisfactorily to all. Admiral Robinson
139387—35 14 205
206 MUNITIONS INDUSTRY
answered it much more satisfactorily, apparently. The statement is not correct.
There is no such thing. There is not a design monopoly in the matter of design
plans. There is a pretty even distribution between the navy yards and the
private yards, and it was brought out in the Secretary's letter that a 50-50 break
in the ships was given and is being given.
The Chairman. Are you having difficulty getting the designs from this private
corporation?
Admiral Land. The term "design" is an incorrect one in that way. The term
has got to be broken down. So far as difficulty in getting or expediting working
plans is concerned, which, in turn, involves designs of ship parts, auxiliaries, and
all things like that, we have no difficulty in obtaining designs. That responsi-
bility lies with the Navy Department, and primarily with Admiral Robinson and
myself. Designs in that respect refer to contract plans. We did have difficulty,
as we explained before, in 1933, because we had more than we could handle, and
we farmed out by contract three designs, contract plans, and thej' came along
very slowly. The fault was probably 50 percent ours, and 50 percent theirs.
Some of it was undoubtedly ours. You just cannot do in the time that you would
like to do some of the things, when you do not build ships for a long period of
years and then jump into a big program; it is not possible to make the same
progress you would, if you had an orderly program.
The Chairman. Assuming that some of the delay is attributable to the Navy
and some of it to the builders, still there is not any explanation as to why, once
the plans and designs are ready, the navy yards are delayed in construction behind
the private yards?
Admiral Land. There are a great many reasons why. One of the simplest ones
is, the private yards go out and get their auxiliaries when and wliere they please,
and can make their plans accordingly. We go into the open market and buy it
from the cheapest builder, and get one thing from Tom Jones and another thing
from Tom Brown, and another thing from Jim Hunter, and th^re is a limit to that.
I would like to have Admiral Robinson answer that.
Admiral Robinson. The shipbuilders place their contracts for steel, auxiliaries,
and all those things, on a basis that is to be supplied when detailed drawings are
furnished. The navy yards cannot buy their material until the plans are all
completed in the greatest detail, so that the specifications, when they go out,
specif}^ exactly what is to be bought. That cannot take place. We have to have
time. We have to have a minimum of 30 days and up to GO days and sometimes
90 days to advertise this. So that it is perfectly obvious, if every tiling is working
perfectly, there will be a month to 2 or 3 months' time, added on to it, in which
it will be selecting its material, and added to that the fact that you are bound to
have some additional delay in delivery because the contractor who is going to
supply the material for the shipbuilders has known months in advance that he
was going to do it; he is all ready to go, and loses no time getting started.
With the Navy Department, he does not know until the contract is actually
placed that he is going to have it. And where shipbuilders and navy yards are
building from the same plans, whether those plans are being furnished by the
Navy Department or the shipbuilder, there must necessarily be a delay from 3
to 6 months on the part of the navy yard as compared with the shipbuilder. It
just cannot be avoided, acting under our present laws of procuivuient.
The Chairman. Aside from that handicap, is any further delay attributable
to inefficiency on the part of the nav}' yards?
Admiral Robinso.v. I think not, sir. I think our navy yards are highly
efficient shipbuilders at the present time.
The Chaiu.man. I did not get you.
Admiral Robinson. I say, I thijik not. I think that our navy yards are
liighly efficient shipbuilders at the present time.
The Chairman. Is it not true that the private yards, by reason of their control
over certain features of the designing, do gain an advantage as to time?
Admiral Robinson. Only to the extent that I just mentioned because, other-
wise, there is no advantage. The instant the drawings are finished, they are
blueprinted, and the}' are distributed to our inspectors, and sent out to the
various yards which are interested, and they have those plans just as soon as the
shipbuilders do. That is the only advantage that I know of tliat accrues to the
shipbuilder, who is making the plans, over the navy yard that is using those
same plans.
The Chairman. But, as a matter of fact, the navy yards arc kept more or
less cluttered up by reason of this delay, are they not?
Admiral Robinson. I do not see that they are affected by it at all, Senator.
Their plans are made on that basis. They expect that before they start. The
MUNITIONS INDUSTRY 207
plans are made accordingly. There is a definite delay introduced into the plan
before they start. Their dates of completion and everything are based on that.
The Chairman. How much behind the private yards are the navy yards in
the construction of sister ships?
Admiral Robinson. I do not know how much they are now, but I can say
it varies from 2 to 6 or 7 months, say, on the average 4 or 5 months, from them.
The Chairman. What does the record reveal as to the degree of delay, Mr.
Raushenbush?
Mr. Raushenbush. That is about it; 6 months or so.
Admiral Land. It dep'ends altogether on the navy yard. You take Ports-
mouth and the Electric Boat Co., and they are like that [indicating], neck and
neck. You cannot discuss the situation and cover it in a blanket statement of
tbat kind. That is because Portsmouth will take care of the Electric Boat Co.
in that regard.
The Chairman. Is there not an advantage accruing to the private yards by
reason of this slack which is in the navy yards?
Admiral Land. Very, very little. There is a lag, which we admit, and we
know that, but you cannot go out and have every yard with a complete drawing
office to do all these plans that every other yard is going into, and justify it on
the basis of efficiency and economy. You would have simply a tremendous over-
head and would require entirely different installations, you would lose the coordi-
nated efort, you would lose the efficiency of maintenance and operation in dupli-
cate designs all the way through. In other words, it would be an extravagant
and inefficient method of doing business.
The Chairman. Does not this delay give the private yards an excuse, when new
bids are invited, to offer a showing of the inability of the navy yards to take on the
additional work?
Admiral Land. Surely.
The Chairman. By reason of the lag?
Admiral Land. It gives them the excuse to do it, but nobody believes it, unless
it is a fact.
The Chairman. That should be a larger argument for new ships to be under-
taken in the private ya: ds.
Admiral Land. They say that, but, my God, if we listened to everything they
told us, we might as well let them, or somebody else, run our job. We do not
accept everything a shipbuilder tells us because he is a shipbuilder. Far from it.
That has nothing to do with what the Navy Department does, how it awards or
allocates ships. That h„o been going on long before I was in the Navy, and has no
more effect than water rolling; off a duck's back.
Mr. Raushenbush. Paraon me. You would not say that the Navy Depart-
ment is not dependent on the private yards on all this?
Admiral Land. Yes; I make it, so far as I understand. We have got three
categories, on which we oo not care anything about the private yards. They are
the gunboat, the submarine, and the Coast Guard cruising cutter. So far as the
private concerns are concerned, they do not know such ships exist.
Mr. Raushenbush. Did j^ou say the submarines. Admiral?
Admiral Land. Yes; at Portsmouth.
Mr. Raushenbush. The Senator's question was dependent upon design.
Admiral Land. That is what I am saying. They have nothing whatever to do
with it.
(6) The Navy officials apparently lent their weight to a code pro-
vision against the establishment of new shipyards (Jan. 25, galley
88 GP).
Mr. Raushenbush. There is one other question. In your earlier testimony
you wanted put before you the transcript of Admiral Land's statement at the
P. W. A. hearings on the code. Do you i-ecall these statements here with regard
to that question of whether the Navy Department was for or against the further
expansion of industry [handing document to witness]?
Mr. Frey. Yes; that is it.
Mr. Raushenbush. Do you recognize this sentence of Admiral Land's testi-
mony beginning:
The Navy Department is of the opinion that some provisions should be
included in the code such that it will avoid establishment of new shipbuilding
yards, reopening of those long since inoperative, or expansion of small yards
and repair plants for shipbuilding purposes.
208 MUNITIONS INDUSTRY
Did you hear that?
Mr. Frey. Yes; I heard that.
Mr. Raushenbush. Do you recognize hearing this statement there at the-
same time. [Reading:]
On that basis I have no hesitancy in saying that the present existing,
growing shipbuilding facilities of the country are more than ample to take
care of the Navy program, any prospective Navy program, and, so far as
my knowledge goes, any merchant-marine program.
Mr. Frey. That refreshes mj' recollection. I testified that it was my recol-
lection that a statement of that kind had been made.
Now, I have the transcript to refresh my memory.
Mr. Raushenbush. In view of the incompletion record on these boats, do
you think it was an accurate statement on the part of the Admiral?
Mr. Frey. No; I think it was a most inaccurate statement.
(c) On April 6 Mr. C. L. Rosemimd, president of the Federation of
Technical Engineers', Architects' and Draftsmen's Unions, testified
concerning the P. W. A. appropriation of $238,000,000 in 1933 for
employment and the subsequent delay in employment due, according
to his evidence, to the designing of the program by the private yards
(galley 87 WC seq.).
Mr. Rosemund. At that stage of the interview, the Secretary called in the
Assistant Secretary and a flock of admirals [laughter], and having worked in the
shipyard and being somewhat familiar with the importance that plans have in
any building program, I knew right away that we were interested in preventing
the discharge which was immediately pending, and I could not see how any new
building program would take care of that situation, because it meant 6 months'
or a year's delay before the actual draftsmen would get on the job to work from
these plans.
So that I brought that thing to the attention of the then chief of operations,
Admiral Pratt, who said: "That is all riglit. These new ships are merely a little
modification of the present stuff and wonderful progress has been made with
the plans, and all this will be taken care of."
Of course, w ith that kind of an assurance from a ranking officer, I had to be
satisfied to go along.
From there some of our committee went up to confer with Senator Wagner,
I believe, wlio was in charge of that bill at the time, and at the outset he Avas not
so enthused about taking on this assignment c.f putting this proviso in his bill,
because it was realized that certain Midwestern Senators, on whom we had
counted from the outset when we were working on the La Follette-Costigan bill for
support — they were enthusiastic in their support for a measure of that character —
would kind of gag on getting in a measure of this kind. But eventually Wagner
agreed to go along with the thing, and took it up with tlie White House.
And this was brought to the attention of Congressman Vinson, Chairman of the
House Naval Affairs Committee, and he also took it up, and it looked like it needed
just another little push, and he called up one of our boys and told him, "Now, if
you can get the American Federation to otiicially endorse this proposal, when it
gets to the White House I think it will be all right."
Mr. LaRouchk. Which proposal?
Mr. Rosemund. To put the $238,000,000 proviso in the National Industrial
Recovery Act.
Mr. LaRouche. For naval building?
Mr. RosEMUXD. Yes, sir. That was done. The executive committee of the
American Federation of Labor was meeting at the time in Washington, and it w'as
brought to their attention, and a special communication was sent to the White
House, and the thing eventualh' becanie law.
Now, I do not want to have the committee understand for a minute that I
think that that group of five of the American Federation of Labor were solely
responsible for putting this proviso in there, but I have pointed out that these men
liad gone so far into it they hated to stop, and we did have something to do with it,
and it was a deal. And I may say it was the most complete job of double-crossing
I ever experienced in my life.
Iniuiediately after the passage of the National Industrial Recovery Act there was
a i)ronounced change. Yesterday someone stated that they were coming ciown
with their tongues out and their teeth showing fight. They did not on this job..
MUNITIONS INDUSTRY 209
They were rubbing their hands and licking their chops and saying, "Here is a big
deal." I mean the representatives of the big shipyards, who almost took posses-
sion of the Navy Department at this time.
Mr. LaRouche. Let me interrupt. When you said something about a double-
crossing, you mean the American Federation of Labor was induced to sponsor this
$238,000,000 fund for the building on the grounds that it would provide eiBploy-
ment for their members, who badly needed it. Is that right?
Mr. RosEMUND. That is right.
Mr. LaRouche. And they did not get it? Is that what you were saying?
Mr. RosEMUND. They did not get it. We thought that the express policy of
Congress, set forth in section I of the National Industrial Recovery Act, meant
what it said; that was to restore employment and improve standards of labor, and
so forth. That was a part of the declared policy of the National Industrial Recov-
ery Act, and, of course, anything which was subsequently inserted we thought
would be found by that declared policy of the Congress. It was not, and that is
the reason I say we were double-crossed.
Mr. LaRouche. Will you state also what you mean when you said that the
private shipbuilders came down to Washington and took charge of the Navy?
Mr. RosEMUND. No; I do not say that. They were down in the Department
and worked with the Department, because the code was pending around that
time, too. The act had to exist before the code practices were undertaken.
In the code hearings it developed that they were working pretty well together,
because they advocated some pretty raw things in the public hearings of the code.
That is, by that, I mean the representatives of the principal yards wanted to
have something stuck in the code preventing the extension of any other plant
facilities or the opening up of new yards.
Mr. LaRouche. They wanted to eliminate any possible competition. Is that
what j^ou are saying?
Mr. RosEMUND. That is what it looked like.
Mr. Raushenbush. New competition.
Mr. LaRouche. New competition.
The Chairman. Was there specific information at the time concerning their
attitude toward the Government yards? Were they wanting to restrict enlarge-
ment there, as well as in the private industry?
Mr. Rosemund. I do not recall that thing. I would say that if you would get
the record of the hearings, you would probably get the details of just how far
they were going along those lines. And several naval officers testified at those
hearings, on this same subject, and they also thought it was a good thing not to
permit the extension of any plant facilities or opening up of other yards, going
into the business.
Now, of course, we thought tliis was an unemployment relief measure. The
Navy Department and the shipbuilders tliought that this was just another ship-
building program. And with such opposing views, there was no possible getting
together on the code at the open hearing.
And when the deputy administrator, Whiteside, reported to General Johnson,
he took it on himself that he was going to get a code. He notified 6 shipbuilders
and 6 of our group, at a certain time, to meet in his room, and they were going
to get a code. It was a pretty tough meeting, I understand, from some of the
boys who were there.
But right after the issuance of that call and the calling of the meeting the repre-
sentatives of, I believe they call it the "Council of Shipbuilders", had gum-shoed
up to the White House and tried to get a little pressure to put on the general.
They did not succeed, but somebody tipped the general what was on, and some-
body got a fine calling down.
Now, the question of the awards and the many contentions and denials which
have been made in connection therewith, and the price, and so forth, I think has
been fully covered.
Mr. LaRouche. Now, Mr. Rosemund, I would like to ask you this, right at
that point: Did your draftsmen and your designers, and your men who were out
of work, get jobs? Did you feel that your acute situation of relief in any way, as
you had hoped, had been helped by this big program?
Mr. Rosemund. No, sir.
Mr. LaRouche. Will you tell us about that?
Mr. Rosemund. I will get on to it a little later on, if you will excuse me. I
want to try to connect my story.
210 MUNITIONS INDUSTRY
Later:
Now, after the award of the contracts, the next immediate matter to be taken
up was the question of preparing the working plans for these vessels, and it de-
veloped, with the exception of three submarines built at the Portsmouth (N. H.)
Navy Yard, and the working plans for the small 3,000-ton gunboat, to be built in
the Brooklyn Navy Yard, all other plans were to be prepared by the private ship-
yards, that is, Gibbs & Cox, or what is known as the "United Design Corpora-
tion", were to prepare all the plans for the 1,500-ton destroyers. Newport was
to prepare the plans for the airplane carriers, New York Ship the plans for the
1,850-ton destroyers, and the plans for the 10,000-ton cruisers; the Electric Boat
Co. was to prepare the plans for the three submarines building in their firm.
Now, the experience which we have had in former years, in trying to have one
yard work from another yard's plans, has never worked out very satisfactorily.
It always resulted in an interminable delay.
This is not so good, but it may convey the thought which I have in mine,
dealing with the 1932 destroyers, compiled off Navy Department reports [pro-
ducing document]. I do not know whether you want it in the record, because it
might not have a bearing, but it illustrates the point.
Mr. LaRotjche. Will you identify this further?
Mr. RosEMUND. Do you want this, Mr. Chairman? On the destroyers built
in the 1932 program, I believe by Bath and bv Fore River
Mr. LaRouche. 1931?
Mr. RosEMUND (continuing). Wasn't it 1931? The Fore River had the job of
preparing the plans for that boat, and the plans at the end of 2 j'ears were about
77 percent complete.
Mr. LaRouche. You mean this purports to show on the destroyer Farragut,
built at the Fore River plant of Bethlehem Shipbuilding Co. in 1931, that after 2
years it was between 70 and 80 percent completed?
Mr. RosEMUND. Yes, sir.
And the Bath Works, working off of this same design, was delayed about 10
percent. And the Government, who had to buy the plans from this same
design
Mr. LaRouche. You are saying that the navy yard had to use the same plans?
Mr. RosEMUND. From Fore River. They were delayed from 25 to 40 percent.
That is the way the thing works out.
Mr. LaRouche. I suggest, Mr. Chairman, that this be entered as an exhibit
at this point.
The Chairman. It will be received and identified.
(The document referred to was marked "Exhibit No. 1901 " and is included in
the appendix on p. — .)
Later, he testified that the Secretary of the Navy had spoken to
him of the delay on the plans as a bottleneck (Apr. 5, galley 89 WC).
Mr. RosEMUND. Orphans, or whatever you want. They have got to buy where
the law requires them, getting competitive bidding. Now they may find out, let
us say, that the United Dry Docks is building up a 1,500-ton destroyer and has
agreed to buy Wcstinghouse propulsion equipment, and if they wanted sister
ships it would be the proper thing to get the propulsion equipment from the West-
inghouse Co., but they cannot do that, and must go in the open market and get
bids, and it may be General Electric, or some other company, comes in with their
equipment, and it is a big change.
The idea was if they were identical as to spare parts, and so forth, it would cut
down the cost for the design work in that way.
Now as time went on and there was such a lack of taking on men, as the prog-
ress reports of the Department showed, individually and otherwise, we conferred
with officials of the Navy Department and with the Secretary of the Navy
regarding this situation. At one of these conferences the Secretary admitted to
me that he had just been jacked up by Mr. lakes' office on account of the lack
of progress they wore making.
Mr. LaRouche. Progress on the ship3 being built out of that $238,000,000?
Mr. RosEMUND. That is right, and that he told mo he had reported back it
was due to the bottleneck, in not being able to get the plans out on time.
Mr. LaRouche. You mean the Secretary of the Navy told Mr. Ickes?
Mr. RosEMUND. That is what he said he told him. But when I saw that he
was getting into the picture, I went over to see him — not Ickes, but his subor-
dinate, who had charge of this, and he, in turn, showed mo a letter he had received
from the Navy Department, setting forth that they had been making pretty good
I
MUNITIONS INDUSTRY 211
progress, and had put 35,000 men to work, and so forth. I went back to our
group, who had certain information on that, and I found out in the yards having
contracts they had only employed about 15,000, and that out of those 15,000
there were about 6,000 employed on work of contracts prior to this date.
The Chairman. Prior to what?
Mr. RosEMXjND. Prior to 1933. When I brought that to his attention formally ^
this investigator, or whoever he was, he sent somebody over there, and he got
the conventional run-around, which did not amount to anything.
I am offering that because not only have I seen the Interior Department but L
have seen other departments. I have done everything I could in the world to
expedite this program.
Mr. LaRouche. To get more work?
Mr. RosEMUND. Yes, sir. We were guilty of the petty larceny in the game,
I would call it, and the grand larceny was pulled oflf by the others.
Later, he testified to a conference with Navy officials on the slow
employment being given by the private shipyards out of P. W. A..
funds (galley 90 WC).
Mr. RosEMXTND. For the Navy Department was present H. L. Roosevelt,.
Admiral Land, Admiral Brinzer, and Captain Bowles, of Engineering, and there
were about six or eight of us present. And the spokesman at this meeting was
Mr. Frey. He had prepared a statement from all the information which he had
received, and also compiled from the monthly progress report sheets of the Navy,
showing that the lack of progress was terrible, and there was nothing being done.
Mr. LaRouche. Mr. Frey representing the viewpoint of the American Feder-
ation of Labor?
Mr. Rosemtjnd. That is right. These discussions went back and forth, and
it finally— not finally, but the one point in the meeting was, it resulted in the
Secretary admitting it, and the officers admitting it, and everybody said what-
we said was so, and they were deeply chagrined that no more progress was made,
and they were sorry for themselves and were sorry for us. Then the question
was raised, "If you gentlemen have any suggestions; we are doing all we can."
Mr. LaRouche. The Navy said that to you?
Mr. RosEMUND. Said to our group. Mr. Frey said, "Since it has been re-
peatedly stated that the delay in plans was the chief cause of holding up this
work and putting these men back to work" — suggested that I be called on. I
went over the general situation, reviewing how the plans were allotted, and then,
during the course of my discussion I pointed out that in the New York Ship,
after getting this contract, which would have comfortably filled the yard, they
had taken on two additional tankers, which were then on the ways, which they
would have to get off the ways before they could start the cruisers — and that
was news to the Secretary; he did not know that.
Mr. LaRouche. You mean the Secretary of the Navy did not know?
Mr. Rosemund. He did not know they had the tankers on the ways and could
not put on the cruisers until they were off. One went off the other day, I saw
in the paper.
Mr. LaRouche. Those were taken after the program in 1933?
Mr. Rosemund. It is my understanding. The result was to rush the work on
the tankers, it taking a considerable portion of their drafting personnel. In
addition to that, they were figuring on a bid for the Brazilian Navy, which also
required considerable of their drafting force. In other words, they were not
touching this program at all, because the month previous, in a job which involved
from 4,500 to 5,000 plans, they had only completed about 40 of them. May, after
the contract was awarded in August.
Mr. LaRouche. The contract was awarded in August?
Mr. Rosemund. Yes, sir.
Mr. LaRouche. And the following May
Mr. Rosemund. They had 40 of those plans ready.
I want to be fair about this. There was a statement made — I think it was by
Admiral Land — that the contract plans, from which they would have to prepare
the working plans, had not been completed by the Navy Department and fur-
nished to the shipbuilders until that December.
Mr. LaRouche. December 1933?
Mr. Rosemund. The records you will have to see about that. I am not so
sure of that. Unfortunately, if that is the case, then the Navy Department itself,
not the New York Ship, would be responsible for that terrible showing made in
the case of these cruisers.
212 MUNITIONS INDUSTEY
I just want to point out, though, that by their delay of the cruiser Savannah
and the sister ship, there was a ship known as the Brooklyn, to be built in the
New York Navy Yard, and the Philadelphia in the Philadelphia Navy Yard.
Those two ships, in those two Government yards, they could not hit a lick on
them until the plans were prepared by the New York Ship for the ship, which
they were not doing, because they had the tankers on the way and the Brazilian
stuff, and maybe these other contract plans.
Therefore, I suggested — they called for suggestions; they wanted it, and I gave
it to them
Mr. LaRotiche. The Navy asked it?
Mr. RosEMUND. At this conference; since these contracts carried a clause to
get around ordinary formalities, to expedite work, and so forth, and, due to the
fact that this concern was sidetracking the Government's work for the sake of
something else, I felt that they had breached their contract.
Mr. LaRouche. That the private yards had?
Mr. RosEMUND. That the New York Ship had breached the contract on those
two cruisers, and it should be revoked, and the plans given to the Brooklyn
Navy Yard or the New York Navy Yard on the cruisers, and this little 3,000-ton
gunboat be taken care of in some other way. Because here were 20,000 tons of
shipping, and four, five, or six thousand men to be gainfully occupied, once they
got the job really started, and they could not do that until they got the plans.
Later (galley 90 WC):
Mr. LaRouche. Mr. Rosemund, how many men, qualified designers, were
out of work at that time, if you know?
Mr. Rosemund. I would not say, off-hand. I can only say this: During the
war there were shipbuilding companies up and down both coasts, and the Dela-
ware River was full of them. They had large, experieiT^ed drafting forces. They
were permanently disintegrated and disai^peared, and all contact with them has
been lost — not all, but considerable of it has been lost — but they are still in the
country.
Now, the maximum, I understand, of the pay in a private yard for men at
present is about SI. 35 an hour on the boat; that is, for good men.
Now, if they want men of that experience, really want them, and they will
give me authority to write out to our workers and make an effort to get them,
and say tliey will pay from $1.50 to $2 an hour, we will get some men.
Mr. LaRouche. That leads us to another little point, I believe, and that is
this: The P. \V. A. money allotted in 1933 was primarily, or was. you are saying,
funciamentally an unemployment measure. Is that your understanding?
Mr. Rosemund. That is section 1, which is the declared policy of Congress.
Mr. LaRouche. And it was so indicated to you, before you helped or solicited
to pass it. Is that right?
Mr. Rosemund. That is right.
Mr. LaRouche. Do I understand rightly that the money was not spent, in
your opinion, on an emergency bavsis?
Mr. Rosemund. I do not think it was.
Mr. LaRouche. That is your opinion?
Mr. Rosemund. That is the view of all of us in the labor movement, in this
particular case.
Mr. LaRouche. That the net result, as an employment measure, has not
succeeded?
Mr. Rosemund. Has failed; has been a very great disappointment.
Later (galley 91 WC):
Mr. Rosemund. I would like to submit a list of certain plans that are being
handled as a result of these contracts. In the case of the Electric Boat Co., they
secured the 1934 contracts. They are to furnish the designs, and from said
designs the Portsmouth, N. H., Navy Yard builds 2 boats, and 1 is built at Mare
Island.
I have got a list here, in the rough, which I want to submit later on, to indi-
cate that the Electric Boat Co. plans, now being used in this 1934 program, are
Chinese copies; that is, just tracings of the plans of the Portsmouth Navy Yard
design, and the only change being the title on the drawing being put on under
the Electric Boat Co.'s design.
There is correspondence here to indicate that while they are working on it,
they are constantlv writing Portsmouth, N. H., to send down the stuff on this
and that of their design to put in the Electric Boat Co.'s design wliich tliey are
selling back to the Government.
MUNITIONS INDUSTRY 213
In the case of the 1,500-ton destroyers, of which many of them are now being
built, or going to be built, at navy yards, the plans which are coming through in
some cases have as high as 216 alterations. That again puts the Government
at a distinct disadvantage, when they have got to work off all these again, every
time they have to handle a plan, there being so many alterations, and it slows
the work enormously.
Later (galley 91-98 WC):
Mr. LaRouche. I do not want to hurry you, but I would like to get certain
questions answered. Could you tell us now, Mr. Rosemund, whether there is
any fundamental reason why the Navy Department cannot produce its own
plans, instead of having them drawn by the private yards?
Mr. Rosemund. No; I think they ought to. I think the Government should
not permit such a vital thing as designing and that to be permitted to become
general property, commercialized, and sent to the whole world.
The Chairman. Mr. Rosemund, is it not true that our Government navy
yards are at the mercy of private yards?
Mr. Rosemund. Their handling of the plans can delay it and makes them put
up a very bum showing.
The Chairman. That is, the delay in furnishing the designs makes a bad
showing for the Government yards?
Mr. Rosemund. That is right, by comparison.
The Chairman. And they are way behind, are they not, in the work which
has been allotted to them to do?
Mr. Rosemund. Oh, yes; a whole lot.
The Chairman. What is going to be the situation when the Navy is ready to
contract for additional ships? Is it not a fact that the private yards are going
to be able to show that the Government yards are far behind, and they have a
glut of work there, and that they could not possibly take on any more than they
already have, and that, therefore, the allotment of new ships should go to the
private yards?
Mr. Rosemund. That is the way it would work out.
The Chairman. That is what it amounts to?
Mr. Rosemund. And they could make a very justifiable showing on paper,
not knowing all the facts.
The Chairman. Surely.
Mr. Rosemund. In the Flook letter there is a paragraph dealing with that
subject.
Mr. LaRouchh. Do you mean the letter which Mr. Bardo wrote to Mr. Flook,
under date of June 22, 1933?
Mr. Rosemund. That is right. I want to quote a paragraph from there, and
I trust that the committee will get the significance of what I am trying to
bring out:
I know from my talks with some of the representatives of the Navy, who
are keenly interested in this work, that they are desirous of finding some
substantial reason for awarding this work, to the largest possible extent,
to private yards upon whom they must rely for the necessary engineering
to complete the ships.
Now, to me, that is the most shameless admission of incompetence. Here is
a bill whicti has been just passed by the House increasing the officers in the
Navy, and setting aside 5 percent to be constructors, and it means about between
250 or 300 men to be constructors. Those 250 men are on the same plane as
all the other Academy men at Annapolis, who get their 4 years, $20,000 exposure,
and then they get a subsequent post-graduate course. What is the sense in
spending the taxpayers' money for this purpose, when they take the position
that for engineering they must rely on these private concerns?
Mr. LaRguche. Who are in business, you assume, for profit?
Mr. Rosemund. Yes; but why educate these men? What is the sense in
building up a force to do certain of this work, and then going out and buying
that work? Have I made that clear? What is the sense there? That is the
report I get; yes, sir.
Mr. Rosemund. I want to deny any claim made that the men employed in the
Government navy yards are not competent to design ships. That is not the case.
They have built and made designs. The Tuscaloosa, I understand, is made off
designs made by the Brooklyn Navy Yard for the New Orleans, being a sister ship,
214 MUNITIONS INDUSTRY
and built in the New York yards, according to report I get from our men at
Brooklyn.
Mr. "LaRouche. Why do not they get the work, if they are competent?
Mr. RosEMUND. Because of these 200 and some constructors which they have.
I do not think it is even fair to them to give them that training, and then not give
them the benelit of that experience. I think they ought to have the experience,
and they will never get it unless they build ships. I mentioned to Henry Roose-
velt about these constructors. I said, "I call a constructor a fellow who puts on
overalls and gets dirty from head to foot, and not one running around here
shuffling papers and tearing off a page of a calendar once in a while." I said,
"It is not fair to these men. Let them build ships."
I am coming down to what I think ought to happen in this case here. It has
been brought out that they are buying their plans. I believe, if I understand it
correctly, that this committee is going to be involved in covering several subjects
in specific pieces of legislation. This one may have future relation to what the
attitude would be, in case of war, and so forth, and the policy as to who should
carry on the munitions business is another one, but this is an immediate question,
and whatever legislation which you have, which is considered to apply to the
immediate situation, I would like to see Congress make it mandatory for the
Government to build up their engineering and design talent and maintain it in
sufficient numbers so that they, and they alone, will make the designs for Govern-
ment vessels.
I think that that is absolutely necessary, from our standpoint, as a defense
measure. If it is true, as has been said in the Flook letter, that we must depend
on that, I wonder how many people realize what a desperate situation we are in,
that in the building of ship's, one of the most vital factors in the defense of the
Nation, we are dependent entirely. Now, if that is the case, I think, by all
means, and as promptly as possible that ought to be cured, and to cure that I
recommend that the Government build up and maintain an adequate design and
drafting personnel to meet all questions as they arise.
The Chairman. I wish, Mr. Rosemund, that you would prepare, within the
week, and present to the committee for insertion in the record, a statement
covering yovir general conclusions here, and go further and state what, according
to your thought, would be the cost to the Government of providing for its own
designing of ships for naval purposes.
Mr. Rosemund. I see.
The Chairman. If you would do that, please.
Mr. Rosemund. I \vill take that up as soon as I have access to the last appro-
priation bill, and I can get my estimates from that for the committee.
D. — The Marine Engineering Corporation
A combination of the three big yards, New York Ship, Bethlehem,
and Newport News was effected in 1927 for the purpose of creating
designs and purchasing the materials for cruiser construction. This
pooling arrangment gave the Big Three a large measure of control
over naval design work. Ships were built in navy yards from the
designs worked up by the Marine Engineering Corporation.
All of the stock of the Marine Engineering Corporation was owned
by the Big Three. Officials of the Big Three have denied that
the corporation was used by them for the purpose of agreeing on prices
in advance of bidding.
When the corporation was disbanded in 1930 the president, John
Metten, joined the staff of New York Ship and was made president
of New York Ship in November 1934.
Testimon}!' on the formation and operation of the Marine Engineer-
ing Corporation follows (Jan. 22, galley 35 GP):
Mr. Raushenbxjsh. About a year afterward the firm went under.
From there you proceeded in 1927 to become president of the Marine Engineer-
ing Corporation, did you not?
Mr. Metten. Yes, sir.
Mr. Raushenbush. Did you suggest the formation of that Marine Engineer-
ing Corporation to the Navy officials?
Mr. Metten. No.
Mr. Raushenbush. That perhaps represented the Big Three, did it not;
Bethlehem, New York Ship, and Newport News?
Mr. Metten. Yes, sir.
Mr. Raushenbush. And they all owned stock in it, did they not?
Mr. Metten. Yes.
Mr. Raushenbush. You did have conversations, did you not, with the respon-
sible people in the Navy before the formation of this corporation?
Mr. Metten. I was brought down here and asked to take the position, on
account of the idea being that I had had experience in design and it was an
important design.
The Chairman. Asked by whom to take the position?
Mr. Metten. I think the chief of bureaus suggested that. I was aked to
come down here, but I think the shipbuilders were all down here at the time.
Mr. Raushenbush. Who were the chiefs of the bureaus at the time?
Mr. Metten. Admiral Halligan, Chief of the Bureau of Engineering, Admiral
Buret, C. & R. meaning "construction and repair."
Mr. Raushenbush. The corporation which was formed was formed by the
Big Three with the blessing of the Navy. Can we put it that way?
Mr. Metten. Yes; I think so.
Mr. Raushenbush. They hoped to get certain advantages out of having the
designing work of the three corporations done in one office. Is that right?
Mr. Metten. Yes, sir. It was not only that but prior to that time there had
been only a few of those cruisers built. The first cruisers were five of the Rich-
mond class, which were built by the Cramp Co. and then there were four or five
others built at that time. While the five built by the Cramp Co., like all the
others, were of different types, they decided it was much better in the new group-
ing to keep them alike.
Mr. Raushenbush. What advantages were there, both to the Navy and the
big shipbuilders, in having this Navy Department designing pooled, you might
call it?
Mr. Metten. In the ordinary course of events, each ship would have been
different. You see the Newport News contracts were, the detailed plans, had
215
216 MUNITIONS INDUSTRY
been worked out by them, and in case of the New York Shipy:)uilding contract, the-
details of that had been worked out by them; in the case of the Bethlehem con-
tracts, the same thing would have been done.
Mr. Raushenbush. One advantage was a standardized ship. What other
advantages would either the shipbuilders or the Navy get out of this arrangement? ,
Mr. Metten. I think that was the principal object. As I understood it at the-
time, that was the whole object in that set-up, to standardize the ships.
Mr. Raushenbush. Did not this corporation do combined purchasing for the-
shipyards?
Mr. Metten. Yes, sir; the}^ had to do that because they wanted the auxiliary
duplicated as far as possible. Instead of having one type of auxiliarj' in one, and
another in another, they naturally had to standardize the auxiliary machinery.
Later (galley 36 GP):
Senator Vandenberg. I would like to get this clear in my mind. That is in.
1927. Were there any other shipbuilders in the countrj'^ competent to build
these ships besides the Big Three?
Mr. Metten. They would have had to put in considerable additional equip-
ment. I think that those three were perhaps the onlj- ones who could have
undertaken the work without modifying the plan.
Mr. Raushenbush. You say that neither Federal nor United could have built-
a cruiser in that year?
Mr. Metten. I do not think so.
Mr. Raushenbush. I note there was apparentlj' some controversy, and the:
Bureau took the position that $-400,000 was too high. You wrote a letter on.
August 6 to the other officers of the Big Three saving, " My inclination is to stand
pat on the $400,000."
Mr. Metten. You know the discussion, as I remember it, was this way::
The value of the contracts was thought to be a resprcscntative part, you might say,,
of the ])roportional share. For instance, Newport News was l)uilding two ships
off of those plans. Bethlehem and New York Ship were building one ship off
of those plans. And it seemed logical that the larger contracts should take a.
larger share of the cost of preparing the ])lans. The same way with the Navy
Department. They were building three ships, and as that was the way the dis-
cussion went at that time, we thought that the Navy Department, on account of
being in a position to benefit to the largest extent, they ought to take a propor-
tional share.
Mr. Raushenbush. You have given a picture here, Mr. Metten, of the Navy
Department being a sort of business partner, and yet that was not quite it, was.
it? I will read the rest of the ])aragraph of your letter of August 6, 1927, ad-
dressed to the members of the Big Three. [Reading:]
My inclinatioTi is to stand ])at on the $400,000 as entirely aside from obtain-
ing plans and schedules, the bureaus expect the navy yards to participate in
the saving through joint purchasing to an extent that from preseat indica-
tioTis will probably jiay for the plans. I tliink we might as well recognize the
fact that the navy yards are competitors in the present program and expect
to be comiietitors in tlie future programs.
I will offer that for the record.
(The letter referred to was marked "Exhibit No. 1426" and is included in the
appendix at p. — .)
Mr. R.\ushenbush. So that what you were really doing was to organize a
group, financed by the big three, whicli had part of its expenses paid by the Navy
Department and also took over and in a way monopoHzed the designing at the
time, and yet found itself in the position where one of the people who was i):iying
a share of the expenses at the navy yards were really competitors to your own,
private yards. Is not that about the basis of relationsliip at the time?
Mr. Metten. Of course, the navy yards are competitors with private yards.
Senator Vandenberg. Did not they cease to be competitors under these
agreements so far as these ships arc concerned?
Mr. Metten. There was a subdividing. As a matter of fact, that is just
another one of those jobs which I had to undertake, to do the best I could, and be
guided by the various people who were interested in it. We were down here and
the thing was adjusted and discus.sed with the Navy Department.
Senator Vandenberg. It was the Navy's price protection in this group of
contracts?
Mr. Metten. Price protection?
MUNITIONS INDUSTRY
217
Senator Vandenberg. On the ships you were going to build under this pooled
^"m"^ m'etten Each yard put in a bid at a definite contract price. This was a
condition attached to that contract, that they should be duplicates.
Mr Raushenbush. May I venture to explain the Senator's question, if I
understand it? Did not the Navy stop being a competitor, as far as designing
went, after this pool was estabUshed? , ., ,. ^u j r „+^ cV^ir^o
Mr. Mbttbn Of course, they were all together building the duplicate ships
from those plans.
Mr. Raushenbush. Yes. _ ^ ^^
Mr. Metten. I would not call it a "pool.
Further on Mr. Metten testified as to the dependence of the Navy
on the designers of the Marine Engineering Corporation (gaUey
37 GP):
Mr. Raushenbush. For that 1927 bidding on the cruisers series 26 to 31, the
Navy did not draw designs of its own, did it?
Mr. Metten. No; only general type plans.
Mr. Raushenbush. As usual?
Mr. Metten. Yes, sir. . . , 4. ^^r.i^'?
Mr. Raushenbush. And it turned the designing job over to you people.^
Mr. Metten. Yes, sir.
Mr. Raushenbush. It did not go into it any morer
Mr! RruSENBUSH.'what was the status of the smaller yards while you had
the combined designing arrangement? Did they even attempt to draw any
designs for anv ships that you were drawing designs tor.'' , . , , ^-i ■ i -n ^^^
Mr Metten. I do not think so. There is another thing which I think will per-
haps explain the situation. You know there has been very little Najy work bu^^^
and the skilled men in the designing end of it had more ^^ ^^^^f , '^^^PP^^^[^^^
There were only a few of them scattered around the country, and it was thought
it theTfie thit there was not a sufficient number of tramed x^en tosundertake
that work separately at the various yards. And the idea of the c ^^tial office
was to concentrate all of the best men on this particular class of design work mto
one establishment, so that they could carry on this work, and so that the Navy
would get the best possible job, so far as design was concerned. _ . ^, .,.^ •
Senator Vandenberg. Excuse me, that goes back to my original mquny, in
which I am very much interested. Is not that still the situation/
Mr. Metten. Yes, sir. . ++ ^„^ +i,„+ ,•+ lo
Senator Vandenberg. That the Navy's equipment is so scattered, that it is
not useful in the production of a completed net result ( ^ . ■, ■
Mr MeSen There has always been a scarcity of really competent designers
"""senator Vandenberg. In other words, it would be difficult today for the Navy,
in a self-contained way, to produce these designs, would it not.'
Mr. Metten. It would be difficult, I think.
Senator Vandenberg. Yes; certainly.
Senator Bone. How long has that condition existed.'
Mr Metten. It has existed ever since you might say, the general lull m ^avy
building. They are highly specialized ships and they require a lot of experience
in the various classes of work. . . t „oV „n-air. i= r,r.f
Senator Vandenberg. So long as that condition maintains, I ask again, is not
the Navy more or less at the mercy of private designers.' . .
Mr Metten. That is being reduced now, Senator. They are recognizing—-
Senator Vandenberg. The answer is "yes", and they are trying to meet it.
Is that it?
Mr. Metten. Yes, sir.
On galley 38 GP there is this testimony:
Mr. Raushenbush. I have a letter here from Mr. Bardo to yourself dated
November 21, 1927, which I want to show you, and which seems to be a refeience
to a suggestion by Newport News that would have saved the Government some
TOonev, and Mr. Bardo is making the point that he does not want any of that sort
of thing [handing paper to witness].
I will offer that for appropriate number.
218 MUNITIONS INDUSTRY
(The letter referred was marked "Exhibit No. 1427" and is included in the
appendix at p. — .)
Mr. Raushenbush. I will read the second paragraph of that letter.
The contract between the three shipj-ards which brought the Marine Engi-
neering Corporation iTito existence contemplates, if it means anything, that
Marine Engineering Corporation is to be the official mouthpiece of the three
yards insofar as their relations with the Department for the cruiser con-
struction are concerned. Any departure from this understanding will, I am
sure, have the effect of gradually repudiating the standing of Marine Engineer-
ing Corporation with the Department and result in serious embarrassment in
many directions later on. Personally, I am strongly opposed to the practice
complained of.
We put ourselves in a very embarrassing and inconsistent position when we
voluntarily propose to do something the effect of which is going to materially
increase the cost. The margin between the cost of producing these ships and
the selling price is narrow enough without further reducing it by a voluntary
action which, so far as we can now see, will not improve either the efficiency
of the particular units nor have the assurance that it will prolong their lives.
There is some more correspondence on that which gives the impression that New
port N ews had a proposal which would have iiicreased the price to the private ship-
yards ^nd would have given the Government a better ship, and here Mr. Bardo
sent a letter to you in which he says he does not want anything like that, and that
is not the purpose of the Marine Engineering Corporation.
Do you remember that incident?
Mr. Metten. I think I do. You see, in establishing a design office of that kind,
someone has got to be at the head of it and make the decisions. You cannot run a
standardized design and have two or three different yards, each going their own
way; and I was placed in a position of having to decide those questions which were
decided on the basis of giving the Govermuent a better job, as far as I can tell you.
Mr. R.\usHENBUSH. Well, apparently the suggestion that Newport News
made on account of some turbine changes and spares and Mr. Bardo charac-
terized it as something which would materially increase the cost
Mr. Metten. I do not know. At the outset decision was to be made whether
or not they would buy the main turbines from someone else, like General Electric
or Westinghouse, and I think it was just the other way about.
I think that they found that they could get a better price if they bought them
than if they built them.
My experience had been that the machinery which had been built by the better-
class yards had been more reliable and bettor suited to the Navy work than that
which had been bought outside, and I decided that we would build the standard
turbines.
Mr. Raushenbush. Now, if the advantages of this marine corporation to get
standardized ships and to get lower costs by dealing with the suppliers on a
wholesale way were good in 1927, why was the Marine Etigineeriug Corporation,
of which you were president, disbanded a few years later?
Mr. Metten. It was undertaken for the specific job, and then I believe there
was some objection on the part of some of the builders. It was a rather trying
thing to carry through, and, of course, wheii they talked about disbanding it I
personally did not care about going through with this trying job any longer.
It had completed the job for which it was organized.
Senator Van'denberg. I would like to ask a question about that purpose before
we get away from shis letter. Tlie letter says that the contract between these
three big shipyards, which you say were the only three who could build these
ships [reading]:
contemplates, if it means anything, that Marine Engineering Corporation is
to be the official mouthpiece of the three yards insofar as their relations with
the Department for the cruiser construction are concerned.
You have indicated that you pooled your engineering resources. Does that
mean that j'ou also pooled your bids?
Mr. Metten. No, it had nothing to do with the bids.
Senator Vandenbero. You went through all these mutual arrangements with
respect to the design, but you did not talk with each other about the price which
you were going to bid on the jobs?
MUNITIONS INDUSTRY 219
Mr. Metten. As I explained before, the circulars came out and had a condition
attached that these ships must be duplicates. Now, as I recollect it, the bids
were put in by the different yards separately, in the usual way, and then it was a
case of determining how they could best make them duplicates. I think that the
formation of this was after the bids were made.
Senator Vandenberg. How near alike were the bids? Do you recall?
Mr. Metten. I do not recall. I was the chief engineer of the Cramp Co.
and of course I was not in contact at all with the bidding and was brought into
it when they decided to form this central office.
Senator Vandenberg. If the purpose of the organization of the Marine Engi-
neering Corporation, as stated in this letter, was to make it the official mouth-
piece of the three yards, in respect to cruiser construction, am I wrong in inter-
preting that as a price agreement as well as a design agreement?
Mr. Metten. No, sir; it had nothing to do with prices. It was purely a
matter of design.
Mr. Raushenbush. You just made the point, Mr. Metten, that these designs
were drawn before the bids were let. Is that right?
Mr. Metten. Yes, sir.
Mr. Raushenbush. Then the Navy, in letting these bids, was doing it blindly,
was it not, at the moment?
Mr. Metten. No; they had issued the general plans and general specifications
which covered the ships completely.
Mr. Raushenbush. And after all that was over, then the plans were drawn?
Mr. Metten. Yes, sir. The detailed plans are always made up afterward.
Mr. Raushenbush. And yet the Navy had, according to your earlier testi-
mony, permitted itself to participate in those same plans, had they not?
Mr. Metten. The plans of the central office had not been worked out. They
had to lay down the condition that the ships must be built on the same detailed
plans, but following the general type, plans, and specifications laid down by the
Navy Department.
Mr. Raushenbush. And had gone into this arrangement, that it would take
plans drawn by your group?
Mr. Metten. I do not think at the time that they asked for bids they had
any clear idea as to just how this was going to be carried out.
Mr. Raushenbush. You do not remember, Mr. Metten, when you first dis-
cussed this matter of the Marine Engineering Corporation with the Navy, do
you?
Mr. Metten. No; I do not. I was brought down here, and the chiefs of the
bureaus talked to me about it.
E. — The Shipbuilders' Dependence on the Na^t
"While the Navy is dependent in many ways on the shipbuilders,
that relation is really reciprocal. The shipbuilders are dependent
on the Navy for their bread and butter, and for any high profits
possible.
The shipbuilding companies stress their position as the private
])art of our national defense. They are interested in the Navy and
that auxiliary of the Navy, the merchant marine. The Navy is also
interested in them. It is interested in their efficiency. It may also
be interested in their support for a larger Navy.
The use of the shipbuilders as a lobby by the Navy is indicated
most clearly in the Electric Boat Co. hearings. For example, in
Exhibit 183, their Washington representative writes, in connection
with a deficiency appropriation —
Members of the Navy Department have seen fit on several occasions lately
to not only write but to personally express their appreciations and congratu-
lations on the success of such parts of the program as we were directly
interested in, and for the help we gave the Navy Department.
Mr. Shearer's insistence that it was at that Navy's request that
he went to Geneva, armed with secret Navy inforniation, and did
various other things which the Navy wanted him to do, must also
be considered (sec. VI-B). The Navy's neglect or failure to use
the low-cost construction of the 1027 cruisers built in the navy yards
as a means of forcing down later cruiser costs might be consiciered
a reciprocal attitude.
It is natural that the Navy, wishing, like every other institution,
to grow and expand, should appreciate the support of the huge
combination of steel companies, electrical manufacturers, boiler-
makers, instrument companies, and others centering around the
shipbuilding industiw. It is most, natural tliat it should even feel
obligated for such support.
There are also purely personal ties which have grown up over a
period of years. Certain naval officers left the service and went into
the contracting business, inchiding ;Mr. Ferguson and ^Iv. Williams
of Newport News; Mr. H. G. Smith, formerly of Bethleliem and now
president of the Shijibuiklers Trade Association. ]\Ir. Teonard. Wash-
mgton representative of Bethleliem; Mr. J. AV. Powell, of United
Dry Docks, and otliers. These personal relationships mav result
in the kind of help given to Mr. Powell of United on estimating for
the Vincennes by his friend. Commander Fred Crisp, assigned as
inspector to the Bethlehem yard at Fore River. Mr. Powell was
given information which the Navy Department itself did not have.
Commander Crisp declined the job olFered to him bv Mr. Powell
(galley 70 WC, Apr. 4).
Mr. LaRouche. Did you offer him a jol)?
Mr. I'owELi.. After we were awarded the contract, I offered liini a job. I
did not offer him a .lob before that.
Mr. LaHouohe. He did not have the idea?
Mr. PowKix. He did not liave tlie idea. I think lie was coinpletelv surprised
when I offered liim the job.
Mr. LaRouche. He was entitled to something, do you not think?
220
MUNITIONS INDUSTRY 221
Mr. Powell. If he would have taken anything I would have been very glad
to have given him a substantial sum. I mean by that, $2,500 would have been
a reasonable fee for what he did.
Mr. LaRouciie. How much did you give himV
Mr. Powell. I gave him a set of golf clubs and paid his out-of-pocket ex-
penses, and he did not have any idea I was going to do that, and if he had, he
would have been insulted.
The Navy, of course, is in a position to appreciate and return
favors done by the shipbuilders. During the war the shipbuilders
operated under a cost-plus contract drawn by the Navy Department
which was so loose that they felt free to include Federal income
taxes as part of costs, and one company. New York Ship, charged in
a preferred-stock dividend as an item of cost (galley 47-8 GP Jan.
22). This was at a time when the American International Corpo-
ration controlled the company, and its directors were on the largest
corporations in the country.
The Navy can do incidental favors such as using the threat of
removing a ship to influence employees in case of a strike (see sec.
VIII). It can send a naval vessel to a foreign port at the request
of a shipbuilder trying to sell to that country (galley 23 ZO) even
though the State Department is at the time trying to discourage
another naval race in that part of the world. It can help a private
company by preparing estimates of the cost of ordnance for foreign
sales (galley 24 ZO). The officers of that ship had accepted a $1,000
gift from the president of that company in the form of improve-
ments in the officers' wardrobe (galle}^ 25 ZO). The Navy can do
the shipbuilders the favor of asking the National Recovery Admin-
istration to eliminate further competition by including in the code
provisions against the establishment of new shipyards (galley 88
GP). It can authorize the building of war-time ships after a war
is over (sec. VIII).
The Navy can also do more impressive things which benefit the
shipbuilders. It cannot only be indifferent to the possibility of the
construction of new navy yards, it can actively oppose them. It
can give without analysis or critical comment figures to congres-
sional committees showing the profits of private shipbuilders to be
about 30 percent of what they actually were (sec. IV). It can
assent to adjusted-price contracts which throw the risk of the ship-
building business almost entirely on the shoulders of the Government
(sec. I). It can take off all limitations on this burden on the Gov-
ernment, as it did in 1934. It can support measures tending to in-
validate the intended profit limitation in the Vinson-Trammell bill
of 1934 (House hearings. House Naval Affairs Committee, June
1935, H. R. 5730) .
Although completely ignorant of the essential figures the Navy
can make rulings on overhead, and so forth, which tend to invali-
date the attempts of Congress to limit profits (sec. VII). It can
do, as it did after the war, offer two battleships to Newport News
at a profit considerably over 10 percent and conceal the excess above
that mark by giving the company certain plant extensions at a low
price (galley ZO).
In 1927 and 1929 the Navy, at the request of the three big ship-
builders, gave up its right to reject cruisers (exhibit 1492, galley
27-28 QD, Feb. 26). The attorney for the New York Shipbuilding
139387— .35 15
222 ' MUNITIONS INDTJSTEY
Co. wrote the other companies that this withdrawal of the rejection
clause by the Navy surrendered the usually implied right of rejec-
tion entirely, and proceeded to make a record of the matter.
The Navy's decision not to ask Congress for sufficient funds to
establish a designing and planning section in order to be entirely
independent of private yards in this important matter has operated
to the benefit of the private shipyards.
At the time of the bidding on the aircraft carrier Rangei\ the
refusal by the Navy to let the New York Navy Yard estimate on
the basis of the new plans clearly helped put that ship beyond the
bounds of hard competition.
There is no implication here that all of the acts or omissions were
without possible explanation or justification. They simply show
that the Navy is in a position to do favors, and to reciprocate favors
done for it by the shipbuilders in the way of support for a larger
Navy and the like. This is a permanent situation. Since the Navy
is an instrument of national policy, this closeness in financial inter-
est of the private shipbuilding yards to the Navy becomes a matter
of national concern.
SECTION VI.— INFLUENCE AND LOBBYING OF SHIP-
BUILDERS
A. — General Powek
The shipbuilding industry is allied in interest with naval suppliers
and subcontractors, including the steel companies, the electrical
manufacturing groups, the boiler producers, the instrument people.
These spread out over the country, and together probably represent
several billion dollars of invested wealth. Several of the largest
fortunes in the country are involved in these groups. Connections
with the biggest banking interests in the Nation, as well as with the
smaller ones, are involved.
These groups are naturally interested in keeping business as usual,
or, if possible, better than usual. At times of great industrial unem-
ployment (1930 — ) they are able to urge the employment possi-
bilities of shipbuilding as a means of putting people to work rapidly.
In 1933 the American Federation of Labor endorsed the use of Public
Works funds for this purpose, and $238,000,000 of Public Works
funds were allocated to the Navy as soon as the P. W. A. had been
set up — in fact, a little before it was set up in its final form under
Secretary Ickes.
In a section below (C) a small part of the picture of the influence
of some of these companies is given. The influence of such large
interests as United States Steel, Bethlehem Steel, Westinghouse
Electric, General Electric, and the boiler manufacturers has not been
investigated by the committee. The small pieces of information
secured show^ that the shipbuilders used their influence equally in
Democratic and Republican circles. The committee wishes to ex-
press clearly its conviction that it has in no sense been able to probe
to the bottom of any of the influence exercised by these large groups
on the Navy or on the various administrations. This is due to lack
of funds, since the Senate laid three main duties upon the committee
and the available funds were not sufficient to allow the committee to
go into the political power of these companies.
The Washington representative of Westinghouse Electric Co.,
wrote the president of Bath Iron Works, describing the naval appro-
priation as "plunder" (Apr. 3, galley 24 WC).
Mr. Raushenbush. Coming to this letter of March 5, 1931, it says [reading]:
Dear Newell: The sooner you take the senior Senator from Maine out
and sink him the quicker you will get destroyer business in your yard.
The naval appropriation bill went through the House with the Dallinger
amendment omitted.
The Dallinger amendment is the one which would give one-half of the work to
the navy yards, is it not?
Mr. Newell. I think that is correct, but I am not sure.
Mr. Raushenbush (continuing reading) :
The Naval Affairs Committee of the Senate, under the able and progressive
management of the senior Senator from Maine, proceeded to insert that
noxious piece of legislation that has appeared in the last few bills.
223
224 MUNITIONS INDUSTRY
I take it that is ironj- on the part of Mr. Southgate.
Mr. Newell. Yes; I think so.
Mr. Ratjshenbtjsh (continuing reading) :
Of course, he was aided and abetted by Senator Swanson, and I suppose
that probably he may claim that the Senator from Virginia was responsible
for all the trouble, but I rather doubt it. At any rate, it is now in the bill
and the only way that you are going to get any destroyers built in Bath,
Maine, is for you to compete in price with the navy yards. In the words of
the act, you must be able to contract at a price that is not "appreciably"
higher than the navy-yard bids.
I understand the morning after the bill went through every east-coast yard
had its representatives in Washington with their tongues hanging out and all
teeth showing, ready to fight for their share of the plunder, and the only thing
that stopped the west-coast yards from being here was the fact that they
couldn't come bodily by telegraph.
The Chairman. Will you please read that again?
Mr. Ratjshenbush. I am sorry. [Reading:]
I understand the morning after the bill went through every east-coast yard
had its representatives in Washington with their tongues hanging out and all
teeth showing ready to fight for their share of the plunder, and the only thing
that stopped the west-coast yards from being here was the fact thatj^they
couldn't come bodily by telegraph.
[Laughter.]
How do you explain that, Mr. Newell, that with the Dallingerjamendment
going through for one-half the work in the navy yf rd, that, therefore, the amount
for the private yards would be smaller, and the fight for it would be tougher ?4^l8
that why these people were all down here "with their tongues hanging out
* * * to fight for their share of the plunder"?
Mr. Newell. I do not know.
B. — ^Lobbying Against Disaemament
At the time the Geneva Naval Disarmament Conference in June
1927, the three big shipbuilders had received contracts for $53,744,000
work on six 10.000-ton cruisers. Four of these had been let on June
13, 1927, and the work on the two Cramp ships (machinery on the
Pensacola and the whole Salt Lake City) had been contracted in
April 1927. Newport News had received two ships, at a contract
price of $21,284,000. Bethlehem had received one ship at a contract
price of $10,675,000; and New York Shipbuilding Corporation had
received one of the new cruisers at $10,815,000 and the Cramp con-
tract on the Pensaoola and Salt Lake City at $10,970,000. These
contracts could all be canceled as a result of action h^ the Geneva
conference.
These three big companies stood to lose $53,744,000 of work if
the Geneva conference prevented a naval race. If the conference
changed the size of the cruisers to 7,500 tons, the three companies
stood to lose up to $14,000,000 of work. They also stood to lose some
time owing to a recasting of plans. Mr. Ferguson of Newport News
stated (Feb. 18, galley 28 FS) "if these cruisers were changed to
7,500-ton cruisers, it was naturally a matter of tremendous interest
to us."
It was very definitely after the break-up of that conference that
the shipbuilding industry began to show profits.
A number of pertinent pieces of testimony bearing on this matter
are quoted below. They show Mr. Bardo's admission of interest in
the results of the Geneva conference including the expenditure of
$600,000 on machinery (see «). He explained the employment of
Mr. William B. Shearer to operate at Geneva on the ground of
"the desperate situation of the shipbuilders" (see 5). The precau-
tions of the shipbuilders in keeping h^s emploj-ment secret was dis-
cussed (see c). Mr. Shearer explained this secrecy on the ground
of the opposition of the State Department to his activities (see d).
The companies continued his employment in this country until March
1929, and Mr. Ferguson was questioned concerning his activities
here during 1928 and 1929 (see e) .
Senator Ciaek. That was at the time he was getting up this war scare with
EJngland, was it not, Mr. Ferguson, just in this same period, the fall of 1928
and the spring of 1929?
Mr. FERGUSON. It might have been.
The contradiction concerning the date of Mr. Shearer's employ-
ment as testified to in the Shortridge hearings (1927) by Mr. Fer-
guson and the actual date (1926) was discussed (see /). Mr.
Shearer's statement was introduced that :
as a result of my activities during the Sixty-ninth Congress, eight 10,000-ton
cruisers are now under construction. Further, that owing to the failure of
the tripower naval conference at Geneva, there is now before the Seventieth
Congress a 71-ship building program costing $740,000,000. * * * As stated
by you, and agreed by your group, I am to receive at the rate of $25,000 a year
as a reward, a bonus, or money earned as the result of the naval-preparedness
campaign which benefits, and, in reality, saved the shipbuilding industry
(seep').
225
226 MUNITIONS INDUSTRY
Mr. Shearer explained that he received $7,500 for his work on the
1926 cruiser bill (see h).
Senator Clark. * * * you accomplished the purpose for which tliey sent
you down here, getting the appropriation for the cruisers?
Mr. Sheaber. I should say so; yes.
]\'Ir. Shearer stated that he went to the preliminary conference in
Geneva in 1926 at the request of Admiral Pratt (see i). Mr.
Shearer's cooperation with naval officers to secure increased naval
appropriations was discussed. He stated that every fight he had
made was at the request of naval officers (see }) and that he had
been supplied with secret data by the Navy Department. His
methods of operation were discussed (see k). He was shown the
secret order to sink the Washington^ by a naval officer (see 1). An-
other representative of the shipbuilders, Mr. H. R. Humphreys, was
in Geneva in 1926, and after discussion with Admiral A. T, Long,
one of the United States delegation, reported : '' The yard has noth-
ing to worry over anything drastic being done at the disarmament
conference now being held at Geneva" (see ;/?,). Mr. Shearer testi-
fied that he was asked by the >taff of the California " to make a fight
for a naval base on the Pacific and for cruisers " (see n).
Mr. Shearer described his work at Geneva as a " fast and vicious
campaign " (see o). He also stated that Military Intelligence (War
Department) had given him the names of the Military Intelligence
men in Europe (see /?). Mr. Shearer spoke of the shipbuilders as
"delighted" with the result of his work at Geneva (see q) . Mr.
Shearer explained his orders to '' lay low " after his return to Mr.
Cliarles Schwab's fear of reprisals by the State Department in con-
nection with the Government's suit against Bethlehem Steel (see r).
In the course of refusal by the shipbuilders to pay Mr. Shearer what
he thought was due to him for his work he repeated his claims to
the success of the Geneva failure (see .s). The exjienses of a pam-
phlet entitled '' The Cloak of Benedict Arnold '", attacking Franklin
D. Roosevelt and others, were paid for the shii)builder (see t) .
Mr. Shearer stated that the attacks were taken from the Hearst
pai)ers, and that he was i>aid $5,000 in 1929 by Mr. Hearst. He
attributed the $740,000,000 naval j^rogram directly to the failure of
the (teneva conference (see w). He stateil that he was asked by
the shipbuilders to make an attack on ]Mi-. (^dbertson. '' our minister
to Chile '', because he was alleged to be opposed to merchant marine
legislation (see v). Mr. Slieai'cr was asked if he had not reported
'' to your employers that you felt justified in listing anyone who
opposed you as an internationalist and pacifist." He replied, " Yes "
(see 7r).
{a) Mr. Bardo said his firm had spent large sums in plant im-
provements in expectation of cruiser contracts, and that they hired
Shearer to go to Geneva because they didn't want to jeopardize these
expenditures. Mr. Bardo testified he and the representatives of
Bethlehem and Xewport Xews entered into an agreement with
Shearer March 1927 (pp. 13 and 14, hearing under S. Res. 114, 71st
Cong., 1st sess.).
.Senator yuoRTRiiKJE. So that, on that date, at that time, and at that place,
you did enter into a contract with tliis gentleman?
Mr. Bahdo. Yes, sir.
MUNITIONS INDUSTRY 227
Senator Shortridge. Have you now tokl this comnnttee the scc^pe and purpose
of that contract?
Mr. Bardo. Yes, sir.
Senator Shortridge. Fully?
Mr. Bardo. Fully.
Senator Shortridge. As to what you did?
Mr. P>ai!;do. I'es, sir.
Senator Shortridge. And why you desired that information?
Mr. Bakjjo. Yes, sir. I would like to make a further statement.
Senator Shortridge. If it is explanatory of your answer, you may properly
give it.
Mr. Bardo. I would like to make this comment there, Mr. Chairman, as indi-
cating the situation as it applies to us particularly; and I do not want unneces-
sarily to take up the time of the committee ; but here was the situation that we
were confronted with : We had under negotiation, and had substantially reached,
an agreement with the Cramp Co. as to this contract of theirs. We did not know
when the default would he declared, nor when action would be called for.
We had submitted, or were just about to submit, our bids on the cruiser,
which is now ;ibout 70 percent complete. We had still to make a decision as to
whether we were going to continue in the shipbuilding business or whether we
were going to quit nnd transfer that activity, that plant, for the manufacture
of electric equipment.
Our board of directors bad authorized an expenditure of approximately
$2,000,000 for new tools and machinery ; and he had spent about $600,000 of
that up to that time for machinery. So we were right on the threshold of
deciding, and must make the best decision we could as to whether we would
put that machinery in the shipbuilding i)lant or whether we wcmld put it in a
new building in the south end of the yard and open up a new industry.
Senator Shortridge. What had that to do with the conference to be called at
Geneva ?
Mr. Bardo. It had everything to do with it. If these things drifted along to
a point where tlie Geneva Conference took its action one way or another as to
these contracts — that is, the Cramp contract and the new contract were going
to be discontinued, because if the conference detnded that, then there would
certainly be no question as to what our future course would be, and the ship-
building plant would now be a plant for the manufacture of electric equipment
and not for the building of ships.
Senator Shortridge. So that in view of that fact you considered yourselves
very vitally interested in the conference at Geneva.
Mr. Bardo. Decidedly so.
Mr. Bardo testified that, though he paid Shearer one-third of
$25,000 to " observe and report " at Geneva, that Shearer's reports
were not read (p. 24, hearings on S. Res. 114, 71st Cong., 1st sess.).
Mr. Bardo said in the Shortridge hearings that Mr. Shearer fur-
nished him witli no information not supplied earlier by newspapers
(p. 27, hearings on S. Ees. 114, 71st Cong., 1st sess.).
(h) Mr. Bardo testified further (in the Shortridge investigation)
that the future of the Big Three in shipbuilding depended on the
outcome of the Geneva Conference. Mr. Bardo admits Shearer was
paid to much for services as a mere " observer " (pp. 20 and 21,
hearings on S. Res. 114, 71st Cong., 1st sess.).
Senator Robinson, of Arkansas. Then the primary purpose of the conference,
and the primary sul)ject matter of the conference in which Mr. Shearer was
employed, was to determine whether there was anything that could be done
that would promote the shipbuilding industry or sustain it?
Mr. Bardo-. I would not put it as broadly as that.
Senator Robinson, of Arkansas. Well, what was it?
INIr. Bardo. I outlined before that we were in a desperate situation.
Senator Robinson, of Arkansas. Yes.
Mr. Bardo. We had contracts pending with the United States Government.
It was of great interest to us to know, just as exactly as possible, whether the
Geneva Conference was going to discard that program or whether it was going
to go through.
228 MUNITIO]SrS INDUSTRY
Senator Robinson, of Arkansas. Were you interested in any way in the ques-
tion as to whetlier the United States would build or destroy ships as a result
of the Geneva Conference?
Mr. Bardo. Not beyond the statement I have just made.
Senator Robinson, of Arkansas. You were concerned only, then, with the
completion of the contracts that you had already entered into?
Mr. Bardo. And the contracts that were in front of us, to be entered into.
Senator Robinson, of Arkaus^as. You did want to prevent the abrogation of
those contracts by the Government?
Mr. Baedo. No.
Senator Robinson, of Arkansas. What did you want to do?
Mr. Bardo. We did not want to prevent it at all. We wanted only to know
what the Government was likely to do.
Senator Robinson, of Arkansas. And you thought that 'Sir. Shearer could
find out what the Government was likely to do?
Mr. Bardo. We thought he could.
Senator Robinson, of Arkansas. And for that purpose you employed him?
Mr. Bardo. Yes. siir.
Senator Robinson, of Arkansas. How much was it agreed he should be paid
for his services at that conference?
Mr. Bardo. That is the $25,000 conference.
Senator Robinson, of Arkansas. Whether it lasted 6 months or a year?
Mr. Bardo. That was the understanding.
Senator Robinson, of Arkansas. Why was he paid so large a sum for attend-
ing the conference as an "observer"?
Mr. Bardo testified in the Shortridg^e hearings (S. Res. 114, 71st
Cong., 1st sess.) that he became dissatisfied with Shearer's work at
Geneva in August 1927, and yet. though Mr. Bardo said, on page 35,
that he had complete authority to dismiss Mr. Shearer, evidence
brought out at various times shows Mr. Shearer continued in the
service of the firm to March 1929.
On page 34 of the Shortridge hearings (S. Res. 114, 71st Cong., 1st
sess.) Mr. Bardo reaffirmed his desire to keep the employment of Mr.
Shearer confidential.
Drew Pearson testified in Senator Shortridge hearings tliat Mr.
Shearer and certain naval officers expres.sed determination that there
should be no repetition at Geneva of the 1921 conference. This tallies
with statements by Mr. Shearer and seems to indicate a desire on the
part of the shipbuilders, through Mr. Shearer, to prevent any dis-
armament :
Mr. Peak.<on. The conversatitm in general was almost identical with Sliearer's
views, and was i)r:u'tically th.e same as — well, it was extremely anti-Britisli. It
Mas also t(t tlie ctTect tb.at tlie Washington Naval Conference Iiad been a terri-
ble failure; that Mr. Hughes had sacriHced American i);irity on (he liigh seas for
political purposes; and that tliey hoped, and would endeavor to see. that the
C<K)lidge conference would — well, in a general way their view was practically
that it would not succeed.
Senator Am.kn. Did the conversation of any of thest> men representing any of
the departments here indicate their svmpathv with the thought that it ought to
fail?
Mr. Pearson. They said, "We are out to .see that there is no repetition of
1921." That was the thing in a nut.shell — and, as 1 said. th(>ir views against
the thing. What struck me. Senator, at the very start of the conference was
that there wns an atmosphere among these naval experts and Shearer that was
extremely discouraging to the success of the conference. In other words, the
cards were .stacked against the conference from the very start (hearings on
S. 114, 71st Cong., 1st sess., p. 393).
(c) Precautions were taken by the shipbuilders to conceal their
relations with Shearer in 1926 and 1927 (galleys 69 QD, Mar. 12;
70QD, 71QD).
Mr. Shearek. I understood I was to receive $25,000 a year.
MUNITIONS INDUSTRY 229
Senator Claek. Before you get to that, what was the upshot of the argu-
ment between Wakeman and Palen as to whether you would come out in the
open as their representative or would not come out in the open?
Mr. Shearer. I would not know at that time, Senator. I found out later.
Senator Cl.\rk. The argument was not in your presence?
Mr. Shelareu. A suit that was pending against Mr. Schwab for some $15,-
000,000 or something at the time, and he did not want that out.
Senator Ci^vkk. What I am trying to get at, Mr. Shearer, is whether this
argument between Palen and Wakeman was in your presence, or whether you
learned about it subsequently.
Mr. Shearer. Palen told me privately in his ofl3ce in the Woolworth Building,
and Wakeman told me privately.
Senator Clark. They told you they had an argument?
Mr. Shbakek. There was no argument. They did not agree. Mr. Wakeman
said " This thing should be done direct with you, and we should not even do
it through Hunter."
Senator Clark. In other words, it should be done directly between the New
York Shipbuilding Co., the Newport News Shipbuilding Co., and the Bethlehem
Shipbuilding Co.?
Mr. Sheiareb. And leave Hunter out of the picture.
Senator Clark. And have no intermediary in Mr. Hunter?
Mr. Shearer. Yes, sir.
Senator Clark. What was the final upshot of tliat discussion? Did you go
to Geneva openly as the representative of the shipbuilding companies?
Mr. Shearer. I went to Geneva but not openly, no, sir ; as a representative of
the three.
Senator Clark. You went to Geneva apparently on your own?
Mr. Shearer. I had been endorsed. Senator, by a great many patriotic organi-
zations anyhow, and, in addition, I was just as sincere in bringing out certain
facts for them, who never paid me, because they have patriotic organizations,
with no money, so that I did those things, and you know what I mean, and it
was assumed I was still with patriotic organizations.
Senator Clark. What were those patriotic organizations?
Mr. Shearer. American Legion, National Society Daughters of the American
Revolution, National Defense League, National Security League, and possibly
100 others.
Senator Clabk. Did those patriotic organizations at that time know that
you were being financed by the shipbuilders?
Mr. Shearer. I do not think they worried themselves, because the thing is to
get out certain facts.
* * * if * i): *
Senator Bone. Mr. Shearer, are you in any way ashamed of your business
connections ?
Mr. Sheiareb. Certainly not.
Senator Bone. Why did you keep your connections with these i>eople secret?
Mr. SHEiAREat. Because those people asked me to keep it secret.
Senator Bone. That throws a little light on the subject.
Mr. Shearer. Tliey wanted it kept secret. I never hesitated.
*******
(d) Senator Clark. Wait a minute and let me finish the question. Was not
the real reason that they did not want you to ap]tear openly as their representa-
tive the fact that the State Department regarded your activities at the previous
Geneva conference and generally as obnoxious to the prospects of arriving at
an agreement with the other nations with which we were to confer?
Mr. Shearer. I would like to answer you on that point.
Senator Clark. Yes, sir.
Mr. Sheareb. The British had their representative of the press and others
there and the Japanese had their representative of the press and others.
Even an American was working for the Japanese, and an American I knew
was working for the British.
I was simply wanting to be fair to the Americans, and I tried to get around
me the American newspaper boys who were sincerely interested in their own
country. The British protested me because I was bringing out facts and truth,
as Ambassador Gibson said.
Senator Clark. I am not asking about your activities at Geneva, but I said
the reason why Bethlehem Shipbuilding Co. and the other shipbuilding com-
230 MUNITIONS INDUSTRY
panics did not want you to appear officially as ttieir representative was because
the State Department regarded your activities as not desirable, rather than
any suit pending in Pennsylvania betv^^een the Government and Mr. Schwab?
Mr. Sheiabeir. That is quite possible. I believe the State Department always
opposed my activities. I believe that is true.
Senator Clark. In your opinion, is not that the reason why they did not
want you to appear officially as their representative and agreed to pay
compensation?
Mr. SHEiARER. I will agree to that. It is logical. I think there were a lot of
reasons why the State Department did not want me there.
Shearer fought for 10,000-ton cruisers and " no compromise " at
Geneva. This was in the summer of 1927, after the " big three " had
made extensive plans for building 10.000-ton cruisers (p. 448. hearing
under S. Res, 114, 71st Cong., 1st sess.).
Mr. Shearer. My statement was, "A fair treaty or no treaty ; and 10,000-ton
cruisers, 8-inch guns, and no compromise."
That was my statement to a half dozen members of the press, the Asso-
ciated Press, the Chicago Tribune, the New York Times, and, I believe I re-
member, the New York Herald, and Decker, and Post. That is the strongest
statement I ever made — "A treaty of parity. 10,000-ton cruisers, S-iuch guns,
and no compromise."
(e) The employment of Mr. William B. Shearer by the three big
companies was discussed on February 20 (galley 53 FS-5(5 FS-57
FS).
It was brought out that Mr. Shearer was still employed by New-
port News until March 1929 (galley 57 FS).
Senator Clark. Mr. Fergu.son. during the time that elapsed between Shearer's
return from Geneva, at which time I understood you on Monday to say that you
discharged him from your employ, to August 22, l!)2s, what services was he
rendering to your company which would justify you in authorizing Mr. Palen
to advance him .^HOO or $1,0(X> at a throw?
Mr. FESiGUSON. I am afraid you misunderstood me. I did not mean that I
discharged liim after the Geneva Conference, or that I told Palen to. His
employment as a delegate of the three ccmipanies to that conference had been
terminated, but Palen kept him on in New York for this employment whicli
you spi'ak of, and he wrote articles for papers and magazines.
Senator Cl^vrk. I am trying t<i get the dates clear. Mi-. Ferguson.
Mr. Fkrcttson. That is a long while ago and
Senator Cf^rk. I imderstand. That is the reason I am trying to refresh
your memory.
Mr. Palen states in this memorandum that the engagement of Shi'ann- to
reiu'esent the three companies was ternunated by a letter from Mr. Ilcnry C.
Hunter under date of D(M:"end)er 17. 1927.
Mr. Ferottson. Yes. sir.
Senator Cl.\rk. From that time on until as late as March 22, 1929. as the
ncord shows, the NewjKirt News Shipbuilding Co. was advancing to Shearer
from time to time very considtM-able sums of money. Now what .services was he
rendering to the Newport News Shipbuilding Co. in that time that .justified
you in aiithorizing these expenditures which were all charged to .vour company,
were they not?
Mr. Fkrgtson. Mr. Palen had him emjiloyed ; and, of course, the record of the
other investigation may disclose what he di<l. but. so far as I know, it was in
newspaper and publicity work.
Senator Ci-akk. First, let nie ask you this, if I may interrui)t. Mr. Ferg\ison,
so that we will be clear on this: These expenditures, the advances to Shearer,
or payments to Shearer, were company expenditures, were they not? I mean,
Mr. Palen says in this memorandum that he took two or three demand notes,
tluee of ifSOO, and tt)ok a denmnd note for $1,0(X). They were company exiieudi-
tures, were they not?
Mr. Ferguson. Oh, yes.
Senator Clark. They did not come out of the pocket of Mr. Palen?
Mr. Ferguson. Eventually the company paid for them; yea, sir.
MUNITIONS INDUSTRY 231
Later (galley 57 FS). '
Senator Ct,akk. Did you have any knowledge of the work of Shearer, for
which you were payinii" him?
Mr. Febguson. No ; Palen had authority to employ him. both as to amount and
how long it should continue.
I finally told Palen to pay him off and get rid of him. So he settled with him,
1 think, for some $3,000, and let us assume it was in March 1929, and got his
receipt in full.
Sometimes, Senator, you get landed with an employment that sticks pretty
tight.
Senator Clark. Yes, sir ; but I am certain that a man of your ability, with a
good old Scottish name of " Feriiiison ", was not handing out $500 or $1,000 every
2 or 3 weeks to a man unless you knew what services he was rendering the
company.
Mr. Feegusox. It was in connection with publicity work, and I think he made
some speeches, too. I know of some articles he wi'ote in an Irish paper in New
York.
Senator Clark. That was at the time he was getting up this war scare with
England, was it not, Mr. Ferguson, just in this same period, the fall of 1928 and
the spring of 1929?
Mr. Ferguson. It might have been.
Senator Clakk. I do not want to be examining you on part of this memo-
randum without letting you hear the whole thing. [Continuing reading:]
At the next conference with Mr. Shearer —
the last date referred to. when I quit reading this memorandum, was August
22, 1928, ^^•hen Mr. Palen, by your authority, advanced $1,000 to Mr. Shearer,
which was following another $1,000 advanced on the second of AugTist. [Con-
tinuing reading:]
At the next conference with Mr. Shearer I offered to advance him $500
more and he wanted me to agree to advance him $1,000 per month for 1
year so he could make his plans on the basis of a definite sum for a definite
period. I declined to agree to advance as inuch as $1,000 per month for
1 year and was not willing to advance any more than a total sum of
$6,000. Shearer did. not agree to this, but from time to time came to me
for money and our conferences resulted in my advancing to him the folhnving
sums: $1,000 on December 22. 1928; $500 on January 7, 1929; $500 on
January 24, 1929; $500 on February 25, 1929; $1,000 on February 28, 1929;
$2,500 on March 22, 1929.
That was at the same time, or during the same period, was it not, Mr.
Ferguson, during which Mi". Bardo advanced $5,000 to Mr. Shearer?
Mr. Ferguson. I do not know.
Senator Cuakk. Was anything said to you about part of this being con-
tributed to a trip which Mr. Shearer was taking to the Pacific coast to see
Mr. Hearst about certain work which he was doing, in connection with certain
work on a diary in connection with the work of a British spy, which he was
showing around Washington at that time?
Mr. Ferguson. I do not remember.
Senator Clark. Do you remember any services Mr. Shearer was performing
at this time justifying $1,000 on December 22, 1928; $500 on January 7, 1929;
$500 on January 24, 1929 ; $500 on February 25, 1929 ; and, 4 days later, on the
28th of February, another $1,000; and $2,500 later on, on March 22, 1929?
Mr. Fekguson. I do not know.
Senator Clark. Did he not make any report to you as to why the stock-
holders' dividends were being dissipated In this manner?
Mr. Ferguson. You must understand. Senator, that my home Is In Newport
News and at that time I was In New York only occasionally. Mr. Palen was
in charge up there.
Senator Clark. Yes, sir ; but what did Mr. Palen tell you when he said,
back In August, " Mr. Ferguson told me that I might advance him some more
money and when I asked how much he left the matter to my discretion?"
What did Shearer tell you at that conference that made you feel justified to
tell Palen to go on and give him some more money?
232 MUNITIONS INDUSTRY
Later [galley 58 FS] :
Mr. FE21GUS0N. I do not remember. He told me in general, when I saw him,
probably two or three times altogether, that what he was doing for the general
cause of sea power and the merchant marine as well as the Navy
Senator Clark. Did he tell you aaiything about his services at the Geneva
(Conference, and that he had been the fellow who broke it up?
Mr. Ferguson. He never claimed he broke it up with me.
Senator Clark. In connection with a few admirals. He claimed that later
in public testimony before the Shortridge committee, did he not?
Mr. Ferguson. No, sir; I do not think so.
Senator Clark. Was not that one of the bases of his suits?
Mr. Ferguson. No, sir; I do not think his testimony was that
Senator Clark. What did he say about his services at Geneva, when he
was hitting you up for another advance?
Mr. Ferguson. I did not discuss it with him at any length. My discussion
had nothing to do v\irh the Geneva Conference, had nothing to do with that,
hut the services which lie was rendering the company.
Senator Clark. Was there anything in this conversation in which you were
engaged to get you in a frame of mind to authorize further payments to him?
Was anything said about that conference?
Mr. Feeouson. No ; there was no claim of any kind that I can remember
for any payment for services at the Geneva Conference. That was a closed
employment, so far as I know.
Senator Clark. What did he say he was going to do to get those further
payments? I am speaking now of this conference which you had personally,
just prior to August 22, after wliich you authorized Palen to go on and use
ins own discretion about paying Shearer further?
Mr. Ferguson. He was engaged in publicity work under Palen and in that
capacity, as I understand it, may have taken a trip to the West coast. I cannot
recall now, Seniitor. It is a good wliile ago, and I have not thought of it since
the Shearer investigation.
The Chairman. Mr. Ferguson, there was not any idea when this money was
being advanced, or there was no thnugbt that it was simply being ailvanced to
one who was broke, or being advanced as a loan to him, was it?
Mr. Ferguson. Yes; he was broke. Ho was about to lose his property, and
he was very hard up, and Palen liked Shearer.
Senator Clark. The Newport News Shipbuilding & Dry Dock Co. does not
just make payments to anybody who happens to be hard up and is about to
lose his property, does it?
Mr. Ferguson. No.
The Chairman. I would be glad to come down and see you.
Mr. Ferguson. We do at times make payments to people who have worked
for us and wlio are hard up. But there was no claim, as I can remember, at all,
that he had ix^rformed any service at Geneva for which he had not been paid.
Senator Clark. Was anything said about what he was doing then, during
the period after the Geneva Conference?
Mr. Ferguson. Publicity, .speecli making, and propaganda.
Senator Ci..M{k. Was anything said about a diary of a British spy or a war
with England, or anything of tl>e kind?
Mr. Ferguson. Oh, yes. There was a paper purporting to be a spy record of
some sort.
Senator Clark. Did Shearer say anything to you about it?
Mr. Ferguson. Yes; Shearer said something to nie about it.
Senator Clark. And he wante<l to have his expenses paid so that he could get
around and show this to the Senators, Congressmen, and public men?
Mr. Ferguson. No; I do not remember that. I think he brought it down
here. I do not know what happened to it, but it was all in the papers at the
time.
Senator Clark. And that was during tlie time he was being paid by the New-
port News Shipbuilding Co.?
Mr. Ferguson. I do not remember that.
Senator Ci.akk. It was in January and February, and the early part of
March 1929?
Mr. Ferguson. Let us assume so.
MUNITIONS INDUSTEY 233
(/) Later, it was brought out that Mr. Ferguson was informed of
Mr. Shearer's employment in November 1926 (Feb, 20, galleys 58-59
FS).
Senator Clark. Now, Mr. Ferguson, as I say, I am trying to clear up these
dates. Before the Shortridge committee you testified that your first knowledge
that some agreement or arrangement with Mr. Shearer had been entered into
was in the fall or winter of 1927. I will just read that.
Mr. Fehguson. What page is that?
Senator Clakk. That is page 177 of the Shortridge committee's report, about
midway down the page.
Mr. Ferguson. Yes, sir.
Senator Clark (reading) :
Senator Shortridge. Were you present when some arrangement, or under-
standing, or agreement leading to a contract, was entered into by and be-
tween Mr. Shearer and the company you represented?
Mr. Ferguson. No, sir.
Senator Shortridge. You were not present at that meeting?
Mr. Ferguson. No, sir.
Senator Shortridge. Or at a meeting where an agreement was said to
have been entered into?
Mr. Feirguson. No, sir ; I was not.
Senator Shorteidgb. Did it come to your knowledge that some agreement
was entered into with him?
Mr. Ferguson. No, sir.
Senator Shortridge. It never did.
Mr. Ferguson. Not at that time.
Senator Shortridge. Did it? My question wa.s : Did it come to your
knowledge?
Mr. Ferguson. Eventually ; yes.
Senator Shortridge. My next question would be: If so, when?
Mr. Ferguson. As nearly as I can remember, sometime in the fall or winter of
1927.
Senator Shortridge. Was it before or after Mr. Shearers return, if he
returned from Geneva?
Mr. Ferguson. After, I think.
Now, as a matter of fact, Mr. Ferguson, to refresh your recollection, you had
been informed by Mr. Palen November 24, 1926, as to the contemplated employ-
ment of Mr. Shearer, had you not?
Mr. Ferguson. I do not know.
Senator Clark. Just to refresh your recollection, here is a memorandum from
Palen to Mr. Ferguson, president, dated November 24, 1926 :
Mr. William B. Shearer, 39 West Fifty-fourth Street, New York, tele-
phone 3368 Circle, called to see you last week but was unable to get an ap-
pointment. He therefore called upon me today and discussed with Mr.
Bailey and myself the question of financing a speaking tour which he pro-
posed to make over the country on the question of national defense, espe-
cially the bearing of Navy and merchant marine on this subject.
Mr. Shearer has purchased one page of the New York Commercial for 1
day per week for 6 months, making 26 issues of the paper which will devote
one page to information furnished by Mr. Shearer on the reaction of his
speaking tour. He is requesting 12 subscribers to take small advertising
space on this one sheet in the 26 issues at $100 per issue, making a total
expenditure of $2,600 for each subscriber for the advertising. He is pur-
chasing the sheet from the newspaper at a less sum than the amount he will
get for the advertising, and he expects to use the difference for financing
his speaking tour.
You are no doubt acquainted with Mr. Shearer's work during the past few
years in connection with the Navy preparedness and also his work as an
observer at the Geneva Conference. He is probably the most forceful
speaker and the greatest authority and enthusiast interested in this que':-
tion, and I think it advisable to offer him some financial assistance in con-
nection with this speaking tour.
I told him that I would recommend to you and to our board an appro-
priation for one of the advertising spaces at a total cost of $2,600, which
234 MUNITIONS INDUSTRY
is to cover a period of 6 months. After maliiug one more address in New
York lie expects to spend some time in Washington after the opening of
Congress in order to get information on the probable attitude of Congress
and the administration toward appropriations and backing for the Navy
and merchant marine, after which he will start on his speaking tour and
intends to cover the entire country, speaking before gatherings organized
by the American Legion, the chamber of commerce, and similar organiza-
tions that will cooperate with him in getting the necessary audiences.
Mr. Bailey was present at the conference today with Mr. Shearer, and
he will discuss the matter with you.
Following that, did you authorize this expenditure of $2,600 for a small
advertising card in Mr. Shearer's space in the New York Commercial?
Mr. Fergusox. I wrote to Mr. Palen under date of December 1. 1926, which
occurs on page 637 of the recoi'd.
Senator Clark. Of the Shortridge report?
Mr. Skinner. Yes, sir.
Senator Clark. What is the page, Mr. Ferguson?
Mr. Ferguson. Six hundred and thirty-seven.
Senator Clark. Yes, sir. Exhibit 47.
Mr. Fekguson (reading) :
I do not think it desirable to t.ike any advertising space for Mr. Shearer.
My own opinion is that unless the interest of the Presiclent can be enlisted in
some way there is practically no hope for favorable shipping legislation.
Senator Clark. Now, was there any advertising taken on Shearer's page in
that New York paper by your company?
Mr. Ferguson. I do not recall. I think that a page was taken in the New
York Commercial.
Senator Clark. I mean that the previous exhibit shows that Mr. Shearer had
taken a page himself.
Mr. Ferguson. Yes, sir.
Senator Clark. One day a week for 6 months, and he was trying to sublet
certain advertising space on the page at $100 a week i)er space.
Mr. Ferguson. Yes, sir.
Senator Ci-akk. For the punx)se of paying his exi)enses and for whatever
profit might accrue to him. Did the Newiwrt News Shipbuilding Co. actually
take one of these spaces from Mr. Shearer?
Mr. Ferguson. I do not know.
Senator Clakk. Mr. Ferguson, I again direct your attention to page 179 of
the Shortridge hearings, where, after you had testified tliat your first meeting
with Mr. Shearer was in the winter of 1927, Senator Shortridge asked you where
you met him. and you stated that it was at the Engineers' Club iu New York,
where you usually stopiied. [Reading:]
Senator Shortkidoe. Tliere you met, and there you cliatted about some-
thing?
Mr. Ferguson. Yes.
Senator Shortkidoe. What was the subject matter of the conversation?
Mr. Ferguson. The conversntion was general ; but that was, as I remember
it, in connection with the fact that the shipbuilding companies had dispensed
with his services and that he did not feel it was just fair.
Senator Shoktridce. Was that tlie first time you had heard that they had
entered into some agrcenifnt V
Mr. Ferguson. It was sometime about then.
Senator SiiORTRiixiE. And you hoard it from him first?
Mr. Ferguson. No. I heard it first from Mr. Palen.
Senator Shortridge. And was that after the return of Mr. Shearer from
Eurojie?
Mr. Fkrgxson. I think so — that winter.
Senator Shortuidge. You ha<l some talk, or foiiversation, with Mr. Palm,
in which he told you that there had been some agreement with Mr, SlieanT.
Is that right?
Mr. Fkkgi'son. Yes, sir.
Senator Suobtridqe. And that was, in point of truth, as you reiiiU it.
tlie first time you ever heard that there was any kind of an agreement
with him?
Mr. FEmousoN. Yes, sir.
MUNITIONS INDUSTRY 235
Senator Shortbidge. Then, later, you met Mr. Shearer ; and he, of course,
liad something to say about the agreement, did he?
Mr. Ferguson. Yes. As I remembpr it, he said that they had dispensed
with his services and tliat he did not think it was fair, or sometliing like
that ; and I told him that Mr. Palen had entered into the agreement, and
Mr. Palen was the man for hini to talk to.
That is after that conversation, was it, Mr. Ferguson, that the Newport
News Shipbuilding Co. again employed Mr. Shearer?
Mr. Ferguson. Yes ; he was being made these payments along about that
time, or loans.
Senator Clark. This is in the fall of 1927. They made payments or loans or
whatever you please to call them ; that is, he got the cash in hand until the
end of March 1929?
Mr. Ferguson. Yes.
Senator Clark. Something like a year and a half after his services were
supposed to have been dispensed with?
Mr. Ferguson. Yes.
Senator Clark. Were you interested during that time, during this period,
when Shearer was still being paid for work on the JoTaes-White Mil?
Mr. Ferguson. Yes, sir.
Senator Clark. Did you know that Shearer was down here as part of the
Wilder lobby representing shipbuilding companies?
Mr. Fergu.son. I did not know that until afterward.
(^) Later a letter by Mr. Shearer to the three big companies was
introduced February 20 (galley 60 FS), claiming the eight 10,000-ton
cruisers authorized in 1927 as a result of his activities.
Senator Clark. Then, Mr. Ferguson, on January 30, 1928, writing from
Washington. D. C, Mr. Shearer wrote to Mr. S. W. Wakeman, Bethlehem
Shipbuilding Co., 25 Broadway, New York City, N. Y., as follows :
My dear Mr. Wakeman
Before I read this, copies were sent to Mr. Wilder and Mr. Palen of your
company and Mr. Bardo [reading] :
Pursuant to our last private conversation and understanding in your
office, that future negotiations would be with me direct, I wish to call to
your attention that as the result of my activities during the Sixty-ninth
Congress, eight 10,(MK3-ton cruisers are now under construction.
Further, that owing to the failure of the tripower naval conference at
Geneva, there is now before the Seventieth Congress a 71-ship building
program costing $74O,(X)O,0OO.
The understanding for which expenses were furnished me to conduct the
campaign for naval preparedness was to March 5. 1928, to be paid as a
salary of $25,000 a year, receipt hereby acknowledged for year ending
March 4, 1928.
As stated by you, and agreed by your group, I am to receive at the rate
of .*f25.000 a year as a reward, a bonus, or money earned as the result of
the naval preparedness campaign which benefits and, in reality, saved the
shipbuilding industry.
Now, the group referred to was the New I'^ork Shipbuilding Co., the Newport
News Shipbuilding Co., and the Bethlehem Shipbuilding Co., was it not, Mr.
Ferguson ?
Mr. Fekguson. At that time.
Senator Clark. The group which made this agreement to pay him $25,000?
Mr. Ferguson. What date is this?
Senator Clark. The letter is dated January 30, 1928, but that referred to
the agreement which carried up to March 4, 1928.
Mr. Ferguson. But when was the Congress to which he refers. Senator?
What was the Fifty-ninth Congress?
Senator Clark. Sixty-ninth.
Mr. Fbhiguson. What year?
Senator Clark. That just terminated the year before. [Continuing reading:)
As stated by you and agreed by your group, I am to receive at the
rate of $25,000 a year as a reward, a bonus, or money earned as the result
236 MUNITIONS INDUSTEY
of the naval preparedness campaign which benefits and, in reality, saved
the shipbuilding industry.
The fixing of the time limit on the naval building program to 5 years
to lay down and 8 years to complete established the period of our under-
standing to the length of the naval program of 8 years at $25,000 a year,
or an aggregate of $200,000 due me from the result of my endeavors in
the interest of the shipbuilding industry. The amount of $200,000 to be
divided by and between the Bethlehem Shipbuilding Co., 25 Broadway,
New York City, and the Newport News Shipbuilding Co., 233 Broadway,
New York City, and the Brown-Boveri Shipbuilding Co., Camden, N. J.
At the request of Mr. Hunter, Mr. Palen, Mr. Bardo, and yourself, I
have continued my activities in your behalf and in your interest to get
action on a naval building program which is now assured. By request and
instructions, I am devoting considerable extra time and endeavor to the
merchant-marine program, as laid down and approved by members of your
group. Considering the extra work assigned me and the expense involved,
I believe that part of my bonus should be paid me March 5, 1928. Also,
I feel the time has arrived for me to come out in the open as suggested
by Mr. Palen and Mr. Wilder in the interest of all who are seriously
interested in the shipbuilding industry and adequate sea iK)wer.
Very truly yours,
W. B. Shearer.
Copies to Wilder, Palen, and Bardo.
Did you hear about that letter being received from Mr. Palen, Mr. Ferguson?
Mr. Ferguson. This is the first time I have seen it, that I can remember.
(h) That the shipbuilders were willini:; to spend thousands of
dollars to bring about the awarding of cruisers in 1927 is shown in
the following Shearer testimony (Mar. 12, galley 67 QD).
Mr. Shearer. They said, " We do not want a campaign through the country,
but we want action right away." They said, " Tlune is a cruiser bill in Wash-
ington, and unless we get $200,000 for the plans by June 1 it dies, according
to law, and you go to Washington and see what yiui can do with it."
Senator Clark. In other words, the appropriation would lapse, if they did
not have it under contract at the end of the fiscal yenr.
Mr. Sheauek. Absolutely; yes. sir. So that I came down to Washington.
Senator Clark. About when was tliat, Mr. Slieiircr. if you recall?
Mr. Shearer. That would be Decembei" 1020 ; Noveml)er or December.
Senator Vandfnbero. Wliat was the pay .-irranuenieiit V
Mr. Shearer. !?7..^00, and they advanced us expenses.
Senator Clark. Was it ;it this time that you took a page in the New York
Commercial?
Mr. Shearer. No; I did not lake it then. They wanted action on cruisers
and not publicity.
Senator Clakk. They made :ni arriuigement with you for a flat fee to con-
duct this canii)aign?
Mr. Sttearer. Yes: I would say that was a flat fee.
Senator Clakk. They would pay you $7,."00 for coming down here and
Working for the crui.«!ers?
Mr. Shearer. The three-crniser program.
Senator Clark. The cruisers had already been authorized, liad they not?
Mr. Shearer. Yes; but no apin-opriation. and, unles.s something is appro-
priated, they die, according to the law. So that down I came, and evidently
they w(>re satisfied because, on my return to New York, they asked me to go
to Geneva.
Senator Clark. You got the cruisers?
Mr. SnEARB3i. I would not say that. They got the cruisers.
Senator Clark. You acconiplisheil your purpose?
Mr. Shearer. I got my $7,500 and they got the crui.sers.
Senator Clark. Let tis say, you got the cruisers for them.
Mr. SHEAREii. Up to that T^oint we were working on the level.
Senator Clark. What I mean to say is. you accomplished the purpose for
which they sent you down here, getting the approiiriation for the cruisers?
Mr. Shearer. I should say so ; yes.
MUNITIONS INDUSTRY
237
(i) Mr Shearer stated he went to Geneva in 1926 at the request of
Admiral Pratt (galley 67 QD, Mar. 12).
Senator Clae^. As I understand it, you went primarily at the request of
Admiral Pratt, president of the War College at that time?
Sena?oT^RK^ AfSr-this you had this conversation with Chairman Butler
of the House Naval Affaire Committee?
Mr. Shearer. The night before I sailed.
T'.^.'^rA^nim^\^'o^^^^^^^^ before I left Washington.
(j) William B. Shearer testified he cooperated with naval officers
in efforts to secure increased naval appropriations (Mar. 12, galley
61 QD). . . . .
Tn 1t)25 I campaigned the State of California for the buildmg of an adequate
naval base asTe'ommended by the special Board of Shore Establishments,
nn^Sk^afmf or ^exSfirrattended the preparatory Arms Conference at
Geneva. This was at the request of a high ranking naval offlcei.
Further on Mr. Shearer stated (Mar. 12, galley 62 QD) :
At this noint I wish to make it a matter of record that every fight that I
made h tLinterest of the United States Navy ^?«,^^^f ,,^^.^^/J/S the
naval officers and in that connection I wish to point out that I carried the
Naval Intelligence information on all navies which was given me officially
tlimuUtS Navy Department. I further carried with me to Geneva the names
of ouf M^marr/ntemgence for contact purposes in Europe. These names were
SveS n^ oSlly. I further carried with me memorandum to gather informa-
tion on certain military activities in Europe.
Mr Shearer's intimate relationship with the Navy is revealed in
the following Shearer testimony (Mar. 12, galley 66 QD) :
Senator Vandenberg. Before you reach that, are you so in the habit of see-
ing secret orders that that particular instance did not impress you? Is that
an ordinary thing, for you to see such orders?
Mr. Shearer. Yes ; I have seen a lot of orders.
This relationship is discussed further (66 QD, of Mar. 12).
Senator Clakk. Did you have any particular connection and were you paid
by the Navy Department at the time you received this secret document.'
Mr Sheaker. No ; I resigned from the Navy in 1918.
Senator Bone. How did you happen to be under orders?
Mr. Shearer. I was not under orders. I was asked to do things, iney
'''seLat'or''BoNE."'You had some arrangement with the Navy whereby certain
American Navy officers gave you certain instructions?
Mr. Shearer. Yes, sir.
Senator Bone. How did you arrange that?
Mr. Shearer. They knew I was out m front leading the fight.
Senator Bone. With whom did you make the arrangement in the Navy
^ Mr'^S^HJlL. I never made any arrangements. They all knew me. I am a
trusted man, or have been. . ,. ,.i „ u^if ^vnf nf thp hinp
Senator Bone. Mr. Shearer, do you mean, just like a bolt out of the blue,
without any preliminary arrangement or understanding with anyone, the Navy
Department sent you this secret manual, and you go to Geneva/
Mr. Shearer. No.
Senator Bone. That is what I am getting at
Mr. Shearer. I will lead up to that. I will lead up to that.
Senator Bone. Wait a minute. ^ ^r. 4.
^^^^^^^^^S^M^'^Z^^k Chief of the Forces after-
waT™ pre-Sdent of the War College. He <^r^l?l3¥^saTpratt'anl'h;
era! board meeting, and after the general board meeting I saw Pratt and ne
139387 — 85 16
238 MUNITIONS INDUSTRY
asked me to come to his rooms on that night at 8 o'clock, at the Army and
Navy Club. Pratt asked me to go to Geneva.
Mr. Shearer testified that naval officers collaborated with him sur-
reptitiously, supplying secret data for his use at the Geneva Confer-
ence (galley 66 QD, Mar. 12) :
Mr. Shearer. Here is the Naval Intelligence Blue Book, which is today not
secret because I used it at Geneva.
Senator Clark. Was that secret wlien you used it at Geneva?
Mr. Shearer. Yes, sir ; you bet. That was the bible.
Senator Claek. Did you receive that from the Navy Department?
Mr. Shearer. Officially.
Senator Clark. Fron.- whom did you receive it in the Navy Department?
Mr. Shearer. That I could not tell you. They sent it in a franked envelop.
{k) The nature of Mr. Shearer's political efforts for Xavy pur-
poses is revealed bv the following testimony (Mar. 12, galley
64 QD) :
Senator Clark. When, Mr. Shearer?
Mr. Shearer. 1917. After the trials under Admiral Anderson they decided to
build 2,000 bombs to take Zeebruckee and Osteiid submarine bases. I had a
meeting with The Assistant Secretary of the Navy, and he asked what price I
wanted for the boat and I said any price that would be all right, just so I took
the first boat into action. I then resigned from the American Navy and went
with Admiral Jamt to Europe. We were to build the boats in England, because
we could not keep it a secret here. I returned to this country and after tlie war
I was sent again by The As.sistant Secretary of the Navy to Newp<irt for trials
and testing on a torpedo boat I invented. Admiral Land took the trip and he fell
overboard during the maneuvers and we lished him out and Admiral Land stated
it was very necessary that he get into another uniform. Commander Minuitz
stated, " It was lucky for me. I have not g<»t another uiiiforn." Minnitz and
Land suggested to me I make a fight for the increased Navy pay.
Senator Clark. When?
Mr. Shearer. 1919. After ?, months President Wilson signed the increased
Navy bill in 1919.
Senator Clark. If you figure that was a single-handed fight, what did you do
in that fight, Mr. Shearer?
Mr. Shearer, .lust the same as I do in all fights. Thev are all single-handed
fights.
Senator Clark. Just de.scribe your modus operandi.
Mr. SHEARpm. Just describe my mo^lus operandi? I will toll you what it is.
First you get the facts and then you stick to the truth and giving facts and
truth the opposition never battles you down.
Senator Bone. That would be likely to niin vou in a fight of that kind, wovdd
it not?
Mr. Shrvrer. a lot of jvenple thought that, but 1 really took on weight.
Senator Clark. Describe what you did besides finding the facts. Will you
describe the single-handed fight you conducte<l so successfully in 3 months?
Mr. Shrvrer Yes. I first consulted with the Wa.shington Post. Ira Bennett
was the editor, a friend of mine.
Senator Cl.\rk. He is a friend of nnne, too, for that matter.
Mr. Shb.\reb. That is good. Then you will understand the workings of this
particular situation. I laid the entire matter before hini. He then went to the
Navy Department and sjiw Admiral Cowie. I invited Admiral ("owie. Ira Ben-
nett, one of your Democratic political leaders, and a Republican political leader,
to a lunch in the old Shoreham, and after Bennett and my.self did a little actinir
for a few nunutes, I bent under the table and said " Bennett, it looks like we will
have to take this politically", so that at once we enlisted their cooperation.
Senator Cl.\rk. Who were tho.se leaders?
Mr. Shearer. Oh, that is 16 years ago.
Senator Clark. It seems to me that that matter should he iiretty cle;ir in your
mind.
Mr. Shearer. They come and po so fast, I could wot tell you.
Senator Clark. How many of them did you have at this luncheon?
Mr. Shearer. Two. Irn Bennett, .Vdndral Cowie. and a gentleman from the
Democratic headquarters, and a gentleman from the Uepubllcan headqiiarters.
MUNITIONS INDUSTRY 239
ant] laid the facts before them on the condition of our destroyers. We had a lot
of destroyers and the newspapers wanted
Senator Cr^RK. Just a minute. Let us get the personnel first, Mr. Shearer.
As I understand it, these were congressional leaders or Representatives, or what?
Mr. Shearer. No ; associated with the parties ; had nothing to do with Capitol
Hill at all.
Senator Clark. In other words, the.y were from the National Democratic and
Republican National Committees?
Mr. Shearer. Quite.
Senator Cl\rk. You do not recall the names of either one of them?
Mr. Shearer. No ; I would not.
Senator Vandenberg. They represented tlie political influence which you con:
plain about so bitterly?
Mr. Shearer. I should say it was political influence ; yes.
Senator Bone. What was this meeting' in connection with?
Mr. Sheiarek. The increase of pay for Army and Navy officers. Costs had
gone up about 100 percent, but their pay had not inci-eased at all. If you will
remember, a great many of the admirals were forced to borrow on their in-
surance, et cetera, et cetera, et cetera, and they were resigning to go into
private life, whei'e they thought they could possibly make a little more money.
Senator Cl/Vr,k. After you had filled these political leaders up with a good
lunch, what was the next part of the campaign?
Mr. Shearer. The next part of the campaign?
Senator Clark. Yes, sir.
Mr. Shbareir. I did all the work from then on.
Senator Clark. Did you keep in touch with them?
Mr. Shbi'vreir. No: it was not necessarj-, l)ut every day
Senator Cl'akk. Wait a minute. One minute.
Mr. Shearek. I will answer you this way : Every day Bennett would run an
editorial, and practically every day I would run a leading article in the Post.
We used the Post in that way, and Bennett was shooting forth editorial pieces
and I was shooting forth news pieces. We had the support of the Army and
Navy, who were going to benefit, and it was quite in order to see that the naval
officers or the defenders of the country would get the same money as the bonus
boys were getting.
Senator Clark. Did you have any further contact with these two anonymous
political leaders whom you had to lunch?
Mr. Sheiarer. No ; never.
Senator Clark. You do not know what they did?
Mr. Shearee. I should imagine they did more or less what we suggested.
Senator Clark. Then what was the rest of the campaign, Mr. Shearer?
Mr. Shearer. Surely putting out publicity.
Senator Clark. Is that what Mr. Wilder referred to the other day as
painting a picture?
Mr. Shel\re». I did not paint any pictures at least on canvass. I was paint-
ing pictures.
Senator Bonb. That was a newspaper campaign?
Mr. SheareiRi. I should say so.
Senator Bone. That is the way Congress is influenced, is it?
Mr. Shearer. I should say so, very much.
(/) As evidence of cooperation between the Navy and Shearer,
Shearer stated that an unnamed naval officer showed him a secret
order for the sinking of the Washiiigton, thus giving Shearer an
opportunity to prevent the order from being carried out (Mar. 12,
galley 65 QD) :
I may add in that connection that I had lunch aboard our flagship of the
Atlantic fleet and after leaving Admiral McCulley's quarters an oflScer took me
into his cabin, where the dispatches were, and he showed me a secret order
to sink the battleship Washington in 60 fathoms off the Virginia Capes. T
said, " This should be stopped."
Senator Clark. When was this, Mr. Shearer?
Mr. Sheabek. November 1924.
Senator Clark. Did he say it was a secret order?
Mr. Shearer. Yes ; to sink the battleship WasTimgton. Under the treaty
we did not have to sink the battleship WasTimgton until February 17. What
240 MUNITIONS INDUSTRY
I wanted to do was not to challenge the Washington Treaty, but to save the-
battleship until Congress convened in December, to give Congress December,,
January, and one-half of February to consider whether she should be sunk
or not, as the British had saved 50,000 tons. They were allowed 558,000 tons
of capital ships. She saved 607,000 tons.
Senator Clakk. Who was the officer who showed the secret order?
Mr. Sheaeer. You mean his name. Senator?
Senator Clakk. Yes ; I mean his name.
Mr. Shearer. Let me answer you this way : I know practically every admiral,
captain, and commander in the United States Navy, as possibly I know every
Democrat in Washington, but I do not know their names. He may be an
admiral, a captain, or a commander.
Senator Clabk. Just a minute, Mr. Shearer. Do you mean to tell this
committee that a captain in the United States Navy called you into his cabia
in a flagshii)
Mr. Shearee. Yes ; quite.
Senator Clark (continuing). And showed you a secret order?
Mr. Sheared. Yes ; quite.
Senator Clark. Which, of course, rendered him subject to court martial
for showing a civilian a secret order from the Navy Department, and yet you
do not remember his name?
Mr. Shearer. I will tell you why. Senator, I do not remember his name.
Every officer faced three things: Reprimand, demotion, and transfer. They
had been intimidated, as I stated tliere, until the morale was almost broke.
Admiral Sterling, commander of our base at Hawaii, now comes out, and is
permitted to speak, but in those days they were harassed.
Senator Clark. No matter whether they are permitted to speak or not,,
from your great familiarity with the Navy you certainly know that it is n
gross violation of not only the proprieties but of the oath that a man takes
wlien sworn into the naval service of the United States to show a secret order
to anybody?
Mr. Shearer. I was working
Senator Clark. Wait a minute.
Mr. Shearer. Yes.
Senator Clark. Excepting a man authorized by the order to receive it.
Mr. Shearer. That is right.
Senator Clark. You also know that secret orders are not sent at random
to all captains in the Navy.
(m) One of the representatives of the shipbuilders, H. R. Hiun-
phreys, went to Geneva in 192G during the preliminary discussion of
the disarnianient proposals, and discussed the subject with Admiral
A. T. Long, a United States delegate. Humphreys then wrote to his
company (Jan. 23, galleys 52, 53 GP) :
The Ch.mrman. This letter was addressed to Mr. Baidn. [Reading:]
Dear Mr. Barijo: Tlio yard has iiothiiit: t<» worry over anything drastic
boin.i,' done at the Disarmament Conference now lieing held at Geneva.
I stopped off and saw some of my friends there last week.
Suppose you received my cable and letter.
What is the next name there?
Mr. HuMPHEETYS. It looks like "Baden." Thai is wlieie I visited to deliver
this letter.
The Chairman (continuing reading) :
Baden advised me today Mrs. —
What is the next word?
Mr. HuMPHKEYs. Mrs. Looser. That is the lady I referred to in the former
letter who wanted to bring her husband over.
The Chairman (continuing reading) :
Mrs. Looser had —
Is that " actually"?
Mr. Humphreys (reading):
nctuallv received her visa.
MUNITIONS INDUSTEY 241
The Chairman (reading) :
Very truly yours, Harry R. Humphreys, 6/7/26.
Then the letter states at the bottom :
Suggest treat Geneva information as confidential. My source is depend-
able. . -, , •
(71) Another instance in which naval officers solicited his services
asl pr"ndi"t:is told by Mr. Shearer in the following passage
(Mar. 12, galley 65 QD) :
Senator Clark. The staff of the flagship California gave you a lunch on the
flagship Califor-nia
SenalorSKK^'feoiumulug). And asM you to conduct the campaign for
'''MrSHf.lS;''r<™ lot s., that. Thoy ..^.^ mc to ma,.e a fight tot- a naval
;base on the Pacific and for cruisers.
Senator Clark. That necessarily follows. _
Mr. Shearer. You have had the Admiral Robinson report
Senator Clark. That necessarily involved legislation, did it not?
Mr. Shearer. I should hope so. „^^oKiiev.ir><r q nnxroi u^^e
Senator Clark. In other words, to be successful m es ablishmg a na.al base
on the Pacific coast, that would involve necessarily legislation?
Mr ShIIber. You must be right, Senator, because every place I ^Po^^^J^I
wn« q loose resolution made, and that was sent to the President ot the 'Jnitea
States adoDth^ this plan of a naval base on the Pacific, as recommended by the
fol^'eSS^enulna I was simply a -o.^thpiece^o bring ^ut thej-t,
sjonatnv Tt \rk- With all vour experience m these matters, mi. aimttivi, j^u.
will certiiSy agrerthat the're was no way that a naval base, not at that time
luthorized by law, could be established except by legislation.
^;^^tS^i ^y^^^SsEaM^^u Erectly, you were given this luncheon
on board the flagship California.
Mr. Shearer. Yes, sir.
Senator Clark. At which the staff of the flagship
Sena??r''c™^^(contlnuing). Requested you to conduct a fight to get a naval
base on the Pacific coast?
Mr. Shearer. Correct.
^iTTifr'^Th^' wriS'fn ks I made the campaign in Caiitornia.
Senator Bone. What do you mean by " campaign m California ?
|inarErK.''H;w'couMy?«''h^- campaigning tot- a na.al base in Calito.nia
ni; 'LSr^^IcSSnrl-etoiVtion/r/eS'-St. The «ni, opposition
I had wSftS t^ naval yards in the East here. The West and South and the
Middle West were all for it.
io) Mr Shearer described his work at Geneva on behalf^ of the
"Big Three" as "a fast and vicious" campaign (galley a (^-L>,
Mar? 12):
Senitor Clark I am not disposed to argue with you on your claim, Mr
Shearerwith the shipbuilding companies, but now I want to ask you what
services vou rendered at Geneva under that agreement?
Mr. Shearer. I conducted a very fast and vicious campaign.
Senator Clark. Just tell us about that. , , , , 4. fv.^
Mr SHEERER. I had a 2 months' start on them. I went back before the
preparatory conference.
Senator Clark. About when was that? ^, a. • *. ^^„
Ml" Sheerer. That was early in 1927, 2 months before the triparty con-
ference started.
g;rrH^rYe!r"i?°'r1orourmrstu,., my huuetms, and I sent them
everywhere.
242
MITlSriTIONS INDUSTRY
Senator Claek. Tell us about those bulletins, Mr. Shearer
Mr Shearer. They were all based on the information in this book here
^i^ Intelligence which is facts and figures. So that my stuff was planted
everywhere before the conference started. "■ "as, piamea
f>. (^l^li^^^^l^^^ claimed to be able to get secret information from
the War Department (galleys 73 and 74 QD, Mar. 12) :
,,.?.t"^*^^" ^^^^- ^Vhen you went to Europe, you carried the nainos of nnr
Military Intelligence officers in Europe with you->
Mr. Shearer. Yes, sir.
Senator Bone. Who gave those to you?
Mr. Shearer. Military Intelligence
MTiHE^r-qTmeio:" ""■'*"" ^° ^'^" '"•-^"■^- ^'^^^ ^^^ ^^••-^- -^ --"?
Ml-. Bardo testified in Shortridge hearbigs that he issued no in-
structions after Mr. i5hearer went to Geneva as to his method of
operating and made no inquiries of any kind. He said a total of
eight reports were received from Mr. Shearer but that no attention
was paid to any ot them (p. 29, hearing under S. Kes. lU, 71st
Cong., 1st sess.). . =l
^1 ^l\ ^^"^\^" ^^^ Sl^^ai'^1' i-eturned from Geneva there is evidence
the big three Avere satisfied with his work because thev employed
him m AV ashington until March 1929 (galley 7 BBQ, Mar. 13)/
Senator Clark. I believe you testified the other day that your understaud-
10 J ears, in additicn to yuur expenses neoes,.arily incurred in the euteriu'i^e
Mr. SHE.4REI5. I understood-and it i. very .lifficult ever to pin th.Se fellows
down— tliat I windd receive $25.(XR> a viHir tiiiows
Senatoi- ("lark. .'j;2o.(X)0?
n+?^'\.^"^'^^™- ^'*''^' ^''■- '^^^^^y '""^f lia^'^ understood that, Senator because
ton. t.ike a house You do not take liouses with a M- or 4-vear rental if vou
are only coming down on one job ^
Senator Clark. That is just what I wanted to get at, Mr. Shearer. How
Tinlevav" '''""' ' "'" *'"'" ^""'"^^ ""'"^ '''"^- ^^'^''''' ^"'^ >"" '''f"'-" *••«"'
Senil^Si^ ttober^'Sv"^' ^""' ""''■ "" ' "'^"^ ^' ^^'^ ^" ^^•^'''-^
Mr. Shearek. Yes. sir.
or,^'''f^M" ^"'■'!'^- ^**""t ^'^1^" ^vith reference to October 1927, or with relei-
Mr. Sheaher Oh. at once. I o.dy wasted aln.ut 3 davs in \ew York We
Senator Clauk. What do you mean hv "all present "•>
i.r?Jbi;^,V oV'p:';.//!''"'' '"\,^'''' "•^•••••'^i"""'l'^''-«' "^s captain Snutb. who was vice
pusident of 1..- blehem. He is now, I believe, tl.e bea.l of the National Council
ot Amern.an. Shipbuilders: Mr. Palen. .Mr. 15ardo. an.I Mr. Hu ter That is
ie<l to It. winch is '1 be InsnU' Intrigne of Geneva
Senator Cf.auk. AVhen was The Cloak of Henedbt Ainold published''
Mr. ^uvzAuai. I pubJisluMl that in 1!»1>S. which was written in 1927. Part of
It was bnisbed on my way back.
thetb'lpbnndelx- ^"" '"^' ^''"" •""'"'''f'''^ f'"-^ document U> the reprt^entatives of
Mr. SuKAKKi; I uave tbem a copy of The Insi.le Intijuue of Ceneva. Mud I said
in tlrpaiU-s ''"' ■■ ""'• '■' '""'"'• *■='" "" "'"^ ""^ "'"'^'^ •"•^- "••""*• •"• '•^' !>"'
tlm^HJ^n'sf "'?'•/'"•■ "/f""^'^ti.is mec.ing was Tburs.lay. and I took it down to
the Heai>t organization and gave it to them: it was a full-paire artieb^ and I
Tf lin^fo^H? l*'''*^"-^^*'! ^^■•/'> '' sre-'^^ ""'"''t^'' "f l>"IH-rs I gave you last night. ' I .<;ent
ir;U: ouVon a'sumll^lf "^"' "" '' '^ '''''''' '^'^^ "^'^^^^ ^'^-« '-"'^-^ ^^-
MUNITIONS INDUSTRY 243
But I had arrived in Washington when it came out, so that I was only 2 or 3
days in New York.
Senator Clark. It was at that time, at the time of this luncheon, whieli you
estimated to he in October, that you discussed this matter, The Cloak of Benedict
Arnold, with themV
Mr. Shearek. I discussed, first, the story which, completed, was The Inside
Intriiiiie of Geneva.
Senator Clakk. It was then that they suggested to you to come to Washington
and take a house?
Mr. Shearer. Yes. sir.
Senator Clark. At that luncheon did you report to them what your activities
at the Geneva Conference had been?
ISIr. She^jikr. I told them the complete story, and they must have been pleased
because at once they asked me to come to Washington and take up my residence
here.
Senator Clark. You did rei)ort to them at that time your activities there?
Mr. Sheared. Quite.
Senator Ci^rk. And you had been reporting to them from time to time on the
matter?
Mr. Shearer. I sent them a bulletin twice a week.
Senator Clark. Did you come to Washington and take a house, Mr. Shearer?
Mr. Shelaree. I came to Washington and took an apartment and had a real-
estate man hunt me a house.
Mr. Shearer was credited with haviiio; played a large part in
failure of the Geneva Conference (Shortridge hearings).
(r) INIr. Shearer testified his employment was not terminated in
December 1927, but that he was tolcl by the shipbuilders' representa-
tive that he must " lay low " to avoid embarrassing Mr. Charles M.
Schwab, former head of Bethlehem Steel Corporation (galley 7
BBQ and 8 BBQ, Mar. 13) .
Senator Clakk. Did you have any further meetings with these shipbuilding
companies between October and December 17, let us say?
Mr. She^vreb. No, sir ; in December I was here 5 or 6 weeks ; and I received
a telephone call from Mv. Hunter that he was coming down, and I met him
in his rooms at tlie Willard, I believe — no : I received a telephone call to come
to New York, lirst ; and not knowing what it was about, I went over, and one
of Hunter's men met me at the station and took me to the Lotus Club. Mr.
Hunter and Mr. Paleu, and again I believe Mr. Smith — I cannot quite recall
whether Mr. Bardo was there or not, and I would have to go back in my
testimony — and they told me at that time that Secretary of State Kellogg
had protested my employment ; and 1 believe my statement was : " Why are
you so apprehensive? The State Department does not want any argument with
the Navy Department in this issue."
And Mr. Palen said, " Well, you see, Mr. Schwab does not want to be tabbed
in connection with armament or being l)elund any such a set-up as this."
After this meeting I went to Mr. I'alen's house. I knew him very well ;
we were very good friends.
Senator Clark. That was in New York?
Mr. Shejabeb. Yes. I said, "Palen, what is the low-down?" He said, "You
know there is a case pending against Schwab — a suit in Pennsylvania."
Senator Olabk. You are referring now to a conversation after your return
from Geneva?
Mr. Sheiabek. No ; no. I am now discussing my trip to New York, after they
had sent me down here to take a house, and then they said they wanted me to
come to New York to talk to me.
Senator Clark. I find here a copy of letter dated December 17, 1927, ad-
dressed to Mr. William B. Shearer, Hotel Hamilton, Washington, D. C.
[reading] :
Deiak Mb. Shelarek: We have now fully completed our commitments to
you and you, in turn, have carried out the obligations you assumed toward
us, which was to keep us informed regarding j'our observances at the
244 MUNITIONS INDUSTRY
Geneva Disarmament Conference. Therefore you will please regard our
arrangements at an end.
With best wishes, I am,
Very truly yours,
Henry C. Hunteh.
In connection with the conversation you are now narrating, was that con-
versation before or after you received this notice from Mr. Hunter?
Mr. Shearee. First Mr. Hunter came down here, we will say, about the 10th
or 12th of December, after my being telephoned to come to New York. The
following day, after the meeting in the Lotus Club, I was again called to Mr.
Hunter's office, at which all the shipbuilders were present, the •' big three "
representatives, plus Mr. Hunter.
Senator Claek. That was after receiving this notice?
Mr. Shkiareb. No. I will come to that in a minute. Senator. It was 2 or 3
days prior to this. At this meeting in Hunter's office they sugicested, more or
less, that, owing to Kellogg's protest, that they would have to end their ar-
rangements. I believe my statement was : " What is it you want to do — make
me the victim of success? It is the fault of your own lawyer this has hap-
pened." Because Mr. Hunter in his enthusiasm had telephoned the Navy De-
partment and asked them to make me the Navy Day speaker. It was that
hook-up. That was their fault. Why should I pay for it?
Now, then, they wrote me this letter — Mr. Hunter was their attorney — to
make it a matter of record for them. Ami following that letter Mr. Hunter
came to Washington, paid me, I think it was, ."^Gee plus $250, to pay for The
Cloak of Benedict Arnold — the printing of it.
We will say. Senator, that was around the middle of December.
I said to Hunter, "Do you want me to drop my contracts?" He said, "No;
but you have got to lay low."
I think it was January 3 or 2, which was about IS or 20 days later, that Mr.
Bardo called me on the phone and asked me to come to the Carlton Hotel and
bring a lot of pamphlets. The Cloak of Benedict Arnold.
So I went to the Carlton, and there Mr. Bardo introduced me to Mr. Wilder,
and then I was told to get busy again ; so that my rest was from the middle of
December to about the 3d of January. That is more or less the situation. So
that I stai-ted in under instructions again.
Senator Clark. You mean following your conference with Wilder?
Mr. SHEiAREK. And Bardo.
Senator Clark. And Bardo?
Mr. Sheareb. Yes.
Senator Clark. Whom you understood were representing the other shipbuild-
ing companies?
Mr. Shearer. Naturally. They were all contributing to the fund. Who I
was paid l\v did not make any difference to me. That did not intiM-est me.
Senator Clark. Did you understand when you resumed in January that you
were still on this basis of $25,000 a year? AVas anything said about that?
Mr. Shearek. I was told always, " Do not worry about those things. You will
be taken care of."
My proposition had be^^n laid before them, $25,000 a year for the life of tbat
building program, which was sot at 10 years.
(s) Mr. Shearer claimed credit for saving the shipbuilding business
by reason of his work in Washington and Geneva, allegedly quoting
from the Euro])ean press a statement indicating ho had done a great
deal to smash the conference and precipitate a naval race (Mar. 13,
10-11 BBQ).
Senator Ci^vuk. Now, on February 20. 1028, Mr. Bardo wi'ote you as follows:
Mr. W. B. Shbareir.
Washinfiton, D. C.
Dear Sir: Your letter of January 30. 1028, addressed to Mr. S. W. Wake-
man, vice president, Bethlehem Shipbuilding Co., 23 Broadway, New York,
a copy of which was sent to Messrs. Wilder, Palen, and myself, states
among other things the following :
"1. The understanding for which expenses were furinshed me to con-
duct a campaign for naval preparedness was to March 5. 1928, to be paid
MUNITIONS INDUSTRY 245
as a salary of $25,000 a year, receipt hereby acknowledged for the year
ending March 4, 1928.
" 2. As stated by you and agreed to by your group, I am to receive at the
rate of $2r),000 a year as a reward, a bonus, or money earned as the result
of the navMl preparedness campaign, which benefits and in reality saved
the shipbuilding industry."
With respect to paragraph no. 1 above, the joint conference in New York
was held on March 17, 1927, and the employment therein agreed upon by
the group was for a period of 1 year. At that conference it was definitely
stated and distinctly understood that you were employed to go to Geneva
as an observer only, and that you were not authorized, empowered, or
directed as any part of ycuir understanding with us to interfere in any
way with the program or orderly progress of the conference. To the extent
that your activities exceeded our understanding with you, it was clearly
an act of your own for which you are solely responsible.
As to paragraph 2 above, I can only say that I specifically deny any
agreement on my part or on behalf of our company with the other com-
panies or with you as to the continuation of your services beyond the
term of 1 year as stated, and can prove by competent witnesses that insofar
as our company is concerned you were employed as an observer only for
a period of 1 year and that I specifically opposed your further employment
for the reasons stated to you personally in our conference at the Carlton
on Saturday evening, February 11, 1928'. At that conference you admitted
you had had no understanding with me or with any other officer of the
company I represent as to your future employment by or on behalf of our
company, acting for itself or jointly with others.
This letter is written to formally confirm closing of the arrangement of
March 17, 1927, heretofore communicated to you, and to bring to an end as of
this date the relations between you and this company, without further
obligation of any kind on either side.
"Very truly yours,
(Signed) C. L. Babdo, Vice President.
Then on February 21, 192S, you replied to that letter as follows [reading] :
C. L. Bakdo, Esq.,
Vice President, Brown-Boveri Corporation, Camden, N. J.
Dear Sir : Your letter of February 20, 1928, received.
Assuming that your memory and conscience are as clear as mine, you
will recall prior to March 17, 1927, I represented you and others in the
three-cruiser fight in the Sixty-ninth Congress.
Mr. Shearer. Right.
Senator Clark (continuing reading) :
Further, that on the i"esult of that success, I was to go out and get more
business.
What was tliat that you were going out and get ; that is, get more business,
Mr. Shearer?
Mr. Shearer. The shipbuilders testified that in 1926 they were practically
bankrupt and ready to close down, and from then on Mr. Grace and the others
have been drawing bonuses and the yards have been built. Somebody must
have done it ; and if they cannot locate the fellow, I will claim the credit.
Senator Ci^vrk. When you said " on the result of that success, I was to go
out and get more business ", that is what you meant?
Mr. Shearer,. They wanted business ; yes, sir.
Senator Clark. Were you employed to represent them in steaming up the
shiplniilding business ?
Mr. Shearer. The whole thing is a show, is it not?
Senator Clark (continuing reading) :
That during the summer of 1927, as the result of action or lack of action
taken at Geneva, contracts were let for six 10,000-ton cruisers, putting
under constniction eight 10,000-ton cruisers, proportionately divided be-
tween the Bethlehem Shipbuilding Co., the Newport News Shipbuilding
Co., and the American Brown-Boveri Electric Corporation.
You are fully aware of the origin of the cruiser bill, which was from
my activities in 1924 — ^published in Engineering, London, January 14,
1927, and the United States Naval Institute Proceedings of March 1927.
Mr. Shearer. Yes, sir.
246 MUNITIONS INDUSTRY
Senator Clark (continuing reading) :
It is now officially stated that owing to the failure of the Geneva
Conference, a naval bill was inaugurated which is before the Seventieth
Congress.
About the middle of January 1928 I was called by you into conference
with Mr. Lawrence Wilder and instructed by both Mr. Wilder and your-
self to carry out certain work in connection with and for the shipbuilding
industry ; that work you know I have faithfully performed. This extra
work I accepted as part of my duty which entailed considerable extra
expense and time.
In your letter of February 20, 1928, you say, " I specifically oppose your
further employment for the reasons stated to you personally at the Carl-
ton on Saturday evening, February 11, 1928."" But, un that night, you
refused to state those reasons, and said they were personal.
This matter was, as you know, laid before Mr. Wilder who informed
me that he, Mr. Wilder, owned the control of the American Brown-Boveri
Electric Corporation, of which you are a vice president. Mr. Wilder
further states openly that I was sent to Geneva by the shipbuilders, of
which he was one, and that he considers my activities there and here
invaluable.
The issue is not whether I am a German, which has been disproved, or
whether I am socially qualified to associate with shipbuilders or some-
thing worse. The issue is whether the American Brown-Boveri Electric
Corporation, the Bethlehem Shipbuilding Corporation, and the Newport
News Shipbuilding Co. benefited by my campaign in their interest, for
which my expenses were paid and nt»w p.cknowledged.
Your superior officer, Mr. Wilder, justly acknowledges my services and
my just claim against the Bethlehem Shipbuilding Corporation and the
Newport News Shipl)uilding Co. I therefore assume he will acknowledge
my just claim against your company as the American Brown-Boveri Elec-
tric Cori)oration benefits proportionately in ship construction as the results
of my campaign.
You say I was to go to Geneva as an observer only. Every member of
the shipbuilding group, including Mr. Hunter, receivoil my relea.ses before,
during, and after the Coolidge Naval Conference at Geneva, and at no time
was I instructed to change or stop my tactics which demanded a naval
parity for the United States.
At the close of the conference, the European press announced the follow-
ing: "The triumph of the theses of ^^■illiam Shearer, the American, gave
yesterday the drop of the barrier to the most formidable marathon of mod-
ern times. Tomorrow the race of armaments will recommence."
All this was acknowledged and approved by the interested shipbuilding
group until a small navy paper, international and pacilistic in poliiy, asked
the Navy r>epartment for information about me. Then came the disavowal
and damnation by the shii>i>uil(lers. accepting the fruits of victory but
deserting the leader of the tight. I was to be made the victim of success,
which was cowardly, conIeni])tibU', and unjust. To carry out this ungrateful
policy, my citizi'nship and character were attacked, not only to rejaidiate
me but to rob me of my just reward and recognition which was promised.
But defannition of character is not the real issue. I prefer to stick to
the real issue, i. e., to receive a fair settlement based on fair equity a.s
the result of my work, and on that I propose to lay this matter wide open
on its merits; then personalities, reputations, characters, and business
ethics, which you have tried to make the issue, will have their innings.
I am pn'pjired t<> meet these issues in the same spirit of justice, fair-
ness, and tirniness that has ever characterized my actions, and I am also
prepared to support fully the position I assume.
Senator Clark. On March 10. 1928, you addressed a letter to Messrs. Palen,
Wakeman. and Bardo [reading] :
Sius : Pursuant to our agreement covering the Sixty-ninth Ci>ngress end-
ing :Mar<h 4, 1927, and a furtlu>r new agrtHMuent and understanding. I wish
to submit to you brietly my re|K)rl and activities from March HI, 1927, up
to and including Man-h IG. 192S, iu and on InMialf of the shipbuilding in-
dustrv, for which exiien.ses were furnished me.
I siiiled for France March 19, 1927, renewed my contacts in Paris, and
arrived in Geneva, Switzerland, early in April, renewing there my work
MUNITIONS INDUSTRY 247
at the Preparatory Arms Conference on Disarmament — reports and cojiies
of multigraphed articles, including volume of distribution, sent Mr. Hunter.
April 11, 1927, the Preparatory Arms Conference collapsed. From that
date until June 20, 1927, I carried on a publicity campaign both in Europe
and the United States ; multigraphed articles were posted to the press of
Europe and the United States, Members of Congress and the Cabinet,
patriotic societies, business men, and many others, including the Army
and Navy. These many releases had wide publicity and became the
instructive guide to all press correspondents at Geneva. Many letters in
my possession from the press, patriotic societies, and the American Legion
acknowledge and substantiate that.
Copies of all releases and other communications were sent Mr. Hunter.
This advance campaign and the accuracy and authentic data released by
me, automatically made me the leader of the unothcial fight to the extent
that American officials referred the press to me, as they were bound to
secrecy, with the result that the attempt to deliver the United States was
defeated by a complete expose, which is now acknowledged.
At the close of the Coolidge Naval Conference, Augaist 4, 1927, the Euro-
pean press recognized and acknowledged the effect of my campaign, refer-
ring to it as " the triumph of the theses of William B. Shearer, the
American."
I remained in Geneva until September 1, 1927, gathering information
on the new line-up and the proposed plans to defeat the naval recommenda-
tions to go before the Seventieth Congress. This information and con-
siderable data were sent Mr. Hunter.
September 1, 1927, I went to Italy for the purpose of learning the Italian
attitude on future naval and marine activities, returning to France for
the same purpose, then sailed September 29 for New York, My report
was made orally to you and Mr. Hunter, including a proposed future plan.
On October 23, 1927, I released my first story in all the Hearst Sunday
papers. After a private talk with Mr. Palen, and then with Mr. Wake-
man, I proceeded to Washington to take up i)ermanent headquarters, move
my household effects, and establish myself.
My publicity campaign continued in the Hearst papers, Washington
Post, journals and weeklies along with considerable correspondence. All
this is in my files and scrapbooks. I have attended all hearings before
the House Connnittee on Naval Affairs, and have advised certain patriotic
societies in their campaign against the pacifists. I have attended all
hearings before the Marine and Fisheries Committee on the marine hear-
ings, continued m.y connections with many on this situation, and continued
writing articles and speeches for various organizations.
In January 1928, I published the Cloak of Benedict Arnold at my expense,
both for printing and mailing. In this connection,' I wish to state that
the story has been substantiated if not proven by the naval and merchant
marine hearings. This pamphlet now has considerable weight and interest
before the Seventieth Cnngress. Army and Navy, American Legion,
Daughters of the American Revolnticm, and many other organizations.
On February 25. 1925, I published pamphlet Sea Power. My writings
liave continued and have been the substance of many editorials. At this
time. I am preparing statements on the naval and merchant marine situ-
ation for the press and Members of Congress, which will be used on the
floor this session.
My entire time, energy, and knowledge has been devoted 100 percent to
the cause of the shipbuilding industry and sea power.
Other than my expenses of necessary entertaining both here and in
Eui-ope. there has been considerable expense for stenographers, stationery,
stamps, multigraphing, printing, automobile, trains, and steamship travel.
My mailing list runs from 1.200 to 4.000.
These above expenses and my living expenses have completely absorbed
the .$7,500 during the Sixty-ninth Congress, and the $25,000 during the
year ending March 16, 1928, furnished me for that purpose. I may add
that my expenses over the period of time I have devoted to this fight
are well in six figures. I have reasons to believe that the result of my
consistent campaign and past endeavors have been and will be of great
benefit to the shipbuilding Industry, and all parties interested materially
and otherwise.
248 MUNITIONS INDUSTRY
Considering the unfair attack made on me by the very people benefiting
from my years of work, I feel justified in stating that I have given faith-
ful and effective service, regardless of the obstacles, opposition, and
attempts to intimidate and divert me from my duty and undertaking while
in your employ.
I now feel that the time has arrived to devote the same energy in my
own behalf and establish my status, which has never been considered.
I will appreciate your answer and decision on or before March 16, 1928,
as to the status of my just claim based on our understanding, and fair
consideration.
Very truly yours,
W. B. Shearer.
What was their response to that?
Mr. Shearer. You can see by the letter I did not get anything. I gave them
all they were entitled to.
Senator Clark. I want you to trace your relations. What was their response?
Mr. Sheiarer. Their response was always the same " Do not worry ; you will
be taken care of."
(t) The Big Three paid for printing The Cloak of Benedict Arnold,
a pamphlet attacking and villifying many prominent Americans
(galleys 7 and 8 BBQ, Mar. 13).
Mr."^ Shearer testified that in 1924 William Kandolph Hearst
financed his legal campaign to prevent the sinking of the Washing-
ton as prescribed by the Disarmament Conference of 1922; (Mar. 12,
galley 65 QD).
Mr. Shearer. Not at that time. I will tome to the assistance a little after-
ward. I got an injunction against Secretary Wilbur to save the ^Yashi^lgton.
Mr. Lambert and Mr. Leahy, my attorneys, said, " This will require a lot of
money." I said, " You give me 24 hours and I will see." I knew Mr. Lambert
was Hearst's attorney, and I saw Mr. Merrill and said, " Here is a story and
will you pay for it ", and he said, " Yes ", and Hearst really paid for the
battle waged here to save the battleship Washington.
Further testimony on this subject is (Mar. 12, galley 66 QD) :
Senator Clark. If I understand you correctly. ;is you left Admiral MiCuUev's
cabin, having dined alone with him. an oflicer, with whom you had a bowing
acquaintance
Mr. Shearer. No; T may not have had a bowing acquaintance.
Senator Clark (continuing). Called you in and sliowed you a secret order
from the Navy Department, and on the basis of that you stai'ted to get out
an injunction, financetl by Mr. Hearst?
Mr. She.\rer. Yes, sir.
Further statements by Mr. Shearer on his work for Mr. Hearst are
contained in the following (Mar. 12, galley 74 QD) :
Senator Tope. In your testimony before the Naval Affairs Committee in 1929
.vou made the statement, " I have with me letters from practically every
patriotic society in the United States who endorsed my stand."
Mr. SHE.\RE3i. That is right.
Senator Tope. Then you nnnied the Native Sons of California, Daughters of
the American Revolution. National Security League, and a number of other
patriotic organizations, who wanted you, more or less, to give your own Ideas
of what they were trying to do.
What other organizations Itesides those gave you letters of endorsement?
Mr. Shearer. Senjitor. I will have to get out the facts. I forget all of them.
Senator Pori:. Do mpu remember any others than those you named?
Mr. Shkarkr 181L*. and this one and that oni'. There are so many, about 110.
Senator Topk. In 10'JG or 1927?
Mr. SHuxRBai. I have had the endorsements for a number of years. In fact,
I was on the executive committee of one of the patriotic organizations.
Senator Pope. You also acted as a speaker, and organizer, for those different
patriotic organizations?
MUNITIONS INDUSTRY 249
Mr. Shb.\eer. No; in 1929 I did for Mr. Hearst get the resolutions from
patriotic organizations, wliich I turned over to the Hearst organization op-
posing the World Court.
Senator Pope. Opposing the World Court?
Mr. SnavRER. Yes, sir.
Senator Pope. And also the League of Nations?
Mr. Shearer. The same iDiiig. I mean. I did not want to stretch it out.
Senator Pope. How much were you paid by Mr. Hearst for that organization
work?
Mr. Sheiaeer. I think it is in the record, but it conies somewhere around
$5,000.
Senator Pope. I notice a statement it was $2,000 a week.
Mr. Sheaeesi. A month, I thought it was.
Senator Pope. Do you not know?
Mr. Shearer. A month, I should say, and it lasted 2i/^ months.
Senator Pope. Just what did you do in the way of organizing these patriotic
societies?
Mr. SHEAJ5ER. I sent bulletins to every patriotic society.
Senator Pope. Have you got there what societies you did this for?
Mr. Shbubbb. I will get you the list. I turned it over to the Hearst organiza-
tion, but I have a copy of it. I sent the bulletins to every patriotic organiza-
tion, and most of them sent in their resolutions opposing the World Court.
Senator Pope. When did you do that?
Mr. Shearer. When?
Senator Pope. Yes. sir.
Mr. Shearer. In 1929.
Senator Pope. Have you done any work since that time?
Mr. Sheu^rer. No ; I have not done any work since 1929.
Mr. Shearer, in an article he says he took from Hearst papers,
likens Franklin D. Roosevelt to Benedict Arnold and accuses many
prominent men and women of being anti-American (Mar. 12, galleys
75 andTGQD).
Senator Bone. When did you write this pamphlet?
Mr. Sheiarer. The Cloak of Benedict Arnold?
Senator Bone. Yes.
Mr. Shearek.. In 1928 I copyrighted it.
Senator Bone. Were you being persecuted then?
Mr. She:arer. I will tell you when that i)ersecution started ; in 1924, when I
brought out the facts against the British Navy. It started in 1924, not 1928.
Senator Bone. I want to know if you catalog as unpatriotic citizens the
men whose names I am going to read off to you. We will take them one at a
time and you can say " yes " or " no."
Newton D. Baker.
Mr. Shearer. Yes.
Senator Bone. You classify him as unpatriotic?
Mr. Shearer. Yes.
Senator Bone. And an undesirable citizen?
Mr. Shearer. I did not say that.
Senator Bone. Unpatriotic?
Mr. Shearer. In my way of thinking, yes; under the same way he thinks I
am a jingoist, the same way I am all wrong.
Senator Bone. Dr. Harry A. Garfield, son of the former President?
Mr. Shei^vrer. Incidentally, Senator, that is a little bit of plagiarism on my
part, taken from the Hearst papers.
Senator Bone. You are the author.
Mr. Shearer. I simply copied it. It is a little plagiarism.
Senator Bone. You ought not to admit plagiarism.
Mr. Shearer. I am a plagiarist. I am in that case.
Senator Bone. You have original ideas, do you not?
Mr. Shearer. A couple of them.
Senator Bone. Dr. Ellen Pendleton, president of Wellesley? Do you consider
her unpatriotic?
Mr. Shearek. Taken from Hearst.
Senator Bone. Ralph Pulitzer, president of the New York World?
Mr. Sheiarer. The whole New York World, until it cracked up.
250 MLTNITIOXS IXDUSTEY
Senator Bone. Chester Rowell, of California?
Mr. Sheareb. Hearst.
Senator Bone. Henry Taft?
Mr. Shearer. Hearst.
Senator Bone. Mrs. Frank W. Vanderlip?
Mr. Shearer. They are all Hearst.
Senator Bone. What I am getting at, is your idea.
Mr. Sheakee. I have got my idea on the front page of the book.
Senator Bone. I will bring this a little closer to you.
Mr. Shearek. All right.
Senator Bone. Henry W. Taft is unpatriotic, too?
Mr. Sheiarer. You are saying so.
Senator Bone. Not me. Here is the name right here.
Mr. Shearer. Hearst again.
Senator Bone. But this is a pamphlet entitled "The Cloak of Benedict
Arnold ", by W. B. Shearer.
Mr. Shearer. Yes, sir.
Senator Bone. What can be more blunt than that?
Mr. Shearer. Nothing.
Senator Bone. Who paid for the money to circulate this?
Mr. Shearer. Henry Hunter gave me the money.
Senator Bone. The shipbuilder?
Mr. Shearek. Yes.
Senator Bone. A shipbuilder furnished the money charging these people
with being unpatriotic and like Benedict Arnold?
Mr. Shearer. Yes, sir; and there is a lot from the Department of Justice
recorded about communistic activity.
Senator Bone. Are these people under the ban of the Department of Justice?
That is another implication.
Mr. Shearer. That is from the Department of Justice, which I have.
Senator Bonk. Let us leave the implk-atJon stand as you made it, that the
Department of Ju.stice viewed with disfavor the names I am reading.
Mr. Shearer. No; I did not say that.
Senator Bone. Make it plain.
Mr. Shearer. I said there are also in there names which I wtint you to
rea<l wliich are from the Department of Justice records.
Senator Bone. George W. Wickei*sham?
Mr. Sheared. Yes. sir : Mitsuibishi attorney, trjing to break the exclusion law,
and fought by McClatchey, of California, the man opposetl by the Native Sons,
opposed by Senator Jim Phelan. and tried to lireak down the exclusion law.
Senator Bone. Let us get him classified.
Mr. Shiiarer. Yes, sir.
Senator Bone. Dr. Mary Woolley, of Mount Holyoke College?
Mr. Shkarek. Not only her.
Senator Bone. What do you say about Mary?
Mr. She-\rer. Only what Heai-st says. I never say anything about Mary.
Senator Bone. Colonel House.
Mr. Shearer. That is Hearst.
Senator Bone. That is Hearst.
Harvey Ingham, of the Des Moines State Register.
Mr. Sheareh. Yes.
Senator Bone. Harold B. Johnson, of the Watertown (N. Y.) Times?
Mr. Sheiaber. Yes.
Senator Bonh He is undesirable, I take it?
Mr. Shearer. I did not say that.
Senator Bone. Tom Wallace, of the Louisville Times-CJourier?
Mr. SHEi\Rra. Yes, sir; Hearst.
Senator Bonr Do you think he is an undesirable? You use the term " Bene-
dict Arnold." I eannot approach the degree of contempt you used.
Mr. She-xrer. Is there an.vthing in thei'e that is wrong?
Senator Bone. Then you wind up by setting out mention of these undesirable
and unpatriotic citizens, including the name of Franklin D. Roosevelt.
Mr. Sheiarkr, Hearst.
Senator Bone. Do you want to hide behind the skirts of a newspajier pob-
lisher?
Mr. SHBARi-nt. Let me tell you. Senator, I do not hide behind anything, but
Hearst published an article at that time that gave me the opi>ortunity to use
MUNITIONS INDUSTBY 251
it, and I took it and put it in tliat pamplilet. I am opposed to all foreign en-
tanglements and to being made an adjunct of the British. Why do you not read
my letter to you V My letter will tell you about it.
The Chairman. Mr. Sheaier, luive you given Hearst the credit in this volume
which you produced for these statements?
Mr. Shearee. Have I given Hearst credit for these statements?
The Chairman. Yes.
Mr. Shei\rer. You do not have to give Hearst any. Hearst takes credit.
The Chairman. You took credit for it?
Mr. Shearer. I got credit for nothing.
The Chairman. And copyrighted it?
Mr. Shearer. Yes ; I copyrighted it ; and the shipbuilders paid for it.
Senator Vandenbeeg. And likened Mr. Roosevelt to Benedict Arnold?
Mr. Shearer. I beg your pardon?
Senator Vandbnbeirg. And likened Mr. Roosevelt to Benedict Arnold?
Mr. Shearer. If you will read the article
Senator Vandbnbeirg. That is the word.
Mr. Sheiarek. You read the article and see what it says.
Senator Vandbnberg. That is the net result.
Mr. Sheiarer. It is a Hearst article, published, and describes just what
Hearst said.
Senator Vandbnberg. And you are taking the responsibility for it?
Mr. Sheiarer. I am taking the responsibility for it.
Senator Vandenberg. For likening Mr. Roosevelt to Benedict Arnold?
Mr. Shearer. I did not liken anybody, but published an article of Mr. Hearst's,
and there is no criticism of Mr. Hearst. He is too big to reach.
Senator VANDBNBEEiG. And put your name on it?
Mr. Shearer. And put my name on it. I mean the heading ; nothing but the
front page.
Senator Bone. President Roosevelt's name appears under the caption in black
type along with the others, under the caption of " Knaves or Fools." I am
glad we have the President identified by a representative of a private ship-
building company.
Mr. Sheerer. Read the rest of the article. It does not apply to that. Do
not turn the book upside down.
Senator Bone. The words '" knaves or fools " are just above the name of
President Roosevelt.
Mr. Shearek. All right, what does it say?
Senator Bone (reading) :
* * *
the defeatists-
Mr. Roosevelt is a " defeatist " ?
Mr. Shearer. Read the article as it is.
Senator Bone (reading) :
* * * the defeatists launch a mass attack to force the United States
into the League Court.
Mr. Sheaijeb. Yes.
Senator Bone (reading) :
It is notable that this new position bristles with names of prominent advo-
cates of our entrance into the League * * *
This all appears under the caption " Knaves or Fools."
Mr. Sheiarer. Right.
(u) Further testimony is given as to Mr. Shearer's part in the big
Navy lobby (Mar. 13, galley 8 BBQ).
S. \V. Wakeman, Esq.,
Bethlehem Shipbuilding Co., New York City, N. Y.
My Dear Mr. Wakeman : Pursuant to our last private conversation and
understanding in your office, that future negotiations would be with me
direct. I wish to call to your attention that as the result of my activities
during the Sixty-ninth Congress, eight 10,000-ton cruisers are now under
construction.
Do you know or recall when your last conversation with Wakeman had been?
252 MUNITIONS INDUSTRY
Mr. Sheiaeer. In his oflSce at the Bethlehem Steel, we went, as a matter of
fact, into the board room, and Wakeman said, as I recall, " We should do
this thing very quietly ; in fact, we should never have brought Hunter into the
picture."
It was at the same time that Palen was anxious to have me come out in
the open, and the position of Wakeman was that we should keep this thing
quiet ; and as they dominated the shipbuilding trio, of course, Wakeman won.
Senator Clark. Suppose I read you a letter and see if it correctly represents
your position at that time [reading] :
Pursuant to our last private conversation and understanding in your
ofdce, that future negotiations would be with me direct, I wish to call to
your attention that as the result of my activities during the Sixty-ninth
Congress eight 10,000-ton cruisers are now under construction.
Further, that owing to the failure of the Tri-Power Naval Conference at
Geneva, there is now before the Seventieth Congress a 71-ship building pro-
gram costing $740,000,000.
The understanding for which expenses were furnished me to conduct the
campaign for naval preparedness was to March 5, 1928, to be paid as a
salary at $25,000 a year, receipt hereby acknowledge for year ending March
4, 1928.
As stated by you, and agreed by your group, I am to receive at the rate
of $25,000 a year as a reward, a bonus, or money earned as the result of
the naval preparedness campaign, which benefits, and in reality saved, the
shipbuilding industry.
The fixing of the time limit on the naval building program to 5 years to
lay down and 8 years to complete established the period of our understand-
ing to the length of the naval program of 8 years at $25,000 a year, or an
aggregate of $200,000 due me from the result of my endeavors in the interest
of the shipbuilding industry. The amount of $200,000 to be divided by and
between Bethlehem Shipbuilding Co., 25 Broadway, New York City ; and
the Newport News Shipbuilding Co., 233 Broadway, New York City ; and
the Brown-Boveri Shipbuilding Co., Camden, N. J.
The Brown-Boveri Shipbuilding Co. was the same as New York Ship?
Mr. Shel\rek. It is the same.
Senator Clark (continuing reading) :
At the request of Mr. Hunter, Mr. Palen, Mr. Bardo, and yourself, I have
continued my activities in j-our behalf and in your interest to get action on
a naval building program which is now assured. By request and instruc-
tions, I am devoting considerable extra time and endeavor to the merchant
marine program as laid ilown and api)rovod by members of your group.
Mr. Shearkr. That was the Wilder plan on the 4-day ships.
Senator Clark. That was the Jones-White bill?
Mr. Shburer. That was the Wilder plan on the 4-day ships. He was trying
to build the fast liners, afterward built by Germany.
Senator Clark. He had both jobs going at the .same time, did he not?
Mr. Shearkk. They were active in the .Tones-White bill. I was present at a
number of meetings at the Carlton Hotel, and I went to the hearings of the
Merchant Marine and Fisheries Comndttee.
Senator Clark (continuing reading) :
Considering the extra work assigned me and the expense involved, I be-
lieve a part of my Ixmus should be paid me March 5, 1928. Also, I feel the
time has arrived for me to come out in the open as suggested by Mr. Palen
and Mr. Wilder in the interest of all who are seriously interested in the
shipbuilding industry and adequate seapower.
That correctly represented your attitude, Mr. Shearer?
Mr. Shearer. Yes, sir ; absolutely.
Senator Cr^RK. It was your belief that you were responsible for the author-
ization of the eight 10,000-ton cruisers in the Sixty-ninth Congress?
Mr. Shearer. It is my belief that I was more than active in doing that.
Senator Clark. You state here :
That as the result of my activities during the Sixty-ninth Congress, eight
10,000-ton cruisers are now under construction.
Mr. Shearer. I believe that.
MUNITIONS INDUSTRY 253
Senator Clakk. You believe it was due to your activity?
Mr. Shearer. I think tlie educational campaign that I carried on, getting the
facts and truth, based on the actual figures, based on the treaty, based upon the
fact that England, Japan, France, and Italy were building beyond what was
considered the necessary requirements, that we had to reach the treaty ratio
sooner or later. I must have been correct because that is what we are doing
now.
Senator Clark. It was further your view, as stated here, Mr. Shearer, that —
owing to the failure of the Tri-Power Naval Conference at Geneva, there is
now before the Seventieth Congress a 71-ship building program costing
$740,000,000?
Mr. Shearer. It only takes a few minutes to clear that up.
Senator Clark. Just answer that question.
Mr. Shearer. Yes, sir.
Senator Clark. It is your belief that the fact that a 71-ship building program
costing $740,000,000 was before the Seventieth Congress was the result of the
failure of the Tri-Power Naval Conference at Geneva?
Mr. Shearer. Quite. Quite; yes, sir.
Senator Clark. And also a part of the services which you performed?
Mr. Shearer. Quite ; I took my part in it.
Senator Clark. And for which you were paid?
Mr. Shearer. Certainly.
(v) Further testimony that Mr. Shearer was paid by the ship-
builders after they had ostensibly discharged him was given (galley
11 BBQ, Mar. 13, 13 BBQ) .
Senator Clark. I am not concerned with whose fault it was. I want to
trace your relationships with them. Did they answer that letter in 1928,
furnish you any more funds?
Mr. Shearer. Yes ; I drew money up until March 1929.
Senator Claek. Who paid you in 1928?
Mr. Shearer. I would get money from Wilder ; I got money from Paleu. I
think the last understanding with Palen was they would put up two-thirds and
Brown-Boveri one, so that I assume the two-thirds represented part of
Bethlehem's.
Senator Claek. When?
Mr. Shearer. That was as late as March 1929, a year later.
Senator Clark. The point I am making is, that after this very bitter cor-
respondence, they continued to employ you and you continued to receive com-
pensation from them?
Mr. SHEiiRER. Oh, yes, sir.
Senator Clark. Now by " they " you mean the Newport News Shipbuilding
Co., the Brown-Boveri Co., and the Bethlehem Co.?
Mr. Shearer. I assume that Bethlehem was putting one-third in, because
there was no reason why Newport News should put up two-thirds.
Senator Clark. But you were not paid directly by them?
Mr. Shearek. No, sir ; not them. That is true.
Senator Clark. You continued to furnish them information and write memo-
randa to them?
Mr. Shearer. I published a great many things at their suggestion. I re-
minded you yesterday that they were giving me not only written instructions
but they gave me two letters and asked me to make an attack on, I think
it was William Culbertson, our Minister to Chile,
Senator Clark. Who asked you to do that?
Mr. Shearer. Mr. Palen.
Senator Clark. Mr. Palen asked you to attack Mr. Culbertson, who was at
that time our Minister to Chile?
Mr. Shearer. Yes; because he was opposing legislation on the American
merchant marine.
Senator Clark. He was at that time Minister to Chile?
Mr. Shearer. Yes, sir. But it was prior to that he opposed this legislation.
They sent a man to me by the name of Captain Smith.
Senator Clark. Is that the same Captain Smith working for Bethlehem?
139.S87 — 35 17
254 MUNITIONS INDUSTRY
(w) Mr. Shearer classijfied as an internationalist and a pacifist all
who opposed him (Mar. 13, 12 BBQ) .
Here is the letter, March 21, 1929 [producing letter].
Senator Claek. I find a memorandum from you, Mr. Shearer, in the New^wrt
News Shipbuilding files, wherein you say:
It appears the opposition to an adequate Navy is from internationalists
and pacifists. I therefore list anyone who opposes me in that category.
Has that been your policy?
Mr. Sheabeb. Just the same as those who did not agree with me list me in J
a very bad category, German spy, Prussian officer, London Jew, and they are|
more vindictive to me than I have been to them.
Senator Clark. You were reporting to your employers that you felt justified]
in listing anyone who opposed you as an internationalist and pacifist?
Mr. SHEiiEEB. I look at it this way, Senator : You have a law in your land,
a part of the preamble of the Constitution, that the Congress should provide
a national defense.
Senator Clabk. Just a minute.
Mr. Shearer. Just a minute.
Senator Clark. Just a minute, Mr. Shearer. I am not asking you for a
stump speech on your views, but I am asking you if you did not report to your
employers that you felt justified in classifying anyone who opposed your views
as an internationalist and pacifist?
Mr. Sheabeb. Yes.
***** * *
Senator Clark. Mr. Shearer, following this rather heated clasli between you
and the shipbuilders which I have read, in the fall of ISUS, you were still in
their employ, were you not?
Mr. Shelvbeb. Yes, sir.
Senator Ci^rk. You took a trip to the Pacific coast for them?
Mr. Sheabex. Yes, sir.
Senator Clabk. And you were down there in the last session of Congress,
in tlie spring of 1929, as their representative?
Mr. Sheabeb. Yes, sir.
Senator Clark. You were still being paid by them?
Mr. Shejarer. Yes. sir.
Senator Clark. You were paid in 1928, $7,500 by the New York Ship?
Mr. Sheabeb. In which year?
Senator Clabk. 1928: it is in the testimony.
Mr. Sheabeib. The amounts are all there.
Senator Clabk. You wore paid $0,000, as testified to by the Newport News
Shipbuilding Co., during that time.
Mr. Sheaber. Evidently. I gave them credit for $51,230. How I got it, I
do not remember.
Senator Clabk. Tlie next winter you were again having a controversy with
them as to the terms of your employment?
Mr. Sheiabeb. Yes, sir.
WAR SCARE
In 1932, Bath Iron Works of Bath, Maine, builders of destroyers,
apj^arently en<rap:od the vohuitary help of a hir<;o newspaper orjrani-
zation (the Guy P. Gannett new.spapers) to print an ahirniist story
concernin*; allejjed Japanese preparations to attack the United
States. It was re])rinted from tlio Xew York Herald Tribune which
editorially s])()ke of the author of the story (a Chinese official, Mr.
Chen) as makinp: a malicious and insincere statement. The testi-
mony is fxiven below (from piUevs 28, 29 WC, Apr. 3, exhibits
1802^1800) :
Mr. RAisiiENBrsH. Coming up to the winter of 19:{2, I put before you a letter
which you si>nt to Mr. Guy P. Gaiuictt, marked - Exhibit No. 18(^ ". of the
Portland (Maine) Publishing Co.
(The letter referred to was uuirke<l "Exhibit No. 18<^^>2 " and is Included in
the appendix on p. — .)
MUNITIONS INDUSTRY 255
Mr. Raushenbush. In what papers is Mr. Gannett interested?
Mr. Nbwexl. He is interested in the Portland Press-Herald, wliich is a morn-
ing paper, and the Evening Express, which is an evening paper. He may be
interested in some other, and I think he is, but I do not know what tliey are.
Mr. Raushenbush. Otlier papers in tlie State of Maine?
Mr. Newexl. Right.
Mr. Raushenbush. What you do in this letter, without reading the whole
thing, is to enclose some editorials and clippings from the Herald Tribune of
January 1932 regarding the potential source of war with Japan, and say
[reading] :
I would like to have this information put in the hands of each one of the
Maine delegation, and I think it would be much more effective if you did it
than if I did.
Why did you have to go to the owner of some papers to get this information
into the hands of the Maine delegation?
Mr. Newetx. I do not know, except that I thought that was the way I would
do it.
Mr. Raushenbush (reading) :
It would be much more effective if you did it than if I did.
Mr. Neweix. Would it? Sometimes these fellows think you are pestering the
life out of them. I thought it would be more effective, particularly where I sug-
gested that the Maine papers take this editorial and comment on it for the
general information of the people.
Mr. Raushenbush. Now, did they take the editorial or did they take the
news clippings?
Mr. Newell. I do not remember.
Mr. Raushenbush. You were thanking them later.
Mr. Newell. I do not remember.
l\Ir. Raushenbush. We have here for the record, which I offer as exhibit
no. 1803, his letter under date of January 29, 1932
I\Ir. Nf:well. In fact, I do not remember what he did about it.
Mr. Raushenbush. This will refresh your mind [handing paper to witness].
[Reading:]
I have issued instructions today to all of my editors, to write editorials
on building up the Navy. As soon as these appear, I will send copies
along to our Maine delegation in Washington, together with a personal
letter.
You may be sure that I will do everything possible to arouse our people
to the necessity of building more destroyers.
(The letter referred to was marked " Exhibit No. 1803 " and is included in
the appendix on p. — . )
Mr. Raushenbush. Let us get to what this was all about, Mr. Newell.
You sent him two things, which we have here, and which I put before you :
A news story from the Tribune saying, " Japan Prepares for War With
United States, says Chen." Chen at that time was signing as the ex-foreign
minister. Then there was an editorial from the Tribune which goes along and
ridicules the whole story and says:
In this particular instance Mr. Chen's effort not only should be regarded
in this country as malicious but should not be accepted as wholly sincere.
Then it ends up :
The ridiculous charge which Mr. Chen brings against Japan of desiring
to tight America in revenge of limitations put upon her by the nine-power
treaty of 1922 is directly in line with all the preposterous motives attrib-
uted to Japan in a clumsy forgery known as the " Tanaka Memorial ",
now widely circulated by Chinese patriotic bodies, in which the late Baron
Tanaka is made to write of a trip around the world which he did not take
and to comment upon events that took place after his death. Such efforts
are inspired by a presumption of ignorance and credulity in this and other
countries which make them as impertinent as they are contemptible.
That is what the Herald Tribune editorially thinks of the story of Mr.
Chen. You apparently sent Mr. Gannett the clippings and editorial. Now, the
question is, what was done to arouse this sentiment among the Maine delega-
256 MUNITIONS INDUSTEY
tion, that it was necessary to build up tlie Navy? The news story or the
editorial?
Mr. Newell. I imagine the news story.
Mr. RAusHBNBUSH. Is that what the Gannett papers up there printed at the
time the appropriation bill was up?
Mr. Newell. I do not know.
Mr. Raushenbush. And this war scare was being started.
Mr. Newell. I could not tell unless I could go back. I do not remember.
Mr. Raushenbush. It was certainly not this editorial?
Mr. Newell. I do not know, because with that alone there would not be any
occasion for what I wrote.
Mr. Raushenbush. Here is a pretty big newspaper, with a pretty big news
service, and one of their Far Eastern correspondents gets a story that this
ex-minister of China is trying to whip the United States into a fervor against
Japan, which, according to him, had done China wrong quite steadily, and the
editorial comes out and says that the Chinese policy always has been to get
somebody to fight their wars for them^ and here is one of the instances of that
kind, and it is not only malicious but insincere, and it is a contemptible little
stunt. In the interests of truth, if there is such a thing, would it not have
been well for Mr. Gannett or you to see that those two things, if they were
going to be published at all, should be published side by side, the way the
Herald Tribune did it?
Mr. Newell. Yes ; I think that would, but I do not know whether I saw
the editorial. Did I ever see that editorial?
Mr. Raushenbush. The letter put in a moment ago to Mr. Gannett said
you were
enclosing an editorial taken from the New York Herald Tribune January
27, 1932, and also another clipping from the same issue of the same paper
regarding the potential source of war with Japan. These two things
together are intensely interesting.
That is, to you?
Mr.' Newell. Yes, sir.
Mr. Raushenbush (continuing reading) :
I would like to have this infonnation put in the hands of each one of
the Maine delegation and I think it would be much more effective if you
did it than if I did.
The construction called for in the "Vinson bill is to extend over a perio<l
of 10 years and calls for an expenditure of slightly over $617,000,000.
Then you go on and make a regular case of the business of having a big
Navy, and then Mr. Gannett thanks you for this, and you in turn, on January
30, 1932, which I enter as exhibit no. 1804, thank Mr. Gannett for publish-
ing the dispatches.
(The letter referred to was marked "Exhibit No. 1804" and is included in
the appendix on p. — .)
Now, is not this a pretty fair sample of picking that part of the news which
is helpful to your case and playing around with it, pretty risky, Mr. Newell? I
mean if every shipbuilder picks every item that will throw a scare into people,
and does not put in the counteracting things, which puts the picture into its
proper light, is he not only doing that as a self-interest thing, but also com-
mitting a dangerous thing? Suppose every supply house, and there are hundreds
supplying you people and other people, worked on that point, and just picked
out or considered what would scare people and what would get them aroused,
and loTt everything else out; suppose they did the same thing over in Japan
aTid suppose they did the same thing over in Europe ; would not that be pretty
risky stuff?
Mr. NETWi-rLL. Well, you ai*e creating a hypothetical situation.
The Chairman. I do not think there is anything hypothetical about this at
all. I have ohserve<l. Mr. Newell, for the 0 years I havo bot'n here, that just
preceding the advent of each naval appropriation bill wo have had a gi'eat
deal in the papers about trouble with .Tapan. How many of these annual
scares are occasioned by what was strictly propaganda, having your own iier-
sonal interests at stake? How many of theso annual scares of trouble with
Japan have you and otliers interested in the munitions game played up?
Mr. Newixl. I do not know what anybody else has done, but here is the
case in here, so far as I am concerned.
MUNITIONS INDUSTRY 257
The Chairman. Are you willing to say that this is the only effort of this
kind which you have exerted?
Mr. Newell. Yes, sir ; the only one that I know of.
Mr. Raushbnbush. Tliat same letter, the January 30, 1932, letter, from
Mr. Newell to Mr. Gannett, reads :
The Portland Press-Herald had a splendid editorial on this situation in
today's issue. You are certainly doing the country a splendid turn in
giving sncli publicity to this condition of affairs. The present maudlin
sentiment that seems to be running the country is liable to ruin it.
I also see by today's Press-Herald in a Washington dispatch that Sen-
ator Hale is very much concerned about the situation and is to take the
matter up actively the first of the week. I certainly hope he will.
(The letter referred to was marked "Exhibit No. 1804" and is included
in the appendix on p. — . )
The Chairman. Let me see that [examining exhibit!.
Mr. Raushenbl'sh. I would like to put in the record this Herald Tribune
editorial, and clippings, if I may.
(The documents referred to were respectively marked "Exhibits Nos. 1805
and 1806 " and are included in the appendix on p. — . )
The Chairman. What is the meaning, Mr. Newell, of this [reading] :
The present maudlin sentiment that seems to be running the country
is liable to ruin it.
Mr. Newell. I would say what I had in mind there was the so-called
" pacifist " view. My honest opinion is that the Navy, the way it was going,
would not be adequate in the event of a serious emergency.
The Chairman. Are you prepared to say how many destroyers, how many
ships, and how many airplane carriers and cruisers the country must have
before it has what the shipbuilders would term an "adequate defense"?
Mr. Newejll. No, sir.
Mr. Raushekbush. The answer is, Mr. Newell, is it not, that there never
will be an adequate defense?
Mr. Newell. I do not know.
Tlie report on the activities of Electric Boat Co. and Vickers
(England) in connection with the situation in South America which
Admiral Niblack, U. S. N., described as " a naval race ", will be con-
tained in a separate committee report. The evidence is in volume I
of the committee hearings. Indicative of the attitude of the two
companies is the letter from L. Y. Spear, vice president of Electric
Boat Co., to Commander C. W. Craven, of Vickers-Armstrong, dated
August 6, 1928 (ex. 127), in the course of which he commented :
It is too bad that the pernicious activities of our State Department have
put the brake on armament orders from Peru by forcing the resumption of
formal diplomatic relations with Chile. My friends advise me that this
gesture means that all contemplated orders must go over until next year.
C. — Lobbying — General
A great deal of political activity on the part of the shipbuilders
was never or rarely put into printed form. The great banking or
industrial interests behind the shipbuilding companies were not in-
vestigated in relation to their political influence or activities.
Certain bits of information on the subject were secured which are
given, with testimony, below. They indicate a far greater activity
than has so far been brought to light. Some evidence on the matter
is continued in the investigation into the air-mail and ocean-mail
contracts, by the special Senate committee under the chairmanship of
Senator Black (hearings under S. R. 349, 72d Cong.).
During the Senate munitions hearings several of the shipbuilding
companies employed the same representative to aid them, paying
him a total of $8,400. He also represented other munitions com-
l^anies, including du Pont. Remington, and Curtiss-Wright, and
received from these a total of $7,563.
New York Ship's activities included doing " missionary work " on
the Navy appropriation bill; waving the House majority whip;
" beating " certain sections of bill ; and keeping officials " under
obligations to us " (see galleys 54r-55 GP, Jan. 23, Witness
Humphreys).
The private shipbuilding companies have all been in politics to some
extent. New York Ship's representative was interested in the reelec-
tion of Representative Britten, former chairman of the House Naval
Affairs Committee and others (see a). New York Ship also asked
that the Congressman from Camden be put on that committee (see
h). The method of publicity welcoming an investigation while pri-
vately killing it is described (see c). Interest in Tammau}' men in
New York City is indicated (see d). The contradiction l)etween tes-
timony concerning lobbying given in the Shortridge hearings and
the actual activities was brought out (see e). Influence was brought
to bear through Mayor Hague, Governor Moore, and others in the
method of stopping a ]K)ssible P. AV. A. loan to (lulf Industries, a
competitor in the 1933 bidding (see /). Mr. Manning, of the Cord
Corporation, testified that it was "quite a job to take any business
out of politics that sells anything to the Government " (see (/). Mr.
William F. Kenny, an imjK)rtant political figure in New York City,
was on the board of New York Shi]), re])resenting the Brady utility
interests (see h). Mr. Wilder, former president of the predecessor
company of New York Ship, and head of the lobby for the Jones-
AVhite bill, testified " So it goes down the h)ng history of the thing,
the political i)ower used to force the Navy to do things tliat it it-
self would not do. I feel that tlie Navy is in a vice, controlled by
these three big yards" (see /). Mr. A. P. Homer, when connected
with the Democratic National Cam])aign Conunittee. made a special
plea to the shipl)uilders (see j). In 1922 and 1923, a brother of the
Secretary of the Navy was employed by New York Ship (see k).
The president of the National Council of Shipbuilders and the presi-
dent of ITnited were at the same time using influence at the Repub-
lican National Headquarters (see I and if). Mr. Andrew W. Slel-
lon's interests in the Bethlehem Co. was discussed (see vi). The
258
MUNITIONS INDUSTEY 259
United States Steel subskUary Federal Sl^P'^'^IP^.^fjl^^'^eSl""
^^^"^^ Tr:rM/N*wet^orB^:th^' ir WT^: was
mielioned "coTceming the use of political influence and correspond-
w th CRe ?s^^^^^ Prall (see r). Tl.e use of local commu-
niy inrence\o move a destroyer to United was ^^^ugU out ^^^^^^^^
Mr^ Powell's explanation of the cental agreement with Represen^^
tive Prall is given (see f). In connection with the 1933 awards a
reference is made to the securing of two destroyers for $6 800^00
[hrough Dav? who was identified as secretary to Mr. Mc-
Cooev a prominent Brooklyn Democratic leader (see ^ . .
The Washington represeWive of Umted, Mr. Malone, m 1934
wrote of being^xble to get out a 50-tanker appropriation for $oO,000
I^e^V)! andlointed out 'Hhere^^^ T^f oft^t^^ol
iHirkTgl^ Mr Sonrex^^^^^^^^^^ - a " ^ase of sort of
wishful thmking." The statement in a Kiplmger letter that the
rhfpbundin^ incfustry "depends on political pull, favoritism, back-
sciatching to get subsidies '', and so forth was commented on by
^:. Lambert, ?f Westinghouse, '' whUe it has cons^era^^^^ ru^^ n
rnuXrTthe^ratements made, it seems to me a -cally,,tlnng to
write and broadcast loose statements of this kmd ^yt^li
Some of the Electric Boat Co. letters show an intense political
activity and a kind of reciprocity with naval officials (see y).
The private yards have all been in politics to some extent.
ia) New York Ship's interest was indicated in part by testimony
on April 5 (galleys 99 and 100 WC).
Ttrr T?ATTRTTFNBTTSH Tberc are just a few letters I would like to have Mr.
Bardo fdenSv Dw"vou get ?h?sitter from Mr. Foster, concerning the reelec
tion of Mr Br'itten? Can you identify that? [Handing paper to witness.]
Mr BARDO rcan identify the signature. The signature is all right.
Mr. Raushenbush. That is his signature?
Mr l^A^nL'iv!n:Ue writes there about the interest-what is the date
""'m. BlS'o.^uly''?'l9k Senator. I do not recall the particular letter, but
this is his signature air right.
Mr. Raushenbush. He says [reading] :
Today I ran into Jim Barnes up on the Hill.
Mr. Barnes represented what company?
Mr Bardo. Todd Shipbuilding. .
Mr! StusHENBUSH. Anybody else? How about the Aluminum Co.?
Mr. Bardo. No.
Mr. Raushenbush (continuing reading).
He is very anxious to talk to you about the hard time Fred Britten ex-
peSs to lave iS getting reelected this year, also about several others who
are likewise in difficulties. He only mentioned Britten s name
I sus<-ested that he write you but for some reason he thought it best that
I pass ftewoM along so when you were next in Washington he might dis-
'"S/'mprfsston'S^haThe wants some financial support along the lines
I SI Jke to you about some time ago. Namely, to give active campaign sup-
port to merchant-marine friends in Congress who are expecting to find
260 MUNITIONS INDUSTRY
rough competition this fall. His fear is that should there be a Democratic
landslide, their opposition to subsidies in any form would work against
the present Jones-White Act and hamper prospective legislation pending
to aid private operators.
Addison G. Fobtee.
Mr. Raushenbush. I offer that letter for the record.
(The letter referred to was marked "Exhibit No. 1905.")
(h) Mr. Raushenbush. A little earlier in the matter, Mr. Bardo, we find a
letter from you to Mr. Tilson, asking that the Representative from Camden, Mr.
Wolverton, be put on the Naval Affairs Committee. Do you remember that
[handing paper to witness] ?
Mr. Bakdo. That is correct.
Mr. Raushenbush. Was he put on?
Mr. Baedo. I do not remember. What is the date?
Mr. Raushenbush. It is 'way back; 1926.
Mr. Bahdo. I think he was. That was his first time in Congress. He asked
me to write a letter, because I happened to know Mr. Tilson very well, and
I think he was put on.
Mr. Raushenbush. I offer that letter for the record.
(The letter referred to was marked "Exhibit No. 1906" and is included in
the appendix on p. — .)
(c) At a time when New York Ship was attempting to have its
taxes lowered from an assessment of $14,500,000 to $5,705,000, the
figure finally agreed upon, the company officials considered the possi-
bility of a congressional investigation (Jan. 21, galley 33 GP).
Mr. Raushenbush. I show you, Mr. Parker, a letter from Mr. Bardo, con-
cerning what seems to be this tax matter. Will you look at th;it and see if you
have ever seen that before? [Handing paper to witness.]
I would like to read that, Mr. Chairman. It was dated about the time that
these taxation matters were taking place, December 23, 1927, and while it men-
tions some costs of governmental ships, the Saratoga and the Lex^ingt&ii, it
also refers to the tax matters. [Reading:]
I have just received copy of House Resolution No. 55, introduced by
Congressman McClintic December 13, copy of which is attached hereto. I
had a short talk this morning with Judge Parker, who stated that on your
return from Washington you had requested that certain infonnation be
developed by Mr. Parker with the thought of inviting the investigation
referred to.
Mr. Parker, is that you. or is he referring to Judge Parker? Do you know?
Mr. Parker. I assume he means me.
Mr. Raushenbush (continuing reading) :
Publicly, of course, we could not say other than that we welcome an
investigation. Privately, we want to use every honorable means to see
that the investigation is not started and tliat the resolution referred to dies
a natural death in the Committee on Rules, to which it had been referred.
There is alt(!gether too much dynamite in a congressional investigation,
and we are altogether too vulnerable from the standpoint of political attack
to leave anything undone which will forestall the investigation. We have
troubles enough with our tax situation and our new high-speed line develop-
ment without having the waters muddied up by a congressional investiga-
tion, the effect of which would be harmful either to ourselves or to the
industry as a whole.
Who can say what statements Admiral Capps, for instance, if he were
called before a congressional investigation, might make with rosi)ect as to
what he regards as inefficiency and the lack of proper administration of the
yard? He mode these charges in one of our conferences. If he made them
before a congressional committee, we never could catch up with the story,
and it may well be that we will be confronted not only with our tax situa-
tion but in addition by a resolution from Congress asking someb<i(ly to
investigate all of these things which obviously would be dragged out in an
investigation of this kind.
I expect to have a conference with Congressman Wolverton on Wednesday
next.
MUITITIONS INDUSTRY 261
That is the Congressman from Camden, is it not?
Mr. Parkee. Yes, sir.
Mr. Raushbnbush (continuing reading) :
The names of the House Naval Affairs Committee and the House Rules
Committee are shown on the attached list.
Personally, I am strongly opposed to any encouragement of this investi-
gation for the reasons which I have generally outlined.
Does that bring to your mind at all what activities were being carried on in
connection with this very tax-matter business?
The taxes from 1922 to 1925 were settled without audit within one-
half hour (exhibits 1242, Jan. 21, galley 33 GP).
(d) A further letter on this subject was read into the record on
February 11 (galley 61 ZO, exhibit 1552).
The Chairman. I have before me a letter by L. G. Buckwalter to Mr. L. R.
Wilder, dated July 14, 1926. Were you then with the company?
Mr. Flook. No, sir.
The Chairman (reading) :
Referring to our conversation of Monday regarding close affiliations with
Tammany :
The concern I mentioned is Edwards & Booth, 80 Maiden Lane, New
York. The partnership is " Big Bill " Edwards and Walter C. Booth.
They are both Princeton men of about 1900. They are both widely known
in New York and are close to Tammany and the politicians. Edwards
had a responsible political position for years. I believe he was street-
cleaning commissioner. Mr. Bardo stated that he understood he was dead.
This is incorrect — at least, he was alive on Monday.
They are in the insurance business. Senator. And I asked Mr. Wicker-
sham sometime ago to get in touch with Mr. Booth the next time he was
over to New York. I feel that it would be of advantage to know these
people and keep in touch with them, and I will be glad to arrange for
an interview, if you desire.
When you and Mr. Neeland were returning from Europe last fall, Mr.
Neeland cabled me to have someone meet you at the pier to expedite your
customs' examination, clearing of baggage, etc. Mr. Booth himself took
care of this matter, called at the pier and rode to the hotel with Mr.
Neeland.
L. G. BUOKWALTEK.
Copies, Mr. Bardo, Mr. Wickersham.
(The political aspect of certain naval matters was discussed on
Feb. 13, galley 84 ZO, seq.)
(e) The question of the political activities of certain shipbuilding
companies was raised again on February 4 (galley 10 ZO).
Senator VANOBiNBEniG. Mr. Bardo, reading from the hearings in the so-called
" Shearer investigation ", I quote the following discussion between you and
Senator Robinson of Arkansas :
Senator Robinson of Arkansas. Neither you nor your company, I assume
from that statement, has had any representation during the fight on the
cruiser bill.
Mr. Bardo. We have a representative in Washington, but he is not here for
the purpose of mixing in with legislation.
Senator Robinson of Arkansas. Who is he?
Mr. Bardo. Frank Lord.
Then dropping to the bottom of the page it states :
Senator Robinson of Arkansas. He has no authority to participate in
efforts to secure, or defeat, legislation?
referring now to Mr. Lord :
Mr. Bardo. No, indeed.
That is a correct statement of Mr. Lord's status in Washington?
262 MUNITIONS INDUSTEY
Mr. Bardo. Yes, sir.
Senator Vandbnbexg. Mr. Lord had no authority to participate iu efforts to
secure or defeat legislation?
Mr. Bardo. That is correct.
Senator Vandenbeeg. I want to be sure that we fully understand your answers,
so that I am taking the liberty of showing you a letter of December 10, 1928,
written by you to Mr. Harry R. Humphreys. There seems to be but one copy
and I will read the letter.
Deiab Harry : Yours of the 7th enclosing expense account received.
Same has been passed for payment.
I know that you are now prepared to devote all of your time, when not
needed in Camden or Trenton, at Washington for at least the balance of
the session. What we are most interested in now is the defeat of the
Dallinger amendment to the cruiser bill, and this is being handled by Mr.
H. G. Smith, vice president of the Bethlehem Co., although Mr. Ferguson
and I have devoted some time and have interviewed a substantial number
of Senators on the matter.
We are working in Washington with Messrs. Frank A. Lord, Hotel
Blackstone, and James Barnes, who has an oflSce on the sixth of the
Albee Building. You, no doubt, know them both. I suggest that you keep
in close touch with them so that our cooperation may be complete.
Very truly yours.
Would not that indicate that Mr. Lord was interested in legislation, Mr.
Bardo?
Mr. Bardo. No. You will recall there, I think, in the letter where I had
said I had made it my personal business to interview the Senators, and give
that my personal attention. He had no authority to interview them or talk
to them, and if he did it, he did it on his own.
Senator VANDENHEitti. When you speak in this letter of your cooperation with
Mr. Smith, of Bethlehem, and Mr. Ferguson, of Newport News, in seeking to
defeat the Dallinger amendment, I assume that refers to the navy-yard
amendment.
Mr. Bakdo. It referred to an amendment that was tacke<l on to the bill —
I do not recall the year — and, as I remember the language of it, the first and
every alternate cruiser was to be built in navy yards.
Senator Vandenhero. You and Mr. Smith and Mr. Ferguson were cooper-
ating in that battle against that arrangement?
Mr. Bardo. Yes, sir.
Senator Vandenbeibg. With further reference to Mr. Lord, I call your atten-
tion to your letter of December 'Jl, 1928, written directly to him, from which
I read :
Deiar Frank : Yours of the 20th received.
We are greatly interested in the cruiser bill and we want to make sure
Just as far as it is humanly possible to do so. that there will be no slip-up
in disposing of the Dallinger amendment provisions of this bill when it
comes before the Senate on January 8.
It seems to me quite desirable that you should get in touch with Messrs.
Barnes and Gauntlet, and it may he well to talk to Duff, who is a repre-
sentative of the American Shipowners Association. I understand they
have filed a formal protest against this amendment.
Am glad to know that you could be helpful to Mr. Ketcham. As a
matter of fact. I am quite sure that your good offices have lieen quite
Iielpful in getting the rough spots ironed out in connection with the
Grace Line contract.
What reaction have you had from Vice President Plummer regarding
estimates on the Herberman shii>s? I understand that Herl)orman has
tried to get away with some very fast .^tuff with one of our shipbuilders,
which hasn't helpe<l his cause in the least.
This refers to another matter.
I am interested in particular in this sentence. Mr. Bardo:
What reaction have you ha<l from Vice President Plummer regarding
estimates on the Herl)erman ships?
Would that indicate that there was an exchange ef information with respect
to estimates between these ship companies?
MUNITIONS INDUSTRY 263
Again (Galley 11 ZO) :
Senator Vandbnbeirg. Tiirnlug to the first two paragraphs of the letter, and
I won't read the rest of it because it is not pertinent, are you not in this letter
telling Mr. Lord of your great interest in the cruiser bill, and its defeat, and
expressing the hope there will be no slip-up in disposing of the amendment and
suggesting to him the desirability of getting in touch with certain gentlemen in
connection with it?
Mr. Babdo. That is correct.
Senator Vandenberg. Does not that indicate some activity on Mr. Lord's part,
that you knew of, in connection with legislation?
Mr. Babdo. No ; not so far as Mr. Lord is concerned. You will recall that
I asked him to get in touch with Mr. Barnes and Mr. Gauntlet. I did not
ask him to get in touch with anybody else.
Senator Vandenbebg. Mr. Lord's letter of July 20, 1928, reporting to you on
the matter, reads :
Dear Mb. Babdo: I am just advised authentically that the cruiser con-
struction bill has just been made, by unanimous consent, the unfinished
business of the Senate to be taken up and disposed of on Thursday,
January 3, 1929.
I have been able in the last day or two to smooth the way a little bit for
Mr. Ketcham, and he told me last night that he believed negotiations were
proceeding at such a rate that your bill will have an executed contract in
this calendar year. I hope so.
Referring back to the cruiser bill for a moment, I further wish to say
that you were thoroughly satisfied with the resolutions passed by the United
States Shipping Board. Mr. O'Connor has assured me that he is willing to
to go to the bat on this question, at any time, and in any place where his
services would be of value. I have kept in touch with Zachary and he
is still hopeful that Senator Borah will lead the fight for our contentions.
Does not that indicate some activity of Mr. Lord on the part of legislation?
Mr. Babdo. Not necessarily so. He was merely reporting to me the informa-
tion he had gotten which was pertinent to our job, to our business. He was
simply reporting it as any man would.
Senator Vandenbebg. I am not complaining about his sending you the in-
formation, Mr. Bardo, but I am simply trying to discover as to whether this is
not a rather limited and technical assertion, when you say that Mr. Lord had
no authority to participate in efforts to secure or defeat legislation.
]\Ir. Baedo. That is correct. I want to reiterate just that, that he had no
authority.
Senator Vandenbebg. But he did participate, apparently, over quite a large
area, did he not?
Mr. Bardo. He would go and talk — he had a lot of friends, a lot of people
he knew, and he would go talk to them. He did not have much to do down
there, and when he found out something which he thought was of interest, he
would report it to me.
Senator Vandenbebg. I call your attention to Mr. Lord's letter of December
15, 1930, in which he reports that he has interviewed Congressman Britten,
and is assured that the provisions for a cruiser will be stricken out. " The
rest of the bill will be reported favorably and embotly Secretary Adams' recom-
mendation and request."
This is still just reporting information?
Mr. Bardo. That is all.
Senator Vandenberg. Mr. Lord evidently is now in contact with at least
one Congressman, and if he is, that is his business and not yours?
Mr. Babdo. That is his business.
Senator Vandenberg. On January 3, 1929, there is a memorandum addressed
to Mr. W. M. Flook, signed by Mr. Bardo. That reads :
Referring to Mr. W. B. Shearer,
I discussed this matter today at luncheon with Vice Presidents Wake-
man of the Bethlehem Shipbuilding Co. and Palen of the Newport News
Shipbuilding, Co.
You were working all the time in constant cooperation with Bethlehem and
Newport News in these legislative matters?
Mr. Baedo. Yes.
264 MUNITIONS INDUSTRY
Senator Vandenbekg (continuing reading) :
The National Council of American Shipbuilders recently appointed a com-
mittee, of which I am chairman, with the request that an invitation and
report be submitted to the council having to do with the creation of a strong
organization to handle legislative and other matters of mutual interest.
This committee will make its reports within the next 10 days or 2 weeks,
and this report will contemplate the employment of a strong individual to
head up the association and to look after all of the matters of general
interest.
Both Messrs. Wakeman and Palen are opposed to Shearer, because of the
fact that they regard him as being more or less unreliable. His conduct in
our previous contact was anything but complimentary to him. They will
not endorse or approve of his employment directly to represent the ship-
yards.
In view of the report which will be submitted by the committee, it is felt
that we should not embarrass our organization or the man in charge of it by
taking into our service in advance a man who may or may not be useful or
acceptable to the new organization.
Inasmuch as we now have directly on our pay roll Mr. Frank Lord, who
is very useful in some features of our Washington activities, and are con-
tributing to one or two other Washington agencies useful in their own way,
I do not feel that we should further increase our cost at Washington by the
employment of Mr. Shearer, particularly in view of the fact that he is
persona non grata with the other principals of our competing yards.
Pursuant to your directions, I will arrange to see Shearer at an early
date.
Is this a discussion of a purpose to create a legislative contact man in Wash-
ington, Mr. Bardo?
Mr. Bardo. That does not sound like my letter at all. I do not have any
recollection of that letter. Not that I am in disagreement with what it says,
but I do not recall the letter.
Senator Vandbnueko. Here is the letter [handing letter to witness].
Mr. Bardo. It is apparently a letter of mine. What is your question. Senator?
Senator Vandenberg. May I have the letter back, please?
Mr. Bardo. Yes, sir [returning letter].
Senator Vandenbebo. Does this indicate a ecmtemplation to choose a joint
legislative contact man in Washington?
Mr. Uardo. Apparently it did. That is apparently what was the purpose of it,
the iippointment of that committee.
StMiator Vandfnbeko. And it would seem to be a justifletl Inference from the
letter that inasmuch as " we n<^w have directly on our pay roll Mr. Frank Ix>rd ",
and so forth, that Mr. Frank Lord has been doing the w(trk which it is contem-
plated is to be done by this joint represontativo liereafter.
Mr. Babdo. No; tliat was not the implication in the letter at all. I referred
particularly to the fact that we then had a man on our pay roll, and I did not
believe we should go on and should increase our cost by the appointment or
selection or taking on of another man at Washit\gton to repre.sent the joint
interests, and we never did. That just fell dead of its own weiijht.
Senator Vandexbebo. What were the (Hher one or two Washington agencies,
useful in their own way, to which you were ccmtributing in Washington at
that time?
Mr. Bardo. I do not recnll any auencies at Wnshington to which we were
making any contributions at that time. The only otlier agf'ncy that I can
recall is the Midwest-Foreign Trade Association, with its headquarters in Cin-
cinnati, which is headed by ^lalcolm Stewart, wlm has always indicated a very
keen desire in all matters relating to a merchant marine, and we did contribute
to the support of that organization a very nominal monthly amount. I do not
recall what it was.
Senator Vandenrero. T'nder date of July 5, lft21>, Mr. Lord writes to Mr.
Flook: who is Mr. Flook?
Mr. Bardo. He is the chairman of the board.
Senator Vandetnbijsg. Of New York Ship?
Mr. Bakdo. Yes.
St^nator Vandenbero. Mr. Lord writes
Mr. Bardo. At that time he was chairman of the board of the American
Brown Boveri Electric Corporation, which was the holding company for several
subsidiaries.
MUNITIONS INDUSTEY
265
Senator Vandenbebg. Mr. Lord writes to Mr. Flook as follows on the stationery
of the Metropolitan Club :
Just a word to tell you how glad I was to see you at Camden, if only for
a moment. . , i i j.
You are going to have a busy yard. Of that there can be no doubt.
Additional legislation should be procured to take care of freighters and
with existing sentiment in Congress, the next session should bring about
the desired result and I hope that I can be of service in giving it a share.
Apparently now, Mr. Lord is discussing legislation with Mr. Flook.
Mr BAKDO. I think that was a comment he had to make, and he thought
Mr Flook might be interested in it, and I do not know anything about it myself.
Senator Vandenberg. As a matter of fact, Mr. Lord's job in Washington was
primarily a contact job in respect to legislation, was it not?
Mr BABDO. It depends altogether on how you apply that particular question.
His job here was to report to us anything of a character that he thought was
important, but he had no authority at all to deal or to work with legislatois
That is the job that I tended to myself. I always have and always did, and
anything I wanted to take to a legislator, I went and talked to him personally,
and I did not send a hired man.
(/) In connection with efforts to prevent a possible competitor in
1933 from getting a Reconstruction Finance Corporation loan, Mr.
Bardo admitted activity through political channels (Feb. 4, galley
15ZO-17ZO).
Mr Raushbnbush. He seems to be taking it up with the people he thinks
will be politically influential in " scotching " this plan, does he not?
Mr Bardo No ; I do not think so. Maloney was a Democrat, and Parker was
a Democrat, and they had been in a lot of Democratic fights and battles and
talked about a lot of things between themselves, and I suspect that was just
another one which they got in. ^ ^ «
Mr. Raushenbush. Mayor Hague is a Democrat, too.-'
Mr. Babdo. Yes; he is a real one.
Mr RAUSHENBUSH. I wlll ofCer that letter for the record. _ , ^ ' .
(The letter referred to was marked "Exhibit No. 1498", and is included in
the appendix on p. — .) ^ ^ ,, -, ^ ^ t ,«^
Mr. Raushenbush. Do you recognize the reply of Governor Moore, dated June
30, 1933, and reading:
My Dear Mr. Bardo : I have your letter, and shall be glad to help you in
any way you might suggest. I have taken the matter up directly with
Mr. Farley.
If there is anything further I can do, let me know.
Mr. Bardo. That is it.
Mr. Raushenbush. I will offer that letter for the record.
(The letter referred to was marked "Exhibit No. 1499", and is included
in the appendix on p. — .) , , , . ^^ ^^ ,.4..
Mr. Raushbnbush. At this point you do start taking up the matter politi-
cally, do you not? , _^ . ^. ,, ^ *!,„*.
Mr. Bardo. Yes ; this is a very direct appeal. There is no question about that.
Senator Vandeinberg. What is it being taken up with Mr. Farley?
Mr. Bardo. If I may answer the question, Mr. Chairman, the reply which
Governor Moore made to my letter to him, in which I reported the matter of
the Gulf Industries and its effect on the industries of New Jersey.
Mr. Raushbnbush. The question was taking out all competition, possible
competitors, on a large scale.
Senator Clark. The idea was to tear out the Gulf Industries?
Mr. Raushenbush. Yes.
Senator Clark. You took it up with Governor Moore, who, in turn, took it
up with Postmaster General Farley?
Mr. Bardo. That is what he says.
Mr. Raushenbush. There seems to be another letter to Governor Moore,
when you stated there was only one letter. This is dated July 5, 1983.
Mr. Bardo. I should not be surprised that I should forget some of these
tilings.
Mr. Raushenbush. You were pretty positive there was only one letter, Mr.
Bardo.
266 MUNITIONS INDUSTRY
Mr. Baedo. I was. I did not recall the second one.
Mr. Raushenbush. It read.s :
July 5, 1933.
Hon. A. Harry Moore,
Governor, State of New Jersey,
Statehouse, Trenton, N. J.
My Deiar Governor Moore : Many thanks for yours of June 30 in reply
to mine of June 28, regarding Gulf Industries, Inc.
There is no doubt in my mind but what this situation will very largely
rest in the President's lap before we get through with it. My suggestion
would be that a letter direct to the President, calling his attention to the
idle shipyard capacity in the State of New Jersey, fully equipped and com-
petent to build any and all types of ships, either naval or merchant, should
first be fully utilized before the door is opened under the Industrial Recov-
ery Act for the creation of new industries for which there is no economic
justification.
The promoter of this Gulf Industries outfit was formerly president of
the New York Shipbuilding Corporation and organized the American Brown
Boveri Electric Corporation. He is a promoter pure and simple and has
none of the qualities necessary to carry his promotions through to a
successful economic conclusion.
Your letter to Mr. Farley may reach the Pi'esident. but I am very much
of the opinion that any cooperative support which may directly reach the
President on this subject will have \\eight. particularly from your good self.
Thanking you, I am, very truly yours,
C. L. Bardo.
Mr. RATjSHEXBrsH. I will offer that for the record.
(The letter referred to was marked " Exhibit No. 1500.")
Mr. Bardo. That is my letter, and I subscribe to it all.
Mr. Raushenbi'sh. That is the second letter to Governor Moore?
Mr. Bardo. Yes, sir.
Mr. Raushenbush. Governor Moore acknowledged it, did he not?
Mr. Bardo. I suppose he did. He usually does.
Mr. Raushenbush. I show you a letter dated July 7, 1933, which reads as
follows :
State of New Jersey,
Executive Department,
Sea Oirt, N. J., July 7, 19SS.
My Dear Mr. Bardo: I have your letter of July 5, and have today
written the President in accordance with your request.
Very truly yours,
A. Habbt Moore, Governor.
Mr. C. L. Bardo,
New York Shipbuildinp Co., Camden, N. J.
Mr. Bardo. That is correct.
Mr. Raushenbush. I offer that for record.
(The letter referred to was marked " Exliibit No. 1501.")
Mr. Raushenbush. Then we have a letter from Mr. Farley to Governor
Moore, dated July 10, 1933, reading:
Democratic National Committee,
National Press Building,
Washington, July 10, 19SS.
Hon. A. Harry Moore,
Governor, Trenton, N. J.
Dear Governor: I have yours of July 5, with enclosure from Mr. C. L.
Bardo, i>residont of the New York Shipbuilding Co. I shall be glad to look
into the matter to which he refers and advise you as soon as I have a
report.
Very truly yours,
Jnc.
Mr. Bardo. That was in reply to the first letter.
Mr. Raushenbush. This is July 10.
Mr. Bardo. I think he refers to the first letter I wrote, does he not?
MUNITIONS INDUSTRY 267
Mr. RAtTSHENBtJSH. He is referring to Governor Moore's [reading] :
I have yours of July 5 * * *•
JSJ; lirHSsi' ippa=? Grn>»r Moore wrote on the same day he
received your letter. ^ ^ t +T.iT,t ori
Mr Bardo. Yes ; it the same date. I think so.
w.Th fil^ryZ^^fZ%%TZ^o, ^rr/urri! ISs. Cha.«o. paper
*°Mr.' bTkdo. That was simply an acknowledgment of the letter to which yon
previously referred here.
Mr. Raushbnbush (reading) : ^^^^ ^.^^ -^qq^
Hon. A. Harry Mooke,
Governor, State of New Jersey,
Sea Girt, N. J.
MY DEAR Go^^bnor: Many thanks for yours of July 7 in reply to mine
^^I^%^urrSa\^hfacrn;^o^r^^^^^^^^^ and may forestall
a develormentwUh Government funds that is by no process of reasoning
industrially or economically justified.
Very truly yours, ^ L. Bardo.
Mr. BardO'. That is right.
Mr. RAXJSHENBUSH. I offer that for the record
il?\'!r^lS:'S7?r;;rA;m^.?ar^o?e%ne' Shipping B„ard, to
•^r-'Bl'^rrr nTrSr.;:{e.er wrote any -- to A^U-a, Co^e
anrt I do not think I <'™^ *f "f^e'rV a let er from Mr. Parley to Governor
Mr Raushenbtjsh. We have nere a i^i^tei iium yi.
Moore, dated July 15, 1933, which Iff^^'^^'^^.^Z^^'')
(The letter referred to was marked Exhibit JNo. ioo*. )
Mr. RATJSHBNBUSH. That letter reads :
Demoobatic National Committee,
National Pbess Building,
WasMngton, July 15, 1933.
Hon. Harry I. Moore,
Governor, State of New Jersey,
Jersey City, N. J.
,rsr ^t?h"s -.IS sJ^^nu^iS S! '^'^^ rB
ErrortEr^JS^^'sCS^iC^rs^^
self-explanatory.
Sincerely, jj^
Sr- ItrnJ^rr I ln%roXr.:S.T^t^rf^\ ^.r^r..... Mary
T Norton to MirMaloney, acknowledging this protest, stating, m part:
I have protested against the issnance of a flnanclal loan, under the Public
Works blFhto the promoters of the Florida shipbuilding concern.
(The letter referred to was marked "Exhibit No. 1505" and is Included in
the appendix on p. — .>
268 MUNITIONS INDUSTRY
Mr. Raushenbttsh. Theu you received a letter from Governor Moore, did you
not, on July IS, 1933, stating as follows:
State of New Jekset,
EXBCUTTV'E DePABTMBNT,
July 18, 19SS.
Mr. C. L. Bardo,
Neio York Shipbuilding Co., Camden, N. J.
My Dear Mr. Bardo: I am enclosing herewith a letter from Mr. Farley
concerning the matter which you took up with me recently.
Very truly yours,
A. Harry Moore, Governor.
■1. (The letter referred to was marked "Exhibit No. 1506.")
Mr. Raushenbush. You did receive that, did you not?
Mr. Bardo. I could not say whether I did or not. You are expecting me
to remember a lot of details here that are just impossible for any human mind
to remember.
Mr. Raushenbush. You seemed pretty positive there was only one letter.
Mr. Bardo. I do recall that, and I was positive about it, but to say that I
remembered receiving all these letters. I would be saying something that I
did not. I do not intend to put myself in that position here at all, if I can
avoid it.
Mr. Raushenbush. You mean you do not think you received these letters?
Mr. BardO'. I do not say that I do not or do. You asked me if I remembered
having received them, and I tell you frankly I do not remember having
received them.
Mr. Raushenbush. We have another letter dated July 21, 1933, reading as
follows :
State of New Jeksett,
Executive Department,
Sea Girt, N. J., J it hi 21, 1933.
Mr, C. L. Bardo,
Netv York Shipbuildinff Co., Camden, N. J.
My Dear Mr. Bardo: I am enclosing herewith copy of letter which I
hiive just received from President Roosevelt.
Very truly yours,
A. Harry Moobe, Oovernor.
Mr. Babdo. I remember that one distinctly.
****** t
Mr. Raushenbush. We have another letter to the Governor of New Jersey,
in addition to the one which you remember, saying :
July 21, 1933.
Hon. A. Harry Moore,
Governor State of New Jersey, State Eoiise, Trenton, N. J.
My De.\r Governor: Many thanks for yours of the 18th enclosing letter
from Postmaster General Farley, un<ler date of the 10th. Am sure your
activity in this matter will have a very beneficial effect.
Very truly yours,
C. L. Bardo.
Mr. Bardo. I think that is in reply to that second letter, to which you referred
earlier in the correspondence.
(The letter refen:ed to was marked " Exhibit No. lull.")
Mr. Raushenbush. There is a letter dated July 24, 1933, which I show to
you, addressed to Hon. A . Harry Moore, Governor State of New Jersey [handing
paper to witness]..
Mr. P>Aiu)0. That is correct. That is in reply to a letter.
Mr. Raushenbush. I offer that for the record.
(The letter referred to was marked " Exhibit No. 1512.")
Mr. Raushenbush. That letter roads:
July 24, 1933.
Hon. A. Harry Moore.
Governor Sfntr of Xctc Jersey. Sea Girt, N. J.
My Dear Governor : Many thanks for your letter of July 21 enclosing copy
of letter from President Ro<isevelt upon the subject about which I wrote to
you. I appreciate your action in this matter exceedingly.
MUNITIONS INDUSTRY 269
The information from the President adequately disposes of this hazard to
two of New Jersey's principal industries.
Very truly yours,
C. L. Babdo.
We have another letter written to the mayor of Camden on the subject, on
July 24, 1933 [handing paper to witness].
Mr. Bardo. That is an acknowledgment of the letter to which was attached
the resolution previously referred to.
Mr. Raushenbush. Acknowledging the letter protesting the same action to
Secretary Ickes, with resohition attached, which I offer for the record.
(The letter referred to was marked " Exhibit No. 1513 " and is included in
the appendix on p. — .)
Mr. RAUSHENBUSH. I offer a similar letter acknowledging the letter of the
chamber of commerce, which I have offered, on the same date.
(The letter referred to was marked "Exhibit No. 1514" and is included in
the appendix on p. — .)
Mr. Raushenbush. Then you apparently wrote a memorandum on the same
day [handing paper to witness].
Then on the same day you wrote a memorandum to your board of directors,
which I have shown to you, saying :
Further in connection with Gulf Industries, Inc. :
I took this matter up with Governor Moore a few days ago, and I
received this morning the enclosed copy of a letter which is self-explana-
tory. This would seem to dispose of that phase of the shipbuilding
construction.
Had you taken up the Gulf Industries matter with the board before?
Mr. Baedo. I had reported the situation to them. That is all.
Mr. Raushenbush. I will offer that letter for the record.
(The memorandum referred to was marked " Exhibit No. 1515 " and is in-
cluded in the appendix on p. — .)
Mr^ Raushenbush. Then on the same day you apparently sent this letter to
the other shipbuilding companies, Messrs. H. L. Ferguson, S. W. Wakeman,
Robert Haig, and L. H. Korndorff — that is Newport News, Bethlehem, Sun, and
Federal?
Mr. Babdo. That is right.
Mr. Raushenbush (reading) :
Referring to the Gulf Industries, Inc., situation :
Am enclosing herewith copy of a letter from President Roosevelt to Gov-
ernor Moore in connection with this subject, which is self-explanatory.
I offer that letter for the record.
(The memorandum referred to was marked "Exhibit No. 1516" and is in-
cluded in the appendix on p. — .)
Mr. Raushenbush. That indicates that they had at least a little — shall we
say — Platonic interest in the result of this action?
Mr. Bardo. Without attempting to say what their interest really was, I
thought what had taken place would be of interest to them. I do not attempt
to say what their interest was.
Mr. Raushenbush. We have here a letter from Franklin D. Roosevelt to
Governor Moore, dated July 15, 1933, which reads :
The White House,
Washington, July 15, 1933.
My Dear Governor : Thank you for your letter of July 7. I ap-
preciate your writing me about the matter but we have no intention of
acquiring shipyards.
Very sincerely yours,
Franklin D. Roosevelt.
His Excellency A. Harry Moore,
Sea Girt, N. J.
I offer that for the record.
(The letter referred to was marked "Exhibit No. 1517.")
Mr. Raushenbush. Then there were further letters from your representative,
Mr. Wolverton and others, were there not, Mr. Bardo, about the matter, which
you also acknowledged?
139387—35 18
270 MUNITIONS INDUSTRY
Mr. Babdo. My recollection Is that I wrote a letter to the Senators and all
the Congressmen from New Jersey, and outlined this situation to them, so
that they would be informed.
Mr. Raushenbush. And acknowledged any action that they took?
Mr. Bakdo. Yes.
(ff) In regard to political influence, Mr. Manning, of the Cord inter-
■€sts, in control of New York Ship, from July 1933 on, testified that
it was " quite a job to take any business out of politics that sells
anything to the Government " (Feb. 7, galley 46 ZO).
Senator Vandenberg. Do you know Mr. Flynn, of New York? What is his
full name?
Mr. Raushenbush. The attorney.
Mr. Manning. Goldwater & Flynn? Yes, sir; I know them.
Senator Vandenberg. Why was he hired as soon as Cord took over New
Tork Ship?
Mr. Manning. I do not recall that he was hired as soon as the Cord Cor-
poration took it over; but he was hired, at any rate, for the reason that our
headquarters are in Chicago ; and Mr. Pruitt is our general counsel and em-
ploys a great many attorneys all over America for handling specific things
in their territory, and we felt it desii'able to have a New York attorney on
this matter, so that he was employed there.
Senator Vandenbekg. Is this the Mr. Flynn who is the Bronx Democratic
leader? I am trying to identify him.
Mr. Manning. I do not know as to that. I know that he is quite a promi-
nent man up there.
Senator Vandenbebg. Is he secretary of state for New York?
Mr. Manning. I could not answer these things, Mr. Chairman, as far as
the politics of the men are concerned.
Senator Vandenberg. Who looks after the politics? Whom could we inquire
of about the i)olitics?
Mr. Manning. Perhaps Mr. Pruitt here knows something about his politics,
tut I am sure I do not.
Senator Vandenberg. I mean the politics of the New York Shipbuilding Cor-
I>oration. I thought that was what you had been referring to.
Mr. Manning. One of the things I have been trying to do is to take it out
of politics.
Senator Vandenberg. Has it been quite a job to take it out of politics?
Mr. Manning. It is always quite a job to take any business out of politics
that sells anything to the Government.
Senator Vandenberg. Were you taking it out of politics when you hired
the Democratic secretary of state of New York just as soon as you took over?
Mr. Manning. That did not have anything to do with it.
(A) Later, Mr. William F. Kenny was described in a company report
as being on the board of directors "representing the Brady inter-
ests " (Feb. 7, galley 47 ZO) :
(i) One explanation of the fact that the Xavy did not throw out the
bids in 1933, in spite of the fact that they were high, was otfered by
Mr. Wilder on January 31 (galley 21 AS) :
The Chairman. The question in my mind is not yet answered as clearly as
I had hoped you might be able to supply the answer. Wliy were not these bids
thrown out in keeping with what was understood to be an intent to throw
them out?
Mr. Wilder. Mr. Nye, if I may answer that a little at length, I think that
the Navy were coerced, forced by political pressure into meeting those awards
against its will. This has been going on a long time. These yards have
tremendous financial forces behind them. If you trace back the hearsay of
the post-Spanish War Navy, you will first go through the arnior-plate i»eriod,
where the Navy was forced to build ships and place all private armor plate on
them, whether they wanted that type of ship or not.
There was an investigation made, I think sometime just prior or during
our entry into the war, and Congress, in answer to the Navy's plea, gave an
.^appropriation to build their own armor plant.
MUNITIONS INDUSTRY 271
In, I believe, 1910 Bethlehem first went into shipbuilding. Up to that time
there had been a question of forcing armor on the Navy. Then it started to
purchase shipbuilding plants ; first, I believe, the Fore River plant, and then
Hollingswood and Sparrows Point, and I do not know when they bought Union
Iron.
From then on, as the record shows, it has been poor ships that the Navy
has been forced to take.
There was an instance in 1924, and I believe Admiral Koontz made a report
on it.
Senator Bone. I want you to explain the word " forced." They do not seem
to be forced, when I talked to them, and seemed to be very glad to go ahead
with the program. I would like to have you amplify that a little bit.
Mr. Wilder. You had a specific example here in a letter from Mr. Bardo to
the Secretary of the Treasury. If the Secretary — I do not know that he did —
responded to that pressure, he of course was in a very powerful position.
Bethlehem had a man named Colonel Thompson, who had a palace out on
Massachusetts Avenue, who was an armor-plate man. In 1924 some sub-
marines were selected from Electric Boat, a Bethlehem subcontractor, which
were the T-boats, and accepted and paid for and immediately decommissioned
as unseaworthy, with the statement of the admiral that they were more
dangerous to the crew than to the enemy.
So it goes down the long history of the thing, the political power used to
force the Navy to do things that it itself would not do. I feel that the Navy
is in a vice, controlled by these three big yards.
Senator Bone. How does this political force to which you refer work? Can
you not enlighten us, so that we can enlighten the country? Tell us how it
works. How do they apply the " heat " or the " squeeze ", or however they
term it?
Mr. Wilder. The best example is that example of Mellon. They are large
organizations. They have considerable political force.
Senator Bone. I understand that, but how is it applied? I want to know
how it is applied. It is all right to refer to it as " force ", but that does not
enlighten us. How do they apply this " heat " on ships? Do they come dov^n
and threaten Congressmen with political extinction if they do not go along?
They cannot fire the admirals. Why does an admiral yield to that sort of
force? He is in there for life. Why does he have to yield? Is it under
threat that he will not be promoted, or how does it apply?
Mr. Wilder. There was an example, sir, of a man who I understand had
more hours in submarines — they were then rated as they were in the air by
the hours they had in them — and I think it was Commander Welsh, stationed
at the New London Ship. He disapproved of some of the work that they were
doing. He was told that if he did not pass it, he would be removed.
Senator Bone. Who told him that?
Mr. Wilder. I believe Mr. Spear.
Senator Bone. Spear in the Boat Co.?
Mr. Wilder. Lawrence Spear; yes, sir.
Senator Bone. He told him that he would be removed if he did not accept
the work?
Mr. Wilder. Accept the work.
Senator Bone. All right.
Mr. WiLDEE. I think that the exglanation is that a naval officer is not
overly paid. He has a family, and let us say he settled dovra here with his
family and puts his children in school. If he misbehaves, he is threatened to
be sent to Guam.
(j) Further indications of attempt to use political influence were
given in several letters sent out by A. P. Homer, at one time con-
nected with the Democratic National Campaign Committee of 1932
(Feb. 1, galley 38 AS) :
Senator Vandbnberg. First this morning, as a supplement to the testimony
yesterday regarding Mr. A. P. Homer, I want to read into the record certain
letters written by Mr. Homer and signed in his capacity as chairman of the
marine committee of the finance division of the Democratic National Campaign
■Committee, Biltmore Hotel, New York City.
272 MUNITIONS INDUSTEY
The first letter I read is dated October 17, 1932, and addressed to Mr. Charles
M. Schwab, and is as follows :
My Dear Mr. Schwab : As a result of the events of the last 3 weeks, we
believe that if the shipbuilders of the United States are to get a square deal
it will be necessary to make a change on November 8. I hope that you are
in accord with this idea. If so, we ask that you help us with a contribution
to the campaign fund of Governor Roosevelt, who, as you know, is marine-
minded and hasn't the opinion that international affairs can be settled with
a blueprint navy. Checks should be made to F. C. Walker, treasurer (per-
sonal check, of course), and mailed to him in the enclosed envelop. The
writer will personally acknowledge your contribution and see that the news
of it reaches the Governor's ears.
Thanking you fur your cooperation in this matter, I am,
Yours very sincerely,
A. P. Homer.
I also read a letter dated October 17, 1932, addressed to Mr. Grace [reading] :
After what the present incumbent of the White House did to the private
shipyards on the destroyer matter, I am sure that you are of the opinion
that a change is necessary if tlie shipbuilders are to get a square deal. As
an old member of the shipbuilding fraternity, I am writing to ask for a con-
tribution to the campaign fund of Governor Roosevelt. Checks should be
made to F. C. Walker, treasurer (personal checks, of course), and mailed
in the enclosed envelop promptly. The writer will acknowledge this per-
sonally and see that the knowledge reaches the Governor.
Thanking you for your cooperation, I am.
Very sincerely yours,
A. P. Homes.
Another form letter which was addressed to a large number of shipbuilders
contained the following:
It is apparent that if we are to have a treaty-strength Navy we must
have someone other than a paciflsr in the White House, and as a ti'eaty-
strength Navy is ut vital importance to you shipbuilders, we believe that the
best interests of the industry will be served by the election of Governor
Roosevelt, who has full knowledge of the Navy's problems, having been
intimately acquainted with the troubles which came from unpreparedness in
the World War.
In order that we may be able to carry on the campaign successfully, funds
are of vital importance, and I hope you will see your way clear to sending
a contribution to us.
Checks should be made to F. C. Walker, treasurer (these must be personal
checks), and promptly returned in the enclosed envelop.
This letter was also signed by Mr. Homer in his capacity as chairman of the
marine committee of the finance division of the Democratic National Campaign
Committee, Biltmore Hotel, New York City.
Shiplniilders to whom this or a simihir letter was sent include Homer L.
Ferguson, president Newport News Shipbuilding «& Drydock Co., Newport News,
Va. ; C. H. Bardo, president New York Shipbuilding Co., Camden, N. J.; S. W.
Wakeman, vice president Bethlehem Shii)building Corporation, Quiney, Mass. ;
W. S. Newell, president Bath Iron Works, Bath, Me. ; ('. Stewart Lee, vice
president Pusey & Jones Corixirativ>ii. Wilmington Del. ; J. C. Pew. president Sun
Shipbuilding iV Drydwk Co., Chester, I'a. ; W. W. Smith, chief engineer Federal
Shipbuilding & Drydock Co., Carney, N. J. ; Charles C. West, president Man-
itowoc Shipbuilding Corporation, Manitowoc, Wi.s. ; L. Y. Spt^ar, vice president
Electric Boat Co., Groton, Conn. ; Joseph W. Powell, president United Dry
Dock, Inc., New York City ; J. Herbert Todd, vice president Todd Shipyards
Corporation, New York City; and D. W. Nevins, General Electric Co., Sche-
nectady, N. Y.
(k) In 1922 and 1923 the New York Ship Co. employed a brother
of the then Secretary of the Navy as a forei<rn representative (Feb.
6, galley 28 ZO).
l\Ir. RAvsHENRUsn. You prepared this statement, which I otTer for the record
under the number exhibit no. 1529, sui>plementing furtluM- information regarding
the representatives, Mr. Parker.
MUNITIONS INDUSTRY 273
(The letter referred to was marked "Exhibit No. 1529" and is included in
the appendix at p. — .)
Mr. Raushenbush. I see here the name of Charles Denby, special repre-
sentative, China and the Orient, 1922 to 1923. The actual amount paid to
Denby was $5,048.72. Was that the brother of the Secretary of the Navy at
the time?
Mr. Paekek. I believe so.
Senator Clark. Had Mr. Denby ever been in your employ, Mr. Parker, so
far as the New York Shipbuilding Co. is concerned?
Mr. Parker. Not so far as I know.
Senator Clark. Was there any particular reason why he would be employed
and sent over to the Far East at the time when you already had two other
highly paid I'epresentatives in that territory?
Mr. Parker. That was a matter that Mr. Neeland decided. He was presi-
dent of the company.
Senator Clark. You had nothing to do with it?
Mr. Parker. I had nothing to do with it whatever.
Senator Clark. You simply know he was employed at the same time because
the check was made out?
Mr. Pajjker. Yes, sir.
Mr. Raushenbush. In the paragraph below you state that Joyner was paid
during this period salary expense of $103,432.98 and Joyner was also paid in
addition $13,750 commission on the Japanese tanker Kamoi. If Mr. Joyner
was covering the Orient at the time and getting this fairly high salary, what
point was there particularly in Mr. Denby going over there? He did not get
any business for you, did he?
Mr. Parker. No.
(l) The political interest of another company, United Dry dock, lo-
cated in New York City, is indicated, in part, in a letter dated Sep-
tember 30, 1932 (galley 39 FS).
Mr. Raushenbush. About this time, just as a matter of record, because the
Du Pont representative introduced the subject a while ago. I have a letter from
Mr. Powell to your Mr. Williams, dated September 30, 1932. [Reading:]
Capt. Roger Williams,
Newport News Shipbuilding & Dry Dock Co.,
90 Broad Street, New YorJc, N. Y.
(Naval appropriations file no. 8121.)
This morning Gerrish Smith and I called on Mr. Ted Saunders at the
National Republican Headquarters in New York, and made an oral state-
ment to him of the political effect on the employees of the private ship-
yards of the award of the three destroyers to navy yards and requested
him to use his influence with the President to direct construction of the
three remaining vessels in private yards. He was interested and asked
that the statement be reduced to writing, which was done, and a copy of
the statement is enclosed herewith. He stated he did not know whether
his influence would have an effect on the President, but my personal im-
pression is that he will try to have the President award these three vessels
to private shipbuilders.
I believe it would be very effective at this time if any Republican Con-
gressmen or Senators that you can reach telegraph to Mr. Everett Saunders,
care of Mr. Jeremiah Milbank, Waldorf-Astoria Hotel, New York City, and
to the President, and if you would also wire Mr. Saunders so that he will
know that it is the industry that is speaking.
Gerrish Smith is off to Washington and asked me to write this letter in
his absence.
Very truly yours,
(Signed) J. W. Powell.
Later Mr. Newell was asked about this letter (galley 29, 30 WC) :
Mr. Newet.l. No, sir. This gets back to what we talked about a little earlier
this morning ; 11 destroyers were authorized, and the President allowed only 5
to be built — 2 in the private yards and 3 in the navy yards. Then what actu-
ally happened was this : I will say about a month — that is near enough — before
the election in November 1932, the Navy was ordered to place another destroyer
274 MUNITIONS INDUSTRY
of the same design, this Bethlehem design, in the Boston Navy Yard and
another one in the New York Navy Yard. They already had one, and that
gave each of those two yards two, and the third one at the Philadelphia Navjr
Yard.
Mr. Raushenbush. That left 3 out of the 11, and the point of this seems to be
that the President was to be requested to direct construction of the 3 remain-
ing in private yards.
Mr. Newbxl. There were 3 remaining, and nothing was ever done with
those 3.
Mr. Raushenbush. They were not placed?
Mr. Netwell. No, sir.
Mr. Raushenbush. You made a point that this was just done before election-
Mr. Newell. Yes, sir.
Mr. Raushenbush. You interpreted it that way?
Mr. Newell. Yes, sir.
Mr. Raushenbush. Yes, sir.
Mr. Newell. They were put into what everybody considered pivotal States,
Massachusetts
Mr. Raushenbush. Since when was IMassachusetts a pivotal State?
Mr. Newell. It went Democratic in 1932, and was always Republican before,
Mr. Raushenbush. The extra ones went where?
Mr. Newell. Massachusetts, New York, and Pennsylvania.
Mr. Raushenbush. You replied to that letter, Mr. Newell, did you not?
Mr. Newell. I do not remember, but it would be in the file if I did.
Mr. Raushenbush. I have a letter here, which I offer as " Exhibit No. 180S ",.
from you to Mr. J. W. Powell, United Dry Docks, Inc., 11 Broadway, New York
City [reading] :
My Dear Poweox: I beg to acknowledge receipt of your letter of Sep-
tember 30 in regard to the award of three additional destroyers to navy
yards, and have starte<l a shriek on this end. I am working on this by per-
sonal contact with the Republican politicians in this State and think I
have convinced them of the seriousness of the situation and that they are
playing " bad ball " in pursuing their present policy of throwing the new
construction work into the navy yards.
Do you have any comment on that?
Mr. Neweix. No ; I do not remember what I did.
(The letter referred to was marked " Exhibit No. 1808.")
(m) The connection of former Secretary of the Treasury, Andrew
W. Mellon, was discussed on February 26 (galley 1 QD).
The Chaikman. Yesterday's examination. Mr. Grace, left one question un-
asked, which it is necessary to have answered this morning. During the years
that the matter of taxes owing the Government by tlie Bethlehem Corporation
was in dispute, was the Secretary of the Treasury, directly or indirectly, an
owner of any portion of Bethlehem's stock, or bonds, or notes?
Mr. Grace. The Secretary of the Treasury?
The Chairman. Yes.
Mr. Gracte. The Secretary of the Treasury became financially interested in
Bethlehem, to my knowledge, at the time we acquired the McClintock-Marshall
Construction Co., in which the Secretary was a large stockholder.
The Chairman. When was that?
Mr. Grace. That was in the early part of 11)31.
The Chairman. And, to your knowledge, he had no coinuK'tion with the cor-
poration prior to that time, as a stockholder?
Mr. (Jrace. I could not say off-hand, but. if so. certainly in no important way.
He may have owned some Bethlehem stock, but I would not even know it
if he did..
The Chairman. What can you say with respect to bonds?
Mr. Grack. I could say whether they owned any of the bonds or not.
The Chairman. Notes?
Mr. Grace. I could not tell you. But as of the early part of 1931, they be-
came a prominent, important stockholder in our interest. What they liad
prior to that, I could only obtain for you by looking up the records. I would
be glad to have that done if you want it.
(n) Mr. Korndorff, of Federal Ship, referred to the Cord interests
as " well connected in Washington " (galley 14 WC, Apr. 2).
MUNITIONS INDUSTRY 275
Mr. Raushenbush. I offer another letter as exhibit no. 1776 by you to Mr.
George S. Scott, president United States Steel Products Co., 30 Church Street^
New York. Asain I do not have a copy of this. You call attention to the follow-
ing in tlie last paragraph [reading] :
Another factor that makes me fef"! that we should keep in touch with th,is-
situation is the apparent interest of the New York Shipbuilding Co. in this
business, because I feel that the new owners of that company are pretty
well connected in Washington.
By that time did you know who the new owners of the company were?
Mr. KoRNDORFF. I do not recall, but I do know that they had commun,icated:
down thei'e, trying to get some of the business.
Mr. Raushenbush. I am talking about the New York Shipbuilding Co., new
owners of the New York Shipbuilding Co., are " well connected in Washington."'
Mr. KoRNDORFF. I may have known.
Mr. Raushenbush. Who are they?
Mr. KoRNDORFF. I uevcr knew of my own knowledge. It was just general
public information.
Mr. Raushenbush. Who were they, from general public information?
Mr. KoRNDOKFF. The reputed statement was that the Cord interests had some-
thing to do with it.
Mr. Raushenbush. You spoke of them as being " pretty well connected in
Washington " ?
Mr. KoRNDORFF. Yes, sir.
{o) Mr. Newell testified as to the use of political influence to obtain
destroyer awards (galley 22 WC, Apr. 3).
Mr. Raushenbush. Did you use, or try to use, any political influence, either
to get work up at Bath or to get these contracts as soon as the bids were in?
Mr. Neweix. What do you mean by "political influence"?
Mr. Raushenbush. Of friends of friends.
Mr. NEWEI.L. Yes.
Mr. Raushenbush. Tell us about that, won't you?
Mr. Newell. We requested certain individuals in Bath, and in the State of
Maine, to send telegrams to the White House, urging the award of two of the
ships to Bath.
Mr. Raushenbush. That was after the bids were in?
Mr. Newell. Yes, sir ; and that was before I was asked to go to the Navy
Department to Captain Jones' office.
The Chairman. Did you pull any political strings when the naval bill was-
pending, or when bills were pending looking to the appropriation of funds for
naval construction?
Mr. Newell. You mean, approach any Members of Congress?
The Chairman. Or anyone. Did you pull any strings on any people in Maine
to write to the President, or to wire him, or to Members of Congress?
Mr. NErwEi,L. No ; I do not recall doing anything. I do remember quite a long
time ago — I should say perhaps a month ; I cannot remember exactly — hearing
one day in Bath that the Governor had been to Campo Bello to see the Presi-
dent. The President at that time was on a yachting cruise dovra the coast, and,
mind you, I heard this after the Governor of Maine went to Campo Bello, and
a friend of mine — I do not remember who it was but it was some Bath person —
said that Governor Brand says that the President is going to see that Bath gets
some of this Navy work. I do not consider that that is anything ; I did not
know anything about it until I heard it afterward.
Mr. Raushenbush. You did not ask the Governor to go?
Mr. Neweix. No, sir.
Mr. Raushenbush. Coming back to these 1933 awards, at the time that they
were still open, what other influence did you try to use to get consideration
for Bath?
Mr. Newell. I do not know of any. I do not remember any other.
Mr. Raushenbush. You said a moment ago you had used influence, and the
one instance you gave was the telegrams which were sent to the White House.
Mr. Neweix. That was after the bids were in.
Mr. Raushenbush. That was after the bids were in? Was that all you had
in mind?
Mr. Neweix. Yes, sir. I will tell you why I did that, and it is a perfectly
natural impulse and a logical thing to do. Here was a bid that Bath had put in
276 MUNITIONS INDUSTRY
only on the adjusted basis. Now there was an influence, and naturally would
be an influence, perhaps, mind you, on people, as to whether or not there was
not a technicality involved there, and I heard — and I cannot remember who
told me because there was a lot of gossip and talk — that here was this so-called
" Gulf Industries " down at Pensacola who were going to try to bring political
influence to bear on account of their bid having been so much lower than
anybody else's.
Mr. Raushenbush. Why would somebody with a low bid have to bring
political influence to bear?
Mr. Newell. I cannot answer that. But they had a feeling that they would
not get it anyway, I imagine, no matter what the bid was, because it was a
question of their ability to perform, if they were awarded the contract, not
being a going concern. But I heard that. I said, " If they are going to start
that kind of a racket, I think I ought to do it too. in defense of our position and
the people I am representing in Bath ", because it was a settled thing.
The Chairman. Mr. Newell, was it not a fact that during all this time that
United was ready and its drawing department all set up. and its design far
under way, even before contracts were awarded?
Mr. Newell. Not that I know of; no, sir; I do not think so. United can
answer that question better than I can.
The Chairman. You had no knowledge then, or since, that such was true?
Mr. Netwell. No. sir. All I know about this situation was that United had
employed Gibbs & Cox, of New York, to work with them in the preparation of
estimates, and I do not remember whether United submitted a so-called " class
II bid ", which was an alternate, on the bidder's design, or not. I do not
remember at the moment. I can check it up and I can find out. But, on the
other hand. United can tell you that.
The Chairman. Did you see anything which would indicate that Mr. Powell
and the Navy had an understanding before the award was made for the
designing?
Mr. Newell. No, sir : I never heard the Navy Department say anything about
any of the bidders. They do not do it.
Mr. Raushenbush. Coming back to your statement that you thought Gulf
was going to use political influence, and therefore you thought you were entitled
to do the same thing
Mr. Newell. I heard also that the Maryland Dry Dock was going to. but I
did not hear it from anybody connected with those respective companies.
Mr. Raushenbush. Did you hear it about any of the other companies?
Mr. Newell. No, sir.
Mr. Raushenbush. So that you tliought you were going to do the same.
What happened? What did you do? Simply get these wires to the President?
Is that all?
Mr. Newell. Yes ; we asked the Governor of the State, and we asked 2 Sen-
ators, 3 Congressmen, the mayor of Bath — I may not get them all in but you
have a list of those telegrams in your records.
Mr, Raushenbush. All tliat testimony about wliat was done with those
telegrams is correct, then?
Mr. Newell. Yes, sir.
Mr. Raushenbush. They were sorted out especially by whom, the President's
secretary? Or he was asked to sort them out and lay them especially aside?
Mr. Newell. That is what I understood he was told. I do not know wliother
it is con-ect.
Mr. Raushenbush. He was so told?
IVIr. Newetx. Yes, sir.
Mr. Raushenbush. It was following that that this rather unusual procedure
happened, of the Bath Iieing picked out to get together witli the other yards,
when United was the control yard?
IMr. Newfxl. Yes : that is right.
Mr. Raustienbusu. Di» you h.ive anything further to add to that statement
of what happened in 1933? Is tliat pretty thoroughly the picture?
Mr. Newell. I do not think I could add anything more to it if I talked a
whole week.
The name of James Roosevelt was used by an insurance agent
solicitino: business from the Bath Iron Works and claimins: to be
able to <^ot si^cial consideration for the company on naval awards
(galley 39 WC-B, Apr. 13).
MUNITIONS INDUSTRY 277^
Mr. Raushenbush. We have a letter here of July 12, 1933, addressed to
Hon. Louis McHenry Howe, Secretary to the President, The White House,
Washington, D. C. That letter reads :
My Dear Mb. Howe: At this writing the Bath Iron Worlvs at Bath,
Maine, have one Government destroyer under construction and the presi-
dent of this concern, Mr. Newell, informs me that he is now submitting:
bids, through Hon. Henry Roosevelt, Assistant Secretary of the Navy,-
for two more destroyers.
The Chairman. Mr. Raushenbush, let us establish that. Where did this
letter come from, written by Mr. MacGrath to Secretary Howe?
Mr. Raushenbush. This came from the files of the Bath Company, and we
have a little later a letter from Mr. MacGrath to Mr. Thebeau, on July 31, 1933,
saying [reading] :
Enclosed is a copy of my letter of the 12th to Hon. Louis McHenry Howe,
Secretary to the President ; also Mr. Howe's reply of July 18th.
The letter goes on, from Mr. MacGrath, to state [reading] :
You may recall that it was at my suggestion and request that James
Roosevelt spoke in Bath, Maine, last October, after our State election here,
and 1 may say that this part of our campaign in Maine aroused consider-
able interest and support for the President, not only in the city of Bath,
but throughout the State, and we were almost able to carry the city of
Bath for the President, which normally has been a Republican stronghold
for years.
It may well be said that the population of the city of Bath depends upon
the Bath Iron Works as a principal source of industrial income, and the
cheapness of labor at this port enables the Bath Iron Works to operate at
a very low cost, and a considerable factor in saving the Government ex-
Ijense in the construction of destroyers.
The psychological effect of the administration awarding to the Bath Iron
Works contracts for two new destroyers will be looked upon very favorably
by the people of Maine, and will be very helpful in the upbuilding of the
Democratic Party in this State.
I would be very pleased to have you call this to the attention of the
President and I urge the administration to give all possible consideration
to this matter.
Always with best wishes, I remain.
Sincerely yours,
RoGEE S. MacGrath.
Mr. Raushenbush. I offer that for the record as " Exhibit No. 1814."
(p) Bath Iron Works was solicited for subcontracts by a Member
of Congress serving on the Merchant Marine and Fisheries Commis-
sion (galley 39 WC and 40 WC, Apr. 3).
Mr. Thebeau. No.
The Chairman. Mr. Newell, how frequently are you confronted by men
in official positioais who ask for favors or business from you or from your
company?
Mr. Newesll. I cannot think of any. Like whom, for instance?
The Chairman. Oh, any public official who might have been in a position
of serving you in a legislative way or administrative way?
Mr. Neweix. No, sir ; I do not know of any that ever happened.
The Chairman. You have never been solicited by Members of Congress for
business ?
Mr. Newell. No, sir; never.
The Chairman. Are you at all conversant with the letter that was addressed
to you on October 11, 1933, by one Member of Congress?
Mr. Newell. No, sir.
The Chairman. I hoi)e no Member of Congress will assume that this letter
is being made a part of the record as a model for others to pursue, but I
offer as an exhibit, to be properly identified as " Exhibit No. 1820 '', a letter
278 MUNITIONS INDUSTRY
written on the stationery of the House of Representatives, Congress of the
United States, Washin^on, D. C, October 11, 1933, reading as follows :
Mr. William S. Newell,
President, Bath Iron Woi'Jcs, Inc., Bath, Maine.
Deab Mr. Neweill: As you perhaps know, a Congressman must derive
some of his income from other sources than being a Member of the House,
and in this connection I would like to bring to your attention the fact
that my secretary and myself have a company in Philadelphia trading
under the name of Edmonds & Heidler.
In this company we have the representation of the Ehret Magnesia
Manufacturing Co., Valley Forge, Pa. There are only four manufacturers
in this particular line in the country and our company is one of them.
I am writing you particularly at this time to ask if it would be possible
for you to add our name to your inquiry list for materials in connection
with the ships you are about to build. We can sell the material direct or
can quote on applied basis.
We have performed work for companies such as New York Ship, with
whom you are acquainted, Newport News, and for the Government direct
on repair jobs.
I will appreciate your interest and with verj' best wishes, I am,
Sincerely yours,
G. W. Edmonds.
*******
(The letter referred to was marked " Exhibit No. 1820.")
The Chairman. Do you have any recollection of this letter now?
Mr. Newexl. No, sir. I am not saying that I did not get it, but I do not
remember it.
The Chairman. Mr. LaRouche, has this been identified as coming from the
files of the Bath Iron Works?
Mr. LaRouche. Yes, sir ; that was taken by our man from the file of the
Bath Iron Works.
The Chairman. You have no recollection of what was done upon its receipt?
Mr. Newell. No, sir.
The Chairman. Have you had like approaches by others in Congress or in
administrative positions?
Mr. Newell. I do not remember of any, and I did not remember that. I do
not renicniber every letter that comes in, of course. It it pretty difficult to do.
The Chairman. I .suppose that if you have such faint recollection of this
letter, in a general way. it would be useless for me to ask if, by any chance,
this letter came to you under the Congressman's frank.
Mr. Neweix. No; I do not know.
The Chairman. Do you know whether this company, to which Mr. Edmonds
referred, did actually perform work for the New York Shipbuilding Co., Newport
News, or for the Government direct?
Mr. NEWEii.. No; I do not.
The Chairman. Did you know Mr. Edmonds?
Mr. Newkll. No, sir.
The Cn.uKMAN. Did you know Mr. Edmonds, Mr. Thebeau?
Mr. Thbueau. No; I did not.
Mr. Nkwhxl. I do not even know him by sight. I never heard of him before.
The Chairman. You did not know that he was a member of the Committee
■on Merchant Marine an<l Fisheries?
Mr. Newell. No, sir.
The Ch.mrman. I think we have had it brouuht out that you have had no
business with this firm. CouUi you say that emphatically, without referring to
your records?
Mr. Newct.l. I would be inclined to. My reci>llection is that insulating mate-
rials, of the cliariicter that the Ehret Manufacturing Co. l)uiltl. we buy alto-
gether from the .Tnhns-Manville Co. 1 do not think we have punha.sed anything
from that coiniiany.
The Chairman. Might the Chair ask. Mr. Newell, upon your return to your
offices, will you check and advise the connnitttH^ definitely whether or not your
<;ompany has ever done any l)usiness with this firm of Edmonds & Heidler?
Mr. Newell. We have never done any business with them. I can tell you
that. If we ever purchased anything from the Ehret Co., which is the manu-
facturer in this case, we would have done it through their Boston house. I will
check up that matter and advise the committee by letter.
MUNITIONS INDUSTRY 279
The Chairman. Will you indicate in your response whether you have done
business with this firm, or with Mr. G. W. Edmonds, or with Mr. Heidler, whose
initials I do not have? Mr. Newell
Mr. Newell. May I ask a question?
The Chairman. Yes.
Mr. Newell. I would be curious to know, if, in the committee's list of let-
ters— of whicb this is one — that they took from our files, if there was a reply
from us to Consyressman Edmonds?
The Chairman. The Chair has been advisetl.
Mr. Newexl. I do not remember it.
The Chairman. My recollection is that the reply was merely an acknowledge-
ment, saying that the name of the firm would be listed for reference, in the
^vent the company did make further purchases along their line.
Is that reply before you this afternoon, Mr. LaRouche?
{q) Later (galley 79-80 WC)
Mr. LaRot'Che. I want to get in a letter. T enter for the record a letter dated
October 5, 1932, from W. S. Newell to you, Mr. Powell [reading] :
Mr. J. W. Powell,
United Dry Docks, Inc., 11 Broadway, New York City.
My Dear Powell : I beg to acknowledge i-eceipt of your letter of Sep-
tember 30 in regard to the award of three additional destroyei's to navy
yards, and have started a shriek on this end. I am working on this by
personal contact with the Republican politicians in this State and think I
have convinced them of the seriousness of the situation, and that they are
playing " bad ball " in pursuing their present policy of throwing the new
construction work into the navy yards.
Senator Bone. That is signed by Mr. Newell, of the Bath Iron Works. If
you read that letter carefully, it is a very significant letter. He is referring
to your letter of September 30 to him, in regard to award of some additional
destroyers to Government navy yards. He said :
I started a shriek on this end.
That is up in Maine, but the Maine gentleman comes down and not content
to work in Maine, and says " I am working with Republican politicians " in
Maine, I suppose. What is he working on with Republican politicians? I
know what that means, if you do not.
Mr. Powell. Yes, sir ; I know perfectly well what he means.
Senator Bone. Any person in politics for a number of years knows what it
means. He is working on this to keep them from allocating those ships to
the navy yards.
Mr. Powell. Out of that particular lot. Senator, the navy yards got all but
two boats. I do not think the work, whatever done, was effective.
Senator Bone. It is a question of degree and not kind. He says, " I have
convinced them " — the politicians he is working on — " of the seriousness of
the situation * * *." How could it be serious?
Mr. Powell. I think it is terribly serious.
Senator Bone. Let us let everybody in this country know if this is a serious
proposition.
(r) The activities of United Dry Docks were discussed on April 4
(galley 54 WC et seq.).
The Chairman. Mr. Powell, a note was written on the side of this letter to
which we have been referring, which says [reading] :
Ed Farley suggests I should go direct to President Hoover instead of to
Congress. I know Joslin pretty well. Does this sound as if there was any
hope in that direction?
Who is Ed Farley?
Mr. Powell. He was at that time a director of the United Dry Docks.
The Chairman. Is he still connected with the United Dry Docks?
Mr. PowEflj;.. No ; he is no longer connected with the United Dry Docks.
The Chairman. Congressional pressure, is it fair to say, or is it fair to
assume, means a general political pressure, bringing into play any political
acquaintance that might be won for your cause at that time?
280 MUNITIONS INDUSTRY
Mr. Powell. May I answer that, Senator? As long as I wrote the letter,
perhaps I can tell you just what I had in mind. I had in mind that it was a
perfectly reasonable situation, where Members of Congress, who were interested
in the Navy, or the upbuilding of the Navy, or Members of Congress who were
interested in work going into the New York district, where this boat would
be built, that it would be perfectly proper, and more than proper, for them to
approach the President with a view to getting him to change his order holding
up these boats and to proceed with the building. That is exactly what we had
in mind, and that is what we did, as far as we could, although we never got
anywhere with it.
Mr. Maxonej. If I may supplement it, that is precisely what my interpreta-
tion of it would be, although as Mr. Powell said, I would not use the word
" pressure ", but giving it the practical steps Mr. Powell suggested, were the
ones I would take, and generally did take.
The Chairman. The Chair will state that he does not conceive any lack of
impropriety on the part of a concern availing itself of the cooperation of its
representation in Congress, but I am wondering why you, operating in the
field that you do operate in, would go so directly to Congressman Britten, who
was not of your district, in connection with this matter?
Mr, Malone. I will explain that, if I may. Senator. I conferred constantly
with the representation, directly from our district, at that time, Anning S,
Prall, and with his knowledge I conferred with Members of the House who
were identified with the general Navy situation. Britten, at that time, as I
recall — I think it was a Republican Congress at the time, and I think he was
Chairman of the Naval Affairs Committee, but I am not certain. The point I
had in discussing the thing with him was to ascertain whether or not Con-
gress, or the House, at that time, or his committee, was going to be passive with
reference to the nonuse of the funds that had been appropriated for these re-
maining six destroyers, or whether they would make overtures or suggestions
that the program, as appropriated for, be proceeded with. That is my recol-
lection of my approach to Mr. Britten.
The Chairman. "Well, you had, through Mr. Britten, who had just retired
as Chairman of the Naval Affairs Committee, in favor of Mr. Vinson — through
Mr. Britten you got to Mr. "Vinson, did you not?
Mr. Malone. "What was the latter part of it. Senator?
The Chairman. Through Congressmnn Britten you got to Mr. Vinson and
laid your problem before him?
Mr. Malone. Yes, sir; very briefly.
The Chairman. Having received the cooperation of the Representatives in
Congress from New Jersey and New York?
Mr. Malonk. Not in great numbers, Mr. Chairman. We did not spread our
problems very broadly. I tried to hit the ball just where I thought it would
do some good, you know. I did not crusade or do any bell ringing, or anything
like that. As I recall — perhaps the record will refresh me further — but, as I
recall, my discussion of this was confined very largely to Mr. Britten. Mr.
Vinson, and maybe one or two other Members; Mr. Delaney, Mr. Poland, and
perhaps two or three other members of the Hou-^e Committee on Naval Affairs.
Mr. Powell. I may say. Senator, that one of our yards is in Mr. Delnney's
district.
The Chaikman. You were not unaware of the fact that a Presidential elec-
tion was in the offing at that time, were you?
Mr. Malone. I knew there was one the next year ; surely, sir.
(The letter referred to was marked "Exhibit No. 1S35 " and Is included in
the appendix on p. — . )
The Chairman. Here is a letter you wrote, Mr. Malone, to Mr. Powell,
under date of December 2S. lO."^!, which is offered as an exhibit for the record.
(The letter referred to was marked "Exhibit No. 1S3G " and is included in
the appendix on p. — .)
The Chahjman. That letter carries this language:
• Those views chc^'k with Mr. Farley's —
that is Mr. Ed. Farley?
Mr. Mai/>ne. I am sure it must be him.
The Chairman (continuing reading),
although I should add that any approach to Hoover invariably is found
most disappointing. It Is almost out of the question to expect anything
of him via any of his secretaries. He will only yield if there is an advan-
MUNITIONS INDUSTRY 281
tage to be gained in the way of political trading. It remains for de-
termination whether the approach would be best through a contact such as
Mr. Hilles, or tlirough a strong congressional showing. Britten inclined to
the latter belief and I do likewise, although quite possibly the approach
could be made jointly with congressional backing and with Mr. Hilles.
What I am aiming to convey is that any direct approach to Hoover, even
through most personal channels, is almost sure to be unproductive.
I will work with the Jersey delegation immediately upon learning of
the contract yon would recommend ; that is, whether the Hoboken Member
of the House is a strong friend of United's, and could help us in taking it
up with the Senators.
What was your experience that led you to report that it was exceedingly
difficult to deal on these matters with President Hoover or through his
secretaries'?
Mr. Malonb. Just my opinion, Mr. Chairman.
Mr. LaRouche. Just at this point were you cooperating with any other yards
in trying to secure those destroyers at that time?
Mr. Malonb. No, Mr. LaRouche ; I do not believe we had contacted any of
them whatever.
Mr. LaRouche. You were doing it all alone?
Mr. Malonb. Entirely.
Mr. Powell. Mr. LaRouche, I did write to the other yards, as the record
shows, but Mr. Malone had no part in that.
Mr. LaRouche. Mr. Malone was working alone, as far as United was
concerned?
Mr. PowEix. Entirely.
Mr. Malone. Precisely.
The Chairman. Now, you had lost out on your bid for the early program. I
wonder if we can get at all a fair picture of what your real purpose was in
your effort through General McCarl and through these congressional dele-
gations ?
Mr. Powell. Yes ; my real purpose. Senator, was to get the contract for
one destroyer, that I felt I was entitled to, at the price that I had bid.
The Chairman. In pressing as hard as you did, did you not have reason to
believe that you might make the Navy rather uncomfortable and a little less
receptive of favorable consideration for you in the allotting of these additional
•destroyers?
Mr. PowE3x. Not the slightest. I thought the Navy would be delighted if I
was able to pry one of these boats loose and get it built, because they certainly
wanted them built.
Mr. LaRouche. Mr. Powell, did you not think you had a legal case in 1931,
after that destroyer was diverted to Bethlehem?
Mr. PowEiLL. I took it up with a firm of lawyers in Washington, and they told
me I did not. They told me there was no way that I could proceed legally, and
if they had told me that there was a way I could proceed legally, I would have
been on the firing line.
Mr. LaRouche. Even though you might have antagonized the Navy?
Mr. Powell. I was fighting the Navy as hard as could on the award.
Mr. LaRouche. That is the reason you did not?
Mr. Powell. That is the reason I did not, and I think I had good legal
advice, too, Mr. LaRouche.
Mr. Malone. If you will permit me, we have a memorandum — and I do not
know whether it was available in New York, and whether it was given to any
-of the investigators — but I have a copy of our legal memorandum analyzing
our position in the matter. I showed it to the examiners when they were over
to see me.
The Chairman. The appropriation had been made, had it not, for these
additional destroyers?
Mr. PowEiLL. Yes.
The Chairman. And it was up to the administration to determine where
the building of them was to be undertaken?
Mr. Powell. Yes.
The Chairman. And United Dry Docks, Inc.^ was anxious to get one or more
of these destroyers?
Mr. Powell. Yes.
282 MUNITIONS INDUSTRY
The Chairman. On January 4, 1932, Mr. Malone wrote to Hon. Anning S.
Prall, United States House of Representatives, Wasliington, D. C. [reading] :
My Dear Mr. Prall : I enclose for your information a copy of tlie decision
of ttie Comptroller General, dated December 10, 1931, in tbe matter of the
protest by United Dry Docks, Inc., against its noureceipt of a contract for
the building of a destroyer. I am sure you will concur that this decision
sustains in full measure the equity of United's position, that the award to
Bethlehem in preference to United is of highly doubtful legality, and that
such award is only condoned because of the apparent matter of large public
policy involved. It should be distinctly understood that the nonacceptance
of the bid of United is in no wise due to any lack of ability or responsibility
by United, its Staten Island shipbuilding plant being one of the oldest
shipyards in the United States, whose facilities have been devoted very
largely to naval work in the past. In addition, it is virtually necessary,
before entering a bid on such work, to qualify before the Navy Department
in advance of receiving the invitation to bid and the specifications for
bidding. All of these matters were inquired into by the Navy before United
was included as an intending bidder.
The one outstanding important point is that at no stage of the invitation
was any remote hint given by the Navy that its award would or might be
based upon its own opinion as to the merits of alternate designs. On the
contrary, there was not the remotest indication that award would be based
on other than the terms fixed in the invitation for bids.
The entire letter I offer as an exhibit, but I do not read it in its entirety.
(The letter referred to was marked "Exhibit No. 1837" and is included in
the appendix on p. — . )
The Chairman. I move on to a concluding paragraph [reading] :
While we are sympathetic with efforts toward economy in the future
expenditures of the Government, we think it may be noted that the cost
of these destroyers has already been provided for from past appropriations
and that the liuilding of them is a matter of settled necessity.
Mr. Malone, what makes you conclude the apprdiu-iation for construction
makes that construction an absolute necessity?
Mr. JIai.onb. Mr. Chairman, I did not intend to imply by this letter — iind
I do not believe that I did — tliat there was a mandate, but I did imply, and
felt, that it was a pretty distinct direction of Congi'ess, in the sense that there
had been an organic act establishing the composition of the Navy, that tlie
building of the Navy in acconlance with such composition had been deferred
in compli'tene.ss for some time, and then finally, after a very thorough debate
and consideration, jippnipriation was made for the vessels remaining to he
built in ordrr to fill out such composition. That. I would say, was behind my
belief that the building of the ships was a settled net'essity. Congress had
considered the inadeciuacy and the obsolescence of the destroyer portion of
tlie I'nited Stiites Flei't. and, as I remember it, that is what the ctunmittees
and the debates in C«ingr«'ss, preceding tiiis appropriation for the final 12
destroyer.s, brought out, in the majority sentiment, at least, that it was a settled
matter on thr part of Congress tliat these destroyers should 1h' built.
The Chairman. You concluded this letter U> Congressman I'rall as follows
[reading] :
We sincerely trust that y()u will be enabled to establi.sh the deserving
nature of our case, and that we shall receive a contract for 1 of the 6
destroj'ers now in the state of postixmement.
Was Congressman I'rall very helpful to you in this matter?
Mr. Malonr He was extremely cooperative, Mr. Chairman.
Mr. I'owKix. I may say. Senator, tliat our Staten Island plant is in the di^itrict
that Congressman Prall then represented. That is, the plant where that
destroyer would have been built if we had been awarded the contract, and
that plant represents one of the three or four biggest industries in that district.
The CHAutMAN. Writing on April 30, 19.32. to Mr. Powell, Mr. Malone, you had
this to say [reading] :
I am niaking an effort with Mr. Prall to use the reporting of the Navy
appropriations bill as a special occasion for insisting <in a showdown on the
release of one of the desti'oyers with a view to its allotment to Unitwl.
MUNITIONS INDTJSTEY 283
How could yon use the advent of the Navy appropriation bill, in the light of
the fact that appropriations already had been made for the destroyers?
Mr MAiONE. That was about 4 years ago, Mr. Chairman ; and I am frank to
sav that I cannot recall precisely the steps I intended taking, but I think the
language there is about as plain as I could make it. I had hoped to brmg the
desire of the authorities— the executive authorities— in order that funds having
been appropriateil, considering the expediency, that they would be expended, and
that that would lead to relief on some of the 6 remaining destroyers, and that
we would receive a contract for 1 of them.
Mr. LaRouche. May I ask what possible assurance could you have that one
of those might go to United?
Mr. Malonb. I did not have any assurance.
Mr. LaRouchb. The language of the letter is, with a view to its allotment
to United. How could you possibly assume that? _
Mr. Malonb. I should say it was optimism. Our bid had not expired, and
we had looked into that. . ^ j., ^„
Mr Powell. I do not agree with that. Our bid had not expired, and there
was no reason why Congress should not recognize the fact that we were the low
bidder, and were entitled to one of those boats.
Mr. LaRouche. What boats? , . r --.^ mv,
Mr. Powell. The bid which was held up and afterward the ship built, ihe
bid we are talking about all through this testimony.
The Chairman. What further authorization was required from Congress
to enable the President to go ahead with the building program?
Mr. Malonb. None. u -i^- ^^
The Chaikman. Were you trying to force the President into the building ot
those destroyers which had been authorized and appropriated for?
Mr Powell. Yes, sir ; that was exactly what we were trying to do.
The Chairman. You understood that there were some questions as to whether
the President was going to do the building which had been authorized and
appropriated for?
Mr. Powell. Yes, sir.
The Chaihman. Were you considering writing into the appropriation bill
then pending for the Navy language that would force the building of those
destroyers "^
Mr. Powell. That I cannot say at this time. Senator. I do not remember.
Mr. Malonb. I think that was my pigeon, Mr. Chairman; I mean my pro-
posal, to consider the matter at that time, and I am very positive that I
had no idea of proposing language or legislation in the appropriation bill,
but merely a case where those who were interested in the Navy program
might bring it forcibly to the attention of the President.
The Chairman. I think your letter of that date to Mr. Powell more directly
traces what the real purpose at the moment was.
Mr. Malonb. Perhaps so.
The Chairman. You were enclosing a copy of the pending naval appro-
priation bill for Mr. Powell's information.
Mr. Malonb. Yes, sir.
The Chairman. You said :
It does not appear that this bill makes any further provision in refer-
ence to the completion of the 6 destroyers postponed from the group of
11 for which appropriations were made last year, although reference is
made on page 27 of the report that the work on these 6 was suspended
for reasons of economy. It is my understanding that the proposed omni-
bus naval construction bill will include specific authority or direction for
proceeding with these six destroyers and that the money appropriated for
them last year remains in an undisturbed status.
Was it at this time that the Vinson naval building bill, authorizing approxi-
mately an additional one billion dollars for naval construction was pending?
Mr. Malone. I could not say, Mr. Chairman, I am sure. I do not recall the
date of the introduction of the Vinson bill or the date of its enactment right
now. Adverting to the proposition there again, it may have been in my
mind, Senator Nye, to ascertain whether the appropriation which had been
made for those six unbuilt destroyers would continue as a continuing appro-
priation, and, if not, to attempt to see that it was continued. That may
have been in my mind. I do not recall what even materialized as a result of it.
I do not believe any action was taken.
284 MUNITIONS INDUSTRY
The Chairman. This letter was written April 30, 1932. I offer it for the
record.
(The letter referred to was marked "Exhibit No. 1838" and is included in
the appendix on p. — .)
The Chaibman. On May 10, 1932, we find you writing to Congressman Prall
a. letter, which will be offered as an exhibit and given proper identification.
(The letter referred to was marked "Exhibit No. 1839" and is included in
ithe appendix on p. — .)
The Chaieman. From which letter I read a single paragraph [reading] :
Since action has now been taken by the Senate on a general naval pro-
gram, with which program the building of the destroyers already appro-
priated for is in entire harmony, and since that program seems likely of
adoption by the House very shortly, do you not think that it is a most
advantageous time to press within the House Naval Committee for some
definite action looking toward the allotment of one of said destroyers to
United Dry Docks?
It might help if we point out that any Federal measure such as the
recent House $132,000,000 road-building plan would have slight application
or benefit to Staten Island and nearby regions, whereas the building of a
destroyer at our Staten Island plant is precisely suited to the labor and
industrial facilities in that area.
You were i)ressing at this time for relief in the way of legislation, along the
line of that relief that was being afforded by highway construction?
Mr. Maxone. In that instance, Mr. Chairman, as I recall. Congress at that
time was ju!>t about venturing upon measures of public expenditures. Federal
expenditures, which were directly aimed at alleviating distress and either at
the juncture you refer to here or later we distinctly decided to point out the
advantages in reemployment that would come about through the building of
the vessels at that time rather than to defer them.
The CHAiB>rAN. Was there consideration being given to a so-called " works
Tprogram " during those days?
Mr. Malone. As I recall it, sir, I think the first emergency relief — the con-
struction bill, I think that was the title, or the first Wagner bill — was under
-consideration at that time. Perhaps it had been passed. I do not know.
The Chairman. Were you seeking to accomplish inclusion within the lan-
guage of that bill languiige that would afford some measure of relief for unem-
ployment in the shipbuilding industry?
Mr. Mai-One. I did very vigorously. I appealed to Senator Wagner and other
Members of the Senate and IIou.se with a view to having that done, but the
.sentiment was not such as to allow us success.
The Chmrman. You wrote, on June 3, 1932, to Mr. Powell [reading] :
Prall talked with Bob Wagner last night, and did his best to sell him the
idea of incorporating the allotment for destroyers in the pending Senate
relief bill.
Wagner would not commit himself — probably he could not, until the other
committee members conferred with him — but assured Prall he would do
everything within his power. Prall thinks, at this moment, it would be
wasted motion to force the issue in the Garner bill in the H<uise, since the
Wagner bill is sure to be the one finally adopted. Nonetheless, the idea
is before the House committee, and might i)ossibly emerge as part of
Garner's bill.
All through this effort on your part. Congressman Prall was very helpful to
.you?
Mr. Malone. He cooperated whenever we requested him. Mr. Chairman.
The Chairman. I shall read on in that letter [reading] :
I could not see Wagner today, because he was in cninmittee. but left with
his assistant (at Prall's suggestion > an amended draft of revised .section 7
of his bill, so as to niake the destroyer feature innnediately follow the
Yards and Docks language. Further, with Land's approval —
is this Admiral Land?
Mr. Malone. Yes, Mr. Chairman.
The Chairman (continuing reading) :
Further, with Land's approval, I suggested that the present allotment for
Yards and Docks work— $10.000.000— be reallotted on a basis of $4.000.(XX)
MUNITIONS INDUSTRY 285
for Yards and Docks and $6,000,000 for destroyers, if the committee cannot
see its way clear to put in a separate and additional figure for the
destroyers.
(The letter referred to was marked "Exhibit No, 1840" and is included in
thp appendix.)
The Chairman. What was your contact with Admiral Land at that time?
Mr. Malone. Mr. Chairman, he was Captain Land at the time, and he was an
administrative assistant to the Secretary of the Navy, and there was active
discussion in the press and in the Congress of the possibility of including certain
naval work in connection with the relief program, and I approached the Secre-
tary of the Navy, with a vievp to determining if it were likely, in his judgment,
that naval construction, ship construction, which be so included, and I was
referred to Admiral Land, or Captain Land. I had never met him in my life,
and I came to him as a business man, and I asked him if he had any knowledge
of what was projected. He said, " We have nothing ofiicial, except we know
there is under consideration the bill which has been published, which includes
the proposed allocation of funds for shore establishments."
He explained that he knew from the published text of the bill that it was
contemplated that there would be funds made available for shore establishments.
I said, " That would I'estrict or inhibit you from using any of that for uncom-
pleted merchant construction?"
He said, " Of course, obviously, it would." ^^
I said, " Do you think, on our own initiative, there would be any objection
if we sought " — I think perhaps I asked him if he or the Department would
sanction or would try to see that they got some funds to enable them to proceed
with construction, and he said that they would not ; that they were confining
their action to the bills drafted. I said I did not want to take the Department's
problems on my own hands, but I was interested in this, and unless he objected
seriously, I was going to approach the Senate and see if I could not have a
break-down of the funds designated for naval use, so that they might be used
in part for ship construction as well as shore-establishment construction.
That was the extent of my discussion with him.
Senator Vandbnbero. Did he agree to that?
Mr. Malone. He said, as far as he was concerned, he did not care. He declined
to take any official action on it, though, which is what I asked him to do.
Mr. LaRouche. He did not object to it officially?
Mr. Malonb. I have just stated that, Mr. LaRouche.
The Chairman. He was not going to take the matter up?
Mr. Malone. I told him, Mr. Chairman, that I would not do it, if it was
something which would meet with the disapproval of the Navy, or they could
call upon
The Chairman. He did not tell you not to do it?
Mr. Malone. He did not tell me not to do it.
Senator Vandenberg. You took it as having his approval?
Mr. Malone. I am telling you of the transaction as it transpired.
Mr. LaRouche. Is Admiral Land a friend of youi*s, Mr. Powell?
Mr. Powell. Yes ; I have known him from the time he was a midshipman.
Mr. LaRouche. Were you together at Annapolis?
Mr. Powell. No. He is a younger man than I am.
The Chairman. Are you a graduate of Annapolis?
Mr. Powell. Yes.
Mr. Malone. To make this thing quite distinct, because I know you do not
want anything lacking in completeness of it, Mr. Chairman, Mr. Powell had
never mentioned, so far as I know, Captain Land's name to me. although I
knew he was widely familiar with the Navy, and I knew he visited here, but
I was referred to him on an official call to the Secretary, and had introduced
myself and identified myself.
The Chairman. You considered that what you -were seeking was a matter
of merit, did you not?
Mr. Malone. Yes, sir ; of course, or we would not have tried.
The Chairman. I offer for the record a letter dated February 23, 1933, by
Mr. Malone to Mr. Powell.
(The letter referred to was marked " Exhibit No. 1841 " and is included in
the appendix.)
The Chairman. In this letter Mr. Malone indicates that you were al.«5o
interested in having amendments made to the R. F. C. legislation which would
permit loans directly to corporations.
189387—35 19
286 MUNITIONS INDUSTEY
Mr. Malonex Yes, sir.
The Chaieman. You indicate again that Congressman Prall is very helpful
to you in this connection, and in your concluding paragraph say [reading] :
Prall promises solemnly to try to have the House put the necessary lan-
guage in. I told him I wished to appear before the Banking and Currency
Committee, if necessary, as I felt assured I could do this purely on merit,
if not on politics.
Mr. Malone. May I ask the date of that, again, Mr. Chairman?
The Chairman. February 23, 1933. What is the meaning of that?
Mr. Malone. I do not know that I could clarify it very much, sir.
The Chairman. The letter goes on [reading] :
He thinks he can manage it with Steagall, the committee chairman, so
I am leaving it to him until further notice. At his request, I have given
him the enclosed summary of the situation, and invite your attention to
the Chesapeake ferry situation.
Mr. Malone. Mr. Chairman, at a later date, I believe we were in fact in-
terested in the question of direct loans to industry by the R. F. C, and that
is the reason why your query confused me for a moment. This letter did not
have reference to that situation, which I presume may come up. This had
reference to the fact that the first R. F. C. bill, or the second. I guess it was,
by this time, contemplated loans to so-called " self-liquidating " enterprises
engaged in public-service ventures ; that is, those which were semimonopolistic
in character — toll bridges, toll roads, and the like.
And at the time some of the ferry companies in New York, operating, I
believe, to Staten Island, were considering the replacement of their lot of
ferry ships.
The Staten Island Yard, I might say, has always been a prominent builder
of ferry ships, and it occurred to some of the parties in the ferry business
that so long as the Government was making available, through the R. F. C,
loans to public-service enterprises of a self-liquidating nature, a ferry would
be considered the same as a bridge. And I believe you may find a letter,
over my signature, stating those words substanti:illy.
And it was with a view to qualify ferries as amongst those enterprises
eligible, that this letter was written. That is what it had refei'ence to.
The Chairman. What provision existed in this destroyer program, at the
time, which gave authority to con.stnict these destroyers on any other basis
than offering them for bids?
Mr. Malonp:. None whatsoever, so far as I know.
The Chairman. A letter of February 26, 1932
Mr. Powell. Senator, may I add there, that we had submitted a bid, and
our hid was still open, and still held?
Mr. LaRouche. Just at this point, did you ever have a ruling from the
Secretary of the Navy that was not the case?
Mr. Powell. No.
Mr. LaRouche. You are quite sure of that?
Mr. Powell. I jun quite oertaiiu That our bid was closed?
Mr. LaRouche. That no destroyers could be awarded again without further
letting.
Mr. Powfxl. If we did, I do not recall it. There is a lot of water over the
dam since then.
Senator Vandenberg. More than water, too.
The Chairman. I'ntler date of February 26, 1932, Mr. Powell wrote Con-
gressman Prall [reading] :
My Dear Mb. Prall: Yesterday a rumor reached us that the President
had released the six destroytM-s and th:U the Navy Department had called
for bids to be opened April 16. I checked up witli sonu* of my friends in
tiie Navy Department and could not find that there was any ground for
this story. However, it brouglit vei-j- l\)rcibly to my mind tlie fact that
time is the essence of success in the very clever strategy that you had
worked up with Messrs. Delaney and Roland —
Who were Delaney and Boland?
Mr. Powell. Mr. Deliiney is a Congressman from Brooklyn, the district in
which one of our yards is located, and I have forgotten where Boland is from.
MUNITIONS INDTJSTKY 287
The Chaibman (continuing reading) :
and I am wondering if you can properly put a little pressure on them to
get to Mr. Vincent [Vinson]. It would be too bad to be defeated by having
the President make up his mind that he had to have these destroyers and
put them out to bids, which would severely handicap us, as you appreciate,
in competition with Bethlehem and Bath.
I hope you are very well, and with best wishes, I am
Yours very truly,
J. W. POWEIX.
(The letter referred to was marked " Exhibit No. 1842 ", and is included in
the appendix.)
The Chairman. What was your hope at this time of avoiding competition,
Mr. Powell?
Mr. Powell. Senator, we had been through competition and were entitled to
our bid, and I was trying, from the start to the finish, to pry one of those boats
loose, which I had one, according to my opinion, in open bid, and have them
awarded to me and not put out to bid and have to compete with Bethlehem
and Bath, who had the plans and patents and would be able to bid $300,000 less
than I could and still have the same margin in their bid.
Mr. LaRouche. I would like to have inserted in the record and have a num-
ber allotted to it, an opinion from the Navy, with authorities, that it was
impossible to award any of those destroyers without a readvertisement of bids.
I suggest that a number be given, and that letter will be inserted.
(This document referred to, when furnished by the committee, will be marked
"Exhibit No. 1843", and will be included in the appendix.)
Mr. Malone. Was that letter to us, Mr. LaRouche, if I may ask?
Mr. LaRouche. I would prefer not to trust my memory.
Mr. Malone. I recall no such letter, and I do not believe that we ever
had one.
Mr. LaRouche. Such a ruling was made, which I suggest be inserted at
this point.
Mr. Powell. Of course, Mr. LaRouche, I can only say I do not remember
seeing any such letter. I have read all through the matter that the committee
took from my files, twice, and if that letter exists, it was not from my files.
The Chairman. You have no knowledge of any such ruling?
Mr. Powell. I have no knowledge of any such ruling; but. Senator Nye, I
do not hesitate to say that I would not have paid any attention to that ruling
if he had made it and I had known about it.
The Chairman. You would still have felt that you were entitled to one of
those destroyers?
Mr. Powell. Yes, sir.
The Chairman. Without rebidding?
Mr. PowETX. Yes, sir.
The Chairman. Up to this time, Mr. Malone, had you met Mr. Farley?
Mr. Malone. Mr. Edward P. Farley?
The Chairman. Yes, sir.
Mr. Malone. Many, many times. He was my superior oflScer in the Govern-
ment many years ago. I knew him very well.
is) The Chairman. We find in your files a note by Mr. Powell to Mr. Farley,
under date of October 5, 1932, asking him to get in touch with you when he
gets to Washington tomorrow and giving your address. He says in a postscript
to that note :
I want him to know about what we are doing, and he can help with some
of the M. C.'s (Members of Congress). He better not appear with a delega-
tion, as we want U. D.' (United Dry Docks, Inc.) Co. not to be too prominent.
Mr. Powell, what is the meaning there, not wanting Mr. Malone to be too
prominent or to give the United Dry Docks too much prominence?
Mr. Powell. That referred to a local movement on Staten Island that, so
far as I recall, we did not instigate ; a movement of some of the public bodies
on Staten Island to try to pry loose a contract for one of these destroyers
to be built at Staten Island. I think there are a number of letters in here,
as I recall it, upon the subject.
The Chairman. You were bringing all the local influence you could to bear
at that time to accomplish the awarding of this destroyer?
288 MUNITIONS INDUSTRY
Mr. Powell. Yes. Senator, you can put it in here plenty that I did every-
tliing I thouglit I could possibly do, and knew how to do, to get one of those
boats, after I thought I had won it fairly in private competition.
The Chairman. Why did j'ou not want Mr. Malone in the front on this?
Mr. Powell. Because I thought it would be better business to have this
appear as a local movement, which it was.
The Chairman. Largely voluntary?
Mr. Powell. That movement was largely voluntary.
The Chairman. You wrote Mr. Jeremiah Milbank, Republican headquarters,
Waldorf-Astoria, New York City, on October 21, 1932, as follows [reading] :
My Dear Mr. Milbank : Mr. Hayden has told me in a general way the
situation with reference to the three destroyers that have not been
awarded, and that we would like to have go to private shpbuilders.
At a recent hearing in Washington before the Secretary of the Navy,
I believe that each of the reasons raised why this could be done were
answered to his satisfaction. Money is available, or in any event, the
shipyards would finance the construction until the next naval appropria-
tion bill passes. The Comptroller of the Treasury has definitely found
that our company, located on Staten Island, were lower bidders than
Bethlehem, to whom one of the former contracts was given, and two of
these boats in that district would be a real help to the Republican cause.
Very truly,
J. W. Powell.
The Chairman. Did you know Mr. Milbank, Mr. Powell?
Mr. Powell. No; I never met him until that time.
The Chairman. Is it fair to assume that you were striving to show the
Republican headquarters at that time that the construction of one of these
destroyers at your Staten Island plant might revert to the entire advantage
of the Republican cause in the approaching campaign?
Mr. Powell. I think that is an entirely unfair inference, Senator.
The Chairman. What authority, Mr. Powell, is there that would, in the
absence of a sufliciency of appropriations, permit you to go on building? Let
us assume now that you had a destroyer in your docks and building, and the
Navy found itself without sufiicient funds to complete it.
Mr. I'owKix. Yes, sir.
The Chairman. Do you feel that you could be authorized to go on and com-
plete it and depend upon a deficiency appropriation or the regular appropria-
tion for the new year to take care of it?
Mr. PowEax. Senator, if I had the capital available to do it, I would not
hestitate to do it. Congress every year appropriates the amount that is sup-
Ijosed to carry the nav;il building program for that year. If ships progressed
very much faster than expected, ami used up all the funds, it would be
possible to carry them to the end of the year, where the appropriati<ni has
run out, but the chances of Congress not continuing a program, once starteil,
is so small — although it did haiijion once back in the seventies — the chances are
so small of that happening that I would consider it perfectly good business
judgment to proceed with the work and expect the pay when the money was
appropriated.
Mr. LaRouohe. You are really an oldtimer in the naval building game?
Mr. I'owEJx. I am a very oldtimer, Mr. LaRouche.
Mr. LaRouciie. I think you can throw a good deal of light on this. Is it
your exporiciico that your political contacts and your ability to bring pressure
where it is most effective is a conspicuous clement in the awarding of naval
contracts?
Mr. PowEix. No.
Mr. LaHoitchb, You do not think so?
Mr. I'owFHX. It is almost not at all. Very seldom in my .35 years in this
business have I seen anything which even looked like it.
Mr. LaRouche. You do not think Bethlehem were smarter politically than
you, and. therefore, got the 1931 destroyer?
Mr. PowKLi^. I do not think politics had luie thing to do with that award.
Mr. LaRouche. You used Congressman Prall as a sort of spearhead in your
attack?
Mr. Poweli.. Congressman Prall represents the district where this work
would be done, and I consider it a part of the <luty of a C-ongres-sman, in a
district where there is such a yard, to do all he can properly to help tJiat
v!ir«l.
MUNITIONS INDUSTKY 289
The Chairman. Do you find this political influence very essential to your
success in the shipbuildiuir industry?
Mr. PowEix. So far I have not found it did me any good at all, Senator.
The Chaihmax. Have you rewarded men in polities for lending a hand?
Mr. Powell. No, sir.
The Chairman. Have you been solicited by Members of Congress for assist-
ance to them?
Mr. Powell. To them?
The Chairman. Yes; or for business?
Mr. Powell. Personally I have occasionally been solicited by a Congressman
who was up for election, and have given him personally perhaps $25, or maybe
$100, but that is about the Itmit of my political contributions.
The Chairman. Have Members of Congress been known to solicit you for
distribution of business to institutions in which they were interested?
Mr. Powell. The only instance I recollect is the one that came up in con-
nection with the Bath testimony, where ex-Congressman Edmonds, whom I had
known for many years, incidentally, from the days when I was at Cramps in
Philadelphia, wrote a letter in favor of a company in which he was interested,
very good people, and people with whom normally I would expect to do some
business. As a matter of fact, I do not know whether we are doing business
with them or not.
^ ***** *
The Chairman. Mr. Bates sends this memorandum to Mr. Nelson under date
of April 27, 1934 [reading] :
Back in November we received a letter from* Mr. Chas. D. Millard, who is
a Member of the House of Representatives and on the Cou-xnittee of the
Naval Affairs, asking if we would give him sheet n)etal work to a Mr. Wil-
liam W. Wicks, of 258 Washington Street, North Tarrytown, N. Y.
Mr. Powell replied that we had nothing at that time for him to do but as
soon as we had we would get in touch with him.
Will you kindly bear this in mind and as soon as possible give Mr. Wicks
an opportunity to work in the plant, as, of course, a member of the House
Naval Committee may be very useful to us in future dealings with the Navy.
When a request comes to you from Members of Congress, asking employment
for someone, before you give large consideration to it, you ascertain what that
Member of Congress connections upon committees are?
Mr. Powell. I think that would be fairly normal to do. We cannot take
care of every request that we get, and certainly, where we can get a good man
who can do the work, if we are to do something for someone who may do
something for us, I see no impropriety in doing it, and I would do it.
The Chairman. Now, Mr. Millard was a member of the Naval Affairs Com-
mittee?
Mr. Powell. Yes.
The Chairman. And would have larger expectation of favor from you than
Senator Bone or Senator Vandenberg or myself would have, not being on the
Naval Affairs Committee. I beg your pardon, maybe the Senator from W^ash-
ington is on that committee.
Senator Bone. I am very curious to know how a member of the Naval
Affairs Committee could be helpful to a private shipbuilding company.
Mr. Powell. If I knew you three Senators were on the Nye committee, they
would get awfully good attention from me. [Laughter.]
Senator Bone. I am interested in that angle of this inquiry, Mr. Senator
Nye. I want to know how a member of the Naval Affairs Committee in either
House can be helpful to a private shipbuilding company.
Mr. Powell. There are many times when we might want to express our views
about the naval bill, and we could express our views, where we know the man
and he knows us, and it gives us an approach, which is a much better approach
than to walk in cold to one whom you do not know and who does not know you.
I have found in my life friendship is a very valuable thing, and I like to have
just as many friends, in just as many places as I can get.
(t) The Chairman. I have before me a letter written on the stationery of
the House of Representatives, dated October 21, 1934, and signed "Anning."
Is that Anning S. Prall?
Mr. Powell. Yes.
The Chairman. Of the Eleventh District of New York?
Mr. PowEiLL. Yes, sir.
290 MUNITIONS INDUSTRY
The Chairman (reading) :
My Dear Joe : I have been, requested to solicit your aid in the form
of a campaign contribution.
If this is agreeable to you, please send me check payable to Edward J.
Maloy or Jim Nelson. Can leave it at my home if it is in cash.
My condition is slowly improving but so very slowly it is hardly per-
ceptible.
With liindest regards, I am,
Sincerely,
(signed) Anning.
Was that an unusual request, Mr. Powell?
Mr. Powell. Yes ; that was an unusual request. I have had very few of
them, and I told Mr. Prall I was very sorry, I was just too poor to give them
anything;, and I thought that the Democratic Party was safe enough that
he did not need it.
The Chairman. So that Mr. Prall, who had been largely helpful as a Member
of Congress from your district, got no campaign contribution from you?
Mr. PowEix. No, sir.
The Chairman. Have you made contribution in any form to Mr. Prall, cam-
paign or otherwise?
Mr. PowEUL. No. sir.
The Chairman. I have before me a note from Mr. Powell to Mr. R. R. Piper.
Who is Mr. Pii>er?
Mr. PowEa^L. Mr. Piper is the treasurer of the company.
The Chairman. Dated August 11, 1933. [Reading:]
Will you please send Anning Prall a check for $151.50 on the 28th of
each month? Speak to me about charge for this item.
J. W. Powell.
What is the meaning of that, Mr. Powell?
Mr. PowEix. Just about 2 years ago, a little bit later than this. I found that
I was going to be in Washington a great deal. and. if you will remember, at that
time getting a room In Washington was just about as hard as it is today, and I
made up my mind that I had to have a permanent apartment here, which I
could call home when I was in this town. I had gotten to know Mr. Prall very
well, and gotten very fond of him. He maintained an apartment of a sitting
room and bedroom at the Shoreham, and I told him that I Wduld like to share
that with liini, taking the adjoining bedroom and sharing half the regular
charge of the hotel for the apartment, and he was willing to take me in on that
basis, and since that time I have paid him $150 or .$151 .iiO rent on that apart-
ment, and have maintained the arrangement there and have used it wben I
was in Washington.
The Chairman. What is the total charge for that apartment?
Mr. PowRLL. The hotel tells me that the charge for that apartment is $300.
I have a letter from the hotel which we have received.
The Chairman. You are paying a little bit better than one-half?
Mr. Malonr. This is the telephone charge.
Mr. PowET.L. This is the telephone charge. I have wondered about that my-
self. 1 (lid not know what that $1.50 was.
The Chairman. AVhy have not you paid this direct to the hotel?
Mr. PowKi.i.. There was no particular reason. We starte<l doing It the other
way and have done it that way ever sinc»>.
The Chairman. In this memorandum, which has just been read, .-ind which is
offered as an exhihit, y»m .say :
Will you please send Anning Piall a check fur .'J151.50 on the 28th of each
month. Speak to me about charge for this item.
AVhy did you not relate on the memorandum just what the (barge was for?
Mv. PowFJj,. I cannot tell yon that to save my soul. I did not know just
where it would go in our accounts, and. to t>e sure that it was charged in the
proper place, I wnnttnl Mr. Piper to speak to me, to be sure it was charged prop-
erly, and I do not know today where they put it.
Mr. LaRouciik. You d(> not know where it is chargetl?
Mr. I'owEM.. It goes into one of the overhead items, but which group of over-
head items I do not know.
Mr. LaRouchb]. You are still paying It?
MUNITIONS INDUSTEY 291
Mr. Powell. T am still occupying the room. I am right there now. I have got
the keys in my pocliet [producing keys]. .
Senator Nve, may I read into the record here at this time the letter from
the Shorehain Hotel, signed by L. Gardner Moore, manager, to Mr. Powell?
[reading] :
In pursuance of our conversation of this moniing, I have looked up/^ur
records and find that you have occupied a suite consisting of parlor, two bed-
rooms, and two baths, jointly with the Honorable Anning S. Prall, since
July 1933. and, in response to your further inquiry, wish to advise that
the regular rate for this suite is $300 a month.
Mr. LaRouchb. I think the record should show this : Did Mr. Powell speak
to the manager after our investigators found this? ^ ^.i, „ t
Mr Powell. I spoke to him at the time I got the apartment, and then I
<'ot tiie letter from him, when the question was raised by your inv^tigators.
There is no reason for my getting more than the cost of the apartment at
The^^CHAiRMAN. Mr. Powell, this arrangement relative to the apartment
was made about August 11, 1933? , , ^ ^ ^ 4= _ j-i,^
Mr Powell. No, sir; it was before that. I had that apartment from the
time 'we were considering the code here, before we bid on the destroyers m
1933 because we made out our bids for the destroyers in that apartment. _
(The letter referred to was marked "Exhibit No. 1845" and is included in
the appendix.) _. . , ^ , * _ j. -i-,
The Chairman. This memorandum to Mr. Piper is dated August 11.
Mr. PowELi.. Then I had been occupying that suite for some time before
Tlie Chairman. Your letter from the Shoreham Hotel management is dated
February 5, 1935?
Mr. Powell. Yes, sir. „ ., n
The Chairman. What was the occasion for this letter from the manager?
Mr Powell. Because of the fact that your investigators asked me to get a
statement from the Shoreham Hotel as to the regular charge for that room,
to verifv the statement that I had made to the investigators that I was paying
one-half of the regular rate for that suite. .x, , ^ ^ .,, ,,„^«
Mr. LaRouchb. Just to follow out the chronology, the date of the memo-
randum read about the charge
Mr. Powell. About what? .^ ,„^ i. *.
Mr. LaRouohb. About the charge of $151.50 is August 11. The contracts
for your 1933 destroyers bear the date, I believe, of August 3.
Mr. Powell. No; our contracts are dated August 30.
Mr. LaRouohb. Your 1933 destroyers?
Mr. PowELiL. Our 1933 contracts are dated August 30.
Mr. LaRouohb. All of the others are dated August 3.
Mr. Powell. Yes ; but mine are dated August 30.
Mr LaRouohb. Did you know on August 3 that you were going to get yours.'
Mr Powell. I did not know whether I was going to get my boat.
Mr LaRouchb. So that the award had been made before?
Mr Powell. Yes, sir ; and I was occupying that suite. It is absolutely impos-
sible to let anv inference go on the record that in any way, shape, or form
that that contract had anything to do with my occupancy of that room. _
The Chairman. Does the Congressman have access to your apartment durmg
your absence? , , ^, ^ -^ • ^ -n
Mr Powell I have access to his. We do not ever lock them up, and it is tuil
of my things, and I walk in there at any time of night or day, and he does the
same. As to either room being any good to the other one, when he is in
there, it is not.
The Chairman. Mr. Prall lives there?
Mr. Powell. Mr. Prall lives there. His home is in Staten Island,
The Chairman. During his stay in Washington, that is his home?
Mr. Powell. Oh, yes; and during my stay in Washington it is my home,
and I incidentally have to stay here a good deal.
The Chairman. Is this in any wise an accommodation to Mr. Prall?
Mr Powell. I have no knowledge of its being any accommodation to him at
all I think he was very decent to take me in, because I would much rather
occupy it than pay a larger price for a sitting room and bedroom, which I would
otherwise maintain for my own use.
292 MUNITIONS IlSrDUSTEY
The Chairman. You have what?
Mr. PowEiLL. We have a sitting room and adjoining it on each side a bedi'oom.
The Chairman. So that you are paying for half the living room?
Mr. PowEix. I am paying for half the living room.
Senator Clark. In other words, you are paying for your bedroom and for half
the cost of carrying the living room?
Mr. Powell. Right.
The Chairman. So that to that extent it is an accommodation to Mr. Prall?
Mr. Powell. That may be. It is an equal accommodation to me, Senator.
The Chairman. If he wanted a bedroom and a living room, and did not have
this arrangement with you, it would cost him more than is the cost under this
arrangement which he has with you?
Mr. PowEix. Yes ; and if I wanted a sitting room and a bedroom by myself,
it would cost me more than it would with him, so that it is 50-50.
The Chairman. How much do you use that sitting room a month?
Mr. PowBXL. Tliat depends a great deal. There have been times when I
have been there for a long time at a time, and other times when I have not
been there. I would have to pay for a whole charge, just the same, to
get what I am getting now.
Mr. LaRouche. Mr. Malone, your company's representative, also lives at
the Shoreham?
Mr. PowEXL. He has for the last few months.
Mr. Malone. I do not live there Mr. LaRouche. I live in Clark County, Va.,
at Berry ville, and keep a room at the Shoreham.
The Chairman. You say you do not live there?
Mr. Malone. I live in Clark County, Va., at Berryville.
The Chairman. Is it this same room?
Mr. Malone. No, sir, different ; when I first went to the Shoreham last
summer, when I gave up a house which I had here for a time. I did occupy
Mr. Powell's room.
Mr. Powell. Mr. Prall's room.
Mr. Malone. And did so for 3 or 4 months.
Mr. Powell. He occupied Mr. Prall's room, and not mine.
Mr, Malone. Yes.
The Chairman. Have you considered this a favor and help to Mr. Prall?
Have there been other opportunities for you to favor him?
Mr. Powkll. I consider he has done me a favor. Senator, and not that I
have done him a favor.
The Chairman. Does Mr. Prall have a son?
Mr. Powell. Yes.
The Chairman. Have you aided his son in any way?
Mr. Powell. I hope that we hnve. I do not know definitely whether ho ever
got any of our insurance business or not. I told our agent to place certain
insurance with him, if he could do it, but I have never chocked it up to see
whether he did it or not.
The Chairman. lender date of September 20, 1933. you are writing [residing] :
My Dear Hitt.l —
that appears to he ^fr. H. T. E. Beardsley, of 70 Pine Street. New York City.
Who is H. T. E. Heardsley?
Mr. PowETX. H. T. R. Beardsley Is our broker, who handles all our insurance.
Whatever insurance we plaie through other agents is luuidled by Mr. Hoardsley.
The Cttatrmax. You say in your hotter to Mr. Beardsley [readingl :
Anning S. Prall. Congressman from Staten Island, has been extremely
helpful to me in all of our Washington business. His son, Bryan W. Prall,
is in the insuratice business on Staton Island. I have askeil him to call
on you and you will have to lielp him to a slire of our business .somewhere
or other. IJe as nice to him as you caii and talk to me about it after
you have talked to him.
Mr. PowBix. Yes ; he did.
The ('HAiR>fA.v. Does the letter of September 2:i. written by Mr. Beardsley to
you. make reference to that?
Mr. PowHXL. Yes.
The Chairman. This letter, which is offered as an exhibit, is addressed to
" Joe."
(The letter referred to was niarlvcd " Exhibit No. 184«>.")
MUNITION'S INDUSTRY 293
The Chairman. That letter reads :
Mr. J. W. PowEiL,
A^ejp Yorh, N. Y.
Deab Joe : I have your letter about Mr. Prall, and of course I will
be nice to him and try to send him away satisfied, as well as pleased.
The pleased part will be more easy, though, than the satisfied part.
"Why don't you go after these coast-guard boats? I understand you are
not after the three small boats that have been already advertised. I noted
in this morning's paper that there will be six boats costing something
around $1,000,000 each. If you could get those six boats, and some more
boats for the Navy, you might be able to satisfy all of your insurance
friends.
Bath, by the way, finally got their bond late yesterday afternoon, and
I hear tliis morning that several brokerage firms are going to sue somebody
for commissions. Maybe it is a good thing I did not get in it.
Sincerely,
Hot,.
What is the reference to commissions there, Mr. Powell?
I hear this morning that several brokerage firms are going to sue some-
body for commissions.
Is that on the bonds?
Mr. Powell. Senator, you will have to ask Mr. Beardsley. I suppose so.
The Chairman. Mr. Beardsley is not here?
Mr. Powell. No : he is not present.
The Chairman. You would assume It had something to do with bonds?
Mr. PowEix. I would suppose it is the commission the broker gets for placing
the bond. That is, the bond is always placed through the broker.
The Chairman. Three days later, on September 26, 1933, Mr. Beardsley
wrote you :
Mr. J. W. POWEI.L,
United Diij Docks, Inc., New York, N. Y.
Dear Joe: Mr. Prall came in yesterday, and we had a very pleasant visit.
I explained to him that you had told me that somewhere and somehow some
business would have to be turned over to him, because his father had been
so helpful.
I told him just about what insurance we were carrying, and he saw that
there was very little there that could be put through his office.
He has no marine agency, and the fire insurance on the Staten Island plant
is all in the F. I. A.
But we may be able to work something out, and perhaps give him a line
with some other assured. If Merritt-Chapman renew the fire insurance with
us that they now carry on the Rosemont plant, Prall probalily could cover a
good part of that with his companies.
Sincerely,
(Signed) Hul.
Then on September 29, 1933, three days later, you wrote Mr. Beardsley
[reading] :
IMy Del\r Hul : Answering your letter of the 26th, you have got to do
something for young Prall, so make the best of it.
Yours very truly.
By J. W. Powell.
Did Mr. Beardsley find the way to do something for him?
Mr. Powell. Senator, it sounds rather stupid, but I do not know.
The Chairman. Was this your last contact with that matter?
Mr. Powell. This is the last contact. I took for granted, on that letter, Mr.
Beardsley would do something for him, and I have never heard anything about
it since.
Mr. LaRouche. He did not have any option on it, did he, when you wrote
that way?
Mr. Powell. I would not think so, he being my broker and being dependent
upon me for my business.
Mr. LaRouche. In other words, he was on the spot?
294 MUNITIONS INDUSTEY
iu) Mr. Powell. He was on the spot.
Mr LaRouche. Getting back to 1932, Mr. Powell, we have a letter from you
to Mr. Milbank, dated September 30, 1932, which I will read :
My Dear Mr. Milbank : There is enclosed here herewith a copy of the
statement that Mr. Smith and I orally submitted to Mr. Sanders this
morning.
I hope that it will be possible to pry these boats loose for private industry
as it will be a very helpful piece of business from all angles.
Very truly yours,
J. W. PowEaLL, President.
That is the same Jeremiah Milbank, of course, about whom we were talking a
short time ago, is it not?
Mr. Powell. Yes, sir.
Mr. LaRouche. Do you remember that incident, September 30, 1932? I do
not happen to have a copy of this.
Mr. Powell. Yes, sir. What was your question, please?
Mr. LaRouche. Do you remember that? Was that in connection again with
the remainder of those same destroyers?
Mr. PowESLL. Yes ; that all had to do with the same destroyers, and that bid
went right straight on until those destroyers finally ran into the 1.850-ton
destroyers and came out as part of the big program.
Mr. LaRouche. In 1933?
Mr. Powell. Yes, sir.
Mr. LaRouche. You told us you did not overlook any bets in trying to get
this pried out.
Mr. PowEJLL. Not that I know of.
Mr. LaRouche. This is just more of the same. You mentione<l here in the
memorandum :
There is enclosed a copy of the statement that Mr. Smith and I orally
submitted to Mr. Sanders * * *.
What Mr. Sanders was that? Everett Sanders?
Mr. PowEJLL. That was Mr. Everett Sanders.
Mr. LaRouche. Is he the man who later you decided did not have any influ-
ence with President Hoover in that matter? You said, I believe, that the secre-
taries were not able to convince Mr. Hoover.
Mr. P0WE3.L. He was not a secretary to Mr. Hoover at that time, was he?
I think he was working with the national c<mimittee in New York. He was
chairman of the national committee in New York.
Mr. LaRouche. Had you made other overtures to him?
Mr. Powell. No; this one time was the only time that I operated in that
direction at all.
Mr. LaRouche. Mr. Smith, whom you speak of, is head of the national
council?
Mr. PowFXL. Yes.
Mr. LaRoichk. I read one extract from the memorandum, whicli you and
Mr. Smith presented to Mr. Sanders. He is really referred to in the corre-
spondence as "Ted." Is that the .same gentleman.'
Mr. Powell. I think that is wrong. I had Everett Sanders and Ted Clark
mixed up, and I think I got it "Ted" from Mr. Clark. I do not think Sanders
is ever spoken of as "Ted."
Mr. LaRouche. In the joint memorandum from ymv Mr. Smith, that Is
referred to. Chirk, Ted Clark, was formerly secretary to President Coolidge?
Mr. PowM,L. Yes, sir.
Mr. LaRoithe. What <lid he have to do witli this shipbnilding business?
Mr. PowKLU Nothing that I know of. It just happened I knew him. and
I simply carrie<l over the " Ted " from the fact that he had been a Presidential
secretary, ,ms Mr. Sanders had been. It has no significance whatever except n
mistake on my part.
Mr. LaRoichu I am reading from your joint memorandum, tlie memorandum
presented by you and Mr. Smith to Mr. Sanders. [Reading:]
The result of this latest action has been to help employment in the
three navy yards and to plea.se the workmen in these yards, but it has
seriously antagonized the workmen in tlie tive private yards that fw] tliat
similar assistance should be airorded them throuuh the award of the other
three boats to private contractors.
I
MUNITIONS INDUSTRY 295
I take it that is just one more of the general campaign to force those things
through in any possible way. political or otherwise, those destroyers?
Mr. Powell. Any proper way, political or otherwise.
Mr. LaRcuchb. You say further [readmg] :
It is believed that the Navy Department has ample funds to pay foi" alt
work that can I'e finished during the terms of the current appropriation
bill, but if this is not the case the private shipyards stand ready to ftnance
the cost of carrying on construction until next June, when the funds car-
ried in a new Navy appropriation bill would be available.
Sr^^'powLi'^'Th.^ wr'Ifready covered here in the testimony, Mr. LaRouche,
Simplv that the boats have been regularly appropriated for; if the appro-
piSn ran out, the shipbuilders could carry the cost until more money was
^'llr'^LARoucHE. That is what I was speaking of. Did you have a plan of
financing the thing, if the Government did not have the money?
Mr. PowEix. Yes. ^ .^ ^„ ^, ..,„
Mr. LaRouche. Temporarily you would finance it until they did.' ^^„,^, .„
Mr Powell. You see, the actual expenditure over the first few months is
not a very large matter, and it does not represent a lot of money.
Mr LaRouche. I submit this for its appropriate number. ,, ^ . ^
(The document referred to was marked " Exhibit No. 1847 and is shown in
^^mJ.TIrouche. Further upon the same subject, there is a letter written by
you to Mr. A. B. Homer, of the Bethlehem Shipbuilding Corporation. That is
not A. P. Homer?
Mr LA™ucHa^i think the differentiation should be made between Mr.
A B Homer Copies were sent to Mr. C. L. Bardo, of New York Shipbuilding
Co m- W "S Newell, of the Bath Iron Works; Mr. Stewart Lee, president
of Pusev & Jones; Homer Ferguson, president of the Newport News; and Capt.
Roger Williams, also of Newport News. I submit this statement, and I want
^'^(The sSfteinen^ieferred to was marked "Exhibit No. 1848" and is included
'""Mr^LXuraB. It is addressed "My Dear Homer : "-Meaning, as I repeat,
Mr. A. B. Homer, of Bethlehem.
I believe it would be very effective at this time if any Republican Con-
gressmen or Senators that you can reach should telegraph to Mr. Everett
launders % Mr. Jeremiah Milbank, Waldorf-Astoria Hotel, New York
City and to the President, and if you would also wire Mr. Saunders so
that' he will know that it is the industry that is speaking.
Gerrisli Smith is off to Washington and asked me to write this letter
in his absence.
The letter also contains reference to the political effect of this on the na-
tional Republican headquarters. Will you show Mr. Powell a copy of that?
[Addressing associate.]
Mr. Powell. I have a copy of it.
Mr. LaRoltchei. You have no comments to make on that.'
Mr. PovPELL. No, sir. ,. .„ , ..
Mr LaRouche. I submit this. Just along the same line we will submit
for the record a copy of a telegram sent to the Secretary of the Navy, appar-
ently, by the workmen in your plant. ^„,^„ , . . 1 J J •
(The letter referred to was marked "Exhibit No. 1849 ' and is included in
the appendix.) , . , ^. . -^ r ^ t i .
Mr. LaRouche. I will read it, and you can perhaps identify it [reading] .
To: Secretary of the Navy, Washington, D. C. .. ., , T^ t^^^i .
From: Emplovees of the Staten Island plant of the United Dry Docks,
Inc., represented by the below undersigned committee.
We wish to call your attention to the following facts :
Newsprint of September 28, 1982, containing an announcement by the
Secretary of the Navy that three destroyers were awarded to the navy
yard namelv : One to" each of the yards at Boston, New York, and Phila-
delphia The purpose of this award was stated to be to relieve unem-
ployment, but no consideration was given to the unfavorable situation
296 MUNITIONS INDUSTRY
eyistiiiff in privately owned shipyards today, where work of employment
is at the lowest ebb on record, with little prospects of future work.
The letter continues with the urgent request that something be done for the
private yards.
Copies of that were sent to the Chamber of Commerce. Rotary Club, American
Legion, and Lions Clubf.. Did you inspire that, Mr. Powell?
Mr. Powell. I did not personally. I cannot tell you the genesis of that.
Probably it was done by our plant manager.
Mr. LaRouche. Then on October 1. 1932. you received a note from Mr. Nelson,
who was, you say, your plant manager.
Mr. PowEax. Yes, sir.
Mr. LaRouche. I will make that a part of the record.
(The letter referred to was marked " Exhibit No. 1S50 " and is included in the
api)endlx. )
Mr. LaRouohe. I will read it in part [reading] :
As instructed by you tliis morning, please note attached copy of telegram
to the Secretary of the United States Navy. This was sent at 10 a. m.
today.
As instructed by you.
Mr. PowHTx. What was the date of that?
Mx'. LaRouche. That was October 1, 1932, and a copy is available for you.
Mr. PowEix. I would like to change my previous testimony. Evidently I did
tell Mr. Nelson to see that this was done, that the workmen were asked if they
wanted to do it.
Mr. LaRouche. That the workmen in the plant were
Mr. Powell. Were told about it and asked if they wanted to do it, which
they did.
Mr. LaRouohe. Bring it to the attention of certain people. I submit that
for its appropriate number.
Mr. Powell. I would like to call your attention, ^Ir. LaRouche. that that
happens in tlie navy yards a great many times where tbe workmen get together
and do tie sending to their Members of Congress, and to the Secretary of the
Navy. And I must say that tliey generally have better luck than our men- did.
(v) Later (Apr. 4, galleys 68, 69 WC) :
Mr. L.\RoucHE. In connection with the August 15)33 awards, there is just
one thing whi<'h you perhaps would like to explain. Tills letter is writttMi on
House of Representatives stationery. Committee on Naval Affairs, Washington,
D.-C, in i)encil : "Dave: Delaiiey linnded me this."
Do you have a copy of that. Mr. Powell?
Mr. Powell. What is the date?
Mr. L.\RoucnE. I will read it to you.
Mr. PowET.L. If you give me the date, I can get it.
Mr. L.\Roi( HK. It is dated in August only. I will r-nd it to you. Mr. Powe'l.
:Mr. Powell. All right.
Mr. LaRouche (reading) :
The United Dry Docks, Idc. (Mr. Charles Ilalloik's secretary) who talked
with me on your suggestion, tlirongh Dave Ilogan secured contracts for
two I'.estroyors for the total sum of $6,S0O.0OO.
Written in ink —
Deak Charley: The note at the top is by Mr. McCooey.
What does that mean?
Mr. Powell. I cannot iiiteri)ret that.
The CiiAiTiMAX. Who might Mr. McCooey be?
Mr. PowET.L. Mr. McCooey was the Democratic leader in Rrooklyii. At least
I suppose thnt is tlie McCooey that refers to.
Mr. LaRouohe. Who is the Delaney referred to?
Mr. PowKix. I suppose that was Congressman Delaney of Brooklyn.
Mr. LaRoxtche. I have another copy here, if you care to have if.
^Ir. Powell. I have it here. It is the hist one in the file.
Mr. LaIJotche. That was after the 1933 destroyers were awarded. Who is
Dave Ilogan?
Mr. Powell. Yes; I believe he was — I think he was Mr. McCooey's secretary,
but I am not sure.
MUNITIONS INDUSTRY
297
Mr LaRouche. Does this sound to you as though Mr. McCooey, or Mr.
Hogan, took any credit for getting you those destroyers i
Mr Powell. I do not know, Mr. LaRouche. , , ^ ^ ^, o
Mr! lTrouche. How about Mr. Delaney ; did he think he helped Sf ^^em?
Mr. Powell. I do not know. You will have to ask them. I cannot answer
Mr. LaRouche. You had no comment at that time on this ? . h.ci-
Mr. Powell. So far as I remember, I spoke to Mr. Delaney about that
'''STor BONE. This memorandum appears on stationery of the Naval Affai^^
Committee of the House of Representatives, Washmgton, D. C. Did you say
McCooey was a political leader over in New York?
Mr. Powell. He was the political leader in Brooklyn.
Senator Bone. A Tammany leader?
Mr. Powell. Yes.
Senator Bone. Is Hogan his secretary, did you say.'
Mr. PowEXL. I think so, but I am not sure of that. I have met Mr. Hogan,
and I think that was his position. , , , „ „ki^
Senator Bone. How would Hogan, secretary of a Tammany leader, be able
to secure contracts for two destroyers in the amount of $6,800,(XJO^
Mr. Powell. He said United Dry Docks secured the contracts. He does not
sav he received the contracts. , ^
Senator Bone. He says that you secured the contracts for two destroyers
for the total sum of $6,800,000 through Dave Hogan, secretary to McCooey,
Mr Powell. I cannot throw any light on that, Senator, because neither
McCooey or Dave Hogan had any more to do with us getting those contracts
^^Mr.^^LARoucSE. ^ofd^you Mve any contacts with the Democratic leader in
^M^if Powell. Yes; we have three plants in Brooklyn. I generally know
them and occasionally see them. _ , .
Mr LaRouche. You did a good deal of entertaining amongst your Democratic
friends in New York at one time, in that year and succeeding years?
Mr. Powell. I would not say a good deal, but occasionally ; yes.
Mr LaRouche. What was the purpose of that?
Mr. Powell. To get to know them and have them get to know me.
Mr. LaRouche. Was it successful? . ,r t t> i,
Mr Powell. I do not know what you mean by that, Mr. LaRouche.
Mr.' LaRouche. I do not know exactly what your objective was. bo that
perhaps you know better than I. ^ • ^ ^ t
Mr Powell. I told you this morning, I like to have as many friends as I
can, because I never know when they will be very useful.
Mr. LaRouche I will read a little extract from a letter dated November 25,
1933 which appears to be an interoffice memorandum from the Staten Islana
plant to Mr. T. J. Farley, and I only read a small part of it [reading] :
You may recollect that Senator Smith is the man whom I introduced to
you at the time he was chairman of the Staten Island Chamber of Com-
merce He is a verv fine fellow, and I believe we can derive a lot of
benefit through him ^during the next 4 years. It is therefore, very im-
portant that this company show which side they are on. Senator Smith
was campaign manager for the Hon. Joseph Palma, our new borough
president-elect, who will take office on January 1, next.
And the rest of the letter discusses a testimonial dinner which is being given
for Senator Smith. I offer this for the record.
(The memorandum referred to was marked "Exhibit No. 1854 ana is
included in the appendix.)
Mr. LaRouche. Do you remember that?
Mr Powell Yes ; I remember seeing it when I read over this correspondence.
Mr LaRouche Then there is one of May 29, 1934, another interoffice mem-
orandum from the Staten Island plant to Mr. Bates, which I will offer for the
record •
(The memorandum referred to was marked "Exhibit No. 1855" and is in-
cluded in the appendix.)
298 MUNITIONS INDUSTRY
Mr. LaRottche (reading) :
Please note attached letter. It seems to me that somebody should repre-
sent this company as it is possible that it can at times lead to something.
As you know, we have no time from here. Therefore, why not have Mr.
Farley represent the company?
This outfit is close to the present administration (borough president
and others).
Do you recall that being a request to attend a chamber of commerce luncheon?
Mr. JPowEi^L. Yes.
Mr. LaRouche. Were you represented there?
Mr. Powell. Yes ; my recollection is that Mr. Farley went. That is Mr.
T. J. Farley, who is a vice pi'esident of the company.
Mr. LaRouche. I offer that.
Then you made a campaign contribution of $100 on August 28, 1933, and you
made a check payable to Kenneth O'Brien, the custodian of these funds. Do
you recall that?
Mr. Powell. I see in the record that I did. I did not recall it.
Mr. LaRouche (reading) :
These funds are allocated to James A. Farley for party purposes, and your
splendid cooperation is highly appreciated.
That is a quotation from a letter from D. G. Robinson, written on the sta-
tionery of the Democratic State committee. I offer it for the record.
(The letter referred to was marked "Exhibit No. ISoG " and is included in
the appendix.)
Mr. LaRouche. You do not have any comment tu make on that?
Mr. Powell. No.
Mr. LaRouche. Was that the extent of your political entertaining or your
campaign contributions in 1933 and 1934?
Mr. PowEix. Well, so far as my recollection goes. I gave him a statement
that I filed with the committee of all of the political contributions that any of
my records show, after a careful investigation, and whether there were any
others on that list or not I do not recollect.
Mr. L.\RoucHE. I have here another little bit. This is June 14, 1933 ; that
was before the big awards of 1933?
Mr. Powell. Yes, sir.
Mr. LaRouche. I have here a letter referring to a lunch. I wont read it, but
I will enter it lor the record.
(Tlie doeuniont referred to was marked "Exhibit No. 1857" and is includetl
in the appendix.)
Mr. LaUouche. I will read an extract from it. [Reading:]
Our president, Mr. J. W. Powell, is planning a small private get-together
luncheon for a few of our Brooklyn friends to be held at the Downtown
Athletic Cliih on June 15 at 1 p. ni., and it would give us sincere pleasure if
you would honor us with your presence.
In order that the necessary arrangements may be made, may I hope for
the favor of your early acceptance?
Then there is a list of guests, including Hon. John H. McCooey ; Hon. William
J. Heffernan ; Mr. David Hogan, care of Democratic county committee; lion.
John N. Harnian; Hon. James J. HelTertiau. superintendent of highways; and
Hon. Henry Ilostorberg. president Borough of Brooklyn; Charles Ilallock ;
Ed Farley; J. W. Powell; Tom Farley; George Brown; and Al Lewis.
Do you recall that event?
Mr. Powell. Oh. very well.
Mr. LaKouciik. I enter that for the record.
Mr. PowEi.L. It was a very nice luncheon, and Mr. iMcCooey entertained us
very delightfully for 2 hours with stories of his political experiences.
Mr. LaRouche. You played with both sides, I take it?
Ml-. PowEL[.. You bet you.
Mr. l-.vRoxTCHE. I have here a little note, written to you, October 13, 1933,
and sigm>(l John E. Dordan.
air. I'owKi.L. What is the date?
Mr. LaHouchk. It is October 13, 1933. It is on the stationery of the Demo-
cratic Conntv (Committee of the Conutjr of New York, Tanuuany Society
MUNITIONS INDUSTRY
299
Building, Union Square, New York City. Do you care to have a copy of it?
It is a very short memorandum, which I will read. [Reading .J
Mr. J. W. PowEix,
New York City.
MY DEAK MR. Powbxl: I am directed by Hon. John F. Jurry to acknowl-
edge with thanks receipt of your generous contribution of $100 towaid the
campaign fund.
Very truly yours, ^^^^ ^ jyom^x^, Treaswrer.
Down at the bottom he says :
P. s._This letter is not intended for corporations or public officeholders.
A lot of these things go places where they ^^^''^^^^^^^f^^^ nersonally as
Mr Powell. That came to me personally, and I sent the $100 personally, as
"".S iVRofcnf lou'did not feel that it was a total loss?
I'^na^oTS/lt is7n"th'\Tture of " bread cast upon the waters "?
Mr. Powell. I was thinking of that quotation.
Mr. LaRotjche. I offer that. , ^ „^ , ., ., ,, iqfcq-m
(The letter referred to was marked " Exhibit No. 1858. )
{w) Later:
m.o n«iTPA^AN On Anril 30 1934, you reported by letter to Mr. Powell that
Chl^marBlandlSd Wd'y^u that k«e ^a. not the .host of a chance to
report out and secure enactment of a load-lme bill.
Mr. Malonb. That is true. Senator.
The Chairman. Was this the inception of that program .'
Mr M \LoNB No this was 4 years later. A bill. Senate Resolution 345,
wa^ intSiced on the matter in the Seventy-first Congress, but it lay dormant
S ItJie^lS revive it, and in the spring of 1933 it appeared it ^f ^^f POf^^^l^
fn rio a^vthine le-islatively, and I tried to have it put in as a part of the pro-
nosed tSfpS code which never became effective, and finally, after more than
a yeai's effort, I tried to revive the adoption of the pending legislation, as I
"" Tie cISrman. you said in this letter of April 30, 1934, to Mr. Powell.
I am writing with the utmost candor, knowing you do not object to such
^""SrSnEland told me this afternoon that there is not the ghost of a
chSnS tTieport out and secure enactment of a load-line bill. Nevertheless
with all the emphasis I can express, I know I can get it passed if the proper
n?is? sTmpL,^?emoSae proposition that such a law will require the
building of cei'tainly, 50 tankers. This means an outlay of around 60
mmionf, and the best part is, between the construction-loan fund and the
Ssh resources of the oil companies, the cost element is easily met and, of
course will be passed on in the price of oil.
The people who will primarily benefit by such construction-the chief
yards ?ncludi^g ourselves-B. & W. Foster-Wheeler, G. E and a few
others would have, it seems to me, enough at stake to "ante" on strictly
no-cure basis about $50,000 on my guaranty of enactment. , ^ , . „
I know you could talk this over with them in a more intimate fashion
than could I ; and I am wondering if you would do so.
Suiely this is as good a gamble as the rather nebulous Navy tanker
venture toward which I gather my friends Jim and Fred have been backed
to the extent of $15,000 " cash down."
Warmly, (Signed) Boa
Going back to this letter, what is the meaning of the language:
It seems to me, enough at stake to "ante" on strictly no-cure basis
about $50,000 on my guaranty of enactment?
Mr Malone. It was rather brief language, Mr. Chairman. It meant, in
substance, that they put up nothing and I would undertake, on their assurance,
if they thought it was sometliing worth rewarding me for, to see it the
300 MUNITIONS INDUSTRY
measure could be enacted at that session. I think that is made out there
' No-cure " is an old expression in the shipping business, meaning no cure no
pay. If you do something, you get paid, and if you do not do anything you
do not get paid. ^
The Chaikman. What were you going to do with the $50,000, if vou could
get it? How could $50,000 accomplish what seemed to have been imDOssible
in that session?
Mr. Malone. My thought, Senator, was it would be inducement enough for
me to go to work on it.
Mr. LaRouchb. You have been working on it for some years, Mr. Malone'
Mr. Malone. Not legislatively, Mr. LaRouche.
I might add there, Mr. Chairman, it may appear curious to you, how I
would have suggested that the bill could be passed, in the face of the advice
of the chairman of the House committee that it could not have been possible
The Chairman. I am very anxious to know.
Mr. Maix)ne. I had my personal information, and I do not believe anyone
else in the country did have it, because I spent a vear on this This was a
personal letter, and it was not something I was acting on in behalf of United
Dry Dock. I am tariff-publishing agent and financial adviser to a small inde-
pendent tanker company and, as such, I have occasion to study the condition
of tanker operation rather extensively. I had done so and, as I said I do
not think anybody else had information on that ; that if load lines were 'estab-
lished in the domestic trade, it thereby meant that the tonnage in the domestic
trade would be reduced in carrying capacity, and that a greater number of
them would be required to carry the volume of oil then moving and I esti-
mated that fairly accurately at the time as about 50 tankers. I may have been
a httle bit off one way or the other. It involved no Government expenditure
no subsidy or anything of the sort, and my opinion was that if I could bring to
the attention of the Congress that 50 tankers costing somewhere between
one and two million dollars apiece could be brought about bv the enactment
of the peace legislation which Congress announced it was going to enact which
would make possible great relief of unemployment, a project that might mean
jobs for 7o,000 to 100,000 people, it would be enough to cause Congress to
report this bill, as they stated they were going to. "
No one, I think, except my.self. Mr. Chairman, at that time realized that under
the prevailing conditions about 50 new tankers would be needed and since the
yards did not know it, I was apparently the onlv expert in the field having
determined that fact, and, if I could bring through the process which Congress
had specifically endorsed, under an economic condition, calling for the con-^truc-
tion of that amount of tonnage, that it would certainly be toward the end that I
have mentioned.
The Chairman. But you had no thought in mind in proposing this ante of
$50,000 of using any part of it to reward others thiin vourseif "^
Mr. Malone. Emphatically no. sir. Tc. tell you the truth, whnt I did was I
thought some arrangement which Mr. Powell and I had had with reference to
commercial work, under the arrangement we made years ago, whereby it was
agreed, if I specifically brought in such commercial work— the commercial
arrangement never applied to Government w..rk— that I was to be p-iid ly,
percent, and I made a quick reckoning on that 50 million dollars, and it came
to the very substantia] tigure of $750,000. which was so great that I reductnl
It to one-tenth of a i)ercent of the amount of outlay, as a reasonable reward
for my own services.
No one was working with me and I had not conferred with anv one or had any
conferences except my own tanker associates, other than Cliairnian Bland.
The Chairman. Your own anticipation was that that project wms larire enouirh
so that United and B. & W.— who are B. & W.?
Mr. Malone. Manufacturers of boilers.
The Chairman. And Foster-Wheeler and General Elect i-ic would be interested
in the tonnage building, and be willing to lH\ir a part of tliat which vou referrefl
to as " ante"?
Mr. Mai.one. The " ante " was just slang. It meant a fee. Payment for mv
services.
The Chairman. Mr. Powell, what was your response to Mr. Mahme?
Mr. I'owEix. I saw Mr. Malone in Washington a day or two after that letter
was written, and said I would not take any jiart in it whatever, and I did
not know what iny customers in th(> oil business would think about it and it
Avas something in which I was not Interested.
MUNITIONS INDUSTRY 301
Mr. Malone. To be truthful, I think you were more direct than that. You
said, furthermore, you did not believe the shipyards should interest themselves
in matters of this kind which was legislation before Congress dealing with
matters of safety to shipping, and not a matter in which the shipyards should
be interested.
The Chairman. Your first letter to Mr. Powell was April 30, 1934.
Mr. MALONE. That is right.
The Chairman. On May 2, 1934, you wrote Mr. Powell again, indicating that
in the meantime you had conferred.
Mr. Maxone. I did. By the bye, Mr. Chairman, the subpena I received called
for those letters, and I have none of them. There were none in the files. I
think I saw Mr. Powell.
The Chairman. On May 2, 1934, you wrote Mr. Powell again as follows
[reading] :
Mr. J. W. Powell,
New York, N. Y.
My Dear Mr. Poweul,: If, as you explained, it would be impracticable
for you to initiate any discussion along the lines of my Monday letter, I
doubt that it would be expedient for me personally to talk with any of the
other yards. Newport News and Bethlehem are regularly represented here,
while I understand Jim Barnesi is supplementing his Todd work with
activity in behalf of New York Ship on Navy tankers. These chaps would
be quick to appropriate the idea and any credit for accomplishment, at
least they have in the past, and the principals hardly would listen unless
on a basis of discussion between company managements. I quite appreciate
your reticence in the circumstances.
But it occurs to me that perhaps the equipment people would be trac-
table. Would you care to help me see Swope, and do you consider tliat he
is a focal point for the group of such manufacturers? I have entree with
the president of B. & W. and maybe he would collaborate with the others
in that category.
I greatly appreciate your cooperation. As to the other tanker program,
take it from me that when it reaches the danger point of eventuating,
it will get the requisite " wallop." There is no virtue in being Quixotic
just at this stage.
Sincerely yours,
Bob.
Did you or Mr. Powell approach the supply people further on this matter?
Mr. Malone. We did not. Mr. Powell gave me the same resiJonse that he
did before, and I never approached anyone at all.
The Chairman. That ended the situation?
Mr. Malone. That ended the situation, as I recall.
Mr. Powell. May I make that point clear, because I have customers who
would take exception to my taking part in any such movement. I did not in
any way, shape, or form do anything in the matter, and I would consider it
very bad taste on my part, to say the least, to do so.
Mr. Malone. Also, you should remember, I think, Mr. Chairman, as I stated,
it was not in my capacity as agent for Mr. Powell. It was purely a personal
matter, and which looked like good business at the time, and I still think it
would be good business.
The Chairman. What is the meaning of the language used there, " it will
get the requisite ' wallop ' " as respects the other tanker program?
Mr. Malone. I will have to digress a moment, Senator, to give you a clear
answer to that. There was some feeling at the time, about a year ago — I say
" feeling " and I do not know where it originated, but the impression went
abroad that because of the growing age of the American commercial tanker
fleet, which is amply adequate in tonnage for our merchant marine reserve
purposes in time of emergency, because of its growing age, it should be re-
placed, and, of course, replacement should be gotten under way by the owners
of the tankers. In other words, this supposed feeling was shared in by the
tanker owners, and they were anxious to do so as quickly as possible.
Collateral to that, the governmental authorities would like to see tankers of
exceedingly high speed, able to keep up with the fleet operations, rather than
the prevailing top, which is broadly 10 to 11 knots. It had been brought to
their attention that Japan, England, and even Norway, were building tankers
139387—35 20
302 MUNITIONS INDUSTRY
around 14 to 18 knots, and especially having fine military reserve usefulness,
whereas the opposite was true in the United States at that time.
And some proposal was made or consideration given to the thought that
from the amount of this fund there might be allocated some very large sum
which seemed to be indeterminate as to the amount, the purpose of which
would be to have the United States Government build a fairly substantial new
fleet of modem and high-speed tanker type as desired, perhaps 40, 50, or 60,
ranging from 30 up, and that these tankers, for instance, the Government would
have available for them, and not taking them in the fleet, getting along with
6 or 8 tankers in peace time. In addition, that these would be leased to the
commercial tankers or oil companies, or for purposes of the sort, and with a
small installment down and the balance over the expected normal life of the
ship.
That was expected, because it was not believed that the tanker companies
or oil companies would build speedy ships, and could not, in an economical way
do it. The idea was evolved of having the Government build high-speed tankers
as an unemployment relief measure in conjunction with this theory of justify-
ing for the Navy a reserve fleet of oil tankers in time of emergency.
That was the program.
I think you asked, Mr. Chairman, about the comment in my letter to that.
The Chairman. Yes.
Mr. Malonb. It developed, after I first heard of it, that it was a case of
sort of wishful thinking. That there was a sort of general feeling of those
interested in the problem, and it would be a fine thing if tankers with high
speed would be built, but that there was not a ghost of a chance of the Gov-
ernment embarking upon the financing of them or the chartering or selling of
them in the manner proposed. The newspapers at the time carried a good
deal of publicity to the effect that it was a program which might materialize or
probably would materialize, and I satisfied myself that it would not materialize,
and the stumbling block, on which the Congress refuseil to appropriate anything
for that puri^ose, was that. That was what I meant by the " wallop " it would
receive, would be the refusal of the money to do it.
Senator Bone. I take it that your approach would have been a rather
practical one, Itecause you disclaim any intention of being quixotic alx^ut the
thing. I take it you intended a practical ai)proach to it
Mr. Malone. I am sorry.
The Chairman. I take it your approach wouhl have been a very practical
one, since you disclaim any intention of being qnixotie or going at windmills.
Mr. Malone. I saw no use of putting up opposition then, when I knew it was
going to die a natural deatli anyway.
Senator Bone. I am interested how these things are handled. You are
familiar with the tactics of legislation. Suppose you came down to Wasliing-
ton with .$50,000 available to you.
Mr. Malone. I was not to get it until it was done.
Senator Bone. How would you handle the matter as an individual?
Mr. Mj\xone. Shall 1 take this spetific caseV
Senator Bone. You may be either specific or general. I want enlightenment.
Ml'. Malone. I will take this one. A bill was pending in Congress, and l»ad
been in each Congress since Resolution .'i-15 was i)assed. I would have pro-
ceeded to the committees of Congress, iu an orderly way, and familiarized
them with the tecluiical data I had, whieh nobody else had, and that this bill
would have the human and humanitarian properties — that is, protection ot life
and property — and in connection with the movement of oil it would cause the
building of a great many ships, with relief of unemployment, which is a very
grave problem. And in view of the extensive relief it would give, I would
requfst that the bill which had been dormant he brought out and enacted.
Senator Bone. I think I may assume that there is nothing immoral iu one
coming before a House or Senate couunittee as a promoter of any idea, even
though he is being paid for it, but it is rather interesting — it Is very interest-
ing— in contemplation of the picture, to see gentlemen coming in in endless
streams, who lay their schemes before us vig«)rously and ardently, and it is
just a cohl-blooded venture and nothing quixotic aboxit it.
Mr. Malone. I knew this was going to be enacted sooner or later. You
could take the bill as it passed last year and get the provision fnun it.
Senator Bone. It becomes interesting because we were told a very Interest-
ing story at times by a gentleman who spent one-<iuarter of a million dollars
down here putting over the Jones-White Act.
MUNITIONS INDUSTRY 303
Mr. Maxonb. I heard the testimony.
Senator Bone. He illuminated that otherwise dark subject very, very thor-
oughly, and it was very interesting. I do not know how that bill came to be
enacted, with the item of a quarter of a million dollars supplied by the ship-
builders.
Mr. Malone. I believe I stated in my letter that I thought it was a simple
proposition. I never dreamed, for instance, if I came before the committees
of Congress and the bill was there, that it would be considered in that way.
There was a trade secret about the commercial concomitants of the bill.
Senator Bone. I have no quarrel with you about the load line. However,
I am rather astonished we have not had something like that before. The
interesting thing is that legislation is frequently given some inspiration by
just such an interest as that.
The Chairman. The Senator is making the point that legislation seems to
have a price tag on it.
Senator Bone. I do not want to be so blunt. [Laughter.]
The Chairman. I do not see how anyone can get any other understanding
from what you say.
Senator Bone. I think in a vague fashion they understand it.
Mr. Malone. I am trying to portray it. Senator, and I think it will be
clear to you. ^ ^ , , ^ , ., • ,
Mr. LaRouche. I think it might be well to add that you had had this scheme
under consideration and had been working on it?
Mr. Malone. Deliberately, Mr. LaRouche, in connection with the proposed
formation of a ship code.
Mr LaRouche. And you had other interest at stake, so that there were very
excelient reasons besides $50,000' for putting it across?
Mr. Malone. Yes ; I had my strictly commercial reasons for wishing to see
that become a law or in the code provision.
Mr LaRotctche. The thing had been dormant for a long time?
Mr Malone. In the stress of conditions the thing stayed in the committee.
Mr LaRouche. Yet for $50,000—1 think the point is clear, but I reiterate
it_yet for $50,000 you thought you could bring it along and get it through
the "present session, even though the chairman thought it impossible?
Mr. Malone. I thought I would get so excited about the matter I would
communicate it to the Congress.
Mr. LaRouche. For $50,000?
Mr. Malone. Yes, sir. You appreciate, too, Mr. LaRouche, that that was
a proposed figure.
Mr. LaRouche. What would it cost now, under the code?
Mr Malone. I am open to considerations. As a matter of fact, removing
the facetiousness, the bill has been proposed by the President this year, and
I rather expect it will be adopted, so that any activity on my part will come
to an end. I take it, it is going to be adopted.
{x) The Kiplinger letters making serious charges against ship-
builders and shipping interests was protested by shipbuilding inter-
ests, although the truth of the charges was apparently not denied
(galley 48 WC, Apr. 3).
Mr. Raushenbush. I wanted to ask you about some matters in connection
with the Kiplinger letter. Mr. Haig, I believe you have had some correspondence
in regard to a derogatory letter, or a derogatory comment, made about ship-
builders by the Kiplinger service.
Mr. Haig. It must have been sometime ago. I cannot recall.
Mr. LaRouche. Do you remember the Kiplinger incident at all?
Mr. Haig. Yes, sir; from conversation.
Mr. LaRouche. Do you remember writing any letters in connection with that
incident ?
Mr. Haig. I do not at the present time. It was n subject that we would hear
occasionally that Kiplinger had written what was termed a " scurrilous letter "
about the conditions in shipbuilding, but I cannot recall that I wrote a letter
nor can I recall someone writing nie about it.
Mr. LaRouche. There is a letter here, which was written by Mr. M. B. Lam-
bert, sales manager, transportation department, Westinghouse Electric & Manu-
facturing Co., on February 7, 1933. It was written to Mr. Newell, of Bath, and
n nonv was sent to Mr. Haig.
304 MUNITIONS INDUSTRY
Mr. Haig. Yes, sir ; I remember Lambert writing a letter.
Mr. Raushenbush. I will read the letter [reading] :
Dear Mr. Newell: I have your letter of February 4 and attach hereto
copy of letter I wrote to Mr. Kiplinger as per your suggestion.
I think perhaps your idea of writing him also is a very good one. I
tried to get Mr. Smith on the telephone but find he is out of town for a few
days.
Mr. Raushenbush. Does that recall anything to your mind?
Mr. Haig. Nothing more so than at that time I heard the comment, or that
this publicity agency bad written what was called a " lousy letter ", or some-
thing of that kind.
Mr. LaRouciie. Yes.
Mr. Haig. But I do not know that I ever read it. I saw a short extract of
about 10 lines.
Mr. LaRouche. I have here a letter of February 3. 1933. written by you to
Mr. Lambert.
The Chairman. You say " you ", and to whom are you referring?
Mr. LaRouche. Mr. Haig. I will read the text of the letter.
Mr. Haig. Yes, sir.
Mr. LaRouche (reading) :
A copy of your letter of February 1. to Mr. H. G. Smith, also extract
from the Kiplinger Washington Letter was duly received, and while it has
considerable truth in a number of the statements made, it seems to me a
rascally thing to write and broadcast loose statements of this kind which
are most harmful to the siiipping business.
Thanking you for bringing this to my attention, I am faithfully yours.
Do you recall that letter?
Mr. Haig. I recall the incident. It was somewhere where Kiplinger described
the shipping business or the shipbuilding business — I cannot recall whether he
differentiated it or not — as a lousj- condition, or something.
Mr. LaRouche. I will read Mr. Kipliiigt'r's statement, on which it was based.
The C'hairma.v. This is an extract from the Kiplinger letter?
Mr. LaRouchbx This is an extract from the Kiplinger letter, which is the
matter under discussion.
The Chairman. Is this the article in its entirety?
Mr. LaRouche. It is an extract from the Kiplinger "Washington letter.
I am reading this :
The following extract regarding shipping copied from the Kiplinger
Washington Letter, January 28, 1933—
And this was taken from the files of the Sun Shipbuilding «5c Drj- Dock Co.
Mr. Haig. That is tlie copy I got from Mr. Lambert's statement?
Mr. LaRouche. It is the copy you got from some source, probably Mr.
Lambert.
Mr. Haig. Yes, sir.
Mr. LaUouchb (continuing reading) :
Overseas shipping: This will be tied in more closely with railroads under
ultimate Roosevelt policy. Meanwhile shipping industry is doinir nothing
to get rea<ly for it. Severe criticism of shipping is voiced privately in high
otHcial quarters; industry is unorganized; has no qualified association like
other transportation interests; has no broad ei-onomic research like shij)-
ping in other countries; (lei)euds too much on subsidy, which is due for a
cut ; depends for promotion and lobbying on Shipping Board ; depends on
political pull, favoritism, back-scratching, to get subsidies; practices cut-
throat competition, while the public pays the bill ; lets benefits and subsidies
go largely to shipbuilders, through umbilical connections which were out-
lawed out of the railroad industry y(>ars ago. (Incidentally, sliipbiiililing
is notoriously dirty in its politicjil and propagiinda methods.) Comment
is heard in high quarters that if shipping industry does not clean liouse
soon, it will not be able to get private investment funds later, and may be
forced back to Government ownership.
It was on that statement, about which vou wrote, according to the letter of
February 3, 1933—
MUNITIONS INDUSTRY 305
and while it has considerable truth in a number of the statements made, it
seems to me a rascally thing to write and broadcast loose statements of this
kind which are most harmful to the shipping business.
Mr. Haig. Yes, sir.
Mr. LaRouche. Do you recall that?
Mr. Haig. Yes, sir.
Mr. LaRouche. Did you feel that the statements in the Kiplinger letter
were true?
Mr. Haig. No, sir ; not entirely. In my mind I would not profess to know.
That is hitting, to my mind, more at ship operating — ship owning.
Mr. LaRouche (reading) :
Incidentally, shipbuilding is notoriously dirty in its political and propa-
ganda methods.
Mr. Haig. I did not catch that part of it, but I do now. I think it was hit-
ting at the development that has cnme about, where so many people bought
ships from the Shipping Board at ridiculously low sums, because the Board
had huge numbers of ships on their hands. Then they obtained mail subsidies
to carry on, with low-priced, cheap ships, with slow speed, and that simply
reacted, and today it hurts the industry.
Mr. LaRouche. You felt it had hurt the shipbuilding industry?
Mr. Haig. It hurts every industry— the shipbuilding industry, likewise on
the shipping industry.
Mr. LaRouche. You v/ould not object to the statement, except insofar as that
hurt the shipbuilding industry? Is that the inference?
Mr. Haig. I would not know enough about it. There are a great many
statements made that way, and if one paid attention to them all it would be
serious.
{y) Some indication of the interest of the Electric Boat Company
in political activities is given in the following exhibits:
Exhibit No. 198
[Copyl
November 5th, 1932.
Mr. W. H. Putistam,
Chairman Repv,Mican State Ways and Means Committee,
Room Ji9, Allijn House, Hartford, Conn.
Deab Mr. Putnam : Please pardon my delay in replying to yours of Oct. 19th
which has been due to my al)sence. You are correct in thinking that I am very
much interested in the election of Senator Bingham as I feel that failure to
send him back to the Senate would not only be an enormous loss to the State
but to the Nation as a whole. I have been working actively in his behalf and
have reason to believe that as a result he will receive some 1,500 votes more
than would otherwise have been the case.
I am enclosing my check for $50 as a contribution to your fund which is
additional to other contributions. I am sorry that I cannot make it more but
in these days of severely reduced incomes and greatly increased demands, this
is the best I can do.
While I was very nervous about the outlook a few months ago, I now feel that
we are reasonably safe so far as Connecticut is concerned.
Very truly yours,
(s) L. Y. Spear.
Exhibit No. 181
Elecjtkic Boat Company,
HWhs BuilMng, Washington, D. C, December 18, 1928.
Mr. Henry R. Carse,
President Electric Boat Company,
11 Pine Street, New York City.
Dear Mr. Carsb: Successfully managed campaign for candidate Rules Com-
mittee, which is most important to us, when any legislation is up.
Brought in some "Western States, New England States, New York, Pennsyl-
vania, and Michigan in Fort case, and New Jersey, Michigan, New York, Illinois,
South Dakota, and Pennsylvania in Martin's case.
306 MUNITIONS INDUSTEY
Candidates successfully elected to Rules Committee : Honorable Jos. W.
Martin, Jr., Mass. ; Honorable Frank Fort, New Jersey.
The Rules Committee is the most important committee in Congress. It
absolutely controls legislation.
Thanking you, with kind regards.
Sincerely yours,
A. J. JOYNER,
Exhibit 183
March 11, 1929.
Mr. Henry R. Carse,
President Electric Boat Company,
11 Pine Street, New York, N. Y.
Dear Mr. Carse: Now that the session of Congress is closed and our legis-
lative activities are temporarily held in abeyance, it is a pleasure indeed to
report to you and to the board of directors that all of our legislative efforts-
have borne fruit.
The cruiser bill is passed ; the submarine appropriations have beeu passed ;
and as I sincerely promised you the day we lunched together in New York,
we did manage, after overcoming a number of handicaps and jumjiing some
hurdles, to get the second deficiency bill through, and in doing so we suc-
ceeded in getting our claim through, and we expect to receive payment at two
o'clock this afternoon or early tomorrow morning.
Members nf the Navy Department have seen tit on several occasions lately
to not only write, but to personally express their apprei-iations and congratu-
lations on the success of such parts of the program as we were directly inter-
ested in and for the help we gave the Navy Department. I am not prepared
to write you, however. I shall be glad to verbally tell you what really hap-
pened with reference to the deficiency bill, and the part this office played in
getting the bill through. I absolutely and positively believe, and feel safe in
making the statement, that if it had not been for actions taken in this oftice
on the day before the bill was passed, and the day the bill was passed, that
the second deficiency bill would have gone over until next session ; or, In
other words, until the special or extraordinary session, which is called for the
35th of April.
My reason for not putting this in writing is out of respect for those who
hoi] led. and who were so powerful and so friendly. The code of honor between
men makes it unethical to name persons, lldwcver. my words ami belief stand,
and today we have succeeded again in liaving our claim and papers and
certificates movwl up ahead of over three-tiiDusand-some-hundred other claims,
and inasmuch as our claim is the very largest, you can (luite readily under-
stand the Treasury Dei>artment would naturally liesitate at any atlviincement,
particularly at this time when there is a threatened deficit. There is no ques-
tion but what tlie situation could have been maneuvered for the next three
montlis because of the riglit of tiie Treasury Department to recheck and check,
audit, and do a number of other things, which, wliile they are not doing it
in our case, they are actually engaged in doing so in a number of cases.
Our designs are meeting with ai»i>rt>val. Our atlvice and s|)ecifications are
being received favoralily, and, generally speaking, little is left to be desired
up to this time, except that all important part, the actual signing of any
contracts that we might receive.
With good will and a friendly attitude existing in the Army and Navy, in
Connnerce and the Shipping r.oard, and the Treasury Department, and a good
will does exist, which is true, as is the statement of pleasant friendly rela-
tions, we may well feel that a brighter future has opened up for this com-
pany, with less sales resistance, and pleasant hours free from the past worries
and cares.
In the final, the writer wishes everyone in the organization without expei>-
tion to feel and to know that all liave played a part in loyalty, kind consid-
erations, and cooperation, and that they are entitled to share the pleasure and
delight in a final victory, and in my humbleness desire to express my sincere
thanks to all.
Sincerely,
(Signed) Sterlino J. Joyneb.
(Electric Doat hearings, part 1, Sept. 4, 5, and 0. 1934, hearings, pp. 289 and
290.)
D — Lobbying for Jones-White Act
The interest of the shipbuilders in securing merchant-marine legis-
lation was discussed at various times (Jan. 30, 1935, galley 16 AS).
Senator Vandewbeibg. Is that what these expenditures were for?
Mr. WiLDEK. Nuae-tenths of them. We were paying retainers and defraying
their expenses. It was just like running a big engineering olfice. We had the
models in the Washington tank, and had them also in the tank at Ann Arbor, at
the same time developing the plan of the new ship. The Germans grabbed it and
built the Bremen and Europa. They were darned nice, and when the dignitaries
came in on the maiden voyage they wirelessed me and said, " We are riding on
your ship and want to talk to you."
Senator Clakk. That does not tell us where you spent that money.
Mr. WiLDEat. Two hundred thousand dollars on the engineering work and fifty
thousand dollars on the fact we were living here, but I did not spend it on any
Senator.
Senator Bone. Mr. Wilder, can you tell us who drew the Jones-White Act?
Mr, WiLDEjB. Mr. Jones drew the preamble.
Senator Bone. I am talking about the peculiar phraseology of that act. What
attorney drew it?
Mr. WiLDEK. I do not know what attorney. I did an awful lot of work on it,
and I am not an attorney. Hundreds of different people were working on it, and
came in with contributions.
Senator Bone. Private shipbuilding companies?
Mr. Wilder. Private shipbuilding companies, and particularly ship operators.
Senator Bone. Who drew the provisions in the Jones- White Act authorizing
the sale of these vessels at a tiny fraction of their cost, to which was added a
provision tliat if the Government took them back in case of war they would pay
the price the company wanted to exact for the boats?
Mr. Wilder. Is that in the Jones-White Act?
Senator Bone. That is in the Jones-White Act, in practical effect.
Mr. WiLDEK. I thought that antedated it.
Senator Bone. The going market value in the case of war. Do you remember
that ?
Mr. Wilder. No, sir. Before the House it was the cost less depreciation to
date.
Senator Bone. Some of those ships were sold to private operators at less
than 2 cents on the dollar?
Mr. WiLDEK. Oh, yes.
Senator Bone. And in the same act there was a provision which authorized
that if the Government took them for war purposes, that they would have to
pay the going market value.
Later, the drafting of the bill was referred to again (Jan. 30, 1935,
galley 18 AS).
Senator Bone. I want to go back to the Jones-White Act for a moment,
before we adjourn, to be sure I get the facts correctly. Your information is,
Mr. Wilder, that the provisions of the Jones-White Act of 1928 were prepared
by private shipbuilding interests ; that is to say, the act itself was drafted
outside by private shipbuilding interests, and the preamble drawn by the
Senator?
Mr. Wilder. And section I.
Senator Bone. That is rather a general statement of the purposes, is it not?
Mr. Wilder. Yes, sir.
Senator Bone. And the rest of that was framed and formulated by private
shipbuilding interests ?
Mr. Wilder. And turned over at the time of the hearings before the Merchant
Marine and Fisheries Committee.
Senator Bonei. And adopted by Congress?
Mr. Wilder. Yes, sir.
307
308 MUNITIONS INDUSTRY
The question of the drafting of the Jones- White Act was raised
again on February 27 (galley 42 QD) :
Senator Bone. There is a provision in that bill under which if the Govern-
ment attempts to recapture any of these ships built with loans or that were sold
by the Shipping Board to private shipping interests, it would require the
Government to pay 100 percent of the then value of the vessel, the value at the
time it is taken, although the vessel may have been sold for a tiny fraction of its
cost to the Government.
Mr. Smith. I think not, Senator. I think that was in the earlier bill, of
1920.
Senator Bone. That is in the Jones-White Act now. I have the act right
before me.
Mr. Smith. In the Jones-White Act now?
Mr, Bone. Yes ; some of these jhips were sold to private shipping companies
for as little as one-seventieth of those costs ; and those same ships, if the
Government recaptured them tomorrow in ca^^e we had a war, would be appraised
at their then value, their fair market value. The Government would have to
pay that 100 cents on the dollar. That is why I asked you who drew that
act
Mr. Smith. I do not know.
Senator Bone. W^ith that kind of a provision in it.
The advantages to the shipowners in certain sections of the Jones-
White Act were discussed on January 3.1,, 1935 (galley 22 AS) :
Senator Bone. May I point out that that clause you spoke of yesterday about
the recapture of ships is an aniondmont and was not in tlie oriirinal act.
Let me at this point, Mr. Wilder, read this queer and peculiar provision of
the Jones-White Act under which sliijis that have been sold to private ship
companies for as low as one-seventieth of their cost — I have in mind some
steamers sold to a line, which got a mail contract, and for hauling one letter
across the ocean that they received almost the entire price of those boats. You
are aware of that weird sort of picture, are you not?
Mr. Wir.DER. Yes. sir.
Senator I'.onk. Under the Jones-White Act wliich made that sort of raid on
the Treasury, we find this sort of language [reading] :
Tlie following vessels may 1h» taken and purcliased or ust^d by the I'nitod
States for national defense or during any national emergency dec-lared by
proclamation of the President :
and it goes on to define these vessels which have been sold, on which loans
have been made, and which are operating under these particularly juicy mail
contracts that Senator Black referred to [reading] :
Any vessel in respect of which an ocean-mail contract is made under
title IV of this act, at any time during the period for which the contract
is made.
In such event —
That is, in the event of the Government taking them for war purposes —
* * * the owner shall be paid the fair actual value of the vessel at
the time of taking or be paid the fair compensation for her use based upon
such fair actual value.
In other words, it means if we sell one of these beautiful steamers to a
private outfit, or make a loan to one of these outfits, and the Goverinnent has
given them the ves.sel almost as an outright gift, and wants to take it back,
th(>y must i>ay the entire-value price if tliey take it back.
Mr. WiLDFni. That is tlie way it was written.
Senator Bone. And they slcinned the Government out ol" its eyeteelh in
writing into law such sort of legislation?
Mr. WiLDBHi. I would say they did.
Senator Bone. Is that typical of the patriotism of these gentlemen? Is that
the sort of 100-percent Americanism tliat they boast of?
Mr. Wjlde». Yes, sir. Might I suggest also that you might inipiire of the
Treasury Department who made the overnight loan at a quarter of 1 percent
at the time that Stanley Dollar got his loans from the Shipping Board at
one-quarter of 1 percent for 20 years? That loan provision was siipixtse<l to
MUNITIONS INDUSTEY 309
be at the Government's current rate of interest on similar loans. Unfortu-
nately, it did not say " similar length." In other words, they made overnight
loans and Congress finally had to fix a definite interest rate, so that these
patriotic gentlemen have gotten these big loans at an interest rate of one-
quarter of 1 percent, three-eighths of 1 percent, and one-half of 1 percent.
Senator Vandenberg. That has been corrected, Mr. Wilder.
Mr. Wilder. Yes, sir ; that has been corrected.
Senator Vandenbejeg. I introduced the legislation.
The Merchant Marine Act of 1928 was discussed by Mr. Laurence
R. Wilder, former president of the New York Ship and active lobbyist
for the companies in connection with the Jones-White Act (Jan. 31,
1935, galleys 21-22 AS) :
Mr. Raushenbush. We find from the Black Committee files that Mr. Bardo
was questioned about it, and that on the bidding on the Manlmttan and Wash-
ington, that Newport News and Bethlehem had liid exactly the same figures,
which I believe was $9,750,000, and New York Ship had bid just a little under.
And there was further discussion also on the agreement between certain of these
shipbuilding companies, apparently on some of the other ships. A letter from
Robert Haig, of the Sun Ship, to Mr. Bardo was introduced, appearing at page
6734 of the record showing that Newport News and Federal and Bethlehem had
promised to go along on these Gulf Pacific boats, and he was trying to get New
York Ship to do so.
Do you know anything about that as a customary practice?
Mr. Wilder. It evidently is, sir. You have developed a great deal of it, and
I have dug out some myself. It apparently has been going on for as long as
these shipyards have been together. You see it is easier now. Prior to the war
there were quite a number of independent yards ; that is, before Bethlehem
bought them up, and now there are only three. When we get into the 1934
question, it is a little different.
Mr. Raushenbush. When the Jones-White bill was being put through, did
the American public at any time have any idea that that was what was going
to happen; that a few shipbuilders would get together and agree on what their
bids would be on the terrifically large merchant-marine program?
Mr. Wilder. No. sir; no, sir. The Jones-White Act has lieen to me a horrible
disappointment. My own efforts, and my own desires, were to put us back on
the high seas right.
At that time I had not had sufficient time to study the situation. I believed
that we could not build American vessels at competitive cost. I have changed
my view completely as a result of 4 or 5 years' further study, that we are de-
signed to build new, sound, safe, fireproof ships. It has been horribly abused.
I am with Senator Bone if he wants to take it off the books.
Mr. Raushenbush. Were you aware, in that connection, that the vice presi-
dent of the United States Lines. Mr. Sheedy, was apparently informing ship-
building engineers that he was giving the Shipping Board incorrect information
as to the British bidding on the ships, stating that he gave the amount of the
bids from British yards to the Shipping Board at a figure lower than actual for
mail-contract reasons?
Mr. Wiij)er. When you brought it out in the testimony, it was the first I
heard of it. That is just the way the act has been treated, as evidenced in the
Black and Post Office investigations.
Mr. Raushenbush. This was a measure put through for the purpose of secur-
ing adequate national defense, was it not. Mr. Wilder?
Mr. Wilder. Adequate defense; yes, sir.
Mr. Raushenbush. Here we come into a situation where the American public
did not know that a considerable number of things were happening: First, that
the shipbuilding companies were going to agree on what the prices on those
ships would be; second, that the Shipping Board was going to be incorrectly
informed by responsible shipping companies concerning English figures, for
mail-contract purposes ; and now we have a third thing that the American public
did not know that the safety at sea would not be adequately covered by those
ships built under that act.
A letter from the then Washington representative of New York
Ship, A. G. Foster (Exhibit 1460) stated that the vice president of
the United States Lines had given the Shipping Board figures on
310 MUNITIONS INDUSTKY
British building costs lower than the accurate ones " for mail-con-
tract reasons " (Jan. 24, 1935, galley 65 GP) :
Mr. Raushenbush. Before leaving this question of the merchant ships, I
call your attention to a letter dated August 12, 1931, signed by A. G. Foster,
and addressed to you, Mr. Bardo. Was Mr. Foster at that time your Wash-
ington representative?
Mr. Bardo. He was both in New York and Washington. He was at New
York first and Washington later. Is that dated New York or Washington?
Mr. Raushenbush. It is interoffice correspondence. I cannot make out
where it comes from.
Mr. Bardo. I think that is while he was in the New York oflSce. That would
be my feeling about it.
Mr. Raushenbush (reading) :
Dear Mr. Bardo : As requested by you, attached hereto, please find papers
which I received from Mr. Sheedy this morning.
Mr. Sheedy apologized for not having been in town when you called and
explained that he did not reach New York until late last night.
He wished me to emphasize the fact that the attached bids for the 705-
footers were based on the original 82-foot beam and that correspondence
from British shipyards suggesting increase in beam cros.sed our revised
plans calling for 86-foot beam.
Mr. Sheedy said that he would be very glad for us to make copies of all
this correspondence ; however, naturally wishing us to keep it confidential.
There was some British bidding on the ships? Was there not?
Mr. Babdo. There was.
Mr. Raushenbush. And the explanation of that is in this last paragraph
which reads :
Mr. Sheedy said that he gave the amount of the bids from British yards
to the Shipping Board at a figure lower than actual for mail-contract
reasons.
Mr. Bardo. I know nothing about that. You will have to ask Mr. Sheedy
about that. I know nothing about that.
Mr. Raushenbush. I will offer that letter for the record.
(The letter referred to was marked " Exhibit No. 14Gp " and is included in
the appendix.)
Mr. Raushenbush. What advantage would there be in portraying to the
Shipping Board a picture that the shipyards in Britain were bidding a
great deal under the American yards? Can you give any information on that?
Mr. Bardo. They were not a groat deal under. As a matter of fact, as
I recall it, there was only aliout .$700,000 difference in what one of the bids
was and our bid, between one of the British yards and ourselves.
Mr. Raushenbush. One of them was over $2,000,000 under, was it not?
Mr. Bardo. Not as I recall the flgiires.
Mr. R.VUSHENHU8H. .John Brown & Co., Ltd., Clyde Banks, Scotland, $7,295,-
260. That is over $2,000,0(^1.
Mr. Bardo. That would be, if that was one of them.
Mr. Raushenbush. And the otlier one. Fairfield Sliipbullding & Engineering
Co., ,is.1 69,000. That is again over .$1,000,000 under.
Mr. Bardo. I think it would als<i be enlightening to the connnittee, if you
understood something as between the difference that applies in building a
ship in an English yard and what applies in building that same ship in an
American yard.
Mr. Raushenbush. That is a long and complicated question, Mr. Bardo,
and we expect to get back to it later.
Mr. Bardo. All right.
Mr. Raushenbush. But at the moment the point bore is that the Govern-
ment was given incorre^'t information. Mr. Sheedy was president of the
United States Lines at that time, was he?
Mr. Bardo. No ; I think he was the executive vice president. Mr. Chapman
was president, as I recall it.
Mr. Raushenbush. The Government was given incorrect information on a
bidding arrangement under which the American yards arrived at a very simi-
lar price in two ca.ses and apparently expectation that that would influence
the mail-contract rates, if the Shipping Board thought, or was told, that the
British yards could build a great deal cheaper than they actually could.
MUNITIONS INDUSTRY 311
Mr. Bardo. Of course, that is something which Mr. Sheedy can tell you.
I could not answer that question.
Mr. Wilder, who had charge of the lobby for the Jones-White bill
in 1928 for the shipbuilders and owners, agreed to the statement that
" they skinned the Government out of its eyeteeth in writing into law
such legislation " (Jan. 31, galley 22 AS) :
Senator Bone. May I point out that that clause you spoke of yesterday about
the recapture of ships, is an auaendment and was not in the original act.
Let me at this point, Mr. Wilder, read this queer and peculiar provision of
the Jones-White Act under which ships that have been sold to private ship
companies for as low as one-seventieth of their cost — I have in mind some
steamers sold to a line, which got a mail contract, and for hauling one letter
across the ocean that they received almost tlie entire price of those boats. You
are aware of that weird sort of picture, are you not?
Mr. WiLDEiR. Yes, sir.
Senator Bone. Under the Jones-White Act which made that sort of raid on
the Treasury, we find this sort of language [reading] :
The following vessels may be taken and purchased or used by the United
States for national defense or during any national emergency declared by
proclamation of the President —
and it goes on to define these vessels which have been sold, on which loans
have been made, and which are oi>erating under these particularly juicy mail
contracts that Senator Black referred to [reading] :
Any vessel in respect of which an ocean-mail contract is made under title
IV of this act, at any time during the period for which the contract is
made.
In such event —
that is in the event of the Government taking them for war purposes —
* * * the owner shall be paid the fair actual value of the vessel at the
time of taking or be paid the fair compensation for her use based upon such
fair actual value.
In other words, it means if we sell one of these beautiful steamers to a
private outfit, or make a loan to one of these outfits, and the Government has
given them the vessel almost as an outright gift, and wants to take it back,
they must pay the entire-value price if they take it back.
Mr. WiLDEat. That is the way it was written.
Senator Bone. And they skinned the Government out of its eyeteeth in writ-
ing into law sucli sort of legislation?
Mr. Wilder. I would say they did.
Senator Bone. Is that typical of the patriotism of these gentlemen? Is that
the sort of 100-percent Americanism that they boast of?
Mr. Wilder. Yes, sir.
Further discussion of the passage of the Jones-White Merchant
Marine Act was had on April 5 with Mr. Wilder on the stand (galleys
83-85 WC).
E. — Securing of P. W. A. Funds for Naval Construction
One of the most successful moves on the part of the shipbuilders
was to secure the allocation of $238,000,000 of P. W. A. funds to the
Navy for shipbuilding. Ships were started which will require an
additional $40,000,000 to $50,000,000 to complete.
Public Works Administrator, Harold L. Ickes, testified on Febru-
ary 22 (galley 81 FS, seq.).
He stated that $238,000,000 was allocated from the Public Works
funds to the Navy Department for construction of naval craft in
1933. An additional $39,409,459 was allocated for other purposes.
The Executive order allocating this money was issued June 16, the
day the act was passed (galley 81 FS).
Up to December 31. 1934, the sum of $66,547,913 had been expended
out of the $238,000,000 allocation.
Secretary Ickes stated that the purpose of the Public Works pro-
gram was to afford employment.
Detailed information furnished by him was read by the chairman
(galley 82 FS) :
The Chairman. Mr. Secretary, in the information furnished the committee by
your office a paragraph is devoted to the progress on private contracts awarded
out of Public Works Administration funds, i want to read from that. It shows
that of ship construction, hull and machinery, I here was devoted for hull and
machinery construction on contracts awarded .">11 ;^,4SS.600 ; for ordnance, $18,-
728,175; of the hull and machinery contracts awarded, of work actually per-
formed, there was only .$85,411.!jG.j, and of ordnance $10,515,000.
Other purposes to which this P. "W. A. funds were devoted were the purchase
of aircraft, $5,709,80(3, and of that awanl $8,207,075 had been delivered as of
December 31, lO.'M : radio equiiiment. thoro was provision made in the contract
for $678.63.3 worth, and $278,314 worth had been utilized on December 31; pur-
chase of mac hine tools for ordnance, and so forth, .$268,008. Practically all of
that had been utilized as of December 31. your fi.!rures showing $206,218 of it
having been used.
For the purchase of machine tools for shore stations, and so forth, thore had
been awarded for contracting $1,738,240. Of this $1,6:36,500 had been used.
For the purchase of equipment for supply department, and so forth, $170,J>49
had been awarded and $170,915 had been used.
For the construction and improvement at shore stations (including storm-
damage repairs) $19,977,064 had been awarded and $16,186,231 had been spent
as of December 31, 1934.
It seems evident from this, Mr. Secretary, that there may be question as to
how much employment w;is actually afforded by these expenditures, since it
is altogether likely that a great deal of the supply that was bought was from
stock and did not occasion any new employment to make it available.
Are y<iii at nil conversant with the actual facts in tliat connection?
Mr. Ickes. No; not at all.
The Chairman. Do you know anything about it at all?
Mr. Ickes. I know nothing about that. Senator. The allocations wore made,
and after that it was up to the Navy.
Mr. Ickes stated that he was not Administrator when the Execu-
tive order was issued (galley 83 FS).
The Chairman. There has been furnished the comnnttee a chart showing
the division of work under P. W. A. money as follows, which I tbink you luive
before you, showing the name of the company which bad ships under construc-
tion, and the percentage of <(»mpletion .shown as of .Tanuiiry 1, 1935.
312
MUNITIONS INDUSTRY 313
Mr. IcKES. I have not got that liere, Senator. Was not that furnished by the
Navy?
The Chairman. This shows the name of the company, and the Chair will ask
that the chart be made a part of the record as an exhibit at tliis point.
(The chart referred to was n.'arked "Exhibit No. 1629" and is included in
the appendix.)
The Chairman. In the last column it shows the percentage of completion as
of January 1, 1935.
Mr. IcKES. Yes, sir.
The Chahiman. The Newport News Shipbuilding & Dry Dock Co., for ex-
am'ple, building two air aircraft carriers from P. W. A. funds, was awarded the
contract in 1933, and on January 1, 1935, had completed its job to the point of
about 29.6 percent ; the Bethlehem Shipbuilding Co. had a percentage of com-
pletion of 47.1 percent; and the New York Shipbuilding Co., under its various
jobs, had a percentage all the way from 15.6 to 31.4, and so on down through the
entire exhibit.
Have you had any larger showing of the affording of actual employment
through other allocations than has been true as respects allocations to the Navy
Department?
Mr. IcKEs. Yes, Senator; but I have not brought those figures, not knowing
they would be asked for. We can supply them, if you need them, if you want
them.
The Chairman. Roughly, can you indicate to the comuiittee how direct and
ima'ediate has been the effectiveness of other Public Works Administration
allocations?
Mr. IcKES. Public roads have give us the best results of immediate and direct
employment, but we have not got the figures here. But a good many others
run way ahead of this.
Senator Clark. There was a very large amount of money spent on river work,
which is direct employment; is it not, Mr. Secretary?
Mr. IcKES. Yes; river and harbor work, reclamation work, and railroads.
The Chairman. Since this naval allocation was one of the first, if not the
first, appropi'iations from the Public Works funds, can you indicate to the
committee who of the Navy Department appealed to the Public Works Adn.inis-
tration for these funds for this allocation?
Mr. loKES. You mean for shipbuilding?
The Chairman. For shipbuilding.
Mr. IcKES. It came under an Executive order.
The Chairman. The Navy Department did not come direct to Public Works
for the appropi'iation?
Mr. IcKES. No ; we got an Executive order the same date that the act was
signed.
The Chairman. On the same day that the act was signed?
Mr. iGKEs. That appears to be the date of the Executive order, June 16, 1933.
The Chairman. H:id the Public Works Administration given any consideration
priiir to this Executive order to the request of the Navy Department?
Mr. IcKES. No ; the Administration had been set up but had not begun to
function.
Senator Clark. Had you been appointed Administrator?
Mr. IcKES. The same order that allocated the money for roads, $400,000,000,
and the $238,000,000 for Navy, set up the Public Works Administration, the
Special Board of Public Works, and the Acting Administrator.
The Chairman. You were then the Acting Administrator?
Mr. IcKEs. No ; Colonel Sawyer was Acting Administrator. I was not ap-
pointed Administrator until about July 9.
Senator Clark. So that the $238,000,000 for ship construction had been sub-
tracted from the $3,300,000,000 before the Administration was set up, or at the
same time the Administration was set up?
Mr. Igkes. Yes.
Senator Clark. And was never turned over? This $238,000,000 never came
under the control of the Public Works Administration?
Mr. IcKEs. We adopted a resolution at the first meeting of the special board
ratifying it, although it had been designated and set aside by the Executive
order.
Senator Clark. May I ask, Mr. Secretary, whether you know whether the
$238,000,000 allotted by this Executive order was expected to complete the
32 vessels or only to begin them?
314 MUNITIONS INDUSTRY
Mr. ICKES. Senator, I thought it was to complete them, but I cannot say that
I had any clear understanding about it.
Senator Clakk. I just wondered what information you had on that subject.
Senator Vandenbekg. And you have no information, as I understand it, as to
why the figure was set at $^8,000,000?
Mr. IcKES. None at all.
Senator Vaxde^tbekg. You do not know whether it was set there for the pur-
poses of building a Navy or for the purposes of creating employment?
Mr. IcKEs. I simply know that the Executive order was issued setting up the
Public Works Administration and designating these allocations.
The Chairman. "What was your first knowledge of this allocation?
Mr. Jokes. When the Executive order was issued.
T:ie Chairman. That was in June 1933?
Mr. IcKES. It was issued on June 16, 1933, setting up a special Public Works
Board, and it designated an Acting Administrator.
Senator Vandenberg. Have you a copy of the Executive order before you, Mr.
Secretary?
Mr. IcKES. Yes ; I have.
Senator Vande:nberg. I think that ought to be put in the record.
The Chaikman. Let it be made a part of the record, but before would you
let the committee see it, please?
(The Executive order referred to was marked "Exhibit No. 1630.")
The Chairman. The Executive order reads:
EXEx:^Jn^"E ordek — administbatton of ptjbjlic works
Pursuant to the authority of an act to encourage national industrial
recovery, to foster fair competition, and to provide for tbe construction of
certain useful public works, and for other puri>oses, approved June 16. 1933,
and in order to effectuate title II — Public Works and construction projects —
thereof :
1. I hereby appoint Col. Donald H. Sawyer to exercise temporarily the
ofBce of Federal Emergency Administration of Public Works.
2. I hereby appoint a Special Board for Public Works consisting of the
following: The Secretary of the Interior, chairman; the Secretary of War;
the Attorney General; the Secretary of Agriculture; the Secretary of Com-
merce ; the Secretary of Babor ; the Director of the Budget ; Col. George R.
Spalding; and Assistant Secretary of the Treasury Robert.
During the ensuing 30 days the Federal Emergency Administrotor of
Public AVorks sliall have authority to allot the sum of not to exceed $400,-
000.000 provided for in title II of said act for highway building for dis-
tribution among the States. Territories, and the District of Columbia, and
authority to allot tlie sum of not to exceed $238.0(X>,0(X) to the Depart-
ment of the Navy for the construction of certain vessels, the construction
whereof conforms to the London Naval Treaty and has heretofore been
approved by me.
The distribution of the money herein allocate<l for public roads shall be
subject to the approval of the Board for Public Works.
The Federal Emergency Administrator of Public Works is hereby au-
thorized to employ such necessary i)er.sonnel on a temporary basis as may
be approved by the Board.
During the next 20 days it shall be the duty of the Federal Emergency
Administrator of Public Works and the Board herein constituted to study
and report to me on all public-works projects which have heretofore been
submitted or shall hereafter be submitted.
Franklin D. RoosErviiLT.
The White House,
June 16, J93S.
The order is indicated as being no. 6174.
This order, Mr. Secretary, declared that not to exceed $238,000,000 was to
be allocated to the Department of the Navy. Tet the full amount was at once
allocated?
Mr. IcKEs. It was ; yes.
The Chairman. Upon whose determination was that full allocation?
Mr. IcKES. The Si)€cial Board of Public AVorks voted the allocati(Mi and then
it followed the usual proceilure and was submitted to the President for his
ratification.
MUNITIONS INDUSTRY 315
Senator Pope. Do you have the resolution that was adopted by the Board,
Mr. Secretary?
Mr. IcKEs. No ; but I will be very glad to furnish it.
Senator Clark questioned on the difference between an allocation
of funds to roads and to the Navy (galley 84 FS).
Senator Clark. Mr. Secretary, if I understand this Executive order correctly,
there is one very essential ditference in the handling of funds allocated to
highway construction and funds allocated to naval construction, and I would
like to see if my understanding Is correct.
That under the order the funds allocated for naval construction were turned
over to the Navy Department and passed out of the control of the Public
Works Administration V
Mr. ICKES. Yes.
Senator Clark. The Board of Public Works. On the other hand, by the
terms of the order, the distribution of the money as allocated for public roads
was subject to the approval of the Board of Public Works, which meant that
the Board of Public Works retained supervision of the expenditure of that
money ?
Mr. Jokes. That is right.
Senator Clark. That is correct?
Mr. IcKES. That is correct?
Senator Clark. So that the allocation for naval construction passed entirely
out of your control?
Mr. Ickes. That is right.
Senator Clark. But the allocation for other types of work remained within
the control of the Public Works Administration and subsequently the Admin-
istrator?
Mr. IcKES. When you say "other types", you mean roads?
Senator Clark. I mean roads in this order and, as a matter of fact, all other
allocations did subsequently, did they not?
Mr. ICKES. No ; they did not Senator. As a general thing, when we made
an allocation to another department, Agriculture, Treasury, or whatnot, it would
pass out of our control and they used it for the purposes specified.
Senator Vandeneerg. You did not make any "whatnot" allocations, did you?
Mr. ICKES. The " whatnot " referred to the department and not to' the
allocations.
It was brought out that the Navy had advertised for bids the
same day it received the allocation (Feb. 22, galley 85 FS).
Senator Yandenberg. When were you appointed Administrator?
Mr. IcKEs. I think it was July 9.
Senator Yandbnbeewj. July 9. When did you and your board make this
allocation?
Mr. ICKES. The date of the order of the transfer of the funds was June 21,
and our meeting was probably a day or two prior to that. I have not the exact
date.
Senator Vandeneerg. That would be approximately when?
Mr. IcKES. Oh, it would be June 19 or 20, along in there.
Senator Vandenberg. June 19 or 20. How do you explain the fact that the
Navy Department advertised for bids on June 16. the veiy day the Executive
order was issued, 3 or 4 days before the money had been allocated under the
terms of the Executive order, and the Navy Department advertised for bids for
the entire $238,000,000 worth of work?
Mr. ICKES. That is not a matter within my knowledge. Senator. I did not
loiow that they had advertised for bids on that date, and, therefore, I cannot
explain it.
Senator Vandenberg. W<iuld not the fact that the Navy had immediately acted,
the moment the President signed the Executive order, explain the reason why
you and the board felt no latitude in allotting less than $238,000,000?
Mr. IcKES. I do not think we were advised that the Navy had advertised for
bids on that date, Senator. So that it could not have entered into our con-
sideration.
Senator Vandetnberg. If the Navy did advertise for bids on June 16, it adver-
tised without authority, did it not?
Mr. Ickes. Well, yes ; but that was not taking a very long chance. They could
reject bids, if there was a failure in the allocation. I suppose, after all, it was
316 MUNITIONS INDUSTRY
to the credit of the Navy that they wanted to get to work as soon as possible in
anticipation they would have money to spend.
Senator Vandenberg. Obviously they depended upon the complete allocation
because of the Executive order.
Mr. ICKES. It was not an unreasonable expectation, Senator.
Senator Vandenberg. In other words, the President was handling the matter
personally right from the start?
Mr. IcKES. The Executive order speaks for itself.
Senator Vandenbeeg. And the action of the Navy Department corroborates
that prospectus.
Mr. Ickes also testified that the P. W. A. had allocated to the War
Department for military purposes $99,646,518, for nomnilitary pur-
poses, including river and harbor work, $346,813,228 — a total of
$446,459,476.
The question of the efficient use of Public "Works Administration
funds in providing employment came up several times (Jan. 29,
galley 93 GP). Navy officials estimated that within the first 2 years
$150,000,000 of the $238,000,000 allocated would be used up.
Senator Vandenbeug. Admiral, if that is a fair anticipation of what you
expected, how could you have hoped to use P. W. A. money for the purpose
it was intended, namely, to create immediate employment?
Admiral Land. Senator, we actually did relieve unemployment outside the
shipyards and the navy yards, and, more important, we kept people who were
employed from being let out by virtue of this program.
Senator Vandenbehig. How?
Admiral Land. By the construction of this program.
Senator VANDENBEnjc. How much money did you get from P. "W. A.?
Admiral Land. $238,000,000.
Senator Vandenbekg. How much of that money do you think actually went
into unemployment relief?
Admiral Land. I know how much we spent the first contract year.
Senator Vandenbekg. How much?
Admiral Land. We estimated $40,000,000, and including both of these 32
ships and the 5 increased Navy which were let at the same time, we spent
$47,000,000 the first contract year on construction.
Senator Ci^ark. That was for botli wages and matei-ialsV
Admiral Land. That is everything which was six-nt out of the Treasury.
Senator Tlark. Total expenditure for that year?
Admiral Land. Out of the Treasury; yes, sir.
Senator Clark. $47,000,000, Admiral?
Admiral Land. $47,000,000 plus. Our own private estimate was about $43,-
400.(X)0 on these ships, and we spent about $43,700,000 on the 32 ships. The
$47,000,000 covers the 37 ships.
Senator Vandenberg. Your own estimate was that you were going to expend
$43,000,000, as I understand it.
Admiral Land. On the 32 ships.
Senator Vandenbioig. Out of $238,000,000.
Admiral Land. The first year of construction.
Senator Vandenkerg. Was not the $238,000,000, so far as the P. W. A. was
concerned, in contemplation of complete expenditure in 10:?3?
A<lmiral I^and. No, sir ; it is not my understanding. The law oxten<ls for 2
years, and by interi)retation of the authorities, the funds are available under
our contracts until expended.
Senator Vandenbekg. But the P. W. A. money was not for the purpose of
building battleships?
Admiral Land. No, sir.
Senator Vandenberg. It was for tbe purpose of creating immediate employ-
ment, was it not?
Admiral Land. Yes. sir; as I understand it; but it was 2 years. I am not
sure. You know more about that than I do. I think it was 2 years.
Senator Vandenberg. Let us say 2 years. How much out of the .$238,000,000
would you spend in 2 years?
Admiral Land. I can give you a pretty accurate estimate of that. I cannot
do it now because the end of the 2 years is not yet.
MUNITIONS INDUSTRY 317
Seiiator VANDmBK^ in gei^ml ^ something like $87,000,000 up
not hold you down very closely «" yo^i;.^«timate.
Admiral Land,. I th^^k ai-ound $1^^ <?7O,O0O,OOO more than
Senator Vandenbekg. ^loO.OUU^ouu'. iuai wuum utr i ,
you have spent up to date? ^ contractual construction.
beive L"^/""^ '^ / , A. KpHpve I can answer that question, benatoi.
tetSS' yAZ™i.°ProSlwy yiu cannot. You can see what challenges
my interest. „ -, t a
The question of the efficient use of P W A funds was discussed
also by Admiral Robinson (Jan. 29, galley 95 (ji').
iutr/oSrsrrc="in\^"is^^^^^^^^^
riats That is a roitgU figure which we use tor covering all our work. It >s
'■"senairvi^BEBO. Seventy percent of $47,000,000 Is about $34,000,000!
tetr ^rrZJ'TfJ? tr/S'tlfoufsUle ^gure on lahor, wouU, it
the first year in round numbers?
iTaior ^.'SridSta^d'dld?^^^^ you to say a moment ago
that after ?;« first aSotment of '$238,000,000 of P W. A. funds, then m 1934
"idSSafL^^^^^^^^^ - difee^ntlat^
-^Str?SA?i^?aS^SeSVr?^^"^^ou do not know where
"^'li^^lrZT^L-, 1 know where we got it, but I do not know how it is
""^^Senator Claek. Was it authoTized in any act of Congress and appropriated
for in an appropriation bill? , ^^
t^aS^? ^:;JS ;'?f »';r:iSt'yro«s.ss;o^' o?)^,.^f^^,^^-,
ingtlie first year, what was the cause for granting an additional $40,000,000?
Admiral Land. A new program.
Later :
Senator Vandeneeijg. You said that the $40,000,000 was for a new program?
Admiral Land. Yes, sir. ^^..on-,-?
c?ATifltnT V\NDENBEEG. You mean a new Navy piogiam/ , , ,
iXSl LAN^ A new Navy program, of which $25,000,000 was allocated to
«hin<s 20 shiDS in the 1934 Navy shipbuilding program. •
Snatoi cSbk. What I am getting at, so far as the reemployment is
concerned Admiral, was in spite of the fact that you were only able to
spend for that purpose in the first year $87,000,000, and had approximately
139387—35 21
318 MUNITIONS INDUSTRY
$150,000,000 unexpended in the first allocation, whv vou came back and got
another $40,000,000 in the second year.
Admiral Land. That is what we got.
Senator Vandexberg. Have you an application with them for further allo-
cation for the coming year?
Admiral Land. We have a bill before the Congress for increase of the Navy
under the present appropriation bill of 24 ships. That is all.
Senator Vandenberg. Have you an application v\-ith the P. W. A.?
Admiral Land. Not for ships, so far as I know.
Senator Vandenbekg. Have you an application with the P. W. A. for anv-
thing?
Admiral Land. I expect so. I think so.
Senator Vandenberg. Do you recall what it is?
Admiral Land. No, sir. It is not in my province.
Senator Vandenberg. Is not the Navy asking for $100,000,000 more from
P. W. A.?
Admiral Land. I do not know.
Senator Vandenberg. You have not heard that was the fig-ure?
Admiral Land. I have not heard that figure. I know l:he Navy is asking
for something, and I have seen the break-down of the items, but it comes
more directly under the Bureau of Yards and Docks, tliat is the public-works
part of the Navy Department.
Senator Vandenberg. I am not quarreling with \<>u. Admiral, or with the
Navy, but I am trying to disc-over whether P. \V. A. money is being spent for
P. \V. A. puriTO.ses or Navy purposes.
It was brought out that the $238,000,000 of P. W. A. funds were
used to begin ships wliich it would take an additional $40,000,000 to
$55,000,000 to complete (Jan. 29, galley 97 GP).
Senator Vandenberg. Admiral Land, when you allocatetl this $238,000,000 to
the various ships to be constructed, did yon allocate the complete cost of the
ship, or did you divide the $238,(X)O.000 among a coiisiderablv larger number of
ships than the $238,000,000 would pay for in total?
Admiral Land. No, sir; this was a .specific sum, for a specific number of ships
which were advertised for, and contracts awarded to private yards, the re-
mainder being alloc-ated to navy yards.
Senator Vandenberg. Do you mean that $238,000,000 would pay the full bill
for all the shii)s that were started under the allocation?
Admiral Land. Thirty-two ships. That was our estimate.
Mr. LaKoiche. Adniir.il. 1 believe I can tlirow a little light on that. I
think that what the Senator has in mind is that these ships will not be com-
pleted on this money, exactly as in the past ships have been completed under
increases in the Navy. In other words, iire there not s<Mne extras which are
considered an essential part of that, which are not providtMl on these ships?
Admiral Land. That is probably correct. The.se weie estimates baseil on
ships complete and ready for sea. and there will be some reserves, particularly
ordnance reserves, that we will have to get. probably get additional funds for.
Also, conditions have very materially changed since the estimates were made.
We all know that prices have gone up since that time, and they may go up
further, so that no one can give you an accurate estimate as to the final cost
of these 32 ships at this time.
Senator Vandbnbfhio. Could you give me a general idea of how much more
than $238,000,000 is nece.ssary to finLsh the one job which was started with
the $238,(XX).0(X)?
Admiral Land. Yes, sir; somewhere between 40 and 55 million dollars is the
estimate as of today. That includes, as I say. all reserves which were not
originally estimatetl on.
The Chairman. That will complete the job for whicli the Public Works funds
were allotted?
Admiral Land. Yes. sir.
F — Lack of Control 0\t,r Owxf.r.'^iiip
In spite of the claim that the Xavy need.*^ the large shipyards as
part of the preparation for national defen.se. the (lovernn'ient has
no effective control ovei- them.- New York Shipbuilding Corpora-
MUNITIONS INDUSTRY 319
tion, when it was named American Brow-n Boveri Corporation im-
ported Swiss and put them m charge of - .^/^ P^^/J^^^^^l J^^^r
Two other companies, according to the Navy, lost copies otcriusei
designs. No prosecutions under the espionage acis were biought,
although the Navy considered them .
The lack of stable control was indicated m the New Y oik toinp
buildinc? Corporation history. A former president, Mr. Laurence R
W der'usecl the companv's stock as collateral m support of his own
speculative nterests. When he defauhed on these loans, the s ock
rnrintoLe hands of bankers, who pledged it against loans ot their
Zn. When these failed or were liquidated, the controlling stoc.
went into the hands of banks whose mam interest m it was to get
Hd of ?t They would have been glad to sell it to anyone, and were,
of course, in no position to find out whether or not the purchaser
would find it convenient to act for or against the interests of national
defense in an emergency. ,, , • ^ iooq
At about the tim? of the naval awards on the big program of 1933
the stock passed into the hands of speculators who t^estified to the
effect that the only reason they bought it at all ^^^^ because of the
fact that it looked like a good speculation, m view of the new navai
buildin- program. The stock could just as easily have fallen into
the hands of some foreign investors who, m time of war, might be
potential enemies and who could, without any great ^^"y ™ck
the organization almost overnight. The company is not, m 1935, m
the hands of experienced or professional shipbuilders. , . ,,
The detailed story of this last transaction was developed m the
''''^1:^:^ion of control of New York Ship stock were
be<^un by Mr. John O'Connor, who according to his testimony took
up'the matter with Mr. George Buchanan, who took it up with Mr.
Bernard Smith between March ^10, 1933 (galley 61 ID, Apr. 15).
Mr. O'Connor was to get 5 percent of the sales price of the stock from
Qiase National Bank, which held 50,000 shares; also a call on 2 000
shares. He offered to split commissions with Mr. Buchanan (gal-
lev 61 YD). The negotiations of Chase were handled by Mr. i.ari
G Hines, vice president of Chase Securities Co. (galley 61 YD)
No commission was paid to Mr. O'Connor, according to his testi-
mony although the stock changed hands through Mr. Smith (galley
63 YD^ Mr O'Connor also testified he did not receive the promised
calls although the stock rose in the market Mr. Buchanan filed an
affidavit with the committee to the effect that he had not contacted
Mr Smith in the matter early in 1933 (galley 63 YD, exhibit 19a2).
This was in contiadiction to Mr. O'Connor's testimony.
The question of the connection between the ^^^arket activity of the
stock and the naval program was raised (Apr. 15, galley 64 ID)
Mr Henry H. Farley wrote to the Koppers Co. (a Mellon inter-
est V 'also to Sun Oil, Bethlehem Steel, and United States Steel re^-
garding?he possibility of purchasing contiol of New York Ship with
fdown^ayment of only $450,000 (Apr. 15, galley 67 YD). He had
an agreement with Mr. Hines, of Chase, f^r^.^f-P^^-^^VoTstS
M? S H. Vallance, senior partner of Vallance & Co., testihecl
(Apr. 15, galley 68 YD) that Mr. Farlev approached him on the
matter of acquiring stock control from Chase late m June 1933.
Chase Bank and Bancamerica-Blair had 89,880 shares which they
320
MUNITIONS INDUSTRY
were holding for $20 a share (galley 68 YD). He testified that Mr.
Hmes, of Chase, had offered his firm 5-percent commission. That
was approximately $90,000 in commissions. In a Vallance & Co
oliice memorandum (exhibit 1971, Apr. 15, galley 69 YD) the New
York Ship Co. was described.
He stated that he had secured the information of New York Ship's
expectations of getting between $30,000 and $50,000 for Mr Earle
Hmes (Chase), H. H. Farley, and Joseph W. Powell (United Dry
Docks). He was questioned on this matter by Senator Vandenberff
(galley 70 YD, Apr. 15). ^ ^
Mr. Powell denied that he had talked this over with Mr Vallance
at this time (Apr. 15, galley 71 YD).
Mr. Vallance discussed the stock control matter with Mr. Williams
Burden, of Edward B. Smith & Co., identifying him as a friend of
Mr. Frederick H. Prince (galley 70 YD). Mr. Burden, accordin^^
to the testimony of Mr. Vallance, reported about July 6, 1933, that
Mr. Prince (galley 70 YD) was now interested, provided Mr. Powell
Avould recommend the purchase of the company (galley 71 YD).
He quoted Mr. Powell as saying $20 was too high (galley "^71 YD).
Mr. Powell stated that tlie P. W. A. program had changed his
views concerning the company's stock (Apr. 15, galley 72 YD).
At a meeting on July 11, 1933, Mr. Prince staled that he wanted
Mr. Ben Smith in on the purchase (galley 73 YD), according to
Mr. Powell's testimony. ' ''
Apparently Vallance had no knowledge that a bid was made for
Mr. Prince (galley 75-76 YD) and Mr. Hiiies (Chase) informed Mr.
Vallance that one of the conditions of the sale on July 20, 1933, was
that the identity of the purchaser would not be disclosed by the
bank (galley 76 YD). He wired Mr. Burden on August 9 (Exhibit
1978, Apr. 16). ^
It was explained by Mr. Hines (Apr. 16, galley 80 YD) that the
company, thougli retiring a certain amount of its stock through open-
market purchases, had made the blocks of stock in the control of
Chase Securities and Bancamerica-Blair an absolute majority with
voting control (Apr. 16. galley 80 YD). In a memoranduin dated
May 16, 1933 (exhibit 1989, Apr. 16, galley 80 YD) Mr. Flook was
cited as having pointed out the result of the company's retiring stock
and the blocks which the banks held; i. e. it would "make the bank's
share more valuable. It was developed that Mr. William Flock,
chairman of New York Ship bought the stock for his own account
(Apr. 16. galley 81 YD).
Testimony of Bernard E. Smith (Ben Smith) (Apr. 16, galley 81
YD-89 YD) clears up tlie testimony of the other witnesses. It
reveals that Smith first heard that this stock was for sale as early as
AprH 1932, through a lawyer named Sumner, of New York (galley
81 YD), but was not interested and paid no attention to the matter
until early in July 1933, when approached by Frederick H. Prince
and agreed to act Avith Prince in the purchase of the block of approxi-
mately 90.000 shares of New York Ship Founders stock, controlled by
Chase Banlc and associates. The testimony of Farley, Vallance. Bur-
den, and Powell is substantially confirmed, but Smith would not go
througli with the deal with Joe l^owell as president.
Smith stated that his present interest in this stock lay in advan-
tages to be gained by New York Ship getting their share of the new
MUNITIONS INDUSTRY 321
naval contracts (galley 81 YD), Information he received came from
statistical reports, plus information from Joe Powell, representmg
Print. It was brought out that Smith actually made a bid for the
stock through Mr. Prentiss, of Hornblower & Weeks, of $17 a share,
which was turned down (galley 82 YD). It was also brought out
when Hines received the information that such a bid had been made
he passed the information on to Vallance stating that the bid was too
low and " Tell your friend not to make a run around the end. I am
handling this, not Jonas Anderson ", indicating that he knew that it
was Smith's bid (galley 75 YD). ,^. , , rr.
A day or two later Hines contacted a friend of his, Mitchel iara-
dash. who was also a friend of Smith's, and arranged for Taradash
to introduce him to Smith, which was done within the next 2 days
(o-alleys 82 YD, 85-86 YD— also see affidavit dated Apr. 11, 1935, to
committee by Taradash and galley 91 YD— exhibit 1933). Smith
instructed Taradash to see what sort of a deal he could work out
with Hines, Taradash's part in the picture being identical with that
of Prentiss, of Hornblower & Weeks, who made the first bid for Smith,
which was turned down. Smith admitted buying the stock at prices
of 151/2 for 30,000 shares and I6I/2 for the balance, or approximately
60,000 shares, and instead of splitting with Prmce, as originally
intended, kept same for himself, and a week later closed a deal with
the Cord Corporation, selling them half interest, or 45,000 shares, at
a 31/2- to 4-point profit, netting him a profit of $169,000 (galley 83
YD). Commission of 50 cents a share was indirectly paid to Smith
through a reduction in the price. , 1 .i 1 j
Smith confirmed the fact that Gene Tunney was placed on the board
of directors to represent his interests, which were pooled with those
of the Cord Corporation under a 2-year agreement, which provided
that the control would remain where it was and that the Cord Corpo-
ration would take care of the management of New York Ship (galley
83 YD) (exhibit 1990, galley 84 YD) . He also testified that the C ord
Cor])oration had no authority to offer this stock for sale without con-
sulting him, which had not been done (galley 83 YD) •
Funds for the purchase of this stock came from the Cliliwood Cor-
poration of New York and the Sevenoaks Corporation of Canada,
both wholly owned by Ben Smith and Tom Bragg and the actual
receipt and deliveries of the stock was made in the name of these
corporations through some of their various brokerage accounts Mr.
Smith was questioned regarding John O'Connor and denied that he
had ever had any dealings with him, or that George Briggs Buchanan
had approached him in behalf of John O'Connor.
Smith's testimony substantiated Mr. Buchanan s affidavit, pre-
viously mentioned. It was also brought out that Smith had been
associated with Bernard M. Baruch and had picked up 5,000 shares
of New York Ship stock for Baruch's account but that Baruch had
advised him that inasmuch as New York Ship expected tx) get Gov-
ernment contracts he did not want the stock, and therefore Smith
took it back (galley 86 YD). i . xt v^.i.
Further questioning of Smith regarding the sale of ^ew York
Ship stock to a Mr. Wanger showed that Smith had sold some stock
in order to establish a $43,000 tax loss (galleys 87 and 88 YD).
Hines' testimony resumed after Ben Smith had been heard (galleys
89 and 90 YD) substantiated, to a great extent, the previous testi-
322 MUNITIONS INDUSTRY
mony of O'Connor, Farley, Vallance, Burden, and Powell, but he
would not admit that he had agreed to pay any commissions. He
did, however, admit that the matter of commissions had been dis-
cussed, and that the usual commission in such instances is considered
5 percent.
He also admitted that he had approached Mr, Taradash in an at-
tempt to negotiate directly with Ben Smith and that as a result a
deal was consummated (galleys 91 YD and 95-96 YD). It was also
noted, however, that Hines' testimony did not agree with memoran-
dums signed bv himself which were submitted to his superiors in the
Chase Bank ("-alley 93 YD) (exhibit 1998, dated July 19, 1933).
Through examination of Frank J. Quinn, confidential secretary to
Ben Smith, Smith's testimony was substantiated (galleys 97-98 YD).
Continued examination of L. B. Mamiing, chairman of the board
of New York Ship, disclosed the fact that the Cord Corporation in
joining with Ben Smith in the purchase of New York Ship founders
stock, thought that they were in on this deal on the same basis as IVIr.
Smith had gone into it, and did not know that the}' had paid a pre-
mium of approximately $169,000 for their stock (galley 99 YD). It
was also indicated that they had no knowledge of, or had been in-
terested in, shipbuilding prior to that time. Mr. Manning reiterated
some of his former testimony concerning politics in the organization
(galleys 2 and 3 PP) and intimated that C. L. Bardo had dominated
the business and that the board of directors were not particularly
active. It was also brought out that Xew York Ship had lieen forced
by the United States Shipping Board to take over control of the
Export Steamship Corporation and then only a few months ago
(about Feb. 1935) had received word from the same organization to
dispose of their holdings in the steamship company.
Mr. Manning's testiinonv reveals that negotiations with the United
States Shipping Board for the acquisition of the Export Steamship
Corporation by Xew York Ship liad been handled by C. L. Bardo,
and in answer to further questions, Mr. Manning admitted that he did
not believe that it was right for a shipbuihling company to have
stock ownersliip in, or c<mtrol of. a steamship line; that they did not
want it; and that they woukl be very glad lo turn it back if there
was some way in which thev could get their money back (gallev 3
PP).
In addition to the Cord Co.'s entrance into the transportation field,
it was noted that they had a further interest in the nuinitions business
through the Stinson Air Craft Corporation, which had been selling
planes to South America, Central America, and China (galley 4 PP).
SECTION VIL— ATTEMPTS TO LIMIT PROFITS
The failure of the Navy Department to turn the navy yards into
effLtive yardsticks by which the charges of private shipyards could
brmeasufed and kept down has resulted in leaving the profits of
the shipbuilders practically uncontrolled
In 1933 and 1934 the companies secured contractus ^^om the ^avy
DeDartment whereby the companies are indemnified by the D^PfJ^
menrfor T ses in the cost of labor or materials In other words, they
made die Government bear a large share of whatever risk there was
"^The companies knew that the Navy Department needed the ships
nnd fmnklv stated that they were bidding so high on a fixed-price
Ki rS mtke it impossible for the Navy to accept those prices
f Testimony S Ferguson, galley 48 FS, Feb. 20; Wakeman, galley
. 8 OD Feb 28 ) To th^ Extent that the Navy needed those yards,
this was a ve^y effective method of forcing the Government to bear
lai-e share o^f the risk, something it had never done before, except
durine: the war.
The^Zw'nces for increased prices were ^^^^e lingual in v^^^^^^^
rateo-ories of ships. In 1933 there was a limitation ot 15 percent on
ife amount the government would pay for incre-ed pri^^^^^^^^^^ labo
and material on light destroyers. On the two aircraft carriers, now
everThich were contracted for at $19,000,000 each, the limitation wa^
nrir4^he'L^vTwtt further and took off all limitations. The
light cruisers, destroyer leaders, and light destroyers, ^« ^^^^ f^^^^
submarines, were all contracted on an adjusted-price bass without
annimrtation on the amount of risk the Government would have to
onrrv for the benefit of the shipbuilders. . .
l7 1934 before the Navy took off all these limitations, and by so
doino- practically underwrote the companies and ^id the gambling lor
Them, Sie Congiss had passed the Vinson-Trammell bill wh-h w-|
intended to limit the profits of the shipbuilder to 11.1 percent ot
actual cost ( 10 percent of the total charge to the Government)
Various of the companies stated on the stand that they had m no
"'TrfZHly^^^il.e bill was passed the shipbuilders and the large
suppliers and Navy subcontractors, and later the comptrollers of these
various crroups, got together in long sessions to determine how the
rnterprerat'ons'of the bill could be arranged to suit their interest.
The main question was how to increase costs.
It will be remembered (sec. IV) that the Navy has no information
at all about costs in private yards. Neither the Comptroller General
nor the Treasury have examined the costs, ratios of overhead, etc.,
since the war. ^ ^^ ^ ,111 • +^ +u^
The law provides that all profits over 11.1 percent shall go into the
Treasury. A ship takes from 2 to 3 years to build. Another halt
323
324 MUNITIONS INDUSTRY
year passes before adjustments resulting from the final trials are
made. Another half year elapses before the company puts the final
figures of cost and profit on its books. Tliree or four years have gone
by at the time the profits are reported to the Treasury on any
particular ship.
The Treasury is not expected to be willing to put auditors to
work to go through 4 years of vouchers, or to analyze the accuracy
of a company's statement that 60 percent or 90 percent of all the
overhead in its yard should be allocated to a naval ship.
There is absolutely no eJffective control of costs possible without
a huge policing system of auditors and inspectors constantly on the
premises.
Some indication of the awareness of the shipbuilding companies
of this fact is given in the abstracts of testimony quoted below
taken from the minutes of their meetings.
Mr. Powell, president of United Drydocks, pointed out that ** the
thing will go along all right untif somebody turns back some
money." Mr. Smith, president of the trade association, thought it
important to get unanimity on the large subject of overhead." Mr.
Gillmor, president of the Sperry Gyroscope Co., Navy suppliers,
said: "If the shipbuilders, boiler manufacturers, and electrical
manufacturers act in accordance with uniform rules, it will be so
strong that I think the Income Tax Bureau would have a hard time
resisting it."
The Navy Department disclaims all intent to enforce this bill,
since the duty to collect the taxes is laid upon the Treasury Depart-
ment. Nevertheless, according to the minutes, Mr. Blewett, of New-
port News, informed the associated groups that the Navy had al-
lowed his company an increase in overhead of 10 percent on changes.
How the Navy could allow this while in complete ignorance of all
the figures concerning the company is hard to understand.
Later Mr. Ferguson, of Newport News, testified that an addition
to plant of $900,000 was being put into the overhead of the two
aircraft carriers. This is already an increase of over 2 percent in
the total of $38,000,000, or 3 percent on the expected actual cost
to the company.
If this practice of allowing larger overheads for Navy work con-
tinues, it should be noted that an additional 10 percent overhead for
Newport on the two aircraft carriers would equal $2,000,000, a sum
equal to more than 5-percent profit.
In this connection it is interesting to note (sec. VIII) that an
arbitrary allowance made by the Emergency Fleet Corporation in
1918 of an overhead of ."iO percent Avas $2,152,976 more tlian that
actually paid out by the New York Shipbuilding Cori)()ration
(Jan. 21). ^ ^
Presumably the Ti-easury would have to allow any increase
claimed overhead approved by the Navy,
The Navy has no responsibility in the matter of this profit-limita-
tion law, but its decisions can completely invalidate the act.
The intent of the shipbuilders to get ail agreement on a theoretical
overhead instead of an actual one can be seen in the statement bv
Mr. Shick of Bethlehem : ^
We should decide what we are going to do. For our owu protection it would
be a good thing if we did have an understanding so that on the completion of
MUNITIONS INDUSTRY 325
these contracts tbe overhead rate will not be out of line. If Bethlehem had 60
percent, Newport News 50 percent, and somebody else 40 percent, they will ask
what is wrong. Therefore, it is important for the shipbuilders to have a very
clear definition as to what is direct labor if that is the base of distributing over-
head. I believe we can agree on a definition of direct labor (galley 24 VW).
The shipbuilders asked the Treasury Department to allow them to
charge State income taxes and selling expenses into costs. E. I. du
Pont de Nemours asked the Treasury Department to allow these items
and also Federal income taxes and unemployment-insurance costs.
The shipbuilders arranged to have the subcontractors charge them
no more for work than cost plus 10 percent. Instead of turning the
difference over to the Treasury, it is in eifect turned over to the ship-
builder, thus giving him a larger margin of profit on which to
operate.
The reliability of the shipbuilders' figures was already referred
to in section IV, where almost $2,000,000 in profits was not mentioned
by the shipyard in a comparison of the cost to the Government of the
Chester. On certain claims after the War, the president of New-
port Ne^vs filed a bill against the Government for $14,973,165 at the
same time he was writing the president of the company that the
minimum claim was $6,635,000.
There is some evidence that Bath Iron Works transferred an item
of $60,000 incurred on a lighthouse tender and a tug to the destroyer
Dewey. The ability of companies to do this has a hearing on all
attempts to limit profits.
Abstracts of this evidence are given below.
The discussion by the shipbuilders of the provisions of the Vinson-
Trammell bill in limiting profits to 11.1 percent of cost was referred
to during the testimony of Mr. Parker, of New York Ship (Feb. 6,
galley 30 to 33 ZO) :
Mr. Raushenbush. Now, Mr. Parker, coming to the various meetings held
by the shipbuilders after the Vinson Act had been passed, I show you a memo-
randum, treating of a meeting held on May 8, 1934, and ask you to follow that,
at which were present the representatives not only of the " big three " but from
the " little three " and suppliers, such as United Dry Docks, Sperry Gyroscope,
Babcock «& Wilcox, Worthington Pump & Machinery, Westinghouse Electric,
General Electric, Electric Boat Co., and so forth [handing paper to witness]?
That is the summary of a discussion, is it not, that the representative officials
of the shipbuilding companies and the main suppliers had concerning the effect
of the Vinson bill on their business? Do you recognize that?
Mr. Parker. I did not attend that meeting.
Mr. Raushenbush. No ; but you attended a subsequent meeting, for which
this was the basis. You have had this in your possession, have you not?
Mr. Parker. Yes.
Mr. Raushenbush. And you have studied it? The answer is "Yes"?
Mr. Parker. Yes.
Mr. Raushenbush. I turn to page 4, where there is discussion of how much
overhead should be allowed, and discussion as to what the Treasury Department
will do, and what the Navy Department will do. It refers to Mr. Smith. He
is president of the council, is he not?
Mr. Parker. Yes.
Mr. Raushenbush (reading). At the top of the page, Mr. Smith says:
Yes. That is where it is going to be unless there is a change in the law.
The Navy Department does not want to deal with it.
Mr. GiiXMOR. They do not want to get into it.
Mr. Smith. The man who drafted this bill drafted it with the purpose of
allowing some leeway.
Mr. King —
326 MUNITIONS INDUSTEY
of Babcock & Wilcox —
Are you going to be allowed your actual expenst!? Will they allow the
actual overhead or a predetermined one?
Mr. Smith. I think you can collect your actual overhead as long as it
goes against all work.
Mr. GiLLMOR —
of Sperry Gyroscope —
They point to this provision in the act that the contractor must make his
statement under oath.
Mr. NivEN —
of General Electric —
They go on to say that the books shall be open for inspection at all times.
Mr. GiLLMCR. I believe their present idea is to make check inspections
only.
Mr. PowEU^-
of United Dry Docks —
This thing will go along all right until somebody turns back some money.
Mr. GiLLMOR. I think the only thing to do is act in unison.
Mr. Smith. Supposing you do have 10-percent profit and a few dollars
left over. The industry may find itself in a situation where there are items
of cost which could have properly gone in but were not included. It seems
to me very desirable that so far as the outstanding items of overhead are
concerned there should be unanimity of opinion.
Does not that give pretty much the tone of the general discussion? The
shipbuilders here wanted to get together and decide very definitely what pro-
portion, predetermined proportion, they would agree upon as an overhead
charge.
Mr. P.\UKF.R. No. sir: T do not think that is the case at all. T think that what
the shipbuilders and the main material siippliers were trying to find out is
what the Vinson Act meant so far as their nnrticular business is concernefl.
Mr. RAUSHExmisH. Let us follow on with tlic rest of it through and see where
we come out.
Turn, please, to page 7. Mr. Parker. They are starting to discuss overhead,
as I understand it Treadingl :
Mr. Smith. When you say " actual ". T suppose you mean your actual
average —
Of General Electric —
Mr. AVhitf:stone. No; I mean actual expenditures.
Mr. SAriTH. As supplie<l to that particular contract?
Mv. Whitbstonb. In the case of sliipbuilding. it will in-obably apjily to a
whole ship.
Mr. Smith. If you had ouo plant using actual jind another nornuil
Mr. PowETX. Supiins<i three or four yards take contracts on a competitive
basis. Then one fellow tu'-ns> in jictual and lias a very low overhead and
he turns back a lot of moTiey — it simply throws out your whole idea of
competitive bidding. It scoins to m(» you have alnu'st got to come to a
basis of ;',gn>eing with the Treasury DcpartnitMit on some fixed overhead.
If we could siireail our ovorhcul over 10 years. I would say it would be
high enough. I think it would be high enough so that you would not
have to worry about your ] 0-percent profit. The average overhead would
be plenty high enough to satisfy anybody.
They are b(\ginning the discussion, or ref*u!ning it, are they not. of trying to
agree on a fixed percentage of overhead that all companies could charge, and
that the Treasury would have to approve?
Mr. Parker. These expressions. Mr. Tlaushenbusb. are expressions of indi-
viduals, thinking of their own particular business, how this act affects their
own particular situation, but the purpof»e of it all was to find out how it
affected everybody, and particularly how it affected the prime contractor, the
shipbuilder.
Mr. Raushenbttsh. Turn to page 8 in reply to that [reading] :
Mr, SMrra —
MUNITIONS INDUSTRY 327
President of this conference nnd of the council — •
What is your reaction to this : You have the shipyards and the alliea
j^roups, but your uniformity should be attained first amony;st the ship-
builders themselves and then there can be some apiiroach to uniformity
between the shipbuilders and the allied groups.
Mr. G1LI.MOB. If the shipbuilders, boiler manufacturers, and electrical
manufacturers^ —
That is taking in a rather large group, is it not? —
act In accordance with uniform rules, it will be so strong that I think the
Income Tax Bureau would have a hard time resisting it.
Is not that the reasonable idea of this whole matter, that not o-nly the ship-
buildei-s hut the operators who have a definite interest in the work and in the
Vinson bill should get together and put up unifonn rules ; and is it not Mr.
Gillmor's idea that if they do that they will be so strong that the Income Tax
Bureau will have a hard time resisting it? Is tliat not what they are trying to
do tliere?
Mr. Parker. They were trying to find some way by which those elements of
actual co«t would be unquestioned by the Treasury Department.
Mr. Raushenbush. Now, on the next page, Mr. Parker, Mr. Bardo comments
after this statement [reading] :
If the shipbuilders, boiler manufacturers, and electrical manufacturers
act in accordance with uniform rules, it will be so strong that I tliink the
Income Tax Bureau would have a hard time resisting it.
Mr. Bardo. comnrents :
They could not break it down. You have two established recognized sys-
tems of accounting in the two principal groups with which we do all our
business. We sliould get our accounting offices together. I do not think
we can decide anything.
Mr. Bardo, a little later, says :
I think we should get the shipbuilders together first on a uniform plan.
Mr. Smith. Homer —
of Bethlehem —
what do you think about it?
Mr. Homer. The method of determining the lO-percent profit is to lie es-
tablished by the Trea.sury Department, and the obvious thing is that the
indu.stry will have to establish something for its protectio-n.
Mr. .Tackman —
Worthington Pump & Machinery Corporation —
They can establish it, but the Treasury Department will have to approve it.
And the whole discussion turns, as I look at it. on whether it is possible for
the shipbuilding companies to. get any agreement, and they decide that the comp-
trollers of the companies better meet together, and then you and others meet
directly a little later, at the same place — 11 Broadway. Y'ou were present for
New York Ship, together with Mr. Langell, Mr. Ferguson was present for New-
port News, and ^Ir. Shick and Mr. Harper and Mr. Ilittor for BethleheiiT Ship-
building Corporation, Ltd.
Mr. PARKEai. That is correct.
Mr. Ratjshenbush. I do not know whether I have an extra copy of this.
I want to offer that for the record — the meeting of the shipbuilders — as " Exhibit
No. 1531."
(The document referred to was marked " Exhibit No. 1531 " and is included in
the appendix.)
Mr. Raushenuush. Turn now to this Dieeting at which y(;u wevti present,
and at which the subject wat^ gone into further, and Mr. Blewett, of Newport,
makes a comment here on which we would like to have y(mr comment. I will
have to show you this until we find our extra copy [handing paper to witne.ss'].
On page 3 of this mimeographed memorandum, Mr. Blewett says :
We have recently gone through the cost of changes. We asked a higiier
overhead on the changes than on normal overhead. We asked for 20 points
higher and they granted us 10.
328 MUNITIONS INDUSTRY
Pie means the Navy granted them 10, does he not?
Mr. Parker. I assume so, speaking of Navy changes.
Mr. Raushenbush. Speaking of Navy changes [reading] :
In other words, they admitted naval work called for higher overhead
than commercial work. If we could obtain 20 percent higher it would
cover everything such as equipment, development charges, and all items.
So far as going into a uniform cost-accounting system, that is a job of
5 or 10 years rather than a month or so.
You remember this meeting fairly well, do you not?
Mr. Parker. I do.
Mr. Raushenbush. Mr. Blewett. speaking for Newport News, was trying
constantly to make the point, was he not, that the shipbuilders should definitely
agree upon an overhead that was normally uniform but was very considerably-
higher for Navy work than for merchant marine work? Is that not correct,
so far as your memory goes?
Mr. Parker. Mr. Blewett was trying to make the Navy work beai- an actual
proportion of overhead which Navy work should l)ear. It is a fact that with
all of the limitation of Navy work, inspection and various changes and conse-
quential damage from changes, the actual overhead applicable to Navy work is
truly higher than to other work, and when you spread tiiat to all work on the
same basis. Navy, of course, gets the benefit and the other work gets some
penalty.
Mr. Raushetnijush. He was trying very definitely to get it on a fixed basis
higher than other work, 20 percent?
Mr. Parker. Yes, sir.
Mr. Raushenbush. He reports Newport News asked for 20 and had gotten
10 and was apparently suggesting that the other companies agree on their
overhead, t<x). That, of course, involved an agreement on what labor was,
so that overhead could be determined.
Here is a copy, if you want to follow it [handing paper to witness].
Mr. Smith at page 6 shows some considerable anxiety that everything is
going to be put into cost by everybody, so that some of the shipbuilders do not
charge the Government too little. Mr. Smith says :
I would not do that. This group ought to go away satisfietl as to what
items get into cost. Each and every one of us should be assured that we
are going to put into cost everything that properly belongs there.
In other words, they do not leave out anything, and not, as Mr. Gillmor
said in the other meeting, so that some money does not get returned to the
Government and then the Government forces them to get into action.
Can you explain the comment on pa^e 7 of Mr. Shick. of Bethlehem, where
Mr. Blewett said :
Didn't we have such a thing as iidjusted prices during the war? We
took such things as cost of machinery and put it into an adjusted price.
To which Mr. Shick replied :
That was a cost-plus contract. You only got 10 iHM'cent of it. I can
give you iui example of what hapiK'ned on a gun contract. The Navy
wanted a 16-in. gun. We had to buy the equipment to machine it.
Daniels —
that was the Secretary of the Navy, was he not?
Mr. I'AUKEi!. I suppose that is who he is speaking of.
Mr. Raushenbush (continuing reading) :
said, "All right, this is not the last order we are going to give you for
ir.-inch guns. We will let you add $35,000 per gun so you can amortize
this equipnient. We will let you amortize part of the cost through this
job so you will get paiti for your new etjuipment. but you have to take a
little ch.mce." They did that for tlie reason they did not want to .say to
us. "We will pay you for this." If they did, then they would own it. but
they wanted it to stay in our iwssession. We were only amortizing $35,000
on that job.
Do you have any cominent on that? Does it mean anylliing to ytni?
Mr. I'ARKER. No.
Mr. Ravshenbush. It seems to be an illustration of where the Government
was paying very definitely for the equipment but just because they did not
MUNITIONS INDUSTRY 329
want to own it they let the gun people, in this case Bethlehem, charge up an
extra $35,000 per gun and amortize it immediately.
The discussion goes on at some length, and the net result of all this was
that there was an interchange of information among the companies, was there
not, as to definitions of their costs as regards direct labor and overhead?
Mr. Parkes. That is correct.
Mr. Raushenbush. On page 12 Mr. Shick, of Bethlehem, makes one point:
We should decide what we are going to do. For our own protection it
would be a good thing if we did have an understanding so that on the
completion of these contracts the overhead rate will not be out of line.
If Bethlehem had 60 percent, Newport News 50 percent, and somebody
else 40 percent, they will ask what is wrong? Therefore, it is important
for for shipbuilders to have a very clear definition as to what is direct
labor if that if the base of distributing overhead. I believe we can agree
on a definition of direct labor.
After that these interchanges of information took place, did they not?
Mr. Paeker. They did.
Mr. Raushenbush. So that the point of all of this was, Mr. Parker, quite
frankly, to have the shipbuilders agree on something that was not an actual
cost that came out of it — and if that was so they would not need any agree-
ment— but they agreed on a perfectly arbitrary amount of overhead, which they
would unite on in trying to have the Treasury Department accept as a basis
for fixing profits under the Vinson Act, thereby agreeing or following out the
suggestion made by Mr. Gillmor in the earlier meeting that if they all got
together they would be stronger than the Income Tax Bureau.
Mr. Parker. Not at all. That is not my understanding.
Mr. Raushenbush. If that is not true, what is your understanding?
Mr. Parker. I never heard the theory advanced that there should be a
definite rate of overhead applied to every yard alike.
Mr. Raushenbush. They were certainly discussing the possibilities of it all
through here, were they not?
Mr. Parker. No ; the only discussion that this refers to is that the books of
each of the companies will reflect the actual and proper charges to cost that
the contract provided, so that in any one of them, if they should inadvertently
submit some cost, or by his method, or changing his method so that it would
result in a question for the whole group. But only, of course, included those
items which are proper elements of cost.
Mr. Raushenbush. What is all this discussion about as to fixed percentage
of overhead, Mr. Blewett's idea that they asked for 20 percent for naval
work; That is an arbitrary thing, rather than an actual one?
Mr. Parkek. That is on changes, alone, Mr. Raushenbush.
Mr. Raushenbush. That is on changes?
Mr. Parker. The practice has always been on changes to fix a definite rate
of overhead.
Mr. Raushenbush. These are changes, but, still, changes often amount to a
very considerable amount in the cost of a ship, do they not?
Mr. Parker. Yes, sir.
Mr. Raushenbush. In some cases a million dollars more than what the
bids were.
Mr. Parker. What Blewett was talking about was just a rate of overhead
which was a proper rate of overhead. We already have a fixed rate of
overhead applicable to changes, fixed by the board of changes.
Mr. Raushenbush. On page 4, if you will follow that
Mr. Parkek. Back again?
Mr. Raushenbush. It gets into the normal overhead, and Mr. Bates, of
United Dry Doc-ks, sajs :
You mean a standard or normal overhead?
Mr. Blewett. I'^es.
Mr. Smith. Let me ask you this, Blewett: You say you asked for so
many points higher; would you do that on the basis of each plant saying
here is my average overhead, we want 20 points higher for naval work
taking into account no two plants might have the same?
Mr. Blewett. I'^es.
Mr. Shick. Only if you get it high enough.
Mr. Smith. That is the iioint where I see difficulty with the Government.
330 MUNITIONS INDUSTRY
They are talking about overhead for naval jobs rather than for changes at
that point, are they notV
Mr. Parker. No ; I believe they are still referring to changes.
Mr. Raushenbush. There is no mention of changes right at that point.
Then later on the quotation I read from the Bethlehem man, he was particu-
larly talking about the general overhead rather than the changes, was he not?
Mr. Parkeir. I do not kn<jw what he was talking about particularly.
Mr. Kaushenbush. On page 12. Look at it again. All the way through—
I do not want to bore the committee with reading the whole story, but I want
to put it into the record.
By the way, what percentage of overhead did the Navy board on changes
allow you on changes in ships before this bill went through?
Mr. Parker. It varies. Periodically the Navy makes an investigation of the
actual overhead of the plant and sets a rate of overhead to be used on changes.
The rate varies with the average variance of overhead rates in the yard gener-
ally, some place between 70 and 90 percent.
Mr. Raushenbush. Do you not make quite a lot of money on changes?
Mr. Parker. No, sir ; we do not make money on changes. No one ever made
any money on changes. The consequential damages and delay due to the inter-
ruption of •work, which are never paid for, make changes the most uuprotitable
part of Government work.
Mr. Raushenbush. The changes are all paid for, are they not?
Mr. I'ARKER. The changes and the actual material, but no one can collect
consequential damages.
Mr. Raushenbush. You are taking in a lot of territory when you say no one
makes any protit on them. You mean your own company?
Mr. Parker. I mean my own company, and am sure the business of the other
companies are so closely related that their situation is identical.
Mr. Raishenbush. I will offer this as exhibit no. ir>ii2.
(The document referred to was marked "Exhibit No. 1532" and is included
in the appendix.)
Mr. Raushenbush. The upshot of all this was several things, was it not,
Mr. I'arker? Tlie companies got together and agreed on what they wanted to
ask of the Treasury Department, and, in addition to any informal conversations
they had with the Treasury Department, they tlid ask for several si^ecitic
changes. They asked the Treasury Department the allowance for the income
taxes, did they not?
Mr. I'arker. I believe a brief was filed by the National Council requesting that.
Mr. Raushenbush. That is the protest of the National Council of American
Shipbuilders on rulings of the Commissioner of Internal Revenue excluding State
income tax as items of cost? There was a definite protest on that, and they
wanted selling expenses as a proper item, did they not?
Mr. I'arker. Correct.
Mr. Raushenbush. They also made a point about compensation insurance.
1'hat was all touched on in the conversations with the Treasurj' Department,
and ijn.v other arrangements that had been made. Then we find here a letter
from tlie Du Pont Co. as to the Vinson Act, together with comments from the
National Council of American Shipbuilders, in which the Du Ponts say that in
addition to all the items that the shipbuildei-s wanted charge<l into the costs
under the Vinson Act, tliey also want to have Federal income taxes. Do you
remember tbiit?
Mr. Parker. I remember reading the letter.
Mr. K.ushenbush. They wanted to charge the State income tax in, the
Federal Income tax, they wante<l to charge unemployment insurance ci>sts in.
So that they went you one better, a little bit, did they not? You iH'ople were
not asking for the inclusion of Federal income taxes any longer as an item
of cost, were you?
Mr. Parker. No.
Mr. Raishenbush. This was the Du Pont idea, and they included it in a
letter to the Bureau of Internal Reveinie, explaining why they wanted to have
tliat allowed under the Vinson Act. I offer that series of corresiKXidence for
rhe record as exhibit no. 1533.
(The docunu'Mts referred to were collectively marked "Exhibit No. l.'vW "
and aie Included in the appendix.)
Mr. Rai-suhnbisii. Then, Mr. Parker, you worked out yourself, did you not,
a way of handling the subcontractors under the Vinson Act. a way of seeing that
they never made more than ll>-pereent profit?
Mr. I'ARKER. No; I wouUl not say that I worked it out myself.
MUNITIONS INDUSTRY 331
Mr. Raushenbush. Who else gets credit for it?
Mr. Parkek. I think it is a composite idea wliich several peoi)le contributed to.
Mr. Kaushenbush. Could you describe that very briefly, what you had in
mind when you tried to do that?
Mr. Pabkek, The Vinson Act, in attempting to limit the profit to 10 percent —
and I am fully in accord with the limitation of profit — does not guarantee 10
percent nor does it prevent you from sustaining a loss of 10 percent, 20 or 50
percent. The Vinson Act, as we understand its intent, is a profit-limitation
matter, but it intends to limit the profit of the contractor and requires that
contractor to require of all his subcontractors an agreement to the same profit
limitation that the contractor subscribes to. The problem was to find a way
by which the intent of the act or the profit limitation could be passed on to the
subcontractors ^\'ho were limited in profit in the same manner that the contractor
was.
It naturally occurred to several of us that if the subcontractor did not earn
in excess of 10 percent," the act was not at all detrimental to him ; that under
the various codes most industries were permitted to sell at cost, and prohibited
from selling at less than cost, and it seemed that since the Vinson Act is, in
itself, a cost-plus contract, regardless of the so-called " topside price ", which is
subject to much adjustment, it is, nevertheless, in the final analysis, a cost-plus
contract, and that the contractor having a cost-i)lus contract on his hands, would
necessarily have to make his subcontracts on a cost-plus basis.
Mr. Raushenbush. Just explain that one point once more, why you say the
Vinson bill is a cost-plus contract. How do you figure that, Mr. Parker?
Mr. Parker. The Vinson Act is a cost-plus contract, unquestionably, because
what you finally receive is cost, as determined by the Treasury Department.
Mr. Raushenbush. Now you are talking, are you, about the bids put in under
an adjusted-price basis?
Mr. Parked. I am talking about any contract under the Vinson Act. The
amount that any contractor or subcontractor can receive under the Vinson Act
is his cost — that is, the maximum he can receive — is his cost plus 10 percent
of his contract price.
Senator Bone. There is no guarantee of that in the bill, is there?
Mr. Parker. That is the maximum he can receive.
Senator Bone. I understand ; but there is no guarantee of that in the bill,
is there?
Mr. Parker. The bill provides that that is exactly what he can get as a
maximum.
Senator Bone. The bill provides that he may not get more than 10 percent?
Mr. Parkek. That is right.
Senator Bone. That is the provision of the bill?
Mr. Parker. That is right.
Senator Bone. That does not guarantee him it.
Mr. Parker. Not at all. He has no guarantee of 10 percent.
Senator Bone. It is not really a cost-plus contract.
The Navy Department does not undertake to enforce the profit-
limitation section of the Naval Act (Feb. 21, galley 77 FS).
Senator Clark. What I am referring to is the suggestion by Senator Vanden-
berg, where the Chairman of the Naval AfEairs Committee of the Senate wrote
the Navy and called attention to this rising scale, shown by the chart, and said
that the bids submitted were absolutely exorbitant and a fraud upon the Gov-
ernment, and within a day or two the Secretary of the Navy wrote back to him
and told him he was entirely in error and the bids were entirely fair. Unless
he was able to determine these various items entering into the increase of cost,
I do not see how he could possibly have been in a position to make that answer.
Senator Vandenberg. Captain, how can you administer the 10-percent profit
limitation which is now in the law, unless you have accurate information re-
specting the cost items, for proving anything before the 10-percent profit is
attached?
Captain DuBosb. The Navy Department will make no attempt whatsoever to
ascertain or determine anything in connection with this 10-percent profit. It is
incorporated in the contracts,, but it is a matter between the shipbuilder, the
contractor, and the Bureau of Internal Revenue of the Treasury Department.
Senator Vandenberg. Then the 10-percent protection in fact is no real pro-
tection, so far as the Navy Department is concerned?
332 MUNITIONS INDUSTRY
Captain DuBose. I would not say that ; no — because very definitely under
tlie law they limit the profit to 10 percent.
Senator Vandenberg. But if the shipbuilder put $1,000,000 into cost, which
does not belong there, then what?
Captain DuBose. The Internal Revenue people have a perfect right to ex-
amine the books of the shipbuilder.
Senator Vandbnbekg. Do you mean by that you rely upon the Internal Reve-
nue Department for the integrity of the 10-percent clause in the naval bill?
Captain DuBose. There is no possible way for the Navy Department to do
anything else.
Senator Vandenberg. And you do not attempt to do anything else?
Captain DuBose. And we do not attempt to do anything else except to pro-
vide in the contract the provision of law which is to be taken care of as an
administrative procedure by the Internal Revenue Department.
Senator Clark. Captain, do we understand that the Navy Depai-tment feels
there is no reason whatever for enforcing tiie law as tu lO-pei'cent profit, except
as included in the contract?
Captain DuBose. The thing, I state, was agreed upon in a conference between
the Navy Department and the Treasury Department. We did not adopt that
policy without discussion. There were conferences held between representatives
of the Navy Department and the Treasury as to how this thing could lie done.
Senator Clark. But in expending the funds allotted to the Navy Department,
either by act of Congre-ss. Public Works authority, or anybody else, the Navy
Department has no actnal responsibility for detcrniiiiing the cost basis upon
which this 10-perccnt profit is to be figured? Is that what I understand?
Captain DuBose. It has been agreed upon inunially by the Navy Department
and the Treasury that that particular duty would be taken care of by the
Treasury for the Government and not the Navy.
There was furtlier indication that the Navy takes no responsibility
for the enforcement of profit limitation (Feb. 21, galley 78 FS).
Senator Vandenuero. Wliat happen.s. Ca[)tain — let us make this specific and
suppose this is a 10-million-dollar cruiser which is being built under contract
at a private yard, and this provi.sion of law limits the profit to 10 percent or
$1,000,000. Now, when this private shipyard sends you lis costs, do you accept
the costs as submitted by the shipyard as valid? In other words, does the ship-
yard determine what the costs are?
Cai)tain DuBose. Tlio shipyard determines what the costs are, yes, sir;
and that information is iransmitted to the Secretary of the Treasury, and if he
thinks it advisalde or nece.ssary to investigate in detail, he has that right.
Senator Vandenbekg. Do you know whether he ever does investigate?
Cajttain DuBose. We have had no contracts with this excess-profits clause in
it — there are a few
Senator Vandenberg. So far as the Navy Department is concerned, it takes
no responsibility for tlie integrity of the calculation which finally leads to the
10-percent profit?
Captain DiI'.osk. The Navy Department has nothing whatever to do with
the (ietailed method that a shipbuilder follows in determining liis costs. He
determines his costs. He submits tlie statement midcr oath, and it is then
examined by the Treasury Department.
Senator Vandenbbxg. And that is satisfactory to the Navy Department, and
(hat ends it. when he files his costs under oath?
Captain DuI'.osr It ends it as far as the Navy I)ei)artment Is concerned, but
it does not end it as far as tiie (Joveriiment is concerned because the Secretary
of the Treasury has got to do something.
Senator Bom;. Do you know any statutory provision winch authori7.es them
to go into the operating overhead on the naval contracts?
Captain DuBosk. The Vinson Act provides that for all contracts placed after
the date of that act.
Senator Bonk. Tliere is nothing there to limit and circnniscril>e the clniracter
of the operating overheads.
Captain Di-Bose. In that connection I would like to read a pr(»visi(»n of our
contracts, bearing on that i)oint. This is the law and is also coined in our
contracts [reading] :
That the manut'actttring spaces and books of its own plant afliiiates :uul
snltdivisions shall at all times be subjc<'t to inspection i:iid audit by any
MUNITIONS INDUSTRY
333
person designated by the Secretary of the Navy and the Secretary of the
Treasury and/or by a duly authorized committee of Congress.
Senator Clark. When it comes to manufacturing spaces, Captain DuBose, do
vou depend on the Internal Revenue Bureau to compare the manufacturing
process^ in determining costs? Is not that a highly technical matter which
iiplnno-'; fo the Navv Department? , .,, ^ ,
cTptain DUBOSE The Navy Department could not possibly without a tre-
mendous for?e of people, investigate and examine in detail the me hods fol-
Swed by a private shipbuilder in charging for details of the work done He
submits a bid I lump-sum price, and that is accepted by the Navy Departmen
ff hrgets the c ntract. Now the Navy Department requires, m accordance with
the law tlilft upon completion of that contract the shipbuilder shall make a
''wTdl!;.Tquiir under our coutract, that we have the right at any time to
make a detailed investigation of his methods, books, and so forth.
Senator Cl\rk. Yes, sir; but you do not do it, as I understand
Sain DuBosE. I do not say we would not do it. There has been no neces-
sity or occaSon so far for doing it because the limitation on profit provision
ha'; been incorporated in the contracts only recently. , .^ , ^
Senator cTaS. I understand that you have not yet had an opportunity, but
I understood vou to testifv. Captain, that you in the Navy Department assumed
IrX'onSiSi' whltevev, bit put the whole responsibi^lity _ of determimng
roper cost on which profit was to be determined, naturally, m the hands of
ITielnternal Revenue Bureau, which necessarily, of course, would have no
''tmlln^SvBolt I do not think the law determines proper course. The law
refers to profit.
Further discussion on the profit limitation was had on February 20
(galley 65 FS seq.) with Mr. Blewett, of Newport News, testifying :
^Mr Raltshenbtjsh. Mr. Blewett, as I understand it. from the record on page 3,
you say in t™dTscussion of this matter which deals. I take it, with the matter
of the shipbuilders direct :
We have recently gone through the cost of changes. We asked a higher
overhead on the changes than our normal overhead. We asked for 20 points
higher, and they granted us 10'.
me^chant^ork. That is fairlV undersLod. If you are building a barge or a
SSse?, on a barge your equipment is nothing, and on a cruiser you have to have
equipment and personnel. \u^4--i
Mr Raushenbxjsh. You were successful on that.' ^ ^ . +i.„f
Sr BLEWETT. They granted us a lO^point additional overhead for that.
Mr. RaiSSSnbush Have they done that with other companies, or is your
company the only one?
^l- SSSbL^S "S^T^^i^^in the other ,obs that the other com-
acfounSng method It would be impossible for the yards or the shipbuilding
comnan es in this country to agree on any one cost-accounting system. Pbysical
rnnrmions prevent it So that, in order to simplify matters, I thought if we
T^TtT an'VcXionnl overhead it would take care of everything^^ We, at this
?^SX^I^i"?M:coui rHo ag^^aS^e c^s^ ^^^^ ^T^
ronrmions prevent it So that, in order to simplify matters, I thought if we
Sef for an Idd tional overhead it would take care of everything. We, at tliis
?fmecharg? more overhead to our naval work than we do to our merchant work.
Mt- T{ attsttknbtish. Yes ; I notice that.
Mr bX™ we charg^ as overhead on that about 15 percent more to our
Navy work than we do to our merchant work.
Mr. Raushenbxjsh. It was on top of that?
Sr'. rIShZbu^S'. The 10 percent allowed to you explains that higher over-
head, does it not?
Mr! R™bnbSh. When did the Navy allow that extra 10 percent?
139387—35 22
334 MUNiTioisrs industry
Mr. Blewett. They permitted some changes on the Ranger, hull no. 353.
Mr. Kaushenbush. When?
Mr. Blewett. 1934, the summer.
Mr. Kaushenbush. After the Ranger had been finished and you were doing
the accounting together.
On page 4 of the same document, let me read you this, Mr. Blewett :
Mr. Smith. Let me ask you this, Blewett, you say you asked for so many
points higher. Would you do that on the basis of each plant saying here is
my average overhead, we want 20 points higher for naval work, taking into
account no two plants might have the same.
Mr. Blewett. Yes.
Mr. Raushewbush. That is your proposal, that all the plants ask for a uni-
form increase in overhead of 20 percent?
Mr. Blewett. Ask for an increase in overhead of 20 percent, which would
consequently result in a reduction of the common overhead, as applied to
other jobs.
Mr. Kaushenbush. The merchant marine jobs would gain the benefit of
having the Navy pay a higher cost?
Mr. Bleavett. That is right. The Navy would pay a higher cost because they
demand of us more overhead.
Mr. Raushenbush. And the merchant marine ships would get the benefit of
that to the extent the Navy carries that?
Mr. Bleweit. They require less equipment or overhead.
The arrangements of the shipbuilders and their subcontractors
were discussed in "Exhibit 1534", entered on February 6 (galley
34 ZO), while Mr. Parker, of New York Ship, was on the stand.
Mr. Raushenbush. There is a memorandum here, Mr. Parker, prepared by a
committee of which you seem to be chairman, and I want to offer it for the
record as " Exhibit No. 1534."
(The memorandum referred to was marked "Exhibit No. 1534" and is
included in the api>endix.)
Mr. Raushenbush. In that memorandum the advantages to the contractor
and the advantages to the subcontractor are fairly clearly set out. Under the
disadvantages to the subcontractor, you say:
(1) Loss of a part of the maximum profit allowed by the Vinson Act, if
it should be earned.
(2) Will require adoption by code authorities of resolutions permitting
violation of any code provisions now in effect which would prevent mem-
bers from bidding on this basis.
(3) Will disclose costs to shipbuilders currently, and perhaps create a
precedent which may be difficult to overcome in the future. A similar dis-
closure may be made under the Vinson Act, but probably at a much later
date, and with no certainty that excess profits under individual contracts
will be made public.
Then the memorandum continues :
E. Possible general advantages. — (1) Mr. Parker fears that the Vinson
Act may lead to a new and permanent form of taxation by the Federal
Government on all i)rotii.s over a certain maximum without regard lor
losses which may be incurred. The general adoption of this proposed plan
of letting subcontracts may, in his opinion, either avoid thi.s possibility
entirely or at least limit it to Government work, and then only on the
main contract without extension to subcontracts.
Do you remember that whole memorandum?
Mr. Parker. Yes, sir.
Mr. Raushenbush. The net result of that is, is it not. Mr. Parker, that by
making it impossible for subcontractors to turn back any amounts to the Bureau
of Internal Revenue for excess profits under the Vinson Act you h.ive increased
the margin l)etween your total cost.s aiul your bid price?
Mr. Parker. The explanation of that is ratlier lengthy. If you will just bear
with me, I will give it to you.
Say, assuming you are familiar with the Vinson Act, that under any sub-
contract in excess of .^lO.OOO the subcontractor must comply with the provi-
MUNITIONS INDUSTRY
335
sious of the act and must indicate his compliance with the acceptance of it
and must certifv under oath his costs.
Just shortly kfter the passage of the Vinson Act it was quite apparent to
us and t was apparent n the requests for tentative proposals to be used in
bftls that the subcontractors were very fearful of the effect on them of the
VmLon Act as applied to subcontractors. Many of the subcontractors were
M^nnvin- several tvpes of equipment. The '• X " company, tor instance, wou .
^^upy one piece of apparatis at $65,000. Normally and ordinarily we woul
mike that a^ separate contract. Another piece of equipment would be supp led
L" the same Spany or the company's competitors on the ^^^ !^-'^X
bids ^vhich would amount to $110,000, and the result was that X company
eot in the cJ^irse of the whole contract there 8 or 10 contracts, each lu exce-s
o? $10,000, ^iJ of which would be subject, or each of which would be subject,
'^?wls"appal4nt to them that with a limited 1-f ^ f 10 percen^ tmU on
, ,1, . c «v Q /.oMtrnrts; tliev mig-ht lose. The loss was all theus. Ana mat ou
twne contract they mgh wfi maybe 25 or 30 percent, and that would have
0 be repaid and the net which they would get out of the whole would be a
asr Thev were a little averse to giving us prices, or averse to quotmg. And
we recogn zed the fac that we were going to have great difficulty mperform-
ngtlie Contract on this basis, unle.. we found «7%^^f"^J^^\^o f The solu-
H,Tn thpn wns iust naturally that we would make this on basis oi tne cost,
S'lSd of makng a contract or several contracts, or a dozen contracts we
would make on^ contract for the ship as a whole ^e would give^ to X
company all the apparatus on the ship, on a cost-plus 11.11 ^a^i^. i^akm^ one
contract out of it. So that if all lost money on one piece of appai. tus due
to rnPi4tin- conditions, and made money on another piece of apparatus, he
t:iri:^e\ielTem\lucl. we do not enjoy, of placing his losses against
i,ic m-Afit«! and sharine a net proiit, if the net proht results. ^. ^=
'"M^rRSsHENB^SH jSst in\hat connection, let me ^^^^-^^^T^Z^^Tt^
this memorandum, Mr. Parker, where you point out the advantages .o the
contractor. The first one is :
Tf the subcontractor should exceed the full 10-percent profit allowed by
the vlnsoT id the shipbuilder would benefit by, and the subcontractor
would lose, a part of such profit.
Was that not really the reason why you ^^^re interestal in that nimgV_
rist »n a rising commodity .nd l«bov mclez. where .f we lo^-j '' ■|ame whe're
extraordinary contingencies, it ^^f!^ develop a u $2,0€0,000 on
on the subcontract. -, , , . ^i j • j ^i.
The shipbuilding companies stated on the ^and that they did not
oppose the profit ^limitaW in the Vinson-Trammell Act of 1933
V?:kS:t^^!^ t^^'^&^f^r^^ was questioned
concerning the similarity of the Vinson bill limiting profits to 11.1
percent and the war-time cost-plus contracts (Feb. 6, 1935, galley
29 ZO).
iTquors! Ind SlaiS which you actually put into the cost?
336 MUNITIONS INDUSTRY
Mr. Paeker. It included all costs having to do with operating the business^
and wines and liquors in shipbuilding are just as necessary as steel in many
cases.
Senator Clakk. Do I understand that the contract provided for under the
Vinson bill should include wines, liquors, and cigars?
Mr. Paeker. Absolutely so.
Senator Clark. That is very illum-inating.
Some light on the unpossibility of checking a company's costs and
profits is given in a report by the head of the Consolidated Returns
Audit in regard to war-time work (Jan. 22, galley 47 GP).
Mi\ Raushenbush. Apparently in 1926 the revenue agents went into this
thing. I have a document here, and there are a great many pages which I want
to put in, but there is just one paragraph to which I wish to call yO'Ur attention.
They say [reading] :
After a very careful study of conditions, viz, the system of bookkeeping
and record keeping, the practices of the corporation, etc., it is the opinion
of your exaniners that it is an utterly impossible task to attempt to deter-
mine correct costs in connection witli each contract. It is our unqualified
opinion that even a large corps of men working for an indefinite time could
not even approach accuracy. Thousands and probably hundreds of thou-
sands of vouchers, labor tickets, store requisitions, etc., would have to be
examined and reanalyzed, and the books all recast. During the war emer-
gency the plant employed in the neighborhood of 22,000 men.
I would like to offer that for the record.
(The document referred to was marked "Exhibit No. 1435" and is included
in the appendix.)
The Chairman. But there was no real effort made at that time to get away
from cost-plus?
Mr. Raushenbush. There were many efforts made, but in 1926 they go back
over the whole thing and find it cannut be done.
I have here a letter whieh I wuuld like to oflVr for the record, being
addressed to H. B. Robinson, head Consolidated Return.s Audit Division.
(The letter referred to was marked "Exhibit No. 1435" and is included in
the api>endix.)
Mr. Raushenbush. That letter reads, in part, as follows [reading] :
In the course of our examination of the records of the cost inspector of
the Navy, we have noted that it has been the continued practice of the
taxpayer to inclu<le everything possible in expenses (cost of construction of
ships) regardless of whether or not they represented correct costs. We have
also noted that approximately $1,037,000 has been disallowed as expense by
the Navy Department on billings to it by the taxpayer; and the items com-
posing this amount capitalized and depreciation allowed thereon. This
necessitates the computatit>n of voluminous detailed schedules of deprecia-
tion, spread over the years 191S to 1921, inclusive. Of neces.sity, in con-
nection with the Navy dealings with the taxpayer, separate schedules of
depreciation have to be preiiared for every month of every year.
They say here:
We have l)een informed by the commander in charge of the Navy cost-in-
spection office that the corporation included in 1 month In the cost of
construction of ships a dividend in the amount of $35,000.
Is tliat correct, Mr. Parker? Was the attemjit made to charge a dividend on
preferred stock into the cost of tlie Navy vessels?
Mr. P.vuKEK. It was charged to expense?
Mr. Raushenbush. P^xpense of the ship?
Mr. Parker. It was charged to the cost, the expense of wliich was prorated
to all work, and a part to naval vessels.
Mr. Raushenbush. So that yon were in a position of asking the Government
to pay a certain part of your preferred-stock dividends?
Mr. Parker. Mr. Rausiienbush. you may have road the first cost-plus contract
with the Navy Department, in which there was a semblance of a definition of
cost, which item provided that costs shall include ajl taxes. Yesterday it was
MUNITIONS INDUSTRY
337
brought out by your investigator of the Revenue Department that income taxes
to the extent of some $300,000 were included.
Mr. Raushenbxjsh. $377,000.
Newport News, which, according to Mr. Blewett's statement m
"ExlX 1532", had secured an additional 10-percent allowance
on overhead from the Navy for naval work, stated that expenditure
for plant to prepare for the aircraft carriers, amounting to $900,000
woukl be charged into the overhead of the carriers (galley 77 ZO,
Feb. 13).
Mr FERGUSON In 1933, we agreed to perform the maximum amount of work
thnt Je coum in 2 years, regardless of ordinary procedures. We have at-
empted to canT that out and in doing that have made an expenditure fo
pmnt of around $900,000, for new equipment, for modern equipment in oidei
'%'hr'^liipbuiMhS' business, or the advantage to any company in the ship-
weiraf his predecessor, has approved of K'eeping the plant in fine condition
instead of wanting dividends this year. ^immft carriers of—
Mr Raushenbush. Of course, with a contract for airciatt earners oi
what was it? $38,000,000?
Sr SSufH-'TnTrcraft carriers, some expenditure would be ^ustifled.
Mr! FERGUSON. You understand that that is charged not against the ships.
Mr. Raushenbush. No. . i. , *.
Mr. Feeguson. Of course, that is charged against plant.
Mr Raushenbush. And gets into the overhead, does it not/ .
Mr. F^GUSON If we should not build any more ships requiring that equip-
Tnonf n int of it would naturally be written off. _
Mr. RlusHENBrn But it gets into the overhead of these two aircraft car-
Tiers?
Mr. Ferguson. Yes; it does.
It is to be noted that an extra allowance of 10 percent as overhead,
referred to by Mr. Blewett, might amount to $2,000,000 on a contract
of $38,000,000 plus for the two aircraft carriers which Newport JNews
was awarded in 1933. . • i ■ ^.^ n^.r
The reliability of the industry's figures m cases involving the (jrov-
ernment was indicated by the Newport News claim for damages and
costs because of cancelation of contracts after the war (J^ eb. 1^, gal-
leys 87-88 ZO, and Feb. 14, galley 89 ZO).
Mr Raushenbush. Coming now to a memorandum from you to Mr Hunting-
ton of Mav 15, 1924, we definitely get into the question of the cancelation claim
vou were making against two battle cruisers and the battleship loiva. You add
up fixed overhead. Federal taxes, special plant, remainder of fee, interest on
-unused plant, fixed overhead, and occupancy of plant during scrapping, a sum
totaling $14,973,165.
Then you go ahead and say to Mr. Huntington :
We did not expect to get both fixed overhead and remainder of fee, but I
thought there was a good chance of getting a part of the fixed overhead and
the whole of the fee. The cancelation board has recommended against giv-
ing us any part of fixed fee. We feel, however, that we are entitled to this,
so that a minimum I would be willing to take in settlement would be rep-
resented approximately by the following —
And you add up various things totaling $6,636,000.
Now. as we gather this, Mr. Ferguson
Mr. Ferguson. I have not got that. .^ i v. ,„„
Mr. Raushenbush (handing paper to witness). As we gather it, what you
•are doing is putting in a claim against the Government of $14,973,165 and telling
Mr. Huntington that your minimum claim is $6,635,000.
Mr. Ferguson. Nothing of the kind.
Mr. Raushenbush. Will you explain that?
338 MUNITIONS INDUSTRY
Mr. FE3M3USON. I am putting in liere the things on which a claim can be based.
We made no claim for $14,000,000. The job was settled in regular order in the
Navy Department, and the complete records are there.
Mr. Raushenbush. You say, " Our claim was " ; that is, " Our claim against
the Government was as follows " :
Mr. Fekguson. For trading purposes. We did not expect to get it or did not
expect to get within a mile of it, but the question was involved as to how our
company could be treated justly in these cancelations; and anticipated profits
were not waived, but anticipated profits had been disallowed, even where the
anticipated profit had been mentioned in figures by the courts, on account of
just what I have told you. We still had a claim, and we could have carried it
through the courts.
There was also a question of our agreeing during the term of the contract
to take the proper proportion of overhead expense. That is a damage claim.
There was, in addition to that, the special plant which had been put up by us
and the Navy Department in conjunction, and had to be settled.
While the claim could be stated to be a claim, it is just like any other triuling
position, where you keep everything you can keep until you reach a point of
settlement.
If you went in with a tax, or any other case, and yielded all the talking points
you had, it would be contrary to usual practice.
Mr. Raushenbush. That is all we wanted to get, Mr. Ferguson, that you
put in a claim for $14,073,000 and did not exiiect to get witliin a mile of it. and
you told IMr. Huntington, in the same l)reath. you would be satisfied with
$8,300,000 less and put that in as a trading claim.
That interests us, of course, from tliis angle: That where there is no com-
petition between companies for the Navy work, the question of the guaranties
of the Navy Department in paying a liiglior claim is involved. 1 mean in
bidding for ships you have, or are supposetl to have, competition to keep down
these trading claims to a minimum. But here you were putting in such a great
number of items, and thought (he way to conduct the business was to jmt in for
$8,300,000 more than you expected to get or were willing to take.
Mr. Ferguson. We knew perfectly well we would not get it.
Mr. Raushenbush. I will offer that memorandum for the record.
(Tile memorandum referred to was marked "Exhibit No. 1572", and is
included in the appendix.)
Mr. Raushenbush. There is a good deal more on that. Mr. Chairman.
Senator Bone. Can you tell us, Mr. Ferguson, winch of those items were
ullimately allowed?
Mr. Fkkguson. The items wliicb were ultimately allowed were the damage
item, and a settlement was made under the contracts for what we call " plant
rental." That was appraised and adjudicated by the Navy Department, and
complete records are ttuTe. and also the damage item, which amounted, as I
remember it, to around $4.r)00,000 for their proportionate share iluring the life
of the contract of overhead expenses.
Senator Bone. What ab(!ut the item of taxation?
Mr. Ferguson. That was not allowed in the settlement.
Senator Bone. Just so that we do not get any confusion in our own minds
here, I am not referring to income taxes but I am referring to i)roperty tax
levied on the property by the State of Virginia, tu- whatever tax sub<^livisiou
levies taxes on your plant. Was that allowed? That is an overhead operating
expense.
Mr. Fetiouson. Yes; the local taxes were allowed. I think.
Senator Bone. That is what I am getting irt. In other words, your State or
local taxes.
Mr. Raushenbush. Now, you have stated this, Mr. Ferguson. "\\Then you
referre<l to $0,909,204 as being f < r damages ; that was overhead, was it not?
Mr. Fekguson. Yes, sir.
Mr. Raushenbush. It is overhead you arc being paid tor at the r;ite of
$100,000 a ni( nth for 4G or 47 montlis?
Mr. Fkuguso.n. Yes, sir.
Mr. Raushenbush. What position were you stating for the Government pay-
ing the overhead on canceled ships, if it was nut simply under the head of antici-
pated profits or ti> take the place of anticipated proHts? You were not building
on those ships during this ix.>riod. You were not paying your own salary, and
you were not paying power under that item.
Mr. Ferguson. We were. They had agreed to take their proportionate share
of the overliead expense during the life of the contracts. The contracts were
MUNITIONS INDUSTRY 339
canceled. It wns worked out by the Navy department that foi- the time the
contracts would have extended, if completed, that they owed us their propor-
tionate share of our overliead expense, and it was settled on that basis, and
the complete record is in the Navy Department.
Mr. Raushenbush. We know they gave you the overhead expense. My ques-
tion was : How much of tliat overhead expense was actually spent by your
company? How much of that $100,000 a month?
Mr. Ferguson. It was the overhead expense actually expended.
Mr. Raushenbush. The question was interrupted. How much of the over-
head expense was expended for the purpose of those Navy vessels? You had
your ordinary business and could devote the $100,000 to that ; but the question
is : How much of that overhead was really spent on those Navy vessels on which
construction had stopped?
Mr. Ferguson. It was spent on the plant as a wliole, and our ordinary busi-
nc'^s would not at that time anything like carry the overhead. We nearly
went broke as it was.
Mr. Raushenbush. This helped out a great deal.
Mr. Ferguson. Here wasi this overhead which hiul been buili up to very
much larger proportions during the war, as a result largely of these same
contracts, and a lot of plant which we still did not need, and we still had to
keep our plant a going concern, luiless we shut it up and quit, and the Navy
Department — who wns it settled there? Secretary Wilbur finally settled after
several years of investigation on these figures.
Mr. Raushenbush. This was not several years. This was dated August 17,
1923.
Mr. Ferguson. However long it was ; 2 years.
Mr. Raushenbush. I still do not feel that the question has quite been an-
swered. We can understand how this helped the company carry itself on as
a going concern, to get this figure, but the question was whether any of that
was spent on naval vessels whose construction had stopped and whether it was
not just a gift by the Navy Department.
Mr. Fekguson. No, sir : it was in settlement of a canceled contract. You do
not accept a canceled contract for $70,000,000 and tell a man to go chase him-
self, do you?
Mr. Raushenbush. We are interested in the way the settlement was made.
Why should you not be paid for the cost which you incurred up to date and
not be given anything which looks like loss of anticipated profits, $4,648,000;
under the head of Overhead another two-million-odd dollars; under the head of
Plant, which was your own plant, the $6,990,204, except to justify anticipated
profits? We see no other possible explanation for it, because you were not
using the plant and you were not' using the overhead for the benefit of the
naval vessels.
Mr. Fekguson. I do not agree with you at all. The Navy Department worked
this out and the Treasury Department, as I remember it, pennitted the $100,000
to be distribute<;l at the rate of $100,000 a month for the 46 months. I do not
see anything strange or irregular about it.
Mr. Raushenbush. Certainly the Treasuiy Department would have to allow
the distribution of income when you once got it, but the question was whether
this was not anticipated profit.
Mr. Ferguson. If that was anticipated profit, you do not think for a minute
that the Treasury Department would not put it in profits?
Mr. Raushenbush. They did, did they not? They allowed $100,000 a month
for anticipated profits.
Mr. Fekguson. At the rate of $100,000 a month.
Mr. Raushenbush. That is the way it comes in.
Mr. Ferguson. If it had all been put in at once, it would have given us a
very high and fictitious earning for that year.
Mr. Raushenbush. You could not put it in in a lump sum, because you were
not getting it that way.
Mr. Feeguson. They make you put it in in a lump sum frequently, when
you do not get it, if you have an agreement to get it. As a matter of fact,
we did get it in a lump sum and distributed it on our payments at $100,000
a month.
Mr. Raushenbush. To what account?
Mr. Branch. To overhead.
Mr. Raushenbush. That was allowed as a deduction from the regular over-
head?
Mr. Branch. Yes ; we reduced our regular overhead by that amount.
340 MUNITIONS INDUSTRY
Mr. Raushenbush. My other ques>tion still remains : As to how much of the
$100,000 which you distributed to overhead, and which carried your going plant,
was really spent on these naval vessels. If the answer to the question is you
were not building any naval vessels, the naval vessels had stopped, then it was
by way of damage, as you say, or, as we say, " anticipated profits."
Mr. Branch. It was spent by us to build under naval contracts.
Mr. Raushenbush. As au indemnity?
Mr. Bbanch. As an indemnity ; as a settlement.
There is evidence that Bath Iron Works transferred an item of
$60,000 to the destroyer Dewey^ thus showing an improperly high
cost (galleys 41 WC and 42 WC).
Do you remember any difficulty you had with your auditors, or with anyone
else, regarding the putting of a sum of money or having a certain sum of money
against the destroyer Dewey, which expense apparently was incurred on their
negotiation? Do you recall anything of that kind?
Mr. Newell. Yes. There was a loss on two of the contracts, that, for book-
keeping purposes, was put in on that account. You people were informed, and
that whole matter was explained to them when they were in Bath. It was
simply a bookkeeping question.
Mr. LaRouche. Here is a letter on that, which I offer for the record as ex-
hibit no. 1821. This appears to be a letter from you to your auditing firm.
Mr. Thebeau. I beg your pardon. I think that is written by the chief clerk.
Mr. LaRouche. From your firm, I meant to say.
Mr. Thebeau. Yes, sir.
Mr. LaRouche. Your chief clerk in one place says [reading] :
Your attitude seemed to be that I was a little careless in not calling your
attention in my letters of September 9 and 14 to the fact that the transfer
above mentioned was included in the Dewey cost.
The transfer, as I take it, details a figure of $60,482.57. wliich cost was incurred
on the lighthouse tender Hickory and on a tug. Is that correct?
Mr. Newb^^l. That was not put into the cost account of the Deicci/. It was
simply added on the end of the resume of the Dcwef/'s cost account to show the
net x'esult of the throe jobs. Do I make it clear? It was not there as an item of
cost. I think that your committee must have a copy of tlie resume of cost of the
Deivey, that had, as a separate item and l;ist entry on the sheet, a cost item to
which you refer, which was added to it, but it was not in any way absorbetl
or put in the Detoey's account. The Dcwcy'n account was an item all by itself.
I have seen it. I know that. l>ecause I talked with your people, when they were
in Bath, about that same thing. I said, "That does not have anything to do
with the Dewey " and it is very clear as to what it was on the .sheet which was
handed to you.
(The letter referred to was marked "Exhibit No. 18'_'1 " and is included In
the appendix.)
Mr. LaRouche. You mean by that, you are saying that that $no,00<1 was not at
any time entered in your books as a charge against the Deircyf
Mr. Newell. No; it never was.
Mr. IjAltotTCHK. I submit :inother letter on that subject for a number. "Ex-
hibit No. 1822." This is a letter from your auditors, in response to the one
from your chief clerk. I will read one paragraph [reading] :
I am surprised to note the contents of your letter of the 2Gth. In falling
you regarding the $60.0(10 transfer item, included in the cost of tlie Dewey
my concern was to make sure that the principals of ynur company were
familiar with the actual outcome on the Deux'y.
What does he mean by that? Docs he not rather strongly state that tliat was
transferred to the cost of the Dewey?
Mr. Thebeau. No.
Mr. Newkll. No. He says it was not
Mr. LaRouche. It was not?
Mr. Newell. It was not in there at all
Mr. LaRouchk (continuing reading) :
In all (if Mr. Tliebeau's conversations with nu> —
MUNITIONS INDUSTRY 341
the letter continues —
he expressed great disappointment that the approximate profit on the
Dewey was only about $51,000. We, of course, knew that the costs were
burdened witli the $60,000 transfer item, but none of your letters made any
comment as to the real profit from the point of view of the management,
and we were naturally interested that the management knew the facts.
Mr. Newell. We knew it anyway.
Mr. LaRouche. Then your answer is that you never did at any time charge
that into the cost of the Dewey'i
Mr. Newell. Into the direct cost of the Dewey'i
Mr. LaRouche. Into the costs, direct or otherwise.
Mr. NEWEiLL. No, sir.
(The letter referred to was marked " Exhibit No. 1822 "' and is included in
the appendix.)
Mr. LaRouche. I submit another letter on the same subject for its appro-
priate number, exhibit no. 1823. I think we can enter that without reading it.
Mr. Thebeau. Yes, sir.
(The letter referred to was marked "Exhibit No. 1823" and is included in
the appendix.)
Mr. LaRouche. I submit this letter for a number, exhibit no. 1824, being a
letter from S. L. Eaton, chief clerk of the Bath Iron Works Corporation, to
Henry Brout «& Co., 295 Madison Avenue, New York, N. Y.
(The letter referred to was marked "Exhibit No. 1825" and is included in
the appendix.)
Mr. LaRouche. You would not say that that $(50,000 item had anything to do
with your claim for increased cost?
Mr. Newbxl. No. sir.
Mr. LaRouche. It had nothing to do with it?
Mr. Newell. Absolutely no.
Mr. LaRouche. I submit a letter from you to Mr. Spear, for its appropriate
number.
(The letter referred to was marked "Exhibit No. 1825" and is included in
the appendix.)
The Chairman. Mr. LaRouche, what is the general direction of the matters
which you are bringing into evidence at this time?
Mr. LaRouche. Merely that there seems to be some impression gained from
this correspondence that this $60,000 was somehow transferred as a bad debt
from one job to another, with the apparent result that the data show a naval
ship, a destroyer, was burdened with a charge that was not properly assigned
to it.
The Chairman. I see.
Mr. LaRouche. Mr. Newell says that was not the fact.
Mr. Newell. What you really mean to infer is that we were trying to get
that $60,000 out of the Government, which was not so, and it was not in there,
and it had nothing to do with the Dewey cost or in any way had anything to
do with the building up of the amount of money which we claimed was due
us under the conditions imposed upon us by the code. Is that clear?
The Chairman. Mr. Newell, there would have been large advantage, shortly
after that, would there not, in your being able to put a larger cost, a larger
production cost, in light of the fact that the Vinson bill, limiting the profit that
could be had from the building of ships, came along shortly thereafter?
Mr. Neweix. No ; the Vinson bill did not enter into this at all. The bill
passed by Congress extending relief to contractors who were caught under the
code
The Chaikman. That was not my question, as to whether the Vinson bill
had entered into the consideration. But the advantage would have been
yours, if you could have increased that showing of cost by $60,000'?
IMr. Newell. I know, but we honestly could not do a thing like that. That
is impossible and unthinkable. No ; you could not do a thing like that,
Senator. It was absolutely wrong, and it could be very easily checked.
The Chairman. Is there anything in this correspondence with which you
are dealing, Mr. LaRouche, that indicates that that was in the mind of the
company at the time?
Mr. LaRouche. No; I am not prepared to say that the correspondence
shows clearly that that was in the minds of the officials of the company.
Mr. Newell. I can say
342 MUNITIONS INDUSTRY
Mr. LaRouche. I think the letters should be in the record and should tell
their own story.
Mr. Neweux,. It absolutely is not that way.
The Chairman. Proceed, Mr. LaRouche.
Mr. Newell I do not like even the thought of it. I do not think there ia
anything there that makes that possible.
The Chairman. Mr. Newell, I do not see what there would be more repulsive
about your doing that— I am not wanting to give it a bill of health, by any
means — but I see nothing more repulsive in that than your organization invit-
ing improper propaganda for the purpose of instilling a fear of war to the end
that a number of contracts might be let for more ships, and tbat your company
did do prior to the Vinson naval building bill.
Mr. LaRouche. I think, Mr. Chairman, to shed a little further light on that,
that some of this correspondence might well be read, and perhaps Mr. Newell
can explain it.
Your firm of auditors. Henry Brout & Co., writes on September 27, 1934
[reading] :
I am surprised to note the contents of your letter of the 26th.
This is to Mr. Eaton :
In calling you regarding the $60,000 transfer item, included in the cost of
the Deiccy, my concern was to make sure that the principals of your com-
pany were familiar with the actual outcome on the Dciccy.
Then he says further [reading] :
In all of Mr. Thebeau's conversations with me he expressed great disap-
pointment that the approximate profit on the Dcircy was only about $51,000.
He says :
We, of course, knew that the costs were burdened with the $60,000 trans-
fer item * * *.
What does he mean by that?
Mr. Netvveix. I do not know.
Mr. LaRouche. What couUl he mean but that the costs on the Deivey were
burdened with $60,000 which did not belong there?
Mr. Newell. I would think the same as you, but I do not understand that.
Maybe Mr. Thebeau can answer it.
Mr. Thebeau. Tlie auditor miglit Imve reconnnended it, but that is no fair
test of it at all. With regard to our chiim, we have to give a detailed account,
a sworn statement, to the commission tliat we tiled the claim with, showing how
our costs have been kept, both as to material and as to labor. That is abso-
lutely all in detail when we present our claim, wliich we are working on now.
But that $60,000. you can see he was referring to me. and I tlo not recollect
now, but I know it is not charged to the Jtinci/, and would not be handled that
way. It is imi>ossible to handle it that way.
Mr. LaRouche. How do you account, then, for this further language:
We, of course, knew that the costs were burilened with the $60,000
transfer item, but none of your letters made any comment as to the real
profit from the jxunt of view of the management, and we were naturally
interested that the management knew the facts.
Did you know the facts?
Mr. Nkwei>l. Of course. Ave did.
Mr. LaRouche. You did know the facts?
Mr. Newell. Yes. I do not know what the auditor means by that. I would
suggest that the comnuttet> either get the auditor down here or write and ask
for a written interpretation of it.
Mr. LaKoxche. What is your rxphination of the language?
Mr. Ni.WKi.i.. It puzzles me. I liave a clear picture in my mind as to the
set-U[) of llu' final cost resume of the Deuyii. and tliat $(»0,(K>0 was a .separate
item in it, and it showed tlie net result of those three jobs, as far as net profit
on the tliree was coiuerned, just tiie same as you wo\iid set it up for your
income-tax purposes. It does not have anything to do with the costs of the
Dewey. It had nothing to do with the cost of operation, whether those three
jobs were going along together.
MUNITIONS INDUSTRY 343
Mr. LaRouche. He says further— this is the auditor's letter, again [reading] :
Let me also add that I was rather shocked to read the submitted copies
of your schedule of cost of construction of July 31 and August 31. I hardly
think you meant to use our name in the item describing the transfer of
labor and overhead. It was not a very politic thing to do, especially if you
consider that the information and the theory for this method of treatment
was obtained from Mr. Newell, who undoubtedly approved it, bearing in
mind the primary interest of the company.
Why was he so shocked?
Mr. Newell. I do not know. I do not know what he refers to.
Mr. LaRouchb. He says [reading] :
I would further suggest the impropriety of making such reference in the
corporate books. If by chance our name has been used in the books, as
authority for this or any other entry, please make the correction by dele-
tion immediately, and I would appreciate your advising me to this effect at
once. Also, please show this letter to Mr. Thebeau, since it affects the fiscal
affairs of the company.
This auditor apparently wanted no part of it.
Mr. Thebeau. I can answer that. He objected to his name being written in
the accounts, saying that he authorized this or he authorized that. That is the
point. He did not want his name written in authorizing the account.
Mr. LaRouchb. Because he was sliocked, according to his language?
Mr. Thebeau. That is the way I interpret it.
Mr. LaRouche. In the way the entries had been made.
Mr. Thebeau. He might have recommended certain changes, and he ob-
jected against the chief clerk writing his name opposite them. Auditors do
not always agree with accountants.
Mr. Newell. Why can you not ask the auditor who wrote the letter about it ?
Mr. LaRouohe. We thought perhaps you could throw some light on it.
Mr. Newell. I cannot tell you anything more than I have already.
Mr. LaRouohe. There is just a further pertinent paragraph. Your chief
clerk, in replying to the au<liting firm, says [reading] :
I am very sorry if I have done anything out of order.
AVhat does he mean by that?
Mr. Newell. I do not know.
Mr. LaRouche. Apparently Mr. Brout, the auditor, is accusing him of having
done something improper.
Mr. Thebeau. I can answer that. He considers it improper writing his
name opposite the entries.
Mr. LaRouche. He says :
I have tried very hard to cooperate in every way with both you and Mr,
Stoler, as I think Mr. Stoler will testify.
Who is Mr. Stoler?
Mr. Thebeau. He is one of the auditors for Mr. Brout.
Mr. LaRouche (continuing reading) :
I have tried equally as hard to keep accurate accounts and to place the
facts before the oflacials of the company at all times, and to cooperate with
them in every way.
I understand Mr. Stoler is coming here next week and at that time I
will go over all the adjusting entries I have made, with him.
The shipbuilders hold a different idea of what the Navy knows
about costs than the Navy officials. Mr. Bardo, on April 6 (galley
99 WC), informed the committee that the Navy knew the cost of
building the ships.
SECTION VIII.— WAR-TIME COSTS, PROFITS, AND TAXES
Undoubtedly one of the greatest favors done for the private
shipyards during the war period was expressed in the order to have
ships begun after the armistice, the keels of which had not been
laid up to that time.
The result of this order gave the companies a great amount of
work at profits which were not subject to the war-time taxes.
The work on destroyers alone, whose keels had not been laid at
the time of the armistice, was distributed as follows (galley 19 VW) :
Bethlehem $90, 540, 975
New York Ship 22,014,041
Newport News 5, 332, 504
Wm. Cramp & Son 31, 103, 702
During the war j^ears the large shipbuilding companies made
very considerable profits. They secured cost-plus contracts and
added questionable charges to the costs. They took profits on these
ships after the war taxes had been repealed. They secured changes
in contract dates to avoid the war taxes. They bought from the
Government very cheaply yards which had been built at Govern-
ment costs. One yard i)uilt additions only under the threat of
being commandeered*. Exorbitant claims were knowingly filed
against the Government for cancelations. Huge bonuses were paid.
Much of this evidence is spread out in exhibits not printed at the
time of the preparation of this preliminary report (June 1935).
Some indication of it, however, can be gained from the following
excerpts from the testimony:
New York Ship had received an assurance from Director Schwab
(United States Shipping Board) that it would receive such improve-
ments after the war as a gift or compensation (Jan. 21, 1935, galley
27 GP) :
Mr. Raushenbush. Before you went into the construction of that $14,000,000
south yard did you and your company malie an arrangement with Director
General Schwab, of the Emergency Fleet Corporation, determining on what
terms that would be given back or be sold to the company?
Mr. Parker. There was an agreement made by which we would be perrufitted
to repurchase the property on the basis of an appraisal or on the basis of
earnings.
Mr. RArsHENBUsH. So that before you acceded to this threat of the Govern-
ment commandeering, an arrangement was made with Schwab, who was head
of th.e Emergency Fleet Corporation, determining pretty definitely the terms
on which you would get that at the end of the war. Is that not correct?
Mr. Parker. That is right.
Ml'. Ratjshenbush. In that connection, Mr. Chairman, I would like to read a
letter from Charles J. Fay, of the firm of White & Case— White & Case have
been your attorneys on these matters, have they not?
Mr. Parker. Up to 1933.
Mr. Raushenbush. The letter is dated May 25, 1923, and is addressed to
James W. Talbert, of the Emergency Fleet Corporation. [Reading:]
Deiar Mr. Talbeirt: This is to confirm the appointment you gave Mr.
Neeland and myself for Thursday morning, the 31st inst. ]Mr. Neeland and
I will endeavor to be on hand promptly, and my thought is to be there
345
346 munitio:n's industey
at 9:45 a. m. (standard time). If you cannot see ns at that time, we
Avill wait until you are free.
I enclose a memorandum regarding this plant-acquisition matter by the
New York Ship of the improvements made at the cost of the Fleet.
As the situation now stands, the acquisition arrangements (which was
formulated in 1918 to avoid a possible war tax cash liability for the ways
and shop improvements which Director General Schwab intended, and
proposed, should be acquired by New York Ship without specific payment
therefor buit in the nature of a gift for added fee or compensation) was,
and is, based on the improvements themselves, providing their valuation
through earnings.
Df>es not that indicate fairly clearly that this whole arrangement by which
you got the property, and in which the Emergency Fleet Corporation had sunk
$14,000,000. for one-half million dollars, was determined before you went into
that supervision of the construction of the yard?
Mr. Parkeb. It was recognized at the time the work was undertaken that
the land belonged to the New York Shipbuilding Corporation. The facilities
placed on that hind and attached to that land by the Shipping Board became
a part of the realty.
Nevertheless, there was an agreement executed by which the Government
would be paid for that on basis of the earnings, which earnings developed
from the operation of that unit.
Mr. Rausheniixjsh. So that there wa.s not only the threat of commandeering,
but there was a promise obtained from Mr. Schwab, as quoted. " in the nature
of a gift or added fee or compensation" before you went into this?
Mr. Parker. That was not a motive to agree. That was rather a motive to
make us avoid, because, if, by any cht'iice. it was a fee on the construction, or
if. by any chance, it was a gift, it would have been subject to tax, and we
would be in position of having an obsolete, nonoporating plant, whicli would
be subject to a high rate of income tax. It would be having a bear by the
tail.
Mr. R.\U8HENBUSH. The arrangement was to get around the tax there, by
having tliat sort of an arrangement, and it should ^lot be exactly a gift, but
in the nature of a gift or added fee or compensation.
I would like to offer the letter for the record, as "Exhibit No. 1417."
(The letter referred to was marked " Exhibit No. 1417 " and is includeti in
the appendix.)
Bethlehem Shipbiiildinp: Co. paid $12,639,000 in taxes out of a
profit for the war years of $68,205,000 (Feb. 27, 1935, galley 15 QD).
Mr. R.\tTSiiENBU8H. So that you could allocate as much as you wanted of tbe
total taxes to be borne to any one of your hundred-odd companies, could you
not?
Mr. SiiicK. We could, if we thougbt that tbat would be advisable to do, but
we did proportion it more or less, based on the earnings of the particular
companies. That was the basis of our proportion.
Mr. Raushenbusii. What sort of proposition is that?
Mr. SniCK. For instance, in the years 1017 to 1021. we proportioned out of
the total taxes, .$12.().S9,00O in taxes to the Bethlehem Sliipbuilding group, which
included the six subsidiaiy companies.
Mr. Rat-.siienbush. That would be in a ratio of 12 to 68 million net income
before taxes, would it not?
Mr. Shick. That is about right.
Mr. Raushenbush. That is our figure.
Mr. ScTii>OTTMAN. $12,060,000.
Mr. Raushenbush. On the final settlement it is $68,205,000, according to our
figures.
Mr. SCHLOTTMAN. All tight.
Mr. Raushenbush. That would be about one-sixth of it, somewhere between
a fifth and a sixth, would it not?
Mr. ScHi.oTTMAN. That is correct.
Bethlehem Ship during the war used a rental system which made
its profits appear lower than they actually were. The " rentals "
were larger than the plant value.^ of the companies (Feb. 27, gallev
13QD, also 16QD).
MUNITIONS INDUSTRY 347
Mr. Raushbnbush. Mr. Shick, in examining the figures presented by you
to the committee on the net income of Bethlehem Ship during the war years,
we checked with the Bureau of Internal Revenue and found that there were
very large rentals to other companies. Could you explain the point and pur-
pose of those rentals?
Mr. Shick. At the time the Bethlehem Shipbuilding was organized, in Octo-
ber 1917, there were certain properties that were owned by other subsidiaries
of Bethlehem, which were not grouped in the Bethlehem Shipbuilding Corpora-
tion at that time, and until that could be done there were rentals. These prop-
erties were rented to the Bethlehem Shipbuilding Corporation for certain years,
with an idea of just making the distribution of the profits that were earned on
ships that were manufactured by those facilities.
Mr. Raushenbush. Were those so much rentals of property as a profit-sharing
arrangement?
Mr. Shick. There was a profit-sharing arrangement. That was the basis
of it.
Mr. Raushenbush. Do you have the terms of that?
Mr. Shick. I have a snyopsis of the leases here, which explains the rental
of the plant to the Bethlehem Shipbuilding Corporation, and the basis of the
rental was from November 1, 1917, to December 31, 1918, and in the case of the
Hunter's Point Drydock Co., at Hunter's Point, San Francisco, was from
November 1, 1917, to December 31, 1918, and for the Potrero and Alameda
works of the Union plant, at San Francisco, fi"om November 1, 1917, to December
12, 1924. Here is the information [handing paper to secretary].
Mr. Raushenbush. The sheet you hand me shows what you describe a profit-
sharing arrangement, 35 percent of all profits up to and including $2,000,000.
15 percent of all profits in excess, and so forth. In the case of the Potrero and
Alameda works, 85 percent of all profits. I will olfer that for the record.
(The document referred to was marked " Exhibit No. 1641 " and is included in
the appendix.)
Mr. Raushenbush. That was a profit-sharing arrangement, somewhat, more
than a rental arrangement, was it not?
Mr. SiiiCK. It was really a profit-sharing arrangement for the purpose of
renting those particular facilities.
Mr. Raushenbush. And the rentals paid to those particular companies were
far larger than the plant value of those companies?
Mr. Shick. No doubt that might be true, because we did not know at the
time what the earnings would be from those facilities, and in order to distribute
those to profits, that was the basis on which the rentals were made.
Mr. Raushenbush. Do you have the sum total of those rentals before you?
Mr. Shick. I do not think I have.
Mr. Raushenbush. Do you have those, Mi*. Mitchell?
Mr. Mitchell. Yes, sir.
Mr. Raushenbush. You have been sworn before, Mr. Mitchell?
Mr. Mitchbxl. Yes, sir.
Mr. Raushenbush. Will you give those rentals by years?
Mr. Mitchell. According to the income-tax returns filed by the Bethlehem
Steel Corporation, which is a consolidation with the companies including
Bethlehem Ship and so forth, the rentals paid by Bethlehem Ship Co. in
1918 were $14,049,121.93; and 1919, $7,535,196.10; in 1920, $4,934,393.67; 1921,
$8,881,727.63.
Mr. Raushenbl'Sh. Mr. Shick, if those rentals which you describe as a
profit-sharing arrangement were added back into this net income of Bethlehem
Shipbuilding Corporation, the net income would be somewhat larger?
Mr. Shick. Yes ; it would. In order to explain that situation, I would like
to present to the committee a consolidated profit and loss statement and a
consolidated balance sheet of those companies to which those rentals were
paid with the idea of showing a complete picture of the shipbuilding oi^erations
[handing paper to secretary].
Mr. Raushenbush. INIay we see to what extent that checks with the figures
which we have been able to obtain from the Bureau of Internal Revenue?
Is this after taxes, Mr. Shick?
Mr. Shick. That is the net income after taxes.
Mr. Raushenbush. After paying Federal taxes?
Mr. Shick. After paying Federal taxes.
Mr. Raitshenbttsh. Do you have any sheets prepared showing the income
before taxes for this consolidated group?
348 MUNITIONS INDUSTRY
Mr Shick. I have it from the summary, showing it.
Mr. Raushenbush. For this consolidated group?
Mr Shick For this consolidated group, by dividing it between the war
vears and the years after the war, showing the amount of business that was
done the net income before interest charges but after depreciation and tiie
S incomrpi^flt and-loss statement, and here is the amount of the income
and excSs profits which have been deducted [indicating so that by adding
thS back to this income here [indicating] that would be the income.
Mr RArsHENBxisH. You have not got it by individual ye.n-s, though before
taxes? That is the usual way that the Bureau of Internal Revenue determines
'"^MrU'S'Ve're not got it in exhibit form, but we could readily pre-
^^Mr' RAUSHENBUSH. I wonder if you would check with our figures. I do not
think it would be very long. We found that by grouping these various ship-
bnUdine Subsidiaries of Bethlehem Steel, we arrive at certain figures which
were reported, in fact, by these companies themselves for each individual year,
Tnd we would like to get that for 1917, 1918, 1919, 1920, and 1921.
MrMitchell can /oil give us the information you secured from the Bureau
of Internal Revenue 'as to the company's original reports on these consoUdated
groups of shipbuilding companies as far as invested capital and net income or
''Zr£rcn^l Csir; do you want the individual companies, starting off
"^iV.^s^SBUsif N^^ 1?^ us group them. List the ones which you have
so that Mr. Shick can check them.
Later the question was discussed again (galley 16 QD).
AT.- -RATTSHENBUSH Mr Shick, coiuing back a minute. I did not quite under-
stand\vha7"^rn;e pmUse of this siphoning V^oceau^n^renU^V;^^^
of giving such large rentals to the other companies? Did hat haNe somethin.
to do wfth the taxation question, or what was the point ot it?
Mr Shick. It had nothing to do with taxes._
"" MrTfusHENnusH. Mr. Mitchell, do you have the plant investment of some
^^r SS;:ir Yenilf/^r ^i^Sm'^^rLenue agent's report., and fn>m
thJbahuce sheet submitt^, I have taken the net plant values, whuh consist
of the plant costs, less reserves for the following ^^^l^l^-^^ .^^ ^^^ r^^^^I
^^^-^ITZ^Z^f^'^'^^ P- Of ^^J^l:^ f^r that
^^?Jn;:;r^^wSkl^5;;;^rc^;S^ed .550,000 rent for their net plant
''F^fe'lfJS- Shipbuilding Co., for 1917. received $2,187,900 rental for a plant
was the union Iron Works Co. It had a net plan ^^':^^^^^;^
$4 454.W2 for which it was paid rental of $(,53o,lJb, ^snun w.is i
"';!;!•' ]92oV"l;;ant value was $4,142,686, and it received rental of $4,934,393.
a return of 119 percent. balance ^heet was .$3,609,014, for which
1921 net ^^'^^^^^-^'^l''^^'^^^^^^^^ of the plant v.-ilue for
it received rental of !>i>.^M.4-<, "m*-" "*>^ •^-' *
'^i^'plant-value figures are taken from the balan,-e sheets at th. beginning
of the respective years.
MUNITIONS INDUSTRY
349
Mr RAUSHBNBUSH. Mr. Shick, would you miud stating your answer to my
other' question again? I did not quite understand it. Did you describe these
rentals as the proportion of the profit which those companies earned?
Mr Shick. Those particular facilities earned.
Mr. RAUSHBNBU8H. Those particular facilities earned?
Mr Shick. Yes ; which belonged to the former companies.
Mr.' Raushenbush. So that rental was not the phrase at all ; was it !
Mr. Shick. We used the term " rental." , . .x t> ., i i ^ t-f^^i
Mr RAUSHBNBUSH. How much was paid in dividends to the Bethlehem Steel
by these various companies, would you say, Mr. Shick, by Bethlehem Shipbuild-
ing Co. during those years, Fore River and Union Iron Works?
Mr Shick It was our practice to have those companies practically pay out
all their earnings which were available over to the Bethlehem Steel Corpora-tion
because the Bethlehem Steel Corporation was the one paying dividends to the
stockholders. There was no reason leaving the earnings accumulate m those
companies, so that they were paid over to the Bethlehem Steel Corporation.
Mr. RAUSHBNBUSH. Do you have the dividends before you?
Mr. SiiiCK. I do not.
Mr. RAUSHBNBUSH. Do you have them, Mr. Mitchell i
Mr MiTCHEix I have them, as obtained from the revenue agent;9 working
papers of the income-tax unit. He analyzed the surplus for the various years,
and, according to the books, the dividends paid were as follows :
Bethlehem Shipbuilding Corporation, Ltd., paid m 1919 .$1,.S2 50O in 1920
it paid $1,705,000; and in 1921 it paid $20,2S2,700^a total tor the years 1917
to 1921 of $23,770,200. ...,„,_ «.qa nna- in IQSO
The Fore River Shipbuilding Corporation paid in 1917 $90,000, in 1J20,
$4,010,400— a total of $4,100,400. o,r^ru^n. laiQ «i ioaoOA- 191<i-
The Union Iron Works Co. in 1917 paid .$400,000; 1918, $l,loO,000, iJltf,
$1400,OW 1920, $5,697,928.19; 1921, $24,000,000-a total of $32 627,928.19.
The total dividends paid by these three companies to Bethlehem Steel L-o.
amounted for those years to $60,498,528.19.
After the war, Newport News filed a claim against the Government
for $14,973,165 (Ex. 1572). At the same time the president ot the
company was informing the owner that the company should be satis-
fied with $6,636,000. This was " for trading purposes (galley 87
ZO, Feb. 13). . . ,, , , ,1 r. f
Newport News also bought facilities added by the Government
during war time at a much lower cost (Feb. 13, 1935, galley 81
ZO— 82(ZO).
Mr RAUSHBNBUSH. Now, coming to the war-time facilities which the com-
pany'got out of this, the Navy at various times advanced consideraole sunas
to the company, did it not, to build additional vessels?
Mr" Raushenbush.' Have you the figures there of how much that was?
Mr. Parker. That is the plant rental, is it not? Do you recall the question?
Mr. Fbrguson. What number is it? ^ -.^ ^
Mr. RAUSHBNBUSH. War-timc facilities that the Government added.
Mr. Parker. Do you remember the number of the question?
Mr. Raushenbush. I do not think it was in a question _
Mr. Ferguson, in this Price, Waterhouse report, we find the following:
Total -cost of facilities known as plant rentals A, B, and Shipping
Board special fund, $10,167,272.50—
and —
Net cost of same to the company, including estimated value of the
facilities under destroyer contracts transferred to the company m set-
tlement of canceled destroyers, $2.168,333.92 —
which leaves an—
Excess of cost over net book value thereof, $7,988,938.58.
Does that figure accurately represent the gain in money value to the company
of the facilities?
Mr. Ferguson. No, sir.
139387—35 23
350 MUNiTioisrs industry
Mr. Raushenbush. Will you explain that, please?
Mr. Ferguson. I can only explain it in general terms, Mr. Branch would have
to give you the details.
Further (galley 82 ZO) :
Mr. Raushenbush. Is there any question on that? We found this in the
Price, Waterhouse report and assumed that that was correct, that the company
had gainetl practically $8,000,000 in its war-time facilities through advances by
the Navy Department, which it then retained.
Mr. Feeguson (examining book handed witness by secretary). I have never
seen it before, Mr. Raushenbush. and I am trying, in answer to one of your
queries, to answer it, which tells what benefit there accrued to us in response
to the taking over by purchase in final settlement of the facilities provided by
the Navy Department and the Shipping Board, and if I can get the number of
the question, I can find the answer.
Mr. Raushenbush. I do not remember having asked the question in that
form about facilities.
Mr. Ferguson. As I understand it, you are asking me if we get the benefit
of $7,988,000.
Mr. liAusHENBUSH. That was not one of my questions. I am asking it now.
Mr. Ferguson. My answer to that is that we did not, but I have got to see
it. Will you repeat the question?
(The pending question, as above recorded, was read by the reporter.)
Mr. Raushenbush. The question prior to that was a reference to the Price,
Waterhouse report, showing that the total cost of facilities was $10,157,272,
and the net cost of same to the company was $2,168,38,3. and the excess of
cftst over net book vjilue to be $7,988.n3S. Tlie question was as to the accu-
racy of the Price. Waterhouse computation in that manner. Is that accurate?
Mr. FHHiGusoN. So far as I know it is accurate as to the figures in the total
settlement, but I would like to s:iy that in putting in plant for the Navy De-
partment— I do not remember the Shipping Board — it was agreed that the
Navy Department Wduld advance HO percent of the cost of the plant, approxi-
mately, and we would advance the other 50 percent, and in our contracts it
was provided that at tlie conclusion of the work this plant which had hcvn put
in would lie appraised by the Navy Department and the price to be paid by us
for this additional plant would be fixed by them, and that was done. The
rea.son was tliat you could not tell. It was generally assumed at the beginning
that the plant would cost, as sliown by the agreement, approximately at that
time twice wiiat it would cost, let us say, in normal times. And after the con-
tracts were terminated and these tlii-ee large contracts were settled, this jn-oix)-
sition of plant appraisal was made, after years — I do not know how many,
2 or 3 or 4 years — negotiation with tiie Board in the Navy Department that
had cognizance of it, and the settlement was made by that B(«ird.
Mr. IJai'Shenbush. Let me interruiit just a moment, Mr. Ferguson.
Mr. FKiMir.soN. Yes.
Mr. Raushenbush. Was not the basis of that arrangement fixed way back in
19151?
Mr. Fejiguson. Yes.
Mr. Raushenbush. So that the matter was all settletl then, rather than
later?
.Mr. Fi'.RGi-soN. It was written, Mr. Raushenbush, into the contracts.
Mr. Ravshenbush. Here is a letter of yours to Mr. Huntington of January
7, 1919, which I want to read in this connection on the phase of appraisal of
values :
I wired you Saturday the status of the two new battleship contracts, as
we had to get our letter in the hands of llie Dei>artment tixhiy. I have
since been in telephone communication with Mr. (Jauntlett —
Who was Mr. Gauntlett?
Ml". Fkrguson. He was our Washington representative.
Mr. Raushenbush. Is he the representative of any other companies?
Mr. Feiuutson. Yes, sir; two or three more.
Mr. RAisiiENursH. Which ones?
Mr. FraiorsoN. He is a representative of the Aluminum Co. and the Mntson
Navigation Co.
Mr. Raushenbush [continuing reading] :
I have since l>een in telephone communication with Mr. Gauntlett, who
informs me that the Dei>artment will probably agi-ee to give us these two
MUNITIONS INDUSTEY
351
hittleslims at a cash profit of $1,250,000 each, and will agree to make the
Be"iarv l^aiS extensions to take care of them, at a cost of not more
than $2,500,000.
This was after the war, was it not? This was January 27, 1919.
m- FERGUSoS. It was after the armistice, but the war, I think, officially went
on some time longer.
Senator Vandenbekg. It is still going on.
Mr. RAusHENBUSH. Here it says about the plant extensions :
* * * the plant extensions to be turned over to us at the end of the
contracts, and if the appraised value at that time is 1% million, or less
tSev will become our property, and if more than ly. million we will pay
the" difference between the IV2 million and the appraised value, the ap-
praisers to be appointed, 1 by the Navy Department, 1 by ourselves, and
fhe third to be selected by those 2. I do not think that the appraised value
for the 2V> million plant extensions, such as is contemplated of slupways
Sers etc will be as much as 1% million, and I instructed Mr. Gauntlett to
tell the Secretary that we will agree to this arrangement.
Then it goes on with an explanation which I would like to have you explain
[reading] :
The Department's interest in the matter lies in the fact that they are not
willing to show on the face of a contract that they are paymg more than 10
perceiit as profit. At the present time the total cash profit of 2 V2 million on
the two battleships, plus the 1^/2 million they are willing to allow us as
profit on the plant, will amount to $4,000,000, which is 10 percent of the
estimated cost of the two vessels.
Here apparently, if this letter is correct, Mr. Ferguson, the Department was
after the war, making an arrangement to allow more than a 10-percent profit
by giving you an increase in your facilities which would amount to a consider-
able sum over the 10 percent. Is that letter correct that way?
Mr. Feegi-son. No such arrangement was made. ^ _„,
Senator Clark. You indicate in that letter that the Navy Department was
just trying to beat the devil around the stump to try to allow you more than 10
^^MrFERGUsoN.^We did not take a contract for the two battleships, Senator
Senator Clark. But that was your impression at the time you wrote this
letter that that was what the Navy Dei>artment was trying to do, to figure out a
Seme to give ycu additional plant facilities, to keep it from appearing on the
actual face of the contract that they were giving you more than 10-percent
profits. That was your impression at the time of writing the letter i
Mr. Ferguson. It was ; but it was not done.
Senator Clark. The only reason it did not go through was because you were
not satisfied with the arrangement? ^ ^ t*-
Mr Ferguson. No ; this was preliminary to a two-battleship contract. It was
actually changed to a one-battleship contract, and the contract for the battle-
ship indicates exactly the arrangement made. ^. ,^- ^.^
Senator Clark. Why was it that the Navy Department did not want it to
appear on the face of the record what the transaction actually was? In para-
graph 2 of this letter, Mr. Ferguson, you state :
The Department's interest in the matter lies in the fact that they are not
willing to show on the face of a contract that they are paying more than
10 percent as profit.
Senat^C^K. The ^arrangement suggested was in effect paying more than
10-percent profit, was it not?
Mr. Ferguson. The arrangement suggested; yes. ^ ^-^ ^j r^ ^„,.^-
Senator Clark. Yes, sir. Do you know why it was that the Navy Depait-
ment was not willing to have it shown on the face of the contract exactly what
the real transaction was? , . t v, i -e^-^
Mr Ferguson All I can say. Senator, is that the arrangempent— I had for-
gotten the letter— did not go through, and I have here the contract.
Senator Clark. I understand it did not go through, Mr. Ferguson, but what
I am interested in is, on January 27, 1919, in writing to the owner cf your com-
pany you explained the fact that the Navy Department was not willing to have
352 MUNITIONS INDUSTRY
it shown on the face of a contract what the real transaction was intended to be.
That is correct, is it not?
Mr. Ferguson. I have no doubt, Senator, that it was discussed, from this
letter, witli the representatives of the Navy Department, but it was not done.
Senator Clark. Yes, sir; but it was stated to you, or at least you stated to
Mr, Huntington, that the Navy Department's interest in the matter was to cover
up what the exact transaction was to be.
Newport News attempted to have its war-time taxes lowered on the
ground that its war-time naval contracts were force contracts (Feb.
V2, 1935, galley 73, 74, 75 ZO).
Mr. Raushenbush. I am not malting any recrimination about it. That is
the inference shown by these letters.
There are some more things about this tax business which we are going
into, not to do anything more — and I hope you understand this — than to plan
for taxes for any possible future war, because the tax matter worked out in
the last war is about the only light we have guiding us for any future taxes.
We find something which interests us quite a little bit : That in 1924, appar-
ently one of your employees, Mr. Gatewood — he was the manager at that time,
and still is?
Mr. Ferguson. He is manager now ; at that time naval architect.
Mr. Raushenbush. This letter dated December 11, 1924, to Mr. Rearick, of
your legal staff, is signed by " W. Gatewood, manager."
Mr. Ferguson. He may have been.
Mr. Raushenbush. This is a rather long story, and I think we can sliorten it
somewhat, but he got the idea, did he not, that all these scnnewliat profitable
contracts you had made with the Government for warships were not contracts
at all but they were force orders imposed upon you by the President?
Mr. Ferguson. They were order contracts, and our war contracts for these
vessels were under Presidential order, and so stated in the contracts.
Mr. Raushenbush. And so stated in the contracts, as you contend?
Mr. Ferguson. I'es.
Mr. R.\ushenbush. And Mr. Gatewood goes on in this letter to Mr. Rearick,
which I offer for appropriate number, to state :
No opportunity was afforded tlie taxpayer to decline to make the con-
tracts or to adjust his price to suit the excessive tax. This provision of the
act which seemed to be ex post facto even though the larger part of the
income from the contracts subject to the excessive tax would not accrue
until after the date of the act.
What he was trying to do through here, was he not, if you will remember
the situation, Mr. Fergiison. was trying to avoid the payment of taxes at the
1918 rates, the high rates by stating and making a case that these many con-
tracts you had with the Government were not contracts but were force orders
and consequently did not come under the head of the taxes imposed on war
contracts, whidi were high?
Mr. Feuouson. I am not familiar with the letter.
Mr. Ratshenbush. You are familiar with the whole company's attitude?
Mr. Ferguson. I am familiar with their attitude; yes.
Mr. Raushenbitsh. Y'ou know that the company took this up with its attor-
neys and tlien the attorneys and Mr. Montgomery made complaint to tlie Gov-
ernment, protest to the Government?
Mr. Ferguson. Yes.
Mr. Raushenbitsh. lender this, do you mean?
Mr. Ferguson. Yes.
Mr. Raushenbush. They did attempt to have all yoiu- war contracts, the
taxes on all your war contracts thrown out on the ground that they were not
contracts but were force orders?
Mr. P'erguson. I do not know whether they attempted to have them thrown
out.
Mr. Raushenbush. You have the high taxes thrown out. We have your pro-
test by Rickford and Rearick, your counsel, before the Hurcau of Internal
Revenue to that etTect.
(The letter referred to was marked "Exhibit No. 1559" and is included in
the appendix on p. — .)
Mr. Raushenbush. Mr. Chairman, the point of going into this is this: The
field seems to offer some opportunities. Quite a constitutional question is
MUNITIONS INDUSTRY 353
made here, not only by the company, but its attorneys, that if you are in a
state of war, and a contract is forced on you, it is not a contract, and so if
Congress comes along and says an 80-percent tax shall be imposed on all war
contracts, between certain dates, that that does not go for the business of
some of the companies because of their contracts being on force orders and
therefore the taxes would not apply.
And in planning taxation matters that field should be plowed one way or
the other. If I may, with the consent of the committee, I will go ahead on
that for just a moment.
We have here a letter from Mr. Bickford. He was of your counsel, was
he noit?
Mr. Ferguson. General counsel at that time.
Mr. Raushenbush. To Mr. Rearick. He was special counsel for you?
Mr. Ferguson. Yes, sir.
Mr. Raushenbush. Stating in the second paragraph :
I concur Avith Mr. Gatewood that it is unjust and unconstitutional, but
I think it would be dangerous to urge the grounds which he assigns as
they fly too far and expand the case unnecessarily.
Mr. Raushenbush. I offer that as " Exhibit No. 1560."
(The letter referred to was marked "Exhibit No. 1560" and is included in
the appendix on p. — .)
Mr. Raushenbush. Following that we have a claim before the Commis-
sioner of Internal Revenue, and if you care to follow this from the book, or
we have copies of it here, you may. We have taken extracts out, if you care
to look at that, and it makes the whole case there. In the first paragraph
it says:
Taxpayer was required to proceed with the orders without any of the
power, privileges, or profits of a contractor, therefore the pi'ovisions of
the Revenue Act of 1918 imposing an additional tax in the years 1919,
1920, and 1921 on profits derived from " Government contracts " made
between April 6, 1917, and November 11, 1918, was not intended to and did
not apply to work perfoi'med pursuant to the mandatory orders of the
President of the United States.
The claim is then made, and the evidence is shown to the extent it can be
compiled, that these were not in any sense contracts or contractual money was
not involved, so that the 80 percent rate in the 1917-18 war contracts should
just be wiped out.
Senator Vandenberg. I assume the Government denied that claim and sub-
sequently was successful. Is that right?
Mr. Raushenbush. This is a claim made up by Mr. Montgomery, Senator,
in this matter : Protest against income and profits tax deficiencies proposed
for the years 1917 to 1921, inclusive ; and the Government, in reply to your
question, did throw out the contention, but Mr. Montgomery made this state-
ment in a part of the brief :
It was clearly not the intention of Congress to tax at what are really
penalty rates, income derived from the execution of the President's orders.
After making the point about these contracts not being contracts [continuing
reading] :
Section 301 (c) of the Revenue Act of 1918 was inserted liy the confer-
ence committee, and in explaining it to the House, the Chairman of the
Ways and Means Committee said :
" Though the 80-percent war profits tax is eliminated for the next fiscal
year — since there are no war profits for 1919-20 — the conferees put in a
provision extending the SO-percent war profits tax for the calendar year
1919 to catch the profits that are derived in 1919 from war contracts made
in 1918 and 1917, so that the profiteers will not get off with 80 percent
eliminated after January 1, 1919."
Mr. Montgomery goes on :
The owners of shipyards who were prevented from undertaking lucrative
commercial work and were commended to devote all their facilities to the
production of vessels for the Government at prices stipulated by the Gov-
ernment, can hardly be considered the profiteers the conference committee
intended to reach.
354 MUNITIONS INDUSTRY
That is the point, and the returns on the revenue agent's findings, now not
on invested capital, according to any agreement, but on tlie revenue agent's
findings show that for 1918 the company was getting a return of profit to in-
vested capital, as the revenue agent found it, of 76.1 percent and in 1919 of
71.5 percent.
(Document marked "Exhibit 1561" and is included in index.)
Senator Vandenbekg. How was the price fixed in one of these forced con-
tracts?
Mr. Raushenbush. We have here one of those contracts included in the com-
pany's protest. It is a regular form contract. Mr. Ferguson can probably
give you the actual fixing of the price. It says '* cost plus 10 percent ", and
the definitions of " cost " are given, including all taxes there. We had this dis-
cussed when New York Ship was here.
Senator Vandenberg. Mr. Ferguson, when we are discussing this so-called
"force contract", are we discussing the cost-plus-10-percent contracts?
Mr. Ferguson. Some of them were cost plus 10 percent. They were all changed
to cost plus a fixed fee. Some of them were cost plus a fixed fee in the first
place. The only cost-plus-lO-i^ercent contracts which we ever completed was
the first of a group of destroyers
Senator Clabk. Was that during the war, Mr. Ferguson?
Mr. Feeguson. Yes. The battle cruiser contracts were signed in 1916, and
they were cost plus 10 percent, but later on changed to cost plus a fixed fee of
$2,000,000. The battleship lown was cost plus a fixed fee from the beginning.
A group of tankers we built for the Navy Department were cost plus a fixed
fee, plus one-half of the savings under a certain price.
Senator Vaxdexbekg. This is after tJie war, is it not?
Mr. Fekguson. No ; this was during the war. It was during the war period.
I do not remember just when the battleship Iowa contract was settled.
The first contracts provided that taxes of all kinds would be included as an
item of the cost, before the war taxes were set. The later contracts, I am
quite sure, showed that they included taxes except Federal profit taxes.
Senator Vandenbeeuj. The first contracts included income taxes and every-
thing else?
Mr. FE2JGUS0N'. They included taxes of all kinds.
Senator Vandenberg. What was there about a cost-plus-10-percent contract
which so invaded the ordinary contractual prerogative that it ought not to be
considered in ordinary tax practice?
Mr. FicRGUSOx. I take it — it is a legal question with which I am not ac-
quainted— but I take it that being a Presidential order contract
Senator Vandenberg. I am not asking about the legal phase. I would not
undertake to enter that field, either. I am talking about the practical phase.
Do you not invite the inference that if you consider a cost-plus-lO-percent
contract an invasion of your ordinary contractual privileges, do you not invite
the presumption that a 10-percent profit above all cost items is a great hard-
ship, and a great invasion of your usual opportunity of doing a great deal better
than that?
Mr. Fei!GUSON. No.
Senator VANUENBEnui. It seems to me tliat you do. Go aheatl, Mr. Raushen-
bush.
Mr. Raushenbush. The point tliat you were to accomplish by these protests
which were laiil befoie them liy Mr. Montgomery and your learned attorneys
and others was simply to leduce the taxes on all the (iovernniont work during
the war, on the ground that it was a force contract? That is not to say that
10 jiercent was too nnich or too little, but that the taxes were too much. Was
not that the point of it?
Mr. Fkrqu.son. I jire-siune so.
Mr. Raushknbush. Then we turn to all the changes which were made, Mr.
Ferguson, in your contracts. We find liere a letter from you to Mr. Hunting-
ton, dated July 14, 1919, in wliicli, in the .second paragraph, yon !<ay :
We also discussed changing the battleships and battle cruisers to co.^t
plus a fixeii fee, and, although we reached no conclusions, I think it
likely that we will do so. We would like to change the battle-cruiser
contracts absolutely so as to get the date of the contracts «iut of the
war period, and avoid the high tax on profits. The Secretary did not
raise any particular objection to .$2.(M)0.<HX) fixed fee on each of the 2
battle cruisers, and ?l,o50,000 on each of the 2 battleships.
MUNITIONS INDUSTRY
355
And it is very clearly stated, is jt not, Mr. Ferguson [reading] :
We would like to change the battle-cruiser contracts j^^solutely so as
to get the date of the contract out of the war period, and avoid the high
tax on profits.
That was the point of changing all these contracts from a cost Pl"'"^ to a
cost plus a fixed fee, was it not, and getting the date on them changed to get
them out of the period when an 80-percent tax was put on contracts?
m-. FERGUSON Contracts were entered into for battle cruisers before the
war Then, after the war period, we changed to cost plus a fixed fee, and
naturally, if we could and if they were not war work, were not done duiing
the period of the war.
Mr. Raushenbush. You say —
so as to get the date of the contract out of the war period, and avoid the
high tax on profits.
Mr! R?xiTHmBu?H : lou are talking about Government conti-act work dur-
ing the war. Then on December 17, 1919, in a letter to Mr. Huntmgton, you
state :
Last Friday in Washington I went to see Secretary Glass, of the Treas-
ury Department, at the suggestion of Secretary Daniels, in regard to the
Federal tax on our two battle cruisers, the contracts for which were
signed on May 25, 1917, or during the war period.
This was during the war period and not before or after. These w"ere signed
during the war period. . , • imft
Mr Fbkguson. I thought they were signed m lUlb.
Mr. Raushenbush. You say to Mr. Huntington—
in regard to the Federal tax on our two battle cruisers, the contracts for
which were signed on May 25, 1917, or during the war period. There is a
special war excess-profit tax on Government contracts made during the war
perSd Ind before agreeing to any change in our contracts for tl,e battle
cruisers, we wanted to develop whether these cruisers were to be held by
the Treasury Department to have been contracted for during the war period
as the award and the agreements relative to the construction of these
cruisers were actually settled before the war. .„. ^ „,-„^
The Treasury Department officials appeared to be very willing to give
us an opinion as soon as we could put up our case, which we will do with
our income-tax returns for this year, if not before.
Then we go on to April 12, 1920, in a letter from you again to Mr. Hunting-
ton, on the second page, fourth paragraph :
We are engaged in shifting our two transports from a cost-plus-fixed-fee
ba^s to a fixed-price basis, which will give us a greater profit than we would
otherwise make, and I am quite sure will relieve us of a great deal of an-
noyance in having the Fleet Corporation auditors around the place.
Here are these transports for the Emergency Fleet Corporation?
Mr FERGUSON. These were two transports we got for the Emergency Fleet
Corporation on a cost-plus basis, and those were changed, at my suggestion, to a
fixed-price basis, agreed upon between them and ourselves, and we made more
than we would have made on the original contract, and the transports cost
the Government about $1,000,000 less apiece than other transports that were
furnished on the cost-plus basis.
Mr. Raushenbush. Others not in your company I
Mr Ferguson. No ; but in other companies. „ , .,
Mr RAUSHENBUSH. We hardly know the circumstances of the other companies
Mr! Ferguson. I am saying that we made more money and the Government
^^Mv RAUsHESBUsl'^At the time of the shifting you state that the shifting
from a cost-plus-fixed-fee basis to a fixed-price basis —
will -ive us a greater profit than we would otherwise make, and I am quite
sure "will relieve us of a great deal of annoyance in having the Fleet Cor-
poration auditors around the place. These transports, or Passenger ships
as thev will now be, are getting along very well and we wil launch the flist
one in the summer. We have not yet shifted our 2-battleship and 2-battle-
356 MUNITIONS INDUSTRY
cruiser contracts from cost-plus-10-percent to cost-plus-fixed-fee basis as the
Navy Department wants to do, for the reason that we liave not been able
so far to find out just how to do it and be safe.
What do you mean by " how to do it and be safe "?
Mr. Ferguson. I do not remember what I meant.
Mr. Raushenbush (continuing reading) :
I think that the best method would be to simply agree to a fixed fee as a
change under the contract instead of 10 percent and have all the rest of the
contract remain as it is.
You are still on the question of changing the base on those, are you not?
Mr. Ferguson. No, sir ; that means as you make changes under the contract,
as was done, that a new contract was not made.
Mr. Raushenbush. Are you sure of that?
Mr. Ferguson. A supplemental contract, but a new contract was not made,
taking the cruisers out of the war period.
Mr. Raushenbush. Are you sure of that?
Mr. Ferguson. Yes ; I am quite sure.
Mr. Raushenbush. Mr. Branch?
Mr. Branch. That is correct.
Mr. Raushenbush. Then all these attempts came to nothing?
Mr. Ferguson. It looks so.
Mr. Raushenbush. You kept after it year in and year out, apparently,
explaining to Mr. Huntington in a letter of June 1, 1920 :
Last week we changed our contract with the Shipping Board for the
last two troop transports from a cost-plus-fixed-fee basis to a fixed-price
basis. Our fee was to be $350,000 for each ship plus one-half of the sav-
ing under a certain estimated price. We are now to get a little over
$6,100,000 per vessel, and we think we should make about $750,000 profit
on each vessel. We have canceled the former contract and written a new
contract which we believe will take it out of the war period completely,
and so we will not have to pay the extra tax on war profits on it since
February 23, 11>20, on these contract.*^. Mr. Palen negotiated this trade
which I think was very advantageous from every point of view.
Then it goes on :
In regard to the two battle cruisers, we have tentatively agreed with
the Navy Department, as previously discussed with you, to change these
contracts from cost-plus-10-percent to cost-plus-a-fixod-fee basis, the fixed
fee being agreed upon as $2.000,(X)0 per cruiser. For almost a year the
Department has wanted us to write a new contract and particularly to
change our old contract with regard to taxes. We liave refused to do
this and now will hold to our old contract, but siiuply agree in a letter
to accept a fixed fee of $2,OOO,0tH) for each vessel instead of 10 percent.
Why did the Navy Department want you to write a new contract there?
Do you remember that?
Mr. Fe3{ouson. I do not I'emember. Presumably to cut out taxes as an
item of cost.
Senator Vandenberg. This is after the war, is it not?
Mr. Fekguson. Yes, sir.
Newport News met opposition from the Treasury in its attempt
to shift })rofits to the i)ost-war years in which tax rates were lower
than in the war years (Feb. 12, 1935, galley 72 ZO, 73 ZO).
Mr. Raushenbush. You were aware of the fact that the Treasury Depart-
ment was opposed to your atteiniiting to shift the profits out of the high war
tax years into the lower post-war tjix years, were ynu not?
Mr. Branch. That is true; we were i-onseiuus of it as it went along.
Mr. Raushenbush. You were imt only con.scidus of it but you had accept-
ance of it because of this confidential report to the Treasury Department
concerning this price?
Mr. Branch. I might say that I knew of the report. Mr. RausluMibnsh.
Mr. Raushenbush. I want to offer for the record "Confidential rejiort of
the internal revenue agent examining tlie Newport News books, dated March
30, 1927", which I will show you [handing pjxper to witness].
MUNITIONS INDUSTRY 357
(The document referred to was marked " Exhibit No. 1557 " and is included
in the appendix on p. — . )
Mr. Raushenbush. I show you on the second page, the third paragraph,
a comment on what seems to be this practice of shifting profits around to
."what the revenue agent thinlis avoids tlie liiglier war taxes.
This, Mr. Chairman, is in point upon this question : If very high war taxes
are put on, and this sort of practice is possible, then everybody who is taxed
under a high rate will probably wait and do their best to postpone the settle-
ment and postpone the taking of their profits until after the war is over, when
everybody will think taxes will drop, as they did during the last war.
The paragraph reads:
About the time of closing the books each year many memoranda are not
actually issued until January of the following year, and the auditor is told
by Mr. Ferguson (dictated often by Mr. Gatewood) how to close certain
long-term contracts. Particular reference is made to memorandum dated
January 11, 1922, pertaining to 1921 closing, regarding contracts for huils
261 and 262, which states " no change from present instructions." This
memorandum bears initials of Mr. Gatewood. Tliese are the contracts
where $2,283,474.88 profits were not reported until 1922, although contracts
were fully paid and v/ork had ceased for several months prior in 1921.
Mr. Gatewood and Mr. Ferguson should each be required to state under
each why this large amount of income was not reported in 1920 and 1921,
when only 10 percent of expenses was taken as profits each month in those
years. Certainly at the end of 1920 they knew what percentage of the
contract was completed and should have adjusted the profits in 1920 to
show the proper income for 1920 as required by article 36 of regulations
62. Again, they should have restated their profits at the end of 1921 when
the contract was actually closed. The same condition appears in many
other contracts, which are detailed in my report in exhibit H.
I do not wish to accuse these gentlemen of any wrong intent, or even
intimate such, but I cannot help but feel that such action was intentional,
whatever the motive. But I have refrained from making any suggestions
of wrongdoing in my report, but I hold that the income properly belongs in
1920 and 1921 and a penalty for negligence should be added for not restat-
ing same.
Another paragraph on the third sheet states :
Mr. McMurran—
Was he the auditor at that time?
Mr. Branch. Yes, sir.
Mr. Raushenbush. Was he your predecessor, Mr. Branch?
Mr. Branch. Yes.
Mr. Raushenbush (reading) :
Mr. McMurran, the auditor, declined to come to the conference on March
12, 1927, stating that, as Mr. Gatewood had taken charge of the tax matters,
he (Gatewood) should assume full responsibility. Mr. McMurran stated
that, if he (McMurran) had been allowed to close the books, the profits
would have been reported in accordance with the income-tax law, no matter
what tax developed. I could not help noticing an apparent friction be-
tween Gatewood and the auditing department.
The letter then ends up :
The corporation is owned and controlled by wealthy people, fully able
to pay the Federal taxes when properly determined, plus interest and
penalties.
After consideration of -this letter, it may be thought that more drastic
action should be taken and fraud penalties.
That 'was the very thing you were talking about, was it not, Mr. Branch,
and which the Treasury Department thought should be one way and you
thought should be another?
Mr. Branch. Yes, sir.
Mr. Raushenbush. Do you want to comment on that, Mr. Ferguson?
Mr. Fekguson. May I state in connection with 261 and 262, which were
mentioned, that they were two oil ships, the largest ever built, for the Standard
Oil Co. of New Jersey. These vessels were of new design and were much
358 MUNITIONS INDUSTRY
larger than any ships that had ever been built up to that time. The guarantee
on those ships ran for 1 year after delivery.
The company was liable for the ships for a year. The income-tax people
said that the profit should be taken at the time when the money was paid.
We held that on account of the risk involved through a year's guarantee on
a ship of a tremendous size, and different from any other oil ship, that we
or anyone else had built up to that time, that we should be protected until
our guarantee period should elapse.
In the case of other ships he refers to, they were two oil ships building for
the A. G. W. I. interests. In that case the company became involved in finan-
cial difficulties. We kept the ships for 6 months. We accepted the bonds,
which could not be sold, in payment for these ships. We did not wish to
enter tlie profits on the ships until the bonds had been paid, or could be sold
by us. The Treasury Department ruled that we had to take the profit when we
accepted the bonds and could not wait until the bonds had been demonstrated
to be good.
Mr. RAUSHENBtrsH. There are some letters on that, Mr. Ferguson, which
seem to include something more than the A. G. W. I. ships.
Senator Barbour. May I ask, if I may interrupt, were the bonds good?
Mr. Ferguson. They were eventually paid off : yes, sir ; and we took the
profit when the notes represented by the bonds were paid.
Senator Vandenberg. Did the postponement of the profits into subsequent
years result in a tax advantage to the company in net result? Would it
have resulted in a tax advantage?
Mr. Feegusox. It would have Imt it did not.
Senator Cr.AKK. How great a tax advantage. Mr. Ferguson? Can you tell
us roughly what the difference would have been between the two construc-
tions of the tax?
Mr. Ferguson. I beg your pardon?
Senator Clark. Can you tell us roughly what the difference in the tax
•would have been under the two constructions?
Mr. FB31GUSOX. I do not know.
Senator Clark. Do you have anything which shows that, Mr. Raushenbush?
Mr. Raushenbush. I cannot work it out exactly, but there are several
letters hero showing definite attempts.
The Chairman. It would be quite interesting and the record should carry
a completed study on that, showing just what the difference would be, if
you will make note and have that prepared.
Mr. Raushenbush. All right, sir.
We have here a letter fnun Mr. Ferguson to Mr. H. E. Huntington, dated
January 10. 1022. Mr. Huntington was the sole owner of the company, was
he, Mr. Ferguson?
Mr. Ferguson. He and his wife.
Mr. Raushenbush. He and his wife were the sole owners of the company?
Mr. Ferguson. Yes, sir.
Mr. Raushenbush. It says in the second la.st paragraph :
In connection with the tax situation, we have decided not to take any
of tlie profit we eavne<l last year on the big naval sliii> work as we do not
know at this time just what we will be calle<l on to do, what disposition
will be niach' of the hulls, or whether we will have to bid on them to
fiiiisli tlu'm. * ♦ * 1 ;iin in liopes of working down our profits for
last year to such a point wliere our taxes will not be so lieavy, and legally
we do not have to show profit for tax purpo.sos until a job is completely
finished and all of our responsibility in connection witli it ceases.
I will call your attention to this :
I am in hopes of working down our profit for last year to such a point
where our taxes will not be so heavy ♦ * *.
Last year, being 1921. when the taxes were higher than 1922.
I offer that for the record.
(The letter referred to was marked "Exhibit No. 1558" and is Included
in the appendix on p. — .)
Senator Vandenberg. What is that letter?
Mr. Raushenbush. A letter from Mr. Ferguson to Mr. Huntington, and I
was calling attention to a paragraph on the last page.
MUNITIONS INDUSTRY 359
In addition to that, I call your attention to a letter of February 2, 1922,
again to Mr. Huntington, signed by Mr. Ferguson. The third paragraph says :
In going over our tax situation in detail, we find that our taxes for
last year will be very much less than I have heretofore indicated to you,
as the two Standard Oil ships have guarantees which do not expire until
the latter part of this year. It is also probable that we will not take
profits for last year on any of the Government work which is canceled,
as there is no way of telling what that profit will be.
That is a little more inclusive than the Standard Oil ships, is it not ; post-
poning the profit taking on all Government work?
Mr. Ferguson. The Government work had been suspended, or partially sus-
pended, and there was no means of telling then what the profit would be.
Mr. Raushenbush. Do you know to what extent you had accepted it for
1921?
Mr. Feeguson. The final settlement on the Government contract was made
in 1925.
Mr. Raushenbush. On the canceled ships, as a result of the disarmament
conference, you mean?
Mr. Ferguson. Yes.
Mr. Raushenbush. The final settlement was made but the arrangement, I
thought you were going to say, was made in 1923. You knew you were going
to get $100,000 a month on that, did you not, from 1023 on?
Mr. Ferguson. I do not remember that.
Mr. Raushenbush. We will come to that matter.
I call your attention further to a letter on the question of postponing profits
of March 6, 1922, again addressed to Mr. Huntington [reading] :
Our tax return as made up for this year gives us a total Federal tax on
income of only $153,628.62. The reason for this is that we did not put in
the AGWI ships as they are still here awaiting final settlement. We wrote
off an additional $600,000 on the plant and did not put any profit on most
of our Government work, as that is in the process of being canceled, and
we do not know where we will land.
Mr. Ferguson. What date was that?
Mr. Raushenbush. This letter is dated March G, 1922.
Mr. Ferguson. The Disarniament Conference met in 1021. It was finr.lly
approved and ratified about 1023. In the intei-im, when there was just a very
small amount of work going on, we had no means of knowing what kind of a
settlement the Government was going to make.
Mr. Raushenbush. We will just check the statement about the settlement
to be made on the ships, Mr. Ferguson.
I want to call attention to the last part of this paragraph —
We did not put in the main profits of the Standard Oil ships as we have a
12 months' guarantee on these ships which does not expire until the
latter part of this year. Of course this will make our taxes for the year
1922 very much larger than they would have been —
3922 was a lower tax year, 15 percent, was it not?
Mr. Ferguson. Yes, sir.
Mr. Raushenbush. And 1921 was about 40 percent.
The letter goes on [reading] :
but under the circumstances I felt justified in keeping our taxes for 1921
as low as we legally could.
There was a letter indicating that what you were trying to do was to take
the profits in the higher tax years and put them in the lower tax years?
Mr. FE3RGUS0N. Yes.
Wines, liquors, cigars, etc., were cliarged into the war-time con-
tracts as proper expense (Feb. 6, galley 29 ZO) :
Senator Clark. Did that contract during the war include provision for as-
sessing the services of your Chinese and Japanese representatives and for wines,
liquors, and cigars which you actually put into the cost?
Mr. Parker. It included all costs having to do with operating the business,
and wines and liquors in shipbuilding are just as necessary as steel in many
cases.
360 MUNITIONS INDUSTRY
Senator Claek. Do I understand that the contract provided for under the
Vinson bill should include wines, liquors, and cigars?
Mr. Parker. Absolutely so.
Senator Clark. That is very illuminating.
Senator Vandenbeeg. In the case of those cost-plus contracts during the war,
do I understand that the items which you included in cost, and which were
subsequently eliminated, such as income taxes, and so forth, do I understand
that you were authorized to include those at the time in the first instance?
Mr. Parker. The contract, the first cost-plus contract, provided as one of the
items of. cost all taxes. That seemed to be authority to include income taxes.
The subject was raised a little later (Feb. 6, galley 30 ZO) :
Senator Clark. Mr. Parker, I would like to have a little further explanation
of your very surprising statement a little while ago that wines, liquors, and
cigars were fully as important elements in the shipbuilding business as steel.
Will you just explain why it happens that wines, liquors, and cigars are just
as important in the manufacture of a ship as steel?
Mr. Parker. Senator, if I would paint a picture of what the use of wines
and liquors in the shipbuilding business is
Senator Clark. Since the Government has to pay for them, and then pay
you an additional percentage of profits on top of them, I think that picture
would be very interesting.
Mr. Parker. All right. Wines and liquors have more to do with the building
of the ship than just the champagne bottle that we push it overboard with
or the few drinks that may be passed around on a trial trip, which Congress-
men and Senators enjoy sometimes. [Laughter.]
In days of old when a trial was conducte<l, and I am sure we all remember
the stories we read of the issuance of grog ab<iard ship, particularly in a
time of stre.ss, of storm, of extraordinary effort, that when a ship is required
to go on trial, and yoti have the picture of 2<> men throwing big. hand-picked
coal in the furnaces, there are 5-gallon demijohns of liquor alongside ihem, and
they have their drinks of beer and whisky just the same, and it is a matter of
rule and routine and just as much a part of the business of operating a ship
under these conditions as it is in a restaurant where ihe service is allowed.
Senator Clark. Is there any more necessity for dealing out liquor and beer
to these men on a trial trip than there is when the ship is in connnl.ssion in the
Navy? Of course, they are sweating from shoveMng coal when the ship is on
a regular cruise in the Navy, are they not? Is there ;iny iiarticular reason
why they should get drunk on a trial trip any more than on a regular cruise?
As a matter of fact, Mr. Parker, what this item of wines, li(piors. and cigars
amounts to is this, is it not : You go on a trial trip and the shipbuilding com-
pany is permitted to invite a large nuiuber of iiithieutial or distinguished people,
some of whom may be Congressmen, Senators, or other Governiuent otHcials,
and a general janibni-ee is held by all, with fine, rich food and fine wines and
liquors, and the Government not only i>ays the bill for tliat, for the purpose
of making friends for the shipbuilding company, but also, under this ))rogram
arrangement, has to pay you an additional amount for the privilege of allowing
you to give a party? Is not that correct?
Mr. Parkkr. S(>nator, wlien you go back to IHIT and lOlS, that was the prac-
tice up to that time. That is IS yenrs ago. The practices which were in
existence before tlu» war were continued during th.it period, of course. But we
did not rim jamboree parties in naval vessels and never do. The only people
on a naval ve.s.sel are the trial board and the representatives of the contractor
and representatives of auxiliary manufacturers. There is no general jamboree
on that.
Senator Cr^VRK. I notice on naval vessels constructed after the war a very
large item set down — I forget exactly when it was, but I referred to it wlieu
you were last here — a very large item for wines, liqnnrs, and cigars in the con-
struction of those vessels, set down as a part of the cost, on which the
Governnaent was required to pay an additional commission to you.
Mr. P.\rkki{. They were Shipiiing Board vessels. Senator.
Senator Clark. Whether they were naval vessels or Shipping Board vessels,
the .iamborees took place, did they not?
Mr. Parker. They did.
Senator Clark. You considered that part of the national-defense scheme,
did you not, Mr. Parker, to have jamlK>rees?
MUNITIONS iNDUSTItY 361
Mr. Parker. Well, it certainly had a part of it. It was the first time that
many of these Senators from the West and C-pngressmen from the West had
ever seen a real ship in operation.
Senator Clark. After having taken this pleastire trip, you felt they were
better educated as to national defense, and more susceptible to suggestions of
the New York Shipbuilding Co. and other members of the "big three"? Do
I understand that to be your statement V As a matter of fact, that was the
purpose of the trial trip, was it not, Mr. Parker?
Mr. Parker. I would say that would be true from their attitude. They
surely knew more about ships after that.
Senator Clark. And also the shipl)uilders, too, did they not; and had a
wider education in the matter of wines and liquors?
Mr. Parker. Yes, sir.
New York Ship did not give the Treasury the greatest degree of
cooperation in its attempt to determine taxes. A report by Treasury
officials illustrates one difficulty (Jan. 22, galley 42 GP) :
There is further description along the same line, and then it continues
[reading] :
To verify the correctness of the taxpayer's returns, or books, it is m.ost
essential to procure the schedules referred to and to examine the computa-
tions of earned profit on each contract that was made by the taxpayer and
appear thereon. Such schedules have been requested of the taxpayer, first
over 3 weeks ago, aud photostats thereof were promised by Mr. Norman F.
Parker, assistant treasurer, almost daily after the fii'st request.
Is that yourself, Mr. Parker?
Mr. Parker. Yes, sir.
Mr, Raushenbush (continuing reading) :
Last Saturday, on request again for the schedules, Mr. Parker informed
us that he had been " stalling " and that we knew it, but that the cor-
poration's counsel had advised him to delay giving tlie schedules to us.
He called his counsel by telephone, a Mr. Orr, connected with White &
Case, attorneys, while we were present, and explained the situation, and
stated to Mr. Orr that he believed we were entitled to the schedules and
should get them. Mr. Orr's advice, we were informed, was not to deliver
them.
To date, the situation remains the same, the schedules have been refused
on the advice of counsel, so we are informed by Mr. Parker and Mr. J. T.
Wickershani, the treasurer.
The points raised by the Solicitor have developed other points that make
it imperative, in the opinion of your examiners, after their investigation
thus far, that a reexamination be made of the taxpayer's books for the
period extending from 1918 to 1921, inclusive.
Their investigation thus far, with the information we have been able to
gather, results in an increase in income over income as determined by the
revenue agent from Trenton, who made the last examination* for the period
1918 to 1921, inclusive, of approximately $8,000,000.
It is the positive opinion of your examiners, with the information gained
thus far, that there should be recommended to the Commissioner that a
reexamination be made of all of the taxpayer's books and records for the
years 1918 to 1921, inclusive ; and that the taxpayer should be duly notified
under the provisions of section 1105 of the Revenue Act of 1926 that such
investigation has been ordered.
That was just preliminary, Mr. Parker, was it not, to the examination which
was made in great detail in 1926 that resulted in this Increase in taxes?
Mr. Parker. It was just at the beginning of that examination, as I recall it.
Mr. Raxtshenbush. Do you have any comment to make on the statement
here that you had been " stalling " under the advice of your attorneys ?
Mr. Parker. None, except that that was true.
Miscellaneous items, such as securing business from Japan, were
charged into the cost of Government contracts on war vessels (Feb.
6, 1935, galley 28 ZO) :
Mr. Raushenbush. Coming back, then, to tliis matter of the employment of
Mr. Joyner, do you remember back that far, or have you ever had it called
362 MUNITIONS INDUSTRY
to your attention, the matter of a somewhat mysterious check for $5,000 which
h^ apparently received back there?
Mr. Parker. What date Mr. Raushenbush?
Mr. Raushenbush. That was back on December 31, 1920. There is an order
here to make it out for expense, and Mr. Joyner writes Mr. Wickershani
[reading] :
Inserted special on expense ship. If this is improper for your purposes,
let me know. Mr. Neeland will tell you what the expense is for.
Mr. Pabker. What date is that, sir?
Mr. Raushenbush. Back in 1920. What was he doing for you at that time,
if you remember, Mr. Parker?
Mr. Parker. I do not recall. I checked Mr. Joyner back for the period — ■
may I see that letter just a second?
Mr. Raushenbush. Yes. sir; 1920 to 1923. [Handing paper to witness.]
Mr. Parker. That is right. I recall it.
Mr. Raushenbush. But you do not recall?
Mr. Parker. I recall the amount and the purpose of it.
Mr. Raushenbush. What was the pui'pose of that ?
Mr. Parker. Mr. Joyner, as stated in my letter, was engaged to be the New
York Shipbuilding Corporation representative for certain work, on a basis of
salary and commission. Through his efforts we obtained a Japanese con-
tract for the construction of a naval oil tanker, Kamoi.
Senator Clark. About when was that, Mr. Parker?
Mr. Parker. About 1921 or 1922. The basis of his commission was not less
than 5 percent of the net profits earned by the company on that particular
contract. On the basis of the anticipated profits on the contract, he was paid
$5,000 commission in advance. That is the check to which you refer. He
actually received, in final settlement, thirteen-thousand-some-odd dollars, which
I have noted there.
Mr. Raushenbush. If that was a commission, what was the point of putting
it in as an exi)ense item? So that he could avoid the income tax on that? Is
that the point of that?
Mr. Parker. That is something I know nothing about.
Mr. Raushenbush. He definitely puts it in as an expense item [reading] :
Inserted special expense ship. If this is impi-oper let me know. Mr,
Neeland will tell jou what the expen.se is for.
Mr. PAUKBn?. That was a matter of arrangement between Mr. Neeland and
Mr. Wickershani, the then treasurer.
Mr. Raushenbush. It has nothing to do
Senator Clark. Did that expense item go into overhead, Mr. Parker?
Mr. Parker. Yes, sir.
Senat(tr Cfahk. That was the Japanese representative about whom we were
talking when you left liere?
Mr. Parkbk. Yes, sir.
Senator Ct^vrk. In other words, the services in Japan in getting this tanker
contract were juirtly charged up to the (lovt'rnment fm* oviMliead on the naval
construction work which you wi're doing at that time?
Mr. P.ARKEH. Yes, sir.
A coiKsiderable portion of the keels of ships authorized duriiio; the
World War were not laid down until later. It was from this j)ost-
war construction, under war-time impetus, that the shii)l)uilders
made considerable jirofits relatively free from hi|;h war-time taxes
(Feb. 6, 1935, ^ralley 29 ZO).
Mr. R.\ushenbu8h. The question is not intended to cover in any way the
cause of the delay, but the question is, rather, how it hapi>ened that after the
war was all over on November 11. 191S, tlie.'se shiix*? whose keels were not laid
at the time were then laid and continued and wmpleted? Can .vou throw any
light on that? You have explained quit(> sati.'^factorily that you had to build a
yard, and that was the cause for that delay, but my question was the other one:
Why. after the war was over, the contracts were not canceled, biu instead you
wore given 10 destroyers to comi)lete, and there were altogether 91 whose keels
were laid subsequent to November 11, 1918. Can you throw any light on that
at all?
MUNITIONS INDUSTRY 363
Mr PiBKEE. Not at all, except that we Lad a contract to build slUps. The
%'rB."f„™rf ciirtL"a\.«"l«L''o"-the committee to the hearings in
, . , ivT V ,.1- ov.iK. >i.T(i in whnsfv keels were not laid until atter tae wdi,
'^^^o'!Zel''aurS\^T^^^^ the record the staten^ent
'^VS:t^l^f^rT^'^^!'^riJ'tS^^o. 1530" and is included
'''^^. nllT^^Zl Thire is an illuminating comment^ on that M.^Chau-m^^^^
bv Admiral Pratt, who gives at least one reason why these destioyers, Ji
destroyers, were built after the whole war was over [reading] :
Admii-al PKATT. That seems like a very fair question. Ijannot give you
a rea pActical, detinite reason why, but I should say his : That if you
ia?t a bg machine moving, such as this production is, it takes a certa n
amount of^ime before it gets slowed up and working normally ; and I shouM
think that that had about as much to do with it as anything We just got
swept into it? and before we could get our breath and stabilize and get
together, there we were with our output.
The result of that is that there were 91 destroyers whose keels were not laid
at all at the time of the armistice, but were begun afterwards.
Senator ClaS.. The result was we had 91 destroyers which we did not need?
New York Ship bought improvements made during the war by
the Government at a cost of $14,000,000 for $500,000 (Jan. 21, 1935,
galley 26 GP).
Mr -R ATTCiTTFNBTiSH That stlll does not quite answer my question. You did
gef f'omX Zerg^ncyFleet Corporation about $14,000,000 worth of property
for n bout $500 000 did vou not, and that was the exchange price there?
Mr pIrk^ I Wo?t sav $14,000,000 worth of property. We got property
which mtyTave cost the Shipping Board $14,000,000, but its worth was less
than we paid for it.
Disallowances of Bethlehem Ship claims on war-time cost-plus con-
tracts were discussed on February 26 (galley 18 QD seq. (ex. 1642)).
Mr RATJSHENBTJSH. Mr. Shick, on these ships which you built for the Bmer-
c^encv Fltet Corporation in your various plants, we find some disallowances heie
wS we have secured from the Shipping Board on these four Plans and I bring
Tin the matter not with anv feeling that your company was unusual m this
rTs4ct became I do not think it was, but as to the way that, in the hurly-burly
rncfexcitement of war, with a great deal of pressure, things got done.
wf find here a summary shiet, and several files have been examined after
the audSs by tfie Fleet Corporation auditors, and they make a request for a
reaudit on various grounds.
I want to offer this for the record. , .. ^ , ., . , ^, -,^,9 „ „„,i :c. included
(The document referred to was marked " Exhibit No. 1642 and is included
in the appendix at p. — .)
Mr. Raushenbush. File no. 35:
Alterations and Forgeries to Form a Basis for a Fictitious Base Rate.
No. 37 :
Marine Auxiliaries Overcharge. Overcharges whereby Bethlehem at-
tempted unjustly to defraud the Government.
No. 39 :
rpnitnl investment charged to Government. Attempt by Bethlehem to
ha?e^feMovernS't beai^alniost $2 000,000 in t^e c-t^o^ ^TS\;°41 t
ments charged to ship cost under the guise of o^elhead. The leaudit
eliminated $1,351,456.89 of this improper charge.
No. 41 :
Interplant billings. Attempt of Bethlehem to gain a double profit on
interplant work.
364 MUisriTioNs industry
And there are some more of the same kind. Then we have the detailed sheets.
Mr. Shick. Would you mind giving the total am'ount of these disallowances.
Mr. Raushenbush. Not at all.
Mr. Shick. I mean the amount.
Mr. Rausheneush. I was going to read thert from the plant sheets ; $2,218,404
is the total according to our figures.
Then they give the items yard by yard, and one of the interesting things
here, Mr. Chairman, is that the Fleet Corporation totals their savings because
of the reaudit, and then gives a final saving, which is a good deal less, and the
only point there is that the cost of the audit, of policing the whole job, is often
very considerable. Here on this Fore River sheet there is a total saving to the
Emergency Fleet Corporation of $253,000 plus, but the only saving really to
the Emergency Fleet Corporation is $135,000. Tlie whole cost of auditing even
a smaller .iob like this — a relatively small one — there is over $100,000 plus, and
so it goes all the way through.
It cost the Government an awful lot to make tliose $2,218,000 savings.
On the Fore River plant the Emergency Fleet Corporation in exhibit A here
claims $253,370 plus savings. On the Sparrows Point plant, exhibit A, it is
$1,059,680. On the Moore plant it is $531,385 and on the Harlan plant $973,958.
Then they note the items that have been disallowed and consequently have
been a saving to them, and summrarize them.
There was dispute between the companies and the Treasury con-
cerning their wartime income.
In the case of New York Ship the company reported net income
1917-21 of $8,444,858. The revenue agents found $24,296,957. The
final compromise settlement was $13,240,955 (Jan. 21, galley 28 GP)
(exhibit 1420). This settlement was not made until 10 years after
1918.
On its wartime co.st-plus contracts the disallowances made from the
claims of the company 1917-21 were $3,597,844 (Jan. 21, galley 29
GP). ^
During the war on the cost-plus contracts a 50-percent allowance
was made for overhead and Avas ])aid by the Government. Revenue
auditors calculated tlie actual overhead as $2,152,976 less than that
paid to the company by the Government (Jan. 21, galley 31 GP).
It was developed that a former Bethlehem official. Mr. J. W.
Powell, loft the company to head the Emergency Fleet Corporation.
He received as a bonus from the company '* a share in all the profits
accruing from tlie contract covering the building of 137 destroyers
for tlie United States Navy and all vessels built for the Emergency
Fleet Corporati(m " (galley 8 C^D, Feb. 26). He was later a witness
for Betbleliem Steel in a suit against it by the Emergency Fleet
Corporation and later submitted a bill for 5 percent of the princi])al
which the court found due to Bethlehem (galley 9 QD). At the time
of the testimony he had not been paid any fee as a Avitness (Mr. Brom-
ley, galley 9 QD). Mr. PoavoH referred to the jiossibility of there
being no decision " for political reasons " on March 9. 1934 (exhibit
1639, galley 9 QD). His financial intere.'-t in the continuing contracts
at issue in the suit was admitted (efallev 9 QD).
Bethlehem Ship was able to profit on" $32,000,000 worth of facilities
constructed by the GovernnuMit at its own expense, according to the
testimony of Its officials (Feb. 27, 1935, galley 15 QD).
Swiator VANDEM^jnto. "What was the nature of your arrangement with the
<Jovernment under which this $32.00i >,0<10 was made availal)h\
Mr. Schick. In tlie case at S(iuantuni, which was a shii)building i»Iant for tlic
building of destroyers, the arrangement was lliat we go and engineer and build
the facility and llie (iovernment W()Ul<l i)ay tlie bills, which they did. We turned
)ver our organization and all our "know-how" to build this facility, and in
building that lacility all we did was order the material, do the engineering, and
MUNITIONS INDUSTRY 365
build the facility, and check the bills and aiiprove the bills, and we turned the
bills over to the Government and they paid for them.
Senator Vandenberg. What was your conipensation?
Mr. Shick. We did not make anything out of that. Our compensation was
supposed to come out of the profit which we would get from Iniilding those ships.
If we did not build the ships and had not finished them before the war, we would
not have got anything.
Senator Clark. Then you took the facilities, after they had been constructed
at Government expense, and operated them just as though they had been your
facilities?
Mr. Shick. No ; those were the Government's facilities.
Senator Clark. Yes ; those were the Government's facilities, but you operated
them just as though they were your own and took the earnings from those
facilities ?
Mr. Shick. That was the understanding under the contract.
Senator Clark. So that that was compensation for your building the facilities,
the fact that you were going to be able to run them for your own profit
afterward?
Mr. Shick. Absolutely.
The question of the attitiicle toward wartime taxation of Bethlehem
Steel Co., the owner of Bethlehem Shipbuilding Co., was opened
with Mr. Eugene G. Grace, president, on the stand (Feb. 22, galley 88
FS, seq.).
Senator Clark. None are very frequently injured by being put on the front
line.
Mr. Grace. I think there is a big difference between using capital or man
power.
Senator Clark. It depends on whether you have the capital or man-power
viewpoint; does it not?
Mr. Grace. I have given you my view.
Senator Bone. Is not a man's labor his sole capital in life frequently?
Mr. Gracei. Yes ; and we all have that.
Senator Bone. And when that is taken from him by war, he is ruined and
he is completely depleted for the rest of his life. He is not even permitted to
say whether or not he will do it. He is drafted.
Mr. Grace. Which is very unfortunate.
Senator Bone. Is there any reason, Mr. Grace, why we should not draft
capital in this country in the event of war?
Mr. Grace. I think so.
Senator Bone. Have you fully expressed yourself on that point?
Mr. Grace. I have answered the question.
Senator Bone. Is that all you want to say?
Mr. Grace. Yes, sir.
Later (90 FS) :
The Chairman. Coming back, Mr. Grace, to the example of this mechanic
who during peace times was drawing $2,500 a year, and who was drafted into
the service at $1.25 a day, and who takes thereby in income a loss of approxi-
mately 81 percent, we are confronted with this question :
Would the stockholders, for example, of your coiTporation, accustomed to a
5-percent return annually on their investment, be content to accept a 1-percent
return, as would be the case under the example which I have laid before you?
Mr. Grace. I should certainly advise our stockholdei's and our ownership
that they should expect but very modest returns or so-called " profits on invest-
ment" in the case of supplying the Government in war time ; yes. Now, just
to what extent I could not say.
The Chairman. Would you go so far as to say an 80-percent reduction in
income to stockholders during the war, the same reduction that labor is up
against, would be fair?
Mr. Grace. I would not want to commit myself on what the basis might be,
because I have been given no thought to it. I frankly have not. I would want
to be sure of your question of having costs thoroughly covered and dealing only
with the item of profit. Personally, I should say it could well afford to be a
very small profit.
139387—35— — 24
366 MUNITIONS INDUSTRY
Senator Clark. Mr. Grace, is not that the real crux of the question, figuring
cost?
Mr. Gkacb. Oh, no.
Senator Clakk. For instance, we had testimony here 2 weeks ago from the
New York Shipbuilding Co. that during the war they had a contract with the
Navy Department, had a cost-plus contract — I do not know whether your com-
pany had any cost-plus contracts during the war or not — but the testimony here
is that the New York Shipbuilding Co. had a cost-plus contract with the Navy
Department, and that they undertook to figure out their cost, including not
only such items as wines, liquors, and cigars for the trial trips of the ships,
running into quite a large sum of money, and not only the salaries and com-
missions of their Japanese and Chinese representatives, but in which they had
actually tried to figure in the element of cost the dividends on preferred stock
and also all taxes, including Federal taxes.
So that when the Government levied a tax, let us say, of $1,000,000 on the
New York Shipbuilding Co., the Government not only did not get the $1,000,000
but had to pay the bonus of $100,000 under that contract, according to the
contention of the New York Shipbuilding Co., for having assessed the tax.
Does it not come back, on any sort of a cost-plus contract or return basis,
does it not come back to the element of cost? Is not that the crux of the
problem ?
Mr. Grace. But it should not be difficult to determine what is actual cost.
You must not expect me to comment on New York Shipbuilding Co.'s concei>-
tion of cost.
Senator Clark. I am not expecting you, Mr. Grace, biit I have had some
experience, first and last, in trying cases before public-service commissions and
courts having to do with the fair return on utility investments, wliich is a com-
parable situation to a cost-plus contract, as I see it ; and the element of cost,
of course, is the crux of the whole problem.
• Mr. Gk^vce. And that should not be difiieult to ascertain.
Senator Clark. It has been very difficult in the legal history of the United
States.
Mr. Grace. In a manufacturing establishment like our own, that is our Bible.
That is what we have to work against, is it not? We do not get very far in
the effective and efficient management of our business otherwise.
The Chairman. That is true ; but expeiience, Mr. Grace, has been that as a
result of disi)ute arising out of profits that were gained during the World War,
industry and the Internal Revenue Bureau have been arguing over the iKiint of
"cost" for as long as S or 10 years before there could be a determination and
agreement.
Later (galley 92 FS) :
Mr. Chairman. Coming back to the point wliere we I'ested for snmetime a
few minutes ago, we were approaching the task of undertaking to administer
to the stockholder of a corporation the same idontical measure of sacrifice that
was Ijeing adniinif»tered to the lunployce of a corporation who had been drafted
into the service, and whose pay, vuuler the draft, was ab{)Ut 81 percent under
what it was in peace times.
Then we considered that a like deal for the stockliolder, drawing an accus-
tomed 5-percent return i>er year, would be a 1-percent return ihm- year. Assume,
now. that tlie Government, in times of war or before war, were to provide for
the automatic taxing that would reduce that stockholder's return to 1 iiercent,
what is your opinion as to what the stockholders would do? Would they revert
to a challenge of the right of the Government inider the fifth amendment to
the ConstitufionV
Mr. Grace. It seems to me you are boiling it down to a very simple question.
The Government comes in and says, •' I will take your i)roperty on a rental
basis. Wh;it rent shall I pay you for the use of your property?" Correct?
The Chairman. No.
Mr. Grack. Is not that where you get?
The Cii.vmMAN. No; the (piestion does not involve the Government pos.'^essing
itself of the property at all. The question is this: Would the stockholder l>e
content with a return of 1 percent per year upon his investnu'ut. as comiwired
with what had b "(>n a retiH-n of. let us say. ."> percent per year? Would he be
content with tlu^ 1 jxn-cent during the jieriod of war?
Mr. Grace. Frankly. I cimld not .sjieak for the stockholder. I do not know.
The Chairman. You are a stockholder?
MUNITIONS INDUSTRY 367
Mr. Grace. I should think he certainly would be willing to take a very
nominal return, a very nominal return.
* 4s * 4: « * •
Later (galley 93 FS) :
The Chairman. Coming back now to the question of what might be done and
what would be fair in another war, in the way of profit, do you consider that
the profit of your corporation, resulting from the World War, was unreasonable?
Mr. Grace. No; I would not say that our corporation's profit was unrea-
sonable.
The Chairman. Would the industry have functioned as efficiently if the profit
had been less?
Mr. Grace. I should think the industry would have done everything possible
to operate efficiently and patriotically, which I believe it did.
The Chairman. Now, we are not wanting this morning to get into any dis-
cussion concerning the profits that were actually derived during the war. But
it has been estimated by some authorities that the Bethlehem annual average
profit during the 4 years preceding the World War was approximately $6,000,-
000, and that the annual average profit during 4 years of war went from
$6,000,000 to $48,000,000' or $49,000,000.
Mr. Gr.vce. There is not any question but what there was larger profits
during the war period than there were the other periods in our company,
naturally. Thei-e is no question about that. That is not disputable. That is
all ascei'tainable. And you have the facts all here.
The Chairman. Do you not agree with us, then, that there is large room for
effort to reduce that excessive profit which comes during the time of war, in
the event of another war?
Mr. Grace. I should think so.
The question of the financial treatment of industrial executives
compared to others during war time was opened (galleys 93, 94 FS,
Feb. 22) :
The Chairman. But in case the Army plan for industrial mobilization were
put into effect, as it now stands, the bulk of the men in the country are to find
themselves drafted into industry without redress as to hours of pay, and any
attempt to organize unions is going to result at once in union leaders being
sent to the front or sent to prison.
Under these circumstances, Mr. Grace, there may very well be a great deal
of social discontent over people who are drawing the higher rates of pay in
industry at that time ; those who are enjoying the huge incomes. The War
Department could not successfully draft a free people into industry unless it
can give them assurance that everyone is being drafted, or is at least not
receiving these huge incomes.
With that thought in mind, do you think that in a national emergency the
captains of industry can fully be trusted not to take more compensation for
themselves than the country would consider right and proper for a general?
Mr. Grace. Whether the executives in an industry would immediately, as
soon as they go into war. step their salaries down comparably?
The Chairman. Salaries being paid those who were directing the armies.
Mr. Grace. I should not think so, unless there were a national movement.
I again say, I would consider it relative in all branches of rendering service,
.starting any place you please.
Senator Bone. Is there anything in that suggestion, Mr. Grace, that you
think would be shocking to the industrial leaders of the country? How Avould
they, as a class, receive that sort of suggestion? What do you think their
reactions would be?
Mr. Grace. I should imagine their reaction would be that it was a very
minor contribution to expect, and they would say right away : " If our com-
pensation is relative in our endeavor of service, in our scheme of life, as it
exists today, we will take anything that will apply alike through the whole
structure." There is no rea.son why they should not.
The Chairman. Is there any more important thing to the country in time of
war than the leadership of the generals of our Army?
Mr. Grace. No; that is an industry, however, that is an industry, is it not?
The Chairman. That is right.
Mr. Grace. So regardetl today in our fabric of industrial scheme of life. That
service is all a part of our today's scheme of life.
368 MUNITIONS INDUSTRY
The Chairman. It is an institution.
Mr. Grace. It is an institution ; it is an industry. It is being paid for, ap-
parently, on a basis tliat is satisfactory to the scale of pay in that industry for
service rendered, relative to other industries' services rendered. And I do not
think we get any place in upsetting a long-established economic scheme of life
for an emergency. I think we only get into trouble rather than to facilitate
things.
The Chairman. In time of war morale at home and in the trenches, or at
the front, is an all-important thing. To avoid social discontent at home, dis-
satisfaction with the tremendous incomes which have been known in other
wars to have been taken out, do you think that the captains of industry, the
leaders of industry, the executives, would do well to take material reduction
in their salaries during time of war?
Mr. Grace. I should say that they would do well not to enhance their earn-
ings, let us say, at the expense of war, if that is the desired thing.
The Chairman. What check would you suggest might be placed upon the
captains of industry to prevent their taking excessive compensation for their
service during the war?
Mr. Grace. I would not know how to make a constructive suggestion on it.
The Chairman. Do you think that there would be inclination within the
industry to adjust that fairly to bring down the rates of pay in time of war?
Mr. GrjVcb. No ; I should think it would be automatically a movement to bring
down compensation, because I get back to my other thought in respect to it. I
think compensations for services rendered have developed, and I think they have
developed to their present situation, recognized as such, and I do not see any
reason for taking one particular class, whether he is a captain of industry or
whether he is a general or whether he is a legislator, I see no reason for picking
out any particular class and asking them to make a sacrifice as against the
field.
The Chairman. The employee in industry in time of peace might have an in-
come of $1,500 a year, and then he would find himself able to get by only after
some fashion. War comes and some increases in living costs, of course, accom-
panies it, and it would be, of course, very unfair to place on that man the obliga-
tion of doing with less during war than he was asked to do when in peace time,
would it not?
Mr. Grace. I think so. Senator; I think so.
The Chairman. But even though costs of living wore to rise in time of war,
the executive with a salary of $50,000 a year could well afford to have this
reduced, could he not, in the interest of ."social content?
Mr. Grace. lie would probably materially have to change his scale of living
the same as the workman would liave to, which could all be done at a sacrifice.
The Chairman. Certainly everyone would have to sacrifice.
Mr. (Jrace. Everyone would have to sacrifice, except in your example the
wage earner is not sacrificing, and I am for the wage earner and I do not
want him to sacrifice
The Chairman. Under the Army plan he is going to be drafted.
Mr. Grace. Going to be drafted, to a certain extent.
The Chairman. Yes ; drafted into in<lustry.
Mr. Grace. Then when he is drafted into industry, it seems to me that he
ought to be paid the rates which exist in those industries for the services ren-
dered. If you do not. you will get into a frightfully chaolii- situation, I would
expect, when he is capable of performing the work in the industry.
The Chairman. Supposing that the draft program would be extended further.
Here is an executive drawing a siUary of $.")0,000 a year. The top salary paid
in the Army to a general is
Mr. Gil\ce. Let us say there is a great difference.
The Chairman. Let us say $5,500.
Mr. Grace. I think you are low. but it does not make any difference.
The Chairman. But' at the outside, let us say at $10,000 a year. Is there
any reason why that executive in business should not have his salary re<luced
to $10,0(X) a year?
Mr. Grace. Yes; I think you will disjoint your whole economic scheme of
life structure which exists. Bear in mind that that exists today just the
same. Those differences in compensation for services rend»>red exist today.
A man picks out Army life as tlie industry in which he is going to work.
The Chairman. When war comes, there is considerably more at stake.
There are the lives of millions of men and there are the lives of the industries
themselves.
MUNITIONS INDUSTRY 369
Mr. Geacei. I think tliere is a great deal at stake every day to keep us out of
war. That is where I would like to see us start.
The Chairman. I did not hear your statement.
Mr. Grace. I say, I think there is a great deal at stake every day to keep
us out of war.
The Chairman. Yes ; and some effort to get us into it.
Mr. Grace. That is true.
The Chairman. Would you suggest at all, in any degree, Mr. Grace, the
commandeering of au industry as the only way to limit the compensation of
the captains of industry to a sum that would be comparable with that received
by actual soldiers in the service?
Mr. Grace. Would I say that it would be necessary for Government to take
industry over to accomplish that one particular phase of it, do you mean?
The Chairman. Yes.
Mr. Grace. I should think that would be a pretty lame excuse for the Gov-
ernment to take over au industry. If they wanted to accomplish that particu-
lar situation, and only that, I should not imagine it would be necessary to take
over industry to accomplish that. I should not think so.
The Chairman. How would you do it;
Mr. Grace. Admitting that it is the thing to do, how would you do it, you
mean ?
The Chairman. Yes.
Mr. Grace. Admitting that the Government decrees that that should be the
case, if it could be done ■
The Chairman. To accomplish the purpose.
Mr. Grace. To accomplish the purpose
The Chairman. How would you go about it to accomplish that purpose?
Later (galleys 95 FS, 96 FS, and 97 FS, date Feb. 25).
The Chairman. In another war — and we come now to a very important ques-
tion, Mr. Grace — would your associates and yourself be willing to forego the
bonuses which were paid to you and to them during the last war?
Mr. Grace. That I could not tell. That is a question of the method of com-
pensation in our corporation for services rendered. Our system of compensa-
tion is to have the individual interested in the results of the work which he
performs.
Senator Clark. Now, Mr. Grace, do you know of any reason why a man who
is engaged in industry during a war, either as an executive or a riveter, or any-
thing els« you may take, any capacity you may be pleased to use, should be given
a bonus as an incentive to extra effort, any more than a man who is in the Army?
Mr. Grace. Only as it is human nature. I should say that in the production
of a property, from my own experience in manufacturing, even if I were working
for the Government on the basis that you have outlined, that I will be made
major domo of our institution at an Amiy salary, to run it efficiently, to get
efficiency, to get low costs, that I would want to place the proper interests of my
working men on an incentive basis for production.
Senator Claek. A man who is engaged in military service during the war
certainly takes more risks than the man engaged in manufacturing.
Mr, Grace. Yes.
Senator Clark. Whether he is a genei'al, a colonel, or a private. He certainly
puts in, as occasion may demand, overtime or anything else, and is certainly
expected to give his very best effort.
Mr. Grace. His services ; that is true.
Senator Clark. Without any particular remuneration of any sort except bis
ordinary pay and his patriotism and idea of doing a good job. Is there any
essential difference between industry and military sei^vice which makes it neces-
sary, as was done during the last war in some cases, for industrial plants to pay
bonuses running into the hundreds of thousands of dollars for services?
Mr. Grace. I should say that the incentive method of pay in industry is very
effective and efficient, and I believe it applies in war just as well as any other
time.
Senator Clark. If a man is drafted, Mr. Grace, and is compelled to fight for
the Old Flag for one dollar and a quarter a day, why should not a man engaged in
the industrial end of the game — which I agree is very essential, whether he be an
executive or a laboring man — also make some sacrifice for the Old Flag?
Mr. Grace. Theoretically you are entirely right, of course, but can you get the
same amount of production, the same amount of effective rendei'ing of service,
without the incentive feature put into it? I do not think so. That is all.
370 MUNITIONS INDUSTRY
Senator Clark. Of course, that is a matter of opinion, Mr. Grace.
Mr. Grace. Yes, sir.
Senator Clark. I do not know a thing about making steel, but I am very well
satisfied if you will put an eagle on my shoulders I can get the boys to make steel
during a war, and very good quality of steel during a war.
Mr. Grace. Well, you probably can.
Senator Bone. Mr. Grace, taking your statement of a few minutes ago that
there should be uniformity in the rules of the game of war, you were si)eakuig
then with respect to salaries. I mean you stated that if there was a horizontal
reduction all around, that would be acceptable. But taking that principle, that
there should be uniformity in the rules of the game of war, why, then, or how,
then, can we justify paying enormous salaries and bonuses to one group — ^just
pick out arbitrarily one group in society and reward them with hundreds of
thousands of dollars a year, while all the other groups who are giving their best
to the prosecution of the war are kept right on a dead level?
Mr. Grace. Are you sijeaking of the man in the service?
Senator Bone. Yes.
Mr. Grace. Versus the man in industry?
Senator Bone. No bonuses are paid to the men in the service.
The Chairman. They asked for one after it was all over with.
Senator Bone. They are still asking for it.
Mr. Grace. And still asking for it. Whether it is advisable to discontinue
your scheme of every day in resi)ect to the reward for payment for sersiees
rendered in industry during war, during the war period, you must bear in
mind that your men are all educated, developed, to be paid for their individual
effort. They are with our institution. If I put Mr. Smith on this machine,
and Mr. Jones on that machine, exactly identical in every respect, and they
work 8 hours a day, and Mr. Smith prmluces twice as much as Mr. Jones, is not
he entitled to more comi>ensation? That is the the<iry of incentive.
Senator Clark. If a man is called uixin to go through barbed wire entangle-
ments under heavy fire, he is doing more.
Mr. Grack. Rut you do not have that scheme in every-day Army life.
Senator Clark. I am not talking alxiut the fellows who start in with a view
of making the militar>- profession their life work. I am talking about the
fellows who might be working for your company, and were taken and drafted
and were required for .$1.25 a day to crawl out through barl>ed-wire entangle-
ments, tinder a barrage, and face the Iwmbs and the poisimoiis gas and the
bayonets of the enemy. They do not get any overtime, and they do not get any
bonuses.
Mr. Grace. No; l)ut maybe we ought to stop and consider a little bit their
method of pay.
Senator Clark. Yes.
Mr. Grace. Tlie rates of pay which were given to the soldiers. I wonder if
it is right to take a man from a !?5 a day job and jnit him in the Anuy at $1 a
day. I wonder if we liad not Itetter give tliat man liis !?"), or sonietliing more,
to go into Army service. Have we ever thought of that?
Senator Clark. Yes ; I have, and I am very much in favor of some such
scheme.
Mr. Grace. Maybe that is what we ought to do.
Senator CLu\rk. In any event, I think it would very much decrease the pos-
sibility of war and very mucli decrease the profits made by the munition
manufacturers in the event of war.
Mr. Grack. I am inclineil to think maybe we should give more consideration
to that end of it.
The Chairman. Mr. Grace, have you ever before protested tliat that was
not done?
Mr. Grace. Have I? No: I have not been a student of war.
The Chairman. Coming back to tlie original proixtsition, are we to under-
stand that the Government got a larger service out of you by reason of the
bonns which was paiil to you (hiring the war by your coqioration?
:Mr. Gi;a( K. The Government got a larger service out of me?
The CiiAiKMAN. Yes.
Mr. Grace. For war purposes?
The Chairman. The Government got a larger service out of you by reason
Of your ability to draw a boiuis. in addition to your salary, than it would have
gotten out of you if you had had no bonus?
MUNITIONS INDUSTEY 371
Mr. Grace. I do not know how I can answer that question. I am employed
on an incentive basis to perform my work. I should say that it has been an
inspiration to me.
The Chaikman. The bonus has?
Mr. Grace. The bonus has been an inspiration in the work.
Senator Clark. During the war?
The Chairman. Was it an inspiration to you during the war?
Mr. Grace. Never thought of it in that time, naturally not.
The Chairman. Then are we to draw the conclusion that the Government
would have gotten the same service from you during the war, if you had had
no bonus?
Mr. Grace. If I was at the head of the Bethlehem Steel Co., at the most
nominal salary, I should have done my best for it during the war and have
rendered everything I had.
The Chairman. The bonus played no part in accomplishing what the United
States was after in your individual case during the war?
Mr. Grace. No ; it certainly did not in my individual case.
Senator Clark. Then the bonus was not really an incentive?
Mr. Grace. I am talking about the bonus generally in the plan prevailing
with the Bethlehem Steel Co.
Senator Clark. Do you not think the rest of them are as patriotic as you
are, and the rest of the men would do the same thing?
Mr. Grace. Are you talking about these workingmen?
Senator Clark. I am talking about your whole personnel.
Mr. Grace. We would have to change our whole system of pay to our work-
ingmen, if we eliminated the incentive for them. We will have to change the
whole system of pay, and I should say that that would be very injurious in
time of war for the effect it would have on them.
Senator Clark. How much bonus did you get during the war?
Mr. Grace. I do not know.
Senator Clark. Have you any idea?
Mr. Grace. Yes ; it is all here, the whole bonus schedule, the entire bonus, I
think.
Senator Clark. $1,386,000.
Mr. Grace. In what year?
Senator Clark. 1918. That seems to be the figure.
The Chairman. Before we look into 1918, would we not do well to start in
with the bonus program for 1917?
Senator Clark. I want to ask Mr. Grace one other question. Are you a
member of the National Economy League?
Mr. Grace. The National Economy League?
Senator Clark. Yes, sir.
Mr. Grace. I do not think so. I do not know whether I am or not.
Senator Bone. Do you belong to the Liberty League?
Mr. Grace. Do I belong to the Liberty League? No; I think not.
Senator Bone. Any of your executives?
Mr. Grace. I do not know. Certainly not active in it. I may belong to it.
Senator Clark. The National Economy League, Mr. Grace, is an organization
that was formed to oppose any compensation to veterans of the AVorld War or
any payment of a bonus.
Mr. Grace. I do not think I am a member of it. I do not think I am.
Senator Clark. Do you know whether your company has ever contributed to
that organization?
Mr. Grace. I am sure they have not.
The Chairman. In a letter addressed to your corporation by the committee,
question 6 made request for information concerning bonus payments to officers
and directors of Bethlehem Shipbuilding Corporation for the year 1917. The
response, as submitted to us this morning, is as follows :
Bethlehem Shipbuilding Corporation, Ltd., was organized in October 1917
and began business on or about November 1, 1917. The information for
the entire year is given below for the same officers and directors as was
previously given for the year 1918, although during part of the year 1917
they acted in capacities other than as officers and directors of Bethlehem
Shipbuilding Corporation, Ltd.
Bonuses paid for the year 1917 to officers of Bethlehem Steel Corporation,
who were also officers of the Bethlehem Shipbuilding Corporation, Ltd., and
of one or more of the other subsidiary companies of Bethlehem Steel Corpo-
372 MUNITIOiSrS IliTDUSTRY
ration, and who, respectively, received salaries of $5,000 or more per
annum :
E. G. Grace, president, $1,501,532.
B. H. Jones, secretary and treasurer, $250,255.
F. A. Sliick, comptroller, $200,205.
H. S. Snyder, vice president, $350,357.
The committee has averaged these four payments and finds the avei'age to be
$575,612.
I read on from the statement supplied by the corporation.
Bonuses paid during the year 1917 to other general officers of Bethlehem
Ship Corporation, Ltd., who were also general officers of one or more of the
other subsidiary companies. Bethlehem Steel Coi"poration, and who respec-
tively received salaries of $5,000 or more per year :
W. M. Tobias, purchasing agent, $150,153.
A. Foster, assistant secretary and assistant treasurer, $17,136.
J. W. Powell, vice president, $70,798.
Bonuses paid during the year 1917 to other general officers and/or em-
ployees of Bethlehem Shipbuilding Corporation, Ltd., Fore River plant,
and who respectively received salaries of $5,000 or more per year :
S. W. Wakeman, general manager, $4,279.
H. G. Smith, manager, $18,492.
H. Brown, technical manager, $15,028.
Now your exhibit, known as " exhibit A", which was supplied the committee,
revealing bonuses for the year 1918, reveals the following:
E. G. Grace, president, $1,386,193.
H. S. Snyder, vice president, .$323,445.
B. H. Jones, secretary and treasurer, $231,032.
F. A. Shick, comptroller, $184,826.
R. E. McMath, assistant secretary, $6,187.
E. B. Hill, treasurer, $46,206.
PI. E. Lewis, vice president, $323,445.
J. N. Larkin, assistant to the president, $9,113.
J. W. Powell, vice president, $323,445.
A. Foster, assistant seci'etary and treasurer, $36,714.
S. W. Wakeman, vice president, $49,142.
n. G. Smith, manager, $112,628.
H. Brown, technical manager, $112,628.
A. W. Christian, manager of materials, $7,884.
II. P. Phelps, standardization of plants, $11,263.
R. Warriner, chief engineer, $28,157.
H. P. Frear, naval architect, $28,157.
And some few les.ser ones. Let us make it complete, as there are only two
more to read :
H. G. Ilagoinan, mechanical engineer, $5,."29 ; and in the Fore River plant,
H. E. D. Gould, general superintendent and general manager, .$9,834.
Mr. Grace, in 2 years, according to these exhibits, y<mr return in the form of
bonus was $2,887,725. Did the corjioratitui or the Government get an additional
service ivom you by reason of this .$2,800,000 bonus than it would have gotten if
you had had no bonus at all?
Mr. Grace. The method — I will have to answer that this way: The method
of pnying executives of the Betlilebom Steel Corporation was authorized by the
stockholders on the basis that tbey would be paid a percentage of the profits
accruing in conducting the business.
Senator Clark. Mr. Grace. I do not tiunk you have answertnl the chairman's
question. Did this $2,000,000 which you got bring alxnit any additional effort
on your part during tlie period of the war wliich you would not have given from
patriotic motives, under your ordinary .salary?
Mr. Grace. I meant to say tliat tliat was not created for the purpose of
incentive of service during war time.
Senator Clahk. No, sir; but it was continued during the war?
Mr. Grace. If you will go on, you will find it was existent prior to that, and
it has been existent ever since.
Senator Clark. Yes, sir; but most people during the period of the war in
the United States were on a military footing and were prior to the war aud
during and after the war.
MUNITIONS INDUSTRY 373
Mr. Grace. That I do not know.
Senator Clakk. The chairman's question was as to whether this $2,000,000
which you got personally brought about any additional incentive for the Gov-
ernment's purposes, turning out materials, than you would have made from
patriotic motives on your ordinary salary?
Mr. Grace. Certainly not.
The Chairman. What was your salary during those years?
Mr. Grace. I think $10,000.
The Chairman. We have a note here, $12,000.
Mr. Grace. Maybe 12. It was first 10 and then was increased to 12, and
remained 12 throughout the subsequent years, where you have the record of the
bonus there, Mr. Chairman. You will find a continuing record of our bonus, the
results under our bonus scheme of compensation. I think that carries you all
the way up to the present years. Is not that right?
The Chairman. That is right. For these 2 years, bringing this to a head,
the total bonuses paid appear to have been in the neighborhood of $6,000,000.
Mr. Grace. Whatever those records show. I could not say.
The Chairman. We have not had a chance to add them accurately, but that
seems to be roughly the figure.
Senator Bone. Mr. Grace, where do the odd dollars come in on the bonus?
For instance, in the .vear 1918 your bonus was $1,386,193. What are those
bonuses predicated on? The profits?
Mr. Grace. Profits of the corporation.
Senator Bone. In other words, they are a definite fraction of the profits of
the corporation?
Mr. Grace. Of the profits of the corporation, right.
These bonuses were not allowed as part of the costs on cost-plus
contracts, accordino; to testimony of F. A. Shick, Comptroller of
Bethlehem Steel (Feb. 25, galley 98 FS).
He also stated that the bonus system, although set up in 1904. was
not authorized by the stockholders until April 3, 1917 (galley 99 FS).
Mr. Shick stated in reply to questioning by Senator Clark that
the bonus system was in effect in connection with munitions for
Russia and England before the United States entered the war (gal-
lev 99 FS).
Mr. Grace stated that he paid $1,810,000 in taxes in 1917 and 1918,
or 66 percent of his taxable income (Feb. 2'6, galley 1 QD).
The question of why the Navy Department continued its war-time
building after the armistice was raised on February 26 with Bethle-
hem officials (galleys 6 and 7 QD).
Senator Bone. Now, as one of the rather interesting, and what seems to
a great many people to be a rather peculiar phase of war, of the last war,
after the armistice the Government let a contract for the building of 97 de-
stroyers. The war was over and many of these destroyers were pre-war
models, pre-war design. Can you enlighten the committee as to why the
Government let that contract?
Mr. Grace. I cannot.
Senator Bone. Bethlehem Shipbuilding Co. got 44 of these destroyers. That
is the case, is it not?
Mr. Grace. I do not know how many. I know we built a lot of destroyers
for the Government.
Senator Bone. Do you not know how many ships your company got out of
this post-war program?
Mr. Grace. I do not. I could not remember, but we built a lot of them.
Did you say the contract was let after the war?
Senator Bone. After the armistice. The keels were laid after the armistice.
Mr. Grace. There is quite a little difference between contracts and keels.
Senator Bone. Perhaps I misstated it. The ships were built and the keels
were laid after the armistice. Instead of canceling those contracts and refrain-
ing from building those ships, the Government went ahead and had 97 of these
destroyers built after the armistice. That is correct, is it not?
Mr. Grace. That is a question for you to ask the Government, why they did it.
Senator Bone. I am wondering if you can give us any light on it.
374 MUNITION'S INDUSTEY
Mr. Grace. I cannot.
Senator Bone. Your company got 44 of these destroyers at a price totaling
$82,199,916. Is tlie Union outfit a subsidiary of Bethleliem?
Mr. Grace. Ttie Union Iron Works?
Senator Bone. Yes.
Mr. Grace. It is a part of our shipbuilding organization.
Senator Bone. Where are they located?
Mr. Grace. San Francisco.
Senator Bone. They got five of these destroyers, did they not?
Mr. Grace. I do not know.
Senator Bone. The record indicates that they got five of them at a cost of
$8,341,059.
Mr. Grace. Whatever the record says would naturally be true.
Senator Bone. P^'or the 49 destroyers built by Bethlehem and its subsidiary or
aflSliate, the Government paid a total of $90,540,975. That very astounding
performance has interested a great many people and made them curious as to
wliy the Government would actually have laid the keels and have the ships built
for 97 destroyers.
Mr. Grace. Maybe they did not have confidence the war was actually over. I
do not know.
Senator Bone. It may be. It is hard for me to believe, but it may be that the
Navy Department had heard vaguely that the war was over, after the armistice.
Mr. Grace. It may be that they were preparing for another. I do not know
what prompted them.
Senator Bone. There may be something in that idea. I would like to dally
with the thought anyhow.
Admiral Pratt, testifying at a hearing before the House Committee on Appro-
priations, was questioned about this particular construction. One of the Con-
gressmen said he understood some of the destroyers had been laid down after
the war came to an end. He says —
Why was it that, with the experience of mass production to which you
referred a moment ago ; with the realization that we were not just in
desperate need to build destroyers at the rate of so many per month or per
year — why was it that tliere was not at that time a slowing down, so as to
"take advantage of lessons of the war, and to accomplish, in building, the
highest, instead of that which can be criticized when mass production is
indulged inV
A<lmiral 1'ratt. That seems like a very fair question. I cannot give you
a r(>al, practical, definite reason why, but I should .say this: That if you
start a big machine moving, such as this prodnction is, it takes a certain
amount of time before it gets slowed up ami working normally ; and I should
think that that had about as much to do with it as anything. We just got
swept into it, and. before we could get our breath antl stabilize and get
together, there we were with our output.
In other words, the Navy Department could not catch its breath, and that it
had plunged off into this program of building 97 destroyers b»'cause it could not
slow down the momentum. Is there any better exi)lanation which you can give
us?
Mr. Grace. I'lease do not ask me that question.
Senator P.one. You know, probably, more about this game, Mr. Grace, than
anybody else in the ciuuitry.
Mr. Grace. But please do not ask rae to interpret the policies of our Navy
Department, my dear fellow.
Senator Bone. I do not want to embarrass you, but I would like to have you
tell mo outside.
Mr. Grace. I really could not even tell you outside.
Senator Bone. I can believe that.
Mr. Grace. I could not. As I say again, they may not have thought the war
was over, or were preparing for another one. I cannot tell you.
Senator Bonic. The total expenditure for these destroyers which were laid
down and built after the war, was $181,247,022. of which your company got
$90,510,975, or about 50 percent. So you ought not to complain about the Navy
Department's inability to understand its own program.
Mr. GuACK. You are not inferriui: that we encouraged tlu^ Navy Department
to go on and build something they did not want, are you, I hoi>e?
Senator BoNa Maybe you can explain whether you would or not.
MUNITIONS INDUSTRY 375.
Mr. Gkace. Encourage them to go on?
Senator Bone. Did you discourage tliem from going on?
Mr. Grace. We had nothing to do with it. We executed the work the Navy
Department wanted us to do, and we are very proud for having done it. The
Navy Department had within itself the power. I assume, to cancel and stop
work on those contracts. We were not down there asking them to continue the
work. We had a conti-act or obligation with the United States Government,
which we were conscientiously fulfilling and were proud of our performance
under that.
Senator Bonb. Let us get a little more light on this. These contracts were
awarded, and when the ai-mistice came and the ships had not been built, you
got no word from the Navy Department canceling them, and you just went
ahead with the construction?
Mr. Grace. Certainly.
Senator Bone. Is that the picture?
Mr. Grack. I assume it is the picture.
Senator Bone. What in this picture proves, or tends to prove, or tends to
disprove, the suggestion on the part of the Navy Department that they wanted
to keep private shipyards going and wanted to encourage tliem in every way?
Do you think that experience would tend to bolster up the suggestions of the
naval officials that they want to sustain the private shipyards?
Mr. Grace. The picture which you have just given?
Senator Bone. Yes.
Mr. Grace. I do not see that that has any bearing on it. I think that is a
question, as to whether the Navy Department or the Government want private
facilities available as to that class of work.
The war profits of Bethlehem Ship were discussed again on Febru-
ary 26, 1935 (galley 4r-6 QD), in the course of which one report,
by a Shipping Board examiner, spoke of the Bethlehem war contracts
as " unconscionable and against public interest." The case is in liti-
gation in 1935. The company representatives denied such charges
entirely.
Senator Bone. Mr. Grace, there is a charge through this brief, through the
report of the special examiner of the Shipping Board, that the Bethlehem Ship-
building Corporation made unconscionable profits out of the Government during
the war. If that be the case, and that is the charge solemnly made in a brief
and in the pleadings of this case, whetb.er the Government ought to, in the
event of another war, subject itself to the possibility of a repetition of that
sort of thing, is the point I want to raise. I know you think you did not make
unconscionable profits.
Mr. Grace. That is a question of opinion, of course. But, as I say, I see no
reason — I do not mean the word " reason " — but I think we are in agreement
that war should not be the vehicle for unconscionable profits. There is no ques-
tion about that. There is a meeting of minds on that, without argument.
Senator Bone. In the report of Mr. Adamson, the special examiner, whose
report was written in 1923, he uses this language :
Bethlehem's enormous profits may not aid in interpreting the language of
contracts, but they do show that the Bethlehem contracts were unconscion-
able and against public interest.
Mr. Grace. I think that is all being a part of the suit.
Senator Bone. He indicates in his report that there was almost $50 per ton
profit on one Bethlehem contract, and he contrasts the profits allowed to Beth-
lehem by Mr. Bullitt on three contracts, with profits allowed on contracts with
other shipbuilders. In that respect he points out in contract 300 that Bethle-
hem's profit was $49.59 per ton ; contract no. 226, the profit was $43.15 per ton.
Mr. Grace. Have you Bethlehem's answer in respect to that? Have you the
findings made by the referee, Mr. Bullitt, which you speak of, there? Have you
the Bullitt report?
Senator Bone. I am referring to Bullitt's report right here.
Mr. Grace. They are in Bullitt's finding?
Senator Bone. They are in Bullitt's finding. Contract 179, a profit of $44.88
per ton, and the other shipbuilders represented in this report were J. F. Duthie
& Co., I presume for a requisitioned ship, with a profit of $10 per ton.
Mr. Grace. I could not tell you.
376 MUNITIONS INDUSTRY
Senator Bone. American Shipbuilding Co. contract, the profits were $16.27
per ton. Tlie American Sliipbuilding Co.'s profit of $16.27 per ton has been
criticized. It is only one-third as much as Mr. Bullitt reports for Bethlehem on
contract 300, and that calls for the statement which I made yesterday in this
report of 20.5-percent profit to Bethlehem on ships built with Government funds.
Again he refers to a statement by Admiral Bowles, manager of the Division of
Steel Ship Construction, and G. S. Radford, manager of the Contract Division.
This statement is made by them :
We wish to place on record the fact that the Bethlehem Shipbuilding Cor-
poration's representatives have insisted on comparatively high prices for
these vessels ; that they have only with difficulty been i^ersuaded to quote us
on the types of ships referred to, and their attitude has been characterized
by the arbitrary refusal to stand behind delivery dates * * *.
While the prices we have agreed to with representatives of the Bethlehem
Shipbuilding Corporation are not satisfactory to us, nevertheless they rep-
resent a material reduction from the prices quoted by that corporation.
Realizing that the Nation will need these vessels, we have been actuated by
the belief that further delay in placing the contracts should be eliminated,
and we believe we have made the best compromise possible under very
diflScult conditions.
Why should the Bethlehem people quibble with the Government when war is on
over the difference between profits which other companies were getting, or
apparently getting, and the profit which you folks wanted?
Mr. Grace. I cannot analyze the shipbuilding case for you. If you will read
the Bethleliem side of it, like you are reading the Government side of it, you
may find what the reasons were. If you want to go into that in complete detail,
or if you want to go into it in detail, there is a man here preparetl to do as much
of that as you want, and knows the matter from beginning to end.
Senator Bone. Is not a part of that picture reflected in the fact that the
Bethlehem Co.'s profits stepped up enormously during the war? Would not that
be the answer?
Mr. Grace. Beth'.ehem made a very efficient job of building sliips. They
may have been relatively cheap ships to the Government. If we made excel-
lent cost in building them, the Government got the benefit of it through our
prices, and ycni will probably find tliat our ships, when analyzed, were as
cheap, if not cheaper, to the Government tliau some of t>ur competitors' ships.
Senator Bone. Let me go back to this report written by the Government
ofiicial. At page 5 he says :
Bethlehem refused to accept prices accepted by other builders, but
demanded to receive extraordinarily high prices. Now Bethlehem insists
that these inordinate jirices nuist be increased by inten'feting the contracts
the way that Bethlehem says they should be interpreted.
Can you throw any liglit on tliat statement as to the controversy over inter-
pretation of the contract?
Mr. GuACK. No; unless you would read the record of the case and see how
Bethlehem dealt with those acquisitions. That is the only way I know how to
answer your (piestion.
Senator Bone. These were cost-plus contracts?
Mr. Gkac^e. I do not know wiiat they weri' even.
Senator Bone. Mr. Grace, you were president of tlie Bethlehem Shipbuilding
CoriiorationV
Mr. Grace. Absolutely : but I cannot recognize them.
Senator Bone. You received nearly .$.'?.(X>0.000 in bonuses in 2 years, and yet
jou tell me you do net know what was going on in these Government contracts,
which were the foimdation of the matter?
Mr. (^.RAC'E. I beg your pardon. I did not.
Senator Bone. What did you say?
Mr. Grace. I say, I cannot remember the details of this shipbuilding case,
and I cannot.
Senator Bone. This was probai>ly the most outstanding controversy that the
Betldeliem Steel people ever had witli the GoviMiinient. was it not?
Mr. Grace. It was one controver.sy wiiicli we had with tlieui.
Senator Bonk. Would you. as president of a liig coriKtration, not advise your-
self as to file characteristics of a lawsuit and what it involved?
Mr. Grace. I just asked you to read tlie Bethleliem Ship's side of the case.
MUNITIONS INDUSTRY 377
Senator Bone. That is uot the point. You were chief executive of that com-
pany and received a large salary, I believe $75,000 a year plus this bonus.
Here is a contract which is probably tlie most important piece of litigation
Bethlehem ever had with the Unitetl States Government. Do you want to
suggest to us that you do not know the implications of that suit and what it
involved ?
Mr. Grace. I do not know the details of it.
Senator Bonb. It is an astounding thing how many big executives have come
before us and have no knowledge of the affairs of their company. I frankly
cannot understand it. I would expect that these men would have all tliese
questions right at their fingertips.
Mr. Grace. It is quite impossible to carry all those things in mind, in detail.
Senator Bone. This is a major thing, involving many millions of dollars.
Mr. Grace. Of very long standing.
Senator Bone. Most of us would know about the integrity of our business
and the part that the suit plays in relation to the Government. You do a lot
of business with the Government, your company does, does it not?
Mr. Grace. There is such a difference of opinion that the case is in litigation.
Senator Bone. Exactly ; and because it is in litigation, involving many
millions of dollars,, and not only that but involving a very grave principle of
business, may involve your company in litigation in tlie event of another war,
and as you have contractual relations with the Government I would think you
would know about that.
I do not think we are asking you in this, Mr. Grace, to state a particular
situation that you should not know, and yet it is astounding that you, like
other executives of big concerns, seem to have very little knowledge of the
details of these things.
You cannot tell us whether your company refused to accept prices or opposed
prices with the Government that other companies were willing to accept?
Mr. Grace. No; I could not tell you that.
Senator Bone. Let us go back to the Government's brief a moment and see
if we can perhaps refresh your memory a little bit on one other aspect of the
question.
Now, on the matter of cost, I am just reading this to you because your counsel
will have this volume of the brief of the Government in this particular case
[reading] :
It is the position of the Government that Bethlehem is not entitled to
retain any sums paid to it on accoimt of " fixed profits " or " half-savings "
or to receive any further payments on that account in connection with the
contracts in controversy.
Let me digi'ess a moment to ask you if these were not cost-plus contracts?
Mr. Grace. I do not know.
Senator Bone. You are unable to advise me.
Mr. Grace. I do not know whether they were cost-plus or cost plus a fee or
whether they were fixed-price contracts.
Senator Bone. They v/ere cost plus a fee. The testimony is that the Navy
Department set down those conti'acts and they were so wide and elastic that
they permitted a company to charge off its income taxes as an operating expense.
I will resume reading :
Having perpetrated a gross fraud upon the Government in connection
with such contracts, it would be unreasonable to hold that, notwithstand-
ing such fraud, Bethlehem should receive as comijensation the same amount
which would afford just compensation to an honest shipbuilder for doing
the same work done by it. Any such decision would mean that Bethlehem
had evei-ything to gain and nothing to lose, financially, in attempting to
defraud the Government and would encourage dishonest contractors to take
advantage of the Government under like circumstances.
No one can say that this country is done with war or how soon a national
emergency will again exist calling for the maximum production of every
shipyard throughout the United States. At such a time plant requisition
will again prove impracticable ; there will again be no time for haggling,
and the Government will again be obliged to depend upon the integrity and
patriotism of the manufactui*ers with whom it is forced to deal. At such
a time there will undoubtedly again be those who will look upon the
national emergency as an opportunity to make enormous profits for their
respective companies and themselves at the expense ot the Government,
378 MUNITIONS INDITSTRY
and whose patriotism and sense of propriety will not, in themselves, be
sufficient to restrain theni from taking full advantage of such opportunity.
That is very strong language for the Government to use in a brief addressed
to your company. Have you any comment to make on that language?
Mr. Grace. Very strong and very unfair, and will not be, in my judgment^
substantiated when the decision is rendered.
Senator Bone. I read further :
There has been nothing in the conduct of Bethlehem to raise any equity
in its favor or to modify the relief requested by the Government. Upon the
contrary, its original offense has been seriously aggravated by the methods
which it has since pursued in attempting to prevent the disclosure of its
fraud and to recover every last penny provided for by the terms of its
contracts.
Now, that last language fits right into some of the testimony which we have
had here, that the contracts which were sent to some of the private shipbuild-
ing companies during the war were so hxtsely drawn that they permitted the
inclusion of every operating overhead expense that wast ever conceived in the
mind of the cleverest lawyer which ever represented a utility company, and
even permitted the company to charge off as an oi^erating expense their income
taxes, but that was not accomplished because that was even too raw for the
Government officials who drew the contracts to tolerate. But all of this presents
a rather sorry picture.
It is true that these were Emergency Fleet Corporation contracts and not
naval contracts, but I am assuming that they were similar in character.
Now here is some argument further in this brief, dealing in a measure with
the question of arriving at an understanding of costs. The United States
attorney in hi--" brief says:
Instead of volunteering an explanation as to the methods and basis em-
ployed by it in arriving at its estinuites, as one would naturally have ex-
pected it to do if such estimates had been fairly and honestly determined.
Bethlehem refused to furnish any such informalion until March 1927. when
it agreed to submit to the Government all working papers used in making
up such estimates.
Can you advise us whether that is the case or not?
Mr. Grace. I do not know. Tlie case is all in litigation, to be decided on its
merits, I assume.
Senator Bone (continuing reading) :
In pursuance of tliis purpose, the chart, alleged to have been prepareil by
Harry Brown, was submitted to the Government in August 1927, as repre-
senting the only working pai)er used by Bethlehem in making up its esti-
mates and as the sole basis for tlie same.
Instead of offering any explanation as to tlie methotl by which the chart
had been prei)ar('d, or as to the manner in wlilch it had been used, or as to
the rea.sons f(»r the difference between tlie chart prices and the substantially
larger estimates svibmitteil by it to the Fleet Corporation, as it might reason-
ably have been exiHX-ted to do if its estimates liad been prepared and sub-
mitted in entire go<Ml faith. Bethlehem steadfastly refused to make any such
explanation except upon condition tliat it niigiit be olYered by it in evidence
at the trial, in the event of Brown being unavailable as a witness. In June
1928, however. Bethlehem was finally induced to alter its policy to the ex-
tent of subnrttting an alleged explanation of the chart, the Government first
being obliged to agree that such explanation would not be used by it except
for purposes of cross-examination.
Do you know wliether that is a fact?
Mr. Grace. No ; I do not know.
Senator Bone (continuing reading) :
As to the estimates submitted by Powell to the Fleet Corporation having
admittedly no supi^irt other than tlie chart and as Brown's " explanation "
is the only justification offered for the chart prict>s. Bethlehem's entire
position rests fundamentally upon the autiientii'ity and propriety of such
"explanation." The evidence clearly shows, iiowever. that this "explana-
tion" offered by Betiilehem was wholly fictitious; that it was invented by
It long after tlie event for the purpose of giving the apin^iranre of sup-
MUNITIONS INDUSTRY 379
port to the prices shown by the chart; that the explanation was not only
false and fictitious, but the method of estimating referred to therein, while
pretendinc; to make use of certain past costs for comparative purposes, was
so improperly employed as to result in estimates which were grossly exces-
sive, insofar as their use In connection with half-savings contracts was
concerned; and that the chart was not intended to represent and did not
represent estimates of cost fairly and honestly determined upon a proper
basis and by a proper method for use in connection with such form of
contract.
The evidence further discloses that the substantial discrepancies between
the chart prices and the prices submitted by Bethlehem as representing its
honest and carefully considered estimates of probable approximate costs,
which discrepancies it had carefully refrained from explaining in advance
of trial, actually represented deliberate padding admittedly included with-
out any justiticatiou and for trading purposes only.
Your answer to that, I assume, would be the same as your answer to the
former question?
Mr. Gracei. Yes.
Senator Bone. You have no personal knowledge as to this suit.
Now, on page 306 of this brief there is this further argument by the Govern-
ment [reading] :
Meanwhile, although the base prices plus fixed fees named in the Beth-
lehem contracts in controversy were tremendously in excess of the lump-sum
prices named in the contracts covering its ships which had been requisi-
tioned by the Government * * * Schwab —
I take it that is the president of the corporation —
scrupulously refrained from concerning himself in any way with any busi-
ness of the Fleet Corporation pertaining to Bethlehem and saw no occasion
to instruct Piez —
Do you know who he was?
Mr. Grace. He was general manager of the Emergency Fleet Corporation.
I think I am correct in that.
Senator Bone (continuing reading) :
to make sure that Bethlehem likewise would in no event obtain more than
just and reasonable compensation under its contracts (R., p. 732), nor did
Piez apparently see any occasion to insist upon any modification of such
contracts.
As a matter of ordinary fairness and propriety, one would suppose that
Bethlehem would be willing to accept for itself the same limitation upon
profits which Schwab thought proper to. impose upon the American Ship-
building Co. Bethlehem, however, argues that although Schwab took the
position that any profit to the American Shipbuilding Co. in excess of 10
percent of actual cost, even under lump-sum contracts, would be in excess
of just compensation, nevertheless it is entirely proper for Bethlehem to
receive as profit 23.2 percent of actual cost under the half-savings contract
in controversy.
Schwab endeavored to mitigate the effect of his letter of October 2 by
testifying that, notwithstanding the statements made therein, he had never
demanded any modification of the American Shipbuilding Co. contracts, but
that Farr himself had suggested the modification described in the letter in
question, and that this letter had been written and signed in order that it
might be used for publicity purposes by Hurley.
Assuming that such testimony is true, it does not help Bethlehem. Upon
the contrary, the fact that the letter of October 2, 1918, was actually written
for publicity purposes and as an object lesson to other shipbuilders would, if
true, be even stronger evidence that 10 percent of actual cost was consid-
ered as affording just compensation even under lump-sum contracts, and
that all shipbuilders dealing with the Fleet Corporation were to giude
themselves accordingly.
Schwab's testimony, however, is of special significance in the following
respect : It shows that although, according to Schwab, Farr was entirely
willing and had previously agreed to limit the profits of his company to 10
percent of cost and had himself suggested the modification described in the
letter of October 2, Schwab was willing to sign and deliver to Hurley, for
publicity purposes, a letter in which Farr was depicted as having falsely
380 MUNITIONS INDUSTRY
represented to Schwab at the inception of the contracts that the prices
naaied therein were reasonable ; as endeavoring to take advantage of the
Government in time of national emergency by obtaining excessive prices by
means of such misrepresentation ; as demurring to any reduction being made
in such prices; and as finally being forced to agree to the modification de-
scribed by Schwab because of the power vested in the Fleet Corporation to
limit shipbuilders to just compensation.
When we find that Schwab, who was the dominant influence in Bethle-
hem not only by reason of his stock ownership, but because of his experi-
ence, ability, accomplishments, and personality, was willing to use his office
as director general to publicly impeach the patriotism and character of Farr
without the slightest justification, compunction, or apology, we are better
able to understand Bethlehem's entire dealings with respect to the contracts
in controversy.
Mr. Grace, that is extremely strong language for the United States Govern-
ment, through the Attorney General, to use. Have you any explanation of those
charges?
Mr. Grace. I have no explanation. I say the case is in litigation and I expect
it will be settled on its merits. It should be. We do not accept any of those
charges as being true, on the other hand.
Dividends paid by shipbiiildinor subsidiaries of Bethlehem Steel
totaled $60,498,529 (Feb. 26, galley 16 QD).
Mr. Shick. We used the term " rental."
Mr. Raushenbush. How much was paid in dividends to the Bethlehem Steel
by these various companies, would you say, Mr. Shick, by Bethlehem Ship-
building Co. during those years. Fore River and Union Iron Works?
Mr. Shick. It was our practice to have those companies practically pay out
all their earning which were availal)le, over to the Bethlehem Steel Corpora-
tion because the Bethleliem Steel Corporation was the one paying dividends to
the stockholders. There was no reason leaving the earnings accumulate in
those companies, so that they were paid over to the Bethlehem Steel
CoiTioration.
Mr. RAusHENnusH. Do you have the dividends before you?
i\Ir. Shick. I do not.
Mr. Ratshknbush. Do you have them, Mr. Mitchell?
Mr. Mitchell. I have them, as obtained from the revenue agent's working
papers of the income-tax unit. He analyzed the surplus for the various years
and according to tlie l)0()ks tlie dividends paid were as follows :
Bethleliem Shii)building Corporation. Ltd.. paid in irtl!). ^1,782,500; in 1920
it paid .$1 .70.".00(> : and in 1921 it paid ,>5;20,2S2,T(X). a total for the years 1917 to
1921 of .$2:!.77(»,20().
The Fore River Sliipl)Uilding Coqioration paid in 1917, $90,000; in 1920,
$4,01(),4<X); a total of .$4.HK».4(MK
Tlie Union Iron Works Co. in 1!>17 jiaid .$400.0(10; 1918, .?1.130.000; 1919,
$1,400,000; 1!)20. .$.").('>1)7,!)2S.19; 1!)21, .l;24,t)00,(MX) ; a total of $32.()27.n2S.19.
The total dividends paid by these three companies to Betlilehem Steel Co.
amounted for those years to .$1)0,49S,."2S.19.
The company had to be threatened during the ^var with comman-
deering before it undertook necessary plant construction (Jan. 21,
1935, galley 27 GP).
Mr. Parker. I think the record will show in a nninlier of letters where we did
everything that was possilile to avoid going into this program of plant construc-
tion along with ship construction.
The Chairman. How long from tlie time that the Government urged .vou to
supervise tiie constniction of that jilant — how long was it before you complied?
Mr. Parker. It was a very sliort wliile. Senator, becaust^ they said. " If you
do not do it. we will comniandtH'r your l.uid and do it ourselves." So that it did
not take very long for us to go along with them.
The Chaiuman. What time during the war was this?
Mr. Park™. 1918.
Senator P.onb. Was that to l>e a GoverniiuMit iilnnt?
Mr. Parker. That was to lie a plant oiH'rated by the New York Shipbuilding
Corporation management.
The Chairman. But tlie Government was to l)uild it?
Mr. Parkkr. The (iovernment was to build it.
MUNITIONS INDUSTRY 381
The Chairman. You were to supervise the building and you were to supervise
the operations after it was completed?
Mr. Pabkeb. Yes, sir.
The Chairman. And yet the Government was forced to threaten commandeer,
lug?
Mr. Parker. That is correct.
Further difficulties in preventing improper costs during war years
were described by the district plant engineer of the Emergency Fleet
Corporation (Jan. 22, galley 44 GP).
Mr, Raushenbush. During this discussion Mr. Freeman, the district plant
engineer, refers to himself as " Mr. Freeman " instead of saying " I ", because
this is supposedly an official report.
After summarizing, in the first three paragraphs, his functions and his duties
and obligations, he points out in paragraph 4 one of the few changes he made.
That paragraph reads :
Mr. Freeman cut down the force from 35 to 10 at the New York Shipbuild-
ing Corporation and also discovered that there was no check on maintenance
at this yard, the cost of which was a cost against the ships in general over-
head, and on some contracts an additional 10-perceut profit was allowed.
This matter was pointed out by Mr. Freeman and he was allowed to place
four engineers on maintenance. A record of maintenance, month by month,
by the New York Shipbuilding Corporation was kept in regular schedule, and
at the date of Mr. Freeman starting activities had reached an amount of
$448,805 per month, which was charged against ship construction at a time
when only the north yard was in operation, as the south yard had just
gotten started.
Then he goes on to point out how he brought maintenance down from an
amount of $448,000 to $91,000 plus.
The fifth paragraph reads :
Matters were brought somewhat to a head by the New York Shipbuild'
ing Corporation receiving a letter dated February 20, 1920, iroui our
resident engineer, in which their attention was called to the fact that they
were doing considerable work in the yard and charging same to mainte-
nance, which was an improper charge, as it was being done without
authority, and 11 items were cited on which the work was going on at
that time; and the said corporation was advised that we were requesting
our resident auditors to withhold payment on tliese jobs until same were
approved, if they were proper charges. On Wednesday, February 25, 1920,
we were advised that Mr. Magoon, senior vice president of the New York
Shipbuilding Corporation, was in conference in the home ofliee of the Fleet
Corporation ; and one of the officers of the New York Shipbuilding Corpora-
tion at the yard stated that he was afraid to call him up as he — Mr.
Magoon^was in an awful temper about maintenance, resulting from our
letter.
6. On the same day Mr. Magoon replied to our letter, stating that he was
unable to find any ruling which required him to submit regular applica-
tion for doing maintenance work for approval and that it was his present
purpose to proceed with maintenance work under his usual procedure. On
the same day the New York Shipbuilding Corporation wrote to Mr. Frick,
manager of construction, Emergency Fleet Corporation, in which they state
that the jurisdiction of the plant maintenance by the district engineer's
department had been assumed as an extension of its duties in connection
with plant construction and that they ask the Fleet Corporation in said
letter to issue instructions that will relieve the New York Shipbuilding
Corporation from all question of such supervision. It is to be noted that
these letters were written the same day as the conference above referred to
in the home office. Under date of February 28, Mr. Frick issued instruc-
tions to Mr. Miller to remove all engineers in his district wliose work was
confined strictly to maintenance.
Later on, however, that was changed.
I will now read from paragraph 7:
This department pointed out to various departments further irregulari-
ties that the New York Shipbuilding Corporation made in the matter of
1.39387—35 25
382 MUNITIONS INDUSTBY
plant construction and charged to ships. In one case we discovered one
of the old ways that had been there for 20 years had been remodeled from
wooden construction to concrete construction at an expense of approxi-
mately $126,000; same had been charged to ship construction and ap-
parently had been paid as a ship cost. This was brought very forcibly
before the auditing department ; and said department, on their own ini-
tiative, made an estimate of the improper cost that had already been paid
the New Yorli Shipbuilding Corporation. An estimate of our share,
amounting to $7.50.000, had been improperly paid, and this amount was
held up by the auditing department as made to the New York Shipbuild-
ing Corporation. The Navy Department, hearing of this action, called a
meeting and stated that inasmucli as they were paying 50 percent of the
overhead, that they be allowed to see this list, as they also desired to hold
up funds for improper payments, resulting in a similar amount being held
up by the Navy Department on March 3.
Also in the same letter (Jan. 22, galley 45 GP).
The proposal to have adjusted price contracts made the basis of
war-time work was made by Mr. Homer, of Bethlehem, on February
28 (galley 54 QD).
Mr. Homer. The thought has occurred to me in hearing your discussion the
other day about what might be done to take the profits out of war contracts,
excessive profits, that there is a possibility that the committee might want to
give some thought to a plan of this kind as a basis for operating under a plan to
take excessive profits out
Senator Bone. Miglit it not be said
Mr. HoMEB. It is going at it another way.
Senator Bone. Pardon me. I did not mean to interrupt.
Mr. Homer. I am talking more or less personally now, if you will pardon me.
But going at it the other way, it seems to me that excessive profits in war ai-e
not caused by the deliberate attempt to make excess profits but they are usually
by conditions which are unforeseen at the time that a contract is made.
One of the major factors in tliat condition is that the contractor has a fear
that he is not adequately protected in taking a contract under conditions which
are so variable and uncertain that he may lose a tremendous amount of money
when he gets through.
If you can eliminate that fear. Senator, from a contract, you have gone a long
way, in my personal opinion, of taking the possibility or chance of excess profits
out of contracts, munition contracts, or whatever you want, any contract, so far
as that goes. That is just a suggestion. I do not know wliether it is worth
anything or not.
Senator Bone. It might be said by some, and perhaps with some slight justifi-
cation, that even under this type of contract that the Government is the one
who does the gambling on the contract.
Mr. Homer. The Government will accept a certain amount of risk, but in the
end it will probably save money because it is helping to take the risk of the
subcontractor, to a certain extent. I do not believe that the Goveniuient
assumes all the risk. It does not. It does not assume all the risk under our
present contracts, but it is an equitable means of adjusting things to suit
conditions.
Later (galley 55 QD).
Mr. IUushenbush. Before we get off this question of your suggestion, Mr.
Homer, about having this sort of a sy.stem apply to a war-time emergency, here
you have, as I gather it, a system where the Goverament pays for material
increases and pays for increases above a certain level.
Now. if that were done during the war, and all contracts were made that
way. the (Jovernment doing the gambling on any price increases, what point
woiiUl tluMt> be in a company getling any iirolit? The point of profit, as I
understand it, is to conipensate the company for risk, and what iH)int would
there be in keeping a profit arrangement like that, if the Government is going
to take all the risk for which profit is iisually given?
Mr. HoMEH. In the first place. I do not agree with you that the Government
takes all the risk.
air. RArsiiENBisH. .Tust about all, <loes it not?
Mr. Homer. Yon mean tlie Government assumes a certain part of the risk
in the case of increases or decreases in prices of material and lal)orV
MUNITIONS INDUSTRY 383
Mr. Raushenbush. That is right.
Mr. HoMEK. That is not all in building a ship, Mr. Raushenbush. In the first
place, there is no consideration being given to overhead expense of any kind
w^hatsoever in this plan, and the contractor has to assume all the risk for that.
It is merely an arbitrary basis which is taken, of 40 percent representing ma-
terial and 30 percent representing labor and something representing the rest,
30 percent.
Mr. Raushenbush. Let us talk about the rest of the 30 percent. Let us
talk about the overhead, which is a part of it, and the rest of it is profit.
The Government could allow, and does in fact now allow, a certain percentage
of overhead, does it notV
Mr. Homer. On whatV
Mr. Raushenbush. On a ship.
I\lr. Homer. In what connection?
Mr. Raushenbush. You figure that in the Vinson Act it is supposedly a
10-percent limitation on profit, that the Government is going to allow a certain
profit on that.
air. Homer. We hope it will.
Mv. Rai.shenbush. Let us apply that to the situation which you suggested.
Mv. Homer. And it is a legitimate part of cost, is what you mean?
Mr. Raushenbush. Your on'y risk, I take it. is in the element of overhead,
which involves bonded indebtedness. There is no particular risk there.
Mr. Homek. The only risk is bonded indebtedness?
Mr. Raushenbush. I am starting to subdivide the overhead, bonded in-
debtedness, taxes, and supervision. As I gathered it, roughly, what you are
proposmg is a system that the Government takes all the risk, that the plant
will have none of the risk.
Mr. Homer. Only a very small proportion of the risk.
Mr. Raushenbush. What is left is that on which private capital should get
a profit?
Mr. Homer. Do you not see that the Government does not take any risk
in connection with the construction of the ship?
Mr. Raushenbush. You mean if it burns or is badly damaged?
air. Homer. No ; in l)uilding the f^hip you assume a risk, because you have
got to construct something. You start otf with nothing, and you finish with a
ship, and it is suitposed to be completed in accordance with the plans and speci-
fications. You are assuming a certain risk, if you do not do it, are you not?
Mr. Raushenbush. Assuming a certain amount of competence on the part of
the builders.
Mr. Homer. Your engineering " know how ", your organization all the way
through, has to be suitable to do it, and you have to know how to do it, and
you have to know how to do it within the cost which you have used as a basis
for your estimate.
All this plan does is just to take away a certain part of that great risk which
a contractor runs in the face of an inflation, or any other change in the eco-
nomic conditions, which may change the basic factors on which he has estab-
lished an estimate and his price, covering a contract over 3 years.
The matter of the war profits of NeAvport News led to some con-
troversy. The Treasury cut the company's fi<>;ure of invested capital
for 1917 from $10,000,000 to $3,800,000 in conformance with regula-
tions. The company did not accept this, and asked to have its taxes
determined on a basis which did not involve the figure of invested
capital. This was done. The tax dispute was not settled until 1931
(Feb. 12, 1935, galleys 69, TO ZO).
The income figures filed by the company varied greatly with the
reports of the revenue agents (galley 70 ZO). For example, in 1921
the company reported taxable income of $1,306,765, and the revenue
agents found $4,043,000, an increase of 195 percent. The company
reported its tax liability for that year as $153,000. The revenue
agents found $1,663,830. The final settlement in compromise was
$1,303,000, more than nine times what the company reported (jxalley
70 ZO). I y I y^ y
The revenue agent, basing on the finding of an invested capital f<n-
1917 of $3,826,316 (disputed by the company) found a r.et taxable
384 MUNITIONS INDUSTRY
income of $3,467,605, or 90.6 percent. In 1918, on the same Treasury
basis (disputed by the company) the profit before taxes was 76.1
percent. In 1919 it was 71.5 percent. In 1920 it was 52.1 percent.
The company entered into the records figures tending to show the
profits of the company for these years as (1917) 15.3 percent; (1918)
8.3 percent; (1919) 16.9 percent; (1920) 23.1 percent (galley 68 ZO).
It Avas admitted by the company's president, Mr. Ferguson (galley
71 ZO), that these figures could not be considered as income-tax fig-
ures, and that, based on the company's own returns to the Treasury,
the profits were very considerably higher.
EXPECTATIONS OF CONDUCT IN FUTURE WARS
Shortly after the hearings on shipbuilding had closed, General
Hugh Johnson, at one time connected with the War Industries Board
and later Director of the National Recovery Administration, ex-
plained that the N. R. A. had grown out of the plans developed
by the War Industries Board for the conduct of a future war.
It was, he stated, developed directly for the war plans, and was
not shown to the industrialists for their approval until practically
completed.
In view of that statement, the evidence bearing on the observance
of the X. R. A. by the shipbuilding companies has significance, taken
together with their record in the past war, in relation to what the
country may expect from these companies in the event of another
war. Evidence was taken in regard to one of these companies, New
York Shipbuilding.
The question of observance of the N. R. A. came up on February 7
(galley 40-41 ZO) when Mr. Philip W. Chappell, a mediator in
the Department of Labor was questioned concerning a strike of
New York Ship employees in 1933.
The question of the possibility tliat Navy officials, at the request
of the company, intervened in the dispute.- with the threat of re-
moving the Tuscaloosa was also discussed.
Tlien Mr. I>ar<lo, who eonductpd practiciilly :ill the ncsrotiations for the
company, eiuh^avorcd ti' refer it lirst to a in li her lioaril. lie wanted t() refer
it to the New Jersey Re.ixional Boanl, of whirh, I think, he was then a niem-
i)er. lie tried to inject the industrial relatii'ns boanl of the Shiitbuildiiig
Code into it. altliough that board had never luH'n completed. He threatenetl
to turn it over to the I'liiladelphia Heyional Labor Board. But the men,
not beinu affiliated wiih the A. F. of L., objected to turning their case over
to any board on which the only labor representation was A. F. of L. rep-
resentation.
So. finally, the secretary, or, rather, Mr. Kerwin. who was head of the con-
ciliation service, made an investigation here in ^^'ashington, and he wired
nic along the latter part of April that at lliat time I was the only Govern-
ment agency aiifliorized to have any i-ontact with the strike.
Mr. LaRouciie. Mr. Chapiiell, excuse me. but right at that point, what was
the reason for that wire?
Mr. t'liAppEix. l?ecause there had been so niU' h bick(M-ing back and forth as
to whom was to have jurisdiction.
Mr. TyAllouciiE. Bickering between whom?
Mr. CiiAPPELL. Between the men, Mr. Bardo. and my.«<elf, you might say.
We would get into a conference and Mr. Bardo would say. "Well, we cannot
git anywhcie. We will have to turn this over to some other board."
And as a result of that, we were not getting anywhere in our conferences.
Mr. LaKoi'chi;. You did not feci tiiat that was dtMibi'iatc on Mr. r.ardo's
part, did you?
MUNITIONS INDUSTRY 385
Mr. Chappell. Well, I think it was the position almost any employer would
take under those conditions.
Mr. LaRovchb. You mean, stall the situation along?
Mr. CiiAPPBix. Well, to stall along, yes ; because one way to win a strike is
to starve them out.
Mr. LaRouchb. Starve them out? Do you think he was trying to do that?
Mr. Chappeix. That is what I would have done if I had been in his place.
So, right after that another meeting was scheduled, and, in fact, I had ar-
ranged a meeting, and when I arrived at the office of the company I found the
connnittee assembled in the outer office, and I went into Mr. Bardo's private
office and was introduced to two gentlemen who had been brought up from
Washington, and I inquired if they were to participate in tho meeting or ex-
pected to, and Mr. Bardo made the remark to me that he had told me that if
we could not settle this dispute, that they would have to turn it over to
someone who could.
Mr. LaRouchb. Who were those two men?
Mr. Chappeix. One of them was Mr. Weaver — I think he was administrator
of the shipbuilding code.
Senator Clark. He was formerly connected with the Newport News Ship-
building Co., was he not?
Mr. Chappell. Yes ; I think he was. I know that he was. And the other
was a Captain Williams, of the Navy.
Mr. LaRouchb. What was Captain Williams' job?
Mr. Chappeix. At that time I think he was associated in some way with
the Shipbuilding Code Authority. I am not sure of that.
I told the two gentlemen and Mr. Bardo — and I showed them this telegram
which had been sent to me from Washington — -and told them that if they
cared to sit in the conference as observers, it was all right, but that if they
were going to participate, that I would not go on with the conference; that I
had ai'ranged with the men for a conference between the company officials and
myself the afternoon before, and that Mv. Bardo evidently knew the afternoon
before that these two men were to be there, and that it was no more than fair
to the men and myself that he should have notified us.
Mr. Weaver made the statement that they should have no objection, as the
President had discussed the matter with General Johnson, and the general had
suggested that he come up, and that as he was the representative of General
Johnson there should be no objection to his being there ; and that as Captain
Williams was connected with the Navy, and the Navy was very much in-
terested because of the Tuscaloosa being in the yards, that they should not
object to him.
However, they agreed not to enter into the discussion. When we went out
with the group from the union, the chairman of the union committee made the
same inquiry as I had made, and they were assured by both Mr. Weaver and
Captain Williams that they were simply there as observers.
However, as the meeting progressed, Mr. Weaver was brought into the dis-
cussion in sort of an informal way.
Senator Clark. Who brought him in?
Mr. Chiappexi,. If I am not mistaken, I did, by asking a few questions in
regard to wage rates at Newport News.
Mr. LaRouche. Excuse me. What sort of questions do you mean, Mr.
Chappell?
Mr. Chappell. Well, we had never been able to get from Mr. Bardo any
competitive rates, although I felt very confident that he had on file there the
rates in the other yards. Mr. Bardo kept contending that his rates were higher
than they w^ere in any other yard in the industry, with the possible exception
of some of those around New York which were more or less repair yards.
But I think, as I recall, that was the way that Mr. Weaver was injected into
it at that time.
Later in the morning, however, Mr. Bardo said that he thought that Captain
Williams had something he would like to say, and the captain started by
asking some of the men who had been down here in Washington, a committee
which had been down heie several times, questions as to what they found oiit
while they were down here. And finally he intimated very strongly that unless
these men went back to work, that the Navy would take the Tuscaloosa out of
the yard in an unfinished condition.
Mr. LaRouchb. Who did that?
Mr. CHAppEa^L. Captain Williams.
386 MUNITIONS INDUSTRY
Mr. LaRouche. He said that, unless the men took Mr. Bardo's terms, the
Navy would take the Tuscaloosa away?
Mr. Chappell. It practically amounted to that. I objected on the grounds
as a repi'esentative of the secretary, that I did not feel that any Government
agency had a right to come into a meeting of that character and threaten the
men that the Government would take that vessel out unless they met the
company's terms.
During the meeting Mr. Weaver sat right next to John Green, who was presi-
dent of the union, and I noticed they had quite a little conversation together.
After the meeting adjourned. I went on back to Philadelphia, where I was
staying, and that afternoon I had occasion to call up Green, and he seemed very-
much surprised that I was in Philadelphia because, as he said. Mr. "Weaver
had explained to him that Mr. Weaver and myself would meet with Mr. Bardu
that afternoon and try to get him to come up on his rates to a point where
the strike could be settled. And he made an engagement with Green to meet
the union committee at the union headquarters that night at 6 o'clock.
Senator Clark. Weaver made that engagement?
Mr. Chappell. Yes.
Mr. LaRouche. Unknown to you?
Mr. Chappetll. Unknown to me, although I was supposed to be a party to the
afternoon meeting.
I told Green to go ahead to the meeting "with Mr. Weaver that night, but
that I would be there. And I suggested to him that in dealing witli Mf.
Weaver he deal with him as a representative of Mr. Bardo rather than a
representative of the Government.
Mr. LaRouche. What was that again? Would you mind repeating that
statement?
Mr. Chappell. I suggested to Green that he go ahead with the meeting with
Mr. Weaver but suggested to him that in dealing with him he deal with him
as a representative of Mr. Bardo rather than a representative of the Govern-
ment, because officially I was the only representative of the Government there.
Mr. LaRouche. Were you trying to imply that Mr. Weaver was not interested
in an impartial settlement? Was that the idea you wanted to convey to the
men?
It was broujrht out that the company had piven a check for $250
to each of two ministers who had interested themselves in the labor
difficulty. The checks were marked " This is intended for your
personal nse " (exhibits 1542. 1543. Feb. 7, iralley 42 ZO).
Mr. Chappell. To the men? I was trying to convey to flieni that it was not
nece.'jsary for them to deal with him as a Government representative at that
time.
Senator Ci^rk. As a matter of fact, it is true, is it not, Mr. Chappell, that
you had sole jurisdiction of the matter on behalf of the Government?
Mr. Chappeli- Yes.
Senator CrAnK. And this intervention on the part of the deputy adminis-
trator of the N. R. A. and tlie Navy Deitartment. to try to coerce the men. was
purely gratuitous on their part?
Mr. Chappexj.. That is tlie way I figiired it at that time : .ves, sir.
At any rate, we mot at 0 o'clock ar union headquarters, with the coinmittee
of the union, and their attorney and niy.self and Mr. Weaver and Captain
Williams and a minister from Camden — I do not recall hi?* name ritriit now —
who injected himself into tlie picture— —
Mr. LaRoiche. A minister, did you say?
Mr. Chappkli.. Yes. sir.
Mr. LaI{oi:c7IE. Would you know his name if you heard it?
Mr. Chappe[j_ I have it in my notes, I think.
Mr. LaRoithb. Did you say he injected himself into the ea.se?
Mr. Chappi'Xl. The ministerial alliance sort of injected themselvt<s into the
picture over there several tiiTies on several diflF'rent strike>».
Mr. LaRoiche. It was not Dr. Harold Paul Sloan?
Mr. Chappell. Yes; that is the man. Mr. Weaver, when he came in. told
the men that he had sjient part of the afternoon with Mr. Bardo and had gone
over the whole situation with him. and had gone over Mr. Bardo's figures, and
lie submitted a list of rates that he considered fair, and he told the men that
in his opinion the only thing to do was for them to take that proposition ; that
if they did not d>t it, the only course he saw oihmi to himself was to return to
MUNITIONS INDUSTRY 387
AVashington aud tell General Johuson and President Roosevelt that they had
refused to accept a very fair iiroposition.
He asked me if I did not concur in that. I told him that, so far as I vpas
concerned, he seemed to have tried to eliminate me from the picture, and that
as a representative of the Secretary, I did not feel that I could make any
statement of any kind at that time.
The men turned the proposition dov^^n entirely.
Senator Clark. Did this man Weaver give any explanation of telling the
men you would be in the conference v.iien, as a matter of fact, you knew
nothing about it?
Mr. CHAPPEI.L. No. At that particular time Mr. Weaver was rather arro-
gant in his attitude toward the men, and he made no explanation further than
that he had been sent there by General Johnson and that he represented thie
President of the United States.
My recollection is that on one occasion that morning Mr. Bardo had told
me that he invited Mr. Weaver and Captain Williams to come up. Another
time Mr. Weaver stated that it was at his invitation that Captain Williams
liad come up. Mr. Weaver himself, in talking to the men, told them that he had
definitely been asked to come up there by General Johnson.
A few days after that Mr. Bardo came down to Washington and had a con-
ference with General Johnson in the genei-al's office in the Commerce Building.
Thinking perhaps that they might want the committee and myself there, I had
suggested to the union tliat they have a. committee here, so that I was here
at that time and saw the committee, but no one of us was taken in on that
conference.
The question of what kind of war-time observance of regulations
can be expected from the shipbuilding companies was again raised
on January 25 (galley 87 GP and 88 GP).
Mr. Raushenbush. Were you taking up with General Johnson and the
N. R. A., generally, the question of observance of section 7a?
Mr. Fkey. Yes ; the Department took that up with General Johnson and
with every other authority under N. R. A.
Mr. Raushenbush. Did we understand you correctly in your earlier testi-
mony to say that there was a good deal of trouble about that in the shipyards?
Mr. Frey. At the present time there is not one of the big three — I take that
back. At the present time the Newport News Shipbuilding & Drydock Co.
and the Bethlehem Shipbuilding Co., at its plant in Quincy, Mass., and at its
plant in San Francisco, are still refusing to carry out the provisions of
section 7a.
Senator Clark. What was that company in Massachusetts?
Mr. Frey. The Bethlehem Shipbuilding Co., at its Fore River plant.
Senator Clark. That is the Bethlehem Steel Co.?
Mr. FREnr. That is a subsidiary company of the Bethlehem Steel.
Senator Clark. And the United Drydock is controlled by the United States
Steel Corporation?
Mr. Fbey. I do not know. The same is true of the Bethlehem Shipbuilding
Co.'s plant at San Fi'ansisco.
Mr. Raushenbush. Mr. Frey, this is somewhat interesting because of evidence
put in in December, when the question of war-industries plans for a future war
was discussed, as to the extent of observance of Government regulations one
might exiiect from the various companies during the pressure of a war. You are
saying, if I understand your testimony correctly, that even in peace times you are
having a great deal of trouble in getting enforcement of certain governmental
provisions. 7 (a). Is it correct that there is trouble about that today?
Mr. Frey. Y'^es ; it is impossible for us to have section 7 (a) carried out, and
the Government or N. R. A. have made their efforts to prevail upon the shipyards
to observe section 7(a) and those that I named are now not observing it.
Mr. Raushenbush. Where is your appeal in a case like that, where you find
Bethlehem or somebody not observing it? Where do you appeal in tliat case?
Mr. Frey. There has been set up, under the code, and with the approval of the
President, an industrial relations board for the shipbuilding industry. It was
provided for in October 1933. Because of the shipbuilders' opposition it was not
given an official status until August of last year. Mr. Calvin is one of the labor
members of that board. It now has official sanction. It seems to be operating,
and we are in hopes that this industrial relations board for the industry will be
able to work out the problems which, up to the present have not been worked out.
388 MUNITIONS INDUSTRY
Mr. Raushenbush. Let us get this straight. How is this board constituted?
Mr. FKEfY. It consists of 3 representatives of the shipbuilding industry, selected
by the industry, and of H representatives of labor who were nominated by the
Labor Advisory Board of N. R. A. and who were then appointed by President
Johnson — I mean General Johnson.
Senator Vandenberg. " President " Johnson was not far from it. You refer
to ex-President Johnson.
Mr. Raushknbush. You were being trtubled with the provisions of N. R. A.
in Au.mist 1933 and July 1933, as I understand it?
Mr. Frey. Yes, sir.
Mr. Raushenbush. And you had no appeal to a board of your own until August
or September of this j'ear?
Mr. Frey. September of this last year ; yes, sir.
Mr. Raushenbush. A whole year intervened there?
Mr. Fret. Yes, sir.
Mr. Raushenbush. Are your complaints in this matter before that board?
Mr. Freiy. Some of them arc and others will b;* brought there.
Mr. Raushenbush. That is a 5(>-50 board. Suppose they split 50-50 in the
matter of interpretation? Where is your apix>al from there?
Mr. Frey. That is a question. General Johnson desired to have the board
composed of an independent chairman and three rejiresentatives on each side.
I was strongly opposed to that set-up. I told him that if he named a seventh
man, we would then have the atmosjniere of a courtroom, with opposing counsel
endeavoring to influence him very much. Instead of having throe men of each
group endeavoring to find a solution for the question before them, we woidd
have those three men planning the best campaign to influence the odd man. and
that I felt that until there as a break-down, a complete break-down of that
equal number of men on each side, to adjust the questions that would arise,
I was oppnsed to the appointing of a seventh man.
I presume that if there was a seventh man, and his decision was seriously
unsatisfactory to one or the other of the groups, that there would be an effort
to appeal. I presunte that they might appeal to tbo Nat'onal Labor Relations
Board, or they might carry their appeal to tlie highest authority in N. R. A., or
they might place their problem before the President of the United States.
Mr. Raushenbush. Let us get down to that exactly. Here it has taken a
year, on certain matters, in whicli you tiiink that the sliipbuilding companies have
not been observing the laws of the country. There was a year before your
authority was officially sanctioned as a laltor relations board for the industry.
Prfsumal)ly. tlie other day. tlie Presideiit took away from the National Labor
Relations Board the authority to hear specific complaints, where industries have
their own labor boards.
Mr. Fkey. Yes.
Mr, Raxjshenbush. That being the situation, where are you going to from
your SO-no board in case the decision, as it may very well, I suppose, split on a
50-50 basis. Just as a matter of routine, of getting things done, of getting them
settled one way or the other, how are you going to act, or where can you go
under such circumstances?
Mr. Frey. I assume that the President's opinion would be based upon infor-
mation and advice giv«>n to him by a legal adviser wiio has been active in N.
R. A. atTairs. because tlie President's position was similar to the one which Mr.
Donald Ri«liberg took when the Jennings cast-, to which you referred, was first
handed down. After the National Labor Relations Board had nmde its decision,
Mr. Richberg went before the Board and told them that they were without
authority to make any such decision.
And, if my men.ory serves me. lie requested the Board to surrender any juris-
diction in the case, and the National Labor Relations Board refu.sed to (lo so,
and if the point which the White House announced the otiier day is on all fours
with that which Mr. Donald Richberg took some time ])efore, I would be in-
clined to think that Mr. Richberg gave tlie President the reasons wliy he thought
that was necessary. I do not know what we can do.
I have had some experience with industrial relations for many years.
I believe the present method of setting up in an industry an industrial rela-
tions board is the most iiractical one. I would assume that if any dispute in
tlie shipbuilding industrial relations board reached a deadlock, that the case
then could be naturally carried to the National Labor Relations Board.
Mr. Rai^shenbush. As I understand it, the letter from the President, that
would depend upon the desire of that Labor Relations Board for any particular
industry, whether it is publishing or coal or shipbuilding, or whatever it was,
MUNITIONS INDUSTRY 389
t(i have its board vote it up, to go up to the National Labor Relations Board.
That would take a vote which would carry, and you have only a 50-50 board.
That is important to us, Mr. Frey, let me say again, on the questions raised
during December, whetlier during a war there would be any chance of having
the matter enforced. Now, there may be very nice plans, but will they be
enforced?
Therefore, this peace-time proposition of yours is very much in point.
Then we got an agreement of something similar to the National Labor Rela-
tions Board, with respect to labor provisions, and setting it up so that nobody
shnuid reject the findings of that board, and it should not go to the N. R. A
or anybody else.
The President's order of the other day, as I understand it, canceled that
So that you are here in a situation where you cannot appeal to the National
Labor Relations Board, because you need a majority vote to do it, and you
have not got anybody else to go to.
Is it not a fair inference that, in addition to the year or year and a half
which has already elapsed, that another year is going to elapse before you can
carry that out, with all the desire in the world, and get that up as far as the
President? You have no board to go to, have you?
Mr. Frey. My answer in this : Since we have begun to — I was going to say
operate ; since we have tried to operate under N. I. R. A., innumerable decisions
have been made by highest authority, and when it was found that the result of
that decision interfered with the adjustment of questions, why, new decisions
itave been made. In other words, it has been recognized by those active under
N. R. A. tliat it was something novel and new. It was an experiment ; that
it would be impossible at any one stage to lay down an inflexible rule as to
some of them which would govern the processes by which we would adjust our-
selves under codes. The experimental feature of it has been recognized. So,
when eitlier side feels that it has been done an injury, and makes its protest,
secures its hearing, ways have been found which, while not wholly satisfactory,
indicate, at least, that it is not a cast-iron system that we are under, but a
flexible one.
PROGRESS CHART
NAVAL BUILDING. JANUARY 1,1935
GOVERNMENT YARDS
EAST COAST
0
H
ii
WEST COAST
0
0
■§
t
PORTSMOUTH
PRIVATE YARDS
I3938T— 36. (FoUow p. 889.) No. 1
CRUISER BIDS AMD E5TinflTE5
i7— 35. (Follow p. 38».) No. '^
Costs of t^mt Construction - I9Z7 .ho i9Z9
HOUSTON
flt/Gl/STfl CHESTER NORffldnPTON LOUISVILLE CHICAGO NEW ORLEflMS flSTORIA
nintlEflPOUS PORTLWll
I:
/i.905»27 ^
g 'L,MOT ■*•
! "^
w
CHESTCff I WgTHUnn'OH
»» Qmmws I fjTORif
mwHgftwna I PORTtmo I mDIWH«P0Li3
9^87 — 35. (Follow I
y
BOSTON PUBLIC LIBRARY
3 9999 06313 765 5
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