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Full text of "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 .."

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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 _ 

C. L. Nnshville 

C. L. Brooklyn _. 

v.\ L. Philadelphia 




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 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,