RENEGOTIATION OF CONTRACTS While discussing fiscal activities, it is interesting to record that renegotiation of contracts has already saved the War Department 1.4 billion dollars from April 28, 1942, when Public Law 528 was passed, through April 30, 1943. Some 421 millions have been or are being refunded in cash and the balance of 1 billion realized in price reductions in existing contracts. While larger recoupments have been attributed to renegotiation, 1.4 billion dollars represents results actually recorded on our books. This figure will be substantially increased through renegotiations already concluded or well under way. As a further result of the process of renegotiation, more searching cost analyses are now made before contracts are let, providing additional savings through new lower price schedules. Aside from activities of contracting officers, who have renegotiated thousands of individual contracts, the War Department Price Adjustment Board had at May 1 assigned 9,600 contractors to the Army Air Forces and the Supply Services for renegotiation. Of these, some 5,600 cases have actually been put in work, some of which have been completed. The present organization assures efficiency in the field. EXAMINATION OF ESTIMATES BY THE WAR PRODUCTION BOARD The estimates have been reviewed by the War Production Board to determine the feasibility of the production programs. At the time the War Department estimates were reviewed, no other war agency had submitted complete construction programs for review by the War Production Board, and, therefore, the Chairman was unable to express a final judgment on the production feasibility of the over-all War Department program. However, he stated that, based on the program thus far submitted, and the acceptance of a decrease in the rate of production of aircraft, which is reflected in these estimates, the total war agencies construction program, insofar as can now be determined, is within the range of the over-all production capacity of our economy. CONCLUSION We have passed from the defensive to the offensive stage. Details of the 1944 Budget reflect this transition. Representatives of each of the services will elaborate on the current and projected activities of their special fields. (Discussion off the record.) Mr. CASE. As to lend-lease or international aid, the charges are made after the transfer? General SOMERVELL. Yes, sir. Mr. STARNES. Is there any limit in the amount that may be used for international aid in the bill? General SOMERVELL. Not in this bill. In the previous bill there was a ceiling. Mr. STARNES. Do you know what is the sum total in this bill for international aid? General SOMERVELL. Five billion dollars. General SOMERVELL. No, sir. We get a return for it. We will not know whether it will be a gratuity until the war is over. Our allies are providing our troops overseas with large quantities of supplies. Mr. ENGEL. You credit them and they credit you? General SOMERVELL. Yes, sir. Mr. ENGEL. In the actual bookkeeping, is the charge made on the terms of articles or on the terms of dollars? General SOMERVELL. Wherever it is possible an officer in the field is supposed to give us a report in terms of dollars. Where that cannot be done, he is to give us a report in terms of services or articles furnished. General SOMERVELL. I have a number of charts here to which I should like to direct the committee's attention. (Several charts explained by General Somervell.) This particular chart illustrates where the dollar will go if the requests which have been submitted by the War Department are approved by the Congress. You will note the dollar will be expended as follows: Air Corps, 33 cents; Ordnance, 21 cents; Finance, 17.1 cents; Supplies and Transportation, 10.6 cents; Signal Corps, 7.8 cents; Engineers, 5.7 cents; Expediting Production, 1.8 cents; Chemical Warfare, 1.5 cents; Medical Corps, 0.8 cent; Miscellaneous, 0.7 cent. PAYMENT OF SUBSIDY IN EXCESS OF ESTIMATES Mr. SNYDER. Are you advised as to whether or not the Army will be expected to pay a subsidy or to pay any extra amount, call it whatever you may, beyond that which is contemplated by these estimates? General SOMERVELL. No, sir. As far as I know this represents our total estimated expenditure. Mr. SNYDER. This matter came up in the House last Friday during consideration of the lend-lease appropriation bill, and the House, by a substantial majority, adopted an amendment that none of the funds appropriated in the bill should be used for the payment of any subsidy on agricultural products. It was stated on the floor that Mr. Stettinius had stated that he had understood that subsidies would be paid on agricultural products procured with lend-lease funds. If true, then it is reasonable to assume the Army and Navy will be subjected to the same procedure. General SOMERVELL. We have been approached on the question of paying higher prices on foods than is paid by nonmilitary consumers, but nothing definite has as yet been developed. Mr. SNYDER. What about rubber? I have heard it said that the Government will pay a much higher price for rubber than civilians will be required to pay. Are you advised as to that? General SOMERVELL. I am advised that the question of the method of procuring rubber and the prices to be paid are under discussion now. Mr. SNYDER. In the Wall Street Journal of May 12 there was an item which read, in part, this way: In the past, sellers to war procurement agencies have been able to charge prices above the maximum after notifying Offce of Price Administration of these prices and the reasons why the seller thought they were justified. If Office of Price Administration ruled the prices too high, the seller then adjusted them with the purchasing agency. Has that been the procedure so far as Army procurement is concerned? General SOMERVELL. That is right. What we have had has been a few cases where our investigation of, say, meat-packing houses was such as to indicate that the packer could not deliver at the ceiling price. Mr. SNYDER. My concern right now is not so much one of policy as one of appropriation. If subsidies are in contemplation or if any decision has been reached as to paying more for material beyond the ordinary purchase price, then these estimates should be amended accordingly. They are not true estimates otherwise. Do you subscribe to that? General SOMERVELL. Yes, sir. We have nothing in there for subsidies. Mr. ENGEL. Lend-lease is in the same category. Unless there is provision in the law the Lend-Lease Administrator could pay subsidies. Under the terms of the law as it now stands the money is provided in a lump sum. General SOMERVELL. Yes, sir; but the sums we have in here are for purchases made by the War Department, and not the Lend-Lease Administrator. Mr. ENGEL. This money here is for General SOMERVELL. For military items. Mr. ENGEL. There are no subsidies on military items? General SOMERVELL. That is correct. Mr. CASE. Your Quartermaster's Department does pay more for food for our armies than the ceiling price permitted by the O. P. A. General SOMERVELL. Not for over-all purchases. There may be individual cases where we do. If we are to buy all the butter we need, we would have to pay a price over the butter ceiling price. Mr. CASE. What about milk? General SOMERVELL. I think the same is true for milk. Mr. CASE. You are buying milk at a price above the ceiling. General SOMERVELL. În certain instances that is correct, but for the over all it is not. Mr. STARNES. Is that a subsidy or the current market price in the area? General SOMERVELL. It is more than that. It is paid after an investigation to show that the producer cannot supply it at the ceiling level. Mr. STARNES. Do you consult with the O. P. A. about purchases? General SOMERVELL. We always consult with the O. P. A. on items which are common to ordinary economy. Mr. POWERS. Why should not the Army, with its tremendous purchasing program, be able to purchase these foods at lower prices, by virtue of the volume, than the ceiling prices? General SOMERVELL. We do invariably, but there are cases where you must consider transportation, storage, and other charges. It is more economical to pay a little more in certain areas than to pay less in other areas. Mr. STARNES. Would it be accurate to say that as a general policy the War Department is not paying subsidies for agricultural or other products and that their general policy is to purchase at the lowest market price available all the things they need? General SOMERVELL. That is accurate. Mr. STARNES. That in making "spot purchases," and there are times when it is necessary and more convenient to make "spot purchases," in those instances the question of subsidies may be involved? General SOMERVELL. That is correct. Mr. SNYDER. Let's take, for example, a community where you need a hundred quarts of milk. You could get the milk there if you would pay 16 cents a quart for it, or you could purchase it a hundred miles away at 14 cents. It would be cheaper to purchase the milk at 16 cents locally than to transport it 100 miles. In that case you would pay the price which may be higher than the O. P. A. ceiling? General SOMERVELL. Yes, sir. Mr. STARNES. Is that a subsidy? That is paying the market price. As I recall it, you have less than $600,000,000 in this Budget for "spot purchases"? General SOMERVELL. We have $568,000,000, I think, for "spot purchases" under international aid. Mr. KERR. What do you mean by "spot purchases"? General SOMERVELL. That is the purchase of an item which cannot be programmed. Mr. SNYDER. Would it be practicable to indicate to us the approximate deficiency under the appropriation heads involved, if it should be decided to require or permit the Army to pay subsidies? General SOMERVELL. I cannot do that because we do not know what the subsidies will be, consequently we cannot indicate what our part of it will come to. POSSIBILITY OF EXCESSIVE RESERVE OF SUPPLIES AND EQUIPMENT BEING PRODUCED your judg Mr. SNYDER. General, water and air transport dictate our supply schedules of personnel and matériel. Is this budget, in ment, in step with projected availability of means of getting men and materials overseas? General SOMERVELL. Yes, sir. Mr. SNYDER. Are you satisfied that we are not building up inordinate inventories way beyond the time they may be transported overseas or will need to be transported overseas? General SOMERVELL. Yes, sir; that is a very interesting subject, and I would like to say a little bit about it. Mr. SNYDER. I wish you would. General SOMERVELL. A couple of months ago rumors began to appear to the effect that the War Department's program for supply and equipment had gotten to the point where we were building up reserves to such an extent that it would be possible to divert a part of production to civilian needs. The item which was under consideration at that time, I think, was electrical equipment, and there have been pressure cookers and baby carriages, and other items which have been mentioned since that time. First of all, with regard to the Army's needs, in other words, the statement that we are building up to a point beyond the needs of the Army: At the present time the production is such that we have had to limit to a very serious degree the amount of equipment that we can put in the hands of the divisions which we have in training. In other words, we have never yet been able to give to the troops in training their full allowance of equipment. Mr. KERR. General, that is not because you cannot get transportation? General SOMERVELL. No, sir; all the troops that are in overseas operations have their full equipment, and some of them we have supplied their full equipment twice. Mr. KERR. Then you really have them equipped just as you want them? General SOMERVELL. Yes, sir. What I am talking about is the troops in training. The troops in training have only a part of their equipment. So far from having a surplus of equipment, there is not enough in sight, even if we do meet the programs which are laid out now, to provide the equipment that the Army needs. Secondly, if you will just think back to the last war, you will remember that the French Army reached its peak in 1916, and that the number of soldiers in the French Army declined after 1916. Nevertheless, the entire industry of France and of Great Britain was not only taxed to its capacity until the war was over, but it was necessary for them to come over here to get a part of their supplies. So we are in a position where we not only have not given our troops their so-called capital equipment, but even if we had given it to them, the demands for a fighting army are so great that we cannot by any possibility let the over-all production schedule fall below what it is now. For example, year before last we used approximately 47 percent of our total program for the initial equipment of our troops. This year it is about 29 percent, and next year it is going to be about 19 percent. But that does not mean that the total over-all output in our production program is reduced. It only means that there is a change in emphasis on the type of maintenance we are making. In other words, once we get enough cannon to supply all our troops, we must make more cannon for replacements, and the more cannon we have on the firing line the more ammunition we must manufacture. Mr. ENGEL. Do not the fortunes of war have something to do with it? For example, a year ago we heard a great deal about possible air raids in this country, and we started to make a large number of antiaircraft guns. Now we are shifting to other types of guns, because the danger of air raids has been reduced to a minimum. General SOMERVELL. That is correct, sir. And in the beginning you will remember we had a light type of antitank gun, which has been stepped up to a very heavy gun; and so on all the way down the line. Mr. ENGEL. The same is also true of the type of antiaircraft you are making-one that will reach higher up into the air? General SOMERVELL. That is correct, sir. gun Mr. KERR. In war, General, it is very hard to tell when you are overequipping or underequipping your army; you cannot measure exactly what you will do? General SOMERVELL. That is true. (Discussion off the record.) |