Great Game of War Contract

When the 1942 Revenue Act finally ground to passage, it contained under Title VIII, Section 801, this sentence: "The term 'excessive profits' means any amount of a contract or subcontract price which is found as a result of renegotiation to represent excessive profits."

Thus in a masterpiece of ambiguity did Congress recognize one all-important fact: what U.S. business can make on its war contracts (now some 3,000,000 in number) is coming to depend more & more on the decisions of Government price adjustment boards.

The Army, the Navy, the Maritime Commission and the Treasury now all have such boards. Their power is immense. And the game that must be played with them is complicated and important.

Opening Moves. The game starts in Washington. The top agencies divide the contractors. The winning board then pores over its contracts, warns companies their contracts are up for renegotiation. The companies' first move: bookkeepers tally up the latest figures, cost accountants wrangle with shop foremen over factory expenses, company bigwigs sweat over hard-to-pin-down items like depreciation, obsolescence, reserves for post-war conversion. Sometimes gimlet-eyed price-board agents hang around to try to make sure no penny is mislaid. This statistical roundup takes days, perhaps months, sometimes actually interferes with war production.

Play of the Cards. With chin up, bulging brief case and a staff of lawyers and experts, the manufacturer then traipses to a regional price-board office, starts trying to take the tricks which may decide whether he makes or loses money for the duration. The board scans the books and the company's records, checks & double-checks for the six major factors: 1) production quality, 2) delivery rate, 3) inventive contribution, 4) cooperation with other manufacturers, 5) economy in the use of raw materials, 6) efficiency.

After the cards on the table have been examined, the board starts with a proposal to slash profits 25%, 50%, or maybe more. The manufacturer counter-proposes. If all the high cards belong to one side, the game is over fast. Usually the businessman asks for a hearing before the top Washington board. Since Washington is the last chance, most contractors go armed with an arsenal of facts, ready for a last-ditch fight. They usually get it. One small steel company spent two twelve-hour days arguing with the top board, got only an invitation for a return visit.

Sample Games. When it is all over, dollars-&-cents results are as jealously guarded as prize patents. But six medium-sized companies wound up with an average net of 12% on sales before taxes. After 40 to 80% income taxes their profits run from 4 to 7%.

The Odds. The game is immensely profitable to the Government. Through the end of June (latest available figures), the Army had saved $556,998,000, the Navy $348,786,000, the Maritime Commission $28,500,000--mostly voluntary kickbacks in anticipation of renegotiation. Before Christmas these three boards expect to save another $1,065,000,000. Even that is just a starter. The Automotive Council for War Production, whose members hold about one-sixth of all U.S. war contracts, estimates that Detroit manufacturers will save so much through mass production that they will voluntarily return to the Government no less than $3,000,000,000.

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