Sense In War Contracts

In Washington this week a big spotlight was thrown on one of the most important, least understood U.S. laws. The renegotiation law was passed by Congress last April to govern the process whereby the Army & Navy regularly negotiate their war-production contracts over & over again to prevent excessive war profits. In the spotlight was a lucid, compact 19-page report by the Senate's hard-working Tru man Investigating Committee. The report lambasted the four price boards (Army, Navy, Maritime Commission, Treasury) for "confusion [and] too much secrecy," and suggested improvements.

To U.S. businessmen this was good news, for the renegotiation law affects some 85,000 manufacturers, may mean the difference between profits and losses in wartime, between prosperity and bankruptcy after the war.

Policy and Attitude. The report plowed smack into renegotiation's weak est point, the same one war contractors have stewed over for ten months: inconsistency. The Committee added that Army administration (75% of all contracts) "has been unnecessarily cumbersome" be cause military men insisted on running a civilian show.

To back up these charges, the Committee trundled out stacks of figures, batches of examples. In all cases handled through Feb. 27, the Army had allowed net profits (before taxes) ranging from 0.4% to 22.1% of sales. After income and excess profits taxes averaging 70%, the low man would be almost broke while the high man would have about 6% net profit on sales. This big spread made little sense to the Committee, makes less sense to businessmen. The Navy Board was more consistent, allowed profits (before taxes) of 5.6% to 16.6% on net sales.

Fast and Slow. One bad result, according to the report, is that the Price Boards often slash the profits of a fast, cheap producer just as much as they cut earnings of a slow, inefficient manufacturer. Asked the Committee: "Who can contend that it is excessive, unfair or unpatriotic for [the good producer] to receive a substantially greater profit, both in percentage and in dollars, than [the poor]?"

Outstanding Committee recommendations: 1) immediate unification of renegotiation administration and policy; 2) boost the exemption limit from $100,000 annual sales to $500,000, thus slash the number of companies to be renegotiated from 85,000 to 20,000; 3) eliminate duplicate Government audits (i.e., price board and income tax); 4) tone down procedure so that refunds will not be forced in a manner to hamper production. Finally, the Price Boards should reverse their "consistent attitude" and make some allowance for postwar reserves. Said the Committee: "It does not aid . . . the peacetime manufacturer who has been put out of business . . . to put wartime manufacturers out of business too."

What Congress would do about these recommendations nobody knew this week. But that something should be done was obvious: of 9,539 renegotiation cases already assigned to the Army, Navy and Maritime Commission, only 193 were reported as closed. At that rate, renegotiation of 1942 contracts will be going on 50 years hence.

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