Out from Under

At the end of World War I, U.S. indus try had on its hands $3,600,000,000 in un delivered war contracts. When World War II ends, U.S. industry may be buried under $75,000,000,000 worth. How this Atlantean burden may hamstring recon version to peacetime production, by tying up capital, is a nightmare to many a U.S. businessman.

Last week the War Department took the first comprehensive step to help indus try to get out from under its terrifying load when the time comes. It established an overall policy to cover termination of all Army contracts. It also set up simple, workable regulations to implement it. The policy will not have to wait until war's end to be tested. It is being tested now; already contract cancellations and production cutbacks caused by the changing needs of war, or oversupply, total billions.

Basic policy points are:

>Profits: When contracts are canceled reasonable profits are allowed, based upon the amount of work done. Thus, a contractor entitled to $200,000 profits on an order would be entitled to about $100,000 if the contract were canceled when half completed. But the profit in all cases depends finally upon the "sound judgment" of the contracting officer.

>Subcontractors : Responsibility of payment to subcontractors rests with prime contractors, who are urged to effect "prompt, fair and reasonable" settlements.

>Stoppage: The contractor is required to stop production as soon as he is notified of cancellation. At his discretion, he can complete half-finished articles to make them salable, rather than force them to be junked.

Red Tape. To handle contract terminations, the Army now has dapper, red-tape-hating Brigadier General Albert Jesse Browning. AI Browning left his $40,000-a-year job as president of Chicago's United Wallpaper, Factories, in 1941, to earn $1 a year with OPM. Later he joined SPAB, did plenty of the spade work converting U.S. industry to war. Before he went to Washington, he had converted a good chunk of his own plant.

Outspoken Browning quit SPAB because he could not stand the red tape. He helped Donald Nelson set up WPB, moved over to the Army in 1942. Commissioned a colonel, he joyfully went to hacking red tape in Army procurement. His first job: boiling down procurement regulations from 1,500 pages to 100. He also set up a system of periodic pricing of war contracts to give industrialists an added incentive to cut costs and boost production (TIME, March 1).

Simple Segments. Al Browning's favorite rule is that "any problem can be solved if broken down into simple segments." There is plenty of simple-segment thinking in his contract termination policy. Instead of setting up inflexible rules, the policy leaves a lot to the common sense of the two men who know most about the contract and must settle it, i.e., the contracting officer and the manufacturer. One of General Browning's great problems: getting contracting officers with common sense and responsibility.

The final test of his work, at war's end, will depend on them. But it will also depend vitally on the speed with which the War Department can shovel out money after contracts are canceled. If the money pours out fast enough, U.S. industry will have enough capital to get into civilian production in jigtime.

But if it moves sluggishly, many a plant may be out of production for months. Best guarantee that the money will come out fast is the way General Browning's cancellation mill is already working. A sizable percentage of manufacturers are being paid off less than 30 days after cancellation.

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