The CHAIRMAN. You then applied to Congress before it was decided, and after it was decided upon and Congress did not pass the bill, you went ahead and did it, anyway?

Mr. BARROWS. No, sir; this was before that. This was under a specification in the contract and this was the only contract which contained such a specification, and it was done under a decision of the Comptroller of the Treasury.

The CHAIRMAN. Have you got his opinion?

Mr. BARROWs. Not with us.

The CHAIRMAN. Send a copy of it up here, please.
Mr. BARROWS. All right, sir.

Hon. JOHN J. FITZGERALD,

THIRD ASSISTANT POSTMASTER GENERAL,

POST OFFICE DEPARTMENT,

Washington, July 18, 1917.

Chairman Committee on Appropriations,

House of Representatives.

MY DEAR MR. FITZGERALD: In response to your request at the hearing yesterday. I give below a copy of the decision of the Comptroller of the Treasury, dated December 22, 1916, relating to stamped envelopes:

"I have your letter of the 14th instant requesting my decision of question therein stated, as follows:

"Complaint having arisen as to the present cut and quality of stamped envelopes supplied by this department to post offices for sale to the public, it is deemed advisable to introduce certain modifications of the designs and also to supply envelopes manufactured of a better quality of paper. The growing commercial use of what are known as window envelopes and the insistent public demand for a stamped envelope of similar construction have also made it appear desirable to issue a stamped window envelope.

"The present contract for the manufacture of stamped envelopes covers & period of four years, terminating June 30, 1919. The contract is with the Middle West Supply Co., 120 Broadway, New York, N. Y., and Dayton, Ohio. Under the terms of this contract a possible modification of the quality or design of envelopes is provided for under the following clause of the specifications: 13. The right is reserved by the Postmaster General to require at any time during the contract term, in lieu of or in addition to the stamped envelopes and newspaper wrappers described in these specifications, envelopes or wrappers of other sizes, styles, cuts, qualities, or colors, upon condition that he shall pay to the contractor prices greater or less than those stated in the contract, the difference in price to be proportionate in each instance to the increase or decrease in the cost of manufacture, as determined by mutual agreement."

The above is based upon the following provision of the Statutes (R. S. 3917): The Postmaster General may, from time to time, adopt such improvements in postage stamps and stamped envelopes as he may deem advisable; and when any such improvement is adopted it shall be subject to all the provisions herein respecting postage stamps or stamped envelopes."

"The changes contemplated cover an additional extra-quality envelope cut less deep in the back, a grade of envelope between that covered by the contract and the extra-quality envelope just mentioned, and a window-stamped envelope, in addition to the grades now covered by the contract, which latter may also be modified in size, depth of cut in the back, and quality.

An opinion is desired as to whether, under the contract with the Middle West Supply Co., which is herewith inclosed, the Postmaster General has authority to call for stamped envelopes as above described "in lieu of or in addition to the stamped envelopes described in the original specifications; and if so, what would be the rule by which the parties to the contract would be governed with respect to the variation in the price of the envelopes to be ordered from the prices named in the contract.'

"By contract of March 11, 1915, the Middle West Supply Co. undertook to furnish the Post Office Department with such quantities of stamped envelopes

and newspaper wrappers of specified sizes, quality, color, etc., as might be ordered during the four years beginning July 1, 1915, and ending June 30, 1919, all such envelopes and newspaper wrappers to be in accordance with requirements set forth in detail in attached specifications and at prices not now in question.

"Referring to clause 13 of the specifications, quoted in your letter, I do not think there can be any doubt of the authority of the Postmaster General to require the contractor to furnish any kind or style of envelope and wrapper that the Postmaster General may deem to the best interests of the Government to require. The only question is whether in paying for envelopes and wrappers of different kinds the price to be paid is to be the price fixed by the contract plus or minus any difference in cost of manufacture between the original contract article and the article thus ordered.

"It may have been the intent of the parties that only the reasonable difference in cost of manufacture between the original contract article and any modification thereof that might be ordered would be paid for the substituted article, but the language used does not justify the conclusion that the parties have carried such an intent into the contract. The words used are susceptible of another and more reasonable construction.

"In my opinion, you will be justified in ordering stamped envelopes different from those specifically provided for in the contract, conditioned upon an agreement as to the price to be paid. Such price will be greater than the contract price for the contract envelopes, not only because of the better grade of paper and more expensive form being required by you, but also on account of the present cost of the better grade of paper. The increase in the cost of manufacture, to which the increase in price is to be proportioned, has reference to the cost of manufacture at this time as compared to a smaller cost at the time the contract began, and the percentage of profit to be allowed on any new grade and form of envelope should not exceed the percentage of profit, if any, accruing at the time the contract began.

"It is understood, of course, that the exercise of the discretion of the Postmaster General is conclusive upon the question of whether or not new grades and forms of envelopes shall be ordered.

"You are advised that in my opinion the Postmaster General has authority to call for stamped envelopes as described in lieu of or in addition to the stamped envelopes described in the original specifications, under the rule as to variation in price pursuant to the paragraph providing therefor, as hereinbefore stated."

Respectfully,

A. M. DOCKERY, Third Assistant Postmaster General.

The CHAIRMAN. What is the use of making these four-year contracts if you do not live up to them?

Mr. FITCH. We do, Mr. Chairman, as a rule.

The CHAIRMAN. You do as a rule, but there never has been a case before where anybody had a chance but make a big profit. As soon as there was a chance for the Government not to be the loser

Mr. FITCH (interposing). The Government did not lose because the selling price was increased proportionately.

The CHAIRMAN. Then the public got mulcted.

Mr. FITCH. No; by reason of the large quantity manufactured we could sell the envelopes at much cheaper rates than the unstamped envelopes could be sold, so everybody, really, was the gainer in this case, if such a thing can be.

The CHAIRMAN. You do not mean to tell me that you can buy stamped envelopes cheaper than you can buy unstamped envelopes? Mr. FITCH. Leaving out the value of the stamp, that is true.

The CHAIRMAN. But I may prefer to have envelopes on which to put adhesive stamps.

Mr. FITCH. Then you would have to pay more for the envelopes than for the stamped envelopes.

Mr. BARROWS. The price of the No. 8, which is the legal-sized envelope, is $2.26 per thousand.

Mr. FITCH. And if you go on the market you pay $3 or $3.50 a thousand for the same envelope right along.

LIMITED INDEMNITY ON LOST PIECES OF MAIL.

The CHAIRMAN. "For payment of limited indemnity for injury or loss of pieces of domestic registered matter, insured, and collect-ondelivery mail, $120,000."

Mr. BARROWS. As has been explained a number of times, this is largely guesswork, and since these estimates were submitted we have found our estimate is very much under what we expected. The increase has been phenomenal.

The CHAIRMAN. The increase in your losses?

Mr. BARROWS. The increase in business with a proportionate increase in the losses.

Gov. Dockery asked me to apologize for his nonappearance, which is caused by reason of the fact that he is sick in bed, and he wished me to assure you that he would be here if he could. He asked that the amount which was saved on the stamped paper estimates be added to this.

The CHAIRMAN. We can not do that. You tell the governor that we have not changed our rules since he was on this committee.

Mr. BARROWS. Then he asks that this estimate be increased $50,000. The CHAIRMAN. We can not do that unless he transmits an estimate through the Secretary of the Treasury.

Mr. BARROWS The unfortunate part about that is, Mr. Chairman, that when we are short of money like we are now the public suffers. We have been out of money since some time in May.

The CHAIRMAN. Before this bill becomes a law there will be ample. time to submit an estimate through the regular channels.

Mr. BARROWS. Very well, then, we will get that estimate over here. The CHAIRMAN. What is the value of the approved claims against this appropriation?

Mr. BARROWS. Fifty-five dollars of indemnity claims have been passed and are ready for audit since the appropriation was exhausted. Our estimate was $238,000, and it was cut to $200,000.

The CHAIRMAN. You are still asking for

Mr. BARROWS. For very much in excess of that, because the business has increased over 50 per cent. The indications from the returns which are in for the past fiscal year show that the insured business has increased more than 50 per cent over that of the previous year. The CHAIRMAN. What I do not understand is that you say you have already passed claims amounting to fifty-odd thousand dollars. Mr. BARROWS. Yes, sir.

The CHAIRMAN. That will leave you about $170,000, and you are asking for $50,000 more. Why do you anticipate the need for that additional money?

Mr. BARROWS. On account of the increase. The claims can be filed any time within six months after the expiration of the fiscal year, and the cases are still continuing to pour in at a very heavy rate.

The CHAIRMAN. Is the payment of these indemnity claims still profitable?

Mr. BARROWS. Yes, sir; last year we made a profit of one million two hundred and some odd thousand dollars, and we estimate the profit this year to be more than $2,000,000.

Mr. GILLETT. Profit on what?

Mr. BARROws. On insured matter.

Mr. GILLETT. On this one class?

Mr. BARROWS. On this one feature of insured mail. It was so large that during the fall and winter the Postmaster General was working upon a plan to decrease the rates; but the sudden demand for revenue became so apparent that that matter has, of course, been dropped for the time being.

The CHAIRMAN. I saw a statement that in Great Britain the introduction of a lot of new people in the Postal Service on account of the regular employees going to the war had resulted in tremendous losses of postal matter.

Mr. BARROWS. That is not apparent in our work, Mr. Chairman. The CHAIRMAN. You have not had many employees taken out yet? Mr. BARROWS. We have lost a great many people from the department, and we are very short and are running overtime and everything of that sort, but, of course, it has not been felt yet. The loss of insured mail has only run about 1 in 1,000 pieces.

Mr. GILLETT. Is this all first-class mail?

Mr. BARROWS. No, sir; fourth-class only, parcel-post mail. Included in here also is the indemnity for registered mail, but that is comparatively small.

Mr. GILLETT. Then this is nearly all parcel post?

Mr. BARROWS. Yes, sir. The allotment for first-class registered mail was $38,000, or about one-fifth of the appropriation.

TUESDAY, JULY 17, 1917.

STATEMENT OF MR. A. B. FOSTER, SUPERINTENDENT DIVISION OF EQUIPMENT AND SUPPLIES.

EXPENSES OF SHIPMENT OF SUPPLIES, ETC.

The CHAIRMAN. "For defraying expenses incident to the shipment of supplies, including hardware, boxing, packing, cartage, freight, and the pay of one carpenter at $1,200 per annum and nine requisition fillers at $840 each per annum, for assignment in connection therewith, $8,000."

How do you happen to get a deficit in this kind of an appropriation?

Mr. FOSTER. That is principally due to the increased quantity of supplies that we shipped, and an increase due to the fact that we had to ship about 600 canceling machines; that is, 1.200 canceling machines altogether. You see we put into the service July 1, about 600 Government-owned machines to replace rented machines, and we paid the express from the factory to the post offices, and then the freight on the old machines back to the company.

The CHAIRMAN. Was that contemplated when you made up your estimate?

Mr. FOSTER. We had not contemplated bringing back the old machines until after July 1.

The CHAIRMAN. Why did you do it before that time?

Mr. FOSTER. Because some time in May we were given notice that there would be a 15 per cent increase in the freight rate and to take advantage of the present freight rate we got them all ready before the first of the year.

The CHAIRMAN. Does that account for this deficit?

Mr. FOSTER. That is one item. It was not all used for that purpose.

The CHAIRMAN. How much was that?

Mr. FOSTER. That was something like $1,000.
The CHAIRMAN. What is the other part?

Mr. FOSTER. In our contracts for supplies, especially paper and facing slips, the contractors desired to make shipment during June for next year. They would not give us a contract any other way, and we had to have these supplies shipped some time in June, so that their warehouses would be cleaned up before the 1st of July. That applied also to about 317,000 pounds of paper. That one item cost us about $1,000 in round numbers. We shipped 23 carloads of twine to our depositories throughout the country. We got that started before the 1st of July to get this advantage in freight rates. It was necessary to keep our depositories stocked up with twine. That amounted to about $2,000. Then there is an item that we set aside for the auditor for the payment of drayage on all kinds of supplies. The drayage receipts go to the auditor and he adjusts with postmasters direct, and we allotted to him about $3,000 for the last quarter. for the purpose of paying for this drayage on various things. That does not include freight, but is for drayage from the station to the post office. In addition to that we had shipped about seven carloads of blank facing slips, which is another item from paper contractors. That went to the depositories, and some of it here to Division of Equipment and Supplies.

the

The CHAIRMAN. They go out every year, do they not?

Mr. FOSTER. Well, not such a large quantity of them.

The CHAIRMAN. Why should there be so many at this time? Mr. FOSTER. Well, our principal reasons, in connection with those things, were that the present contract under which we are working requires us to place our tentative orders in June. We could not draw the official order until July because the appropriation was not available, but we told the contractors that we would place the orders on July 1 for such items and they could ship them when they were ready. We let them ship them on Government bills of lading, being f. o. b. In that way our appropriation was depleted.