Secretary REDFIELD. The inference which I gather you are seeking to develop is apparently unfavorable, and which, I think, a candid view does not justify.

Mr. SHERLEY. It is the business of this committee to develop the unfavorable side if it can, in order that it may be known.

Secretary REDFIELD. Surely.

Mr. SHERLEY. We never have the unfavorable side volunteered by men who desire to obtain appropriations.

Secretary REDFIELD. I am ready to leave it entirely to your judg

ment.

Mr. SHERLEY. I want to secure from you the information which you desire to submit.

Mr. CANNON. There has been an aviation contract let in Champlain. Land was secured with growing crops which were cleared off and there were a whole lot of things to be done in order to have the work completed by the 1st of September. They went to work and in that locality and surrounding counties the cost of carpenters ran up, because they could get employment there at $5, $6, and $7 a day. As I understand, they took teams out of the growing-crop season. I am not criticizing it at all, but that was stress work.

Out at Fort Benjamin Harrison, it is alleged-I do not know whether it is true or not-water boys are getting $3.50 and $4 a day. When that man comes to get his money does this organization in any way deal with the auditing of his accounts?

Secretary REDFIELD. No, sir. The contract is made in such a way that that can not be done. We go deeper than that, and that is the difference. That is the whole difference in the point of view of the chairman.

Mr. SHERLEY. I have not expressed any point of view; I have merely asked questions in order to get information.

Secretary REDFIELD. I understand. This is not an auditing body; we have no use for auditors at all. This is a method of determining whether the cost is kept upon proper principles; whether the elements of cost that are alleged to exist do exist or exist in the same measure in which they are alleged to exist. Now, for example, Mr. Cannon, let me illustrate by a factory with which I am familiar. Suppose I take a contract on the cost-plus-percentage basis and I include in my expense 20 per cent for depreciation. That may be true of certain machinery which goes to pieces very rapidly, but it would be wholly untrue of other machinery which may last for a great many years.

No department can deal with a question like that. We would deal with the accuracy of the methods used; we would go in and determine fundamentally whether that was the right method on which to base the item of depreciation; whether the Government ought to be charged that as a part of the cost or not, and whether it should be 20, 10, or 5 per cent. That same cost runs through all kinds of accounting. Let us come down to this question of milk. There seems no reason to doubt that a contract would have been made at the higher price without our interference, because there existed no means of knowing anything else. The milk manufacturers were sincere enough; I think there is no question about that. They were trying to put nothing over, but the Government was helpless in their hands for it had no means of finding out whether the cost methods, not the

cost figures, by which the milkmen got at their price were sound. The Government would have had to make that contract at the higher price had it not had that knowledge, and, therefore, the saving is an absolute and immediate saving, just as I save money when, instead of paying $12 for something, I learn about it and pay $10: then I have saved $2. You are not warranted in assuming it is a supposititious saving, because it is a real one.

Take the case of a shipyard building a large vessel, where we went into one yard and saved a clear $100,000 by making recommendations to the Navy, not based upon the accounting of the books; we do not go through and check up their books; that is not our business; our business was to show whether the prices upon which the Government was being charged cost were right prices or wrong ones; if wrong, then the Government should not pay a percentage on that cost at all.

If there is anybody else who can do this work in private lines, then let them do it. But we have never heard of any; there is none offering this service to the Government. But these people have taken up the work and made a great success of it and as a matter of money and of finance they are saving during every three months to the Government at least the total estimated cost per annum, and I can only refer you to-I do not think it is necessary to take the time of the committee longer-to the viewpoint of the Secretaries of War and Navy, and especially to the viewpoint of the compensation board and to the contract made. In this you will find a report upon the depreciable property, reserve-fund charges, etc., of the following companies, and then follows a list of the shipbuilding companies of the country.

Now, it is not the business of Price, Waterhouse & Co. or J. Lee Nicholson Co. to go into an establishment like mine, or those I have been referring to, and tell me whether my methods of charging up depreciation are wrong or not. That is not their duty, as the Government has an accountancy committee whose duty it is, and it can not be the duty of a private concern to say to a shipbuilding company "Your methods of determining your depreciable property are wrong or your figures are wrong," but they say "Your whole principle is wrong, and you must deal with the Government on another principle."

Now, it is nothing to us, gentlemen, whether you give us this money or not. We do not care to contest for it for a moment, only we have saved the Government, perhaps a half million dollars in eight weeks by doing it. If it is not worth it, and if there is any other agency to do it, let them do it.

Mr. BYRNS. Is it expected that this division will be exclusively employed in making investigations with reference to Government contracts?

Secretary REDFIELD. For the present we think that is all that it is possible for it to do. If we should go into any larger work it would have to be very greatly extended beyond what we think is proper. Mr. BYRNS. The estimate submitted provides "For arranging and standardizing governmental and industrial cost-accounting methods." Secretary REDFIELD. Here you will find a very fine piece of work, and work of this kind inevitably reacts upon everybody. Here is a very fine piece of work, and I call your attention to the fact that it is

the first and only thing of its kind. Never in the history of the Government has it ever been done, and it answers at once every question as to the value of the work. There it is in print and approved by these great departments that have worked together upon it. In it there appears a standard form. In the first place, for the first time here is a definition of depreciation and here is a standard form for cost and contract. There never has been such a thing as that prepared. The departments have been entirely independent one of another. I think I am right in that respect. Here for the first time the Government is given a standard form, which is a form accepted by industry as well as by the Government. That has never been done before. It has never been possible for a contracting officer of the Government to lay his hand upon a standard form of contract, but this is the standard form, uniform throughout, and acceptable to the Government and acceptable to industry, too. In the first place, here is a standard form for purchasing contracts. There are three of them here and they are entirely new. They have been done after careful cooperation between all of these buying departments and the industries. At least, gentlemen, this is true: They may be deceived; the War Department, the Navy Department, the Commerce Department, the Trade Commission, and the Council of National Defensethey may all be deceived, but they all think and they say in writing that this is new; that it never has existed before; that no private organization has ever suggested doing it before, and for the first time in the history of the Government I present to you forms of contracts, agreed upon officially between the Government and industry, to which there is no exception on anybody's part, and which for the first time are thoroughly protective of the Government.

Now, this is my last word and this refers a little bit to patriotism. The Government has been accused-and has been accused here in Congress of buying carelessly, of buying heedlessly, of buying ignorantly, and there are those who have pointed the finger of scorn at it in the past, and past administrations have been accused of carelessness in those respects. Now, for the first time we have provided a check against it and here it is; it is right or it is wrong, but we submit it for what it is worth. Take the contracts and put them before an accountant or any private scientific critic; if they are wrong, they ought to fall, but if they are right they ought to stand. Yet this work has never been attempted in the history of the Government before.

Our purpose in doing this work is not to create a division. In heaven's name, gentlemen, Mr. Nicholson is earning five times as much at home as he is getting here, and Mr. Cutler is doing the same thing. They can not afford to fool with these things for the purpose of getting a division created. Take it out of the Commerce Department and put it in the hands of a committee of Congress or put it wherever you will, because everything that suggests suspicion is unworthy of you and of me., We are trying to save our country money in a practical and scientific way. Now, let it end with that. Mr. SHERLEY. Mr. Nicholson, you conducted this milk examination?

Mr. NICHOLSON. Yes.

Mr. SHERLEY. You could have conducted it, of course, as a member of a firm of accountants if you had been employed by the Government for that purpose?

Mr. NICHOLSON. Oh, yes; if the Government had employed my firm, I could have handled it in the same manner; I could have handled it for the Government, but the only difference would have been the fee charged.

Mr. CUTLER. There would have been the question of fee and also the cooperation of the business interests.

Mr. NICHOLSON. I would like to state in connection with the matter that the accountancy committee of the Munitions Board tender their services to the Government free. While no doubt they are able to be of very great service to the Government in a great many questions in giving them advice on certain matters in connection with cost matters, and especially in relation to the cost of work that I am doing, yet it is absolutely impossible to give advice without having the data first, and in order to get that data a certain amount of field work is necessary, and, of course, that work is placed on the accountancy committee, unless they were to recommend the employment of a great number of public accountants.

Mr. SHERLEY. I thoroughly appreciate the question of the medium through which that should be done. Now, if I understand the statement the Secretary has made, you have arrived at uniform contracts which you think should be used by the Government in entering into contractual relationship with corporations and individuals touching the supplies to be furnished and the work to be done for the Government.

Mr. CUTLER. Yes; I think so, if I understand your question. Mr. SHERLEY. Have you covered the field in these uniform contracts?

Mr. CUTLER. The entire field of industry?

Mr. SHERLEY. Well, the form of contract that should be used. Mr. CUTLER. We think we have, subject to some modifications that may appear advisable as experience leads to them. We are new at it and so is the Government.

Mr. SHERLEY. This was a meeting of various officials from various departments?

Mr. CUTLER. Oh, not one meeting; this was going on for six weeks. Mr. SHERLEY. A meeting of the various men from the different departments with you gentlemen, covering, as you say, something like six weeks of time?

Mr. CUTLER. Yes, sir.

Mr. SHERLEY. And as a result of that you have arrived at these uniform contracts.

Mr. CUTLER. Quite right.

Mr. SHERLEY. That work being behind you, what particular activi ties would you now pursue?

Mr. CUTLER. We would find out whether all of the contractors with the Government pursue the definitions and the directions given in that pamphlet.

Mr. SHERLEY. That would really be a matter of auditing, if I under stand it right. If you have laid down the form of contract and have defined what shall constitute depreciation and what elements shall go into overhead and what into various other items of cost, then the

question of whether a given manufacturer has or has not made his figures on that basis becomes a matter of auditing his accounts, squared to the standard which you have previously laid down.

Mr. CUTLER. Quite right. Nevertheless there is a variable quantity there. We say that depreciation, for instance, should cover only the quantity used in the articles being bought by the Government. Frequently a manufacturer will say, "What percentage should that be?" In other words, they want a continual and daily interpretation of some of the items; they come to Washington to confer with us on the matter and we sometimes go to their plants and tell them we can not say that depreciation shall be 20 per cent, for instance, but that it should be proportionate. When we go through their plants we tell them exactly what we think it should be, with the compliance, of course, of the contracting officers.

Mr. SHERLEY. I believe the Secretary stated that there had been an acquiescence by the public-that is, corporations and individuals in the statements and standards that have been established. Mr. CUTLER. Are you asking that as a question?

Mr. SHERLEY. I just wanted to have that developed.

Mr. CUTLER. There has been an acquiescence to the point that they have agreed on the basic definitions. There are some cases where they disagree, but we think the Government should have the first say in the matter and should be the arbiters of it.

Mr. SHERLEY. You say "they." With whom has the matter been taken up?

Mr. CUTLER. We had a conference many weeks ago several weeks ago with the comptrollers of some of the principal industries in the United States, representing the production of automobiles, ships, cash registers, foods, electrical equipment, and everything that is at present going into governmental contracts. We presented this manual to them. On some points they disagreed, but as to a great majority of points they said we were right as guadians of the Government's

money.

Mr. SHERLEY. Have you undertaken to supervise the contracts made by the Government, or the form of them?

Mr. CUTLER. Not those that already are let; our business is only previous to the letting of contracts.

Mr. SHERLEY. But when the Government actually enters into a contract to build a ship, to build a camp, to build a warehouse, or anything else, have you undertaken to advise the Government and to check up the form of the contract?

Mr. CUTLER. No, sir; we have assumed that all contracts so far let were let, whether imperfectly or not, in response to a very grave emergency, and that they were not revocable, but that work from now on, in accordance with our suggestions, would be more perfect and more economical.

Mr. SHERLEY. In determining the form of this contract was the legal phase of it considered?

Mr. CUTLER. Quite.

Mr. SHERLEY. You had lawyers advise with you about that? Mr. CUTLER. There are no intricate legal points involved except those that come up customarily, and those can be dealt with by the accountancy committee of the Council of National Defense, whose names you will see on the title page.