The CHAIRMAN. What interest do you allow? Gen. CROZIER. Six per cent. The CHAIRMAN. Then they start off with the guaranty that no matter what happens they earn 6 per cent on the money actually in vested in their plant? Gen. CROZIER. Yes, sir. The CHAIRMAN. What profit do you give them in addition? Gen. CROZIER. Ten per cent; so that they get 6.6 per cent on the money. The interest is figured on the cost of production, and ther get 10 per cent on the cost of production; they get 6 per cent and six-tenths of 1 per cent for profit. The CHAIRMAN. They get more than that; they get more than 6.6 per cent on the money actually invested. Gen. CROZIER. I think not, Mr. Chairman. Mr. SHERLEY. Do you furnish the capital for running the plant! Gen. CROZIER. We do not; but they get, as a part of the cost. in terest on the capital which is to be used as a part of the cost. The CHAIRMAN. Is that the same interest? Gen. CROZIER. Yes, sir. Mr. SHERLEY. Then they get a profit on that? Gen. CROZIER. Yes. Mr. SHERLEY. So what it comes down to practically is 6.6 per cent profit upon all capital, whether represented in cash or in the value of buildings? Gen. CROZIER. Yes; that is right. The CHAIRMAN. They get more than that, General. We figured that out at one time. Gen. CROZIER. They do not get 6.6 per cent and 10 per cent on that. The CHAIRMAN. But they get 10 per cent on the cost of the rifles with 6.6 per cent figured in the cost of the rifles. Gen. CROZIER. No; they get 10 per cent on the cost, with 6 per cent interest figured into the cost. The CHAIRMAN. That makes a great deal more than 6.6 per cent on the investment. They get a profit of 10 per cent on what it costs them to do the work and in that cost they have a guaranteed return of 6 per cent on every dollar they have invested, and no manufactur ing concern in the country can start on the assumption that no matter what happens they will get a 6 per cent return on money invested. Gen. CROZIER. Well, no; I think you are right. The CHAIRMAN. That is what you are doing, and that is why your assumption could never be justified. Here is a going concern, and no matter what happens it is bound to get a 6 per cent return on every dollar invested. Gen. CROZIER. As far as the money is concerned that is true, but that is far less than the prospective return which is expected by manufacturers in this country. No manufacturer in this country would dream of going into business with only an assured return of 6 per cent on the money invested. Mr. GILLETT. A great many expect to get 25 per cent and more. vicissitudes of commercial life, and no one can start off with the The CHAIRMAN. They expect that, but they must deal with the absolute assurance that they will get a return of 6 per cent. The Gen. CROZIER. You must appreciate this, Mr. Chairman: That, o a certain extent, this is especial work and they do not know how ong they will have any use for the special plant necessary to turn it out, and they claim that by giving up the use of the plant to the Government in this way they lose a market for sporting arms and hey lose foreign markets which they might otherwise have. The CHAIRMAN. But they have already lost those markets and, herefore, is not that consideration eliminated? Gen. CROZIER. Well, no; they have done the work, but at enormous loss. The CHAIRMAN. I know; and that must be eliminated. Gen. CROZIER. Yes; we do not have to take care of that. The CHAIRMAN. That happened before we got into this war? Gen. CROZIER. That is true, and it is no part of our business to compensate them for the errors which they made. Mr. SISSON. Let me get this in my mind: How many times do you suppose they will turn the capital over in the manufacture of rifles, say, in the current year? Gen. CROZIER. The delivery of the rifles, perhaps, may commence in four, five, or six months from the commencement of manufacture, and thereafter a rate of delivery is provided for which naturally differs in the different plants, because they are of different magnitude and they expect to finish up this contract in about 14 or 15 months from the time they start. Mr. SISSON. Do you make any cash payments during the 14 or 15 months? Gen. CROZIER. Yes; we make a cash payment every month. Mr. SISSON. About what would the gross payments by the Government be at the end of the contract? Gen. CROZIER, That is something about which there has been a great deal of guessing. It has cost the British Government $42 for every rifle they have gotten-at least $42, and perhaps a little more than $42-but we hope to do a great deal better than that. Mr. SISSON. That would be $42,000,000? Gen. CROZIER. Yes. Mr. SISSON. Then, 10 per cent of that would be $4,000,000? Mr. SHERLEY. But that is not what we are figuring to get. Gen. CROZIER. We are figuring to get 1,000,000. Mr. SISSON. But, as I say, 10 per cent of the $42,000,000 would be $4,000,000? Mr. SHERLEY. NO; 10 per cent is figured in the first instance. Mr. SISSON. Yes; it is figured in the first instance, but in round numbers it would be something like $4,000,000? Gen. CROZIER. Yes. Mr. SISSON. In round numbers it would be about $4,000,000? Mr. SISSON. We have $9,000,000 of our own money invested in the plant? Gen. CROZIER. Yes. Mr. SISSON. What would be their investment over and above the $9,000,000, about? Gen. CROZIER. I have not undertaken to ascertain that. That is to say, you mean what is the value of the plant? Mr. SISSON. Yes. We have $9,000,000 invested in the plant, which is worth, of course, a certain amount of money, and the point I am making is that $9,000,000 of the value of the plant-the plant used for the manufacture of the rifles-belongs to the Government? Gen. CROZIER. That is right. Mr. SISSON. Then what part would belong to the manufacturer? Gen. CROZIER. You mean what would be the value of these plants to the manufacturer? Mr. SISSON. Yes. Gen. CROZIER. I do not know; I have not made an ascertainment of that. However, I will say to you that in discussing the character of this kind of a contract there has been a great deal of argument, you might say, as to whether the percentage which should be allowed for profit should be a percentage on the cost of manufacture or a percentage on the capital invested, and for this particular contract, which is one of the first executed, the conclusion was reached that it would be better to have it provide for a percentage on the cost of manufacture. I know that a great deal could be said in favor of the other method—that is, fixing the profit in relation to the interest on the investment. Mr. SISSON. For argument's sake, suppose their plant is worth $10,000,000 and the Government's investment is $9,000,000. That would represent a $19,000,000 investment. Now, if they get $4,000,000 for the manufacture of the rifles they would make 40 per cent on the capital invested? Gen. CROZIER. Yes. Mr. SISSON. Then, in addition to that you would pay them 6 per cent on the $10,000,000, or $600,000? Gen. CROZIER. Of course, the 10 per cent is largely a payment for services. They contribute their organization. Mr. SISSON. For which they get salaries? Gen. CROZIER. Yes. The salaries which are estimated as being really contributed to this manufacture are covered; we pay proper salaries to everybody who works in connection with this manu facture. Mr. SISSON. If you pay 10 per cent on the cost of manufacture. you would be intensely interested in the salaries which the directors or the stockholders might fix for their officers? Gen. CROZIER. Yes. Mr. SISSON. And the wages paid? Gen. CROZIER. Yes; we have voice in that under the terms of the contracts. We know what they are and we have the right of nonallowance. Mr. SISSON. After that shall have been paid into the corporation, the corporation would be entitled to a reasonable return on the money actually invested in the plant, but would be entitled to no return on the machinery or the Government's investment? Gen. CROZIER. Yes; that is right. Mr. SISSON. In order to know what a reasonable return is, would it not be necessary to investigate how much they have invested in addition to the $9,000,000? Gen. CROZIER. Well, a strong argument could be made in favor of that; I realize that, but it is not the usual method in this country. When profits are figured upon articles made and sold the usual method is to figure them as a percentage of the cost of manufacturing. The CHAIRMAN. Is 10 per cent the usual cost? Gen. CROZIER. I think 10 per cent is very considerably less than the usual cost and the usual allowance; that 10 per cent is less than is usually agreed upon among manufacturing people as to what is a proper profit on the cost of manufacture. I think that they generally consider that it should be far greater than 10 per cent; I will not say far greater, but considerably greater than 10 per cent. CAPACITY OF PLANTS. The CHAIRMAN. What is the capacity of these plants-their daily capacity? Gen. CROZIER. Well, they think that when they are going at full tilt they will have a capacity of 10,000 a day in all three of them, but our rate does not call for that capacity at the beginning. We have a schedule of deliveries, but I do not think I have it here. It calls for completion of the contract in about 14 or 15 months. The CHAIRMAN. We are raising an army of 1,000,000 men? The CHAIRMAN. And they are supposed to be equipped and ready before the end of this fiscal year? Gen. CROZIER. Yes. The CHAIRMAN. We have 600,000 rifles? Gen, CROZIER. Yes. The CHAIRMAN. Of course, they are not all available for all of that Army? Gen. CROZIER. Yes; 600,000 rifles are ready, and there will be more, too. I think there will be a couple hundred thousand more which we will manufacture in the meantime at the Government armories. The CHAIRMAN. What is your allowance per man? Gen. CROZIER. Of rifles? The CHAIRMAN. Yes. Gen. CROZIER. Well, I think that considerably less than threequarters of the million men will carry rifles. In our estimates heretofore we have been making an estimate of wastage of rifles at 15 per cent, which we thought we might realize in six months, and then that would give us time to see how it was going, and we could ascertain what modifications of that estimate would be necessary. The CHAIRMAN. Statements have repeatedly been made that they average three rifles per man abroad. Gen. CROZIER. I know that those statements have been made, and I know made with a great deal of authority, too; but they were based upon the experience of the early months of the war, when the circumstances were such as to produce great wastage, particularly on the part of the English and the French allies and on the part of the Russians also. These armies were fighting in retreat. Every man who got a sore foot was lost with his rifle to the enemy; a great many were thrown away under those circumstances, and the wastage was enormous, and the assumption was made-you might say, jumped at that that was the normal wastage and would continue. Now, under the conditions to which the war has settled down, particularly on the western front, the wastage is not nearly so great, and I am glad to be able to say that I do not believe it is one-quarter what it has been estimated to be. Instead of being, as that statement would make it, 200 per cent, I do not believe it is 25 per cent. The CHAIRMAN. An army of 1,000,000 men, according to your estimate, with an allowance for wastage, would not require probably more than 1,000,000 rifles? Gen. CROZIER. I do not think it would require as many as that. You mean 1,000,000 rifles altogether, including wastage? The CHAIRMAN. Yes. Gen. CROZIER. I think that would be enough for the arming of 1,000,000 men for at least a term of six months, and perhaps a year. Mr. GILLETT. That wastage would not begin until our troops get over there? Gen. CROZIER. Yes; that is, the wastage of campaigning. Gen. CROZIER. That is right. ENLARGEMENT OF THE GOVERNMENT PLANTS. The CHAIRMAN. In view of the necessity for this additional output has any plan been proposed for the enlargement of the gov ernmental capacity at the two plants? Gen. CROZIER. No, Mr. Chairman, I have not submitted any estimates for that, except as an enlarged output will come from increased efficiency. We will replace some of the machines that need it, and at the Springfield Armory we are improving the water plant, which will contribute to the efficiency of the establishment: but as to planning for an enlargement of the armories, we are not providing for any. The CHAIRMAN. Is it feasible? Gen. CROZIER. Yes; but we would not realize on it within, probably, something more than a year. The CHAIRMAN. I mean, could the present capacity be enlarged within a reasonable time to increase materially our output there? Gen. CROZIER. Well, that would depend on what you would call a reasonable time, and I think that now we could do this: We could proceed with the enlargement of our plants, and perhaps could carry it on at such a rate that at the conclusion of the contract for 1,000,000 rifles with these private manufacturers we might not need their capacity any more; that might be possible. The CHAIRMAN. Then we would be getting a better arm, would we not? Gen. CROZIER. Yes; we think the Springfield rifle is a better rifle than the Enfield rifle. However, we can do this, or we can consider it at least-and we shall consider it as soon as we get some energy and talent which is free to be devoted to it-we will see if we can not pass over to the manufacturing of the Springfield rifle instead of the Enfield rifle in some of these plants. Before you get away from that point, I would like to say The CHAIRMAN (interposing). I asked that in anticipation of what might come later. |
