This Page Declassified IAW EO12958 sta . tons het JUNCLASSIPiEE = Ge Gites . US. MR FORCE HISTORICAL STUDY Wo. 68 PURCHASING POLICIES, CONTROLS AND PROCEDURES For AAF MATERIEL SCANNED BY ISA PREPARED BY THE USAF HISTORICAL DIVISION, AUR UNIVERSITY 1952 UNCLASSIFIED THIS PAGE Declassified IAW EO012958 '_egs2evo | NWOT ICN og , aThis Page Declassified IAW EO12958 au 2 ae = yt Be PURCHASING POLICIES, CONTROLS, AND PROCEDURES FOR AAF MATERIEL ‘toe origins of this monograph and tha documenta from which it was written are in the USAF Historical Division, Archives Branch, Bldg. 91}, Maxwell Air Force Basey aston. (. eS ve USAF Historical Division Bo Air University 3 1952 2 2 G4 THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 fse8 PESTRICLED e SECURYEY-“INFORMATION cortnaeg Ul CLASSIET Ey Pore TTAB LAG TAY FOR THA ee u Orserigntion . teens 2 Reemiting ord inedr. rare un Arnronrictions yaa. teens B Tynes of Cortrocts” > | see. Flureipe oe el! sete BR Hethed of acaré 22D) pee eee BB Béuerticrs) Orécrs” ) beeen eee RL Gonrvisory Orcers . 2 serene 3B TT GUMCE ROWINI® ee eee eee OF Eveluction Frecedures . . . = 36 Plare for Precarenent . 5 : - 39 Use of Sarl] Plants , oe . 2B Subecutrectine sy. ot 2 Costs ve ee tees oe . ae Procedure in Piscine Contracts :s 5h Locel Farciece see eee eee eee 5k Furchvne Fron Other 4msené services 11! + 5h Furcheve #8 oe ee ee ee eee ee TIT ADL ATSsheisG IHR COWAOE e e ee eee eee 2 snditing ova. Shenres in Contreets Toerection we ee IIIT IIL é WW GOS AH SHOT COUNTS oe eee ee eee eee OD Pricing oe ee eee eee ee eee ee eee eee BD Renerow WON ee ee ee ele VOMIT © OF ee ee ee ee The Hert Lor Levisletive Actions ee... ey ? Bxecutive rn tecict tive tetien 2 lt % Orcerda-tien onc kOninistartion 221 t 6 GoncWsiod oe ee eee eee eee 193 ONCLASSIVTED e RESTRIGEED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 RESTRICTED SECUREL--INFORMATION UNCLASSI 2 FoRD wtD1 pods themy veo fy then! wes » carbine nonter simplifte tion of the connlie™ ted business: of pla nine end rurchasing moteriel for the LF, This wono7rerh, writien by Fronk C, Bourne, ouclyres thet buninenn, emecislly en St wrs handles fron innesictely bePore Poor) Roroor to He end of vorld ier IT, Ib involved the prxfecting of tov1s vith wich to exeonte the orocurencrt procrom, © verline orrmizetion, sufficirws tunis, end setistrexory contr ets, Tb cso ine eluded toresivhted wlanndne, nob oly for specif ie ater, but elso for ni the potential sources of sunnlys nenotictir” and wrlting centeret go thet the rublic interest ws sefesu-rteds and termine Lint contrrels oné rrroncenents exresitionsly -b the end of the wry Althou:d the subject covered in this sindy is remuricted to the poldeles, controls, ond nrececuren of norehrse, it bears a clore velrtdonrhin to other cir hirtorie~ stodies: AAS-6, The Develoener’ of the Fe-vy Tonber, JoL319//3 ANS=10, Orgeniartion of the kamy Air Arm, 1935-195; 5-22, Lenisdatio Ralotine to the MP Wetertel Prewan, 19391953 &° S/O, Exe pansion of Incysuriel Fecilitice une “AP anamier-, 3940-1915 WS-A7, Develomient and Procurement of Gliders in the AAP, 19)1-19/1,5 885-50, Yoteri=1 Rerearch en5 Develo-nent dn the Fray Lin’ Ayn, LOLL-19/55 373-54, Developrent of Mrer-?t Gir Tnerets in the AP, APS-52, The oditication of Army Airevert in the Us 3.5 1939-1/5; and Wsd-47, Storderdiz~bion of Air W'ateriel, 19490)? Gontrols, Policies, Procedores, Live other USAF Histories! Divicien studies, this mone-raoh As oubject to revision, ond seiticr~l infamrsion or suxroied corrections will be velnened, RESTRICTED 4 SkCEKD INTOKMATIONThis Page Declassified IAW EO12958 ava, covets RESTRICTEDUNCLASSIFTZE3 SECURITY INFORMATION e crosseny Feo ci e RESTRICTED- SECUKILY INFORMATION THIS PAGE Declassified IAW E012958Charts Cherts Ghent Charts Charts Charts Charts Charts Charts This Page Declassified IAW EO12958 ESSTRICTED SECURTLY INFORMATION: CHARTS 4... wen UNCLASSTRT 22 AAP Expenditure Prowreus, I P1US seca cece ee UM GFEF Gernnred t+ FP Gontrects » 6 6 eee eldeta Goxts of Gonmlete Airereft Unit, 1S0-1%5 6... ee AI following 53 wane 68 Renerotivticn, Eo t. Procurerent Dint., 173 1... 86 Proeureneat Procedure ss ae Airolane Frocurenrot, 1940-194 « Renevotirbion Gres, UF eee eee recreates 89 AAP Gontrect Terminations Bowrda sees ee ee eee MF Contivect Terminviions yee eee ee eee eee UNC. PESTRICTED SLUCKY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified |AW E012958 -RESTRICTED- e SECURITY INFORMATION UNCLASSEE®: PUSCGT.G POLLCD'S, ALD FLCORLUA'S FOR AAP WATEATEL Vite uy e JGTED RESTRICT RnON THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 RESTRICTED SECURITY INFORMATION Chapter I ‘THR MRCITIRAY TOR PURCHASE To facilitate a thorough understanding of the procedures of contrect and procurenent in the 4AF, a brief survey of the air force organizstion which superintended the acquisition of materiel is necessory. Glthouch continual reorgsnizetion, chenges of nozenclature, ed re-divisions of respensibility chrrecterizec this phase of air force sdninistrauion, the basic principles upon which the structure was built renined constant, Pest experionce, particularly that of Worlé Jer I, wes inevitably conei¢ered when basic rolicies were being developed, and special este was talen to prevent graft and fevoritisn, Orgenizetion In 1939 the Secretory of dar maintained direction of the procure- nent procren, the Assistant Secretary supervision, and the chiefs of ‘tke ew cly arms and services had administrative ané operative functions subject to the approval of the former.’ the power to procure materiel for the Aroy, ubich me the prerogative of the Secretary of lar, ws Selected by bin to the kesistart Sooretory (lover Under Seoretary) of vio. In turn, this euthority wep further recelegoted in the chain of conmené to the contrecting officers whe carried en the actual negotiations vith the contrectors.” ‘The Assistant Secretary of ier, end loter the Under Secretery, nob only supervisea procurement, but he or his designated representutive was elso rosronsible for the approval RESTRICTED™ SECURITY INFORMAL THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 48-68, Chap. Z RESTRICTED 2 SECURITY INFORMATION of contreete which involved xore then ..560,0007 on a cost-plus-fixed-fee hasies by 1942 this figure hed reached 15,000,060, He slso approved eplit axarcs# und “negotiates” contracts valued ct more thon #5 009,000,5 Under Secretary's Yspecial” representavive vas an Ary Service Forces nen vio theorctically acted Zor him as head of the service foress when éealinz «ith then oné ac hesd of the air forces when dealing with AAP problenc, Usually hie directives to the AEF mere colored by ASF policies, hosever, but inatood of causing undue friction, they engendered & similerity of procurerent poliey throughout the Asay. Yarious civilian ecencies ot high levels were authorized te review and approve consequential purckrses, Their basic interest, however, was only the acquisition and éistribution of scores raw meteriele and the use of Limited procuctive opoce to the test netdonel interest. In 1940 Commissioner Willian 5, Kuuésen of the Advisory Conmiraion to the Gounei1 of Hetionel Befonse reviewed, apreved, and ccorainated ell contrects for aircrert, aircraft parts, ond accessories vhich normelly were subltted to the Assiswent Secretory of Jex.7 In 1941 ell orders over \50,060 for a Jorge ascortment of foots vere submitted to the Ortice of Production Manarenent, Divicion of Furchases two weeks before requests for bide vere sent cub oF neotdotions Logun, in onder thet ccoréinetion in proiuetion might be alueined.® In 1942 these rovers of review and coordinetion vere transferred to the Jer Production Bosra (#3). On 1 Jarusry 19,2 the Chief of the Air Corps (and leter the Commanding General, iF) vec authorized to epprove contracts uncer RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 1-62, owp.1 RESTRICTED 10 “SECURITY-INFORMATION- n 1,000,000 (eurlier he hed upproved all thoce uncer .500,C00), actully the procurencnt authority of the Chie? of the Air Corps vas vested larcely in the chief of the listeriel Division, For ¢ tine-= April 1912 to Kay 19:3-athe Chief of the Air Comps mas by-peceed in the chain of conmand, eno the authority of the Uncer Secretary of ler nas dclegeted to the ecnanding cenerel of the beteriel Command,” In the period of enerreney end Luring the early part of the nor, the Materirl Division et seshincton acted as Liaison betneen the Uright Field organization end higher authority in ashincton, ith the re= orgenization of the der Departuert in arch 1942, the washington offices wore ascicacd cupcrvisory, interretang, oné policy-neking functions, Eut, elthough the ehicf of the Laterdel Division ves authorized to approve contreets of y1,000,000 or less, in prectice his Jashington office still frequently served only +s liaison eno reviewing authority to transuit contracts from vrirht Field to the office of the Under Seeretany.? ‘The Budget und Fiscal Office of A&F Heatquorters played a vitel role in the work of the linteriel Division, acting eo it (46 ine supcrvisory end ccordirating eapacity over the Gentract audit Branch at right Field ené the offices of the cuéit cietricts hich functioned im the materiel districts, one freedom of this office srom direct Unteriel Comand control ws eritdelzed by the Keteriel Goamand since its contracting officers hes to sosue Zu11 recpenckbllity for youckere based on the aveits ano Judgment of resient auéitore not uncer its controt. 9 RESTRICTED: SECURITY IN! THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 TLESTRICTED aHs-68, Chap. I ‘SECURITY INFUKMAHION & ‘Tho netericl organization at viright Fiela wos responsible for generel procurement procecures for th: AAP, Serving as the prinery purchasing omercy, ite ceatrulized eentrel wos considere: escentiel to insure uniform nethors, to brine ebeut econoay in quantity procure= nent, end to Wild up a body of efficient peroonel.!® the consenting general of this crcenisction sve authorized to approve contracts up to 1,009,000, while the chief of the Contracts section ot night Fels could arorove thoco of 500,000 of Jesc, and the Andividusl. cortrecting officer ecala saprove those up to 100,080," Four prineipsl functions were performé of of dixeoled from Guight Fields plonrdng, exginroring, proeurenent, and inspection; and these funetlons reuained fix s eyeo jaea thelr executing epencies vere shuffled around or underwent. chances of éesiznation, Planring was actuelly the responsibility of « veriety of eencies at the fields Production Engineering, Proguction Control, and Hroduciion Resources, in conjunction ith IB end Joint Aivorott Gonaittee (JéG) agoneies.’® ‘The enginecring evencies prepcred and erproveu deains, initiated procurcacnt, and passed on capsbilitics, airvorthiness, end on the perfornerce of olfic manufsetursrs, The contracting erercy prepered the fornel contract, and the inspection areney supervised the vork of the fectory inspectors, vho in turn saw thet the cetsile of the contract were met.°° Besiées its titular duty, the Contracts Secticn Glolribates Vanthorlties for Purekece! to the Gintwict offices, enelyz0d costs, inv sl: ve axe compliré with priorities regulations, end kent ‘the only complete files of contrects,“> RESTRICTED -SECURYLY INFORMATION” THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 5-46, Chaps T RESTRICTED SECURIFY-INFORMATION e Friction inevitably arose es Production Engineering tended to amp Sanctions vhich belonged to other apenciee ab ieioht Fleld; for example, in the felc of proourcrent, St accumed the responsibility of reviewing contract devictions in price, quality, anu quantity, and folloued up coabracts to accure that the procuring avexey processed contreets in tae miniann tino,”* Tate brought protests from sources 1a."3& tendency to allow controct both within and withowt \right expiration dates to ansrosch too closely before Geciéing whether adéitional production ws desired by the Lieteriel Gonnand apparently resulted from poorly cefined end imperf-ctly respected divisions of responsibility, Lory tines tiis kind of administretive lepse provoked coutractors to search for new contracts elsewhere, not the lerst of ‘the reasons beins the insufficient time thue allowed them to procure additions) meterials and supplies. Another extraneous ectivity of consicersble importence was sot up in 1944 at iiright Field, the Aircreft Scheduling Unit, overeting es an agent of the Joint Airereft Gonsittee, the Aircreti Proauetion Boord, ‘the Aircraft Resources Control Office, end the Jar Production Board, The unit acicd os a central clecring acency for equisment components end aateriels necessary to maintain the schedules cet up by Ja, ond sbudied the capacity of end schedulea the celiveries from Au plonts. 3 Desndte ite responsibility and sceedaliaes knovleore, wright Field was sonetines bypecsed by higher outhority in eshineton in procurencnt natlers. For exenple, Generals Arnold, Echols, ond Giles, RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 315-68, Chap. T RESTRICTED ‘ SECURITY INFORMATION egeinst the cdvice of JIright Fisld enginecrs, insisteu on the procucticn of the etortive lie] glider at 5 cost of more than :771,277.15 to the 6 ‘texpeyers, ‘the materiel. center was chiged by ‘lashington heatqurrters for noking whet it called “tactical” rether thon technicel coments op proposed srocurenonts.”” Fanning out fron the core onenizetion at Wright Meld there wes a tremerdovs subordinete ficld orgenizetion of 4: rict officers, erea otticers, conlrecting oftiicers, inspectors, end eubltors, At the beginning of the var there vere three cistricts in the United States, eostern, central, end western, to vide vere acceé the midvestern in 1942 ano the south.oplora end mincentrol in 1943, The district offices Were orgenized wlong the seme lines rs the Viateriel Consand st % ¥icis,"8 and in the industrial creas or in the Snctories thencelves sieht contact scotilons were cet up,”? Before the tuna of 19/1 the detrict supcrvicors wore responsible for tho prover executdon of ianteriel, Division field functions pertaining to the cecomplishucnt of contrcetuml oblications between the Aly Goros oni its contrectors,” As early as 1941 ¢ decentralization of procurement from dright Firlé to the procurement districts “es proposed end accepted as Air Corps policy, The move, however, hod erdent surrorters and equally convinced detractors, co thst it resulied in consideroble bickerinr, disorganization in the lower ceholons, and uncertainty in the district offices anu smong mexufecturers, Lainly, it vas fele thet decentrelization was needed ‘to mainiein closer contect vith monnfecturers, prrticulsrly ihe sualler ones, end to avert top-nee ness eb iright Fiele in a time of expanding RESTRICTED -SECURITY INFORMATION: THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 ansese, Ohape RESTRICTED 7 ~—SECURITY- INFORMATH 3 Tn port, it was to be effected by production, MON ng ol the setaal work of proourcitcut ané the bundling of avarée, controcts, und change orers of value leas then v1,000,000 with the Cistrlct orrentastions. Such @ pronven vas epuered ox by the statement from Secretary Stinson that "decentreliation , . . is cesired in the interest of spred,F3 On the ports of thm Lotericl Connens, entiusiesm for the move vas nixed with fuzsiness as to its actual rurpose. There appeared to te Little reelizotion that although deeentrslisctdon An séninistration of contract cuditine ono dnspection mirht bo neccscory and desircble, the relerating of srocureacnt dutics to district und even plent levels would increase monifolé the difficullies of maintaining « directed, interreted plan of procurenent, One inprreticuble festure wes esrly pointes out by Air Corps officislss the diviricss lacked necessary engineering stafis ubercss iiright Field hoo on excellent one. In June 1942 the chief of the lateriel ommend yes eukcd to what cxtont the authority hed beor given to couttectine officers to everd contre ets of Leos then 5,060,600 value without reference to higher authority, He replied that contr: ching otficers vere anproving cone ‘treets up to (100,060 end thet thoce of # precter axouxt vere forvarded to the comonuing gesorel of the Lateniel Cowon or approval. Further celegetions sere unnecesscry, he believed, “since local purchases exoecding this arount are rere? Tith the aypoiniment of Drig, Gon, C, B, Draxchow to head the listerLel Gonmand in 193, decentrelizstion was accelerated. Gencral RESTRICTED-. SECURITY. INFORMATION- THIS PAGE Declassified IAW E012958 ESThis Page Declassified IAW EO12958 RESTRICTED ‘ SECURILY INFORMATION e Brapshew bad been « district supervisor in the Jestrrn District and aKS-66, Chap. I ‘theuzht very highly of the plan to allow the aistricts to administer the proourenent prorrem, In June 1943 he ordered all the cistrict supervisors to visit the Jestern District to observe how their om aistricts should be orpenizes for maximum efficiency in cecontreliantion.” All Authorities for Purchese (AFP's) presented to the Procurement: Divieion at Gricht Ficld were ctudied, and the once which vere felt would be reacily handled by the districts vere extrected, It was generally believed, however, thot the following items were not suit- able for disixict procuremont: sirfreues, enzines, propellers, materials allocated by the Aircraft Sehoculing Unit, lumber, ané rasoline oné oils; in adition, the following clac.ificeticas vere to be excluoed: a general schedule of suprly iuens, itecs of Limited sources ané those not cli in ore district, iteus shove sources vere close to night Field, items voce monufacturers ied 4 local representctive to cleor all oréers, omall confining orcere, itens in tho locel parchece eaterery, and policy iieas, Jith these exceptions 218 contracts amounting to v4s9455390«18 hod been Jet by tke districts by 15 Lerch 1943.7” Even in this Limited anount of procurenmcut, houever, the districts ex« perienced difficulties beccuse of (1) time lost by negotiators in seeking further clerification on akP's from iiight Ficld, (2) the leck of shipping instructions, (3) the fact thet delivery Gates were too eorly to permit the aistricts to survey potentiel contreeting firma, azd (4) a Lick of experienced personel iu the districts. F STRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 sists, cap. = A ESTRICTED 9 SECURITY INFORMATION fin AEP Connittes vas established in the Procurement Division ot wright Fielé in the Spring of 1943 to expedite the clesrance of aFP's 29 ‘the authorities for district purchose which through the division,’ ‘wore then sent out cave ctailed instructions concerainc the ecntract, including preference reting vad allotment authority.* Under this system 4 grest ineresse in the anount of district procurenent uss effected 4° Gonsiuersble dissatisfsetion continued, however, with the vay docenirelizution of procurement vas beine carried out, Lantfacturers who fcered tht it was ereouing confusion for those companies which hed brench plants in several localities petitioned Jright Ficld to handle ell procurensnt in such ceses,/+ On tas other kano, the interference ab right Field vith the functiouing of district offices wos resented by district personnels” The Gistricts sre belng constantly boulbarded with corresponceres of various types cealin? vith reorranizstion of dictricts..., /o district ouperviuor wrote,/ There is an endless ancunt of work being performed in trying to jurrle Personnel to mect cherts propitea by somebody elee.... It is strongly recontenved thet unless some porticuler district is not operoting in an cfficient nanter, ... there be no further corresronterco on the mottcr for & serioe of et Jeast sovercl nonths.... It is recomerded thot efficient persourel be placed at the dictrict onc thst thrt versonnel be wlloved to run the district, Conpleints clso vere beard ub Tiright Picld: by cencinr ATFts to the aistricts, control ena scninistrotion by vitelly interestcd erences * Other infornetion included was as follows? Aten ena cescription, quenllty, chipsing ins\ructions, cclivrrics required, prozran involved, applicable ace dctcrainetions, prospective sourecs, onu csbinetes price sif possible. (FO “eno 21, 30’hov. 19/2, in ALSO Central Files, 321.9, Decentrelination.. RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958 _This Page Declassified IAW EO12958 use, owp.t RESTRICTED 20 SECERIEY-1 e RILY-INFORMATION ouch oo the Incincerins Eivision vere lect."” The reaction to these objections ves imolicit in o memorendum of Eric. Gen. 4. Be Jones” The sbotenent move in... reference incivicuels of the Frocurencnt Division not epreeiny in principle with the over= all coldey of cocontrolizslion may or moy not reflret sone opinions, Regarcless of their opinion, é+ccntrelizetion is being effected ord ill te cffecicd to accomplish procurenent as efficiently in the districts as et dright Plelé, During the following year, efter the deperture of General. Bronshew fron viricht Field, the opponents of ceccutrelizetion beran to regein s.oy; by July 194 the dicisies eupervicors hed upreed to elininate ull istrict procurencnt except in cxtrcortiuary cases. In the eutunn of 19/4 a1] procurencat functions other then ihe administra- vion of contrects were being perforacd ot Air Technicwl vervice Gommund (3880) Heocquerters rether than in the cistricts.4° Other functions of the districts, however, such se price inspection, continuec to be Eeocntrelized to cros ex plent levele in a recom dly effective nenrors” A resume of the cutics of s district office for the concluding sonths of the ver slow it to hve teen the meinstoy of the procurencat orgenisbion of the air forecs cenpite the lo:t of tne contreeting funetion.* Charred th the Sield functions of ATO with respect to Procurexca’s ond accepterce of efrerett xd reloted equipnent, the Givtrich rathcred inforsation end furnished reeonmerdtions certeining ‘to the pergomaxee are obility of industry within dts districio; it procured acronsuticel couipnent unter certein edreunsterees and adninistersd controctucl instruxcntes it cosperct 4 ith incustey and * In the dnicrect of cpood, Iebicr ecntreots vere icucd uson teleprerhic e dnstructionc from aivkcr cuthority, RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 is-e, cmp = RESTRICTED 2 SECURITY INEORMATION. other coverozcnt r-ceeies in converting industry end in ectimsting the expaoity uf the 4: trict to produce required equipments it ecsisted industry in the Gdeirdoution of monzo.cr, mberdels, ord machine tovlys Hb oupcrvices yoverumcat insgections ond Ab acuisted industry in the 4 uenerel grovlens of reséjustuont. Recruitire ond Zesining The prrnov e3. von whom the princinel burden of resnonsibility fora successful protren of procuretint fel vere the contrecting officers, Thece men vere chosen for business slenee, profeceienel un} epeoislince abilitirs, cipe ion buckereund, evidence of business vomicn ond dn elliccnes, und kaowledge of tecke policies.’ ‘the outhonily to ape coint coutn ching officers vee delesvicd to te Gumencins Geuerel, iF ond he dn turn cove the wreponsibilily to cldefo of ‘be diet Ero curenent and Reaujuctane, Tivicions, to the connending officers of right Fiele, of eack crea ATSC ond oversees 4106, end to the eonnereing gerevels of the dirtwicts.” Tn June 1943, as @ partdol res of the cecentrolizaticn prorrem, a necé for nore perscrrel oroce dn the CLdudetu, Phe eoquisdtion and troinir’ of these men sore enrricé out under the circetion of the chief of ihe Lego} Ranch, irieht Pielé, where indoctrination courses sere helé for neny of the officers selected. Levertheless, in the suer of 1943 Gol, Donole 6, S ctlenc found the Gistricts understeffed oné tke officers on taud poorly grourced in AF policies oxi procedures, To slleviste the situy ton, he ordered the prepare lu ranvel Qardhs a of @ Wreinirg for Gontrsching Officers, LLoverber 1943) end RESTRICTED - SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 usc, oF USTRICTED 2 SECURITY INFORMATION perovaded Bric. Gen, &, B, Jores to epree bo © progren for the prom curcomnt nué tredriry; of scoitdorel officers. This request + s precemted Cincetly to Unter Seeretexy Robert &, Lovett sho cave ichest priority to project te urecure 200 officers.” ‘heco types of officers vere cought: plent contrectirg officers, logel officcrs, exo icrninstion officers, a different set of recudre= ments being celrvlisec for eels tyre. In the teriroinc, a cood many lowers vere cclecteé, bub the enrhesis ene to be tleerd on the procare~ nent of tusivouc ner. & preferetce ues sho™m for non with eolloye end baotnece o€ Ardulrotion teckcrourde who heu commen. 66 onmvel salery of ot Leact 4,090, Only 25 of the 10 officers selected were token Gircetly fren civil life, em» thro ere Lsiyeres roxt of the otters wore aon sho kod held munecariel positicos prior to their eaterdng on erive cuty.? Beginning on € Noverter 193 ond ending 18 lwrch 192, four succeosive courses of instruct vere institutcd ct wivat Hicks, They wre plenned so thet elisbtly citverent anthesis woule te gives officers chicfly eonccrreé vith loc? surcinses end tkove interested in heecquerters unotions, The treinirg credvelly cone to include wore end nore termination indoctrinetiens Andccé, dn the loot plecce the waole pre-ren was concern vith tainstion, ‘The craduotes vere dntervirves et the ont of the course end mere eesiceed In accorcsree “th oersonsl vietes end Cenonsirnted abilities, Lever (Cctober 1V4 to June 1945), eight acoltional courses vere given Zor recainins wen elresdy de the prowen. 94 Kacy contrcets Mi ich would be hendled by these offiecr: oseigneé important edmirdrtretive osteils to “the contrecting officer,” end ce a matter of rolicy end RESTRICTED SLCLRITY INFORMATION - THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 -RESTRICTED » SECURITY INFORMATION practice this cone to mean any contracting officer. In view of this ARSC, Chap. T Antercke bility of obligutions und responsibilitics, it ws necessary to enchssize in the refresher course of instruction the ressonsivility ové cuthorily Vnut they bela,°> Avpropriotions ho Giseussion of the machinery usec by the &AF for the procurerent Of ueteriel would be conplete without a considerotion of the ancunts appropriate’ by Con ress to cary out the prorea, ond the arounts aciually expences by the air forcrs.* For the Pecel yeors 1939-1945 Gongrees onproprinted 972,791,/25,862 for the Amy Air Forces;"© of thic arcunt, aporomim tely .16,000,090,C00 ves allecuted in contrects, >” Although the tote cetuelly oxpended curing the rerio? 1 July 1040 to 30 June 1915 wee only .38,000,090,000,? the innensity of the procure nent problens ds ouite clesr. tpproxim tely fivessixths of the total cxperditure hy tho 4sF vas for mvericl, This vos Turther broken down in many ceces into “procurenent of production quontivies" or "cxrerizentel projects," and procurenent of "service test ecuicnent." rhe sicures for the years 1942 and 19%5 in the follovine chert will give a Zeir conception of tow the eppropriitions .cre ellotieds * The story of eporoprintions ds Giceussed at lew-th in @BS No, 22 (Revised), Lecisletion Rel. ting to the aif Laturiel Frorron, 1639-1945, 09. 2-62. Sigce it io difficult te ect exrct fivuree for vetuel excenoitures over on exteadcd perioc of tine tccaure of such thinvs es cubsbrces, voluntary reéuctions, reacrotiations, ard chcnres in beokk-ening uethors, the over= all fioun $ in this cection are civen in round munbers aré undoubtedly vary in accurecy. # The diifererce is cue to ternins estinstes on CEth contrects. RESTRI€TED- SECURITY INFORMATION _ THIS PAGE Declassified IAW EO012958 ons and to unileteral oction recucingThis Page Declassified IAW EO12958 153-68, Obap, Z _RBSTRICTED 4 Lean ES ed INFOR: RMATION. Stotus of Fiseel) ‘Ad xnendi ture Promem as of 30 June 19,25° Badest Ghligation New Airerott, Engines, 18,242,786,134 145583,6// 4988.47 Parts, ond Spares Experimental Projects 80,392,112 5é 037,584.55 Service Test Tyuipnent — ___ 11,068,779, 18114371493, 38,334,216,5/6 17,626,555, 894,.95 Status of Fiscw Yeor 19/3 AAF Binendi ture Fromme ag of 30 Sune 19,39 Budget Obligation Kew Aivoraft, Eorines, 79584269, 378.72 8442? 007,547.23, Porta, and Spares Experinentel Projects 106,775,702.77 95,773,239,81 Service Test Equinnent jictns Rerorb_as of 30 June J 1 Bude ObtAzetton Total Cor Comlete Air- * 17,449,807,088.32 — 164750,202,597.06 oratt Procnrenent_ 61 Faceareh and Development 117, 796,078,00 17,612, 116.48 ARSC Exren fi tne Proce Piser! Terr 19/5 ns of 30 June 191,56) Buazet Li oxtion Complete Planes and Parts 8,173,556,817.78 7,640,288,7 41.20 Peroneutical Exerinentel — 137,1/4,000,00 137,13, 798.85 Service Toot Eoulpnent seh 2650000000, L 9 6110157,69 Syeisyo00,a07e78 | “HyBuenA3e7 1h Congress fuITEII66 Lts monetery obliretion to the AAF's nrocurement qievwan with on unstinting, even Lavish, hard, and it built up for the eix force en orranizstion of ireined persornel wao spent the sonronriations in p gonorelly efficient manner, Hevertheless, Convreas shoved @ creat RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 as,omt RESTRICTED % and continuing interest HOT RE KANFQRMANION, tue types of contrects used and the nethods of tend reculted from years of contract experience, cooperation ketueen Gongress ané the var Department, eug~ gestions «xd countersuggestions, trial and error, anc bie fruits of aluost continuous legisletive investicetion, yes of Contracts ‘iso types of contrects were prinerily used by AA procurenent agenciost the fixed-price (FY) or "Lump Sum™ contract and the cost~ pllus-fixed-fee (Gi) contract, the forner being the usual peacotine nothod prescribed by the goverment, Ine Fi contrect, the contrector and the contrecting srerey agreed on a set amount to be poid to the contwector Zor specifica itcns of certein quantity end quelity, Tais wermment against type of agresrent ms fevored because It protected the g excessive costs. ‘the FF controct, however, necessitoted a thorough Imovileége of the exrenses involved in the nanufecture of an iten, in ordor thet the contrector not assume too crest a rick, nor ihe conirectee be overcierged, It also nreourosed steble contdtions of lobor aud labor costs, ané wurficient tine on the pert of both perties to study the projects before signine contrects. Despite the unsteble coneitions of the war perio’, the FP contract was used vherever the contrecting parties Jere convinced on tae besie of past experience that the cost could be reasonably determined in advences It wae also used at the otter xtreme, theueh, for exemple in contrecting for glicerss the rovernment preferred to protect itvelf in title once by means of the fixed price because so nuch of the vork was urderteken RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 set, chop, T -RESTRICTED a SECURITY INFORMATION by smal, incxporicnecd companies. Unfortunately, though nov woolly unexpectedly, conctontly rein; costs orove te bankruptey several companies watch had oecoptes there FF eontreets,* In orcer to uce FP eontr-cts to the Linit at the besiaring of the var then procuction cxperienee ves Madted, tho .ior Deportaent authorised acéitionel provisions in the contracts which fixeé @ tentotive onicinal price cubjece to readjustnont efter porticl performace. In Jantory IsL, the derartnont authorized a gericdic edjustment of prices,°? which civided the long-term coptracts into o series of shorter cerieds from four to six noatho ecch, The contract price ws fixed for only one perio, at the ond of wineh the price for tre succeeding period could be cet either upward or vomiurd, according to conditions thea prevailing. ‘the fect that tho price me fixed for e short perio’ only, relieved the coatrcetor from noking eowudtnente too fax chesé. In audition, the contracting officer wae authorised, at Ide vicerctica, to exempt from renegotiation the price tixed for any period, This possibility of exenption from renerotiation cerved as an incentive Yor the coxtreetor to reduee costs Guring cect perioo.®* The number of FF coutroets wos cousicercbly preater thea the OP types fron June 1940 to Tune 19/L, 346 FF contects for airerers end accessories bed boca let of eonpared with 253 OFF contracts. I Gollor veluc tis anounted to 59.6 per cent of the total experéiture for the ported 1 July 1940-20 Jze 1945. Congress, winful of the seerdolously high prices resulting from the use of costeplus-percentoze-cf-co:t (CE#C) contracts in Jjorld jar T ano the consequent opprobius of many nrowiuent cltizens, specifically RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 woe, m1 EF USTRICTED SECURILY INFORMATION: outleved ib in almost every lew cecling with government procurenents Certuin clouses in scue CEP contracts nevertheless apyroechad cost= Plus-pereenteco-of-cost in spirit, For cuemple, 0 contrret with the Fors Lichor Gompeny?” provides a fixed Ler of «5,295,020 for the nanufecture of engines (5 pcr ont of the estimted cost of 116,458,520); the fixed fee for onze porte, ho ever, wes pleced at urproxine ely --529,000 (5 per cent of the estimered cost) and . the fixed fee revered to herein shell be subject to increase or ceerense resulling fron cuthorizeé chengess.,en6 the ectimoted costs and fixed feo for spsre perts shall clso be ckenged to the ectincted costs ard an-liccole rercentare of the fee recultize from the ceteris ion of tir item of specific perts to be curshesed any tke eotincied cost thereot 28 compiled from the breskdoms to be furnished by the con~ tractor, Geroful eurervislou of the terrs of crorosed controets ocd erreenents woo maintained by the Sir Judre Acwooute to climinete, shenewer poeible, any aporcach to the coct+plus-peresninze-of-cost factor. Io a review of the tems of o sunvlenental avrectent with the Ford Lotor Conpony (waich covers the procurcuent of supslies ana vervices for en ancunt rob to exceed .2,£37,500) the Air Jucge Aévocate maintained thet it oneked coct=plusepereentage sizce it left both the cost and the fee Sor future Geterninations, To venedy this, ke suv~ssted thet the eveilstle funés ve éefinitely éiviced oro ell eG e¢ fixed fee oné estimated costs Af the cost could cot be estimated, 4 fined fee should bo provided, If neithcr of there sions rere fevuible the contrsct should be of sbortcr Guretion in orécr thet » nore +, -ropriete contract could Cy be dram following the trial period. RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 RESTRICTED SECURITY INFORMATION During the ver, rspreistly in its earlic AllS66, Chap. T is phases, monj itens hed to be procured for wich the fixeé~price tyre of contrect was completely unoitsble, Tho GE ecntrset, therefore, ws uonelly used to procure conplebely mew items, shose in the experimental om developmental. store, and those for watch the pene atu specifieutions were aot complete at @ tino chen 4 we sovontereous thet vork be ctartcé. hic type of con- tract was highly desirvile in neny exces, espeetaty for contractors who Jocked previous procuction oxp-rienee onc rhore dete covoriag coste wore Jackine, On the othcr hano, contreetors often needed such contrects be= cause of Insufficient eapitsl, on oversexponted volume of buslnese, or four of terainstion losses ond celays, (liny items in the aireraft industry vere subject te alaost coatinuoas specificrtion changes through= out their merufrcture, © factor which could incrense the estinited cost of nrocuetion dnectoutatay.)°? Until 6 full mnéerstencine of production costs sea reoched, the use of OEFF contrrets often nrovd rore economical to the government than FP contrncts keeuuse of thr adéitional risks thet the contractor felt he mut face sith the laiter, It is sicrificsnt, vovever, thet the costs incntred by contrrctors vith OFS contrects ofica ecmpured favorsbly ith those of FP contrects as tke followiag chart incdectest?? 3350 DGS dre (8?) Dodse-Ghicazo (GPP?) Total Units ms 15789 Totel Hours per Unit 3,951 3,833 Per cont subeontreeted 26h Gout to Governnent per Unit 220,367 415,099 RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 uses, cup = RESTRICTED SECURVLY INFORMATION e UALILEC! FACEFELIR, SPA LAND LISIG? Frigidsire (FP) lssheXelvineter (CFF¢) Gost per Unit (1944) A,l07 v952 Studcboker costs for Jricht 1620 engines on a GFT contract were very close to Euick ané Chovrolst eoste on F? coalmets for conpercble Pratt ond tuttney 1630 engines.” The use of GPF obviously necescitted # clore gorcronant eudit of the ecuirecionts exceases, ono required nob only agorovel of the nonufccturerte oxpeniitures for meterials ond serviccs, but eleo of bic applicution of mancouer.”* costs resulting fren experizental contrecte on e GH bests frequently ren far boyeay orfginel ea:iastes, so that close observ: tion of expenses as they accuuttlated ws nrcersory, es ell. ase deverminction by Maison -ith the Engineering Diviston at dricht B Ficlé ubethes the velue of tho project wos comionoursite with the cost. ‘The verious Giceéveniores in the use of the Gees contracts, and the possivle Cacgor of their paralleling the history of GC contracts, mace then tke objects of public end Gonerescionc] suspicion fron the begiadag of the ser. 65 lete os the cwmer of 19/4, lovislution linitine their use was still Leing Clecussed, & widespresd ventinent was expressed in tevtinony before 0 sukcomilttee contenplrting such a nover™ Former Secretory of the savy Tanicls,. wrote nee prrscral Jettor fron hexico shortly efter I tock office in 1949. He said, "I see thet Goncress has paced an act to pet nit contracting on & cout-plus-Sixed=fee. 6 one sho wt seat on in world iar Z, I predict thet they will rue the csy thoy cvor dic thet, I ote buck to him and cold, "Conoress is cotersined, ag fer ex poseible, to teke profitcerine oui of this ar and I an convinced thet the Crs¥ cumirect to thr bet wey Yo handle it, de will keow, thon, what wr will pay, and it wi Lo a creot improvenont on the old iorl Jar cont= e Plusepereentege tyne of contriet.” RESTRICTED SECURITY INFORMATION, THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 nis, mp2 «= AWESTRICTED SECURITY INFORMATION ‘ell, Gontlenen, it hss proved to be just esactly the onronites unter 4t veste ond extrevecance have been pensitted ond cctuslly encourered by the contracting agencies--ané they ere told to ke bols, to te reolistic, to help the contrector. Despite an inerecsing uncerstendin« of costs ena production, the very naiure of airoret nrocuebicn wlth its continuous chances in spacifiestions densnded the use of CREF contracts, It did not, however, proviée an incentive for the contraclor to coutrel cost or utilize nenporer cffietently, io obvinuc this dirrioulty, a system of fixing Zees in accorvonce vith the number of units prouuced 1s occacionally attenpteds this «ffordes tae contreetor nn opportunity to gain a lerger agerernte feo by inore: cing his rove of production, and also tenicé to seduce coste because of tho utilizetion of more efficient mettccs.”” bs sacther incentive to eifieicney und lover costs, nodified form of the + Britich "target price contreeti was consicered, In this eysten a terest estinate of the cost i io Pixed, and efter pert porfornerce, the Zee wes Imoresced if the costs hed doen recuced Uclow the estimute throuzh efficient reufcoture.”> ‘The bosic problem involved in the system of rewards to the efvicieat producer vat the diifieulty in estine tin; port of the reduction in conte thet resulted fron efficieney anv the part thet resulted merely from increased quantities. In acdition, in the adnirdstretion of con tracts which contuined an incentive fictor, ib vas elmost impovsible to éetemine preeicely vist woo ellowble to costs: for exmple, bonuses to employees, sclorics over 325,000 » yeor, and stete soles texcs, which normally vere nob levied on goverrnent parchsces.’” As @ result of the RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 BES 68 RRS TR BiS-€8, Chaps T RESTRIC? i” SECURITY 1 ‘OR ALLO e Gifficwliies inherent in making avards, the AUP renained generelly hesitont in using the incentive type of contract, The fear was ever presont, aprovoatly, that the orivinol estizatca by contractors vould rob be aave in good £etths”® The statutory Limit to the enount of the fixed fee wos 7 per cont of the ostinnted cost of the conrlete contract exclusive of the fixed fee.79 This figure is of interest psrbicul:rly vhoa St is compared with the penorel profit pereentevcs enfoyeu by the alzereft incusley in 1938. The 1938 audite...zevealod tuat ou all Aix Corps contrects the profit hed been 12,5533 on eirplone contreets, 24.21,:,8°° anthoach Aesisteat Scoretery of Jer Lous B. Johnson veplored te deLimitetion ‘ite to 7 per ceat becouse he felt thet this vould hincer the of » expansion of coneny feeilities,*! actuslly the aAF made it e policy to decrease steccily the ancunt of the fixed feo to about 4 por coute™ Tho lower porcentoze of fixed fee returns wes unde apsliceble particularly in thore esses where thr contreetor!s business was four tines his ine 83 vestnent.°? Thus, contrectors rau risks of Jarre disellowances by the Generel Accounting Orfice. Yor the fiscal year 1943, for example, Lockheed vas disalloved ..12,200,600; Dourlas, 6,000,000; and Gonsolicated, 3,000,000, hen the Aus 4 pry cent fee was reGuced by disallovarces end tance, the contrcctore feli thet the profit wos onal] reccavease for their ccrvlcest a threefold incresce An net profit on a thirtyfold Ineveace in net voles ves pointed to us beiny inconsictent with a doctrine of recconsiile ecmensation.®4 en the cstineted costs vere ess thon actuel costs, the fixed fee ves not increased. On the other RESFRICTED SECURITY INFORMATION THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 us-cs, ot = RESTRICTED 2 hend, Af the actual coSRCURMERANMEORMAHON ics costs the fee night be reduecé, Thus, there vos Mibtle incentive to reduce re~ Anbursetle costs.°> Cost-slus-fined-fee contnecte were wsuclly of concicorsble size und vete aistritutcs aoc: otly 4 cnall mater of inportont contractors, They were nest uced in the eoqpiotiion of aimrence, where they accounted for ES 2 per cont of the uolel procurencnt. ” Of the «20538 200,000 scent in CHP contrecis trom 1 July 1940 to 30 april 1915, 26 contractors allone accounted for .24,359,500,0002 10 ccupanies accounted for 75 ver cent of the total, wlth Dourles, Ford, sud Boeing elone receiving 42 Per cert, Arothor wpe of controck ubilized rebier extensively by the &AF was ora thet aad proven succersfvl. Zor the yusponcs of the Office of Scientific Receareh ond Leveloznent. ecoréinc %o this type, the fovormnont pois o11 the actual costa of viork end allonce”™ no profit payments. The 4.F emloyed this O53 "ao-profiiteno-Locs” type of contract with educctional instituldone when the proposed groject was ene of betio neseereh, Tt veo also used vhen manufocturers needed new foctlities, Usckout protection, transport service, or specially trained personne]. ‘The enormous Genatds of the Aray Gir Wrces for equipment end supplies required thet oll cveilable focilities ais! personnel be exgloyed to the raxina cxtent roscible. Leny euntractors vere capable of necting a larger share of 467 Cononds if they were afforécd nests to experd their RESTRICTED— “SECURITY-INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 ects, om: RESTRICTED 2 SECURITY INFORMATION plents or to purchese additions] aw riels without too groct a rick to themelves, ‘ihere means, of ccurve, usuolly ‘cok: the form of finencisl escdstonee, furnichod primcrily in three voyse govercnent quorentce. loons, ecvoree paywenls, anc direet ier Degertizent loons edaintatered by the Air. Govertcnt-ruarorteed louns w their weoker competitors, Scooter varren Ry Austin of Vermont tn 1939 polnled out this concer, enphesiains the necessity of having 2s broad a source of suosly os poselble for tines of crisis, 4b Unis tine Lal, Gon, G, L, Weoson replicd thet the bP must intercot iicelf prinorily in adequote copscity, not in distribution; dn uny cose, he ccd, the current procedure sao eccoréing to tho Law of Congress, 109 Competitive bicding hud in fect dictrituted uwres ix on uneven renner? 75 to 80 per cent of ell contreets overeed hed gone to the north and rorth.est and only 15 per cent to the rest. until the time the United States entercé the period of notions cuergerey, hovever, the Air Corps continued the policy of buying only efter conpetitive bluding or decicn competition, except vtere there ses v cincle source of eunsly, 105 end under cortsin other conditions alloved by the low of 1926, ‘The procurencat of adopted tyres of airereft ené eecessorics was initioted by the iveue of cireuler propocels to manufecturere coaledninz Getadled inforaation coneoruing speckiicvtions, mthocs of cveli tion te be employed, quontioy, quelity, goverrmentefurnishes equiptent ine volved, inspcetions sna veliverics, ond conditions rovrrning the exsré of contreet. After the cireulor prorosels vere forweréed through the Givied of the Air Corps to the dosistant Secretory of Vier for aygrovel, RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 wot, 2 EOSTRICTED a SECURITY INFORMATION _ e ‘they ere then iscued to the eirerei% inoustry vith the quirement thot cll ko Antentey to bid aust make © novet-ny cenosit os 9 guarentce of ood foith.! Tae procurenent of a ceveloprentel tyre vee preeecd by © stetenrnt to the interested ecucandes on tyoe and nethods of evelu:tion, end then 2 call wes cd for bics on predindnery éesigus. & boord of officers aporinted oy the ecerebiry of .jar otuciled the cculcns subritted ord recommended the avares. The agreenent with the winner of the competition called for the constmuction of an ox yerimentel pine, the cost of ~iuich veu to te mo moro ue the price bid, Upon apnrovel of the cxp:rixentsl uirglane en ontion vas to be exercised for cusntity procuetion, vita ell corts of changes in the etton 2 nerobiation!? In the event tao manufreturer offered an oxipicol cecion, the ptocurcncut of ex 108 perimental ¢rsiers wie else perricsible, It as the hove of the Secret ry of Uo thod this rethos of avard efter competitive bi.cine, Af properly scheduled fer exouch alioa of uctuol procurcacnt, voulé provide the Lect tyres aud cares noch exycdittunedy,0? fb until 1940 s.3 a reel chenze du this sysven mces ob bhot tine no the uce of "aultiple overéa" uss extorced, Ereviously, uncer tke 1926 vet, olttouch aasras could be distributed dn design competition to 4s of conel aexit--thit da, In cure o1 tieo--the secretar of Jor ves rob clloved te ward orl: to compotine firm, cho rere not rated the come in the cexretdidons uox he eculé a.urd nore taen oxe tut rot nore than thrce bicéers, rr-ordler: of their stereine, & ord decieions, which bio to be rezorted remiodicolly to Conpress, ‘ere to be nece on e the besis of cuelity, tine end rate of Celavery, price, enc the preveablon RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW E012958 us4e,ou.2 RESTRICTED 0 SECURITY INFORMATION e of on overload of orders in ey one plonte In uly 1939, when the close interest of hostile Zoreivn covernacrte in Aneriean militery seveclon wos reeomnized, Congress a Legalized procprenent vitiout coverticing where secrecy seemed decixebley The Obief of the Air Corps vas cuthoriacd to purehcce cixere’s, rorts, end cocencorics ty pleciny contreets ith ony ccorcricel end efficicat, bub the reco for secrecy Ind to ke certified oy the Secret: ry of wer in ouch cxsce, und the proposal hod to be su mitted to ot Joust ree repuirble firms for their birs. he coleye inherent 4a ocoien conrotition and coupetitive bio Arc continues to cull the cerviecs. The ecquisition of meicricl sas retarleo by the uced to ovaib approprictivas before the initistion of 2 in suvertinin, for bids recourcuest proe-edinve, ond vc further dels; after Uhe epgropriction io reeolved vere consiécreé uc arercus Finclly, oa 2 July 19/0 tho Goerst ry of wer sat enye cred to enter into tinted contr cts to provide for the "evelora:ni, purchase, nanufacturcy shipacnt, asintennee, exé wtorso of nilitury cquignent under euch sat 23 ong couditicns es ke may ccem nreeccary™ > whds not on * permitted speedier procurcnrne, Wut cluo e better dictritution of orcers anonz thr aveilcble contrcetors, In pleein~ necotdsted contrceis, contracting officers aero divested to te ruised by the follo.ing fretores speed, cuclivr, foirrecs, of price, I-vor cowiiticrs, noxt cficesive use of row ro4rieloy plant Loe: ios, effect on elyilon concurs, Sirercicl responsibility of procyretive ecnixcelors, exprricnec reoultine frets ecucvtionsl over ts, cpoxsitildiy. tien deveible, a Anfome) inquiry cre a request for qioteticne Dror romufeetarere «ore Bball used 4 ty sh RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 wots, m1 RESTRICTED a _SECGRYTYINFORMATION the polite; comly deys of the emergonoy, At we renere to oun aly of ton tirery vere neny potenticl nezoticic if the unvbor of ecntrcters wre ctell or uateriols Limite, od to a¢vorbice vi contr elors ond pleatitul row mtcricds, The uso of ucpotiction vas so successful in aprctins un the var production thst by a WEB dircebive of 2 Lareh 19,2," all, procure~ nent ves beeed on ne -obistlen, pt ins exe ween, eoncd.ctert with opecé, rotifientien of ¢ proposcé procurenrnt nirht te siven to eonuractors and quot tiene cceured iron tht. Previcusly, bbc oc. eubly Lines of neny odreratt incustrics baé bes slosed cout Locumse vital rovurmuente furaiched Atos .oxo cob. vedleble on tines ‘or Inia Lo the geet # evernrent-prooured euuintont rd tien procured efter 16 competitive bidding, There celrys in proluction vere row elimircted, Biuertlow] oréers ba oftenmeson cs 08 66 Yo opreaé out rrccurcicht ax presere eo nonber of sources cf Lv ly in exee of or dre recornized by Gonzress in Jone 1936 by the vesuage of lesisletion ull g the Seeret of ian bo plnce centre's ith eae nico to Jeullionice then vith the aepntceture of ruritions, “” thece “ere the co-ceLled Necucsticnal orcers.! ‘thez inelurcd 9 cenplcte cet of source, irs, und tools vhkeh sore to recein in uke news of the United Stutess tue mill4oa coll. re a yoor vere allots for next £3 vo ficcel yrs, In Lerch 1939 an encnéxcul to this Icrislution scsimued ¥345700,000 for 1939, 1970, and DLL With (.2,CC0,C66 @ yoor for cock of the four fiscel ycors becreutter, Me RESTRICTED SECURITY INFORMATIO! THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 : RESTRICTED 2 CURITY-INFORMATION e Generel Arnold's olen ror the Air Corps! pert in this provree SESE, Chay Anelureé Sin3ing “rideles tiv could te stercsrdized for mass prom éuction, buy "rer “ecuetion vr: Lo ens production unclysce, and oreriny’ in sufficient quemtilins to rive tke costrcetor real pro fvetden expericnce. A survey institutes by hiz choves thet the PI-12h, ng LI-9, UC-1, ond B-LY sireract ‘ore tect wited for stencertiaction, Genéiéutes for the ecueidonsl orders ‘cre asked to coxenstreic their financial one rerereriel a! ebilitys their freilities hou to be sui'ficient without enluryczent Lo prodvee th: proposed order, and tas conircctor 21 erbler. 7° wes to Le s korg fide serutceturer, nob merely on Thrcusboat 1996 ond 1939 on Aly Corgo Bocre net reriovicely to glen for this rro‘rsn, Estimates had to be revired dowrwrd continnelly, Lovever, 63 the oxcunte evadloble to thc Air Gots vere cuccesnively reduced. de result o1 those rcouetiors in lay 1639, when only 3,785,060 ws eft, di ce vecicre be conccnteate on vie Bisiyne airorect dn the cauecticrel & ret cinea wont proectiine adrom ft nanury ctunomt sao hed wuifded vt exrorionce hee ontercé ve bervicr field.” Mevertheless, Uy Loveriter 1636 nost of the revertlonc] fun’s hod been withereuny im Ube bolicd the? the Lorce murkcr of forci-n orccrs in this country sould 12 perform tic enve tical Susetion for she menufieturcre, For exanple, the Freneh curing 1635-1640 hed vleced omecte “Ith Dougles, United dircrert, 323 Lorth Aw rlern, ana tic Acriol Ganeru Corsoretlon, In I9A0-1O/1, cotevidonel orerts were Revived 18 a neceueEy roe 124 Jeet, ané 12,700,009 ii8 elloblec to the Air Gorps for Was ournoce « Brrt of tads fone wes ured in carrsine oul nlucs bo meke the rutcosive e RESERICTED- SECURITY-INFORMATION THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 183-63, chor. I RESTRICTED 3B “SECURITY: Iwo, e@ industyy subecninoctore for the rine Ae AAEON, che slex vith Uortin, Gercrel Lovore 1th Lorth anericen, and ord sith Consolicated sré Dourlis. Por exoncle, en efue tionel oréer in the form of a GM¥ contrict ues rr eb With Generel Lotors for the uoin lenuing rear 125 and rose whorl cirute for B-24b, R250, und D-26D olrcreft. Other sindler orders were vleceds Gonmlscry Orders Since tho days of the Revolutionary Jor, the Anericun govrrmnen’ had cxcredecd the night of eminent dowsin in the oeiaure of property vitel to tie noticnsl interests! tn 1616 the erenicent vas enrowered, hen the counixy wos ab wr or “hen ver ceo Amninent, to plece orders vith eny ccunany for any netcriol needed by the kray or New, ond to wT seize the plent of tie commsny invelved if necerssry, ‘This authority nes resiote in o low of 16 sesierber 19405 by executive crier the President Colezetcd the rowers of seiuure to the Office of Hrowuctica kunoyenent and the .icr Eroéuetion Eoere, 28 Gonrulzory orders sere usuelly plecea when patient negoti: tions felled, shen » eoulector refused to mrke a quot’ tion, refused to egree to @ delivers echewht, or would rot avke a rerconacle quotction, lwven efter nlecine such on oréer, hovever, the coverrment continued its efforts to recch » voluntcry and anierble s ‘lesert vith the contrsevor, Iz all necotietions felled, the contrelor ws avxéod © cettlenent Gecnod Zeir aro ressonsble by the Sceret: ry of jan 9 ° RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 AD-€8, obep. 1 RESTRICTED 3 SECURITY INFORMATION Only eight neréatory orders sere desued by the RAF fron Koy 1942 to Loverber 19/2, uxt tuo of theze wero with the Link bviciion Devices, In old but tyo esses (Loré llarmfecturi ¢ Company snd Vhomas and Betis Gompeny) volunicr, contracts care nezobieted to cuprrsete the mandatory orcerss thus, prices cre nob fixed rurcusrt to tho mendetory ore re. In the cese of the Lord Kanufocturin’ Goncuny, the prices fixed by the Under Secretory of ver toleled ,264,78,62 os congared with a cuot-cion ef 115,036.08 nude by the conpesy, The Lor nleut was finelly seized 130g, ond operoted by the Levy becouse of unevoperetive mnaccuenty the other hané, sone contractore fumiched coovs in enerrencies without 6 forse] contimer, If the poods were celivercé before 8 contrect ves negotiates, a confirming curetcce orécr wes uate oy the AUF Af the velue Involved ues rob over «5,000,¢00,7* Tredued verso.nel, tho fremevork of aa orgontzubion within thich these personnel could work, sufficient Sunds to execute a rro-tam of exponsion, cné tho contrectuel inotruzeuto by which these funds vere allocated were the instrunonts chich maée up the Ai mcbinery for purehose, In gererol, the franevork was becté on prewr exzerience an practice, but Con-vecs and the dF mace inrrovexents through cooperative efffort and conpremises chen they ere demendra by the exigencies of the service. RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 -RESTRICTED SECURITY INFORMATION Chapter IZ cG.TACY L.eorLatiar ‘The provuchive capreliy of the nebion, the cudLity of certoin cozpenies setisfrctorily to produce specific ites, anv the problen of how movi cfivotively to acrehel) the rotenticlities of the swaller wer pleats were Sectors indlepensstle to formlvting © precess of contrecting, Closely releted to these ~ere the uifficulties involved in ceternining cost, both estinted env red, in orcer thet foir prices nicht be veié, To untersteré this in to undorctoné the plemning, negotiation, and fulfilincnt of contracts, eno the fullowns pu_eo are intended to efiech such on uncerstendings A curvey of the industricl poteotiolities for procucing sirereft nas Siebeo 26 coy co 1020, when cix plorring Listricts were ort uo for thet purgoces” three years later procvrenent ploucian offices sere ectublished cov curveys were uncertelien, ithe Sen Freveisco office, for exemple, reportes on oll of the feeilitacs of vit inportent district, noting the possibilities ror enerreucy rocuction end the resources, capubilitice, ond regulations of menutreturers,” these esrly apmrooches ‘to the problem .-re someriet hophrzoré, hovever, ane nob until war ‘thrcotencd tho coiety of tho countiy vere nore positive, oryenized orforts nove to investiste sources of surly. 35 RESTRICTED: SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 woe, om = ESTRICTED % SECURITY_INFORMATION In 1939 Generals Arnold and Brets recognized the increasing necessity for orrentariden and ples: for airerect erocurcnent, and as a result of a productive rorer survey, the latter proposed a plen for inctitubing navs oroduetion of airereft ane cecescories. The plen envisaged a:viming the construction of lerge aircraft to lorge plants and small sircraft to smell plent:, in orcer to develop the capacity of nenuf:ciurors to a prowction of as many as 500 tretdeel end 4150 twetaing tyse alroreft per monti’=in retrospect, a nost conserv: tive estinate.4 During July Generel arnold ewlled a group of manutocburers to Josiington for a discussion of over-ell nilitesy requirencnte.? Tt wes hoped thot by such meetings a clear vicw of the actual and potential capacity of the alroraft industry would te possivle enc the coo craticn of the inéuctry furthered. Exalustion Frocecures at thic osrly dete there ves no difficulty in vecurize bids from manufcoturera, The evelustion prucedures of competitive bidding, Love ever, involved annoying and rotentislly dencerous deleys, Larufaciurers conpleincé of their uncertsinty when preparing bids because of difficult Legislative controls (orice inereasou by Muicotca daneges clauses, the oplittirg of ovards for propellers acu ougines, anc the like) end the everspre.ent feer of stril The Latter nrob:bly ceuced tho greatest corecrn, beesuse it could ctop procuctio, conpletcly end aopreeiebly dnerecee over-all costes a stoscu € in the pleut of a sube contractor cutld ous of tho accuécition of a vitel tien and Lalt the gvocuction of the prin contractors? RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declas: d IAW EO12958 cot, ou, 2 ~RESFRICTED * SECURITY INFORMATION e In tho sumer of 1940 th: Aching Chic? of the Air Gorps published ‘the Air Corps plon for epeody, efficient procurement, It involved (1) the centrelizing of coalrcting cuthority ot nicht Fields (2) a definite allocsiion of contrcets for the mamufecture of alrerait ead enginess (3) the procurennt of pow renontefurpisicd ord orgoniscticnal equitnent by shortetem adverticing of by aplit cmazény (4) the ace of nogotistion ws cre advirbisine foiled; and (5) tie procurencut of pinfreses by nezotintion, with prices bised on ontit: of previous contacte, At Usct tine 1 veo cotimted that the neoce of the Air Gorpe could be web by placins about 260 coaurects th 100 nlents.” ALthwush b: sie progrens for procarcacat vere rather éetinktely ostcblished by 1940, pleming ves scmetines held up by aniceinion ex to opersticnel snd tecticel cennus ana by cutdates nvocedures. For exe angle, in 19/1 preeurenenis tee heLied und re laced Ly 3335 the Baa vas enplesized for a (ine at the expense of the Bq25, end then ite procurexent wis potconed while the oubstitution of the B-29 ues dise cucceés® two years later, Tight Piclé contracting outhortties acre confused tecauce bicker eulkoriiics cule nob éecice uron the extent of the necé for glicesu.? Other procurecont diffievlties arece as a reoult of an obscletion policy forauloted in the corly 1630's wien procurenent ues on ac extyexely sual. seale, In eccorcance with tht policy, the Air Gorns predicted afroraft locess and ociual requiremnic on tho basis of a l0-yeur life for en airnlone. Loter, the reslisstion thet the rete of depreciction mist porallel the procress of research ent developrent brourht nore Joricel cleanin, In acéitior, the wi e RESTRICTED SECURITY INFORMATION Minrcess of Goa: ress THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 as-ce, ow. = -RESFRICTED x SECURITY INFORMATION e to oupphy fimés mato At possizle to roy Jere aileniion to the precervetion of 1d oirpleacs anu to surcue an obsolotion policy more in agreevent 1th current ‘netieel noeéo. In spite of the 6Lfficultics of ukinc contr.cts “ath the govern= rent, uerufseturors of cv sy ceseription, ith capressioss of concern for the notiorul welfare, offered their f-ciliuica for the procucticn of wor metericl, These offers vere referred to the proper drizhb Pield outhorities, or, in the ovoe of onc sm11 comentcs, to the aroropriate prine contractors ith the cup-eotion that dixcet corresrenence be a opered relutive to subcontraetual vor In the cerly ways of the cnergeney period, cuny mrufseturers ~cre consletely confused os to vivon thes shewlé consult coout offcrine their services, a fset which inddonted thet the placing of tke urewsr verled hod been fer from Uhorouch, Arparently only the top layer of amfycturers had teon inoctrice ied in uroper procedures, Letters requesting infornstion cert inog bo + r contrsets were directed to cenalors, the President, tho Secretory of ‘or, the Chie? of Service, Chief of Air Corps, Office of the decistont georetany of Jor, .cr burchsoing Desartnent, to 2 a MGcnerel Georre H. Butts,” and to Line, Roosevelt, whereas prover preliminr cvvice would heve dirceted oll ccrcwmicniicrs to the Gontroe! ing OFficin, Ueleriel Division, irivht licld, Tt was, in fect, ag loxe ac dune 1045 tefore .risht Flelé was directed to eet uo an oittce with porsonrel cereble of answering all. ms 23 fectur: rst questions.’ e PESTRICTED | SECURELY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 mse, can at RESTRICTED 3” SECERITY-INFORMATION Some menufecturers .cre dicavp.inted in their scorch for var cuntreets for wholly different reesonc, The ‘or Desarluent maintained auerés would not te rece, ard io srine contractors wlio .ere viclstore fenly cocn,4+ 11 prine contractors ere requdzcé to obteln the “ritien anyrovel of the contr etter offtecr before lettin: cutcontrscts, Lists of uccatlot cles” contr ctors sere vlso maintained ot Uright Field, Further, it sec believed thot sone contricting officers carried uontsl recerv. chins oboub ecrtain con trcetors c.6 thet the auarding of contreety “es intlurneed eecordingly. Snotler provle: of eh crose curdry che oly dis rerdow wine the creouraging the neeesssry research anu exrcrrentetion orior toe coetelon ce to the rea of aiorcit or accessories tht were to be procured rmortibies, Alsouza ib bed bron on Air Corps policy since sorlé Lr T vo cvccurce grents for rose: teh be ive pare! 16 tyrea end bo orfer Lirencls) ucuista ce in dumther Cevclopmenty such Xr Of the cost “ns Lorn by privote comedies.” In the nork proves sueecosful, the eonpany coulé reost ite exporditures by selling in progvetion qpantiticas Af the rececreis “ics unssececoful, tie loss aed to be rbeoroed ty the macutveturere, om experce hich rany of then + no corvivion ty vierd, Plong for Procuresent Gnee overrall policy hed boon ceiersinrd sou the prolininsry plens or procure L comsicted, fovesti riders ond plire for the nroomrcaent of specific iters procecéed aquee, shen tlds phose reached, the Production Lagizecring Section But these euenglles of industrial ecoperetion vere rot the excoption but tie let nonths of recenrch vere eorried on by Abnorett Associctes ‘to produce & povor rive for Vickere;”” the iestinghcose Gompeny, upon roqucst trea Jiricht ¥icls, note creat effores to Ledmicate « sutiofectory 23 pouer turret; uno the enelsecrs a% the Glam L, Kurtin plant co- operated fully (ith obhcr mcufseturers in the builé 2h ig ond testing of icus sirorsft models,’ Sone progrene eniciled planning » complicated yet carefully interretec proovrere nt o ex arse arese of the country, the one eollinr for nearly 18,000 plicera, tor exaimle, devolved the suordine of contrects for sono 37 caperinentel revels to 23 companies in 10 otetea, ond for RESTRICTED SECURYLY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 ust, om. RESTRICTED a e@ -SECURITY INFORMATION coutreeting for LL proweblon necels lth 2 eitirrent ec: condkes in VY, ot: tern? In Unis one simil-r situetions, once 9 Gecinn hee been rerfectec 240 veccpted, progcr ceorcir ion of wrizub Fiele tor to te nedntedned to cope vith the grokIr~s of ceteris ing the eviilebilit, of vlisl neteriols, the azount of .ort clrcroy undortr n by sultsble rorufceturers, rc the stcie of the Isbor werlyt, betes for ex.cuving production ecutrecss “ere oct ty the Letericl Plywdne decticn of the Letcriel Division after éctv on the cveil bility o 6 vitel, seeree m teviels sos ecordinvics."© the Contrets Section forichd the necessrry in~ forustica in order to svoid plecing new contrsots where they would in~ 27 tecrfere with the Cal¢illuent of srcvicus cré/or sore incurtent oblizctions he problen pronented by oa uneven Gistricuion of availutle Ietor vee neb In rat by civicine the country inte four oh Gistricus, uaich “¢2e then retoy or 1: (U6 1, IL, UL, of IV, corerriar uyen the leter eitueticn in tht vistriet, ‘time, the districts Labor sorties «ne ésivnuted ty the systole Ted Uy LIT inode: ted thot & skorc.ce se expetca in cix ronth., on) TY thet © curslus of lecor caictes or vex cureticd.*® The ccooerhicel loertion of rotenticl con Urtevors wo cheesed stlnct the Livi of civtricts bi nu aithows d:cor skorirece, and Ab ros p.ley rot to plsce nex orcers in cistricts Isleled Lor ZI, Freniuss sere gonrtines pois wy the GaP dn oncer to piece orere victe no Letor okort.re existed. Hor invionoc, Sicele Ine, of hex York reeleved 0,700 Lor 5,060 pewllins visieis oul: bave been pro cured for :,25,559 do en urca of Litor shorts 6 cinllerly, the Inoustried Tlrctronie Corrorction of Brcoltlyn reecived -.99,840 for acteh ecwryice- soy a e exces videh cove hive toca tonght clscwiere for 75,660.79 -RESTRICTED- SECURITY INFORMATION, THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 RESTRICTED GESRES, Clog Ae e SECURITY INFORMATION Use of Snel} Honte To teke full suvenw-e of the country's indusirisl potcatht, the williaution ont ceveloment of wll wr plavty ve of greet ine portunce. In the first three yoors of tie excrreney, Hitle hed teen Gone by tho supoly conviecs of 0 bole io serched tie reductive o.er of evel) inuustry. ‘ins frusa Counditee rerortes in deruery 1eK2 tact orders for nixeri-tt hee ocer concentrsicé in 19 prent cixermt conpenies vherese rore tier 69 esoller ones hod reerived no orvers at cls ror Indeed, Eee they even boon considered, ceapite the ob thot potentielly they coule produce 2,60 eirgl-res per conth,?? In s verte hecring the stotenent ves mode tht 56 of dm riers 18/,320 monufsewriny cctabLich= mente sre rebtine 75 por erwt of dxay-wovy contrrete end tint uke rect cen 06.9 grim. centwrelors nav /,0C0 subocnirector: hus, nore then 174,C.0 nonuZecturcra heo not teeo touched by Gél! in its nobiMertion of ie rscion's docusimish reccurees.?! Nevertheless, the on Lepartnent vos xelneteat to eve conteuctore forced urea it 1s Long rs Ab ves scounntsele fer te quelity ere expeditlens érlivery of mo ieriel.™* ‘Thurnen Arnolé t.ctified thet for quick procurcmyot of lerre arcuutec, it we conerelly unfer be go to a lence, recomnisca fcoility.33 In spite of this atlite, u ehsinson of GB ve euthorized by Gongress on 11 June 1942 to robilize the conediy of sisUer dnuustry, Hey orcered to nuke un inventory of urell plots, te coll then to the sertion of the procurencnt aceceles, oru to study the problem of sub» contrecting. If the Chairmen of 2B certified tie rorcucey of a stelL slowt cor a portheuler project, it xz. vo be used of then, 37 Bell one Severs » Stored ceckerd Josces.*” ice rikeleus, betneen dune and Gctober ari cenenbs were ns.c to investie ic procucticn costs, ond the result at ot ceacrully corrotoret-d ecaLicr opinion to the effect Ut rore intrlenic cirere?t re ontiuearin * ond prowuotion, So elimin to rigine eoutc, rn efvort hrve to Le mace to simalivy evecificatinnr, The retort criticized tre cuntersone coloys of procurerect ena recomented List cofiuite decisions be rescued on types ané ouentities, Ib urged wise thet the Iva on mer concrreti ote clarified ané thot the covsibility of Linitré-Life tecbic ones Le olzdico, The xccen nection tint esis te frozen, even Jor o linited rericc, wor urceerible to dir Corns tactdei-on, uae wonted te mele viutewnn eke: 06 it, deaiin thoy felt ucecocory to nointein open Gierel eup-riorlty, Cosle for Miter, erewth were recognised wo be usy Ly higher ttn for comwreted ty ros,22 leecoly teeauso of precerites siop insrretins, ‘Ther neein, conte veat uo ven dt m6 RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW E012958 - RESTRICTED — “SECURITY INFORMATION 19 oly in pleen ef acurees ein 5,04, Cl e neecee ty bu rk ule cer ie overLoetrG.* Tn ceriiden so tr fet thet yhe nom ps camrlenes oleo vcocunird dor high Eeouuse tie musics of winelrres ecvevted wie rot ae} ereais bo vesor Se onicte 1 tein, eouisg one ¢ tape Led ban cb Leact erly by bildvet, cost Eo relesincly ot ley detee da Ube fol Lovel 19/0 igs. gee 193 Lys ASS. Ba29 1,039,/02 458 0, r-24 | 398,569(3) 339,908 ron 25/87 £51,723(58) | 280,951 (077) 2990095) | 315,276 LTE P0552 3ey cess) | a20,205(420) | an8,:23(097) 2,180, D] 39,0450 ,0°O)] 24,000) 19,636) Ley 76) 51,005 * 18,052 (1,610) 17,.46(F 259) | 22,929,670) 1ayhgo, ‘* 175) Eres] 49,90 23,57.(1,¢70) | 27,106(s00) | 22,000 77,968 |as,cue To enedyue er€ coukrel cor .s, o.tiecs “ere cet up ab tcekdinston, ut nigel Field, end in tke otc orieie.©° In xshinetea the Gonurce’, F: ce ong dealyeis Drerel of cb Frocuremri Divisicn observed frowr sinft Jevel the “ork of Lovr ceieloas ené reviewed ol) criecs sideb ve wired % For racmple, Sel botiiolghis re sweouned fro- pion G-uk Legiuber i Lorton to unit omice of 7,10 dnuioré gf ce preset 4,753 fron Sperry, | (Sco reo Dor Gen. O, 2. Letwols fron /Y/, 30 duly 1/2, in aad ulk) 162i, "Contrcus.") # hurtcer do Liéiertes & Sesce in(heotes the rutter of un Che ancy RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW E012958 2 procures; sua iskeThis Page Declassified IAW EO12958 so-so. = -RESTRICTED * “SECURITY INFORMATION, ice dysis Unit ot e the Ureer deere touts crore & Cost rm urd ib Fleld ascivted ia or ob idry +o arr: le cabinnece, bene 01 + could oF arierial, Gireei Liver, ovriecd, subocate” ebiegs woolins, welke rin, oa Gireet chores, kb Bie: vide und. nevobicled precuetion AZolov-or evoouren rs! vefore the weliv ry of Uy fir erticle ard ums bea fer eiuel catemicre” cuore evedlcble. In re ibe Gf the B79, though Laree Larce srocure «nus vote sace irom one concercion ketene the dcliv.ry of the firet olreleres, svececsively Lower prices vere neroudet » in vobleir tion of Srore-ged evflckeneys Yo ucterndne riburicl east, uh bids from other esmrcters for brne oF similr srtieles vere ivkea into corsivcrsbicn, Alle ances vere soca for incre 8 cfMhoienes, decreased corp, ved inererced veveb In eevLtion, prior bo Ue presereulen of contrceie, parchree oréers, ckonce ortexa, or om ler ain . rectorus, cren erre ves reviewsds for ti wh PLL seine Se purres 328 chet 6 98 analy dots, nee clerks bo herdle a: mronizively 450 rriee analyses exch ronthe winilar rcbhost «re exclozce in lar disurict ofices. fuer the suntcr of 16/4, whee penebierwhy AL prive cont ote axe keing necobiriec cb ded ub Field, the work lod “ru creatly remerd, futhoritics for web varchsce .cre oceceicat lly forvanies from wmivui Firlé, and exch bir iccinicel Service Comte cistrict uno reo onsite Zor issuing ccuiteetchen ‘© rotidlerbione ond Lor takdug recenserdntiens concerning ‘the effect of thr ekrnec on tho unit prices ® RESTRICTED Rear INFORMATION THIS PAGE Declassified IAW EO12958 ©This Page Declassified IAW E012958 wisce, cup, t= - RESTRICTED 2 SECURILY INFORMATION Zroceture in Pocine Gonirr ots like wired to effect ll tre otps in forral procurenert wes lon, ALthiuca cunerloner ene neces tty shorlened tle perio’ curdre Be cr, tke muer of interestr » orenedes wiich Ped to bo cone culied vec wo mrt ome tke necc.cnxy veolin, emcasien, end cuestion of mopo er co bifold thet ike procurencot of unt nest iter: renoined + tek of oreo. nomiue, Por seme, ike followin sieoa cece ive volved in the prosurenis of ¢ new ninclenet (1) prenomiioa of us re srecificetion anu gochey of cvulustion, ut avrovel tresco? (1-3 tenths); (2) peepsr:tion, poroni, ond distriubiea of "rcque. be Zor asks yaken of cesion cute by ne blecer (1-3 mantis); () xegolie tien of parchice of an exry. deco cirelave (1 uonth)s (5) Cesign ore constrvetioa of caccrivenlol cirrlene (6-18 ronths depercis op tyse cue cize)s (6) crvineering tects enc chenres (1-3 ucnths)s (7) negoti sion of purchase of uervice ti ct cuentitics (1 month); (6) service toct by tecticel orpenizetions (SI? months); aué (9) apraoval of type with or wbthout chences, After all of this wes accouslished, quenvily orccuren nb wee inktdoteé es follows (1) prepercticn, approval, axe fornel eeouers Lor bids (2 month); (2) ad sing period (+12 rontlis); (3) opening of bids, exc erés (1-2 months); (1) celivery of Siret dtom (6-12 months); (5) oliviry of rerainine articles stertirg L to 3 nonths efter eprrovel of the first erticle, In enorrercies, hovever, Unis conpliestes proorlure vnc semsiant elbreviaies to excecite Asmediete procurercnts (1) orevaretion of type specificetions and uothods of evalustio., and 4 oroval thereof (1-3 nenths); (2) prepor: tion, RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 vss, om, © RESFRICTED # SECURITY INFORMATION opprovel, ond rudldostion of rormel requesty xox bide (2 month); {3) savertising period (3-4 months); (4) openine of bice, decleretion of winner or winners, and sverd of contract (1-Znuaths); and (5) 1 celivery of Livot cirplone The celays coused by adveriicing oe tke cveluadion of biés vere Lexgely eLiminc sed vith the eévent of tke necotivied contrret, but since neny of the checks and sips of tho process ware excential to safe procurerent, they uere left intict. In a few caves, procurencnt of cireraft straight tren the urezing bosrd to the production Lines wes effected, as in tite sequisiticn of the B+26, Sven o uethod involved obvious cenzera, which vere cuickly mce monizest ucen five of the first six e26's vrosuced ereshets muerous deleys theresfter “ere necessery for nod “iertion, Iven so, sirplanos of tis type vere in conkut usecs cone ru vis before they would hove been hed tic recur 62 proceCwre beer followed.°* Similan speed-up nothess vere anplica in tke procurement of the f-9, &I-10, G-5/, C-69, P-173, 0-52, TG-5, 76-6, and 16-8.53 arain, in view of en urcent nré ané the estly prow gress on the X0G-3 oni =4, production combreess vere Icé vith ‘eco, o before the velivay of Luc firch fliphtatect article, 11 companies hed bron cives contests to proguce 610 oG-4a"s,04 In sedition to cock ane ouch ols moiucr. og the proved worth of . ‘the plane (es opnosed to excellence on rorsr), in the eveluation of dcoime biccrs vere ranked ou rerfornences eavineerine, ond suiiebility. Azorg the fectore noied 2% cusica, specé rt sea level, cnéurance, service ecllinr, rate of clind to 10,060 firt, tehe off ect lecding over a Pefcot otvtecle, weit cr RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958 chr, ros vedclt, Lelonee, expine,This Page Declassified IAW E012958 RESTRICTED: kis-t8, chaps T SECURITY INFORMATION ° 65 vrovh of couty dn cucntity, Stter e cohedule of velivery, cxamining the airevort in theso teres, the evlustion bosrd mace contract recornerdations. Thee vere reviewed by tie chicf of the Veteriol Divisioa, the Coiavoine General, Aai’, end the Uner Seereteny of vor, Usuelly the ourgcabions of the evelnation bosrd were followed, slthough occusicnelly slicht chances dn achecnline vere maces* as ecrly os 1SL0, olicnpte "move to ctuncercize invirtiors for didving es vel es the ob stegs in procurement oroccdure. The sir Gorpe inedinicly o- soved such a vove, however, ou She tasks thet air force procurencet, end ober cireunsi:necs, vorird too r-ulenlizs in accition, obvicue cicirences in the metericl te be sequire: neve 66 unéeiroble, Fo avoid this kind of duplicution of effort, o11 procurencnt sas ned er vefully in or’rr te cooure neiemiel throuch the service int use nomelly obs: : 6 Covelopuert of tie item in oucciion, 7 altrourh the eciual steps eé with the sien vore folloves trex the tire th:L 4 need Cevelomd for a nev item to the tine tht tds dien was in quentity procuctlou varded with cireuustances, the dlervem on tie Tolle inz psce iJuswrutes the beste sleps thc) characterized the procurenent process.©2 recuee tke Lurden of contract acmicistretion an effort was moze to y the conurect, Highor quikority in ichincton tried to keen the maker of cepsrote combracss - ith inéivivusl conurecters at 4 mininun by kercling recevals, counrce, env cutbacks th rough * ‘The booré ovr. ected an E0-37 split betuccs Seversky ond Lell ovter each submlvics cinele-envine Pivntir cesivres tie Acsdotanb Seerew ry of dar chonecd titi to an E0~20 soli. (Gongare the scries of cireuler e proposels for uke curwer of 1939 in Lyon Project Dock 6, Tab, RESTRICTED SECURITY-INFURMATION THIS PAGE Declassified IAW EO12958°This Page Declassified IAW EO12958 PROCUREMENT PROCEDURE ESFRICTER- e 3. CURED. INFORMATION ; CONGRESSINAL APPROPRIATION ete x nl, ' RESEARCH & JOINT AIRCRAFT wa) AIRORAFT a | COMMANDING DEVELOPMENT ee coh RESOURCES | GENERAL AERDERS 3} eournot ovtioe | SRDERS * “arse _ 1 ho INSTRUCTIONS. 1 TROEERINO | 9 ce aes weneere RoOUCTION DETAILED SCHEDULES : yw CEUAILED Scher’ , | NANEFRSTIRER ‘ACT 7 e THIS PAGE Declassified IAW EO012958This Page Declassified IAW EO12958 RESTRICTED “SECURITY INFORMATION sur lenentel e-rcerents.©? Sinil-rly, the contreetine body ob vinteht tne, 0 Field okenptce to evabine inte one pret ol) e-re 70 tg with a psrtieuler sanufacturer, Local furchoce bens of reluidsely ons2l value ca. th.ec in genors] use sere normally procured locally by &iP stetlenss™ the comorcing officer of the f4clé rerorlet all. such purehoues of wore thea 200 to the Gomancing The reports incluced a Lict of the dtenc end tho authority unécr vaich they vere procuxec, Jaen in Larch 1944 a survey of five lypical Air Trensport Gortard cubuc ote shew ‘thet 55 9 1 ecnt of Joev) purehcses coulu hove teer sveided through requisitioning, a Gixcetive we Accueu proseriving © 25 per cout cut in this type of prom curenent.73 4 Inter oprvey vetreen July LLL aré Lerch 1945 rev sled iant $8 rer cent of cll loccl mrchree tot-Red Les. than 9000. Tt awe believed thot exalysis of-conts al this level wulo be of Litile econonic value. Eyrebese ron Other kms erd_Jervices Several other scucece of su ly inclu¢s¢ orocurrnent arercies of exreg Zoress obi. thea the AMP, civilien orenedes of the United States govereient, oné foreign conurcetors or avecies, The totol anouxt of procurenent fren ell three of these vas relobively small ore cencrelly ‘tke Americar conurceuer ao the wltinete sourec, The relebicushipe bet con the Usieriel Concend of the L8F one otice nrceurcnent cveredes. of the “kur Doparinend, ond beb eco the S4P avé the itevy Depurtacrt 64 fored only in cere. Aetuclly, the oluer procurenent « encics of RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 123668, hap. I RESTRICTED 35 SECUREFY-INFORMATION r ) the ver Deportuent (Included toveter bere uncer the army Service Forces) and the Luterdel Conncnd (lvter ihe Sir Zcebuicel service Coasnd) both éorlved Uucir authority from ihe Under Seercisry of lor, Mis procuvencat cover sna Celecy ted both to the Comonciny General, Bil’, aad to the Comienéine Geared, icFy the forree corcrelly obvred ith orocuring scroncutionl equipzcnt ond the Int.rr cll other equimment,”? She air forecs resdvec the 9 og of ELL proourerent for tke amy da one service, contenuing tir’ it voulls te prejudicial te effleiccoyy® the «ir Go: heé @ hip priority for many itors, bai if the gover of elocctio: vere helé by sone obher crerey, thie rar’ing might becone shiek .cre specifically wecsiartevs.”® therefore, procurercat of tien for the AF voncincé uncer Sis ovn conrol, whcrece dters for co-s.on ce were procured by the brench mort cizretly intorceieds The Giviskin of interes vac even vlonteréiact. ond clarified, mné by the coring of 19/2 cl asi cents oF chenves coule be henclcd oy tho Dizcoter of Frcoprezent tn: Elvisituiton,”” Gecer ly this ar rarenent elle ¢¢ en a minim of competition bet cen & one where there .-s = conflicu, one of the orereics Coveloned ity ows % coarec.™® Inferntlea 08 exeoa“ed 40 tact the promcx aneeey could Goterrine Lic For rotien le, Services of Su Ay recived infor ou the yerevaiore loxing of airgloncs ish a cundilen end on the chemieol wurtire Ceviers by ty-o yareoce ceec2t ry for e: Leuls the requixcucate of whe APs”? Goorin ced orocurer ab “os of tuo tyrect (2) rrocurciert by cee actyice of dues ured dn eoron by eld servlows, cuch 26 Meulsisicrest deus by te Twert marcus one (2) joiat e ® Geo iLoscy De 53s RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 RESTRICTED ‘SECURITY-INFORMATION Hrocurecent by ucw tel wing "mcredes, ute op Incer procure -rai by he Gen wel areentiw acne on Lukin, aeve miewiel, on the obker indy ves procund by Uviral divicront cverelos indivicusDys fucls the ond Intelerats «re procured insrceter Geverul, the Seay Aix Force, the Eurcou of Surplirs anv Accoupiz, env the Burean of 60 heronsubies,” trot zs eorky co Ute uprdat of 1939 the urcou of Aeronevtics and the Air Corre « rong procure nt plies dn orcer to uvold « Sleprerortionote éictrituiion of onder: anon mumufvoturone, In 1942 9 sicréing «1 Lutes won foracé to nonlior Uke civicdoa of procurcnnt beb cca army ore hevy plonis.2 In the sroevrcis ab of chrerstt crs ccvexceries, itena reercerctine expr vely 7 per ecrt of the coll: velue .c¥e coerdin: ted by the &4F ere the Euresu of Aevoncutiess recta ex recor equiptont, cepresenidne 18 per cout, sre coordins td the Siccal Corps ond tkvy Ordeanec thrcush the Joiat Reddo Bento, ¢ sukeasdiice o: the Joini Aiversit Cousitiec, Thus, only 6 per coat of the value of other materiel \oo lett, for further 8: ccordintion. ° Lespite tds, ho cyer, vel] coordinated anuy-tovy procurercnt id vob obiuia throuriuut che wr, Prior to the spring of 1945 ti e lid teen munercus Gisoreerents viich Led the Jecreteny of Jar to comploir to the Scerotary of the Levy regording Cuplier tions, conflicts of interest, competition for contractors, cré cumbersome coraitice netions* Luch of this we elinins tec, end npocran plowing abriued, in cases where one cm Gio prooure for both, tit is in the esterorire of training otrersfl, eneines, vrosellirs, ond bonbetehues®> RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 Pus ens-€8, Chap. I 4 TRICTED a 'Y-INFOR) ME e Sone precarcrvet sup arronwed by the Orfiee GONentite Research end Development (C&xD); in AW ins, howver, ib 6 tomer Lees au aeelécnbe] dereleo nb, Ab ddrci, the GSD procverd o few Suuiek tiers’ to cupeciite teobine, bub Irter it mus eaberracced by the preecnre 0” consrés iron tke sceviers, hose om oxen iartdons did not pemaih exreditieve prooureriat. Tuconuch vx the Os. lneked vroper saferares for enive procureorti, At -s vec eG an January 1b to Limit GSD cuitority to experineniol ilems for ube Array une owy. Beyoat tts, servieos “xre to co old thedr ous gue procuring, ecclated by tke Lotd.aol Neecvrees Deferse Council in the eorscity of sdvicer e25 conuultent,% The ALF cleo eccuired miterinl fro. 2 auuter of lees isportert vourees, he Civil kerouswties authority, for ex ‘le, “ve 21,000 ‘orth ott reniree, in ihe upris.: of 1913 for tie surpore of sebtire uo rirport Lightin: ceseorcs ut tho cers Sime the GAP tronsferred © Zune of «10,600 to CAA to cover irvecnortsth. costs end cerivin renlieenes’ Hteus Zor the beooone.”” Peizen Sncuctess sere retroniacd ur Uke Aik feserul Ieu," ene cuveraeee Ye: dn vecorcnres ad 2 cleared by the Abborcey Generel; these surcheses were svoekfiesily exengted fron the Jolub-Hesly rublio Con-riote het by tie Soerei:ny of Eober.®? Fux: Altzourh Gon-ress sourht consistovil, bo protect american business by Lndidce curotese abrocd,° éuriny the emcrceney mortod, the arom onrcreai erencies vere urced to ccrminer Letina Ancrics va 6 source of RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 vec eunn RESTRICTED * SECUKITY INFORMATION naterisls ané cu- les in keeving with Uke epinit of the rod seigbbor policy.% The Lend-Levse hot, pacecd in Le rob 19/1,% provided for até vo tke ellics suv wlso, bs implie tioa, ror reverie lereslesce.% hat As, the Geerelsrica of ic ond . ovy vece authorized to yurchrce ebrocd ‘nea ouch purchoces sore in the interests of rticnal cezense.% Ine souach ec the United Stetes we not you ct sor, the Aix Gorge plerz.cd no Lszre volume of Zereis eurchusoe >t tant tine.” For 9 vinile ric F foversnents built «no turnisied fecilities for bnericon Soreca ti + vere thee on freien cod, bub An Tebrarry 142 Gixeesives were icaved te enable nilitory orgecize tions to euteblich ond sugely Useir ov. foeiliticss” AAP ecrvice eommnes sere orenized to sake neccomny contsiete end garchasos overceas for the aR,” Under © purckeaing end conlarct scotion there vere ect up (2) en eaginermine Givioion “hich outlined the reqvirencais for lecsl moufsclure end par- choco, (2) a proctetion wivision chick mede the neceusany aegoti: tions She contrvevor, aad (3) a sursly Givision sich wrote tim fortal, 98 contract end perfomeé cll the reliieé Picesl ~ork. dhenever the necé 0: ce for a srceitic iten, ry xy o'tenpt s mare to procure 1b from stcek or frou army sources; if this Zuileé, the procurement erency certified the fret ano signed a requisition for vi property. This wos theo cubrlites to Uke rurebesise aru eontrectine officer of the vervios ; vous, sho ie tuna submiricd © xeoucet Lor Local rureiyse to ‘the arn or cerviee cusirscting offiecr.9? The comm inn reneral of any air force scrvice commnd overse’s vice dircoted in 1942 to supervise ‘the menuireture b; foreiya conc mns of such Liens of AMF equipnent and RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 wots, mp. z= RESTRICTED. _ SECURITY. INFORMATION e supply ae “rx requived, ord to orrarce for their proeurevent 2? Yericus over-oLl on-vatantidcns vere ort up in tir theatres of operction for this purpose, In Teala, a lunitions & ciernent Gonndittee, pede up of reprect-hives of Britich, Trélan, Anrlesn, ond Chinese Sorece, otsirncé tke emve Tusien procuction of urtrxicl to tie Allied forecs si determined whieh tens vere to be tebe. In eoconcnee sith a veeision of this ecaulttec, the procuction of com Flote nireredt by the wivdurten Miron it Li, vec teperre off to pemait 102 using the pleat for tie wcufreiure of pris urectd by Use &AFe Indian roscuvece vcr cleo uscd éurin: the xr for momuf.cture of tircs ond tubes Zor AaF oirerrte ond vehicles,20 In Austrelis V Air ¥orec service Gommand beo e GE? contrect for tires with the Gocvyeur Tre and iuubor Coxpony, Ltd, ThLy contrect, olthouga elerrcy by tae dustrolicn covernreat, wo not pert of reverce oné-leec, ‘Tae cecivion te procure tins directly trea the merufecturer ruther ten through the dntcrnedistion of the dustrelien covernmny ws prompted by the fccr thit the tuetory oprrating op © lendwlevwc onéer night experience Intor diuticulvires4 other dtces, houwver, sere procured vhrcuch recnents to vic dustrelion Landstry of kuniticas, da order for 30,0°O ctrope for mounting parachute unity on buts was Placed ith the australien goverrvert by V AFSC in Febracry 194. jkes ex oréer for vouble-susge: soa Lor kooks place, six nee Prec the local 05 orénanec ecmpony vere lent to the oredvecr bo epero up prouuction.” via rover soccible, contrset comes .ere converted to leatlecc, ond ero purchases vore Sept cto minimum, Duricy april 1924 ike pare chewins ix conbrreting sceticn of the V Air Force service Comani Sur¢ly PESTRICTED SECLRILY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 AGe56, Chap, IT RESTRICTED 60 SECURITY INFORMATION Division exeigned 110 centr: et dens for equdenrvl, vr Dies, aré services, orn else re1e 369 cuch purcheses for metericls o0u aug not ct Lew. Levse,106 Cauoce yovod & cermin’ Gi Texent opoblea Leeouse of ite elo-e Ancustricl intevrstion ith the Unites Stitce, Garacies firms w 28 on the whole, tre:te: ctly Like am rienn firme end, indeed, sores tines acteé oc outeonincecors to Ancricsr ramnf-etarers, 207 ana nesoticidone for preourenrst in Ceneca were nage throu~h wer Supslies Lito, tn shinston, w crum coupuny under the Oonsdicn Departrent ef Lundtion: err Surly ‘bich an tum, contrcet«d with the o mpanies cone cemcé. Loct of tacce contcets exe one GP? tzsic. 1° In Decender OAL ell recirictiens on the pleein,' of coaterctis in Gorade “sere rexoved,20? bot in the wintcr of 19,2 there were seoucctions thet polities ployed too Iexce © pert An Gencoinn srevuction > ho ste os to winter of 19/, the procurercnt eveneics were verred thee they vare to Plece contr: cts in Garo’ for procuction consiecrrticns slere, ano rot to provi.e © doller cxohoxze in Coreea, + Liner pureheres “re mece fro oti toreine governnentc, In 1945 th AMP sdpieh Febru: therlems retyrced sous treininy airereft to the ua re credited to the jotnerlencs LeneLi see accounts and in the spriny of 1943, 25 airplen se6 outrivit from the 3 vere rure! horepiun governaents 4 complete accountins of reverse leriimlesse ig almost impovsitles no Atenizcd wt: Lenent of noterinls co proeurce mes preserveo, olthov a mutch dafesnvtden ooubtlree extivus ove J nero ss resistence abroce in 19'2, to the dies of ony sccountiny of lencelevse iu reverse on the crow: of ite dupractiesbility anv, perhors, unrccirobility, berctor prester of teins obsess RESTRICTED ~ a - (SECURITY INFORMATION: THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 RESTRICTED S68, Chaps TT SEC URITY-INFORMATION o The irportoree of # roceible cccountinr tcesue ~ore sirnificank es ve found jilsers where there priceion cbrocd thet lerdelc: © eré lesonle wore oximvtely in balance, Io gone dnstcrecs thls ceened to hove @ eczeuinw offiedel orivin alti verionee ith the Svetse Port of the mreen Lor tue Ick of acer: te peecunte vse the fuel the Departaen of Sinte instmeias the Untied hin-Con nol to iteaice Involecs of Uh, reverse Lemelerer uk ind been sumieher. Son thts subject the Liré Gor-ittec resort e thr Nhe eorvides “thileh are been erote + iL moke on peenrele +ceuaniie ef Ter Jevre trorseetions extrcaely GLiviculb, 1f ince. G ib is gorcLle to rehdeve even o relicble weoiis: ber of Inouelerce tecbmer aml? RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 wise RESTRICTED SECURILY JNKORMATION Ghapter IIT ‘at WL Dd 0 ath Cait The procure snl visirict orpenizotica, in giéition to their flinler Yuechien of scizeine Sor snd cxplelting nev sources of uur Ty, floured deport: ft An the rerotintden of Me contr et, o6 ins slnecéy been pentiond, ane da thr ecvledctrrtion of the cenimet, Abe lelier dnvclnu 1 Ufleite ceeceiselizrtlen of respeucltdlitire, co hob certs ia of bhe , orlpineHy od nce to ipkehi FleTe or wsidir ten, ore Tier cuauar eon Celect rd iemtho 0 flerr of We rreowrene ab re eevrece of surcly.* Yore areetrie: drecing ur of reer oom clones eutic wibike officers.” The Liceul crctiung of the peusvrenret 3 fe curenvlcce price ue instante, Tinereiey ru dios ome bu + tay preourrt: rt ereticns rode close “serridon dn re-ehk Mone so + pre, ueties cot ts.” Inner bob. cn erieir = rere §udoleve % ihe cud cecblow, of & reenres Wh olutrlebi, Lp 1iLien Lo rudlbin or sucorviciny the svelte of Geli ecnteccis, nace cock 1d POPE etna, corde the en cal Magrree pe reas" ote meee reeeiea.: thane ¢h the Line of rercrobiaticn, 2 offfecry eriticd tie rerutcelus ety cece: tturee for uber xedr eleineds che dnelw ré set erly 4 veréorc, Wh rice the ori;de1 © 6 RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declas: d IAW EO12958 A668, hap, TEE ‘RESTRICTED 8 SECURITY: INFORMATION e In 104 v represent: tive of tie grecuctlen Lx ancy miu’ vivieien wie eerolnicd to eve. coabreetir: plant te neuiter care? ceu srior to the plein of orver., bo chuerze the # See of ten chplegeu, tte yt chee: on tiv ¢ sere.” ke Pindir-s of Loeol omhortties sercidy . uele-d da vit ceude ble sev e-ent of esnreny eledrs Viet cre orem Ling che lop uns Ube tems ef te orivinL contret, for Islntu City, ole Bh Froeuer* Don Fleet dust eontrret to «ore Misco ef kone ect= 2) or? the Zailure to ues ve Mo ble We elu of cere vl Inislic ties of Ui covis cusccind b. CEP conte cters vcore signdficert to W7 plant regroontotin ., AP recivent usiters, oé contae fiea., wily mews Bee an conte ith the tere 9 ecwir’ ef bas unene: Ofgics (iO), ALbiengi te 6 usine? ring AL. plo bw ly - bateredonc of Aur vblta, forte rly tren the GAO 40 the AMP roures nie fey OF UNEL Emote Le SAO preehlen! He dbkboks Ans oF erty on ser LBL ud weendyed ror xerczivi by conte oh elm: Lich of ray Contin oa tie promriciy of Uke rahi; ore of ticor He ce Ceee Cr ce ca vetarred feeuhy Dre Pouviels, evexote 2 Peery ren ail clones bo © Fer cenixcetonr, ‘RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 wz RESTRICTED : An68, Chap. TGS, Globe EE SECURITY INFORMATION wh Us incar.sce on Lie ov paler ba var cose lator Hen cleeiay Je the beds of 9 .cornee vporisers for oh nto voters aie or e. To “Ie costa ws 6 OO, + chrevs tree aot prey lin” te th coutr eters, G20 fhe ren, oo uivtdve scude elldy te reagent cunitor wwe tke re plisa to id: incoresl imqpirics ‘ore une e bae muller, coum cdr outterr, ‘ro cootrreter, ritiete Dut tk om opportunity bo eal ret mere cr becere cot cedure 6 cob unifere, icc redeem’ evdlore cox Ure: eorabr dw suspeesices cre + rome @ er re hb gerent fron there ve arcdevteo™ Ine: previcus ‘olon, the elene ceruiiny of such ite, ba on dnexece in the price of urerelice™D terdes . od-ceure ve dnitdotive seen eoate ctiny ofSbers Jian y erie. ced erousy Te the eure of LOA, howwen, Se mbdedreiion of cone temdnvthens “kL ulicé ine borat $6 G20 cxe rideu, Dovsdue ecar: “Leg derer he davelved, eto GAG Piele ccuponcnis of Sir Si vere deotructod bo furnish proust represent bv s lL ond, sortonn, to edzeonr Ay tice te meane. Anforsatica .og suftietent. 106 cot yin omer they tertirobicn 6 end veer winior shew not ke erlryeee Leny cédl triitve vetuils ad to be colvemiord eb lovely hsher hen the imiot., «crtiovlerly on lence ocacwrea 9 wor! We the Gries oF Eke Under seerct: repre sentatives wy of ere Bisbeiet “ra ph furnished ~wel of thy rertincay icforr wos in thy.e ces. at 6lecev ry RESTRICTED sEeORTIY, {NFORMALS THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 AiSe08, Chop, TET RESTRICTED 65 SECURILY INFORMATION. @ by tevt prrererd, Lor imicace, thet ovptrdn peek. ofe nob acot the porfor “ree cErebiie: Hem. oF ite couirueb sue euure Lee cP tier or 9 erie. wievettou, Thus, the oder to be du fer eceb Gursicae ini b PHT cou vronerd B,ECOCT kecewe the td spend pon aker of 340 adlea wr hear at 20,000 feck coudu cob iv PA Uhob eLtasn retush toate Ue cSeplire vig Zeond ery bIr ef ealy 396 Sy publie rreessluy teaudres Are covidnuce Toews yn’ of these sdrere tb breruse the Tuer ugecd C15 not viLow iy Wen Sor Leobiosd weuecy Mite out dn price ce ootemde by v formule Jereiy ie reouctioa in cout i in Gixrrel rel bio. to Hh> SAevre of arrit tvslona ob bbe tive ef ened vohow sed the mrden on Score of merit plus 4 20 per cone percdig, whe © of gueh y furwle livin ied gerielily ond provieed © exfindie = of wchumboies 1 2 less goversvemt, 9H eety Chure of 70 err ecab ucs seb ty Rory il, Hoourter,27 Gieneos de Contr. Ghrcuvhaoh the Mitr of 2 contrret, countless che -¢ ord evcelene ie be the on! Loh verecserke ore metre emovide? for ernneca in speodtic tion, tut alee vere uneé to cinte the conditions of cavrrer cris, cue Shions tarche ses, ¢ a8 servdawt, 1 Ceeomarlic.tlen of pre uct Ying Lorre uaaber of cewees required By Ue Vuverbel Cor. 16 ermcd 6h conir-ctors, uo rn © eliersbion: for clon. Dowie kiremct cctirateo tht tiene con 9,060 tnjar etcnrce in te 4-20 betr ren 193% ane 29LL, sibth 3,060 core nimer rrcore eoru-rs, ol) e of vhich dnveluré 2,000,009 Cosicn encineorire teare.?? ico recerted RESTRICTED SECUREPHINFOKMATION: THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 RESTRICTED ‘ M'S-68, Chon, TIT SECURITY INFORMATION e thet by Aucwst 1/7 4% Ped reecivee 46 chence oMvers An Ste cicer éevicnc20 Siseo conlucet eimrses cay ou clennte ¢ vrecw ies Goricasls eole not be wHKien for cnuiecerin? cls cea Lo sveb cuentity, & preereure ~ soapted wiexely eoarxcet-ely ve rotifie: tiens ont re to the coatreciors, suo dn turn groursd th cusrterly, vith co.ts ine aL cluccd, te thet irelasive comtrcel ckowrrn cat te wuce ot cme tina, Recomiredebions for chen:ce Lu unit wrice + neces.c ry by Caden slerablon vere Indu: ted by clvuriet cuvborJiles.® Tt ire colder of Ue tox Dopertrol to cneour: 0 © chnave trex Gees! 6 XF coni secever ti te po sible. De Lay IML eisat cin GHP conircet Lorss srovices for Vids coaversion sy c weeklies tare nfter Mic eotishe doa of & cb in contion of the cove ete” Fortin, an the cutuza of 1642 the ALP weo imirveind to avoid tke alseine of Cki¥ cont ts except shen vbsolulcly icocsusay, and the BaF, after inforsin the mrineival conta otere of the wx Denortrentts cesire to convert GPr¥ coaireets to FP contrects, asked for 6 stytencet of their eihitide, ‘their reoly wos implicit in the Pact th t by reb LOLA ook, three coatr-cts—oncunbiny to ,459,470,2%—tod been converiedy, cxé the expsotabien of orters for eeu Tense aSrerrvt mce the adcition of more GFF contracts likely.?3 ‘The icee of wskirs thic ebsnve wes ctinulvtcd by convressiorel opinion thet CP? contreets vested Libor und nalericle, ecused euplicotions of wervler, involved exer ceive costs, and depeccce too much on Weaes * see ruovey BPs 17-504 RESTRICTED SECURITY INFORMATION: THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 ats, mz RESTRICTED a SECURITY INFORMATION e and renecotivtion. 4 Tt ues cleo felt thst by 1944 enough onte on tue costs of noveriels and lebor would be veileblr te effect « ecu version.”5 Furtier ciseavauteres in GF contracts, such +s the emount of auditing accostex, at the leck of incentive for cheap production, vere ohied in sv cart of Uke proponed ebnace. ‘he contreeter ené the AB, hovewer, freed avek real difficulties in convertice the commeets from GPFF to FP thet the ehence-over often proved ippreetiouble, ihe vroouction of cone item: vtill fluctucied 30 mich, becatce of str-tegie tuciors oF apreific:tion chances, Uist no ressomble fixed rrice eoule be sct. Lavy eonurectors vere ine experienced ond, with Hedy cus onownt of ‘orkine cepitel, » slicht siserlevletion eculy ruin thes hon, boo, both dik ond the conirectora! personnel “ere sprced go thin thet the xeeesr xy commatotions and 26 nerolisiions crc incocedble if full-scele provuction war to be nedataineé. The I tered Gomznd hee felled to Geveloo ony proom’ Uhr EP contrectors sore any nore ct Less efficient or cconomiccl thin CREF contrectors, ond the GAO questioné tke ecsuarétoa Ur t the new cost auld be less then thet expected if o OFF contrect sere rel reés? Tedeee, inereceed risks uncer on Fr contrset often provoked an insicterce on hirker prices fron the contrcetor, ht ouy ote, fron Uke oprin:, of 19/3 on, procure nent verul: tions specitied the inelusioa in CF: 9 S conbricie of clauses 30 olon eftrr perliah coupletion” Lor conve or on a creciiied untes’ Tho size of the conversion arcblem Ls imiesteé by the follcdug breakdown of uke mutter of GPs¥ contr-ets for airplane procuren.ut in tien Tone 1940 ord Jace TAI ike vorious aA pre-reas aporeved THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 RESTRICTED WaS-2, Chaps TILE ary INFORMATION “ e Date Hurber of Type of Contract coxrem Aooroved Adroreit_ Seer Bed a June 1940 4,085 7 28 B September 1%0 14,055 uw Rm G April Le] 10,186 9 28 D Sune 1941 13,575 = 2h 30 B Lurch 22 -10,220 10 37 F Cetoker 1941 3,469 7 1g @ Jeruery 1942 30,036 4 26 q april 1042 BL, CAL 3B 3 I June 19/2 30,667 40 55 3 59, 541 5h B E 253685 B 7 Be the sutuan of 19/4, only 67 aA# eontreetors wicre opornting on a GPE busie, converciont ovine vecn effected for ouch Jonze contructors es 2 Tmrrson Dlectric, Bell Aivere*é, iO. Saitn, anc Finney Dody.” The relotive onaline:s of this nunbor pernivted treati ceoh firm ime Giviouslly ord eliminated the nore fer overeal) policies, One of the maiz éisfieuleire kn thi convereion procrem ang the OPFF accounting nether, wide Lexced bo “justity™ cxcesvitures in creor to scoure full reiniurcenent rier then to present on veonry Fdoture of ieventory volucs or Uke acta-1 cost of vork in provresc. hc « reeult, instituting the ¥? aystem bectus e nomunmutal toule,”? Sone oonurcetor, wcxo Lesth to eroti- un ¢ chencerover Lefore streighte: ing oat cout axd Soveriony tector ene rectieiag the muiter of GEFP sube consroctore.®4 Inr-ely beeeuse of these 6ifTiovltice, the aif cectded fn IML, bist convorcies te FP conixrets ors inprreticcble uncer certain conditions: (1) 1f » disproportion: ie auount of wecountine ws inw volved, (2) if invertories would interfere th rrovuctien, (3) af conversion “ere to whe luce ak a Lite Gnte in orocuction, ono (2) 4g convercion lie to be mée retrcechive for as uumily loa” periods”? ° RESTRICTED: ‘SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 use, cor. ar RESFRICTED « SECURITY INFORMATION e Tnanechion Gre of the rez lest reeponsibilitics to be umerteken yy the Letendel Comune ‘we inspcetions since, urovdly cpes'cing, it we a phase oW proeuction, it played cv ixportent, port in the secentence of metericl cosiwretcé for by the ad. the orimry cur-o.e of dosp:ction nas, of course, to insure thet averruent poynents vere mece for the cuolity ocd ouaubity orceificd in the conic cby The inspection oryulsction consisted of th, AAP resicent repreceutetives wack one oF wore cestotraic, all of ther being she enthorittecs,36 kept informed throu’ teoinical orders 1 cre instructed to remsin aloo us poustile in regare to tke contrector's policics, execpt those nfeoting smiericL. Thode Job roe thye cecignes to su “lencat ant suncrvise rotier then Caclicrte the contrcetor's ora inersctior ayatn, The insvectorts cutics vere (1) to sre thet the ucterdels ond suv Lice net opecificctions, 2) to ov ent the rst, (3) to suocevice tke conurtetorte inepeotions, aré (4) te prevail uron the ecarenyts. 2.97 0 avoté cols Anspeotore io re ort ciate! 3, the inspector ab the fretory ag autiorized wo eceent ccods whiea vid rot met specificcticxs precisely, rroviceé the, vere resonable ccvivalents, invelved no safety Pexexd, exe ci6 cob noverecly artect sci *t or intwroheoreability, If the ewtstltute reduceé costs, oa usnroprinte contrietecheme cobificetion wer to be Accuco by the chief of the éroductien Division.” Contructorc! inepcetior ayvien cre mbjret ty 1g retin, Neeereei," beced on the covernnent inepcetor's oninion lity rove” ced of the manufreturerts ace-nplisorcai sru tc Genirectorts 1 RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW E012958This Page Declassified IAW E012958 RESTRICTED SECURITY INFORMATION’ e Control Recine jucctloursire,” Flacts given on emmoved reting biloed6, Chap. IIT 70 vere cUidject to a vevieg of their otarcice evixy sist monic, those there uoaiiss.29 ‘the uevy ond with ceferree raters ex egreeé to reeinroec] inspéetions ot GER elants wikch isu coatrets vith woth corvicce, ano the wavs neduteired vlreet eorresrendence with ‘the [steric] Gonconm ot vripht Field to resort on these fretorino. Tho sicne ichen sue Liv provucts orowd ursablofseto: verdes Cocnsicrs My, viere vena wriel or insrcetion mlproctices vere blumed, ca-reetiocs vere wee for insrovexeat -dthin the coatrector!s om or= cesiueticnt thus Becdix .rc steed to uevice iby enrinerts to "Live’ with their tuerets Curia> the Lost nontitc of nroivetios to clintnate the coccibaaity of vetectave tiers.” he qu:lity of anercetion ut LougleseSeute Lonien we. found unictdsicctory iv 142 ow the bhwe cLiecd on poor eorwuny orsuin tluug du-wdete reorrrrisebion ies advised, Arein, 4a 10/4 Douslse-cente Muales ev resroseted eww the revovel of ccrtain y perce, coL vovhsed beeruce of chert: res, imeceure-¢ le clliny, oné unceonchics] gureterine guliedes.” a third cm le of the vedo of Ape} eden ceeurnec whoa thr vrecdot by the 23 of fevlly cxeiice fren Uke ricit a roneutdes] Corgoretion ra trrecé to feleit¥eacion of cert, inproger recor iny of tests, Zurcine of rm cores, fellure to recrervbe subeottscind rnd cefcetive meteride, or.1 ehsnces or telusanersy ead olde srotvetion Lo overrlic dne-retions . cin widerpresé reo 4 or usia: ion ore elec eo 3 se on ceen ky the wicre viners it prrforwnee prused sco or vasult:ble vor ih proluelion oi comctlere ecnglebly eurls ila ory ole, precwedien of the & e wes eleniero, Tor 5 REST INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 RESTRICTED SECURITY INFORMATION fouliy procuction cs rovecled Wy n erforuence of © product, the noeuvsetarer saiv sequined 42 nk ‘ory tke eeeesc: ro./5 Rerocted trfovlts ecule tw oplt An eoneclstions env revovel aren the rey ex of potenticl o cvorss usnclly, woxver, edferts vere nace to fixe alten ite coureca of wurvily before contr: cicrs wre cccirleloly éiebvreed 4? RESTRICTED SKCGRITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 “ RESTRICTED @ ‘SECURITY INFORMATION Chester IV COs TLGFLE OG.4uCL8 In] woh 1924 Cours 6 oa och Linitiny the smotiite of evg eontr:chors-=the Vinson-Tremm] det, 3», this ststutc, the books ane recores of the monvfrclurcr vere opeatd bo “ovy sudilors, eno the ccnimetor ino re-wlred bo coy ural bo Frevoury oLL pro- Bits in oxeces of 10 pr cont of the toirl eo: sob ctice. The contr: ctors vete ta obisin oiniler terns from 611 subconiesctors, end to refreln fron ony oubéivisios of evstrets coleul: id to evsve the Brovinions of the net. In June 1526 this cintuie sw emcetes to petmdt evmylng ovr losces of one yror to bol.cee a follevdns yeor,” Durine these cove yo ru before tre e: execs profits 0 TEES y Ab wa dir Gorn, poliey-nin effect, a vertlengn's arreermbento Limit tke profits of Li. conirretona to an excunl ve © of 10 per cent of thei toird dir Coros businres,” On 3 tyieil 1959, Lovey x, ol the provisiess of the Viasonsirenmel det “ore nede er-lic: le to the oir Gorns, except thet the oromt of nrofits to be eToved roo 6 to cee eoul be ehirgen rrnkent protite These mecifie: tions ‘cre desicned to cueourr’e the cxponsion of ihe odvere! inéuste, for exhioasl erfenves Ltees which were elaccified 8 colentifie sore cxorpted fro the proviclone of thix bLLL bees they unre comely preomred da wrel1 gue vaticul So. rd to cortair ritel coreunier tion, e RB RESTRICTED ‘SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW E012958 RESTRICTED » SECURITY INFORMATION e ravigntion, ond firesconsrol ecnponcnis of thx completes sirerett wile these Hone ucts chill dn the caperinentel vire.? On 25 June fudelS, Chop. W IGhO the Jecal profit sas reruceo to € per cen’ mainly becuse of the racoly inercasine veluce of yur nulected procures nt. Ta order to elindato much avéliin: ard supervisory wrk, ke wir, fiena ith 9 0 of Us merexent contr ev vol ten %5,000 Tere Cnenperu, @ prom fib geature vdeh kno the effect of proicebicg ore creour og cee tusiness to cexbleie te in notdorsL defenses In Cetober 19/0 the provictons of excess profits wre cvarenced,” exé profits wre thererfter ecntrolled ‘uy the provision. of tle Inicural Roverue Code o, 8 Ocicver 1940,” It VinsoaTromacl deb Linkting 2 the opinion of the \'ve-eury Deparinent ties the rr hention of the YVinconsircanel Aol, epsliestle to nivel vesrels ané pizer ft clove, arcuatod to © Guplicwtion of exntvol dnvaruch ce en ov: rec] prices Liniting oteiue hed teen oxeeted.? Prioing Prloing «nd re-pricine oculé to used to keen cocts et @ rininun without recortine to trusblon, refunds, or reneyoidatlon, It wes coventorrous ts the Clr forecs to vol the Istter methee shea possible, since the recovercé funda vere returred to ube Ircucury ara tinrefore Jost to the vir foreca for furtter use dn the pro-r ss Zor vikich wu 10 bed teen origin’ lly enpronpivio’ ¢ eatreriel deb ond allied sivtules ld riveo the Army ord Kewy the ricnt Lo audit conosny boole, oe thio richt vee cot ithdrem by the suopensicn of the profiteliniting orovisicns. In Septenter 1v0, RESTRICFED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 vate, cu. © RESTRICTED SECURITY INFORMATION theredore, the Aroy urd Lavy ceciced bo iastoll resiée % coat= Anopecticn forces in plents m9 lerce vol of Lusiness vas vopeoteé. Bersosrel it s to ke fureicked both by Lhe iovy end by the kay Gorpe, i Ja tho creuey Beving ps oun interest in the pleat providiog the gealor muiérnt ceecuniinty Tb vss felt thet in this ny 4 unlfors Gcberein: thon of ecets vould be esoured, The Air Corps turn 2d Ry the Lavy 48 er ley c& bo evry cub the proyran ot a com rlote cost per yea equal to one-tuentivth of L gr coat of te eotinated cxneréttvres,2? The primry cuiy of theve iuupetors wes bo o Seguerd the govententte inture: ie Ln the costs of myicrlole sed services in Gi contracts, In nosh Gistrict: the price inapector: vere ets Lioaed mt the plants of orine CEFF conirsetorg. here urlees orrcd excecelve they node Anvertic-tions and then, in coon retion vith the contrsetorts parchtsin, Cecortcont, usmally moracee to obluin thy itcns for louse Tn the Postern Procurrient District, howeyer, the Inspectors vere sirthened in Gictrict ond oreo olTices mlker ion dv the sluntss they neat cireetly to FP controctora, end cubcontroetors aré vendors vho night be opernting under either G£F or FP contr-etc, ond deternined on Lhe seot the casts of cubsontrseted ard nurchrsed Items, This motiod reeulicé dn ervines no. only fer pwine contenetore «nd the coveraze ni .dikin the trict, tus nlso for thoce prine contr etors outekce Uc dAstelet vio hsé cubeontsr lors within Ut,” Ip tke Gentrel Distriet tre chief of the Fries ieJuinevt Section sponsored a promrem by which mruf-cturers ere reused for reduein’ prices nt the tine RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 uses, con ty RESTRICTED % . SECURITY INFORMATION e of nenesotintion, a plon tine ‘ing egopteu Loucr by the for Deportrent. to su plarenb this, eoand ex: ele sovin wae ertected scm tine to tine by olen’ repr: néyubves «iho Lolleres cost terns closely, ‘the Crmipsl Districi!s Frice adjuctnent Seetion, fur e: ercoces in the couts in three centriets with the T of Generel Hotory und thercu-on cerobh t.0 © price rréuction exountine 0 6,060,000, Articles unihorising price céjuabue: were veers. Ty ineluce in nbecetss 4 perloite review of tie costs weu to be sede dn an atternt to reduce the catinetre of the whole contract or sorts of ite idjuctnont exticles ineluses (1) aeceter Savtion in.erecdent of statutory reaccood uion, (2) pericoie sojuctuent of price, (3) contingency chu 8 erm shorbmtcra prleiue, cxd ({) eweolwitoa, feceternin: tion ves crsicned Lor uce in ecsce wien the costs could rot te resconvbly estimsted in vdvonce ucerdie the food thet the FP type contruct vas consiéeree prefercule, 4 this exticle 2 rob preclude on over-slL b revir of the contret, then perlotic wajustuents were nove, the intervening tit atively chorts prices for ecet on Frat experience ard nore ecourate ¢: im tee, If clowe prieine ere swintotneé, the contrecior te, Urus civer further anceutive to recuce costs An order to incscuue the mvin of profit.’® the Late rind Gcmiund asked apsrovel of Sive FH contrvets csllinz for delivery nfter Bl Becerker 194, the Reneroti: tien Seb we to exnire, saen the conix cicrs & xccd to decluce periodic r ifuctm ai. dn the eontreots, the velue of ihyt move “eu reflected iu the 43 ner cent reduction mode in an Ellis-Chelmers contract in less than o yeor 27 RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 sos, em. BESTRICTED 7 SECURITY INFORMATION + e Speelsl pricemdjustnect crlicles tool: ito veccurt cost vorictions coward by ckonce in cohedvlce op alloc tore, ond prow tectcé consrnctors ereinst unnredietsbte risks. ”® In e eonteret with GALELMisn Brothers of Loa ingelec, vrovieton vcr nave fox a dom xd or limites upcurd price revision after the eoxyilelioa of the contacts Fron 19/1 to 1943 ecevletor elavecs anldeip.tc» adjusternte in prices recultine from ciences an the couts of Irbor ané mirrivds.!? Clauses of this sort tative to dacrecve profits, mrrhove Ueetwie cfs delecey rose sith en dnorcece in © off euevIotion Lockh«ed netted 2 11,055,0°0 aro upieht Aevoncuties] o siniler enount.”° ks © rcoult of this crofit:ble orronve ab, nosl eompondes veved the richt to un y for hirer priors uncer Uke ebvuces Finally, dp Apri 29/3 roccurce to the cloves «ine protiuitcd, > even thease interect in en eseuletor crovicton dnen: ued seen’ contr: ebors Losin terra the reaberor 2 Uke inuurence 48 proviees in en exs of Istor roriov, beecwne ' ag. 22 uncertcinties eno dcfletey profits. Ane eré more direct nethco of price control ws insurureted on 75 Februcry 1944 by a ctotute entroricing the oeerrtrey of or, if re deternineé thot ¢ piven nmice 2 liera to unfair, to require ihe st catsblish « more reeser prices if they refusd, the deoretery was ouporered to set ite vrice himicl?, The Fresident, vhose cuthority in this evse cule be cclereted to u suboréirate do the Txecutive Lerortnent, could ecize any plant “hich oi nos chey this strtute, ALL Iotor conirrete a6 purchase orccre . utom tieelly erbodiry this Le cature, "2 RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 us2, ty © RESTRICTED ” SECURITY INFORMATION The not opcetacwl x nebhos of contrctlin costs ve tecerctiution, eudesUs, Mt ecm isieé of » review of the cools oF « curdotcd or portly fuLgilled contr ct to Coleraine whether th. rrofits were exer: Af they vere Powe bo ve unrercon bly hich, ou crrem cor nt wes ree Ly sitleh cxecsst profits Jere restarcé Lo the coversneni. This cevies 2 bob acorcceny ure ¢ eiride, imecwel o ume riled cre nro cored eb prices b Leo on dee eutimics of te ards ule costo, Anseourselss wile vece inevit-ble trove of wort nerut eturerst Ib ok of pecvbe Cz RMLnCe be prowedng ier skecte ars chore owls nol recover +11 overch rcs, beorvor hicher corer oe tues ereowr od hirter cocis crf wicccus:+ re cooxenie™] orecuehion, | oreover, & profit rer cratero bloce od iii euerreg gone no roie otf or mrusroun ns Corenodar on thele Marneil cetup, Slthoayh var ecnirsetore exe nvotcotes veriovs price-enjy at evices ani by Mir uze of OFFY contr cis, people of che Undicd inces hed as overeoll protecti ny ene the diners: wee of Gris conterete, dvy te y of FP coir cis (ic ¢ 2h, J, ne for coatiour lly decrees costa.” Eetore there 08 Ly Anvestie tor. on Lopiels thon on he wubjcet, the Air Gores Be teen able te ebtein recuebines: xtelans oTeve scr the wore of ti dr sroune, dueh sasureree nadieé ty aldzing ohe Jo ex pric s were Ameren ne were ve orcex™ fv esury Dererinrye, or erecuctley Leroy 1 contruction Phy ove 2 tbe Krecicent d.ued om execu: inbea de 4 ue be vee Decorirents 7 vy Deeertrerty, RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW E012958This Page Declas: d IAW EO12958 sacety Ch Pe W RESTRICTED 1% SECURITY INFORMATION 4 . cir e vec Do vitire Gewedreden eae Devons ct dn scourden yollunt rs céju rents or rtuece “Fen a Oy Cy OF THOTLM. cerned Lo be exeensdve. Teter in dprdl 10:2 » ct tute ruthomiard Siz insertion of 2 vere ub iden ely © de ny conierey over 1 ceetits, coule be cmbemahe ¢ secur tely, - cneteL HiMaLtie vore xeroid to Uke Tr oury under the © of cLeeell- neous receipt, virile elise. sere Lo be duclured t. prize ooclaretore da thede :ubeoma e127 inen title Le visl: iloa +n firet ov ceuted, Uc nrosesel thet pro Hs ke Unived te G grr cent “co osccen by both the amy ore Ho Lie wenyiers we a to pidn vollunh ry reduetions keane © of erorlic -u0 ureediled, Uke soraeainb ule Reidy ele acre of re coud, econey unt PO Teac ror of dm ivirnel costaceiars, Tie vlvinvte surpece of mereca!t don, bor every vee bo tok rise ox, eureer ius ole r gaat by eer 1» acerey cotorein’ ¢ echlisey. «wey of coal, Ebvo ld ak coma. cts cond Mun te wh von on tar Loade of re:Mintde infornviden snd Pet he nocd Zor eontimeb Liem, th: icré to Giscrear. ‘kus, pore Caer JL thon vier? + oe revu tor ctrrse or recr-olinilens wore fs da the orivingd 1 PL Cctober 192 of ey acer ante.?? unger 4b contmrciine oifierrs utre suckork.ed to exept the vhole conur et or the erty of At unex co Frodt. cre elece, adeuir sly esaivellce, Farbhor, no - RESTRICTED _. SECURITY INFORMATION - - THIS PAGE Declassified IAW E012958This Page Declassified |AW E012958 ucts, ow.» RESTRICTED ” -SECURFEY-ENFORMATION were Corde Recovery, of the vacunts eb. heed by were 08h xerned ¢ ike contxret price, Athholéiny nomi: om to the conim clor, oirceldng uke coa'r cier t 2 © chomnis Tor He Unlivy Birieng cewades in exch, oF bi fom of whew Renee Under Uy rer rete of TS12, Lie ebeda of corte eo ore tly «elec tb of wuiork J8k ecugret to bee . ir dorece “16 the deere my suthoriaed te er try ous provisions of Un red with pouty os ccle * tens vy hair, Mir Uoocr Geert ry of der bad whe cre po eaug nex erne the to Tens i Ewbes 1 rene Lorre to tres 22 eves over roy O00 ree CLL overs Melos beds rr obang ch exale not be exe pecdeobly or civcelivds tren ‘yr Le cr echelen 5 uncer Fe vie c Tepertnne tore, ‘Gereard, Auf coae ree vubivte for er FeB uncer « 10,600,0505 ene Ziney, rh Pies the cicteiet » dw: end seotlows oul eee mee or ren, 5,020,080 to 1O,CC2,030 I the orprov 1 of he HP Leremturnb tor werd dnvestie Lick. ian meec< rily wy rfon smeovre ert siuinket ro y ooten ie, Hie L ne-obie bore are nee as em eee ty Me bor rede Oger, & yor by Lhe on Lepertieub Lound, In Uy firot yer of verecutbethon, At tees Cups renk vs dt the fie vier ree eduoler to nsceotdric Be eonie tine © dre Seon e6.99 Teeruse it me Luekerue na a hele ye ther ton eontreet fe coe oF vemrere wh tiea,2t 66 Cenk ohn contr owns ribet be aewurd by, Lacndccmes ere He 8G in October IG to Lindt. tie merle: af revecotie ® RESTRICTED- ° -SECURIEY-INFORMATION THIS PAGE Declassified IAW EO12958-This Page Declassified IAW EO12958 RESTRICTED . _SECUR¥EY-INFORMATION n e n4 $0) Tecorebh wud, eremicd te ne Tove thin ¢ GH contr cl,32 ind, in ret, whee Erk ever coniset, i fré n Tou tar, ree gobi Shea 644 pr oroseh 9 eouterilas couiret dy spirdt, thie tn ephsielen, ho over, cho rob wuts Anke conigerrtior te Lnusrey din the nerc-alir aden oro= cceg the cp Denerts ob rpieo A6gaub Reord wcsed thet dn the Piet 23 cares yor re a3 170d Prem Oe ho P%1 per erat of relea ordecsy Poirot ich ere. t: dn decte thet Ineestives Sor exceptional, pam Zorm-nee vere Leow smoviced kro mh tik. ceil Geo sheriflent edrewrs nace ofan eieriged renecobirttent (1) n prcuo of ible 1: re, ceecurats, ned Unniress sesindoire vores cree scventbleé to conduct rereguhii ion, and (A) aosk £2 contr eiure Lrveere durtys this renion yr ukey should cece oe rereroti. sien ro cn ultiiote Lesefit Loih to Liezcrlvcs ave to the 2h overcecite Luries 194% four eonrrccsdancl comailiccs cided tke were “oid! Lich the meavlt th-t reviviers “cre inlid: vee arr 2 corporsicé in thr revenue Le: of 75 Zehrmrs LOU Phe ob. tube Leity 03 Ig ine LecMace the AMP coldes of xo orche conixebors for pxeeLIent, perdormices mu cimeted tae rraecotd: vine offiecrs te 0 ov officio oy, reserthie mreflis, e-pliel invelvro, ri is, cocirdiwtives vo etfori, 63 the cle eter of wr bnahurse, ‘the chlet nénindster vive ebene rf G+ Porm uion of & nna ie Goninon Anton & jucteert Booed shiek 79 ver ie so ox of recerobi. a. Exe from rom reobiviien vere Ener eo uron 160,060 rrvuol ren rricet busines te 50,000, a chine deh carne G from + keticr un.era wrdine of Loth e RESTRICTED -SECURITY INFORMATION THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 AHS-68, Chap, IV RESTRICTED 81 SECURITY INFORMATION costs and econony of effort, wince a large percentege of renegotiations © in 1942 coneerred firms with less than $500,000 in government business,37 By this statute, the terminsl dete for renegotiation became 1 Dooonbor 194d, bat by an executive order of 16 Hovenber 1944,-° this date was extended to 30 June 1945, and later to 31 Decerber 1945.27 Both before and after the legislation, there were many voluntery reductions by the contractors themselves, as a result of lower labor or materials costs, eccnomies effected in plants, or increases in pro= Guction end sales,* Some corporations, such as United Aircraft, voluntarily reported end refunded excess profits every few months: from 1941 through 1943 United tured beck $286,000,000,4° wang contractors, Jarge and small, scught the good will of the AF instead of insisting on renegotiation, which entailed a loss of 4iF appropriations, Such voluntaxy reductions of profits could be encouraged only by making the manufacturers reelize that their present, or future, competitors were being constrained to eliminate excess profits. After the crcation of the War Contracts Price Adjustment: Board, ‘the chein of command and authority, for the AMF, was set up as follows: ‘the War Contracts Price Adjustment Board, the Secretary of War, the ‘Under Secretary of War (the War Department Price sdjuotment: Board), the Commanding General, AF (Price Adjustment Branch of Materiel, Maintenance, * For example, there are in AUG Bulk Files 161 H, Contracts, a series of letters to the contracting officer at Wright Field from such re= prosentative companic Aviation Division of General Electrie (26 June 1942), Bendix Aviati July 1942), Jones and Lawson Mechine Company of Springfield, Vt. (14 april 1942), and Chandler Evans of South Meriden, Conn. (15 June 1942). RESTRICTED ‘SECURITY INFURMATION e THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 usc, cere RESFRICTED 2 SECURITY INFORMATION end Distribution and the AMF Price Adjustuent Board), the Air Technical, Service Command at Wright Field, and the district price adjustment sections, Before February 1944 the over-all policy-making ageney for the Arny had been the price adjustment board, but now its function of initiating, dntegrating, and directing policy for 212. arms and cervices nas taken over by the War Contracts Price Adjustment Board, the former hed been composed of members appointed by the Under Secretary of War from nominees proposed by the commanding generel of 808, of the Meteriel Commend, and the chairman of the Wer Production Board, The war contracts board consisted of one appointees each of the Secretary of War, the Secretary of the Navy, tho Secretary of the Treaeury, the chairsen of the Meritine Commission, the chairman of the Reconstruction Finance Corporation, and the chairean of the War Production Boerd, The WDPAB had assisted the Services of Supply (ASF) and the Meteriel Gonnand (FRSC) in obtaining competent renegotiation Personnel, and, further, it bad determined what agency should conduct renegotiation with companies under contract to more than one War Departwent agency; reviewed settlenonts whenever local echelons were not euthorized to meke final decisions; end conducted those which, for one reason or another, could not be hendled by SOS or ATSC. One of ‘the chief functions of the board had been to review and make decisiors in cases of deadlock between the negotiators and the contractor--the soxcalled "inpssse™ cases, Under the 1944 law, this latter function was expressly retained by the board, and the Under Secretery was om Ponered to approve settlements for all Wer Department contracts over RESTRICTED- SECURITY INFORMATION * THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 esc, op. RESTRICTED a SFECRITY INFORMATION 10,000,000, One step below the MPAB was the AAF Price Adjustment Board in Washington, which theoretically hed handled eases on the Jevel of 46/48, Materiel and Services, Actuelly the latter office cane to act rather as liaison between the Wright Field and district boards and also between the MDPAB and Office of the Under Secretary of tar, agter the creation of the wer contrects board the Frice Adjustnent Branch of Materiel, Maintensnce, and Distribution and the ASFPAB could approve settlements of 4AF contracts from $5,000,000 to $10,000,000 and acted as Maison with the Office of the Under Secretary of War. The ATSC at Wright Field approved local cases up to $5,000,000 and acted as liaison between the districts and Washington; the district price adjustment sections prepared briefs on all cases and made final settlement on cases under $5,000,000. The relative anount of work completed by these boards, as of 28 February 1945, 18 indicsted in the folloring tables” Heard (No Decision) Hearings Not Completed Settled AarPAp pep _(us/m) Unilaterals oO B ete ob 4 " 9 59 Probable Unilaterals ° 32 Proposal Made 3 B + a Meubers of these advisory and supervisory bodies often conferred with district persornel, and on the basis of that experience they formulated certein principles to serve os guides in future work. In RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958 —This Page Declassified IAW EO12958 u5-e, wp. wv “RESTRICTED &% SECURITY INFORMATION particular, agreezents were rezched as to the general level of profit to be allowed the contractors; in 1944, by direction of the War De= partnent, an over-ell lowering of levels wes sought.4? It was not the policy of these higher boards, when appasled to, to arbitrarily fix some different figure to extiafy the contractor; rather, a complete re-survey of such cases was ‘nade, and at tines a higher figure was reached than the one under protest, Thus, tho Contral Procurenent District, after renegotiating with the Denison Engineering Compeny of Columbus, Ohio, requested a refund of $1,750,000, but a review by the AAFPIB Led to redsing the amount to $1,850,000; then the WPIB ree viewed the case and deolded upon the original figure.“ In the case of Bendix Aviation for 1943, the Bastern Procurement District reduced basic profits fron 15.9 to 10,75 per cent and required a refund of $44,000,000, an arrangenont which the company accopted. Later, bow~ fever, the case woo reviewed by the War Department board and the ree fund to the goverment increased by $10,000,000; the company deuurved and the refund was finely settled at $53,262,659.49 Many mamfacturers, oven while admitting the justice and propriety of making large refunds ‘to the governzent, found thenselves unable to pay because they had put most of their profits baek into their plants, In these so-called hardahip cases, efforts were made to extend the period of paynent.4° Another echelon of the administrative control of renegotiation was vepresented by the price adjustment office at Wright Field together with its district branches, This agency screened out companies which did not require renegotiation, identified those which would be more RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW E012958uss, aa.1y RESTRIGFED 6 SECURITY INFORMATION e expeditiously negotiated by another arm or service, end recorded the progress and completion of assigaent,*” Pinel agreements could be made by the Wright Field office and the district sections with any contractor whose annual business with the government did not exceed $5,000,000, Nevertheless, the yolune of renegotiation work performed by the field itself was not large, inasmch as it concerned, for the most part, companies in the vicinity of Dayton, Ohio, ‘The district price adjustment sections did the largest amount of spade work in the ronegotiation process, By 31 Decenber 1943, for example, the Bestern Procurement District alone had recovered $268,000,000 4n refunds.48 As soon 26 a case as assigned to @ district office, the contractor was notified and preliminary information was studied by the financial analysis unit, The negotiator assigned to the problem ‘then reviewed 212 the available data and arranged a meeting with the contractor, during which renegotiation was explained and the contractor given an outline of the statistical information required of him, This infornation was submitted to and studied by the anclysis unit, and a second meeting with the contractor reviewed all the evidence together, and recommendations for settlement were then made by the former, After @ Yeview of the negotiator's report by a district panel, a third meeting with the contractor mas held, at woich an effort was made to agree upon the size of any refund involved, Further meetings were held only when disagreement arose. The reports and agreements were finally transmitted to Wright Field.4? the number of renegotiation cases handled by the Eastern Procurenent District during 1943 and the value of the contracts involved are Meted in the folloning tables RESTRICTED SECURITY-INFORMATION- THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 tis-68, Chap. Ty RESTRICTED a -SECURITY-INFORMATION Gross Ascignnents al Loss Resseigunents 6 Leas Reasaiganents Pending =e ‘Less Cancellations (probably under $500,000 in velue) +s Initiated (Yo Agreement) 8 Impasses Forwarded to AAF Headquarters 2 Total Verbal or Written Agreements ‘and Inpasses Those 870 cases wore broken dom as followes™ Refunds Concluded by district through a7 delegation (ander $5,000,000) Forwarded to MDPAB for approval (over $5,000,000) am Clearances : Goncluded by district 229 Forwarded by WDPIB 189 ‘Inpasses In process By agreenent Vallaterel decision by Under Seorotery of Har — Total Verbal or Written Agreonents 870 and Inpasses In practice, refunds were not usually demanded of manufacturers operating on GPFF contracts becattse the original contracts frequently provided for a fixed fee of only 4 or 5 per cent~=a fixed fee se large as 8 per cent of the estimated contract cost was permitted by law, Therefore, even if estimated mamfacturing costs were materially re- duced, the percentage of the fixed fee to the actual cost was still below the legal limit. Accordingly, in 1943 there were no recoveries fron OFEF contracts.” In 1944, however, when some diecatisfaction was expressed by The Inspector General over the large size of the fixed feos in the proourenent of aircraft and their componente”? a program ‘to reduce profite on CEFF contracts was instituted. In line with this, RESTRICTED SECURIEY-INFORMATION THIS PAGE Declassified IAW EO12958Thi Page Declas: d IAW E012958 5-69, cup. y | ESFRICTED- er -SECURIT¥-INFORMATION a refund of $2,000,000 was requested by the WPS fron the U.S. Rubber Company for the fiscal year 1944,°4 even though the fine had been cleared on these contracts in 1942 and 19,3. The effect of this action was to reduce tho basic margin of profit on U.S, Rubber contracts from 7.8 to 5.7 per cent, Since there was no desive on the part of the governnent to force ‘the contractors to make unreasonable refunds, one method used to determine a feix profit for a given concern was basing the allowable Percentage on the percentoge of earnings to sales reported by the company during the period 1936=1939, Also considered were the con- tractor's efficiency, cont of production, type of business, and con tribution to the war effort.” Tllustretive of such renegotiation methods were the transactions with the Eaton Manufacturing Company of Cleveland, Ohio, end the Reyublic Aviation Corporation?” ‘The latter, the sole source of the P-47, was a prime contractor, but it subcontracted to about 620 other manufacturers, Eaton, a subcontractor or vendor of eiroratt parts to General Motors, Wright, Packard, Chrysler, Pratt & Whitney, Ford, Studebaker, and several others, was a highly integrated organizetion which itself subcontracted less than 1 per cent of its work. Both companies were cleared on their OPF? contracts-~that is, they did not show excessive profits; Republic received a 5.9 per cent on actual costs, Eaton 4.8 per cent, During the pericd 1936-1939 Republic had suffered a loss of $593,946, waile Eaton showed a basic Profit of about $2,500,000 on business totalling approximately $25,000,000, e RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 uses, op. = STRICTED 88 SECURITY INFORMATION Aray experts testified to tho efficiency of the P-J7, various buyers of Eaton products gave unqualified praise to then, and most significantly, each company had carried out radical design changes withont material effect on delivery schedules, Out of its total 1943 sales of over $65,000,000, Republic showed a gross profit of approximately $9,000,000, of which about $4,000,000 was refunded to the governnent by renegotiation, ‘Thus, Republic was left with an 8 or 9 por cent profit, in sharp contrast to the figure for 1936-1939, Eaton, which refunded alnost half of its $10,000,000 profit, was allowed only about half of Republic's percentage, again based partially on the 1936-1939 "normal" figures, Friction developed from time to time over the activities of the General Accounting Office,* whose auditors frequently questioned the costs which had beon allowed the contractors by the AF contracting officer, Although GAO review of renegotiation cases was responsible for delays, the AAF contracting officers often agreed that the objections vedoed were valid, For example, tho G40 questioned an ollonance of $1,000,000 made to Republic during 1943; of this amount, the contracting officer admitted that $100,000 had been incorrectly charged against the contract. the occasional intervention of the G40 prompted some complaints by manufacturers that they served two masters-the con= ‘tracting officers and the GAO auditors; personnel necessary to pro~ duction were forced into investigations for waich they properly could could nob be spared, and a feeling of uncertainty wae sometimes created ‘among sanufecturers.”? % Bee also above, pp. 63-64) 67 RESTRICTED - SECURITY INFORMATION THIS PAGE Declassified IAW EO12958Thi Page Declas: d IAW EO12958 wets, ar ~RESTRICTED » -SECURITY INFORMATION e The Office of the Under Secretary of War {WDP4B) reviewed and confirmed all finel agreements in purchases excording $10,000,000, those between $5,000,000 and $10,000,000 requiring the signature of ‘the Commanding General, AF, In practice, however, most contracts in excess of $5,000,000 were fornarded to the War Department Price Adjust. nent Board for signatures contracts of less than that figure had to be approved by the commanding general of the district performing the renegotiation or by the commanding general at Wright Field, The following tabulation for 1943, prepared by the Price Adjustment Branch of ATSC on 31 July 1945, shows the number and importance of the larger renegotiation casest®> Total $50KOver $10-50 $5-9,9 $24.9 $11.9 $.5-.9 #.5Under Number of Cases 73300 9 0 awe Base Profit Margin on FP 197 = 18,7 20,6 22,9 22,0 22,3 25.2 2702 Base Profit ' After Re- negotiation Il 142 10.9 106 U2 MW 123 16 Recovery of FP 833 460k BROT Fee Fercentage of Gost on GPFF 4.9 eT 6.2 52 306 22367 00 Recovery on CPFF 0) ° ° o o o oo o Thus, the refunds resulting from renegotiation were substantial, even when compared with the total war budget of the United Statest up to Bl October 1945 the total amount recovered in this way on AaF contracts was $2,031,555,809.56;° during approximately tho sae poried (1 July 1940 to 30 June 1945) the total war budget for the 4&F amounted to #38,005,200,000,7 In other words, almost § per cent was recovered by * 411 the figures in the column headings are for millions of dollers. ® RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 RESTRICTED Me 9 85-68, Chap. TV SECURITY INFORMATION: refunds, There were, moreover, hidden but very real benofits in renegotiations the elimination of excess profits had a good effect on ‘the public morale in allaying its suspicion of the businessman's relationship with the war, and by maintaining materiel prices at a low but fair level, the progrem also contributed to the control of inflation, ‘The renegotiation process wes criticized at an early date becau: sons felt that there were too mary variations in the policies of the igferent adninistrative agencies, Such criticisms were silenced by the formation of the War Contracts Price ddjustnont Board to coordinate and direct the efforts of all these a-encies, & further, and only partially solved, problem arose from the fact thet the conduct of renegotiation proceedings was assigned to that service which had a prime interest in a particular company. That is, a contractor with 55 per cent Army contracts and 45 per cent Navy was assigned to the Aray for renegotiation; if the AF held 35 per cent of the army contracts, however, the renegotiation was carriod out by one of the adjustment sections of the Materiel Command, depending on the location of the contractor's plant, In accordance with this polloy, manufacturers in ‘the same industry were sometimes assigned to different negotiators, with the result that the individusl negotiators did not gein as mch specialized experience in dealing with a particule industry as was desirable, Interboard communications were hampered by the fact that ‘thoy had to paso through military channels, Further, although it was RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 uss, cw r RESTRICTED a ~SECURFEY-INFORMATION- the aim of the renegotiation program to eliminate itself by determining fair prices for future contracts that would, in consequence, not require renegotietion, the militery system by its very nature tended to defeat this purpose, To be more specific, it was observed that occasionally « 24 lieutenant serving as a contracting officer ab a contractor's plant hesitated to authorize exexptions that might be well justifies because he feared the risks inherent in his decision, \ With reference to this general situation the Trumen Committee reported: "The nilitary system does not encourage the exercise of initiative end assumption of responstbility,*69 Nevertheless, no amount of adverse criticism could obscure the fect that, from the very beginning, the administration of renegotietion was effective and generally commendable, and thet the program hed a heelthful effect on contrecting, Certain characteristics germane to the militery system did not lend themselves to maximum efficiency in Purely business matters, but definite controls of prices and profite wore dovelcped. RESTRICFED ‘SECURITY INFORMATION THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 as-68 RESTRICTED SEGURIFY-INFORMATION- Chapter V ‘TERMIVATICH OF GO"TRACTS In the spring of 1919 an Air Service Glaims Board was established to settle accounts arising fron the cancellation of contracts entered into by the Burean of Alroraft Production snd the Division of Military Aeronautics.” ‘This board, vrich functioned under the general supervision of the Ver Department Claims Board, was dissolved in ‘1921, but based to a certain ex tent on its experience, an attenpt wee made during World Wer II to plan ahead before cutbacks and contract cancellations were actually at end. ‘The Need for Iegislative Action Torly in the ver terminations presented very few problens because they roculted ofthor fron tactical considerations of from failures by contrae~ tors to fulfill obligations; changes resulting fron the former caused Little trouble becanse they generally vere replaced by contracts for more essential tens, or were designed to oxpedite the completion of other orders placed with the camo contractor.” Tn cases of noneperfornance, of failure to meet delivery schedules, the goverment vas enpovered to terminate a contract and pay the contractor only for comploted or partly completed items. ‘The ronaindor of the onder vas then procured by the goverment fon the oyen morket, and the contractor was Liable for any excess costs jnourrea.? AAP procurement agencies usually gave extensions except in an ensrgency, but when schedules were repeatedly not net, the contract was ‘terminated. ‘The Hackensack Cable Gonpany of New Jersey, for example, was ‘fichedulled to deliver 605,000 feet of cable to the air forces by 30 Septombor RESTRICTED SECURIFY NFORMATION- THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 ES-68, Chap. V RESTRICTED ° SECURFEY-INFORMATION- 1940 the conpeny met neither the original schedule nor subsequent exten- sions of that schedule, and yet the ccntract was not declared in default until 23 December 1940.4 At tines tho government benefited fron such termi~ nations, as in the once of the Rex Body Corporation et Canastota, Ne Toy which defaulted in furnishing a $767,000 order of 146 photographic laboratories coly to have Oneida Linited £111 the defaulted order at $760,000, Rex also defaulted on a contract for 1600 bomb shackles at $133,000 whieh Onoida later supplied for only $124,000," Nen-perfornance was generelly blaned on an insbility to secure necessary machinery and materials, and on low piorities,© although early in the enengoncy parted it was also sccribed to the grester profits inherent in commercial contracts. ‘The problems arising from non-performence terninations were few becsnse the cases were clear-cut and trere was little roan for complaint on the pert of the contractor. As the war drew to a conclusicn, however, definitive legislative action was needed to establish the policies and aims of the government with respect to terminated war contracts. No suoh policies existed prior to the sumer of hts? although it was realized by ‘that time thet the relatively sual] capital of most aircraft companies @id not equal the obligations assumed ty these companies under government contracts. Consequently, any delay in full adjustment at the time of termis nation might throw such firms into bankruptcy. The vast mmber of sub- contractors, as well as the prine contractors, could conceivebly find them- elves in this perilous situation. More specifically, tho prime contractors dia not dare pay their subsontrectors prior to a final audit ty tho goverment, for they vould do 20 only at considerable risk.” Very often, RESTRICFED SECURIFY-INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 AES-68, Chap. V RESTRICTED % SECURITY-INFORMATION~ ‘then, prime contractors inserted provisions in their subcontracts which ‘barred recovery by the subcontractor in case of termination. Tn 1943 ard early 1944 the apprgech to termination vas unrealistic. Whereas renegotiation had worked successfully on the theory that 4¢ was impracticable to review pricos contract ty contract, termination had been geered to formas requiring exact end leboricus arithmetical accountings The eupposition was that the exact ellowence to be made for surplus inven tories could be determined mathematically, tut the absurdity of this suprosition was apparent in the face of the tremendous volune of ordere being processed through the aircraft factories. One corporation alone caloulated that 4t had 50,000 separate orders, only 3,000 of which were valued at more then $10,000, It was hoped thet as the need for renegoti~ ation waned, the renegotiation personnel, trained in administerifg con- tracbs, could be tranoferred to termination ark. > Termination of « fixed-price and a cost~plusefined~feo contract con stituted two different problems because of the vey in which the mamfacturer was remmerated. ‘The lack of policy on this as well as other phases of terminstion eansed a number of manufacturers to refuse war contracts in 11943 and even early 1944, with sone consequent inpedrment of the total war ettort.)? ‘Expcubive end legislative Action On the credit side of the ledger were the efforts of Mr. James F. Byrnes, the director of the Office of War Mobilization. At his suggestion, representatives of the services discussed the problems of termination in October 1943 in the light of the Nar Department plan for repid cancelation of contracts in cooperation with the Newys!? In November 1943 Byrnes RESTRICTED -SEEURITY-INFORMATION THIS PAGE Declassified IAW E012958This Page Declassified IAW EO12958 aisée, op.v = RESFRICTED % SECURIEY-INEORMATION. established a demobilization unit in the Office of Wer Mobilization to develop policies on contr-et termination, and on 8 January 1944 he pro- mulgated @ "Uniform Termination Article for FP Supply Contracts and a Statenont of Principles for Redetermination of Coste upon Termination of Governnent FP Contracts." ‘This plan, hovever, wes sorewhat modest and did nob pretend to tackle all the problens involvea.* Of all the contracting agencies, the Wer Departnent had the nost experienced staff for conducting terminations, partly because it ves the first to encounter the problem and partly beceuse it ad planed ahead. > One of the subjects given esrly consideration was hew to deal with mam~ facturers whose war contrects were subjected to sharp cutbacks. The policy then established stipulated that an effort be made to allocate another ver contract to tre mamfacturer, and if this proved impossible, ‘the WPB was to try and steer the conpary into the manufacture of essential cfvilien itens.”© the goverment further attenpted to plese these out ‘backs in areas where there was a serious labor skortege. It was generally recognized thet “when hostilities actually cease, the great bulk of contracts wil] be cancelled. Whon that time comes, a sucothly working experienced administration of contrect termination can make the difference betveen corly resumption and tustiness stagnation.* Early in July 1944 contractors were asked to tring their business and contractual projects up to date, the better to meet daminent ternination,”© and at about the sane tine basic procedures in contract termination were enteblished by lew. ‘Tho purpose of the legislation was to assure specdy, oguiteble final settlononta, to expedite recouversion, to assure uniformity of procedure, and to facilitate the efficient use of materials. 4n office RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO012958This Page Declassified IAW EO12958 is-6s, ep. vy =: RESTRICTED ° 9% SECURELY INFORMATION: of Contract Settlenent was set up, with a Contrects Settlement Advisory Bosra composed of the heads of interested agencies. very effort vas to be nade tovara awarding speedy, fair compensation, using the contractor's accounting system for the basic deta, and taking into consideration the degree of completion of the contract. "7 On 3 October 19\4 the Office of Contract Settlement was placed in the Office of War Mobilization end Reconversion, > and to protect the public interest it was directed that ell contracts not needed for the prosecution of the war be terminated et that ‘time, Thie measure was designed to forestall any attempt to use wer con~ tracts as a nethod of reducing unemployment. The legislation also author- dyed the director of the Office of War Mobilisation and Reconversion to integrate the information from all agencies in order to trensfer mamu- fecturers from one field to ancther or into non-war needs. It wes specifi- cally forbidden, however, thet any contract be continued merely because a peacetime congetitor stil] had a war contrast. Coordination with the Navy in the matter of termination began in 1943 with the publication of the uniform terminstion article for fixed-price contracts. In Fovenber 1943 a Joint Contrect Termination Board vas set up only to be replaced in July 194 by the Statutory Office of Contract Settienent, Tt was not until 1 Novenber 1044, however, thet the two departments issued joint termination regulations and a Joint Termination Accounting Manuel.” Oreenization and Muinistration ‘In February 1945 the Director of Contract Settlements was given all the functions and powers of the Secretary of War in the exercise of contrect settlenent.-2 As a result, the AMF organization for contract termination RESTRICTED SREURITY INFORMATION: THIS PAGE Declassified IAW EO12958 —This Page Declassified IAW EO12958 4MIS-68, Chap. V -RESTRICTED ” e was ap follovet -SEGURTEY INFORMATION- AMP conmeacy TememArzons Boars? ‘Ravisory Board (representing contracting agencies) Office of Contract Settlenent (Poliey-neking body created by Congress) Assistant Chief of Air Steff (Ant) Readjustment Division Plant Units To carry out War Depsrtzent plans for terminetion, tho AAP had cot up termi nation sections in the procurenent districts in 1943, but actually little vork vas available for thom until 1944. Bttorts vere also made to establish termination units at area and sub-area levels, and even at plants where the volume of business justified then. The chief of a termination section ar unit aduinistered the sottlement contracts referred to his district as folloust he determined the methods to be followeds formulated a plan for e arriving at a final settlenent; received and analyzed the contractor's claims; RESTRICTED SECURITY INFORMATION THIS PAGE Declassified IAW EO12958This Page Declassified IAW EO12958 ms-é¢, cup = RESTRICTED 98 SECURITY-INFORMATION euthorized, reviewed, and approved sottlements between prime and subcon= ‘tractoras negotiated partial payments snd final agreements; end took the steps for final disposition of clains.”> In the summer of 1944 the chief of the termination section in the Migeontral Procurenent District interviewed each prine contractor with an order of $10,000 or more, and these interviews became the basis of future negotiations.”> The War Department, and all the procurement agencies, subsequently adopted this procedure. Thus, pre~termination planning precluded most settlenext problens, except for the actual physical dnventory, when a compeny finally faced terminction.”” Wnen the need for a certain contract had passed, the contractor could seek another order with the legal and financial guidence of the settlement branch of tthe termination section.” A vertical eystem ordinarily vas used so that ‘the governnent dealt with the prime contractor, the prime contractor with his cuboontractors, and they vith their suppliers. Thus, ell settlenents were made between the original contracting parties. The contractors thenselves could settle all clans of lesa than $1,000, and specific authority vas given to some firns to handle their subcontractors! clains ‘up to $10,000.77 Although the peak of terminations was not reached until Jamary 1946, the great achievements during the lest months of the war ere illus- trated by a breakdown of AAP contract termination in June and July 1945¢ RESTRICTED SECURITY: INFORMAT! 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