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hearings last July of which the chairman speaks we estimated out of $29,000,000 that $10,000,000 was for what we call deferred parments on contracts already completed. That was only an estimate, and it could not have been anything but a very approximate one at that.
The CHAIRMAX. While there may not have been a very definite understanding, I had information supplied to me from what I considered a fairly reliable source that you would not need any money, or not to exceed $4,000,000, in any event. Now, if you used $8,000,000 of the money that was allowed you for construction purposes for overhead charges, that makes a different situation.
Mr. BYRNs. I received the same impression that you did, Jir. Chairman-that is, that $29,000,000 was all that was necessary to complete the ships. Congress appropriated $25,000,000 of that amount with the hope that you would not have to come back at all for the extra $4,000,000 because of the reduction in the cost of material and labor.
Commander GATEWOOD. We would not have come back had it not been that certain credits that we estimated as probable receipts are not going to be received and-
Mr. Sisson. Did the committee know that at the time, or is there anything in the hearings showing that you anticipated getting funds other than the $25,000,000 appropriated?
Commander GATEWOOD. No, sir; except that we made it plain to the committee that $29,000,000 was the resultant of the original $69,000,000 estimated on April 1. It was a surprisingly accurate estimate. It was almost too accurate, because it was within 1 or per cent of the correct amount.
Mr. Sisson. It was too accurate an estimate to make to Congress.
Commander GATEWOOD. It was too accurate for almost any engi. neering estimate of that size. Then, there is a figure that I want to make clear to the committee, because it was just a plain mistake in representing the figures in July—that is, the mistake in not adding $8,600,000 of administrative overhead, which was properly charged to construction, but not added. Only the amounts for construction purposes were reported to the committee. Mr. Sisson. Do you mean to say that you had an overhead charge 18,600,000 in the expenditure of $25,000,000 ?
ommander GATEWOOD. No, sir; I mean the overhead charges under the estimate of $29,000,000.
Mr. Frey. I think we are getting the wagon before the horse. I think we explained the eight or eight and one-half million dol. lars
The CHAIRMAN (interposing). Let us get a pretty clear unclerstanding about this. Let us see what our former understanding was. It was my understanding, and I presume it was the understanding of every other member of the committee, that the proposed $29.000,000 represented the upset cost of completing the ships, including the overhead.
(Commander GATEWOOD. It included the construction division overhead. That was the figure of my division, and it included the division overhead, but it did not include the administrative overhead of the other departments.
The C'HAIRMAX. What other overhead expenses could there be ?
Commander GATEWOOD. In the first pla e, there should have been added to the figures of the construction division figures that should lave been furnished by the comptroller's department, which was the only department that could estimate the figures. The construction division had no knowledge of what they were at that time or what future similar payments would be made. That was for carrying on the general administrative work in connection with the completion of that large program. That figure was not added, but it should have been.
The CHAIRMAN. Does this $8,600,000 have anything to do with the contracts for the construction of the ships?
Commander GATEWOOD. Yes, sir.
The CHAIRMAN. Where does it come in? Was that a part of the overhead here in Washington?
Commander GATEWOOD. A part was overhead expense here in Washington. That is the comptroller's figure.
The CHAIRMAN. When and where was the expense of $8,600,000 ilicurred?
Commander GATEWOOD. Some of it was incurred prior to April 1, and some of it was incurred between April 1 and October 1. We now estimate $4,457,827 as the amount of overhead from October 1 to the completion.
Mr. Sisson. I do not understand how the appropriation of $25,000,000 is attached to this item of $8,600,000 of overhead, because the overhead expense would have to be paid anyway. Your overhead expense in any plant, or in any large construction plant, is proceeding all the time. You estimated $29,000,000 as the amount necessary to do a specific piece of work, and $25,000,000 of that amount was appropriated. I have not yet gotten it clearly in any mind just how that item of $8,600,000 can be charged to the $25,000,000,
Commander GATEWOOD. I was estimating from the point of view of the men actually doing the work, and not on the basis of the general administrative expenses involved in condu ting the (.1struction work.
Mr. Sisson. Did you pay any overhead charge out of that $25,000,000 ?
Commander GATEWOOD. I paid the overhead cost of the construction division only out of the $25,000,000.
The CHAIRMAN. That is all that you should have paidl. Mr. Sisson. If you are keeping books in that manner, we are lost. If that is your method of making financial statements to the committee, we are utterly lost; and I do not see how we will ever be able to tell what we are appropriating money for. To be frank with you about the matter, I am utterly at a loss to understand it.
Commander GATEWOOD. You would have to add to that figure these administrative or overhead expenses, which, I think, is a proper charge, according to the comptroller's figures.
The CHAIRMAN. What does that consist of?
Commander GATEWOOD. It consists of general administrative o: erhead expenses at Washington, and the overhead expenses of the board in general, incident to the completion of $69,000,000 worth of construction work.
The CHAIRMAN. What special overhead expense was incurred here in connection with this construction work?
Commander GATEWOOD. I have not those figures. Those are not my figures.
"The CHAIRMAN. That has nothing to do with the building of the ships?
Commander GATEWOOD. Indirectly; yes, sir.
Mr. Sisson. You took your special overhead charge and added it to this amount here, making $8,600,000 of overhead expense ?
Commander GATEWOOD. Yes, sir. Mr. Sisson. It seems to me that your overhead charge on the espenditure of $25,000,000 for construction purposes is somewhat ercessive.
The CHAIRMAN. That is 12 per cent overhead charge on doing $70,000,000 worth of work.
Mr. Sisson. You must have been putting in some new plants. I can not understand that overhead charge.
The CHAIRMAN. I am not in favor of allowing $8,600,000 on that account. Let us talk about the completion of the ships, because I do not think that overhead has anything to do with this question at all. How much will be required to complete the ships?
Commander GATEWOOD. At the present date by far the larger percentage of the money needed will be required to complete the contracts or to pay for the construction of the ships that have already been completed, because we have only two ships left to complete.
The CHAIRMAN. How much of it is due to work to be done under this last appropriation, for which you estimated the cost to be $29,000,000, and of which you have had $25,000,000?
Commander GATEWOOD. The cash balance is $17,000,000.
The CHAIRMAN. You have an item of $8,600,000 there that has nothing to do with the matter at all. If they have been spending this money for overhead or for any other other than construction purposes, they must account for that in some other way, so far as I am concerned.
Commander GATEWOOD. Our total estimate of the amount neces. sary to complete as of October 1 was $34,990,000. That included the Construction Division only. Then to that should be added $4,457,827 as overhead, other than the overhead of the Construction Division, to complete.
The CHAIRMAN. What does that consist of ?
Commander GATEWOOD. That is similar to the $8,600,000. That is the amount that will be incurred from October 1 on until completion.
The CHAIRMAX. We will let somebody else come in and explain that at some other time. We will not consider that here. As I have said, we are only considering the question of completing these ships
Commander GATEWOOD. I want to make it clear that this figure of $8,600,000 should certainly have been added to the purely construction estimates.
The CHAIRMAN. We were not advised of that and no one ever. understood it. It might have been in the back of somebody's head, but it was not given to us. All the information we ever had was that we would probably have to appropriate $4,000,000 more, and probably we would not have to do that.
Mr. Sisson. And the cut was made with the consent of everybody in view of the possibility of a less labor cost and less material cost. Whether $4,000,000 more would be needed nobody could tell exactly, but we said we would give you $25,000,000, and if you could get through on that all right, but if not the balance would be given to complete the program.
Commander GATEWoon. That is quite true, sir, and I understand the position of the committee, but the committee must understand that there was an error made by the former comptroller's department in not adding to the purely construction figures this other estimate.
The CHAIRMAN. I do not think that has anything to do with it at all. The construction of these ships was to cost so much money, and if the Shipping Board has any other expenses it will have to show what they are.
Commander GATEWOOD. Some of those expenses are properly chargeable to construction.
The CHAIRMAN. $8,000,000 is not properly chargeable to it.
Commander GATEWOOD. I do not know anything about that figure, but the figures given by the comptroller's department were expenditures chargeable against construction. If you exclude that figure the construction figure would be $34,990,000, and on October 1 the cash on hand was $17,000,000, leaving a balance of $17,990,000; if the Navy payments for tankers, radio equipment, etc., are not made that leaves $7,590,000.
The CHAIRMAN. If the Navy payments are not made how much would it be?
Commander GATEWOOD. It would be $17,990,000. That is merely a paper transfer of funds. The amount would be $7,590,000 if all overhead is excluded.
The CHAIRMAN. How do you make it $7,590,000 if you deduct the $8,600,000 from the $12,000,000 ?
Commander GATEWOOD. Here is the way I get it: The estimate for construction, again speaking purely for the Construction Division, was $34,990,000; on October 1 we had $17,000,000 of a cash balance, leaving $17,990,000. Now, if the Navy payments for tankers, radio equipment, etc. are not made
The CHAIRMAN (interposing). What do they amount to?
The CHAIRMAN. We can not assume that the Navy payments will not be made.
Commander GATEWOOD. That, again, is a matter I do not know about.
The CHAIRMAN. We can not assume they will not be made, If there is a bill against the Navy there is no reason why it should not be paid, and instead of appropriating money you would have to give us back $2,500,000, because you will be $2,500,000 to the good, according to your own figures. Mr. Sisson. That is, if you do not pay overhead ?
The CHAIRMAN. We do not pay the $8,600.000 and he is deducting $10,000,000 for the Navy payments, but we must not assume that those payments are not to be made. The Navy is going to pay its bills.
Commander GATEWOOD. We pay the Navy; that is what I mean about that; they are payments we are supposed to make to the Navy. For example, all of the radio equipment on all of our boats was purchased from the Navy but it has not been paid for, and that is money we may have to pay the Navy.
The CHAIRMAX. I do not understand the way you make your calculations. I have my mind working in a certain groove, perhaps, along rather simple lines, and your statement rather complicates it. I will just repeat the way I have it in my mind. To begin with, you said $29,000,000 was all you needed to complete the program. Wo are not concerned about whatever complications may exist in your figures. What we want to know is whether $29,000,000 will complete the program which you said would be completed with that amount of money, and having had $25,000,000 of it, how much more do you need to complete the program? That is the point I want to get at, and that is a simplified way of putting it. We do not go back to $70,000,000, $69.000.000, or $31,000,000. We go back to the $29,000,000.
Commander GATEWOOD. Let me see whether I can explain it to you. The $29 000,000 is short by the amount of $7,000,000 of expected credits, how much of which we are going to get we do not know, but whatever we get will probably go into the General Treasury and not be credited against construction, and we would not get whatever we do get for a long time.
The ('HARMAX. You presented this case of $29,000,000 to complete your shipbuilding program; you did not state anything about experted credits; you simply stated that $29,000,000 would be require ! to complete a certain program, and we gave you $25,000,000.
Commander GATEWOOD. And up to that time we had always been getting credits through the entire program; that is, from 1917.
The CHAIRMAX. And you are still getting credits. The Shipping Board is collecting under the $55,000,000 authorization and will be collecting under that authorization until the 30th of next June, and whatever they collect of the $55,000,000 between now and the 30th of June will be available, so that the $7,000 000 could be included in the collection and paid out of those collections for the purpose you indicate?
Commander GATEWOOD. If we get it.
The CHAIRMAX. But they are getting it. They have over $25,000,000 that I know of, and it can not be said here they are not gettiny it; they are getting it and will get it. It is true, however, that they have not gotten all of the $55,000,000.
Commander GATEWOOD. Again, I am speaking about the comptroller's statement as to the amount recoverable-
The CIURMAS (interposing). It happens that we have been making some investigations about what they get, and we are not entirely in the dark about it.
Commander GATEWOOD. I am taking the comptroller's statement that it is not available for construction.
The (HAIRMAX. It may not be available under the orders of the Shipping Board, but there is no question about the Shipping Board having collected money. I know they have collected more than $7.500,000; I know they have collected more than twice $7.500.000 and I think three times $7,500,000, and out of what they have col. lected they must pay this $7,500,000. You may have had something