Admiral POTTER. The appropriation has always been construed to cover the transportation of all sorts of material.

The CHAIRMAN. The law does not give you that authority.

Mr. REED. It does not limit it to supplies or material.

Mr. SISSON. Why should you have the right to buy supplies unless you have the right to transport them? Is that the way you con

strue it?

Admiral POTTER. Building supplies, for instance, might be absolutely necessary for quarters, and that sort of thing.

The CHAIRMAN. You do not think you would have the right to create a deficiency for that sort of transportation, do you?

Admiral POTTER. That is the way the law has been interpreted. The CHAIRMAN. If so, I think you have strained it or, perhaps, broken it.

Admiral POTTER. I think we have always kept within the law. The CHAIRMAN. We are going to insist upon the observance of the law. We want the law literally construed and carried out.

Admiral POTTER. In my 24 years of service in the Navy, I do not think I was ever asked that question before.

The CHAIRMAN. We are not only commencing to ask it now but we are commencing to insist upon it. Of course, we will be justified in allowing deficiencies for whatever the law authorizes you to create a deficiency for, but we do not want to encourage you to create deficiencies even for those things. But, when it comes to things for which the law does not permit you to create a deficiency and, in fact, prohibits you from creating a deficiency, we expect you to live up to the law.

Admiral POTTER. I understand that there have been decisions by the comptroller-I do not mean the present comptroller general, but his predecessors-holding that it was legal to handle this particular appropriation in this way.

Mr. KELLEY. This appropriation for freight has always been unsatisfactory to me, somehow, for the reason that the form of your contract determines whether you shall pay freight or not.

Admiral POTTER. Yes, sir.

Mr. KELLEY. For instance, you can buy a commodity f. o. b. New York or at point of delivery, and you can make the price at that point, which, of course, will include the freight, and pay it out of the appropriation for the commodity itself.

Admiral POTTER. Yes, sir.

Mr. KELLEY. That applies to food supplies, or whatever it may be. Admiral POTTER. Yes, sir.

Mr. KELLEY. You can buy f. o. b. at the point of manufacture or production, and pay out of this item an additional sum for freight? Admiral POTTER. Yes, sir.

Mr. SISSON. That is on account of the liberal construction given the provision for the transportation of clothing, subsistence, forage, fuel, etc.

The CHAIRMAN. It covers clothing, subsistence, forage, fuel, etc. Would not that mean the transportation of those things also?

Mr. REED. It covers the transportation of personnel, because you must move the Army and Navy

The CHAIRMAN (interposing). I presume that personnel might properly come within it.

Admiral POTTER. If I may continue, I think that perhaps what Gov. Kelley had in mind is this: There is some advantage in the Government's making contracts f. o. b. the works in the matter of inspection. In the matter of food, for instance, it is well that we have somebody on the job, say, at Chicago, to superintend the pack. It is greatly to the advantage of the health of the men to have some of our people there. When we do that we get a better price on such things as that where we accept it at the point of shipment, because otherwise they would run the risk of rejection at the yards.

Mr. KELLEY. But, considering it from the appropriating standpoint, you might include the item of freight twice. In the first place, you include it in this item for freight. It may be that you will need a large amount to pay freight on these items from the point of manufacture to the point of delivery, and then when you come to estimate for the items themselves the cost may also be figured at the point of delivery, and there you include the freight twice. It serves to swell the appropriation, and it is susceptible to some abuse.

Admiral POTTER. It would not swell the total appropriation for the Naval Establishment.

Mr. KELLEY. I think it would give quite a leeway of funds, because if you did not know at which place to include it you would be likely to include it at both places.

Admiral POTTER. In the purchase of small items, or where we purchase a great diversity of small items for delivery at different places, it is advantageous to make the price at point of delivery or at the yard. Mr. KELLEY. When you make the estimates for food, for instance, for the Navy, where do you consider the point of delivery?

Admiral POTTER. It depends upon what the food is. In the case of meats, it will be at Chicago.

Mr. KELLEY. Do you work that out so as to get your aggregate amount?

Admiral POTTER. Yes, sir; to some extent. It is something that varies a great deal. On flour and things like that, we have delivery at the respective yards largely, or at New York, and Hampton Roads.

Mr. KELLEY. That price would include the freight?

Admiral PoTTER. Yes, sir.

Mr. KELLEY. But when you work up your freight item, if you are not very careful, you will include it again on the same commodity.

Admiral POTTER. It might happen.

Mr. KELLEY. There ought to be a definite policy running through these appropriations so as to prevent that duplication.

Mr. REED. The original practice came up on account of the saving in making shipments to the west coast over land-grant railroads. There was a decided saving to the Government because of the landgrant rates, which ran practically one-half of the commercial rates. The CHAIRMAN. They were 20 per cent less, were they not? Mr. REED. In many cases they were free and in many cases 50 per cent less. There is one stretch of nearly 1,000 miles between Tacoma and San Francisco where it is absolutely free. Then, during the war, for inspection purposes and many other reasons, we bought much more heavily f. o. b., because we did not know where the

material was to go in many cases. The contractors greatly preferred that, and that practice was continued for some time, but during the past 8 or 10 months we have broken away from that to a large extent. We are making very few contracts for delivery f. o. b. the works, unless there is an actual saving involved because of the land-grant rates. We are getting back to the practice we had five or six years ago.

Mr. KELLEY. The form of your contract would determine entirely the sum to be included for freight, and the whole thing is open? Admiral PoTTER. Yes.

The CHAIRMAN. So you do not know when you make up your estimates how you are going to make your contracts?

Admiral POTTER. As I say, we try to lay out for ourselves a rough line, but it is not very complete.

The CHAIRMAN. There ought to be a large saving in this appropriation because of the number of cases where you buy your supplies delivered at point of destination.

Mr. REED. But there are heavy charges now because of the movement of supplies from one point to another in lieu of making purchases.

Mr. KELLEY. How do you ship from one navy yard to another?
Admiral POTTER. We are doing that very largely by vessels.
Mr. KELLEY. And it does not come in as freight?

Admiral POTTER. No, sir. That was not the custom, except in a minor degree, for this $518,000 in 1921. I will touch on that point when we take up 1922.

Mr. SISSON. What is a short analysis of this $518,000?

Admiral POTTER. It is railroad bills.

Mr. SISSON. I know, but what are the principal items?

Admiral POTTER. I could not say, but I can give you a complete list if it will be of interest to you.

Mr. REED. It is the general transportation of naval supplies, food, clothing, and all naval materials.

Admiral POTTER. As well as steel and iron products.

Mr. SISSON. That is what I wanted to know. I am anxious to know whether or not this item is made up chiefly of food and clothing or whether it is made up of every character of freight you are called upon to ship.

Admiral POTTER. I can not say offhand.

Mr. SISSON. Can you put that information in the record?

Admiral POTTER. Yes.

Mr. SISSON. I wish you would put in the record some of the principal items, so that we can tell whether it is made up principally of food and clothing or other items.

Admiral POTTER. Very well, sir.

FREIGHT DEFICIENCY FOR 1922.

The CHAIRMAN. Let us take up the 1922 item.

Admiral POTTER. For the 1922 item we are asking $2,000,000. We were granted in that appropriation $4,000,000, and our estimate was $3,500,000 more; $7,500,000 altogether was asked for, and we were allowed $4,000,000. Up to the end of November we were spending that at a rate of between $600,000 and $700,000 a month. That is

when we were here before. Prior to that-and it did not happen as a consequence of our coming here we had taken steps to reduce that, and Operations put into effect-effective as of about the 1st of December-radical changes that enabled us to much reduce that rate.

In consequence of that and by holding up freight shipments that had hitherto been sent forward as a matter of course, we were able to cut down the rate so that in December we had a freight rate of less than $200,000 and for January about the same, so that to take it on an average up to and through this month, we actually have a little money left, but by the end of this month, as near as we can say, our average for the year will be about $500,000 a month. Operations gave us space on some ships, so that we send everything posible in that way and as little as possible by commercial carriers.

Mr. KELLEY. If you had done that in the first place you would not have had any deficiency?

Mr. REED. The ships were not available at the beginning of the year.

Admiral POTTER. The Shiping Board placed some at our disposal since the beginning of the year.

The CHAIRMAN. You say your average will be $400,000 a month? Admiral POTTER. That is, if we are allowed this amount we are now requesting.

The CHAIRMAN. You were allowed $4,000,000, and if your average is only $400,000 a month that would be $4,800,000 for the entire year. Admiral PoTTER. I should have said that the average for the first eight months would run at $500,000 a month.

The CHAIRMAN. During the first eight months?
Admiral PoTTER. Yes, sir.

The CHAIRMAN. And the average for the last four months will be how much?

Admiral POTTER. The average for the last four months we think will probably run between $450,000 and $500,000. One might think that we could continue to do as well as we have done during the past month, but we have done well during the past month for two reasons. One reason is that a lot of shipments that ought to be made are just held up, and we have right now nearly 12,000 tons of freight that ought to be in other places, but we can not ship it. Then, in addition, we have been able to transfer some labor charges that are ordinarily chargeable to freight, S. and A., to maintenance, S. and A., because of the fact that we have been working five days a week, as you know, and that has left us some money under maintenance, S. and A. That included money that we made use of, and we think we can properly do it under the law; we thought of that carefully; but that can not continue indefinitely, and we will have to use that for maintenance, S. and A., toward the end of the year. So we feel that the proper charges for freight, S. and A., will run, as near as we can tell, from $450,000 to $500,000.

The CHAIRMAN. Do you include in that all kinds of equipment or just food supplies, clothing, etc.?

Admiral POTTER. That includes everything that is to be shipped: that is, various kinds of equipment. A lot of the stuff that is shipped on these ships is stuff we have received at navy yards; it is not stuff delivered from factory to the ship. We have very little of that. Material comes to a navy yard and is assembled there.

Mr. SISSON. You first said it cost you about $400,000 and then you changed to $500,000?

Admiral POTTER. I should have said $500,000.

Mr. SISSON. That is, $500,000 for the first eight months?
Admiral POTTER. At that average.

Mr. SISSON. That makes $4,000,000, and then about $450,000 or $500,000 for the last four months?

Admiral POTTER. Which makes about $2,000,000 more.

Mr. SISSON. That may be entirely satisfactory, but that statement from $400,000 to $500,000 a month or $450,000 to $500,000 somehow does not mean anything to me.

Admiral POTTER. It is very difficult to tell, Mr. Sisson, accurately, what the freight is going to be. We are making a special effort in that direction now. The President, as you probably know, has charged the Bureau of Supplies and Accounts with the consideration. of all the freight bills of the entire Government. That has been done by the President's order via the Director of the Budget. Mr. SISSON. That is for the purpose of getting better and more uniform rates?

Admiral PoTTER. Yes, sir.

Mr. SISSON. Through the shorter routing of freight?

Admiral POTTER. Yes, sir; so that the railroad companies will not start it on the initial route at a lower rate and then throw it into the higher. Then, too, there is the classification which is even more necessary. Commander C. G. Mayo of the Supply Corps of the Navy, has an office near the Bureau of Supplies and Accounts which is supported by a detail of clerks and assistants from each of the other departments of the Government; there are at least 15 different branches represented in it. The work was started the last week in November and a regulation has been made that shipments of two carloads or over must be referred to the Bureau of Supplies and Accounts for routing and classification. We have already handled over 12,000 carloads in a little more than two months and we are just fairly getting started. That includes the classification and routing.

The CHAIRMAN. What is the outcome?

Admiral POTTER. The outcome thus far has been that there is a saving-I do not like that word-but that corresponding amount has not been spent, that is, of at least $300,000 in the different departments.

The CHAIRMAN. You mean it goes against the grain to say that you have made a saving?

Admiral POTTER. No, sir; I mean to say that a saving, to my mind, is taking money and putting it in the bank, and I do not like to speak of saving what we merely have not spent.

Mr. SISSON. Of course, during the first month you practically knew that your freight would be $5,000,000.

Admiral POTTER. Four million dollars. Do you mean the bill that was pased, the appropriation bill?

Mr. SISSON. You say you spent this money at the rate of $500,000 a month?

Admiral POTTER. Yes, sir.

Mr. SISSON. At the end of the first month, that is, after the bills had come in, did you know that it was $500,000 a month?