FRIDAY, OCTOBER 1, 1943.

WAR SHIPPING ADMINISTRATION

STATEMENTS OF LEWIS W. DOUGLAS, DEPUTY ADMINISTRATOR, WAR SHIPPING ADMINISTRATION; R. W. SEABURY, ASSISTANT DEPUTY ADMINISTRATOR, FISCAL AFFAIRS; C. W. WILLIAMS, DIRECTOR, FIELD SERVICE DIVISION; J. A. RICHARDSON, FIELD SERVICE DIVISION; J. L. MURPHY, CHAIRMAN, PRICE ADJUSTMENT BOARD; A. AMES, ADMINISTRATIVE OFFICER; E. J. ACKERSON, LEGISLATIVE COUNSEL; AND WILLIAM U. KIRSCH, BUDGET OFFICER

INCREASING LIMITATION ON ADMINISTRATIVE EXPENSES, REVOLVING FUND The CHAIRMAN. Mr. Administrator, we have before us, in House Document No. 298, an item for the War Shipping Administration as follows:

The amount that may be used for administrative expenses in the fiscal year 1944 under the head War Shipping Administration Revolving Fund is hereby increased to $14,600,000.

Your present limitation is $9,650,000, and that is fixed by the National War Agencies Act of 1944. You are asking for an increase to $14,600,000, which is an increase of $4,950,000.

This seems to be a new program, Mr. Douglas, under the administrative order of the War Shipping Administration; that is, its order of August 18, 1943, which establishes, in effect, a new division known as the Field Service Division.

Mr. DOUGLAS. Yes.

ORDER ESTABLISHING FIELD SERVICE DIVISION

The CHAIRMAN. I think we had better put in the record at this point the order of August 18, 1943.

(The order referred to is as follows:)

WAR SHIPPING ADMINISTRATION

WASHINGTON

ADMINISTRATIVE ORDER No. 2-SUPPLEMENT No. 13

The Field Service Division of the War Shipping Administration is hereby created to (a) survey and report on conditions in ship repair yards which affect the cost of the repair and conversion program of the War Shipping Administration; (b) provide better control over the costs of the repair or conversion of War Shipping Administration vessels; and (c) train personnel in the analysis and checking of the costs and efficiency of ship repairs, and such other duties and services of a similar nature, as may be required by the Administrator.

The Field Service Division shall take steps to see that there be no

(1) Excessive use of overtime on War Shipping Administration vessels; (2) Loading of labor costs an excessive use of man-hours resulting not only in increased cost but in a further aggravation of manpower shortage;

(3) Excessive use and waste of materials;

(4) Excessive use of subcontractors with resulting pyramiding of fees;

(5) Duplicating of work and charges on items improperly performed, caused by faulty workmanship and lack of proper supervision;

(6) Duplicating of charges on materials withdrawn from stock;

(7) Inadequate accounting of excess materials and scrap removed from vessels.

The Field Service Division shall have headquarters in New York City and shall be under the direction of a Director who shall report to the Assistant Deputy Administrator for Fiscal Affairs. In the performance of his duties the Director shall be assisted by such other personnel as may be necessary.

The Field Service Division shall not perform any of the duties now assigned under existing administrative orders to the maintenance and Repair Division, the representatives of the Comptroller's Office, or the Division of Operating Costs Control but shall collaborate with the representatives of these Divisions and office, and shall furnish such records, data, and information as may from time to time be required to enable them to perform their duties to the best advantage and in the most efficient manner.

Mr. Charles W. Williams is hereby appointed Director, Field Service Division. By direction of the Administrator.

AUGUST 18, 1943.

A. J. WILLIAMS, Acting Secretary.

GENERAL STATEMENT ON VALUE OF FIELD SERVICE DIVISION

The CHAIRMAN. We will beglad to have you give us a statement about this, Mr. Douglas.

Mr. DOUGLAS. Mr. Chairman, there has been prepared a lengthy justification for this request. If it suits you and the other members of the committee, I would like, if I may, to present the matter more briefly than it is presented in the justification.

The CHAIRMAN. You can give us a summary.

Mr. DOUGLAS. Exactly, if that suits your convenience.
The CHAIRMAN. You may proceed.

Mr. DOUGLAS. When the appropriation for fiscal year 1944 was under consideration by this committee last spring reference was made to that phase of the operations of the War Shipping Administration encompassed by repairs, and I think that either on or off the record the observation was made that it was a very difficult thing to keep under control and to administer.

I should like to add to what may have been said at that time that it is, as a matter of fact, extremely difficult to control and administer, and an extremely difficult phase of the operations properly to keep in control.

There are only about 83 major repair yards throughout the country in which the War Shipping Administration has ships under repair. The tonnage of W. S. A. controlled dry cargo vessels in a repair status for 7 days or longer-that is, important repairs-ranges from 800,000 tons to 1,700,000 tons constantly. The tonnage of all vessels of over 1.000 deadweight tons as of August 31 totaled over 4,500,000. Over 500 vessels are in a repair status each week.

To supervise and to know, with reasonable accuracy, the amount of repairs, the amount of materials that go into the repairs of these ships, the amount of labor that is actually expended on a ship, and the legitimate cost of any particular job is an administrative task of considerable difficulty requiring administrative machinery for its adequate discharge. The War Shipping Administration has really taxed its administrative capacity and ability.

Last May reference was made to the difficulty of the job and also to the fact that a new repair contract had only then been negotiated, to which the Army and the Navy were parties.

It is hard to control the administration of the matter, so that the ships are repaired with maximum speed, because speed is a very important factor in connection with the use of ships in time of war.

The whole problem is aggravated by the fact that this is a seller's market. Wars always create great congestion in repair yards. That was true in the last war, and that is precisely what is happening in this war. Doubtless many of you have gone to a large repair yard and have seen the number of ships laid up undergoing a variety of different kind of repairs.

There are very few repair jobs that are identical. It is very difficult to standardize repair jobs on ships, for it is unlike the production of an airplane or an automobile, or a shell, or any other piece of ordnance. Those things are all turned out according to standard sperifications, but the repair on ships is in itself an individual job.

This proposal we present to the committee this morning finds its parallel in part in what the Navy has done during the last 3 years, but it goes beyond the Navy procedure.

It is the War Shipping Administration's administrative effort to bring this matter of repairs under control, to save expenditures of the public funds, and to increase the efficiency with which the jobs are undertaken and completed.

Last June the Price Adjustment Board, of which Mr. Murphy is the Chairman, was assigned to make an inquiry into this matter, to determine whether the costs were excessive. We wanted to make certain that the allocation of overhead against our particular job has been properly made. We intend to ascertain, as a matter of fact, that the materials used on the jobs, or reported to have been used on the jobs and charged against the jobs, have been used.

Mr. Murphy can give you those matters in greater detail. They are included in this written justification.

Those are matters also that the auditor is helpless to control. So the problem was largely a question of administration, to be reasonably certain that the amount of materials charged against a job actually was used; that the amount of labor charged against a job was actually used; that the overtime is a proper charge against the repair of a particular ship; that the overhead has been properly allocated against that particular job.

The question was how to achieve knowledge of those matters and bring them under proper control, with the ultimate purpose, obviously, of saving funds and increasing the speed with which the job was done.

So on August 18 an administrative order establishing what is known as the Field Service Division was issued.

We calculated then that we would probably be able to save between 40 and 50 million dollars by a proper administration of the repair

contracts.

On August 23, I think it was, we put on 36 men to act as checkers and supervisors in a limited number of yards. By the end of the month we had put on an additional 32.

The reports that have come in from the work of those men within this Division indicate that the proposition has real merit. The overtime, I believe, has fallen, and for the first time in my knowledge there

were no War Shipping Administration ships under repairs at the Bethlehem Fifty-sixth Street yard in New York.

So I say, on the basis of that limited experience, superimposed upon the inquiry that had been made by the Price Adjustment Board, we believe that this procedure and this project merit your favorable consideration.

It will cost as the justification discloses, about $4,950,000; but as I have indicated we estimate the saving will be at least 10 percent and possibly more, of the total budget for repairs and conversion. That figure runs to about $500,000,000.

TOTAL COST OF SHIP REPAIRS

The CHAIRMAN. What is your annual cost, Mr. Administrator, of repairs, both your cost from direct appropriations and the cost from funds received from lend-lease funds?

Mr. DOUGLAS. They run about $500,000,000.

The CHAIRMAN. That is the total.

Mr. DOUGLAS. Yes.

The CHAIRMAN. How are they divided?

Mr. TABER. That includes all annual expenditures for operations and repairs?

Mr. DOUGLAS. For repairs only. Actually we are budgeted for some $113,000,000 for maintenance repairs, $105,000,000 for reconditioning, conversion, and outfitting prior to operation; $176,000,000 for defensing and degaussing of vessels; and $100,000,000 for war damage. The total budgeted amount is about $500,000,000. We now expect the actual expenditures for repairs to be less than this amount.

The CHAIRMAN. How is that divided between lend-lease and direct appropriation funds?

Mr. DOUGLAS. That is exclusive of lend-lease.

The CHAIRMAN. What is the amount for lend-lease?

Mr. KIRSCH. The budgeted amount for lend-lease would run in the neighborhood of another 2 to 3 hundred million dollars.

The CHAIRMAN. Practically the same amount.

Mr. KIRSCH. Less than that, sir.

The CHAIRMAN. In how many shipyards in the United States are these repairs being made?

Mr. DOUGLAS. One hundred and ninety-seven in all, with 83 major

shipyards.

Mr. O'NEAL. Does that include repairs being done in foreign countries on our vessels?

Mr. DOUGLAS. No; that is being done in reverse lend-lease.

Mr. O'NEAL. Is there an offset in lend-lease for that charge? Mr. DOUGLAS. Yes. Also a good many of these vessels carry lendlease cargo, and repairs on those vessels are on our account. Repairs on lend-lease ships, owned by a lend-lease country, undertaken in this country are not included in this item I have given you.

The CHAIRMAN. What is the method you follow in making these repairs? I take it for granted they are done by contract.

Mr. DOUGLAS. That is right.

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PROPOSED ORGANIZATION FOR CHECKING COST OF SHIP REPAIRS

The CHAIRMAN. What system do you have for checking these contracts?

Mr. DOUGLAS. There has been, because of the inadequacy of the number of surveyors, not a good system for checking the cost of repairs.

The CHAIRMAN. What kind of an organization do you expect to build up?

Mr. DOUGLAS. We expect to have a director of this division, and then we propose to establish four divisions-one covering the Atlantic coast, one covering the Gulf, one covering the Pacific, and a very small one on the Great Lakes, where there is a very limited amount of repairs undertaken.

Each port will have a supervisor and an assistant supervisor and a number of examiners that will be required to check each of these ships and the repairs on each ship.

The number of examiners and supervisors is arrived at, Mr. Chairman, by taking the average number of ships in a repair yard and multiplying that by two, because two men are required for each ship, and the figure thus arrived at by three, for three shifts. These men will check the amount of material that goes into a repair job and the amount of overtime that is properly chargeable against that job; the efficiency with which labor operates on the job, and the effectiveness of the yard's direction of the job-every item that goes into the cost of that particular ship.

(Discussion off the record.)

SYSTEM FOLLOWED IN MAKING CONTRACTS FOR AND ESTIMATING COST OF SHIP REPAIRS

The CHAIRMAN. Do you have a standard contract, or do the contracts vary in different yards?

Mr. DOUGLAS. No; it is a master contract. The Army and the Navy are parties to that contract, just as we are.

The CHAIRMAN. What system do you follow in making the contracts?

Mr. DOUGLAS. I am going to ask Mr. Murphy to make some observations in respect to the nature of the contracts.

(Discussion off the record.)

The CHAIRMAN. Mr. Murphy, tell us something about this contract. What character of agreement is it?

Mr. MURPHY. It is really not a contract, Mr. Chairman, in itself, as much as it is a schedule of rates and conditions.

The CHAIRMAN. You have no specified sums and no definite dates in it?

Mr. MURPHY. Yes; we do have.

The CHAIRMAN. Specified costs and dates of completion?

Mr. MURPHY. No dates, Mr. Chairman.

We send our surveyors out to a yard and they examine that yard in order to determine whether that yard can do our work. If the report is satisfactory, then our auditors will go in there and audit the books of that yard for a past period.