(3) The term "interim financing" includes advance and partial payments, loans and guaranties, and all other types of financing made in contemplation of termination or related to it."

(4) The term "termination inventory" is defined to mean any materials properly allocable to a terminated war contract except machinery and equipment subject to a specific separate contract.

DIRECTOR OF CONTRACT SETTLEMENT

Section 4 of the bill establishes the Office of Contract Settlement and prescribes its major functions. The Office will be headed by a Director appointed by the President, by and with the consent of the Senate, with a salary of $12,000 a year and a term of 2 years.

The Director is authorized to issue general orders or general regulations in order to insure uniform and efficient administration of the provisions of the act. These (1) may prescribe policies, principles, methods, procedures, and standards to govern the various Government agencies in exercising their authority and discretion and in performing their duties and functions under the act; and (2) may require or restrict the exercise of any such authority or discretion or the performance of any such duty or function. The various Government agencies subject to the act are directed to carry out such orders and regulations expeditiously.

The Director is authorized to employ necessary personnel and to purchase necessary supplies and services within the funds made available therefor. He is directed, however, to perform his duties through the personnel and facilities of existing agencies insofar as this does not interfere with uniformity and efficiency.

ADVISORY BOARD

Section 5 creates a Contract Settlement Advisory Board to advise the Director. The Director acts as Chairman of the Board. The other members of the Board are the Secretaries of War, Navy, and Treasury; the Chairmen of the Maritime Commission, of the Board of Directors of the Reconstruction Finance Corporation, of the War Production Board, and of the Board of Directors of the Smaller War Plants Corporation; the Administrator of the Foreign Economic Administration; the Attorney General; and the Comptroller General, or their alternates. Other agencies shall be invited by the Director to participate whenever matters affecting them are under consideration.

SETTLEMENT OF TERMINATION CLAIMS

Sections 6 and 7 deal with the settlement of the claims of prime and subcontractors.

Basis of settlements. Section 6 establishes the policy of the Government and the responsibility of the contracting agencies and Director to provide war contractors with speedy and fair compensation for termination in accordance with the provisions of the act. Such fair compensation shall include, but not be limited to, reasonable costs solely incident to termination and settlement, reasonable costs of removing and storing termination inventories, and such allowances for profit on the preparations made and work done on the terminated

part of the contract as is reasonable under the circumstances, plus interest on the termination claim in accordance with the act. The same principles apply both to prime and subcontracts (sec. 6 (a)). Contracting agencies are directed to establish methods and standards suitable to the conditions of various war contractors for determining such fair compensation. These may be based on actual, standard, average, or estimated costs, or on a percentage of the contract price based on the estimated percentage of completion of work, or on any other equitable basis. So far as practicable, any accounting shall be adapted to the accounting systems used by war contractors, if consistent with sound accounting practice (sec. 7 (a)). When any war contract fails to provide for fair compensation for its termination, the contracting agency is directed to amend it by agreement or to authorize, approve, or ratify its amendment by the parties to provide such fair compensation (sec. 6 (b)).

Interest is to be allowed and paid on termination claims of both prime and subcontractors at the rate of 2% percent per annum beginning 30 days after termination. However, interest is suspended for the period of any unreasonable delay by the contractor; any interest waived for the contractor on an advance payment or loan is deducted from the interest otherwise payable under the act; and upon appeal or suit by a contractor, interest ceases to accrue 30 days after the findings of the agency unless the amount allowed is increased upon the appeal or suit (sec. 6 (d)).

Authority to settle.-The contracting agencies are specifically authorized to settle termination claims by agreement or by determination without agreement. Except as otherwise agreed, settlements by agreement are final and conclusive and cannot be reopened except for fraud or upon renegotiation to eliminate excessive profits. Settlements by determination without agreement are equally final and conclusive unless the war contractor appeals or brings suit in accordance with section 13 of the act (sec. 6 (c)).

The act expressly authorizes the making of group settlements of termination claims against several agencies and requires the Director

prescribe policies and methods to govern such settlements and to assign war contractors to contracting agencies for such settlements. When this is done, the designated contracting agency may settle Some or all of the termination claims of the war contractor, including those against other agencies (sec. 7 (d)). Section 22 authorizes one agency to use its appropriated funds on behalf of another and permits transfers of funds between agencies for this purpose.

Subcontracts. With respect to the termination claims of subContractors, the bill contains the following provisions:

(1) Where such settlements are made by war contractors with their subcontractors in the tier below, the contracting agency is directed to limit or omit its review of such settlements to the maximum extent compatible with the public interest. Any agency may approve, ratify, or authorize such settlements upon such evidence, terms, or conditions as it deems proper, but is directed to adjust its review according to the reliability of the contractor and the size, number, and complexity of the claims, and other relevant factors, and to authorize settlements without review whenever these factors appear to justify such action. Such settlements are final and conclusive to

the same extent as those made directly with the agency, and the contractors involved are liable only for their own fraud (sec. 7 (b)).

(2) Any contracting agency is authorized to exercise supervision or control over payments to war contractors on account of termination claims of their subcontractors for the purpose of assuring the receipt of the benefit of such payments by the subcontractors (sec. 7 (c)).

(3) Any contracting agency is authorized to settle termination claims of subcontractors directly whenever it deems such action necessary or desirable for the expeditious and equitable settlement of such claims. It may discharge the claim by payment or purchase it, and may agree to assume, or indemnify the subcontractor against, any claims in connection with such claim or termination settlement. Upon undertaking such settlement the agency is required to deliver to the subcontractor and to the war contractor liable to him a written notice stating the conditions applicable to such settlement; upon consenting thereto the subcontractor obtains a claim against the Government on the conditions specified in the notice. Such settlements with subcontractors may be made without regard to any limitation on the amount payable by the Government to the prime contractor (sec. 7 (e) and (f)).

(4) Where a subcontractor has been deprived of fair compensation for termination and cannot otherwise reasonably secure it, any contracting agency is authorized to pay such compensation to him. (whether or not it has been included in a prior settlement with another contractor) if it determines that in the circumstances of the particular case equity and good conscience require such action (sec. · 7 (g)).

INTERIM FINANCING

Sections 8, 9, and 10 of the bill deal with interim financing for war contractors having termination claims.

General. Section 8 contains the general provisions governing such financing. It establishes the policy of the Government to provide war contractors having termination claims with adequate interim financing pending final settlement within 30 days after proper application therefor. So far as practicable, such interim financing will be provided through loans and guaranteed loans. Where it is provided through advance or partial payments, it shall consist, so far as practicable, of (1) 100 percent of the contract price of acceptable completed items, plus (2) either (a) 90 percent of the cost of materials, direct labor, and manufacturing overhead and a reasonable percentage of other allowable costs, or (b) where ascertainment of such costs is not feasible, or will cause delay, 90 percent of the estimated costs allocable to the terminated contract, plus (3) any additional amounts the agency deems necessary to provide adequate interim financing, minus (4) any outstanding advance or partial payments allocable to the contract. The Director will prescribe the types of evidence to be required to support such financing, the terms and conditions applicable thereto, the classes of cases where it shall be refused, and methods of supervision of such financing to assure adequate interim financing to subcontractors.

Any interim financing made by any contracting agency must provide for its liquidation by the war contractor upon the final payment of the

termination claims involved or within such further period as the con-tracting agency deems necessary for its orderly liquidation. A contracting agency may settle any claim or obligation due by or to the Government arising from or related to any interim financing made, acquired, or authorized by it. The obligation to pay any penalty and to repay any interim financing made or assumed by the United States is a debt entitled to priority under section 3466 of the Revised Statutes (31 U. S. C., sec. 191).

Partial payments.-Section 9 of the bill authorizes any contracting agency to make advance or partial payments to any war contractor on account of any termination claim and to authorize, approve, or ratify any such advance or partial payments by any war contractor to its subcontractors; and directs such payments to be made from time to time on partial settlements, minimum settlements, and before settlement. Where any such advance or partial payment, except final payment on a partial settlement, exceeds the amount finally determined to be due on the claim, the excess is treated as a loan from the Government to the contractor receiving it and such overpayment is payable on demand with a penalty of 6 percent. Where the payment was made by a war contractor with the consent of the contracting agency he is entitled to credit from the Government for the excess payment and is not liable for it in the absence of fraud on his part. Loans. Section 10 authorizes any contracting agency to guarantee financing institutions against loss on loans or commitments made by them to any war contractor or other person performing any operation nection with or in contemplation of termination of one or more war contracts or operations. It also authorizes any contracting agency to make or participate in making direct loans or commitments for the purpose of such financing. Such financing may be secured as the contracting agency may prescribe. The Federal Reserve banks are authorized to act on behalf of the contracting agencies as fiscal agents of the United States for these purposes.

ADVANCE NOTICE

In order to facilitate the efficient use of materials, manpower, and facilities, section 11 requires each contracting agency to notify its prime contractors of termination as far in advance of the cessation of work thereunder as is feasible without permitting unneeded production or performance, and to permit continuation of work whenever the agency deems that it will benefit the Government or avoid substantial injury to the plant or property,

To protect contractors against stop orders by any contracting agency, this section requires the agency, unless the contract provides otherwise, to compensate the contractor for reasonable costs and expenses resulting from any suspension of work under stop orders; if this suspension extends for 30 days or more, the contractor to elect to treat it as a termination. The Director has no authority under this act to regulate or control the classes of contracts to be terminated by the contracting agency.

REMOVAL AND STORAGE OF MATERIALS

Section 12 contains comprehensive provisions designed to insure the expeditious removal from the plant of the war contractor of all termination inventory not retained or sold by him.

Under this section the war contractor may submit statements showing the termination inventory which he desires the Government to remove. Within 60 days thereafter the Government agency must arrange for storage of the termination inventory by the war contractor on his own premises or elsewhere or must remove such inventory from his plant or plants, unless it is retained by the war contractor or otherwise disposed of or is determined not to be allocable to the terminated contracts. If the Government fails so to store or remove the inventory, the war contractor may remove it and store it at the risk and expense of the Government under certain conditions. When the war contractor intends to do this, he must notify the Government agency, at least 20 days beforehand, of the date fixed for removal and submit a list showing the quantities and conditions of the materials to be removed, prepared in accordance with a concurrent physical inventory. If the agency does not check the materials at or before their removal, a certificate of the war contractor showing the materials removed, if filed within 30 days after the date fixed for removal, is prima facie evidence against the United States of the quantities and conditions of the materials so removed and of the fact of their removal.

Under this section the contracting agency, the Director, or any Government agency designated by him is authorized to take possession of any termination inventory or materials so removed or stored for the account of the Government whether or not they in fact constitute termination inventory. With respect to any such materials, the Government's liability is limited to their return to the war contractor, or to their disposal value at the time of removal, or to the proceeds realized by the Government from their disposal, as the agency elects, unless the parties agree otherwise. Any contracting agency is forbidden to postpone or delay any settlement for the purpose of awaiting disposal of any termination inventory.

This section also contains similar provisions for removal of Government-owned machinery, tools, and equipment installed in any plant for the performance of one or more war contracts.

APPEALS

Section 13 is designed to protect the contractor in case he does not agree with the contracting agency on the amount due on his claim. In such cases, the contracting agency embodies its determination of the amount due in written findings. If the claim has been presented in proper form, the agency must deliver such findings to the contractor within 90 days after his demand for them.

If aggrieved by the findings of the agency or its failure to make findings, the contractor is entitled either to appeal to an Appeal Board or to bring suit on his claim against the United States in the Court of Claims or other appropriate court. Before doing so, however, he may first resort to an intra-agency procedure for appeal or protest and must do so if required by the Director, but the agency must act on any required protest or appeal within 30 days. Unless