Capt. FAIR. At the present time in the open market. We have four purchasing zones in the United States with a depot quartermaster in charge of each zone. We allot a certain number of mules to be purchased in each one of the zones. The purchasing quartermaster has announced already that he is ready to receive offers for animals. He selects from among the dealers, farmers, and men who have established a reputation for fair dealing and the fact that they are responsible dealers, farmers, or breeders, and he writes a letter and says: For how much will you furnish 5,000 pack mules, 5,000 artillery horses," or 2,000, whatever the number may be. They come back with a response as to the offer they are willing to make.

Mr. GILLETT. Does he take just one person?

Capt. FAIR. No; many people. Provided the prices are under what we have selected as prices that should not be exceeded, he says, "All right; we will make arrangements. You will enter into an agreement to furnish the number of animals." If the prices are too high he does like any other business man; he says: "Mr. Jones, your prices are too high; can not you let us have them a little cheaper than that?" We expect through the instrumentality of the Agricultural Department to buy quite a number of animals direct from the farmers and breeders. They have been kicking against the contract system. In order to meet that objection the Quartermaster General has arranged with the Agricultural Department to have the agricultural agents encourage the farmers to get together carload lots of animals at places where we send an inspection board to inspect them and load them on the cars. They will be called upon, the same as the dealers, to offer their animals at whatever prices they are willing to furnish them for.

Mr. SHERLEY. These officers who actually buy the animals are all officers in the service?

Capt. FAIR. Yes, sir.

Mr. SHERLEY. You are not hiring any buyers for the Government? Capt. FAIR. No. Every man who buys horses and mules is a commissioned officer of the Army. We have not enough regular officers to serve in that capacity. but we have secured the services of 50 distinguished horsemen of the United States who have volunteered for this work. They are now being instructed by a regular officer so that they can keep up the purchase of the animals in the future. Mr. SHERLEY. They come into the service?

Capt. FAIR. As officers of the Quartermaster Corps with the rank of captain.

The CHAIRMAN. You say that you send out this notice and get these offers?

Capt. FAIR. Yes, sir.

The CHAIRMAN. Are they invited to make offers for delivery at any particular point?

Capt. FAIR. They are required to state in making their offer where they propose to deliver, and the allotment of the business will depend, of course, on the proximity of the delivery point to the place where we want to ship them.

The CHAIRMAN. How is a man who makes an offer to know what chance he has in competition, if he has not any information as to the point where the horses are to be delivered?

Capt. FAIR. They all know that they are to be delivered to an auxiliary remount depot; they are told that.

The CHAIRMAN. I know that the business was rejected because no specific point was stated. You do not invite them to state what they will furnish animals for delivery at any designated point?

Capt. FAIR. In the instructions to the bidders, we tell them that all of the animals we are buying will be sent to an auxiliary remount depot.

The CHAIRMAN. They will be sent there, but you do not ask them to make a price delivered at that point?

Capt. FAIR. No; we ask them to name the price at the point of delivery which they select.

Mr. GILLETT. They could select that point?

Capt. FAIR. Yes, sir.

The CHAIRMAN. And you order those animals from that point to some point where you intend to ship them, which must include the transportation?

Capt. FAIR. Yes, sir.

The CHAIRMAN. As a matter of fact, a man is not in competition with anyone. If he happens to know the particular point to which we intend to ship the animals he would have an advantage in attempting to determine his price?

Capt. FAIR. He knows where we want them delivered. That information is sent to him in the instructions.

The CHAIRMAN. That is not my understanding. When was the last time that you accepted proposals under the Federal bidding system?

Capt. FAIR. We are just finishing now.

The CHAIRMAN. How have the prices averaged compared with the prices fixed by the board of the department?

Capt. FAIR. The prices proposed and the average prices are practically the same in each class. That system of purchasing in the open market was changed after those prices were announced. They changed back to the purchase by contract from the lowest bidder.

The CHAIRMAN. The point I am making is when these invitations for the purchase of animals were submitted those proposing to supply them would compete for delivery at some designated point, because the question of transportation has to be considered as a factor. Suppose that in a certain section of the country you should invite proposals for 100,000 animals delivered at St. Louis. Everybody then figures in the transportation: but if you just advertise for 100,000 animals and ask the people to designate where they will deliver them, that is a different proposition.

Capt. FAIR. The delivery of 100,000 animals in St. Louis would be very objectionable at one point, because a large accumulation of animals causes a great deal of sickness. The most serious difficulty is to keep the large stockyards and stock pens in a sanitary condition. The CHAIRMAN. How are the maximum prices determined? Capt. FAIR. The maximum prices, which could not be exceeded, were fixed by a consideration of the contract prices and the average offers that had been made either under contract prices or to furnish animals in the open market. The price is not announced. Nobody knows it except the purchasing agent. We are not publishing the

maximum prices. The purchasing agent is told to buy horses and is directed to keep within the maximum prices, which he can not exceed.

The CHAIRMAN. I saw them in advance.

Capt. FAIR. It is a different method entirely. That was discontinued and a new method adopted for the purchase of these new animals. The prices are not being published.

The CHAIRMAN. You no longer notify a man in advance, when you invite him to submit a proposal to furnish horses, that you are prepared to pay up to a certain price?

Capt. FAIR. No, sir.

The CHAIRMAN. When was that abandoned?

Capt. FAIR. It was abandoned over a month ago. We buy the animals at contract from the lowest bidder at advertisement.

PURCHASE AND REPAIR OF HARNESS AND PACK EQUIPMENT.

Mr. SHERLEY. The next item is for the purchase and repair of harness and pack equipment for use of the Army, including purchase and issue of repair parts for same and materials for making repairs. How much have you allotted for that purpose out of previous appropriations?

Capt. DALY. $3,314,563.

Mr. SHERLEY. You are asking for the same purpose $6,231,841? Capt. DALY. Yes, sir.

Mr. SHERLEY. How much of this original allotment was intended for purchase, and how much for repair, and how much for the purchase of repair parts?

Capt. DALY. I have not that here. I think the total required for each of those purposes was $3,000,000.

For repairs and maintenance, $300,000; 10,000 Aparejos (pack saddles), at $90, $900,000; 5,000 riding bridles, at $5, $25,000; 5,000 riding saddles at $45, $225,000; 162,556 lead harness, single sets, at $23, $3,738,788; 165,556 wheel harness, single sets, at $26, $4,226,456: making a total of $9,546,404 required for harness, riding saddles, riding bridles, Aparejos, etc.

Mr. SHERLEY. None of it is transportation?

Capt. DALY. No, sir; this is for the equipment. We have contracted up to date for 25,000 single sets of lead harness at $543,000. Mr. SHERLEY. How much a set?

Capt. DALY. $21.72. 25,000 sets wheel harness, at $25.21, $630,250. There have been actually delivered under that 6.286 lead and 13,140 wheel.

Mr. SHERLEY. How about saddles?

Capt. DALY. I have not the data on saddles, but I can get it.

Mr. SHERLEY. Suppose you insert the details of the contracts you have made for each kind of equipment under this item and at what price. Now, General, you have made a good deal of this heretofore, have you not?

Gen. SHARPE. At Jeffersonville; yes, sir.

Mr. SHERLEY. You have made it at other places, have you not? Gen. SHARPE. Not the harness.

Mr. SHERLEY. Only at Jeffersonville?

Gen. SHARPE. Yes, sir.

Mr. SHERLEY. How do the prices at which you are buying compare with your cost of manufacture?

Capt. FAIR. I have not the figures here to show that, Mr. Sherley, but my recollection of the figures is that they are a little cheaper by contract than we are able to make them in our shops at Jeffersonville at the present time.

NOTE. (a) The cost of manufacturing harness, saddles, etc., at the Jeffersonville depot during the period July 1, 1916, to December 31, 1916, was as follows: Harness, lead, single set, $14.58; harness, wheel, single set, $16.93; aparejos, $53.62; riding bridles, $3.66; saddles, riding, none manufactured. Cost during the period January 1, 1917, to June 30, 1917: Harness, lead, single set, $16.80; harness, wheel, single set, $19.50; aparejos, $66.38; riding bridles, $3.66; saddles, riding, none manufactured.

(b) Contract price for these articles during the period July 1 to April 1, under contracts made after advertising for bids, was as follows: Harness, lead, single set, $18.60; harness, wheel, single set, $20.54; aparejos, none purchased; riding bridles, $3.81; saddles, riding, $26.57.

(c) Contract price for these articles for orders placed since April 2 without newspaper advertising: Harness, lead, single set, $21.50; harness, wheel, single set, $24.91; aparejos, $80.76; riding bridles, $4.69; saddles, riding, $39.49.

Mr. SHERLEY. The ordnance people make similar equipment, do they not?

Gen. SHARPE. Yes, sir; Artillery harness.
Capt. DALY. But it is heavier harness.

Mr. SHERLEY. How do their costs compare with these contract prices?

Gen. SHARPE. I do not know. You see, in our manufacturing we have got to work under the eight-hour law, and then we have to make allowances for leaves of absence.

Mr. SHERLEY. That is no different from the ordnance people? Gen. SHARPE. No; but I am simply comparing our prices with the outside prices.

Mr. SHERLEY. The ordnance people have repeatedly shown that they manufacture cheaper than they buy?

Gen. SHARPE. We can generally buy cheaper than we can manu

facture.

Mr. SHERLEY. I wish you would put in your hearing a statement showing the manufacturing price and the contract price and, if you can obtain the information from the ordnance people, what it costs them to manufacture things that are reasonably of the same type, so that we can get some idea as to whether these contracts are reasonable contracts or not.

To the QUARTERMASTER GENERAL UNITED STATES ARMY:

ORDNANCE OFFICE,
August 15, 1917.

1. There are given below both the contract price and the manufacturing cost of items which are common to the articles as supplied by the Ordnance Department and by the Quartermaster's Department.

2. The manufacturing cost to an arsenal includes all overhead expenses, to which the Government is subject for the manufacture of the articles named. 3. In regard to the harness, it should be stated that the Ordnance Department article is of the finest grade of russet leather, the trimmings being of bronze, whereas the article supplied by the Quartermaster's Department is of black leather, and the trimmings are of band iron. The Ordnance Department aparejos is also of russet leather.

4. The manufacturing cost and the contract prices, where this department has records of same, are furnished herewith: Single set of lead harness, russet leather (for one horse)-manufacturing cost, $28.27; contract price, records show no contract. Single set of wheel harness, russet leather (for one horse)manufacturing cost, $39.65; contract price, records show no contract. Aparejo, model 1911-manufacturing cost, $53.70; contract price, records show no contract. McClellan saddle, model 1904, Cavalry-manufacturing cost, $35.90; contract price, $31.40. April, 1917. Cavalry bridle, model 1909-manufacturing cost, less bits, $5.40; contract price, less bits, $5.09, July, 1917.

5. The prices on these bridles and saddles is considered exceptionally low, and it is believed that the department would be fortunate to-day in placing orders on bridles, less bits, at $6, and for saddles at $36, on account of the advance in prices.

WILLIAM CROZTER,

Brigadier General, Chief of Ordnance,
By R. K. DENWORTH,

Lieutenant, Ordnance Department, United States Reserves.

How are these contracts made?

METHODS OF AWARDING CONTRACTS.

Capt. FAIR. They agreed to hand them out in accordance with the ability of the manufacturers to produce the harness.

Gen. SHARPE. This is one of the matters which was to be taken up with the Council of National Defense, the same as with cotton and woolen goods. There was a meeting of the subcommittee on leather of the Council of National Defense, which handles that subject, and they secured options on the leather, just the same as they did for the shoes, and then they recommended the apportionment of the contracts according to the ability of the different manufacturers to produce the articles, also considering what they knew the manufacturers had on hand of a certain necessary kind of leather.

Capt. FAIR. Then they always arrange so that if anybody wants to do a portion of this work the man who had taken the contract would be willing to reduce the amount that he was to make by enough sets of harness to give the other man a chance to help out.

Mr. SHERLEY. How is the price arrived at?

Gen. SHARPE. They fix the price and it is arrived at in about the same way as it was arrived at for shoes; they get a corner on the visible supply of leather in the market and then fix the price.

Mr. SHERLEY. I am not talking about the prices at which they furnish the leather but the prices at which the harness makers furnish the harness to you. How were those prices fixed? Did they compete or did they submit noncompetitive bids?

Capt. FAIR. The prices were arrived at by taking the average of competitive bidding, the average price of a number of competitive bids that were received. Then that price was fixed after due consideration by the Council of National Defense of everything in connection with the manufacture of harness and leather goods.

The CHAIRMAN. The average of what competitive bids, Captain? Capt. FAIR. My recollection is that we called for competitive bids to furnish 25,000 sets.