Evening star., 1940-08-24

contract IleTe- ~
after without ,u,.
subiecting his David Lawrence
company for the rest of its life to
a possible reopening of the contract
on the vague, general grounds that
it may have charged too much for
its products.
The Justice Department would
hardly have carried this case into
the public press with a ballyhoo
press release if it had not had the
approval of those around President
Roosevelt, who regard the whole war
defense program as a tool of their
campaign objectives.
The press release emphasized that
1t was important for the Govern
ment 10 get its defense work done
at low cost and to prevent uncon-
scionable profits. But that presum-
ably is the objective of the pending
excess profits tax legislation, so it
Is difficult to understand why, in ad-
dition to the tax laws, the Govern
ment should be held to possess the
power arbitrarily to reopen con-
tracts long after they have been
settled and the money paid and dis
tributed.
Decision of Roosevelt Judges.
So unfair is the Governments S
positiic::,> in this respect that both the
District Court and the Circuit Court
Of Appeals In the third circuit de-
cided against the Justice Depart
ment. Indeed, in the third circuit.
where there are three judges, the
opinion was unanimous. Also, all
three Judges were appointed by
President Roosevelt, so they can
hardly be called reactionary or il
liberal.
The situation presented In the
cases Is not one of fraud. There
was bargaining between competent
shipbuilding experts on both sides.
The Government recognized at the
time that the prices agreed upon
were not to their liking. but now
the Department of Justice is trying
to repudiate an agreement made
with the Governments eyes wide
open just on the ground that the
war emergency forced it to accept
harsh terms.
The company in question is the
Bethlehem Steel Corp. and in the
ordinary course of events the decl-
sions by the Circuit Court of APP
peals would have been acceptable
and the case dropped. But the case
afforded too good an opportunity
far ~, oJv,o;,,; trotion;c no1jtjca |
experts to let loose cries of business
profteering, even though the whole
episode occurred in the last war.
Court Cites Justification.
The opinion of the Circuit Court
of Appeals states that the Bethle-
hem Steel Corp. realized a profit
of approximately 20 per cent of the
cost of ships in question and that
such profits are undoubtedly very
large in view of the fact that the
company took no risk. The court,
however. points out as partial justi-
fication for Bethlehem's profits that
Cd the cost of these ships was no
more than that of many other ships
built for the Government at that
time on both lump sum and cost
plus contracts, and (2) these profits
are spoken of only in relation to
actual cost of the ships and do not
take into consideration the burden
on such a large organization in
carrying its overhead during pc
riods of inactivity in the shipbuild-
ing industry which enabled it to be
quired by the needs of the Govern
ment.
As a matter of fact, in the old
cost-plus contracts. the manufac-
turers were promised a bonus of
about so. per cent of the savings
they happened to effect below cost.
In a case brought by the Bethlehem
Steel Corp. in the same courts, the
company won also because the bonus
money for savings was claimed to
be due under the explicit words of
the contracts.
Uncertainties regarding the Gov
ernment'S treatment of contractors
is holding up the defense program.
Many subcontractors are refusing
to accept Government work because
they fear restrictions that will tie
up their normal business. The
administrations press agents are
busy handing out propaganda
smearing the businessmen, especially
in the defense industries, the cry
being that business is putting profits
above patriotism. But anybody at
tempting to run business with
customer who makes a contract and
then doesn't stick to it, but at
tempts to welsh in court proceedings
years later is bound to be a little
hesitant about rushing in to get
contracts subject to such limita-
tions and restraints.
What is most perplexing is that
the Justice Department publicly af-
firms the position that the Govern
ment shall, by court action, be given
the right to reopen defense con-
tracts at any time, even after the
money is paid and the work is done.
Some legislation prohibiting the re-
opening Of contracts except for
fraud or dishonesty or willful mis-
representation of the facts would
seem to be a logical sequel now to
the strange procedure of the Justice
Department in asking for an appeal
from a unanimous decision which
clearly refused to accept the Gov
ernment's arbitrary position.
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