Evening star., 1942-08-15

schemes have
been suggested. David Lawrence.
The original plan for fat per
cent profit was tried in the Vinson
Act. which has since been repealed
The chief objection was that bid
ders could make too much profit on
q contract involving huge volume
whereas they might lose money on
q small contract. With the Gov
ernment spending tens of billions
even a per cent profit on a big
order might mean too much profit
for any one company.
Congress subsequently, thought
the way out was to order "re-nego-
tiation," process whereby con-
tracts are revised periodically as
the War or. Navy Departments OBJ
serve, excessive profits. This, how
ever, is a difficult job for the Gov
ernment agencies to do. On the
one hand, they find business men
worried about reopening old con-
tracts and about the problem, of
making accurate estimates of future
costs. ON the other hand, they find
the Government officials concerned
as to how to deal with two compet-
ing companies, one of which Is
more efficient or more experienced
than the other, and the second of
which companies needs higher
price in order to cover, its neces-
sarily higher costs.
George Makes Suggestion.
The War: and Navy Departments
frankly would be subsidizing one
company as against another, but, 1t
Is argued, this is necessary in order
to- get all kinds of plants into pro-
diction
On Capitol Hill, Senator George
and others are advocating repeal
Of the ''re negotiation" provisions of
the present law on the ground that
they produce too many perplexities
and tax difficulties impeding the war
effort and that instead there should
be an overall limitation on total
profits rather than on any particular
contract. 1t is suggested by Senator
George, who is chairman of the all
powerful Senate Finance Commit
tee, that the limitation be imposed
In the form of a percentage on cap
ital invested, say, for instance, a 6
per cent return on total capital.
To this the objection is offered
that small companies with made
uuate capitalization of a permanent
nature would be penalized and would
not wish to undertake the large
orders now being. offered them
Plainly, there is a school of
thought in the War and Navy De-
partments, the Maritime Commits
sion and the Treasury which be-
lieves that flexible formula taking
into account all possible methods,
including the idea of 6 per cent
return, on. capital invested, is the
proper approach so that each case
may be handled on its merits and a
sort OF general leveling of of
profits attained.
Just Formula Necessary.
It might be thought that the ex-
cess profit taxes of 80 per cent would
take care of any excessive profits,
but here again, when large volume
of dollars Is involved. the tax rates
still make possible some freakish or
tnordinate results which, it is felt,
are bound to provoke public criti-
cism.
One thing is clear-the war effort
can be dangerously slowed down un-
less some formula is soon devised
not so much to retain an incentive
for prof1t-making but actually to as
sure contractors against loss through
the many arbitrary decisions or rul-
ines which can be made after con-
tracts have been fully consummated
and the materials and labor paid
for, as large chunk of cost items
are disallowed year or two later
Industry simply cannot be oper-
ated If the cost or price figures are
not stabilized before contracts are
too far gone to be changed. The
only way is to put limit on the
time during which re-negotiation
must be completed and this presents
an administrative task of fantastic
proportions. Possibly some boards
inside the War and Navy Depart
ments can evolve q basic set OF
principles and re-negotiate only those
contracts where an apparently un-
reasonable or truly excessive profit
has been earned by the contractor
leaving the others to the excess
proflt tax rates and to Treasury
Department rules and regulations
concerning proper business deduc-
tions whereby it could be determined
whether improper expenditures have
been made under the heading OF
costs
Many New Products.
The problem is, of course. compli,
Gated by the fact that there are
many new products being manu-.
facsured for the Army and Navy fol
which no commercial market ha,
existed in the past. The first few
thousand units made usually mean
q high cost but as experience il
gained and larger volume is pro
duced, a lower price to the Govern
nent'becomes possible.
War and Navy Department Off
eiais and many members OF Con
eress agree that businessmen them
selves have voluntarily called at
tention to these economies and thi
IN turn has led to reneaotiatior
tReproduction Rishts Deserved1