ment business. From then on we are prepared to operate at a return of 50 percent less, on a 10 percent profit. We consider that fair, because we have increased volume due to the requirement of the war effort. We don't care about the excess profits tax.

They said:

We are not going to have any more money after tax than we had before, in the base period, even without renegotiation.

And they tendered to the War Department Price Adjustment Board, as I recall, a check for approximately $50 million. Mr. MORRIS. All right.

I am just about through, Mr. Chairman, but there are one or two other points here that I am very anxious to get a statement on, that is right to the heart of this, it seems to me at least.

I will be just as brief as possible.

Now, you say that in regard to these incentive-type contracts that the formula usually is that if the actual cost is less than the target and there is a saving, that you split it up 20 and 80.

Mr. COGGESHALL. That is the characteristic one.

Mr. MORRIS. The characteristic one.

Now, why shouldn't it be all the way through? What is the reason for a different formula? Why shouldn't it be that way all the time?

We had a statement here to the effect, as I recall, that sometimes they were allowed 50 percent of that savings.

Mr. COGGESHALL. Really-we don't make the contracts. That is for procurement officials. I can't comment on that.

Mr. VINSON. It is in the contract.

Mr. MORRIS. Beg your pardon?

Mr. VINSON. He wrote that in the contract.

Mr. MORRIS. I know, but why should there be some time when the contractor would make 50 percent and some time when he won't? Mr. VINSON. The Departments will have to answer that question. Mr. COGGESHALL. Yes.

Mr. VINSON. And ask why they do not just have a usual rule, 20 and 80.

Mr. MORRIS. Twenty and eighty.

Mr. VINSON. But from what was said yesterday by the Navy, the facts and circumstances sometimes warranted it to go over beyond, and below, the usual standard of 80 and 20.

Mr. MORRIS. Mr. Chairman, maybe they do warrant it, and if they do, all right. But we haven't had any explanation as to why they do

it.

Mr. VINSON. Ask the Air Force tomorrow when they come up here why they do it.

Mr. MORRIS. All right.

Then one more, and I shall conclude.

Now, you said on page 3 of your statement I may be in error about this, but the formula you set out here, in regard to fixed-price contracts, is 18.3. Is that what you mean as a profit, then?

Mr. COGGESHALL. That is what they realized. But remember, these are people where we found and made findings of excessive profits. Now, inside of that category, of fixed-price business, there is a very heavy percentage of companies in the chemical field, for example, who

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traditionally not only make something like 20 percent on sales, but if they don't make 20 percent on sales, which is only 20 percent on their net worth and only 10 percent after taxes, they would have trouble borrowing at the bank or certainly going to the market for fresh equity capital. You don't raise money except for a return on money.

Mr. MORRIS. You think, then, that that percentage is not too high? Mr. COGGESHALL. Not-well, I must remind you, sir, that these companies listed here in that fixed-price business made excessive profits. This study is dealing only with those where we made findings of excessive profits. The aggregate findings of excessive profits realized by individual contractors included in this study ranged between $5 and $60 million, in excessive profits.

Mr. MORRIS. This final one:

I noticed in the paper the other day-and of course you can't believe everything, naturally, you read in the paper. But I noticed where our services were going overseas to buy pills, to buy medicine. They bought a lot overseas.

Mr. COGGESHALL. Yes.

Mr. MORRIS. And I assume on the theory that they are too high here. Is that correct?

Mr. COGGESHALL. That they could buy more cheaply elsewhere, substantially more cheaply.

Mr. MORRIS. They could buy substantially more cheaply.

Mr. COGGESHALL. I read in the papers that they were buying more than 30 percent below.

Is that not the limitation on being able to buy abroad, rather than at home? At least in competition, the foreigner has to be 30 percent below in competitive bids, I believe, for you to buy.

Mr. BATES. No. It used to be 25 percent, and now it is 6 percent. Mr. COGGESHALL. I am reaching around.

Mr. MORRIS. I certainly would like to see our own people, of course,

be given preference.

Mr. COGGESHALL. Yes.

Mr. MORRIS. I want to see everybody make a profit.

This question, and then I am through.

I want to see everybody make a profit.

Mr. COGGESHALL. So do we.

Mr. MORRIS. So do you. But what I am trying to do, and I am sure that is what we are all trying to do, is to work out some kind of a program, if we possibly can, to prevent waste and prevent excess profits, that is, unreasonable profits.

And this last question:

There is a thing that is rather astounding to me, that some of these new regulations that have been invoked-and this is not meant critically, but is just the facts-that have been invoked, and that apparently are good, for training of negotiators.

Mr. COGGESHALL. Yes,

Mr. MORRIS. And they are getting more auditors, and so on. But it seems to me with all of the experience we have had in this great country of ours, and with the numbers of wars we have been in, and with the fine people we do have in our services, it seems to me that we would have started some of these long before. I just don't know why we are so late, when we have spent billions upon billions upon billions of dollars in this field.

And this last thing, and then I will finally conclude:

I can't understand, in private life, when people contract, and especially when they contract in regard to millions, as they do in private life but we are contracting in billions and billions of dollars, and I can't for the life of me see why our negotiators can't go to these contractors and require them to disclose all the information.

You have said here in your statement-you quoted the statement here

Mr. COGGESHALL. That is Mr. Mahon's.

Mr. MORRIS. You quoted the statement here. And my distinguished colleague over here, Mr. Bates, brought that out.

You have said here that, "No issue, however, is ever made of this area and the contractor has a tremendous advantage at the negotiation table."

And I don't know why they should have that advantage.

Mr. COGGESHALL. Well, I quoted Mr. Mahon. He had first-hand knowledge and information. But I assume he is a recognized authority in the field.

Mr. VINSON. I think it is pertinent that the Navy spent $150,000 to have a document written out-have you that document with you, Mr. Courtney?

Mr. COURTNEY. Yes.

Mr. VINSON. Right on that line, read what they said in reference to the negotiators that sit across the table.

Off the record.

(Further statement off the record.)

Mr. VINSON. Read it out. Read what he said there. It is in that document. It is about the senior officers.

Tell what document this is.

Mr. COURTNEY. This is a report which was purchased by the Navy Department and a management survey made by Booz, Allen & Hamil

ton.

Mr. VINSON. And they paid $150,000 for this report. This was sent to us. And we have tried to analyze and study it, ever since we have had it.

And in studying it yesterday-get back in there, now, where it says this negotiation should be done by senior officers.

And that answers the question there, of Mr. Morris.

Of course, the Government oftentimes is at a disadvantage when this target price, or any other kind of price, is being negotiated. Mr. MORRIS. The point is, I make: Why should they be?

Mr. VINSON. Well, because they don't have the experience. How could you or me, or any of us, sit down and talk about electronics and various other complicated missiles or airplanes where we just don't have the background? That is the only reason.

Mr. MORRIS. Let me make this statement. This is pertinent. That is just why I said awhile ago that they were bringing about some reforms. And now they told us yesterday, or recently, that they were carrying on schools.

Mr. VINSON. That is right.

Mr. MORRIS. So they could know those things. That is the point. Mr. VINSON. That is right. They are trying to do it.

And the experience, after being employed-aren't we, after we serve in Congress year by year, better qualified than we were when we came here?

Mr. MORRIS. I hope so.

Mr. VINSON. Tremendously.
Mr. MORRIS. Exactly.

Mr. VINSON. That is what I have been telling people for 46 years. The longer I stay here, the better I can serve them. Now listen to this.

Mr. BECKER. Mr. Chairman, I have a couple of questions I want to ask.

Mr. VINSON. I want to get this in the record.

Mr. BECKER. By the time you read that, we never will.

Mr. VINSON. Read it, Mr. Courtney.

Mr. COURTNEY. There were many recommendations made.

Under the heading of the "Negotiating Process," which is part 4 of this report and conclusions, it recommends: "Utilize senior contract division personnel to conduct price negotiation."

Mr. VINSON. That is right.

That answers the question.

Mr. COURTNEY. The Department's comment on this recommendation was: "Concur in principle. Price negotiations will be conducted on the highest level possible.'

Mr. VINSON. That is right.

All right, now, Mr. Bates-or Mr. Becker.

Mr. BECKER. I would like to ask, Mr. Chairman:

Does your Board in its work on renegotiation do any checking as to the cost estimates prepared by the Departments, against the bids, in the cost-plus contracts and the incentive contracts? Do you do any checking on that?

Mr. COGGESHALL. The only time we have seen any that I can recallmy memory may be at fault-is in connection with construction contracts. I think that is established practice of the Engineer Corps, to make their estimate as to what a job should be and then call for bids. They operate as a rule under advertised bids. They may have five, six, seven or eight. If the lowest of those six, seven, or eight is way above the Engineer Corps' estimate, there is usually no award and they start over again.

Mr. COURTNEY. Twenty-five percent.

Mr. BECKER. I have one more question, Mr. Chairman.
I want to get this in.

One of the great complaints that I have heard through the years about the Renegotiation Board is the timelag between the end of the contracts and final payments by the Government and then the Renegotiation Board coming some years later and forcing renegotiation and payment back to the Government of, we will say, excess profits, or whatever you want to call it, on a contract after the contractor has invested perhaps, in equipment and in many other ways, the profits made in that particular year.

How is that reconciled, this time lag, in the operation that is concerned?

Mr. COGGESHALL. Well, I have spent the last 4 years making myself a gadfly for the organization to get as current as is possible under the circumstances. And I am not displeased-I don't think I should be displeased. I think I am entitled to be reasonably pleased with where we stood at June 30, 1959, which is our last report to the Congress. We make an annual report.

Of course, often the filings aren't made on time, you know. We recently settled a couple of cases where filings should have been made for the 1943 and 1944 year, in the war. And people hadn't filed with us. It came to our attention. They filed-we just closed those cases out.

But here is the picture. The percent of completion through the 1948 to 1950 year, 100 percent; 1951, 99.9 percent of assignments made to the field for renegotiation; 1952, 99.9 percent; the 1953 year of contract completions, 99.8 percent; 1954, 98.2 percent completions of the assignments; 1955, 92.3 percent.

The 1956 year now, remember, contractors don't file until the first day of the fifth month after the close of the year. That means May 1, to begin with. They have to be examined and sent to the field.

In the 1955 year, that is, of people filing with us by May 1, 1956, they were 92.3 percent completed.

As to the 1956 filings, made May 1, and after, 1957, 77.6 percent. The 1957 year, where people filed with us at May 1, 1958, they were 40 percent completed at that time.

Mr. BECKER. I see that you are getting more current.

Mr. COGGESHALL. Some cases are very complicated.

Also, cases have to be held up at the suggestion of the Department of Justice if there are charges of fraud, or there is a question of concern to the Internal Revenue Service, in which case we have to withhold completion.

And many contractors do not file on time. We have had quite a drive to overcome this delinquency, because there is no penalty in the law except for willful failure to file.

Mr. BECKER. What are you saying, then, Mr. Coggeshall? That a lot of the burden has been on the contractors in not filing rather than on the Board in not completing their work?

Mr. COGGESHALL. We have broken that down. We found this last year that some 75 percent of these arrearages-up to a point, 75 percent were delinquencies on the part of the contractor. Then they are not always peculiarly responsive to our request for additional information, over and above filings.

Mr. BECKER. Thank you.

Mr. COGGESHALL. There is such a thing as dragging one's feet.

Mr. VINSON. Now, members of the committee, to give you a little background, here is the way-now, listen to this. This is what I said before the Ways and Means Committee, in giving them the justification.

I might go back a little bit and read this:

Price redetermination is not new. It started back in 1934, first, when we passed what is known as the Vinson-Trammell Act. Then out of the Price Readjustment Board, we passed a law creating the Renegotiation Board.

Mr. COGGESHALL. Yes, sir.

Mr. VINSON. The renegotiation officials are appointed by the President and confirmed by the Senate. And there are five or six members of it.

Now, here is the way it follows:

Four months after the closing of the fiscal or calendar year, the contractor files a statement of his renegotiated business using his own figures. After the 4month filing date, the Board is permitted 1 year in which to indicate renegotiation.