Then under equipment there is the sum of $5,000 in your 1962 estimate. What is that? Mr. HAGGERTY. We paid GSA $5,470, and other expenses, outside of the Agency, were $9,358 and that includes such items as office machine repairs of $850. Mr. THOMAS. How much did you spend in the first 6 months for supplies and materials and other services during fiscal year 1961? Mr. HAGGERTY. The first 6 months, sir, and I do not have the breakdown like that Mr. THOMAS. What is your unexpended balance in these two accounts for 1960, "Other services" and "Supplies and Materials"? You had an appropriation of about $29,000 for those two accounts for fiscal year 1960. FUNDS RETURNED TO THE TREASURY What did you turn back to the Treasury? Mr. HAGGERTY. Oh, we turned $26,000 back to the Treasury. Mr. THOMAS. Not in these two accounts certainly not that much? Mr. HAGGERTY. No; total, not in these two accounts, but that was the total amount turned back. We did not segregate it. Mr. THOMAS. $26,000? Mr. HAGGERTY. Yes, sir. Mr. THOMAS. What will it be this year based on your present expenditures? Mr. HAGGERTY. We took care of most of that account in the supplemental and we got it in the supplemental appropriation. We figure on breaking even. Mr. Chairman, could I mention one other thing? Mг. THOMAS. You mean on the $26,000 you absorbed in your Pay Act-you figured that would be the amount you would return to the Treasury and you absorbed that under your Pay Act, increase? Mr. HAGGERTY. That is right. VACANCIES Mr. THOMAS. If you have 10 vacancies now, you will have about $9,430 per year per man and that will be around $95,000 if you do not fill those vacancies? Mr. COGGESHALL. We have not anything like that. Mr. THOMAS. I beg your pardon? Mr. COGGESHALL. I would say we have not that amount at all; I know that. Mr. THOMAS. You had 10 vacancies as of the last of January and your annual salary costs will average out at about $9,300 per man. I say if you were not to fill those vacancies that on a full-year basis that would be about $95,000, and on a 6-month basis it would be in the neighborhood of $47,000. Mr. COGGESHALL. Yes, sir. Mr. HAGGERTY. We are in the process of filling quite a few of those right now. CASE BACKLOG Mr. COGGESHALL. Yes, sir; we have been looking people over. We are increasing our backlog in Los Angeles and I have been concerned about this backlog and we do not want it to slip back. The backlog at the end of the year was 350 and I have always been looking for a cut in the backlog. It was 378 at the end of February. Mr. THOMAS. Your table shows you are cutting down your backlog, does it not? Mr. COGGESHALL. Yes, sir. Mr. THOMAS. What is your waiting period now, or the average time it takes to dispose of a case in each one of the regional offices?" Mr. COGGESHALL. There is a range from 6 months to a year and a half or 6 months to a year and three quarters from the time of the commencement of the renegotiation. Of course, we go through a screening process. Mr. THOMAS. You cannot very well segregate between your regional offices and the central office, can you? Mr. COGGESHALL. Yes; I think so. Mr. THOMAS. Do not your more difficult cases come here? Mr. COGGESHALL. Well, they have to work on the hard cases in the first instance. They work on all the cases in the first instance that we assign. We do not hold the big cases just in headquarters. All of the basic work has to be done in the field. Mr. THOMAS. What percentage of your workload is disposed of in the field in your classifications under $800,000? Mr. COGGESHALL. About 50 percent. Mr. THOMAS. How long does it take to dispose of that type case? Mr. COGGESHALL. About a year. They cannot get at it until they have disposed of the prior year. When the assignment is made, they would get not into that year until the prior year is disposed of. Mr. THOMAS. In your business your clients with whom you are dealing do not really like to see you put too much speed on these cases, do they? Mr. COGGESHALL. We have done our best to overcome that resistance or that inclination. Mr. THOMAS. In this case it is a question as to whether they give up money. In some of the other cases where backlogs are involved there is the question of getting money from the Government, but in your case you take money from the contractors. So, he is really not in too much of a hurry to have you get to their case. Mr. COGGESHALL. No, sir. They used to say we were far behind. The analysis which I made of the reasons for our being far behind were not entirely in our Board. AMOUNT OF CONTRACTS SUBJECT TO RENEGOTIATION Mr. YATES. Mr. Coggeshall, how many contracts were checked by your Board last year? We have been spending approximately $41 billion a year for the last 10 years for defense. Mr. COGGESHALL. About one-half of which is hardware and onehalf services. Mr. YATES. One-half of that being for services. The total for hardware would be in excess of $200 billion, would it not? Mr. COGGESHALL. Yes, sir. Mr. YATES. I note by your statement that subject to your jurisdiction are contracts not only with the Department of Defense, the Army, the Navy and the Air Force, but there are the Maritime Administration, as well as the Federal Maritime Board, the General Services Administration, the National Aeronautics and Space Administration and the Atomic Energy Commission. Therefore, the total number of contracts and the amount which would be subject to your review seem to me to be almost astronomical. Mr. COGGESHALL. You mean the dollar amount? Mr. YATES. Yes. Mr. COGGESHALL. We have figures in our Annual Report. Mr. COGGESHALL. The renegotiable sales on June 30 for fiscal year 1960, in cases withheld, were $7 billion, and those which were assigned represented $21 billion of sales. Mr. YATES. When you say $21 billion of sales, what does that mean? Mr. COGGESHALL. Renegotiable sales. Mr. YATES. $21 billion? Mr. COGGESHALL. Yes, sir. Mr. YATES. And that is for fiscal 1960? Mr. COGGESHALL. That is right, sir. Mr. YATES. And would that be, roughly, about the same amount as would be subject to renegotiation in preceding years? Is this an average amount, would you say? Mr. COGGESHALL. For the last 4 or 5 years. Mr. YATES. So, you have $100 billion of renegotiable contracts for the last five years? Mr. COGGESHALL. Yes, sir; that is right. Mr. YATES. If this be true, is the recovery you have obtained for the Government a significant amount? Mr. COGGESHALL. We deal with the profits at the end and I would say the typical profit on $100 billion of renegotiable sales is, roughly, $10 billion. We have the profit figures. We have them on the withheld cases. That is far smaller-$31 million renegotiable for this particular year—and for those which were assigned it was $1,123 million. Those are the profits and, after all, a determination of excessive profits is on the profits portion. DETERMINATIONS OF PROFITS ALLOWABLE UNDER THE ACT Mr. YATES. What is your standard for judging the profits? Mr. COGGESHALL. The same ones which the chairman read, which are fixed by law-the so-called six statutory factors, such as efficiency, first, and the remaining five. Mr. YATES. You have, roughly, the same duties that a Public Utility Commission has? Mr. COGGESHALL. Except we are not a ratemaking body. Mr. YATES. But you have to estimate a fair rate of return, do you not? Mr. COGGESHALL. We have to make up our mind as to what we think is fair in a particular case under those statutory factors. Mr. YATES. How often do you determine what the fair profit is? Do you do this annually? Mr. COGGESHALL. Annually. Mr. YATES. You do this annually with each company? Mr. COGGESHALL. Yes, sir. Mr. OSTERTAG. Will the gentleman yield to me at this point? Mr. OSTERTAG. Perhaps, I misunderstand this, but is there a criterion by which you determine what is excess profit? Mr. COGGESHALL. There is no formula. It is a judgment operation which has been built over a long period of years. For instance, what might be a fair profit for the same company in one type of contract might be markedly excessive on another type, or vice versa. We take into account the amount with any one contractor and whether it is heavily carried-a heavy proportion-on Government aid or whether they are entirely self-financed and whether they own their own plant and how the job is performed. Under fixed price contracts, which are considered as involving the most risk, you could have one evaluation and, then, whether it is cost plus fixed fee, which we consider has the least risk, particularly those known as Government-owned, contractor-operated plants; or whether it is an incentive fixed-price contract or cost-plus incentive fee and so forth. The type of contract enters into the type of job it is, complexity or lack of complexity, the turnover of the plant and so forth. For instance, in the chemical industry you very seldom-most of the big chemical companies have nearly $1 million at work for every $1 million of sales, or pretty close to it, and you could get at the other end of the spectrum. We will take a company supplying food. Suppose, for example, the Great Atlantic & Pacific Tea Co. has a food contract. I think in the war they did supply food and entered into contracts to supply food to the Government. They figured all they had to have for $1 billion in sales was about $50 million in working capital. So, those are the two ends of the spectrum insofar as the net worth and capital goes, and net worth is one of the factors. Mr. YATES. You people have a great authority in determining what is profit and what requires renegotiation. Mr. COGGESHALL. I would rather say we have a great responsibility and, of course, that does involve authority and we do our best to reach agreement with the contractor when we have made up or minds. The proof of the pudding is to be found in the fact that contractors have entered into bilateral agreements in something over 90 percent of our cases. Mr. YATES. Take the Great Atlantic & Pacific Tea Co., how much profit do you allow a company like that? Mr. COGGESHALL. That came up in the wartime and they did look at what their normal profit would be, and we will say that is a fairly simple situation. I think they were in on some more. If they showed regularly an established earning power of about 2 percent on their sales before taxes, and as a result of defense business which came under renegotiation, they showed a substantial increase and had 3 percent on that defense business, I think the attitude of the renegotiating authorities in the war was that extra 1 percent was really due to wartime requirements and that they were not entitled to it in those circumstances. If it was replacement business and showed as good a profit as they had shown they could consistently make-outside of that and beyond that, that is where the excess was. That is a comparatively simple example. We have to deal with some contractors who do nothing but defense business. Mr. YATES. I do not know that I thoroughly comprehend what you are saying. We have this company which has earned a certain profit on its peacetime business. Mr. COGGESHALL. Yes, sir. Mr. YATES. It is now given certain wartime contracts? Mr. COGGESHALL. Yes, sir. Mr. YATES. And it makes a profit on those? Mr. COGGESHALL. Yes, sir. Mr. YATES. How much of a profit do you allow only on its wartime business? Mr. COGGESHALL. That is all we deal with, the wartime business. Mr. YATES. Is it the same as it receives under its peacetime business? Mr. COGGESHALL. Not necessarily. I will give you an example, and this is part of the basic concept: General Motors Corp. came down to the War Department Board, and it made the newspapers at the time, at the end of 1942 or for the 1942 year. They proposed to the War Department Price Adjustment Board-and they spread it in the New York Times-and said we have earned consistently from 1936 to 1939 and we have $2 billion of sales and we have made a 15- to16percent profit on sales before taxes. We recognize that this year we have gone out and largely closed up our normal commercial business. In other words, General Motors went to war. They said, "We have had $3 billion worth of business this year and we have on the first $2 billion of defense business, which is largely replacement business, and are entitled to have, a 15-percent profit or 16 percent but we think this extra $1 billion that we have had we recognize that that is due to the requirements of war and we are satisfied with no more than 50 percent of our normal profit; namely 8 percent, although we averaged in the base period 16 percent and, therefore, Mr. War Department Price Adjustment Board we tender you a check for $76 million. The War Department Price Adjustment Board found that a very satisfactory proposition. Each year it was examined, but until they got to a certain pointup to twice as much-$4 billion worth of business-when they felt that the final increment could be somewhat less than 8 percent. That is one approach. That was all under fixed price business. There were not Government plants and facilities and so forth. In other words, General Motors used its own plant from which they had been turning out Chevrolets, Buicks, Pontiacs, Oldsmobiles, and Cadillacs up to that time. Mr. YATES. Suppose you have two companies in the airframe business and each one of them is making the identical product for the Air Force. Do you give them the same profit? Mr. COGGESHALL. We might to the same extent that the same elements are present to the same extent; namely, the general percentage of Government plant as against the contractor-owned plant and the same, more or less, ratio of different types of contracts; namely, the |