Senator BUTLER. Were there any cases where they were found too low?

Mr. ROBERTS. Yes; there were cases where prices were found too low; yes, sir.

Senator BUTLER. Were they rectified?

Mr. ROBERTS. Not through the medium of renegotiation. Title II of the Second War Powers Act was in existence during World War II and has recently been reenacted by the Congress. It permits, in cases of hardship under carefully regulated conditions, the reopening of a fixed-price contract without consideration. And it is for that specific purpose that the legislation was passed.

Senator BUTLER. What effect do you think your experience in handling renegotiations in the past war would have in the case of another emergency of the same kind? Will it be more difficult to get contrac

tors or easier?

Mr. ROBERTS. Let me say that under the present conditions we are letting a great many billions of dollars' worth of contracts for procurement, and we are experiencing no difficulty because of the existence of the renegotiation law that is presently on the books, which does cover all military procurement that is not advertised, but is negotiated under the terms of the Procurement Act of 1947.

Senator BUTLER. Thank you.

Mr. ROBERTS. The greater efficiency and the improvements in methods developed in the course of production, together with the everswelling volume of production, frequently brought profits far beyond those anticipated at the outset-profits far in excess of those intended or desired to be retained by the majority of contractors.

The result was the Renegotiation Act, first enacted in 1942, and later amended in full by the Revenue Act of 1943. That act was made inapplicable to the performance of contracts after December 31, 1945. Less than 21⁄2 years later, when the Congress appropriated some $3,000,000,000 for a program of expanded aircraft construction and certain related purposes, it was deemed essential to reintroduce renegotiation in the form of the Renegotiation Act of 1948, which became law on May 21, 1948. Initially, that law applied only to contracts obligating funds appropriated or consolidated by the appropriation act of which it was a part. Later, within a matter of weeks, it was extended to cover the procurement of aircraft and aircraft parts when the contracts for those items obligated fiscal year 1949 funds. A year later, our military expenditures having continued to increase, the act was further_broadened to cover all negotiated contracts entered into by the Department of Defense in the fiscal year 1950. Last year, this provision was reenacted to include the current fiscal year 1951 procurement.

The Renegotiation Act of 1948, as so extended, is still being actively administered. World conditions are such that we are once again in a position where a substantial proportion of our national income and energies must be expended to defend ourselves against aggression, both actual and threatened. The Congress has already appropriated vast sums of money for this purpose, and may well find it necessary to appropriate additional sums. In putting our gigantic national industrial machine to work again to build for defense, or for war, should that come, we are faced with substantially the same difficulties and uncertainties of procurement and production that existed 10 years

ago. The Renegotiation Act of 1948 is not broad enough in its coverage to furnish sufficient protection for the huge expenditures of public funds required by the current international crisis.

Thus, in general, the act of 1948 does not apply to contracts entered into prior to May 21, 1948, although some contracts entered into prior to that date are still in production.

I would like to state that I do not intend to give the impression that this act would apply retroactively to contracts entered into before that date, but merely to the receipts and accruals from such contracts that occur subsequent to January 1, 1951. It does not cover any contracts obligating fiscal 1949 funds for items other than aircraft and aircraft parts, although here again it is possible that some such contracts are still in production.

My previous remark includes any retroactivity that might be implied from what I have just said about 1949 contracts.

It does not cover most contracts entered into in the fiscal years 1950 and 1951 as a result of formal advertising and competitive bidding, being limited in scope to negotiated contracts entered into during those years. It does not attach to any contracts for $1,000 or less, notwithstanding the substantial dollar aggregate of such contracts. Finally, it does not cover contracts of any Government agencies other than the Department of Defense, which is a serious deficiency in view of the steadily increasing procurement activity of various other Government departments.

H. R. 1724 is patterned after the World War II statute and will close these gaps in the 1948 act.

Renegotiation is a broad, over-all operation. It is not a detailed process of audit and examination, contract by contract and dollar by dollar. Nor is it a device to remedy or repair errors or inequities in individual procurement transactions. The renegotiation authorities do not reset the price of each contract after completion of performance and payment. This type of individual price adjustment, which was contemplated in the earliest days of renegotiation and from which the process derived its name, gave way almost immediately, out of obvious necessity, to over-all review of a contractor's operations for his entire fiscal year.

This basic conception is indispensable to any understanding of what renegotiation is and the way it works. All of a contractor's receipts or accruals during his year from all of his contracts and subcontracts subject to renegotiation, including both his profitable and his nonprofitable ones, and all of his costs and expenses applicable thereto are considered at a single time in a single proceeding together, with all pertinent facts and figures, and a single over-all determination is made. It is entirely a judgment operation. There is no fixed formula or yardstick for the determination of excessive profits, nor is there any fixed maximum to the amount of profits which may be realized or retained by any contractor. If no excessive profits are found to exist, a clearance is granted to the contractor. If it is determined that excessive profits were realized, a determination of the amount thereof is made and this determination is embodied in an agreement or order.

As you gentlemen know, this procedure has several advantages. The consideration of all contracts and subcontracts as a group reduces cost accounting and allocations of cost to a minimum and saves time

for both contractors and the Government. The use of the fiscal period for renegotiation facilitates the use of the regular financial and accounting material maintained by contractors for tax purposes and avoids the preparation of such data on an entirely different basis. In addition, this method allows contractors to offset their losses on one or more contracts subject to renegotiation against their profits from other subject contracts during the same period.

At this point, I want to say that the record on the part of industry in cooperating with the renegotiation boards during World War II, and to date under the Renegotiation Act of 1948, is outstanding and, in the opinion of those administering the acts, deserves high praise.

Now, with your permission, and as the most orderly means of presenting the provisions of H. R. 1724 to you, I shall proceed to a section-by-section analysis of the bill.

The CHAIRMAN. We will be glad to have you do so.

Mr. ROBERTS. The bill is divided into two titles. Title I states the coverage of the renegotiation provisions, creates the Renegotiation Board, and establishes certain procedures, limitations, and exemptions. Title II abolishes the War Contracts Price Adjustment Board created under the World War II statute, transfers certain residual functions, powers, and duties of that Board to the Administrator of General Services, and transfers the remaining functions, powers, and duties of that Board to the new independent Renegotiation Board created under this bill.

TITLE I-RENEGOTIATION OF CONTRACTS

Section 101, declaration of policy

This section declares it to be the considered policy of the Congress that excessive profits from contracts made with the United States, and from related subcontracts, in the course of the national-defense program, be eliminated as provided in the bill.

Section 102, coverage of the act

Subsection (a) makes subject to renegotiation all contracts with certain named departments, and related subcontracts, to the extent of the amounts received or accrued thereunder on or after January 1, 1951. The departments specifically named in the bill are the Departments of Defense, Army, Navy, Air Force, and Commerce, the General Services Administration, and the Atomic Energy Commission. The subsection also makes subject to renegotiation all contracts with such departments as may be designated by the President, and related subcontracts, to the extent of the amounts received or accrued by a contractor or subcontractor on or after the first day of the first month beginning after the date of such designation. Renegotiation would apply to all such contracts and subcontracts whether made on, before, or after January 1, 1951, or the date of designation, as the case may be. Renegotiation is made inapplicable, however, to receipts or accruals attributable to performance after December 31, 1953.

The Renegotiation Act of 1948, as I have already indicated, is still in existence and is currently being administered. Unless this bill is made to provide otherwise, the 1948 act would apply to negotiated contracts entered into between January 1, 1951, and June 30, 1951. This situation is specifically dealt with in subsection (b) of the present

bill, which is designed to avoid the application of both the Renegotiation Act of 1948 and the present bill to the same receipts and accruals. The subsection provides that the 1948 act shall not apply with respect to any receipts or accruals subject to renegotiation under title I of this bill. In order to carry out this provision, it is necessary to apply the distinction made by the Committee on Ways and Means between amounts "subject to this title" and amounts "subject to renegotiation under this title." The committee considered that amounts subject to the title would not, for the purposes of this subsection (b), be subject to renegotiation under the title unless such amounts exceeded the $100,000 or $25,000 minimum limitation set forth in section 105 (f) of the bill.

We have given considerable thought to this provision of the bill since its adoption by the House. In order to obviate the necessity for this difficult and troublesome distinction, and at the same time to provide a more workable rule by establishing a fixed cut-off date for the application of the 1948 act, we have evolved a new provision which I should like to offer to this committee for its consideration in substitution of the provision now contained in subsection (b). Our proposed change is to strike out subsection (b) in its entirety and to substitute therefor the following:

(b) RENEGOTIATION ACT OF 1948.-The Renegotiation Act of 1948 shall not be applicable to any contract or subcontract to the extent of the amounts received or accrued by a contractor or subcontractor on or after the 1st day of January 1951, whether such contract or subcontract was made on, before, or after such first day. In the case of a fiscal year beginning in 1950 and ending in 1951, if a contractor or subcontractor has receipts or accruals prior to January 1, 1951, from contracts or subcontracts subject to the Renegotiation Act of 1948, and also has receipts or accrusals after December 31, 1950, to which the provisions of this title are applicable, the provisions of this title shall, notwithstanding subsection (a), apply to such receipts and accruals prior to January 1, 1951, if the Board and such contractor or subcontractor agree to such application of this title; and in the case of such an agreement the provisions of the Renegotiation Act of 1948 shall not apply to any of the receipts or accruals for such fiscal year.

Mr. Chairman, that is something that we urge. We are trying to avoid having two sets of renegotiations going on at the same time, and the confusion that would result from a lack of clarity as to which act applies, and then that only one act may apply at one time. The CHAIRMAN. That is provided as an agreement between the Board and the contractor?

Mr. ROBERTS. Yes, sir.

The CHAIRMAN. I see.

Senator BYRD. May I ask a question?

Mr. ROBERTS. Yes, sir.

Senator BYRD. At the bottom of page 7 you state:

Renegotiation is made inapplicable, however, to receipts or accruals attributable to performance after December 31, 1953.

Mr. ROBERTS. Yes, sir.

The CHAIRMAN. That is the end of the act.

Senator BYRD. Does that mean that a contract made, on which the corporation does not receive its receipts until after December 31, 1953, would be exempt from renegotiation?

Mr. ROBERTS. It would, under the terms of this cut-off provision. Senator BYRD. I wonder if that is a wise thing. You may say that no contract let after December 31, 1953, would be subject to renegotia

tion. Some of these receipts or accruals may come in a year or so after the contract was made.

Mr. ROBERTS. Yes, sir. May I point out this: that under the 1943 act, as amended on February 25, 1944, there was inserted what we refer to as subsection (h). Subsection (h) provided for the very point to which you refer. It gave the Board the right to reach out into succeeding periods and bring back both costs and receipts or accruals attributable to performance within the period subject to renegotiation. The bill before you is deficient in that it has no subsection (h) as I refer to it.

Senator BYRD. Suppose a contract was made a year before December 31, 1953; it would still be in process of performance, but the actual receipts were not paid to the company until after December 31, 1953. Those receipts would be exempted from renegotiation?

Mr. ROBERTS. Counsel has pointed out to me that if the performance is prior to December 31, 1953, and the receipt or accrual is subsequent, that it is still subject to renegotiation.

Senator BYRD. That language apparently does not say that. It states: "Renegotiation is made inapplicable, however, to receipts or accruals attributable to performance after December 31, 1953."

Mr. MARCUS. I think, sir, that the date limitation applies to performance, rather than to the receipts or accruals.

Senator BYRD. What about receipts?

Mr. MARCUS. I think that where it reads "receipts and accruals attributable to performance," which performance is after December 31, 1953, that is the intent of it. Perhaps there is an ambiguity.

Senator HOEY. If the contract is not completed during that time, then what happens after this date-would that be considered?

Mr. MARCUS. Renegotiation would not apply unless Congress chose to reenact a renegotiation law with respect to that subsequent period.

Senator BYRD. But everything that was delivered prior to December 31, 1953, would be subject to renegotiation, even though the company receives payment after that date?

Mr. MARCUS. Yes, sir.

Senator BYRD. That is not very clear to me.

The CHAIRMAN. What section are you referring to, Senator Byrd? Senator BYRD. At the bottom of page 7 of the paper.

Mr. ROBERTS. That is, of my statement.

The CHAIRMAN. Of your statement, not in the bill?

Mr. ROBERTS. In the bill it is

Mr. MARCUS. It is section 102 (a), the bottom of page 2 of the bill. Senator HOEY. The bill is the same as the language which you quote.

Mr. ROBERTS. Yes, sir.

Senator BYRD. The statement leaves out "under contracts or subcontracts." Your statement left those words out.

Mr. ROBERTS. Under contracts or subcontracts?
Senator BYRD. Yes.

Mr. ROBERTS. May I read from the Ways and Means Committee report, a section-by-section analysis of the bill? This statement is made:

The provisions of this title are made inapplicable to receipts or accruals attributable to performance under contracts or subcontracts after December 31, 1953.