Senator BYRD. Your statement left out the words "under contracts or subcontracts." Mr. ROBERTS. Yes, sir. Senator BYRD. That refers to the contract, then? Mr. ROBERTS. That is right. Senator BYRD. That is different. I was confused by the fact that you left out those words, inadvertently, of course. The CHAIRMAN. That seems to be clear enough when you look at the language of the bill. Senator BYRD. I was referring to his statement, Mr. Chairman. The CHAIRMAN. I was following the bill. All right, you may proceed. Mr. ROBERTS. It will be noted that this provision states, as does the present subsection (b), that the Board and the contractor may enter into an agreement for a single renegotiation proceeding under the present bill in order to avoid the necessity for two separate renegotiation proceedings covering separate portions of a single fiscal year. In the event of such an agreement, the provisions of the Renegotiation Act of 1948 will not apply to the receipts or accruals prior to January 1, 1951, but the provisions of this bill will apply to all of the receipts and accruals of the contractor or subcontractor for the entire fiscal year involved. Subsection (c) suspends the application of the Vinson-Trammell Act to any contract or subcontract if any of the receipts or accruals therefrom are subject to this title. This provision continues the policy adopted and now in effect under the Renegotiation Act of 1948. The study of the operation of the Vinson-Trammell Act makes clear the fact that the two laws are not compatible at all, and I understand that, also, there is on the way to the chairman of the committee a letter from the Department of Commerce, the Maritime Administration, suggesting the suspension of the operation of the Merchant Marine Act, which is a similar profit-limitation provision in the shipbuilding field. We have coordinated it and are agreeable to the suspension of it, if the committee so desires. Section 103. Definitions This section defines various terms used in the bill. The term "Department" is defined to mean the departments referred to above and such other agencies of the Government exercising functions in connection with the national defense as the President shall designate. The term "excessive profits" is defined in substantially the same manner as it was defined in the World War II statute; namely, by specifying certain factors which must be taken into consideration in every case in determining excessive profits. These factors, briefly stated, are: efficiency of contractor, reasonableness of costs and profits, reasonableness of return on net worth, extent of risk assumed, nature and extent of contribution to the defense effort, character of business, and such other factors the consideration of which the public interest and fair and equitable dealing may require, as determined by the Board. Profits derived from contracts and subcontracts subject to the title are defined to mean the excess of the amount received or accrued there under over the costs paid or incurred with respect thereto and determined to be allocable thereto. All items estimated to be allowable as deductions and exclusions under chapter I of the Internal Revenue Code (excluding taxes measured by income) are allowed as items of cost to the extent allocable to such contracts and subcontracts, except that no amount is allowed as an item of cost by reason of the application of a carry-over or carry-back, or if such item is unreasonable or not properly chargeable to such contracts or subcontracts. Federal income taxes are not allowable as items of cost, but credit is allowed for any such taxes paid with respect to the amount of any excessive profits determined by the Board. Section 104. Renegotiation clause in contracts The Secretary of each Department to whose contracts the provisions of this title are applicable is required by this section to insert in each contract a provision whereby the contractor agrees to the elimination of excessive profits through renegotiation, and agrees to insert a similar provision in each subcontract entered into by him. Every contract and subcontract to which the title is applicable is made subject thereto, whether such contract or subcontract contains a renegotiation clause or not. Section 105. Renegotiation proceedings In this section will be found a structural outline of the procedures for the determination and elimination of excessive profits. Subsection (e) requires every person holding contracts or subcontracts subject to the title to file with the Board, on or before the first day of the fourth calendar month following the close of his fiscal year, a financial statement setting forth such information, and in such form and detail, as the Board may by regulations prescribe. The Board may also require the filing of any additional information, records, or data. Renegotiation proceedings are commenced by the mailing of a registered mail notice to the contractor or subcontractor. The renegotiation is conducted on an over-all fiscal-year basis unless some other period or basis is agreed upon with the contractor or subcontractor. The Board is also authorized, in its discretion, by agreement, to conduct renegotiation on a consolidated basis in order properly to reflect excessive profits of two or more related contractors or subcontractors. In the proceeding, the Board endeavors to make an agreement with the contractor or subcontractor with respect to the elimination of excessive profits, if any. Any agreement so made is final and conclusive and, in the absence of fraud, malfeasance, or a willful misrepresentation of a material fact, may not be reopened or modified by the Government and may not be modified or set aside in any suit, action, or proceeding. If no agreement is reached, the Board issues an order determining the amount, if any, of excessive profits and gives notice thereof by registered mail to the contractor or subcontractor. If requested by the contractor or subcontractor, the Board must furnish a statement of the amount of such determination, of the facts used as a basis therefor, and of its reasons therefor. Unless a petition is filed with The Tax Court of the United States within the 90-day period specified in section 108, such order is final and conclusive and not subject to review or redetermination by any court or other agency. When excessive profits have been determined, either by agreement or order, the Board is required to authorize and direct the Secretaries or any one of them to eliminate such excessive profits by any one or more of the various methods described in subsection (b). These include payment, withholding, and directions to others to withhold for the account of the Government. When necessary, recovery may also be sought by actions in the appropriate courts of the United States. Interest at the rate of 6 percent per annum is payable on unpaid excessive profits from the due date thereof. Of course, as I have already stated, credit is allowed to the contractor or subcontractor for Federal income and excess-profits taxes as provided in section 3806 of the Internal Revenue Code. Subsection (c) imposes certain time limitations upon both the commencement and completion of renegotiation proceedings. No proceeding to determine excessive profits for any fiscal year may be commenced more than 1 year after the financial statement required. from the contractor or subcontractor for such year is filed with the Board, and every proceeding must be completed by agreement or order within 2 years after commencement; otherwise, all liabilities of the contractor or subcontractor for excessive profits during such year are discharged. The 2-year period may be extended by mutual agreement, and the 2-year limitation does not apply to review by the Board of an order made within such 2 years pursuant to any delegation of authority from the Board. Subsection (e) confers upon the Board the right to audit the books or records of any contractor or subcontractor subject to title I, for which purpose it may request the services of the Bureau of Internal Revenue. Such services, if sanctioned by the Secretary of the Treasury, are to be made available to the extent determined by him. The bill provides that no contractor or subcontractor shall be renegotiated for any year unless more than $100,000 subject to the bill has been received or accrued by him and all persons under control of or controlling or under common control with him, except that this minimum amount is fixed at $25,000 in the case of subcontractors whose income is derived from fees and commissions based upon subject contracts and subcontracts. In either case, no determination of excessve profits to be eliminated may be in an amount greater than the amount by which the aggregate receipts or accruals exceed this "floor" of $100,000 or $25,000, as the case may be. Provision is also made in the bill that, if the fiscal year of a contractor or subcontractor is a fractional part of 12 months, the $100,000 or $25,000 floor shall be reduced to the same fractional part thereof. In this connection, in view of the change which I have proposed in section 102 (b), I suggest as a companion amendment that the following sentence be added at the end of subsection (f) (3) of section 105: In the case of a fiscal year beginning in 1950 and ending in 1951, the $100,000 amount and the $25,000 amount shall be reduced to an amount which bears the same ratio to $100,000 or $25,000, as the case may be, as the number of days in such fiscal year after December 31, 1950, bears to 365, but this sentence shall have no application if the contractor or subcontractor has made an agreement with the Board pursuant to section 102 (b) for the application of the provisions of this title to receipts or accruals prior to January 1, 1951, during such fiscal year. Section 106. Exemptions The following contracts and subcontracts are, by this section, exempted from renegotiation: (1) Contracts with Territories, possessions, States, or foreign governments. (2) Contracts and subcontracts for agricultural commodities in their raw or natural state, or, if the commodity is not customa ily sold or has not an established market in its raw or natural state, then in the first form or state beyond the raw or natural state in which it is customarily sold or has an established market. This exemption is conferred upon such contracts and subcontracts only if made with the producer of the agricultural commodity. In this respect the exemption is narrower than the exemption of agricultural commodity contracts contained in the World War II statute. The CHAIRMAN. I just wondered why you did that. I just Senator BUTLER. I was going to ask that question. Mr. ROBERTS. That was done before the Ways and Means Committee, because in the hearings before the Senate Investigating Committee brought out the fact that the exemption under the World War II statute applied to people who acquired commodities and could let them age and increase in value and get the same exemption that was given to the man who was the producer of the commodity. The CHAIRMAN. That is a very far-reaching provision, though. You would take in an ordinary cotton gin, that ginned during the cotton season only 500 bales of cotton, and under this low exemption of $100,000, because the bale of cotton and the seed are worth at least $200 a bale or more than that per bale, and this would militate, certainly, against the producer's price of cotton and cottonseed, peanuts, almost any other agricultural commodity that I know about, because if the man who is dealing in them is going to be subject to renegotiation, he will take it out of the farmer, the producer. Mr. ROBERTS. May I make this observation, that this whole area of exemption is one that presents a great deal of administrative difficulty, no matter where it is put. The CHAIRMAN. That is true. That is very true. Mr. ROBERTS. Under the terms of this bill, there is a right of exemption that would permit the Board to exempt classes and types of contracts where administratively it was not feasible to renegotiate them. It may well be that the cotton dealer and others similarly situated should be exempted. Baled cotton is the first form or state suitable for industrial use, under our interpretation. The CHAIRMAN. Generally, that is true; yes. Mr. ROBERTS. Under the provisions, it may be that with these people who are factoring cotton, accumulating and buying it, it would not be administratively feasible to renegotiate them. The bill, of course, provides for the creation of a board, and then confers upon it the right, as I say, in certain respects to make exemptions by classes and types. I believe it is for this very purpose that it is necessary for the Board to have the power to make that kind of exemptions. The CHAIRMAN. I should think it would be necessary, but I do not know whether the Board would make those exemptions or not. That is where the pinch is. Mr. ROBERTS. That is right. The CHAIRMAN. Because I can see how you are going to cut the very life out of prices paid to the producer. This exemption is for $100,000. At the present high cost of these various products, your transactions run into $100,000 before breakfast. And if you are going to subject everybody who handles these raw farm products to renegotiation, you will have to have another provision inserted in the conscription law and you will have to get an army to do it. And the net result will be that everybody who is dealing with them will simply say to the producer of these articles, "Why, we are sorry, we just cannot give you a very liberal price. We have to be renegotiated, and we know it." It will affect prices pretty adversely, it seems to me. Was this $100,000 in the old act? The exemption, I mean. It started off with $500,000, did it not? Mr. ROBERTS. The 1942 act, which was the first one, had a $100,000 exemption. The 1943 act raised the exemption to $500,000. The CHAIRMAN. That is what I thought, as I remembered it. Well, now, you are putting it back to $100,000. There may be very good reasons for that. I am calling attention to the effect of it, however, particularly when you are dealing with raw farm products. That is a matter we will have to do some talking about. Senator BUTLER. There is another item in connection with line 23, on page 24. The suggestion has come to me, which I think should be given some consideration; in the original bill, a cooperative association was exempted along with producers or association producers. That, apparently, is omitted in this bill that we have under consideration. Mr. ROBERTS. The words, "cooperative association" were in the first renegotiation bill. Let me ask counsel what happened. Senator BUTLER. If it is left as now written, I think it would interfere considerably with the operation of any such cooperative association, because it would be impossible for them to distribute their patronage dividends to their members until they found out how they would be renegotiated. In other words, the dividend would never be distributed. Mr. ROBERTS. I might point out that we had some of those problems during the old renegotiation in World War II. Then, of course, it becomes a question of whether the patronage dividends are distributed before or after renegotiation. If renegotiation is to apply, and the amount left for distribution is somewhat reduced, then it is simply a matter of waiting until it is completed before they can distribute, as you point out. Senator BUTLER. You will interfere with the transaction of business, very definitely. Mr. ROBERTS. It will interfere with the prompt disbursement of it, I would say. Senator BUTLER. Some place in this section, I think you cover contracts for services, exempting certain agencies that are already controlled, like utilities, and so forth. Mr. ROBERTS. Yes, in the permissive exemptions, there is a right to exempt contracts, the minimum price of which is established by a public regulatory body. During World War II Renegotiation Act, as I indicated, utility sales, railroad freight rates, inland water transportation rates, were exempted from renegotiation. |