hardship cases where business might be pushed into bankruptcy. We are still bound by the Congress and the President and the Secretary of Defense to granting relief only where we make a finding that the national defense will be facilitated. Now we must find that, whether it is an extreme hardship case or not.

Senator MOODY. Let me ask you a question. You mean you must find that under the executive order as written by the President?

Mr. MAYER. And under the statute as written by the Congress. Senator MOODY. All right. Now, do you feel it would facilitate the availability of military production to have it known in the business circles of a large town like Springfield, Mass., or the Detroit industrial area, or a small town like some of the locations of plants that were in here yesterday, that, if a businessman deals in good faith with the Government and is caught in a squeeze due to circumstances entirely beyond the control of either himself or the Government, he will not get a fair and equitable break?

It seems to me that that would "unfacilitate" the national defense, in order to bring your wording in. I think it would make people, as I brought out a few minutes ago, reluctant to accept Navy contracts or quartermaster contracts or whatever was involved, because if they felt that they might be caught in a squeeze it seems to me that they might well be much more reluctant.

Would you like to comment on that?

Mr. STEGER. Senator, I might say on that occasion that in the same regulations we have authority to correct mutual mistakes, mistakes of fact, and the Navy Department has corrected a number of those under title II of the First War Powers Act.

Senator MOODY. Yes.

Mr. STEGER. With respect to granting an amendment without consideration merely because a company has gone bankrupt or is going bankrupt, however sympathetic we might be, if that company accepted the contract on a fixed-price basis, and if we cannot actually support a finding that the amendment will facilitate the national defense, we would not be justified in my opinion in making the amendment without consideration.

In that connection I would like to read just one question and answer in the original hearings, Senator.

Senator MOODY. Go ahead.

Mr. STEGER. Senator Benton asked this question:

Will this open up every single fixed-price contract in renegotiation? There is not a single fixed-price contract you have got that does not have a claim that prices have gone up. Now, I am in full sympathy with the 45 small fellows. They are not the ones with the most competent lawyers and accountants to make the best case on a fixed-price contract. There is supposed to be an element of risk for a manufacturer when he takes a fixed-price contract, and a manufacturer is not entitled to expect that he will make money on every fixed-price contract.

And Mr. Alexander, in answer to that question, said:

No, sir; I do not think it would be our policy to disturb any fixed-price contract except where the company would go out of business and cease to be a supplier for the defense effort in case we did not act.

Mr. NOONE. Mr. Steger, I think to complete the record you should read the next statement from Senator Benton. I think it qualifies what you have read.

Mr. STEGER. I will be glad to, and the answer that follows that question.

Mr. NOONE. Yes.

Mr. STEGER (reading):

Senator BENTON. Or extreme hardship. I could imagine extreme hardship short of going out of business, but it seems to me you could have some kind of yardstick of that kind. How to apply it I don't know, but you need some kind of yardstick. Otherwise, the minute this goes through every single fixed-price contract you have comes right back on your lap for renegotiation the next morning.

Then Mr. Alexander:

Sir, if we are making legislative history on this statute, I would prefer not to say that hardship cases are included. I just do not know. The case which makes it so urgent for us is the type of case where we will lose the supplier.

Senator MOODY. That was Mr. Alexander's opinion?

Mr. STEGER. That is correct.

Senator MOODY. But in writing this report the committee before which he was then appearing specifically included the words "except in extreme hardship," and I think this is a very serious matter, not alone from the standpoint of these individual businesses involved, because in the last few weeks I have had considerable insight in working on this Michigan situation into what has happened in the last year in regard to why there is not more war production in certain areas, and so forth. And I think that the psychology of business is important in this thing.

I agree that it should not be a requirement that every contract be a profitable contract. Of course not. But in a circumstance where obviously it is beyond the control of the businessman-and I might say, if the Congress had adopted a proper anti-inflation law by taking the advice of Bernard Baruch immediately in July of 1950 and putting the right sort of anti-inflation law on the books, then perhaps these things would not have happend. So, we can't absolve the Government entirely, because the Congress did not do that.

But, nevertheless, it seems to me that it is a responsibility of the Government, and it certainly is the intention of Congress, I believe, to deal fairly with these people.

Now, I would like to point out from another act, which, however, bears directly on the intent of Congress, which is what we are talking about-section 714 of the Defense Production Act of 1950, which set up the Small Defense Plants Corporation.

It says under the heading "Policy of Congress" as follows:

It is the sense of the Congress that small-business concerns be encouraged to make the greatest possible contribution toward achieving the objectives of this act.

In other words, we want to facilitate the participation of small business in military production. Well, of course, the Government cannot guarantee a profit to everybody in every fixed-price contract, or we have a very bad situation like Admiral Schoeffel mentioned a few moments ago where you have irresponsible bidding coming into play. It seems to me in these clear-cut cases you ought to give your own. negotiators a sufficient rule of reason in this thing so they could be fair with business, because in these cases I think, as I say, the Government has not played fair with these businesses.

Mr. STEGER. Senator, in my opinion, it is difficult to support a finding in connection with an amendment without consideration that "this action will facilitate the national defense" where, for example, you have some 500 qualified suppliers for a given item and the bidder has obtained the award of the contract by formal competitive bidding, and then has sustained a loss and is going into bankruptcy. Necessarily, the military department is very sympathetic with any such concern, but to make a finding that amending that particular contract without consideration will "facilitate the national defense" would in my opinion, be very difficult.

In the same act, Senator, extending the Defense Production Act there is the provision-I have not been able to find legislative intent on this section-that the Administrator, the Small Defense Plants Administrator, is authorized to take such action, authorized under this section, as is necessary to provide small-business concerns with adequate incentive, excluding subsidies.

The two words "excluding subsidies" were added by amendment after the bill had been introduced.

Then it continues (reading):

To engage in defense and essential civilian production and to facilitate the conversion and equipping of plants in small-business concerns for such production.

Under that part of the statute-I do not believe that Mr. Taylor, the Administrator, has issued a directive as yet-I am of the opinion that the language with the words "excluding subsidies" would not provide the authority, under the over-all act, for us to make an amendment without consideration under the example that I have just given. Senator MOODY. Well, do you believe that small business should be encouraged to take part in military production?

Mr. STEGER. I definitely do, sir. That is the sense and the policy of the Department, and I am sure that Admiral Schoeffel can extend my statement on that.

Mr. R. G. NOONE. Mr. Chairman, are rebuttals in order at the present time?

Senator MOODY. You were sworn in yesterday?

Mr. R. G. NOONE. That is right.

Senator MOODY. We cannot turn this into a general open town meeting, but go ahead.

Mr. R. G. NOONE. I am Robert G. Noone, president, American Awning & Canvas Co., of Springfield, Mass.

Just using one example which seems to stick in my mind-that is, the words "will facilitate"-they are not going back to the time when these materials were urgently required on contracts that were bid on long before Korea. And certainly, God knows, I didn't know Korea was going to happen, and we certainly were urgently required at that time. But they are talking about "will," which is at the present time, a different situation altogether pertaining today than pertained at that particular time. They did not have adequate suppliers at that time.

Senator MOODY. If you were in a position to supply the Army Quartermaster or the Navy with a needed military item and they had no other facilities to supply it at that time, and you refused to do so, do you not feel you would be open to criticism?

Mr. R. G. NOONE. I certainly do. I know I would.

Senator MOODY. I do, too.

Mr. R. G. NOONE. And I know I never questioned price or anything else when I was asked to overproduce on our schedule.

Senator MOODY. This is the gentleman I was referring to yesterday that instructed other firms to broaden the base of sources to the Government. But he did make his bid on costs as they existed before Korea. Congress did not pass adequate anti-inflation laws. They ignored Mr. Baruch's advice; they ignored the advice of others, including the chairman of the Joint Committee on the Economic Report, Senator O'Mahoney, and others who said "This is the time when action should be taken."

Well, nothing was done before September, and by that time the fat was in the fire so far as increased costs were concerned.

Now, if necessary, this law should be amended to take care of that sort of thing, but I honestly do not believe it needs to be amended, and I think it is a waste of legislative time to amend it if we get the proper interpretation in extreme hardship cases. That is my personal opinion.

Mr. STEGER. Senator, under the joint regulations of the three departments that were approved, as has been stated in the record, by the Deputy Secretary of Defense and by the General Accounting Office, one example of a situation where it would be proper to make an amendment without consideration has been read into the record, and in the interest of completeness I think it would be advisable to read into the record this further example where reference to governmental action is made.

The second example is this [reading]:

Where a contractor suffers a loss, not merely diminution of anticipated profits, on a defense contract as a result of governmental action, the character of the Government action will generally determine whether any adjustment in the contract will be made and its extent. Where the Government action is directed primarily at the contractor and is taken by the Government in its capacity as the other contracting party, the contract may be equitably adjusted if fairness so requires. Thus, where such Government action, although not creating any liability on its part, increases the cost of performance, considerations of fairness may make appropriate some equitable adjustment in the contract.

Senator MOODY. I think that is very fair. You are reading from the regulation now?

Mr. STEGER. It is from the joint regulation of the three departments; yes, sir. And one other short paragraph:

When the action is not taken by the Government in its capacity as the other contracting party but in its sovereign capacity—

for example, price controls or lack of price controls, priorities and the like

relief will generally not be granted. However, exceptional cases, depending on the nature of the action, the circumstances, and the effect on the contractor, may require an equitable adjustment in the contract when necessary to insure maximum cooperation and production in the national defense effort.

Those are the three examples given in the joint regulations where it would be proper to make an amendment without consideration.

As Mr. Savage stated, these are merely examples. The introductory sentence states that we would be authorized to make an amendment without consideration in any case where we can make a finding

and a determination that the action will facilitate the national defense.

In that preliminary statement the word "essential" is not used.

Senator MOODY. Do you not feel it would facilitate the defense to have the business community feel that the Government would be fair when they were doing business with the Government?

Mr. STEGER. I certainly agree, Senator, that the Government wants to be fair and should be fair.

Senator MOODY. That is right.

Mr. STEGER. But whether Congress has given the department authority to amend without consideration a contract of every concern who is losing money and is about to go bankrupt because of such Government contracts-in my opinion Congress has not given the military departments that authority.

Senator MOODY. It says right here in the committee report that in an extreme hardship case you are authorized to make the amendment. And, as Admiral Schoeffel has testified this morning, I think a fair interpretation of an extreme-hardship case is where business is being driven out of business completely. I do not know what greater hardship you can impose on a business.

Mr. MAYER. Even in that case, Senator, we still have to find that giving him the amendment will facilitate the national defense. You can never get away from that test; it is written into the law.

Senator MOODY. By that implication, do you mean that a reputation for fairness and equity on the Government's part in dealing with busines will not facilitate the national defense?

Mr. MAYER. I don't think the Government is being unfair when it simply asks for what it bargains for.

Senator MOODY. You do not?

Mr. MAYER. No, sir. Under our legal system what is fair is what the parties agree to in the original instance. I dare say, Senator, that a firm which successfully got a contract on a competitive bid basis would hardly come in and offer the Government back part of the purchase price if they found they were making larger profits on it than they had anticipated.

Senator MOODY. Where have you been, sir? They have been renegotiating contracts all through the Second War. Business has not protested it.

Mr. MAYER. That is only when their gross business exceeds a rather large amount. The small-business firms often do not come under the Renegotiation Act. They have to have $500,000 worth of renegotiable business to be renegotiated.

Senator MOODY. Do you mean to say a government which, in all equity, renegotiates profits downward, when the Congress enacts a situation where it obviously intends to take care of extreme hardship cases, that we are going to have to get our pound of flesh and have it written in the bonds? I don't follow you. I really don't.

Mr. MAYER. I mean, sir, normally we would not even have authority to give a man more money than the contract requires

Senator MOODY. Normally you would not. That is the purpose of this act to give you the chance to adjust.

Mr. MAYER. The act bases the authority on the national emergency we find ourselves in and the need to facilitate the national defense.