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Report On
WAR AND POST-WAR
ADJUSTMENT
POLICIES

FEBRUARY 15, 1944

Bernard M. Baruch
John M. Hancock

Report On
WAR AND POST-WAR
ADJUSTMENT
POLICIES

FEBRUARY 15, 1944

Bernard M. Baruch
John Af. Hancock

CONTENTS
PART I

Letter of transmitted
PART

Report

PhlCf

-:—

*
PART

4
III

Summary Index of recommendations

PART

Addendum

1. Settlement of terminated war contracts
_
Workable plan sought—Joint Contraot Termination B o a r d Approved by all procurement agencies—Basic principles of speed!
finality, and protection of government—Danger of ComptrollerGeneral'a review before payment—Vigilance against fraud—
Settlements by teams—Written reports—Other safeguardsTraining schools—Need for interim financing pending settlement—"A complete financial kit" to do the job—T Loans—
Smaller War plants Corporation Loans—Direct Government
Loans—00 percent advance—Pre-termlnation preparedness—
No blank checks—Complex problems of subcontractors—Immediate payments to subcontractors—Uniform article for s u b s - 1
Quick validation of nuisance-size claims—Legislation needed—
Experiment with Company-wide settlements—60-day clearance
of plants—Functions of Chairman of Joint Board—An independent civilian—Contractors' part—Importance of basio approach
to settlement—no padding of claims—no blackjacking of business.
2. Surplus property
Immediate surpluses developing—Speedy action needed—Coming months easiest for disposal—Kind of organization needed—
Surplus Property Administrator—Surplus Property Policy
Board—Disposal outlets—Consumer goods—Capital and producers' goods—Ships and maritime properties—Food—Central
policies—Use of industry committees—Functions of Surplus
Property Board—War Production Board—Relation of surpluses to industrial controls—Use of existing field force—Legislation for disposal—Administrator to report to Congress—
Choice of Administrator—Qualities of man—Leasing—Sale on
Credit—Eight to exchange properties—No hidden subsidies—
Sales in small lots—Keep America strong—Timing vital—Reduce
675025*—14
1

82
40
40

pftfft

national debt—Preference to local ownership—:Goldfish Bowl
policy—No speculation—Flexibility
vital—Real
property
study—War housing—Permanent good housekeeping—No
monopoly—Surpluses abroad—Inflation bulwark—Improve efficiency of arsenals—-Special problems of plants—Peacetime prospects of plants—Size of plants—Subdividing possibilities—Plant
brochures and publicity.
8. Tightening the mobilization machine
Demobilization inseparable from war at this time—War adjustments already being made—Over-all direction by Office of War
Mobilization—New agency unwise—Conflict with war—Difficulties in staffing a new agency—Too much'Government overlapping—Reduce Government as work dwindles—General tightening of operations needed—Running conspectus—Review of requirements—Strengthening of industry advisory committees—
Exchange of information between Armed Services and civilian
agencies—OPA—Foreign Policy—Role of Congress—Balancing
the program—Expansion of civilian uses—Cut backs on raw material production—Stockpiling dangers—Stock piles of strategic reserves-—"X Day" planning—Review of wartime controls—Extension of needed war powers—Forecast on resources—Civilian
priority list—Chain of materials—Chain of industrial integration—Fair competition—Physical reconversion—Advance tooling—Human side—"Work Director"—Veterans—Labor force.

PAETV

Uniform termination article
.
1. Letter to Director Byrnes
—
2. Text of uniform article
3. Text of accompanying statement of principles on cost determination..
_
4. Directive order making them effective
.
APPENDIX 1. Joint Contract Board's statement of policy on termination
financing
.
APPENDIX 2. Joint Board's statement of policy as to removal and disposition of property in connection with contract termination
APPENDIX 3. Summary of roles assigned agencies
^
.
SUBJECT INDEX

78
79
83
87
90
91
98
102
105

PART I
Letter of Transmittal.
The Honorable JAMES F. BYRNES,
Director, Office of War MolUhatidn,
The White House, Washington, D. O.
DEAR MR. BYRNES : Pursuant to the instructions you gave us to inquire into war and post-war adjustment policies, we submit herewith
our report. It is divided into three parts: (1) This letter, which is a
rough synopsis of our major suggestions; (2) the report itself, and
(8) additions giving a more extensive treatment of three subjectscontract termination, surplus property, and tightening the industrial
war machine.
Victory is our first and only duty, but just as we prepare for war
in time of peace, so .we should prepare for peace in timd of war.
Through preparation we visualize a prosperity, sound and lasting. We
see not merely civilian needs crying to befilled,but a world requiring
the things we can supply—an unlimited market for our products.
Our specific assignment was to study the immediate demobilization
policies which have to do, necessarily, with the stimulation of the war
effort, since victory is the first essential, and with the preparation for
peace to follow victory—to win the war and to prepare for peace.
In the development of this theme wefindcertain considerations to be
of first importance. They include:
1. Getting us all back to work in peacetime enterprises.
This may require a special authority under the Director
of War Mobilization to give its entire, attention to the
problem of bringing jobs to all workers, with emphasis
laid upon the returning service men and service women
who are our first concern.
2. Taking the Government out of business by—
(a) Payments for work done and work under way.
In connection with this phase of the problem, we
have assembled a complete "Financial Kit9' that
should prove effective. The Government must
pay its debts, and pay them quickly and fully, so
that Business will have its working capital freed
for pay rolls and purchase of materials.
(b) These payments can be made with ample protection to the Government against fraud.
(c) Move out and store war materials from plants so
as to make room for equipment and materials for
civilian production.
1

(d) Centralize the control and disposal of surpluses
of all types in such a way as to bring them into
ready and effective use and insure orderly markets. This, too, may require a special administrator in the Office of War Mobilization.
3. A general tightening up of the industrial war front so as to
finish the bloody business with finality, and thus be ready
for peace.
4. Spreading acceptance by war contractors of the "Uniform
Contract Article/' as recommended by us and approved
by you.
5. Place all war agencies under running review to cut them
down as their work dwindles; also review of all war industrial controls*
6. Immediate extension of laws governing Price Control,
Priorities and Requisitioning, all three expiring this year.
7. Early engineering on public works to be ready if needed to
fill in the valley of unemployment.
8. Provide credit means for those requiring it during the
adjustment period, particularly for the smaller business
groups and returning servicemen.
9. Prepare now for future action reducing taxes from war to
peacetime levels, thereby providing necessary incentive
for initiative and enterprise and stimulating employment.
10. Prepare an Emergency "X Day" Reconversion Plan to be
used in the event of a sudden collapse of Germany so as
to enable us to go on with our crusade against Japan and
at the same time to prevent the dislocation resulting from
lack of preparation. This phase of the broader plan is
to be worked out by the Armed Services with the War
Production Board.
Transition from a war economy to that of peace is not easy; nothing
worth while is. In our reconversion we shall try, as this country
always does, to cure the things that caused us worry and to strengthen
the good; to hold to the proven but be ready to test the new. That is
progress.
The frame of our operation shows the gigantic nature of the changeover. It affects every part of our economic life. Nothing comparable
ever has been known before.
As one indication of the size of the job, about 50 billion dollars of
the current annual production represents strictly war goods—that is,
things which, when peace comes, we will stop making. This gap must
be filled in large part by civilian production and services, if we are
to keep the needed volume of employment. The demobilization of the
Armed Forces will come gradually. Their absorption by industry will

be aided materially by several factors, the weight of which is not now
clear, such as: the giving up of war jobs by many women; the retirement of older workers; the increase of travel and recreation time; the
return of many younger workers to school; the resumption of college
and professional training by many now in the Services or in war industry; the renewal of many professional and service businesses that have
stopped during the war; the starting of new enterprises; the business
involved in meeting the needs of the world; reduction in the workweek; the normal enforcement of child labor laws.
The net increase in employment in industry from 1937 to 1944 is
estimated at 7,600,000 people. Considering factors mentioned above,
the problem of demobilization, though difficult, is soluble—if we
create the atmosphere in which private initiative and resourcefulness—
the traditional American spirit—can again take hold.
It is an easier task to convert from peace to war than from war to
peace. With the coming of war a sort of totalitarianism is asserted.
The Government tells each business what it is to contribute to the war
program—-just what it is to make and where it is to get the stuff-out
of which tQ make it.- The planning and execution rest upon one overall purpose and a single control.. Patriotism exercises a strong
compulsion.
With peace, the opposite becomes true. Each has the right to make
what he pleases. Governmental direction and aid disappear. The
markets become free and each individual is dependent upon his vision,
his courage, his resourcefulness, and his energy.
Everyone has the privilege of building up, but no one has the right
to pull down. That is democracy at its best.
In the reconversion and readjustment will come improvements in
our standards of life—better houses, better clothes, better food, better
safeguards for children, better health protection, and wider educational opportunities. These bring hope for the future instead of fear;
they give security instead of unrest!
There is no need for a post-war depression. Handled with competence, our adjustment, aftef the war is won, should be an adventure
in prosperity. Our soldiers will not be let down. They are our chief
concern. No pressure groups of self-seekers will take our thoughts
from the duty we owe them.
Finally, while the producers should be restrained from excessive
profits during the war, the workers as long as hostilities are on should
refrain from strikes. No grievance, however just, should be permitted
to slow our march to victory.
Sincerely yours,
BERNARD If. BARUCH,
JOHN M. HANCOCK,

Advisory Unit for War and Post-war
Adjustment Policies, Office of War Mobilisation*
FEBRUARY 15,1944.

PART II
Report on War and Post-War Adjustment
Policies.
When the war will end either in Europe or Japan is not for us to
speculate. Our military leaders have warned that the bloodiest, costliest fighting in Europe still lies ahead. The Germans with a superbly
trained General Staff have been withdrawing behind interior lines
awaiting our attack, prepared to strike back wherever they can, hoping
to catch the United Nations either off guard or, through a suddenly
amassed superior force, temporarily driving us off. Then there are
the Japanese to finish off.
Regardless of how long it takes we must carry on so that absolutely nothing is permitted to hinder the quickest clinching of victory
over both Japan and Germany. With that never out of our minds, we
should proceed immediately to develop the organizations, policies,
and methods for returning to peace with work for all.
No one colossal plan covering every aspect of the problem that
crowded for settlement was possible. We have taken up first those
things that had to be done first, bringing them to decision, then moving
on to the next problems.

Finding Right Path.
The Uniform Termination Article, approved by you recently, was
the "first step." This report seeks to carry that work further to finding the right path out of the maze and to getting started down that
path.
Nor was it enough to say simply what should be done; but also how
it should be done—that is, to develop workable plans which could be
put into effect with a minimum of delay. In this, of course, we have
taken things as we found them, not as they might or should have been.

Unwinding Difficult.
Unwinding our war economy can be expected to be more difficult
than was the mobilization. It will be made more so by pressure
groups organized for their selfish purposes. As victory comes nearer,
we can expect the "but" patriots—those who profess themselves ioudly
all-out for war but fight any sacrifice or risk of their own—to grow
ever louder in their protests, to become ever bolder in "positioning"
themselves for the return to peace.

All-Important Question.
The question everyone asks, be he a civilian or in uniform, is: "How
am I going to make a living for myself and for those dear to me when
the war is over in a manner of my own choosing 1
4

Our entire inquiry has been directed toward that question. In
particular, we have been concerned with the demobilization problems
of the returning service-man and service-woman and civilian workers
now engaged in war industries. The returning soldier should not be
forced to look to charity or community help. He has rights that rise
above that. When he returns to his home community, there should be
one place to which he can go in dignity and where he can be told
of his rights and how he can get them.

Legislation Needed.
Effective handling of the human problems of demobilization will
require the closest kind of cooperative action on the part of both Congress and the Executive branch of Government. Many of the proposals that the American people will want adopted.require legislation.
At the same time, the first demQbilizations of workers and those in
Service are likely to take place while the war still is going on and ^ill
have to be knitted intimately with wartime manpower controls, with
the draft, and other war controls.

Centralize the Forces.
There is no scarcity of plans and suggestions for dealing with these
problems. In fact, we have found their consideration scattered loosely
in both the Executive agencies of the Government and among the
various committees of Congress. In their preoccupation with the
war, the various operating agencies have been able to give these problems only part-time attention. Yet they must be planned for in the
light of established administrative mechanisms, tied to the whole
program.
We recommend unifying the Government forces dealing
with the human problems of demobilization on two fronts—
the Executive and Congress.
Everything being, done by the Executive branch of the Government
should be brought together under a single, untorgetful mind; the
Congress to merge the activities of its many committees into a single
committee in the Senate and in tlie Bouse or, if it can be effected,
into:a joint committee of both Houses. The unified Executive and
Congressional groups should then work together on a combined
program of legislation and operations that will carry out the
objectives that all of us share.

"Work Director:9
When problems are undertaken in many different places, diffusion
of energy results. Much talking is done, much political pressure generated, with little action and small results to those involved.
5

We recommend the creation in the Office of War Mobilization of a new, most important post which, for want of a better
title, we would call a "Work Director" to unify the forces of
the Executive branch and to work with Congress on the whole
human side of demobilization.

War Veterans.
This Work Director, who should be of such outstanding caliber
as to command the immediate confidence of the country, should
have full and adequate authority for developing integrated programs,
working with, the Armed Forces on their plans for personnel demobilization, when such plans are drawn up, studying the. demobilization
programs of other nations, developing adequate machinery for assisting in job placement and counsel for both veterans and demobilized
•war workers, integrating these programs with all wartime manpower
controls.

Care for Disabled.
He should develop effective programsin such fields as adequate care
for returning veterans, physical and* occupational therapy for
wounded and disabled; the resumption of education for those whose
schooling has been broken by the war; vocational training for all
workers.

War Workers.
He should also study the special employment problems involved in
the great war industries where it is known peace will bring mass
displacement of workers. He would work with Congress on all these
matters.
Of course, there is no separating these tilings from the seemingly
impersonal measures that will have to be taken to keep our economy
production-strong. Being a part of the Office of War Mobilization,
the Work Director will be best situated to keep his own activities
linked with the many other aspects of the program we are recommending.
To summarize our concept of his job, it is to see that the
human side of demobilization is not fogotten*

Great Opportunities.
It is our conviction that we will emerge from the war with the greatest opportunities any people ever had, A post-war depression is not
inevitable. One-half of the world will need rebuilding. Enormous
demands, put aside during the war, and added to pre-war demands,
await satisfaction. Much depends on the settlement of the peace.

If it be one under which men and women can look forward with hope—
not fear—there will not be enough hands to do what needs to be done.
Much will also depend on the measures taken now to prepare for
peace—and, as important as the measures, on the men who will carry
them out.
The mistakes and delays made in the mobilization must not be repeated in the demobilization.

No Better System.
There has been too much loose parroting of the slogan, that if individual enterprise fails to provide jobs for everyone, it must be replaced
by some one of the other systems that are around. The war has been
a crucible for all of the economic systems of the world, for our own,
for Communism, Fascism, Nazi-ism—all the others. And the American system has outproduced the world.
America's productive capacity can perform still another miracle in
a fine and lasting peace. It will riot do so if pressure groups are permitted to turn that productive capacity into a battleground for their
own selfish interests or inflate ourselves out of the world market

Speed Essential.
Speed in shifting this productive capacity from war to peace is
our most effective attack against the two enemies which threaten in
the transition and post-war period—unemployment and inflation*

The First Questions.
What are the things that need to be done to insure this speed, to set
our feet on the right path toward work—not alone for those here at
home but for the men and women who will be returning from foreign
shores ?
The very first problem to be solved was how to get Government work
out of the plants so civilian work could come back in. This raises
three questions: How are war contractors going to get the money owed
them ? How is Government property to be moved out physically from
their plants? And, while doing that, how is the public interest to be
protected?
If plants are choked with Government property, equipment, inventories, and work in process, manufacturers will not have room for the
new equipment and new materials to produce peacetime goods. Or,
if their working capital remains frozen in unpaid-for Government
work, they will lack the money to start up their businesses afresh; to
buy new materials and new equipment, to pay their workers.

Business Frozen.
Business would be at a standstill; workers and returning service
men would walk the streets, while the Government was figuring how
to pay what it owed.
Our country's position today is such that if the war terminated suddenly most of the factories in this country would be shut and there
would be unemployment of the worst kind. Of course, the war will
not end tomorrow, but "peace jitters" already are cutting, into war
production. Kemoving all uncertainties as to the Government's policy
on settling terminated contracts is needed for the immediate conduct
of the war.

Unemployment by Audit.
We recommend quick, fair, and final settlement of terminated war contracts through negotiations by the contractors
and the procurement agencies.
Any course, such as that proposed recently by the Comptroller
General, would quibble the Nation into a panic.
The Comptroller's suggestion, as we understand it, was that he
review every settlement before payment and that no payment be final
until approved by him. Pending this audit, the Comptroller proposed
that advances and loans be made; but the amounts would be entirely
inadequate to keep business and jobs gQing. If such an audit before
payment were decreed, no war contractor would know where he stood,
prime contractors would be unable to pay subcontractors, banks would
be reluctant to make adequate loans, billions in working capital would
be frozen. The delays in settlement could force many concerns into
bankruptcy. It would mean unemployment by audit.

Fairness the Thing.
The essential point to remember about these contract settlements is
that they be fair—fair both to the Government and to the contractor.
What is fair can be determined just as well in a matter of weeks as in
years.

Full Review for Fraud.
The review powers of the Comptroller General should be
limited to fraud, with every administrative aid of all the
agencies in the detection of fraud*
This is in addition to his determining whether settlement payments
are made in accordance with the settlement agreement.
To aid in the detection of fraud, we are recommending:

That written reports and full records be kept by the Government negotiators of the bases of settlement; also the contractors to keep their records for at least 3 years.

Settlement Teams.
In all sizable settlements, Government negotiations will be conducted not by one man but by a team. These teams in general will
include a Legal Officer, a Termination Officer, an Accounting or Auditing Officer, a Technical Officer, and a Property Disposal Officer, each
with his own experts, the whole team working under the direction of
i.he contracting officer who finally makes the settlement. The team
idea has been developed to prevent any possible collusion in thesa
settlements and also to encourage the individual team members to
exercise their independent courage and judgment in making these
settlements.
In the final analysis, the Comptroller General would have to delegate his reviewing to many thousands of investigators. By and large
he could not recruit a more honest or more capable force than present
procurement officers, and it would certainly be less experienced. The
men who made the contracts or who have administered them are the
best persons to unmake them.

Joint Board.
The Comptroller's vigilance and experience can be a most valuable
contribution.
We recommend that both he and the Attorney General be
added to the Joint Contract Termination Board.
This board has been established in the Office of War Mobilization,
under a chairman independent of any of the procurement agencies,
to unify and simplify the procedures of all the agencies, and it will
control the regulations, instructions, and interpretations for the
negotiators.
We recommend also that the War Production Board be
represented on the Board.

Additional Safeguards
The administrative procedures of all the procurement agencies are
now under review to see where additional safeguards can be wisely
introduced.
All these safeguards—the Comptroller General's full review power
for fraud, the presence on the Joint Board of the Comptroller and the
Attorney General, settlements being made by teams with written reports from these teams, the requirement that contractors keep their
records for a least 3 years—plus the additional administrative safeguards that will be developed, add up to a more effective protection
9

of the public interest than any audit before payment that the
Comptroller General would find administratively practicable.

Immediate Cash.
Even with the best of good will by both Government and contractors, delays in settling are inevitable. An appreciable portion
of every claim will be subject to human judgment of values, over
which competent men may honestly differ. That is why these settlements do not lend themselves entirely to determination by mathematical formulas, but can be handled best through negotiations.

Complete Kit.
The importance to the whole economy of freeing the "working
capital of manufacturers so there will be* jobs is such that interim
financing which will provide quick cash pending final settlement is
essential. Attempts at some one magic formula which could be applied to all alike—prime contractors, subcontractors, suppliers, etc.—
result either in something rigid and inadequate or so loose as to bo
a blank check on the Treasury.
We,have brought together every workable tool we could find into a
financial kit, complete enough to meet the varying needs of all war
contractors while fully protecting the Government.
This complete financial kit which we recommend includes:
1. Immediate payment—the full 100 percent—for all completed
articles.
2. On the uncompleted portion of the contract, immediate payment—the full 100 percent—of the Government's estimate of
"factual" items, where proof ordinarily is simple, such as direct
labor or materials, and of other items on which the Government
is able to satisfy itself, up to 90 percent of the contractor's
total estimated costs.
8. Immediate payment—the full 100 percent—of settlements
with subcontractors as soon as approved.
4. Payment by the Government of interest on termination
claims, until settled.
5. As insurance against delays in validating claims, a new, simplified system of T (Termination) loans by local banks,
with Government guarantees, to be available to all war contractors, primes and subs.
6. For those unable to obtain such loans from their local banks
in 30 days, the Government to make the loans directly.
7. Until the new T loans are authorized by Congress, extension
of V and VT loans to all eligible borrowers.
8. Finally, for hardship cases, unable to use any of the tools outlined above, expedited settlements.
10

A Community Plan.
The T loans will be made in the man's own community, by his own
bank, the banks in general to take a minimum of 10 percent of the
risk and the Government to guarantee the remainder. Representative bankers have assured us the banks of the country will make loans
on this basis.
The loans will be based on an estimate of the applicant's receivables, inventory, work in process, amounts paid or to be paid to subcontractors or suppliers in the tiers below.

Subcontractors Eligible.
While designed for all war contractors, these new T loans are of
particular importance to the tens of thousands of subcontractors of
every type scattered around the country. A more extensive discussion of the staggering problems of settling subcontractor claims and
of the measures developed to date will be found in the addendum
chapter on Settlement of Terminated War Contracts. Sketchily
summarizing the more important recommendations:
1. That the procurement agencies be authorized to protect
the subcontractors in the event of insolvency or default
of their customers.
2. A standard termination article for subcontractors to supplement the Uniform Termination Article for prime
contractors already recommended to you—this is in the
final drafting stage.
3. That the Director of War Mobilization set a minimum
figure below which nuisance-size claims, great in number
but small in value, can be immediately validated with
suitable safeguards.
4. That the procurement agencies launch a vigorous experiment with the so-called company-wide type of settlement,
seeking to develop a workable plan, if possible.
5. That Congress enact appropriate legislation to permit such
settlements to the extent that they are found practicable
and helpful by the procurement agencies.

Push Program.
If a workable plan for company-wide settlements can be developed,
adjustments naturally will have to be made in this program for settlement. In the meantime, however,'the program outlined here should
be pressed without delay.

Legislation Ready.
The contract termination policies recommended in this report were
worked out through the instrumentality of the Joint Contract Termination Board—and no finer "working spirit could have, been hoped
for. Represented on the Board, are the War, Navy, and Treasury
Departments, the Maritime Commission, Reconstruction Finance
Corporation Subsidiaries, and the Foreign Economic Administration.
The program has the unanimous .approval of these agencies and
they are prepared to put most of it into effect immediately. To become
completely effective, legislation will be needed.
Our major objectives requiring legislation in connection with contract termination are met by the bill prepared by the Committees of
Senators George and Murray, Their staffs have been kept currently informed of the work being done under the Joint Contract Termination
Board and the procurement agencies represented on the Board. As a
result the program.for contract termination legislation is now remarkably far advanced.
At an early date we will be prepared to advise with the Committees
handling this legislation as we expect to complete our termination
study very soon.

One Purpose.
Perhaps this should be noted. The only purpose of contract settlement is to pay what the Government owes. Contract settlement should
not be used for punishment or reward, for making better or worse
the position of manufacturers, workers, or the public. Attempts to
turn the settlement legislation into a band wagon for special interests
should be fought ©ff. To the extent that the simple purpose of settlement becomes involved with other issues, passage of the legislation
will be delayed. The result, should Germany collapse suddenly, might
be calamitous.

Training Schools.
Schools are to be set up in various parts of the country for
training both the Government's negotiators and representatives of contractors and other interested groups.
The fact that Government and industry men will sit side by side
in learning about the complete plans should prove of mutual advantage. Industry will know what the Government expects of it. The
Government negotiators will have the advantage, in their training, of
contact with men who know the realistic problems of specific plants,
at first-hand.

Contractors Delay.
It is Teported to us that in the past an average of-4 months has
been required to get contractors to submit claims. Only a part of
this slowness can be laid to preoccupation with the war or to inadequacies of Government policy. Contractors will have only themselves to blame if they do not get set to handle the problems of
termination.

Sixty-Day Clearance.
On the clearance of Government property from private plants, we
recommend:
A deadline of net later than 60 days after the filing of inventory lists, with manufacturers having the right to remove
and store the property earlier at their own risk.
Considerable quantities of raw materials, equipment, semifinished
parts and inventories will come into the possession of the Government
as a result of the termination of contracts. Prompt, effective, orderly
handling of these and other Government surpluses in excess of war
needs will have a most important effect on quickening war production, combatting inflation, speeding the resumption of civilian
employment as that becomes possible, and. reducing the national
debt, with a consequent lowering of post-war taxes. The months
to come, while the war is still on, are the most precious months for
disposal. Market conditions will never be better. Effective action
now could reduce enormously the likely surpluses that will be left for
after the wan

Central Administrator.
We recommend:
1. Immediate creation of a Surplus Property Arministrator
in the Office of War Mobilization to be appointed by the
Director, with full responsibility and adequate authority
for dealing with all aspects of surplus disposal.
2. This Administrator to be Chairman, with full and final
authority, of a Surplus Property Policy Board representing
these agencies: War, Navy, Treasury, Reconstruction Finance Corporation, Maritime Commission, War Production
Board, Bureau of the Budget, the Food Administrator,
Attorney General, Federal Works Agency, State Department, and Foreign Economic Administration.
3. The work of actual disposal to be assigned to four major
outlets; each operating in a clearly defined field, with no
overlappings and following policies to be laid down by
the Surplus Administrator.
13
675026*—44

(a) Consumer Goods—other than food—to the Procurement Division of the Treasury;
(b) Capital and Producer Goods in general—all types
of industrial property, including plants; equipment,
materials and scrap—to a single corporation within
the Reconstruction Finance Corporation, consolidating the present Reconstruction Finance Corporation subsidiaries dealing with Government
properties;
(c) Ships and Maritime Properties to the Maritime
Commission;
(d) Food to the Food Administrator.
The Surplus Administrator may use any other Government agency
for the disposal of special properties or invite any other agency to sit*
with the Policy Board on special problems.

Goldfish Bowl.
The business of all of the disposal agencies should be conducted in a goldfish bowl, with the facts on all sales open to
public inspection at the point of sale and each agency sub*
ntitting reports, summarizing these sales regularly to Congress through the Surplus Administrator.

Finn Control.
This organization assures a firm hand at the helm to.unify the policies and procedures for all the agencies and to prevent haphazard disposition or competition between the agencies. Buyers will not be able
to beat down the Government's prices by playing one agency off
against another. The task of actual disposititm assigned to any one
agency is kept of a manageable size.
Each of these broad types of surpluses involves different types of
customers-and different market conditions. Each agency is assigned
to thefieldof its own experience so operations can begin without delay.
To create one central disposal agency, as was proposed, would be to
risk long delay in building an effective organization with the likelihood that the agency would bog down in the morass of attempting to
deal with thousands of unrelated items. The precious months for
disposal would be lost.

Civilian Shortages.
In this connection, the Armed Services have made an excellent suggestion to us which we recommend to the Surplus Administrator as
one of his first tasks:
That a list of the most critical civilian items be drawn up
and the Army and Navy examine their inventories, stocks and
14

stores of these items to see what can be safely released for the
civilian economy without hurting the war.
This suggestion is made possible largely by the fact that our proven
productive capacity is as good as inventory in reserve, allowing for the
time required to produce and deliver the goods.

Legislation Later.
AVe are recommending that these steps be taken by executive order
for the time being because of the urgency for quick handling of immediate surpluses, and because additional experience gained in actual
administration is needed before legislation can be definitely drawn.
We recommend:
That the Surplus Administrator report to Congress as soon
as possible on legislation that is needed, basing his recommendations on actual experience with the problems.
Nor should our recommendations be interpreted as ruling out a
still further centralization of the handling of surpluses if experience
indicates such a change desirable. Bringing the problem under a
firm, managing hand now will facilitate smooth transition to any
set-up that Congress ultimately legislates.

War Comes First
The best single preparation for returning to peace lies in a more
efficient conduct of the war. It means quicker victory, fewer casualties.
Greater war efficiency also means a steadily improving utilization of
our resources in constant adjustment to changing war conditions—
meeting new war demands swiftly, promptly cutting out the production of unneoded things, shifting any resources that are freed to get
more of the things needed for civilians.

No Separate Agency.
The agencies that did the mobilizing will have to carry out their
comparable tasks in the demobilizing. At the present stage of the
war, preparations for demobilization are inseparable from the actual
conduct of the war, from the constant adjustments required by the war.
For this chief reason, we are opposed to the creation of a new9
separate Office of Demobilization.
Such an agency could hardly avoid coming in conflict with every
other war agency and would hinder the prosecution of the war. By
the nature of its assignment, we fear it would tend to become a pressure
agency seeking to quicken demobilization for its own sake, forgetting
war needs.
Neither among our people, in the country, nor in the Governmerit, can there be any compromise with the fact that war
needs come first*
15

Congress Can Set Policy.
We do believe Congress should lay down whatever policies it feels
wise and desirable to guide the existing agencies in their handling
of demobilization problems. This view was expressed befpre the
Special Committee of the Senate on Post-war Economic Policy and
Planning on December 21,1943. The weeks of intensive work on these
problems that have passed confirms that judgment.

Eliminate Overlappings.
#
Later, it may be advantageous to create a new, clearly post-war
agency to liquidate present war agencies. Eight now, there already is
too much overlapping Government machinery for the most efficient
functioning of .Government. Economies can be effected and manpower released.
We recommend that the Bureau of the Budget maintain a
running study of the functions of all war agencies reporting
regularly to the Director of War Mobilization with recommendations for eliminating overlappings, for discontinuing
unnecessary functions, for merging or transferring units for
greater efficiency, preparing ultimately to liquidate what is
left.
As the.tides'of war ebb, little pools of Government functions will be
left behind in various agencies, and they should be cleared up promtly.

Tightening Needed.
The existing agencies have the basic organizations, the experience
and know-how, the feel and touch with these problems. What is needed
is not the loosening up that would be the inevitable result of a new
super-agency cutting across every other agency, but a general tightening up of the entire Government machine—both for mobilization and
demobilization. The two go hand in hand.
Among the specific tightening up measures we recommend in addition to the running survey or war functions are:
A running conspectus by the Office of War Mobilization of
the progress of all the agencies on the tasks assigned;
An intensification of the fine work done in the past seven
months by the review boards, organized through your office by
which billions have been cut out of the Services' programs by
the elimination of requirements beyond actual needs;
Strengthening of the Industry Advisory Committees in the
War Production Board;
Tightened handling and advance planning of new contracts
and contract cancellations;

Closer working together of the War Production Board and
the Office of Price Administration to permit prompt adjustment of pricing methods or controls, where needed to avoid
delaying the resumption of civilian employment;
Arrangements for the Armed Services to furnish all of the
civilian agencies full information in adequate time so these
agencies can do the preparing expected of them;
Organization of the civilian agencies to use this information
effectively.
8omo fine advance planning is under way, particularly in the "War
Department, and this information can be most helpful in preparing
for adjustments to come. But we emphasize, the civilian agencies
must organize themselves to use the information effectively.

Planning Cancellations.
To assure that cancellations will be planned in advance as far as is
practicable and to remedy the inadequacies we found, we are recommending this tightening up of the cancellation procedures:
1. The procurement agencies, in acting on the decisions of the
Chiefs of Staff, to inform the War Production Board of possible
cancellations as soon as they begin to think of them—this so
the War Production Board and other civilian agencies can become properly attuned for swift action when decisions are
made;
2. That the policies governing the choices as to which producers
are to be cancelled and which left in production be worked out
in advance by the War Production Board;
3. That the actual choices, in general, be made by the procurement agencies after full consultation (except in the case of
minor or routine adjustments of programs) with the War
Production Board or such unit of it as is set up to integrate
its work with that of the War Manpower Commission and
other interested agencies.

Criteria For War.
In general, choices as to which producers are to be cancelled should
be guided:
First, by what will make for a more efficient carrying on of the
war;
Second, once these war considerations are satisfied, by what will
contribute most to a quick, balanced resumption of civilian employment and to an orderly changeover from war to peace.

In considering, first what will improve war efficiency, such factors
as these enter: easing manpower shortages; minimizing unemployment or the leaving of facilities idle; eliminating the least efficient or
most wasteful producers; how much fuel, transportation, and other
critical resources the various plants drain.

To Aid Reconversion.
As to the second broad criterion, preferences would be given to such
factors as releasing plants which can be converted most readily to
desirable peacetime production; giving smaller enterprises an opportunity to return to civilian production earlier, easing their termination problems; balancing cancellations in the various communities;
reducing overswollen war communities so as to ease their ultimate
return to an inevitably slimmer peacetime level.

Reduce "Bloat" Now.
Where there have been war expansions, far Jheyond any possible
post-war future, it will be better to cancel war contracts earlier, and
begin reducing the "bloat," than to wait until it has to be done all at
once.
Local United States Employment Service offices should be promptly
informed of decisions to cancel contracts; also, the National Housing
Agency, Federal Works Agency, and other agencies who may be constructing homes, nurseries, or other projects in war communities.
Large-scale cancellations might make these projects unnecessary.

Shifting Contracts.
Planning of cancellations must be integrated both with war procurement and the program for civilian production. Plants and
manpower released from one type of war work should be promptly*
utilized for new war work, but, if not needed for war, as far as practicable for expanding output of the more essential civilian items.
Some contracts likely to be cancelled because they no longer are
needed for war may be for goods that other agencies can use, as for
foreign relief and rehabilitation. Such contracts can be transferred
or run out, avoiding the problems of termination and settlement.
This is not to be taken as an excuse, however, for continuing the
production of goods no longer needed simply to provide employment
or profit Contracts should be cancelled promptly as soon as It is
seen that production is running beyond actual needs.
If current cancellations are brought in hand, the skill will be
acquired and the organization created for the much larger job to
come.

Public Informed.
There will be the greatest interest in communities regarding local
contracts being cancelled; other production cut-backs; how local products are to fare as the reconversion pattern unfolds.
We recommend that the Office of War Information, War
Production Board, and the-Procurement Agencies work out
the necessary machinery for informing the public fully and
frankly as to the problems involved and the actions taken.
To the extent that this is done, it will be an important defense
against selfish interests.

"X Day" Reconversion.
To avoid being caught unprepared by a sudden collapse of
Germany, we recommend that the Armed Services and the
War Production Board cooperate in the immediate preparation of an "X Day Reconversion Plan9' based on the assumed
defeat of Germany on "X Day."
In recent weeks the War Department has put together a tentative
supply program, assuming the end of hostilities in Europe on a hypothetical date. These estimates have been furnished to the War Production Board, which is now translating them into terms of manpower, materials, and manufacturing facilities likely to be released.
While these estimates—necessarily a military secret—will certainly be
changed, since no man can guess how much will be expended in Europe,
they do provide a beginning basis for the "X Day" plan recommended.

Getting a Head Start
As far as is practicable, this "X Day" plan should seek to estimate
cancellations in advance, the industries affected and the resources
likely to be released, make tentative selections-of the industries and
plants to be freed, weighing how these selections can be guided so as
to contribute first, to greater war efficiency; and second, with war needs
satisfied, to the speediest resumption of civilian production and to an
orderly changeover from war to peace.
This "X Day" planning can help greatly in removing hindrances to
the speediest shifting of our productive capacity, providing jobs for
returning soldiers and other workers; also in increasing the volume
of civilian goods which will be a protection against' inflation. We
visualize it as giving all of the agencies a head start on their demobilization problems, on termination settlements, surplus disposal, the
prompt clearance of plants, the reduction and redistribution of excessive inventories; also in.speeding the resumption of civilian produc-

tion, conferring with the industries affected in advance on their problems of physical changeover; and generally lessening the shock of a
large, sudden change in the war program.

No Let Up.
With the hardest and bloodiest fighting ahead, some will object to
such planning, in the fear that talt of resuming civilian production
will divert people from the war; and perhaps, even precipitate a
scramble by some to get back into peacetime production, We have
weighed this view most carefully. It i3 an argument not without
basis. But we conclude that the American people will face the facts
courageously if the Government deals frankly with them*
An early or sudden collapse of the Nazis in Europe, finding us unprepared for handling the transition problems, could result in such
chaos and confusion as to seriously obstruct the most effective prosecution of the war against Japan—and the last few weeks have given
every American a special reason for not wanting to lose a minute in
getting on with that job.
Plan for peace? Yes. Let up on the war? No.

Extend War Powers.
During 1944 the price control law will expire; also, the priorities
and allocations powers on which the functioning of the "War Production Board rests; also, the requisitioning power of the President
We recommend the prompt extension of these war powers.
They are vital both for the continued prosecution of the war and
for transition to peace*

Balance the Program.
Intensification of the review of the Service's requirements is stressed
because of the great potential benefits in avoiding the waste of materials, manpower, and facilities in the production of unneeded goods
and in the use of these resources to expand needed production; in lessening the dangers of inflation; reducing the dollar cost of the war;
reducing the likely surpluses after the war. These great benefits hold
with equal force to the total war program.
We recommend an early, equally effective review of the programs for the production of raw materials, for stockpiling,
for imports, for subsidies, and premiums to marginal producers.
To continue any of these programs beyond their need is to prevent
the production of more of what is needed. Where materials are in
excess of military needs, civilian uses should be expanded or, if that

cannot bo done, because of manpower, the production or import of
these materials should be cut back.
This will release resources for a new balance of the program at a
higher level. Always the program must be kept in balance.

Review of Controls.
All wartime material controls and limitation measures should be
brought under early review to determine under what conditions these
orders can or should be modified. Early review is stressed because,
owing to a natural inertia, the adjustment of these controls is likely
to lag behind actual conditions.

Civilian Priorities.
As a further aid to the swiftest resumption of balanced civilian
production, when and to the extent that the war is not interfered with,
an advance listing should be made of the priorities to be given different
civilian needs in any opening up of civilian supply. This preference
list naturally will give the highest priority to what will contribute
directly or indirectly to improved military efficiency, such as vital
repairs, transportation, improved maintenance.
In recommending an early review of war controls and a running
survey of war functions along with the prompt extension of needed
war powers we have had in mind this fact s
Basic wartime controls must be retained as long as necessary, but all controls and the war agencies administering
these controls should be liquidated when no longer necessary.

Price Inflation.
Prices run through the web and woof of our entire economic system
and hardly anything would be worse than an uncontrolled rise in
prices. If unjustly fixed, they will cause unrest and a sense of wrong.
We have not felt it within our province to go into this matter now, but
this much we will say—that most of the pressure groups have brought
about the conditions of which they complain. Those who do the least
complaining, the great body of white-collar worker&-rthe policemen,
firemen* school teachers, members of professions—they have suffered
most.

No Strikes.
Without going into the merits of the controversies or the grievances
or wrongs complained of, what lies in front of us will not permit of
any strikes or any lessening of the efforts to place in the hands of our
men and women in the front lines the things they need with which to

defend themselves and defeat their enemy. It is unthinkable that at a
time like this a manufacturer would for a moment cease his efforts in
order to make greater profits or that a laborer would stop his efforts
in order to receive a few cents more per hour.
The people have it in their own power to prevent further price
rises—by refusing to pay present high charges for inferior quality,
by saving their money until civilian production returns in volume and
quality. If all of the people do this, inflation surely will be halted.

Important Choices.
As we havfe stressed the selection of the best man available for the
post of "Work Director," so we now emphasize the importance of
the choice of a man for the post of Surplus Property Administrator.
He should be a man of proven executive capacity and business sagacity
to deal with the multitude of problems that will arise in the sale of an
endless variety of products and in meeting changing market conditions.
He should be a man of character, unquestioned integrity and great
courage to fight off the selfish interests that will be seeking to exploit
these surpluses.

Board Functions.
The broadest functions are being entrusted to the Surplus Property
Policy Board, acting through the Administrator. The more important
of these functions can be summarized:
To lay down policies for all agencies;
To press for early sales;
To enlist the aid of the Services in exploring the more critical civilian needs so as to determine what can safely be released ;
To develop with the Armed Services for the ultimate approval of the President and Congress a stand-by program of
reserve plants, equipment, and other properties for future
security;
To devise effective inventory controls;
To organize the demand for surpluses In advance, including the possible needs for foreign relief and rehabilitation,
for states, counties, and municipalities, educational and similar institutions, the Smaller War Plants Corporation, or
other possible claimants;
To develop the possibilities of selling surpluses abroad)
To determine how property coming into the possession of
the Government can be reprocessed or completed before disposition.
Whatever legislation is finally enacted, the greatest administrative
flexibility will have to be provided for.

No Monopoly.
We suggest the Attorney General be placed on the Surplus Property
Policy Board in recognition of the importance of disposing of Government surpluses so as to lessen rather than increase monopoly.

Real Property.
How best to centralize the handling of surplus real property holdings will be studied by the Surplus Administrator; also, how to begin
liquidating properties no longer needed. Real property disposition
is complicated by both administrative arid legislative overlappings.

Good Housekeeping.
War housing is being left to the National Housing Agency. The
Surplus Administrator may similarly use any other Government
agency for disposal of any special type of properties. The Bureau
of the Budget is on the board to develop continuity between war surpluses and the permanent good housekeeping of Government properties.

Short-Sighted Extremes.
Some would dump Government surpluses at any price, simply to
get rid of them, no matter how disruptive the effects. At the opposite extreme, some would sell nothing, proposing either to freeze the
goods in warehouses, destroy them, or sink them into the sea.
We urge upon the Surplus .Administrator a middle course of wise
and carefully timed disposal These surpluses represent a great
wealth of usable resources to ourselves and to others.
American industry will want to purchase much of this modern,
efficient equipment to replace obsolete equipment, so as to improve
our national industrial efficiency upon which our high wage and living standards rest. Before selling this equipment abroad, these
possibilities should be fully explored.

Leasing Desirable.
In general, outright sales are preferable. The disposal agencies,
though, should exchange properties and lease as well as sell; also
sell on credit, not solely for cash. This will assure smaller enterprises opportunities that would otherwise be denied them.

A Warning.
This red flag of warning is.raised: Leasing must not become a
hidden device for the Government to compete with private plants;
it must not become a hidden device for subsidies—by any name—
to anyone. Once plants leave the Government's hands they must stand
on their own feet competitively.
23

Local Ownership.
As long as fair selling prices or fair rentals are paid—with sales
preferable to- rentals—local ownership should be encouraged. But it
will not serve the national interest to sell or rent any one plant
at such low prices as to destroy the invested values and displace
workers in whole established industries. Were such transaction.*
permitted as a matter of policy, a community might gain a new plant
in one deal, only to lose an established industry through a similar
deal favoring some other part of the country.
In all surplus disposal, the national interest must govern. Local
or particular trade interests, while receiving full hearing and full consideration, must be subordinated.

Take Losses.
Heavy losses will have to be taken on some types of property since
inflated wartime costs will have little relation to peacetime values.
Expensive tools for highly specialized war uses may have value only
as scrap or as stand-by reserves for future security.

Ten Rules.
Our suggestions to the Surplus Administrator can bo summed up in
these ten basic principles:
1. Sell as much as he can as early as he can without unduly
disrupting normal trade.
2. Listen to pressure groups but act in the national interest.
3. No sales, no rentals to speculators; none to promoters.
4. Get fair market prices for the values with proceeds of all
sales going to reduce the national debt.
5. Sell as in a goldfish bowl, with records always open to
public inspection.
6. As far as practicable, use the same regular channels of
trade that private business would in disposing of the particular properties.
7. No Government operation of surplus war plants in competition with private industry.
8. No monopoly; equal access to surpluses for all businesses;
preference to local ownership, but no subsidizing of one
part of the country against another.
9. Scrap what must be scrapped, but no deliberate destruction of useful property.
10. Before selling surplus equipment abroad, assure America's own productive efficiency on which our high wages
and high living standards rest

Strong Defense.
The great importance of reducing the national debt is to return to a
position of strong national defense for future emergencies.
Surpluses should be offered in lots of such size as to permit small
business, as well as large ones, to participate.

Small Business.
The particular problems of small business have been constantly
on our mind. By small business we think of the broad backbone of
enterprises, scattered throughout the country, which rely largely on
the initiative and resourcefulness of their individual proprietors.
These businesses must be effectively represented on the Industry Advisory Committees which will be playing so important a role in the
demobilization. The advice and counsel of the Smaller War Plants
Corporation and the Attorney General should be drawn upon in seeing
that these committees are representative of small business. The
Smaller War Plants Corporation will be represented on both the Surplus Property Policy Board and the Joint Contract Termination
Board through the War Production Board, of which it is a part.
As production controls are relaxed, particular care should be taken
to protect the competitive positions of small business, as far as practicable within the needs of the war. Cancellations of war contracts
can be guided to permit the earliest releasing of small concerns which
ran convert back to peacetime production. Also certain "nuisance"
production controls, involving only a limited amount of resources and
which press heavily on small concerns, can be relaxed sooner than
broader production controls.
In all of this, we have felt it the responsibility .of all the Government agencies to protect the interests of all business and of the workers employed by those businesses, regardless of their size.

Changeover Credit.
Many small businesses, severely curtailed during the war, will want
to come back. Others will have to change over plants physically to
reconvert from war to peace. Still other businesses will want to
expand. Many persons will desire to start up new enterprises.
We are recommending:
(1) That the lending authority of the Smaller War Plants
Corporation, at present restricted to purposes of war production, be extended to permit short-term loans to assist
small business in the "change-over" from war to peace.
Particular attention should be given to credit needs for physical
reconversion, or to businesses, curtailed during the war, which seek

revival with sound prospects and under sound management The unexpended lending balance of the Smaller War Plants Corporation is
roughly 80 million dollars.

Permanent Risk Capital.
(2) As a permanent source of credit for small and mediumsized enterprises on a basis of broader risks than banks
can be expected to assume, that the Federal Reserve System's authority to-make industrial loans or commitments
be expanded and liberalized.
These loans should be made in such a way as to supplement, not
compete with, private investment, for which enormous funds are available.
The Chairman of the Federal Reserve Board advises us that no new
appropriation would be necessary to provide the funds for guaranteeing such loans. There already has been appropriated under Section
13-B of the Federal Reserve Act the sum of $139,299,557 which represents the subscriptions made by the twelve Federal Reserve banks towards the initial capital stock of the Federal Deposit Insurance Corporation. This sum, less approximately $26,000,000 already advanced
for 13-B loans, is on hand in the Treasury, but the Reserve banks have
been unable to make effective use of the funds because of restrictions in
the present law.
As a support for loans, it is estimated this sum should permit aggregate loans outstanding at any one time of at least one-half billion
dollars. A detailed explanation of this plan is available for the consideration of Congress.

Ample Credit.
Careful study of the availability of credit shows further:
An enormous volume of personal savings in the hands of individuals
and in the banks, many tens of billions, .which should be tapped.
The* profit position of business during the war has been generally
good.
The Reconstruction Finance Corporation has a broad lending authority even to buying the capital stock of industrial concerns.
All of these available sources, plus the provisions we have made
for prompt payment of terminated war contracts, should remove any
doubt as to the existence of an adequate pool of credit for the financing
of new enterprises or for the changeover.

Loans Not Enough.
Let us not provide credit to the returning Boldier or small businessman which will only chain him like a galley slave to a loan he can

never repay. We must also make it possible for a man to repay what
he borrows.
At current tax rates, few new enterprises or individuals could repay
their borrowings out of earnings less taxes in any reasonable period
of time. There will be general agreement that tax rates should be
reduced after the war. However, until it is definitely known that
post-war taxes are to be reduced, the launching of new enterprises
and the expansion of existing ones will be deferred. We recommend,
therefore:
That a post-war tax law be drafted now, during the war, and
put on the shelf to go into effect at the end of the war.
This recommendntion should lead no one to think we believe present
tax rates too high for wartime—if anything, they are too low—or that
we believe there should be an upward revision of our standards of fair
wartime prpfits. All through the years before the outbreak of war
we urged tbat measures be enacted to "take the profit out of war."
We have never swerved from that position.

Reduce the Debt.
This post-war tax bill should aim at reduction in the national debt.
In fact, it ought to be possible to* begin the orderly retirement of that
debt before the war itself ends. After the war, if the proper policies
can be followed, tax rates can be reduced and the debt still cut. Lower
rates, which stimulate a high volume of business and a high national
income, will yield greater total tax receipts than would high rates,
which depress business volume, employment, and income.

Prevent Monopoly.
Nothing will do more to make for monopoly or to deter the creation
of new enterprise than excessively high taxes.
To repeat, our principal reason for wanting a lowered national debt
is to return to a position of strong national defense for future
emergencies.

Public Works.
Planning, designing, and engineering of worth-while
projects—not simply make-work schemes—should be pressed
immediately and put on the shelf for use if needed.
We believe this shelf of projects should be put together now, even
though we sec no likelihood that the materials or manpower for a
Nation-wide program of public works can be available during the war
or even after the defeat of Japan. When war needs slacken there still
will be a great backlog of deferred housing and industrial construction, repair, and maintenance that must be satisfied first. Still, much

excellent advance planning has been done—as the work done for New
York State and New York City. Other States and cities should do
likewise.
«
Public works, it must be remembered, can have only a limited function and their greatest usefulness lies in helping to fill the valleys of
depression. If public works are to be a reserve of employment, they
should not be carried on in a period of full employment, but should be
kept on the shelf until needed.

Engineering Funds.
Congress may want to establish a fund in the Federal Works Agency
with which to assist local bodies in the preparatory planning.
If such a fund is created, it should be administered with full
recognition of the fact that the debt burden of many communities, cities, and States is far lower than that of the
Government*

Population Problem.
We appreciate that the public works planning of some communities
will have to be incomplete because of the groat population shifts the
war has brought and the need to wait until the population has settled
down. Will the workers who have moved North return to their homes
in the South? What profound changes will the displacement of the
Japanese on the Pacific Coast bring? What of the great aircraft,
shipbuilding, and munitions centers—where will the workers now
there go?

Deferred Projects.
Separate from these longer-time public works, many worth-while
community projects such as schools, hospitals, waterworks, and others,
have had to be deferred through the Var because there were other
more essential needs for the same manpower and materials. Many of
these projects are completely engineered and the funds for their construction set aside. As war needs slacken the War Production Board
has the mechanism for reconsidering any of these projects in the light
of the rules of relative essentiality then prevailing.
Such projects, along with the backlog of normal construction and
housing that has been deferred, can be made immediately available
in any localized areas of unemployment that may develop in'the
transition period.

Good Administration.
No plan can be better than its administration. No formula or law
can supplan1>-or supply—good judgment and ability. In such a vol

ume of business, thinking of both the settlement of terminated contracts and the disposal of property, there will be errors of fact, errors
of judgment, and even some cases of fraud. It is the by-and-large
result that the American people must look for and use in judging how
well these jobs are done.

Pressure Groups.
Again and again, we have warned of the dangers of groups organized for selfish interests. When we speak of pressure groups, we are
not thinking only of the individuals who lead them, but of the men
and women who make up their following. Present leaders may go
but others will arise in their places. The greatest danger that our Nation faces, not only in the transition period but also in the long-time
future, is the tendency for people to become broken up into blocs and
segments, each organized for some narrow interest of the moment.
The kind of peace we build will depend, as much as any one thing,
on the personal choice every American makes—whether he or she
is pulled into such blocs or unites with the Nation as a whole in organized self-restraint, which is the highest form of civilization.
Our concern over pressure groups is another reason why we have
guided our recommendations so that once victory is won we can close
the books on the war as quickly as possible.
We have not wanted to leave the government after the war
a jackpot of controls which invites every pressure group to
hit it.

Peace Settlement.
In all that we have recommended, we have had in mind the need
of keeping America production-strong so as to retain our high standards of living. The fact that our recommendations deal chiefly with
domestic problems should not be misinterpreted as indicating we
underestimate the importance of foreign trade or the kind of peace
that is written. Such problems as an international currency, international Reconstruction Finance Corporation, the future of synthetic
rubber, what is to happen with air bases and international airlines,
ocean shipping, international communications—such problems have
not been taken up because there now is no adequate basis of fact or
knowledge of conditions on which definitive policies can yet be framed.
The formulation of these policies in large measure must await the end
of the war and the terms of the settlement of peace. Many of these
Problems, in fact, will be part of the making of the peace and should
b
<* prepared for in this light.

675025 •—44

Education.
Many domestic problems hare not been touched upon, again not
because we are unaware of them, but because it would be futile to try
to cover every phase of the many problems that presented themselves. Agriculture, while of enormous importance, is not touched
upon because it has a special agency which is brought into contact
with the others under your direction in the Office of War Mobilization.
Higher education has been converted from peace to war and consideration will have to be given to its quick conversion back to peace.
Trained people are an inestimable asset to every community. The
war's interruptions may leave the future devoid of many of the educated, trained, and thoughtful people so necessary in every field of
human endeavor. We would urge that those whose courses have been
interrupted be encouraged to resume their training.

Research.
A closer connection between scientific research and its practical
application is needed, particularly in view of the great number of
products which we must import from abroad. Especially do we
have in mind greater research regarding agricultural by-products
and the finding of new sources of minerals through better processes
that will permit the using of lower grades of ore. The distillation
of coal and the extraction of oil from shales are only two instances
worthy of pursuit.

Precious Surpluses.
The problems that lie before us are difficult but soluble. Let no
one feel that precious surpluses will bear down upon us and destroy
us; that vast amounts of metals, raw materials, ships and airplanes
will smother us and engulf us. These are assets of tremendous value.
They will be real forces not alone in making the peace but in opening
to the whole world, and therefore to us, vast opportunities. As soon
as our Government obtains possession of cotton, or gold, or silver,
or ships, or planes, or other evidences of power or wealth, these
possessions suddenly seem to become less valuable in the eyes of
others. Remember the fox in Aesop's fable, who, when ho lost his
tail, wanted the other foxes to cut off theirs.

America's Strength.
All of the nations of the world, after the war, will be striving to
raise their living standards. Without drawing upon America's productive capacity, no nation in the world wUl be able to do so.

Winston Churchill has said he did not accept his portfolio in order
to liquidate His Majesty's empire. No American should accept a portfolio to liquidate American living standards.
Our great wealth can be used or abused. We have no fear that it
will not be used for the advantage of America and the world in the
most rational and enlightened manner. The living standards of the
world must be lifted—and ours go higher—not our standards be
dragged down to those of others.

Win the War.
This final word:
We have pledged our faith and honor on great offensives. The
blood and suffering of our soldiers and of hundreds of millions of
trampled peoples demand that we go on and finish the job of defeating
our enemies in the shortest time, with nothing, no thoughts, no actions, interfering.
BERNARD M. BARUCH,
JOHN M. HANCOCK,

Advisory Unit for War and Post-war
Adjustment Policies, Office of War Mobilisation.
FEBRUARY

15,1944.

PART III
Summary Index of Recommendations.
A. Human Side of Demobilization.
1. That the Government forces dealing with the human problems
of demobilization be unified on two fronts—the Executive and Con2. On the Executive side, creation in the Office of War Mobilization
of the new post of "Work Director"- to "see that the human side of demobilization is not forgotten."
3. This "Work Director" to be a man of such outstanding caliber as
to command the immediate confidence of the country."
4. This "Work Director" to work with Congress in the development
of a combined program of legislation and operations "to carry out the
objectives that all of us share."
5. Among the fields to be covered by this "Work Director"—personnel demobilization of the Armed Forces, developing adequate machinery for job placement of veterans and demobilized war workers,
adequate care for returning veterans, physical and occupational
therapy for wounded and disabled, resumption of education interrupted by war, vocational training, the special employment problems
of the great war industries, and others,
6. That there be in each community, only one place to which returning service men and service women need to go to learn all their rights
and how to get them.

B. Settlement of Terminated War Contracts.
1. To assure quick cash pending settlement, a complete "financial
kit" is assembled, including:
(a) Immediate payment—the full 100 percent—for all completed articles.
(&) On the uncompleted portion of the contract, immediate payment—the full 100 percent—of the Government's estimate
of "factual" items, where proof ordinarily is simple, such as
direct labor or materials, and of other items on which the Government is able to satisfy itself, up to 90 percent of the contractor's total estimated costs.
(c) Immediate payment—the full 100 percent—ot settlements
with subcontractors as soon as approved.
(d) Payment by the Government of interest on termination
claims, until settled,
(e) As insurance against delays in validating claims, a new,
simplified system of T (Termination) loans by local banks,

with.Government guarantees, to be available to all war contractors, primes and subs,
(/) For those unable to obtain such loans from their local banks
in 30 days, the Government to make the loans directly.
(g) Until the new T loans are authorized by Congre'ss, extension
of V and VT loans to all eligible borrowers.
(A) Finally, for hardship cases, unable to use any of the tools
outlined above, expedited settlements.
2. Quick, fair, and final settlement through negotiation by contractors and procurement agencies.
3. As a more effective safeguard of the public interest than the Kind
of review suggested by the Comptroller General:
(a) Review powers of Comptroller General limited to fraud with
every administrative aid for detecting fraud.
(6) That all sizable settlements be made by Teams of negotiators,
(c) These Team9 to file written reports and keep full records of
the bases of settlement.
{d) Contractors to keep records for three years.
(e) That the Comptroller General and the Attorney General be
added to the Joint Contract Termination Board.
(/) Further administrative safeguards now under study.
4. Establishment on an operating basis of a Joint Contract Termination Board within the Office of War Mobilization, to unify procedures
and policies of all agencies:
(a) The Board Chairman to be a civilian, independent of any
of the procurement agencies, answerable to the Director of
"War Mobilization.
(6) This Chairman to require progress reports from all agencies
and to report regularly to Congress.
(c) Also to maintain a running survey of the extent to which V
and VT loans and the new T loans are taken out:
{d) To keep a constant eye on all aspects of contract settlement
recommending any changes that become necessary,
(c) The War Production Board be added to the Joint Contract
Board.
5* Spread acceptance by war contractors of the Uniform Termination Article for fixed-price contracts.
6. Speed the handling of subcontractor claims:
{a) The procurement agencies to be authorized by Legislation to
protect subcontractors in event of insolvency or default of
their customers.
(6) A standard termination article for subcontractors to be completed soon to supplement the Uniform Termination Article
for prime contractors.

(o) A minimum figure to be set by the Director of War Mobilization below which "nuisance-sized" claims can be immediately validated with suitable safeguards.
(d) Vigorous experiment with the so-called "company-sized" type
of settlement, seeking a workable plan.
7. Schools to be set up around the country for training Government
negotiators and contractor representatives in the same classrooms.
8. Prompt clearance of Government property from private plants
not later than 60 days after the filing of inventory lists, the manufacturers having the right to remove and store the property earlier at
their own risks.
9. This entire termination program to be put into effect by the agencies at once to the extent administratively possible.
10. Prompt enactment of legislation to make this program fully effective, including appropriate authority to permit company-wide settlements, to the extent found practicable,

C. Surplus Property.
1. The Director of War Mobilization to name a Surplus Property
Administrator in the Office of War Mobilization with full authority
for handling every aspect of surplus disposal.
2. A Surplus Property Policy Board, the Administrator as Chairman with full and final authority, and with these agencies represented:
War, Navy, Treasury, Reconstruction Finance Corporation, Maritime
Commission, War Production Board, Bureau of the Budget, the Food
Administrator, the Attorney General, Federal Works Agency, State
Department, and Foreign Economic Administration.
3. Four major outlets to handle actual disposal, each in a clearly
defined field, with no overlappings:
(a) Consumer Goods "to the Treasury Procurement Division.
(&) Capital and Producer Goods, all types of industrial property, to a single corporation within the Reconstruction
Finance Corporation, consolidating present R. F. C. subsidiaries.
(c) Ships and Maritime Property to the Maritime Commission.
(d) Food to the Food Administrator.
4. All of these agencies, as well as any other agencies called upon
to handle special disposal problems, to follow policies laid down by
the Administrator in consultation with the Policy Board.
5. The Surplus Administrator to report to Congress as soon as
possible on legislation needed, basing his recommendations on actual
experience with the problem.
6. Our own suggestions as to the broad policies that the Surplus
Administrator may wish to follow are summed lip in ten basic principles:

L Sell as much as he can as early as he can without unduly
disrupting normal trade.
2. Listen to pressure groups but act in the national interest
3. No sales, no rentals to speculators; none to promoters.
4. Get fair market prices for the values with proceeds of all
sales going to reduce the national debt.
5. Sell as in a goldfish bowl, with records always open to
public inspection.
6. As far as practicable, use the same regular channels of
trade that private business would in disposing of the particular properties.
7. No Government operation of surplus war plants in competition with private industry.
8. No monopoly; equal access to surpluses for all businesses;
preference to local ownership, but no subsidizing of one
part of the country against another.
9. Scrap what must be scrapped but no deliberate destruction
of useful property.
10. Before selling surplus equipment abroad, assure America's
own productive efficiency on which our high wages and
high living standards rest.
7. The Surplus Administrator to be a man of proven executive
capacity, business sagacity, unquestioned integrity, and great courage
to fight off the selfish interests who will be seeking to exploit these
surpluses.
8. The facts on all sales to be open to public inspection, with regular reports from each disposal agency to Congress.
9. All of the disposal agencies to make effective use of Industry
Advisory Committees.
10. The disposal agencies to lease as well as sell, to exchange propr
erties, to sell on credit—but leasing must not become a hidden device
for Government ownership or subsidies.
* ** _
11. The Army and the Navy to examine their inventories of the
most critical civilian items to see what can be safely released during
the war for the civilian economy without hurting the war.
12. Surplus Administrator to study how to centralize the handling
of real property, also, to explore the possibilities of beginning to
liquidate Government holdings.
13. The closest cooperation between the War Production Board and
the Surplus Administrator so that controls do not necessarily hinder
disposition by unduly limiting potential buyers, particularly in ascurin
g prompt disposal of small quantities of surplus materials.
14. The Surplus Administrator and the disposal agencies to have
available to them in carrying out their policies the entire field force
of all of the various agencies, including the Services.

15. Surpluses to be offered in lots of such size as to permit businesses of all sizes to participate.
16. The Attorney General is placed on the Policy Board because
of the importance of preventing monopoly in disposal,
17. The Bureau of the Budget is on the Board to develop policy for
permanent good housekeeping of Government properties.
18. The membership of the Surplus Property Board to be made
up of men who will carry out the decisions that are made.
19. The broad functions of the Surplus Property Board are
summarized in the chapter on Surplus in the addendum.

D. A general tightening of the entire Government-war
machine for both mobilization and demobilization—
the two going hand in hand.
1. A running view of the functions of all war agencies by the
Bureau of the Budget, reporting regularly to the Director of War
Mobilization with recommendations for cutting down the agencies
as their work dwindles.
2. Intensification of the fine work already being done in sweating
out unnecessary requirements in the Services5 programs.
3. An early, equally effective review of the programs for raw
material production, stockpiling, imports, subsidies, and premiums to
marginal producers so as not to continue any of these programs
beyond being needed.
4. Early review of all wartime materials controls and limitation
measures to determine under what conditions these orders can or
should be modified.
5. Strengthening of the Industry Advisory Committees in the
War Production Board.
6. Tightened handling and advance planning of new contracts
and contract cancellation.
7. Closer working together of the WPB and the OPA to avoid pricing delays in the resumption of civilian production.
8. The Armed Services to furnish all civilian agencies full information in adequate time for these agencies to do their planning.
9. The civilian agencies to organize themselves to use this information effectively.
10. A running conspectus by the Office of War Mobilization of the
tasks assigned each agency.
11. No new demobilization agency needed at this time.

E. Advance Planning for "X Day."
1. To be prepared in event of a sudden collapse of Germany, the
Armed Services and the War Production Board to cooperate in the
immediate preparation <5f an "X Day" Reconversion Plan based on
the assumed defeat of Germany on a hypothetical "X Day."

2. This plan to seek to estimate cancellations in advance, to make
tentative selections of the industries and plants to be freed, to be used
to get a head start on all demobilization problems.
3. Advance listing of the priorities to be given different civilian
needs in any opening up of civilian supply.
4. The highest priority to go to those tilings which contribute directly or indirectly to improved military efficiency, such as vital
repairs, transportation.
5. As far as possible, all competitors to be treated alike in the resumption of civilian production but not so as to interfere with war
requirements or to hold back production of needed items.
6. While this advance planning is being done, no let-up on the war.

F. Prompt Extension of Needed War Powers.
1. The price-control law.
2. Priorities and allocations power on which functioning of War
Production Board rests.
3. Requisitioning power of President.
4. Attorney General to study other war powers of agencies to determine when they will expire, which can be allowed to elapse, and
which should be extended.

G. Tightened Handling of Cancellations.
1. Prompt cancellation of war contracts as soon as it is seen goods
are no longer needed.
2. Procurement agencies to inform the War Production Board of
possible cancellations or cut-backs as soon as they begin to think of
them.
3. The War Production Board to work out in advance the policies
governing the choices as to which producers should be cancelled and
which left in production.
4. The actual choices to be made after full consultation with the
War Production Board, War Manpower Commission, and other interested agencies.
5. That contract cancellations be guided first by what will contribute to a more efficient prosecution of the war.
6. With war needs satisfied, second by what will contribute to the
quick balanced resumption of civilian production and to an orderly
changeover from war to peace.
7. Contract cancellation to be integrated with procurement and expansion of civilian production so that facilities and manpower which
are released are shifted to new war work or, as far as practicable, to
expanded civilian production.
8. A full, frank information policy on all cut-backs and cancellations.

H. Small Business.
1. That Surpluses be disposed of in small lots to permit small as
well as large business to participate.
2. Similarly, the disposal agencies to be. able to lease and to sell on
credit, expanding opportunities for small business.
3. Effective representation of small business on Industry Advisory
Committees.
4. Protection of small business in the resumption of civilian production, as far as is practicable without interfering with war.
(a). Earlier cancellations where small business can be converted.
(&). Care to protect competitive position of small business.
(e). Possible relaxation of "nuisance" type production control
sooner than broader controls.
5. Provision for special credit to assist small business in the changeover and to encourage new enterprises.
(a). Extension of the lending authority of the Smaller War
Plants Corporation, at present restricted to purposes of war
production, to cover financial assistance for change-over
problems.
(5). Expansion and liberalization of the Federal Reserve System's authority to make industrial loans permitting one-half
billion dollars of such loans outstanding at any one time.
(c). These two additional sources of credit to supplement—not
compete with—the enormous volume of savings in the hand,"
of individuals and banks which await tapping.

/• So that the loans made available can be repaid and
to encourage new enterprises, a post-war tax law be
drafted now, during the war, and put on a shelf for
use at the end of the war.
1. This tax law to make known in advance the reductions in tax
rates from the present wartime levels to normal peacetime levels.
2. That this tax law provide for reduction of the national debt—the
importance of reducing the debt being "to return to a strong position
of national defense."
3. That this recommendation not be interpreted as meaning that
present tax rates are too high for war—if anything they are too low—
or that there should be an upward revision of bur standards of fair
wartime profits, "We have never swerved from the position that
the profit be taken out of war."

/. Public Works.
1. Early engineering, planning, and designing of public works to
be put on the shelf for use if needed.
2. Any fund created to assist local bodies in such planning be administered with full recognition that the debt burden of many communities, cities, and states is far lower than the Federal Government's.
3. Immediately needed projects which have been deferred during
the war to be kept under review by the "War Production Board for
possible clearance as war needs slacken, with due regard to the competing demands of other essential production and employment.

PART IV
Addendum.
1. Settlement of Terminated War Contracts.
In developing a uniform plan for settling terminated contracts, we
have sought a workable plan, as simple as possible and likely to lend
itself to good operations. The complete plan will be built around the
Uniform Termination Article for Fixed-Price Supply Contracts
recently approved by the Director of War Mobilization.1 While the
present report covers the bulk of contract termination settlement
policies, some aspects of these policies still need further working. As
each portion is completed in a way to fit into the whole plan, it will be
brought to the Director of War Mobilization for approval and for
release to the public.
The instrumentality for putting together the program being
recommended by us has been the Joint Contract
Termination
Board, established by agreement within the six major procurement
agencies on November 12, 1943. The Board's workings have been
a fine example of the best kind of iilteragency cooperation—no finer
working spirit could have been hoped for. Represented on this Board
are the War, Navy, and Treasury Departments, the Maritime Commission, the Reconstruction Finance Corporation Subsidiaries, and
the Foreign Economic Administration. Mr. Hancock has been acting as chairman, representing the Director of War Mobilization.
The program is as much the work of these agencies as ours and it
carries their unanimous approval.

A Workable Plan.
The thoroughness with which the Board has been working is worth
special mention. From the outset it was clear that the broad objectives
of policy could Be easily formulated. If we had been content simply
to say in general terms what should be done, the report could have
been made long ago. That was not enough.
Workable plans also had to be developed for carrying out these
objectives. The various subcommittees of the Board have been in
constant discussion with businesmen, bankers, accountants and others
specially interested in different segments of the program. On some
of the unfinished aspects of the program, tests are being made in representative plants around the country to determine how different
plans will work.
1

See part V for text of article.

Three Basic Principles.
The program we are recommending balances three basic principles:

speed, finality, and protection of the Government.
Delay seemed the chief enemy—delay in making the settlements,
delay in paying what the Government owes, delay in clearing the
plants of Government-owned property. Even if the settlements were
speedy, it would not help much if they were not final, for then the
advantages of speed would not be felt through the entire, complicated
industrial structure. Prime contractors would still hesitate to pay
their subcontractors; and these subs, in turn, would hesitate at paying their subcontractors and suppliers, for fear that the settlement
might be changed and they be held liable for sums paid.
At the same time, the public interest had to be protected and no
waste of public funds permitted through loose methods of settlement.

Comptroller General.
We weighed most carefully the suggestion that the Comptroller
General be permitted to make an independent audit of every settlement
and that no payment be final until approved by him. With the purpose
of the suggestion—to guard the public's interest—we agree entirely.
But it is no real protection of the public's interest to prescribe as a
safeguard something which is administratively impractical or which
would quibble the Nation into a panic.
By their very nature, the settlements of terminated war contracts
must rest in large part on judgments of values, matters on which
competent men could honestly differ. It is a field where auditing
procedures can be only a limited tool.

What Is Fair.
It is for this reason that settlements by negotiation are recommended,
so that weeks and months will not be spent in futile efforts to determine
the last penny of cost on work in various stages of completion.
The essential thing about termination settlements is to determine
what is fair to the Government and contractor alike. What is fair
can be determined upon in several weeks as well as in several years.

Inviting Depression.
An independent review, as suggested by the Comptroller General,
could only be for the purpose of having a second negotiation. A contractor would negotiate a settlement with one group of Government
representatives. Some time later he would discover that the Comptroller General objected to this or that item, and he would have to
negotiate and settle anew. Quick agreement would be discouraged,
many contractors wanting to preserve some bargaining position against

this second negotiation. The net result might be a looser settlement
than if responsibility were left fully and finally with the procurement
agencies.

Capital Frozen.
The Comptroller did propose loans and advances pending his audit
but the amounts are inadequate to keep business going. Until the
Comptroller General had made his audit JIO war contractor would
know where he stood. Prime contractors would be unable to pay
subcontractors for fear that the Comptroller General might later
scale down the settlement and demand the return of funds they had
paid out. Banks would be reluctant to make adequate loans. Billions
in working capital would be frozen. Workers and returning soldiers
would walk the streets.
It is up to Congress, of course, ta decide whether it wants an
audit by the Comptroller General prior to payment and to prescribe its scope. It is our responsibility to make clear that in our
judgment if such a law, as has been proposed, were to be enacted,
Congress would be legislating a depression.

Vigilance Against Fraud.
No restriction should be imposed either by law or administratively
on the Comptroller General in his auditing of payments to see that
they correspond mathematically to the settlements, or in his reopening of any settlement for fraud. Every administrative aid of all the
agencies should be given him.
To aid in the detection of fraud, contractors are being required to
keep their records for at least three years and Government negotiators
will file written reports of the bases on which settlements are made.
As a further safeguard, we are recommending that the Comptroller
General and Attorney General, both, be invited to become members
of the Joint Contract Termination Board, which will control the
regulations, interpretations, and instructions for the negotiating
officers in their settlement work.

Settlement Teams.
Worthy of special mention are the teams of Government negotiators
who will be making these settlements. It is often popularly supposed
that the Government's part of contract settlement is handled by one
person, the Contracting Officer. Actually, in all sizable settlements,
this Contracting Officer will be heading a Settlement Team which generally includes a Termination Officer, a Legal Officer, an Accounting
Officer, a Technical Officer, and a Property Disposal Officer, each of
whom may have his own staff assistants. We are recommending that
written reports be filed by these Settlement Teams. As part of these

records, the Contracting Officer, who makes the final decision, is to
file a written report of his conclusion and reasons, also where his
decision disagrees with those of other members of the Team.
The Team idea has been developed to prevent any possible collusion
in these settlements and also to encourage the individual Team members to exercise their independent courage and judgment in making
these settlements.

No Better Men.
In the main, the members of these Settlement Teams will be the men
who either took part in the letting of the original contract or who
have been administering them. They are the best ones to unmake
the contracts. They will have a familiarity with the companies with
which they are dealing that no set of vouchers, no matter how detailed, could reveal.
In the final analysis, the Comptroller General would have to delegate his reviewing to many thousands of investigators. By and large
he could not recruit a more honest or more capable force than present
procurement officers, and it would certainly be less experienced.
Through his position on the Joint Contract Termination Board, the
Comptroller can employ his vigilance and experience in assisting these
Settlement Teams.
Termination will be handled by the agencies as procurement in
reverse and the same safeguards that held for making contracts will
be there in the settling of these contracts. A subcommittee of the
Joint Contract Termination Board has been conducting a review of
administrative procedures of all the procurement agencies to see what
additional safeguards can be wisely introduced. This subcommittee
will report to us shortly,

Greater Safeguards.
These additional safeguards, plus those already provided for in this
report—the Comptroller General's full review power for fraud, the
presence on the Joint Board of the Comptroller and the Attorney
General, the requirement that contractors keep their records for at
least three years, the settlements being made by Teams, with written

reports by these Teams—total a more effective safeguarding of the
public's interest than the audit before payment proposed by the
Comptroller.

Training Schools.
No plan can be better than its administration. The contract settlement program will depend on the judgment and understanding not
only of the Government negotiators but of contractors as well.

An intensified and expanded training program for both Government negotiators and men from war contracting concerns and others
in business dealing with these problems, is being drawn up to be placed
into effect on a national scale. Schools will be established in various
parts of the country with Government and industry men attending
the same classes. This training program is the best insurance of
good administration in the field—attaining the;twin objective of fast,
fair settlements and the protection of the Government.

Getting Contractors Paid.
Even with the best of good will on the part of the Government to
make payments promptly, and of contractors to speed their submission of accurate claims, settlements will take time. If manufacturers
are to provide continued employment, it is essential that there be developed and put into operation on a nation-wide scale, a plan of
interim financing that will release the working cash of manufacturers,
while they await settlement.
No one financial device has been found which could be applied to
all alike, prime, sub, suppliers, etc. Attempts at such a magic formula
result either in something so rigid as to be unworkable or inadequate
or so loose as to be a blank check on the Government.

A Complete Financial Kit.
We, therefore, have painstakingly assembled every working tool
that could be found into what might be called a ^complete kit" of
financing tools, to meet the great variety of cases and conditions of
the thousands of war contractors, while still protecting the Government.

No One Tool.
A universal formula does have an offhand simplicity. But every
craftsman knows it is simpler to have a kit of tools designed for
different jobs than to attempt to do every job with the same tool.
Major items in this complete financial tool kit are:
1. Immediate payment— the full 100 percent—for all completed
articles.
2. On the uncompleted portion of the contract, immediate payment—the full 100 percent—oi the Government's estimate of
"factual" items, where proof ordinarily is simple, such as direct labor or materials, and of other items on which the Government is able to satisfy itself, up to 90 percent of the contractor's total estimated costs*
8. Immediate payment—the full 100 percent—of settlements
with subcontractors as soon as approved.

4. Payment by tho Government of interest on termination
claims, until settled. This will require legislation.
8. As insurance against delays in validating claims, a new, simpli-

fied system of T (for termination) loans by local banks,
with Government guarantees, to be available to all who have
been producing for war contracts. This also will need legislation.
6. For those unable to obtain such loans from their local banks in
30 days, the Government—through the procuring agencies—
to make such loans directly or to make partial payments as
a loan against the settlement
7. Until the new T loans are authorized by Congress, war contractors to be urged to arrange VT loans*
8. For hardship cases, those not adequately covered by any of the
plans for loans and advances outlined above, expedited

settlements.

T Loans.
The new T loans are designed as a simplified type of such loan and
to remedy the inadequacies of present V and VT loans. They are a
part of the plan developed By the .Federal Reserve System. Under
existing law, V loans can only be taken out and used to aid war production. They cannot be made once a contract is terminated. VT
loans can be used for termination needs, but they, too, must be arranged for before contracts are cancelled, limiting their applicability.
The T loans proposed here would be available before or after
termination.
All contractors, subcontractors, or others who have been engaged
in the performance of a war contract would be eligible. The individual
T loans would be based on an estimate of the applicant's receivables,
inventory, work in process, amounts paid or to be paid to subcontractors
or. suppliers in the tier below.

A Community Plan.
These T loans are to be made by local banks, who will assume, in
general, at least 10 percent of the risk, the'procurement agency guaranteeing the remainder. This participation by banks in the same
communities as the contractors or subcontractors provides both reasonable protection to the Government, and, through the banks' trained
staffs, the most convenient and effective means for reaching the many
thousands of prime and subcontractors quickly.
The plan has been discussed with representative bankers from
various parts of the country who have assured us that commercial
bankers will actively support the plan. It would be not only a definite
contribution to the whole economy but also good community banking,
575025*

as these loans could be made in the contractor's own community and
not become involved in extended negotiations with the central authorities in Washington. The administrative machinery for arranging Governmental guarantees should be as nearly automatic as possible
and as decentralized as feasible.

More VT Loans.
V and VT loans, in the main, are long and involved documents
which deter many banks from handling them. The new T loan will
be a short, simple document
Until new T loans are authorized by law, war contractors would be
well advised to take out V and VT loans as an inexpensive form of
insurance. Otherwise, they run the risk of cancellation before legislation is enacted. It will be possible to merge V and VT loans readily
with the T loans, when these latter loans are available, giving present
V and VT borrowers all the advantages of the T loans.
As of December 31? 1943, applications for 6,217 V loans had been
approved and only 130 VT loans, by little more than 1,000 out of 14,000
banks in the country. These figures leave little doubt that there are
many eligible borrowers who still should get these loans. The T loan
plan will utilize all member banks in tlie Federal Reserve System.

Needs Vary.
Happily, many war contractors are already adequately financed,
and will not need any kind of loan. Many have the credit standing
which will permit them to borrow through commercial channels
without any Government guarantee. Many others will be able to
borrow from commercial banks with the aid of a Government guarantee and the T loans will meet this need.

Smaller War Plants Corporation.
In the cases of smaller war plants who find themselves unable to
obtain loans from their local banks, Congress may want to authorize
the Smaller War Plants Corporation to step in and assume the
equivalent minimum 10 percent risk that the local banks find themselves unable to assume. The Smaller War Plants Corporation,
however, should supplement—not compete with—normal financial
channels.

Direct Government Loans.
Some war contractors will not be able to arrange T loans with
their banks. For them the "tool" in the "kit" is the provision for
direct loans or partial payments by the Government. Any eligible
borrower may apply directly to the Government if unable to obtain
a loan from a private bank in 30 days,

90 Percent Advance.
In event of failure to agree on the final settlement, the contractor
will be paid 90 percent of what the Government is willing to pay,
leaving the contractor free to submit a claim for the remainder under
the appeals procedure which will be established*
This kit of financial tools, including loans, immediate payment in
full, on agreed upon items, and a 90 percent payment in event of dis-

agreement, plus expedited settlement where financing is inadequate, will meet the working capital needs of concerns whose war
contracts are terminated.

Pre-termination Preparedness.
Reinforcing this financing plan will be a number of administrative
improvements, particularly in the way of pre-termination preparedness, that are being pushed. As an example, the procurement agencies now are surveying their disbursing and inspecting organizations to bring them up to date on current work so as to prevent
their being swamped by a suddenly increased volume.
This much must be kept in focus. No plan of interim financing can
be as good as final settlement itself. This financial kit has been
assembled as insurance against delays in settlement that inevitably
must arise—but which, we hope, will be minimized by other recommendations in this report. Interim financing arrangements should
not be an excufee for delaying settlement on the part of either Government or contractor.

No Blank Checks.
That is one of the reasons why we are opposed to the suggestions
that payments or loans to contractors be made on the basis of a fixed

percentage of the claims submitted by manufacturers. It is an
invitation to padding. Some manufacturers would submit claims not
in expectation of their being settled immediately but as a basis for
bargaining and for receiving large advance paymentsor loans. Entirely new claims would have to be submitted, delaying the settlements
proportionately. The litigation would be endless.
Moreover, no one would ever suggest that a businessman pay his
bills without checking them. Why should the Government do so?

Subcontractors.
Settling the claims of subcontractors raises truly staggering questions, made all the more complicated by the fact that their problems
vary. In discussions of the questions, it is often assumed that the
aggregate of all of the problems of oil of the subcontractors is the
^dividual burden of each subcontractor.

There also is a tendency to think of subcontracts as always involving
only small sums. This is not true in a great mass of dases.

Intricate Pattern.
Subcontractors have no direct contractual relationship with the
Government, although Government men often press them to take subcontracts for urgently needed tools of war. It is the prime contractor
who receives the contract from the procurement agency, and under
present practice, it is he with whom the Government settles on
termination.
When he gets his contract, this prime lets out bits and pieces of the
work to scores and often hundreds of different concerns. These subcontracts spread downward, through successive layers or tiers of producers. Often there are.six or seven tiers, each supplying a producer
in a tier above, the final product being the finished weapon delivered
by the prime at the top. Nor is it unusual for «i manufacturer to be at
the same time a prime contractor and someone else's subcontractor.
The web of interrelationships crisscrosses in as intricate a fabric as
the integration of* American industry itself. It is the result of the
efforts to widen subcontracting to increase war output.
Currently, the normal movement is for cancellations, to go down
from the prime at the top through the tiers below; for claims to be
sent up; then for payments to come back down again. If many tiers
of producers are involved, the process is likely to be slow at best, with
risks of serious stoppages in the flow.

Complex Difficulties.
It has been proposed that^the Government settle with all subcontractors directly. Apart from other problems discussed later, the
Government has had no direct dealings with most of these subcontractors—their names and addresses are not even known—and it
would be a tremendous administrative task to settle this multitude of
claims. The contractual relationships of these many subcontractors,
suppliers and primes, each with one another, are as intimate and complex as the commercial life of the Nation.

Offsetting Claims.
The personnel problem involved in having the Government check
each of these claims would be gigantic.
Another difficulty of having the Government step in and attempt
to settle directly with the subcontractor is that the prime contractor
may have an offsetting claim against the subcontractor. In such
situations, the Government would have to get n release from all such
claims or would need the consent of the prime before making payment
to a subcontractor.

Again, it often is difficult to identify a subcontract with the particular contract of the Government which is being terminated.

Normal Business.
Under the plan recommended here for the existing procedure of
settling by individual contracts, prime contractors are left free to
make their own settlements with subcontractors as they would in normal business practice. These settlements, on validation by the Government, will be paid in full. The contractor has the best knowledge
of the companies with whom he has been doing business. Through
his purchasing and engineering staffs he ordinarily is in the best position to know quite quickly whether the claims from his subcontractors
are sound and reasonable.
For this reason, imposition of a requirement of Government approval as a prerequisite before paying a subcontractor has been

avoided. The contractor is left free to exercise his own business
judgment.
If a contractor wishes to, he may obtain Government
approval in advance of making the payment. Where such approval
is given, the Government will be bound in the final settlement not to
dispute the payment.

Preventing Delays.
This still leaves a field for some hesitation on the part of the contractor against paying those in the tiers below. We have endeavored
systematically to speed the settlement of claims and the flow of payments and are seeking still further improvements. One of the chief
causes of hesitation currently has been the fear that settlements negotiated with the procurement agencies could be upset at some later
date by the Comptroller General, not for fraud, but on the basis of a
differing judgment.
Under existing law, the settlements negotiated by the procurement
agencies are final, except for fraud. The fact that the Comptroller
General requested legislation to give him the power to make an independent review has left a great deal of uncertainty among contractors and Government procurement officers as well. We are recommending that this uncertainty be eliminated.

Loans A vailable.
The T loans, it might be emphasized, have been designed with particular regard to providing quick working cash to the many thousands
of subcontractors scattered around the country, pending settlement.

Immediate Payments.
The provisions for immediate payment in full for completed articles, for so-called factual items, and for any other items where agree49

ment is reached, should permit similar payments to subcontractors
down the line. These payments will be quickened by the Administrative action of bringing the disbursing and inspecting offices of the
procurement agencies up to date for deliveries already made.
Another major contribution, reducing the hesitation on the part of
the contractor against making payments down the line, is the recently
announced Uniform Termination Article which defines clearly the
mutual rights and obligations of the Government and contractor on
termination. In the absence of such a Uniform Termination Article,
confusion and conflict could easily have arisen in the settling of different contracts, particularly between the different agencies.

A Policy of Certainty.
Wherever there has been uncertainty as to the Government's position, we have sought to formulate a policy of certainty. That will
continue to be our aim through the remainder of the problem and the
development of complete regulations.

Uniform Article for Subs.
To supplement the Uniform Termination Article for prime con*
tractors, already in effect, a shorter, standard termination article for
subcontractors is being drafted.
The clarification of the rights and obligations of subcontractors
provided for in this article will be a major contribution towards helping prime contractors settle promptly with their subs.

Nuisance Claims.
To further narrow the field of possible hesitation, we recommend
that a minimum figure be set, below which contractors could settle
claims with complete assurance that the claim would be paid in full
by the Government. The purpose is'to provide a means of quick
validation for the multitude of "nuisance" claims, which are great in
number but small in aggregate value. As safeguards in using this
device, we would require:
(a) Those receiving such payments to certify against fraud,
this certification to be not only by the corporation receiving the money, but also by its officers, making them personally responsible;
(6) That the contractors, who are given this minimum validating right, satisfy the procurement agencies of the
adequacy and fairness of their general methods for making such settlements.

An Adjustable Figure.
Because no one now knows exactly how one minimum figure would
work out as against another, we do not believe that Congress should
now attempt to set such a figure by legislation. It is recommended,
instead, that authority to establish such a figure be granted by
legislation to the Director of War Mobilization, who in turn would
delegate it to the Chairman of the Joint Contract Termination Board,
It may develop that this figure will have to be adjusted from time to
time on the basis of experience. With this figure properly adjusted,
immediate settlement could be provided for a very large percentage
of the claims in number, yet involve only a small percentage of the
value. Field samplings are being made to get the facts as a basis for
a specific recommendation as to what this figure should be.

Direct Settlement
We recommend that the termination legislation enacted by Congress contain appropriate authority to permit the procurement
agencies to settle subcontracts directly at their discretion. This
is a further insurance of speed in settlement* It will also meet situations where subcontractors, who so frequently have undertaken work
at Government request, are threatened with loss through default or insolvency of a contractor in the higher tier. Such direct settlement
must be made with the consent of producers in the tiers above, who
may have offsetting claims.
A variety of administrative measures are under study in the way
of advance planning and pre-termination preparation, simplification,
and unification of procedures, personnel training, education and other
assistance which will clarify termination settlement and further
speed payments to subcontractors.

Company-Wide Settlements.
One proposed solution of the subcontractor's problem deserves
particular mention, the so-called company-wide or merged claim
settlement. At present, settlements are conducted contract by contract, each contract being handled separately. Under the companywide plan, the claims of a company would be merged together in
one claim, regardless of the number of contracts involved or the
agencies of Government holding these contracts and regardless of
whether the company is prime or subcontractor.
This approach to the problem has great appeal. All who have
studied the idea are agreed that if a workable plan could be found it
would have considerable advantages. The difficulty lies in the "if*.
There has been no administrative experience with this type of settlement and thus far no complete plan for such settlements has been

brought forward. Legislation will be needed on some points before
it could be put into operation.

Experiment With Idea.
However, it is not proposed that the idea be dropped. To the con-

trary, we recommend that the contracting agencies launch immediately a vigorous experiment, fully exploring its possibilities
and searching for a workable means of employing it wherever settlement would be expedited without impeding war procurement. These
tests are likely to develop improvements in the present procedure.

It is also recommended that Congress be asked to pass appropriate legislation which will permit the use of such a plan, if it is
found sound, and to the extent deemed desirable.

Prompt Clearance.
Next in importance to freeing the working capital of manufacturers
is the clearing of plants of Government-owned raw materials, work
in process, equipment, component parts, and completed articles, so
producers are physically able to take on new war work, or to move
in their equipment and materials for producing peace goods. We
are recommending prompt clearance of Government property from
plants not later than 60 days after the filing of the inventory lists.
Manufacturers, further, will be given the right to remove and store
this property earlier at their own risk.
This 60-day deadline applies equally to prime contractors and
subcontractors. Subcontractors will have to submit their inventory
lists to their prime contractors and the 60-day deadline will become
effective after these lists are received by the Government.

What to Keep.
These lists will include any property that is allowed for as part
of the termination settlement or otherwise owned by the Government. Along with the inventory lists, contractors and subcontractors
should indicate what things they would be willing to buy and at what
price. Where contracts provide for options, contractors should indicate promptly whether the options will be exercised.
The procurement agencies will decide what is to be sold to the
contractor for war or other appropriate uses, what should be taken
and sold to other war producers so as to quicken war production.
Prices to be paid will be agreed upon between the contractor and tho
procurement agency, the agency following such broad pricing policies
as may be laid down by the Surplus Administrator.
Detailed regulations on clearance will be issued soon. Also it should
be noted that the policy on how to handle facilities held by contractors
under contracts containing special provisions for disposition other

than those recommended is still under study by a subcommittee of the
joint board. The Statement of Policy on Removal and Disposition
In Appendix 2 is not intended to cover these.
The goal of 60-day clearance, however, will hold for special facilities and special equipment still under study.

Pre-Termination Planning.
Settlement will be speeded by two broad programs of administrative
action being recommended—pre-planning and the simplifying and
unifying of procedures.
Pre-planning termination for "X day"—that unknown day of termination of contracts—should permit an advance decision as to what articles are to be finished and what articles are to be stopped immediately
with a view to saving every cent possible. The fact that war b essentially wasteful should not be used as an excuse for further waste.
Another part of pre-planning would include the training of contractors' personnel, the assignment of competent men, and the development of methods for the preparation of the claims in such form as to
permit prompt payment. Whatever could be done in advance to lessen
the job of disposal of facilities would be helpful. Whatever plans
could be made for handling of Government material in the contractors'
plan would likewise contribute to speed in settlement and to the opening up of civilian jobs for workers and returning soldiers.

Simplify Procedures.
The essential function of the Joint Contract Termination Board will
be to simplify and unify the procedures and policies of the several procurement agencies, while fully protecting the public interest; also to
bridge any gaps in policy or administration between the agencies.

Board Chairman.
At present Mr. John M. Hancock has been acting as Chairman of
the Joint Contract Termination Board.in order to expedite the formulation of all of these policies. Still to be worked oiit are policies and
plans for other aspects of the termination problem including the possibility of company-wide settlement procedure; settling obligations of
Government to the contractor for special facilities; a standard termination article for subcontracts; a similar article for cost-plus-fixed-fee
contracts; the possibilities of direct settlement of subcontractors'
claims; administrative safeguards against fraud; the establishment of
appeals and review procedure; also the issuance of cost interpretations
and manuals of instruction.

Independent Civilian.
When this policy-formulating job is done and the Board becomes
an operating organization, a permanent Chairman should be named.

He should bean independent civilian, not representing any of the
procurement agencies, and answerable to the Director of War
Mobilization.
Among other things, we would recommend that the Chairman of
the Board:
1. Receive from all the procurement agencies, current reports on
the progress of termination settlements, the numbers of
contracts cancelled, amounts of claims submitted, amounts of
settlements, volume of claims unsettled, and submit appropriate reports to Congress through the Director of War
Mobilization.
These reports, it is hoped, will keep the American people and Congress currently informed on the status and progress of contract settlement.
2. Maintain a running survey of the extent to which V and VT
loans and the new T loans, when authorized, are being
taken out by eligible borrowers.
3. Keep a constant eye on all aspects of contract settlement
with a view.to recommending any necessary changes to the
Director of War Mobilization. This, however, should not
be interpreted to relieve the procurement agencies themselves
of primary responsibility for initiating changes and improving their procedures as they gain experience.

Field Studies.
If it becomes necessary, the Board Chairman should have a sufficient staff to make field inspections to test the working out of these
plans, and he should initiate any suggestions for needed legislation.

Gain Experience.
The current stage of contract termination should be thought of
as a period of experience for all of us. Government and industry
should prepare to handle the heavy cancellations that will come. Out
of this experience will come important procedures, shortcuts. There
is no way of replacing confidence and ability by a formula, or instructions.

Contractors' Part.
Speed in settlement is not something that the Government alone can
provide. Contractors and their subcontractors must contribute as
well in getting themselves organized to handle the problems of termination. They must familiarize themselves with the procedures, get
their records in shape, prepare promptly the necessary lists of inventory and work in process, and promptly submit their claims. In the

past an average of four months has been required to get contractors
to submit claims.
Contractors should also anatyze their ownfinancialpositions and see
which tools in thefinancialkit that has been assembled will serve them
best and they should promptly utilize those tools. Prime contractors,
in addition, must get acquainted with the problems of their subcontractors to get the claims from them as quickly as possible.

Right Approach.
In summary, too much stress cannot be placed upon the importance
of the spirit and the attitude in which termination settlements are
approached by Government officials as well as war contractors. There
is the ever-present need of protecting the interests of the Government
There is also the responsibility of all Government officials to discharge
the obligations of the Government with every determination to be fair
and reasonable. These rights and obligations of the Government will
be covered as fully as practicable and in time the detailed instructions
should narrow thefieldfor differences of opinion. Settlements should
not be approached by Government or industry except with the purpose
of determining what the Government owes the war contractor. The
determination should be made with this basis alone in mind.

No Claim Padding.
While no Government officer can be allowed to approve excessive settlements, he is also under definite responsibility not to pay less than
is due. The obligation is equally upon industry not to Ale claim
for amounts beyond those genuinely due nor to approach the
problem of settlement as a trading proposition.
If industry and Government approach this problem in this way, a
feeling of cooperation will result which will be a material aid in securing prompt and fair settlement There should be no occasion for the
use of the blackjack by any Government official, nor for resort to
refusing to pay what is clearly owed, to force a contractor to accept
less than is fairly due him.
In many cases the need of the contractor for the money owed him
by tho Government will be such that he will have to get the money
promptly or close up his business. That will be a factor which ought
to encourage the contractor in preparing his claims completely, accurately, and promptly. It likewise is entitled to consideration on the
part of Government officials. After all, the net fact is that the Governmen is holding money which it owes the contractor. Its delay in payment should be only as long as is needed to determine how much is
owed, with full protection of the Government's interest.
In this way, the account books on the war can be closed fairly and
quickly and the country can go back to its peacetime pursuits.

2. Surplus Property.
In developing our recommendations for the handling of surplus
Government property—that is, property in excess of war needs—wo
were confronted with many complexities. The variety of Government properties to be disposed of during and after the war ranged
literally from ships to sealing wax, each with its own problems. No
exact determination of the size of these surpluses was possible, nor
of the policies to guide the disposition of certain categories of surplus
until such questions as these could be answered:
What plants and machinery will the Army and the Navy
need to keep as a stand-by reserve for future security?
What plants and camps will be needed for storage and warehousing?
What, if any, non-perishable raw materials produced outside
of the United States will we keep as a strategic stockpileHow large an Army and a Fleet will we maintain after
the war?
Will there be universal military service after the war?
These and other questions can be finally determined only by Congress and the President, by the Armed Forces, and in many instances
by the terms of the peace settlement.

Surpluses Immediate.
Yet, immediate surpluses are developing which as the war goes on
will gain in volume. With the cancellation of contracts, considerable*
quantities of materials, equipment, partly finished goods, and other
inventories will be coming into the possession of the Government.
Some of these things will be useful only as scrap. Some will deteriorate if not used soon; others would gain in value if their manufacture were completed. Some things will be needed by other war
plants. Sooner or later many can be used to expand civilian production.

Speedy Action Needed.
An organization was needed to take over these surpluses as they
were developing, putting them to their best uses, and obtaining a fair
return for the Government. The need was all the more acute in
view of the importance of prompt clearance of Government property
from private plants as part of our program of contract termination.
We also are keenly aware that the next months to come will be
the best months for disposal in that they will be the easiest during

which to dispose of things that are needed. An immediate start
on the problem could reduce enormously the likely surpluses that
would be left for the more difficult months after the war.

Present Inadequacies.
The existing ipachinery of Government, as-now functioning, clearly
was inadequate to handle with dispatch these immediate problems,
let alone the much heavier accumulation in the future. Yet any attempt to set up a wholly new disposal agency could defeat its purpose. Time would be taken in organizing such an agency. When
set up it might find itself bogged down in efforts to deal with thousands of unrelated items. Inevitably, it seemed that such an action
would lose the previous months to come.
After weighing the various alternatives, what was needed was
this kind of an organization: one capable of dealing with the immediate disposal problems without delay and in doing so gain the
experience for handling the greater post-war surpluses; one capable
of adequate fact-finding, bringing decision between the agencies on
many problems, and formulating recommendations to Congress; one
which would have a firm hand, centralizing the control over a widely
scattered, decentralized operating personnel to achieve the necessary
unified, orderly policy, eliminating competition between Government
agencies and to be able to bring to policy considerations the all-important element of timing; yet an organization sufficiently flexible for
dealing with the bewildering variety of items and with the different
jobs of disposition organized into manageable size.
These needs are met by the new organization we are recommending:
1. A Surplus Property Administrator in the Office of War
Mobilization, named by the Director, with full responsibility
and adequate authority for dealing with all of the many aspects
of war surpluses.
2. To advise and assist him in developing unified policies for all
Government agencies, a Surplus Property Policy Board,
representing these agencies: War, Navy, Treasury, Reconstruction Finance Corporation, Maritime Commission, War
Production Board, Bureau of the Budget, Food Administrator, Attorney General, Federal Works Agency, State Department, and Foreign Economic Administration. The Surplus
Property Administrator would be Chairman w"*h full and final
authority. He could call on any other agency, as he wished, in
dealing with special problems.
8. The actual disposal of surpluses to be handled by these four
major disposal outlets:
(a) Consumer Goods, other than food, to be handled by
the Procurement Division of the Treasury.
67

(b) Capital and Producers* Goods—every type of industrial property including plants, equipment, raw materials, scrap, semifinished parts—to a central
corporation within the RFC, consolidating existing
EFC subsidiaries dealing with Government properties.
(c) Ships and Maritime Properties to the Maritime
Commission.
(d) Food to the Food Administrator*
Each of these broad types of surpluses involve dealing with different outlets and different market conditions. The agencies have been
assigned to thefieldsof their own experience, where they could proceed
to operation with a minimum of delay. In event of questions arising
as to which agency is to handle what type of surplus, the Surplus
Administrator will make the decision. There should be no overlappings or conflicts in jurisdiction.
4. All of these outlets, as well as any other Government agencies
assigned special surplus problems, to follow broad policies to be
laid down by the Surplus Administrator in consultation with
the Surplus Property Policy Board.
5. All of the disposal outlets should make effective use of Industry Advisory Committees so that regular channels of trade
can be used to the fullest extent practicable, with small and
large concerns alike participating.

No Liaison Men.
The Surplus Property Policy Board must be made up of men who
can see that the policies agreed upon by the Board are carried out in
their own agencies.

Board's Functions.
Among the functions to be exercised by this Surplus Property
Policy Board, through its Chairman, are:
1. To lay down surplus disposal policies to be followed by all
agencies of the Government
2. To press for the early disposal of surpluses in as great a
quantity as possible, while the war still is going on.
3. To see that complete plans are developed for handling the
disposal problems that grow out of contract termination,
including
(a) utilization of existing agencies to the limit in establishing the necessaryfieldorganizations;
(6) setting of methods, practices, and policies to govern
all transactions by all agencies on as nearly a uniform
basis as possible;
58

(o) development of the necessary warehousing and storage facilities to implement the prompt'clearance of
war plants; and
(d) development of instructions regarding the preservation, packing, shipping, storage and protection of
surplus goods,
4. To develop an effective redistribution of surplus materials,
equipment, etc., both to improve war production and to speed
the program for the resumption of civilian production that
is established by the War Production Board.
6, During the remainder of the war, in cooperation with the
W. P. B., to explore the more critical civilian needs and enlist the support of the Services in declaring as surplus such
Items as can be safely released.
6. To encourage the agencies to report surpluses promptly, but
at the termination of the war to dig persistently so that
hidden surpluses will not accumulate in the agencies.
7. To develop with the Armed Services for the ultimate approval
of the President and Congress, a stand-by program of plants,
equipment, and other properties needed to be held in reserve
for future security.
8. To arrange for transferring of Government property from
one agency to another where necessary to carry out the policies
that are laid down, so that the shifts are made with a minimum of interagency negotiation and bookkeeping.
9. To explore the uses of these surpluses within the agencies of
the Government, arranging for an effective coordination of
surpluses and purchases so that new purchases will not be
made where they can be satisfied from existing surpluses.
10. As far as is reasonably possible without diverting from the
prosecution of the war, to devise such effective methods of
inventory controls within the various agencies as to
(a) develop the possibilities of early declarations of surplus, and
(6) insure that inventories on hand are riot swelled ex" cept where needed.
11. To plan for the handling of future surpluses; as far as possible organizing the demand for such surpluses in advance,
as for foreign relief and rehabilitation; for states, counties,
and municipalities; educational and other institutions;
and other claimants.
12. In cooperation with the State Department and Foreign Economic Administration, to develop the possibilities of disposing of surpluses abroad, balancing this with the need of

improving the efficiency of our own productive plants and with
other domestic needs.
13. So as to realize the greatest possible yield from this property,
to determine how property coming into the possession of the
Government can be reprocessed and completed before
disposition.
14. To develop in cooperation with the War Production Board, a
policy for stockpiling both for the rest of the war and after,
having in mind the problems of later disposal.

Surpluses for Use.
The membership of the War Production Board on the Surplus
Property Policy Board deserves particular notice. Since the uses of
surpluses and new production will often be interchangeable, there
must be the closest cooperation between the Surplus Administrator
and the War Production Board. The Surplus Administrator should
guide disposition so as to quicken war-production and speed the resumption of civilian production in the pattern laid down by the WPB.
The WPB, through its control of requirements and other aspects of
the production program, must prevent the unnecessary accumulation,
of surpluses. WPB must also keep the various production limitation
orders under constant review to see that they do not necessarily hinder
disposition by unduly limiting the use by potential buyers.

Adjust Controls.
Unless these control orders are relaxed promptly when they should
be, much of this surplus property will move into warehouses and may
not be brought out until too late to help in war production or in speeding the resumption of civilian employment.
We recommend, in particular, that the WPB and Surplus Ad*
ministrator, between them, work out a means by which smalt
quantities of surplus materials can be promptly disposed of so as
not to get involved in rehandling or storage problems or tight priority
interpretations. Otherwise the clearance of private plants will be
hindered and unemployment will result.

Existing Field Force.
There is now in existence an efficient field force of the various
agencies, including Army and Navy representatives in individual
plants, salvage officers, field redistribution officers, procurement officers, etc. All of this personnel and machinery should be available
for the carrying out of the disposal policies that are developed. No
new enormous field organization needs to be or should be created.

Legislation Later.
We are recommending that this organization be established by
Executive order for the time being, only because of the need for speed
in handling the immediate problem and of gaining experience in the
actual administration of the problem; also for developing the machinery through which the various agencies will have to work together
on these problems. Ultimately Congress will have to lay down the
basic'policies for the disposal of these properties. Accordingly, we
are recommending:
That the Surplus Administrator maintain a continuing study
of the surplus problem and report to Congress on needed
legislation as soon as possible.

Further Centralization.
We would not want our recommendations for handling- the immediate disposal problems to seem to rule out a still further centralization of the handling of disposal if experience with the problem in
the coming months indicates such a centralization desirable. By
bringing tho problem under a firm, managing hand, our recommendations should facilitate a smooth transition, without loss of efficiency
or time, to any set-up that Congress ultimately decides is best. If
any such action comes under consideration, we would stress again the
importance of keeping the disposal job to a manageable size.

Most Important Choice.
The question was asked by one member of the Senate Post-War
Planning Committee whether there could possibly be a more important
post, affecting not only the well-being of America but also of the
civilized world, than that of this Surplus Administrator ? The answer
was "No.* It should be added that few Government posts are more
difficult

Prevent Unemployment
Proper handling of surpluses will be a most significant factor in
preventing inflation, speeding reconversion and avoiding serious unemployment It could make a difference of billions in the size of the
national debt
Boldness will be needed in disposing of surpluses promptly while
civilian shortages are acute; caution to obtain the full value and to
slow sales when they threaten to disrupt normal trade; wisdom to
give proper balance to long-time security factors.

Courage Vital.
The Surplus Administrator should be a man of proven executive
capacity and business sagacity to deal with the multitude of problems
that will arise in the sale of an endless variety of products and changing
market conditions. He should be a man of character, unquestioned
integrity, and great courage to fight off all the selfish interests that
will be seeking to exploit these surpluses.

No Formula Possible.
Whatever policies are laid down by Congress, no formula or statute
can be adequate in this situation. In the final analysis we will have to
depend upon the judgment and ability of the best men who can be
gotten for the job.
We are recommending placing the Surplus Administrator in the
Office of War Mobilization, to insure the best use of surpluses for the
war and so that the Administrator will have the immense authority
of the Director of War Mobilization behind him in doing his difficult
job.

Leasing Needed.
In general, outright sale will be preferable. The disposal agencies,
however, should have authority to exchange properties and to lease as
well as sell; also to sell on credit and not simply for cash. The authority to make exchanges will be important in replacing obsolescent
equipment with the most efficient, modern tools, and in unscrambling
cases of mixed Government and private ownership. Leasing and credit
arrangements will assure smaller enterprises opportunities that would
otherwise be denied them. Leasing will have the further advantage of
providing a meansTof bringing plants and equipment into immediate
use, pending the determination of the value and completing the selling
arrangements.

A Warning.
This red flag of warning is raised. Leasing must not become a
hidden device for the Government to compete with private plants;
it must not become a hidden device for subsidies—by any name—
to anyone. Once plants leave the Government's hands they must
stand on their own feet competitively.

Small Lots.
Surpluses should be offered in lots of such size as to permit small
businesses, as well as large ones, to participate. Membership of the
advisory committees helping the disposal agencies should be balanced

both as to size of business represented and the different regions of the
country.
The advice and aid of the Smaller War Plants Corporation should be
drawn upon to make certain that small business is effectively represented on the Industry Advisory Committees. Should the Smaller Wat
Plants Corporation desire to do so it can further assist in acquainting
small businesses with the surpluses that will be available and in aiding
small enterprises to acquire such properties.

Shortsighted Extremes.
Discussion of surplus policy generally has swung between two extremes. At one extreme have been those who would dispose of surpluses
at any price, simply to get rid of them, no matter how disruptive the
effects. The opposite extreme would sell nothing, proposing either to
hold the goods off the market indefinitely in warehouses or to destroy
them by sinking them into the sea.
Wo would urge upon the Surplus Administrator a middle course
between these two extremes of dumping or freezing—the middle course
of wise and carefully timed disposal. Let us keep in mind that these
surpluses, properly utilized, represent tremendous wealth to ourselves
and to others.

Keep America Strong.
American industry will want to purchase much of this surplus
equipment which is modern and efficient, to replace older, obsolete
equipment so as to improve our national industrial efficiency upon
which our high wage and living standards rest. Before selling this
equipment abroad, these possibilities certainly should be fully explored
and plans developed early for the sale of the equipment to such users
when fair values can be realized.

Timing Vital.
Timing will be of the essence in the disposal. While the war isgoing on and, in many instances, even until civilian industries are
restored to volume production, it will be comparatively easy to dispose of things at good prices and little disturbance to the trade. The
Surplus Administrator should sell all he can as early as he can, reducing proportionately the quantities of surpluses which will be left for
the more difficult post-war period and saving handling and storage
charges.
Wartime costs for many Government properties will bear little relation to peacetime values. Expensive tools or equipment for highly
specialized war uses may be valuable only as scrap. Plants have been
erected at inflated cost levels. We must face squarely the fact that
heavy dollar losses will have to be taken on some properties as part of

the necessary cost of war. In this connection we have asked that a
study be made comparing war construction costs with more normal
peacetime construction costs and this information may help the Surplus Administrator in developing fair appraisal methods.

Lower Debt.
All of the war surpluses will have been paid for by the American
public either through war taxes or the increase in the national debt.
Therefore, the proceeds of all sales should go to reduce that debt,
lowering the post-war carrying charges which will have to be met
through taxation. Certainly no agency should be permitted to sell
surpluses and use the proceeds for other purposes.
The fact that surplus sales will lower the debt dramatizes an important point which some business groups are inclined to forget.
The net result of an effective disposal program will aid oil business;
which is an important consideration to be balanced against the possible
short-term effects of individual sales.

Local Ownership.
Local groups can be expected to offer to take over Government
properties in order to stimulate community industries. As long as
fair selling prices or fair rentals are paid—with sales preferable to
rentals—local ownership should be encouraged. To repeat—no windfall subsidies should be given anyone.
It will not serve the national interest to sell any one plant at such
low prices as to destroy the invested values and displace workers in
whole established industries. Were such transactions to be permitted
as a matter of policy, a community might gain a new industry in one
deal, only to lose an established industry through a similar deal favoring some other part of the country.
The national interest must govern in all surplus disposal. Local or
particular trade interests, while receiving full hearing and full consideration, must be subordinated.

Goldfish Bowl.
A "goldfish bowl" policy should be followed in all sales. The facts
on all sales should be made a matter of record open to public inspection at the point of sale. Each of the disposal agencies should submit
reports, summarizing these sales regularly to Congress, through the
Surplus Administrator*

No Speculation.
The billions of surpluses can be expected to bring out speculators,
promoters, and others of the ballyhoo craft. Sales or rentals to speculators or promoters should be barred. The American people would be
64

well-advised not to invest any of their hard-earned savings in any
schemes, syndicates, etc., which will seek to exploit and make huge
profits out of the traffic in Government properties- The Government
should bo its own selling agent In all disposal, preference sKould be
given to those who will use the property, whether plants, machinery,
or consumer goods, for the greatest good* Cooperative buying by
legitimate distributors should be encouraged.
Much property will have to be disposed of locally to avoid the
expense and trouble of rehandling and shipping. This fact points to
the danger that priority and other control orders, too rigidly applied,
may prevent effective disposal. Some means will have to be developed
to permit quick local disposition of those things that must be disposed
of on the spot.

Flexibility Vital.
All of this emphasizes anew the indispensability of administrative
flexibility.
Our own suggestions to the Surplus Administrator are summed up
in the ten basic rules put forth in our report (See p. 24.)

Real Property.
Real property holdings of the Government present a peculiarly
tangled disposal problem both in the variety of properties embraced,
from agricultural lands and plant sites to cantonments and hotels, and
in the overlappings of both the administrative agencies and existing
legislation. We are recommending:
That the Surplus Administrator have a study made of the
question to determine how best to centralize the handling of
real property—if possible in one agency—including the appraising, acquisitioning, recording, and abstracting functions.
The possibilities of beginning to liquidate holdings no longer needed
for war should also be explored. The Surplus Administrator should
report to Congress and the President with recommendations as to the
administrative and legislative changes desired.

War Housing.
War housing, for the present, should be left with the National
Housing Agency which has been given the specific power of disposal
by Congress and is best suited to balance the disposition with the
construction of new housing. Should the real-property study reveal
overlappings they can be handled later either administratively or by
legislation. The Surplus Administrator should use any Government
agency for disposal of any special type of surplus.

Good Housekeeping.
The Bureau of the Budget is placed on the Surplus Property Policy
Board because it was the logical agency to provide for a continuity
between the disposition of war surpluses and the longer-time, permanent problem of good housekeeping and improved management
of all Government property.

No Monopoly.
The Attorney General is placed on the Surplus Property Policy
Board in recognition of the importance of disposing of Government
surpluses so as to lessen rather than increase monopoly.

Surpluses Abroad.
The program recommended here has been developed for handling
surpluses within the United States only. In addition American
properties abroad will have to be disposed of, including installations
of various kinds, equipment that may not be desirable for shipment
back to this country, lend-lease surpluses, etc. Further study is
needed both of the kind and value of such property likely to be surplus; the policy problems involved; the best organizational procedures. The membership of the Surplus Property Policy. Board is
such that it seems an ideal body to make such a study and develop
the necessary recommendations on policy.

Inflation Bulwark.
Possession of all these surpluses at the end of the war will be a
most important defense against inflation, not simply in their balancing effect on prices but in that they represent vast usable resources
which can be brought into the market quickly to stimulate production
and trade.

Improve Arsenals.
As one aspect of developing the stand-by program, for the Armed
Services, Government arsenals and shipyards should be brought to the
highest technical level through the replacement of any obsolete machinery with the new and more efficient equipment that has been
produced during the war.

Special Plants.
There is one group of newly built war plants such as those for
aircraft, aluminum, magnesium, and synthetic rubber, where special
considerations are all-important These are industries where the
Government investments are so huge that the disposition of Gov-

ernment-owned facilities could decide the fate of the entire industry;
or where questions of military security are paramount; or which
may be part of the settlement of the peace.
Sales in these fields will not involve a matter of selling so many
single plants but require the formulation of public policy on an
industry-wide basis*

Plant Breakdown.
While on the subject of plants, it might be helpful to bring into
sharper focus the dimensions and nature of these Government-owned
plants. The Government's wartime investment in new plants and
new machinery amounts to roughly $15.5 billions. Nowhere near
all of thisf however, represents a disposal problem.
Between $4 billion and $5 billion is invested in plants specially
designed for the manufacture of munitions and which would have
little or no peacetime prospects, such as smokeless powder, ammunition loading and shipways. Most of these facilities are likely to be
kept in stand-by condition as a reserve for future wars and will not
come onto the market.
Nearly $1.5 billion more of the Government's investment is represented by improvements or expansions in arsenals and Navy Yards
which are operated by the Government at all times, through peace
and war.

Peace Prospects.
Under $10 billion is left of the Government's investment .with
peacetime production possibilities. This falls into three broad groupings: (a) A little more than $1 billion in so-called scrambled
plants; (6) about $5.5 billion in industries which can produce for
peace as readily as for war, requiring chiefly markets (this would include such industries as steel, chemicals, gasoline, machine tools, electrical equipment, synthetic rubber, and industrial components) ; and
(o) slightly less than $3 billion in plants which could be converted
to peacetime production but only after some physical alterations
and change-over. This would include airplane, aircraft engines,
tanks, munitions, and assembly plants. Some of these plants are
likely to be kept as stand-by reserves; others will need to be used
for storage and warehousing.
While this still leaves a disposal problem that will have to be
handled with wisdom and efficiency, it is a more manageable problem
than the total figure of Government investment in plants would
indicate offhand.

Size of Plants.
The great size of the Government-owned war plants that are to
be disposed of will present many difficult problems and is one reason
for our emphasis on giving the disposal agencies power to lease as
well as sell. The. average cost of Government-owned plants erected
during the war is $6 million apiece; 70 percent of the Government's
total investment is in projects costing over $10 million apiece; 12
percent in projects of $100 million plus, each. Leasing on a fair
basis will widen the opportunities for independent and local groups
to take over some of these plants*

Subdivide Plants.
Studies should also be made as to the possibilities of subdividing
the very largest units. Nor is the dollar cost to the Government a
true yardstick of their real value, since many of these plants were
erected at high war costs which bear no relation to their potential
value in use by industry* Some are so disadvantageous^ located as
to be unable to compete.

Wide Publicity.
Brochures describing the various plants to be disposed of are under
preparation. When completed, they should be given the widest
publicity so that all who are interested can make their bids.

3. Tightening the Mobilization Machine.
At the present stage of the war, preparations for demobilization
are inseparable from the actual conduct of the war. The demobilization or unwinding of our war economy can best be done by the same
agencies which wound up our industrial mobilization. These agencies
have the experience and the know-how, the feel, and touch with all
these problems, and with Government and industry. By industry we
mean industry in its broadest sense—labor, management, and capital,
whether it be on the farms, in the mines, in the factories, in civilian
activities, or in governmental service.

New For Old.
The existing agencies not only have the basic organization for adjusting their programs to the changing conditions of the war, but also
are constantly called upon to do so. In most instances of contract
cancellation to date contracts for new weapons have been given in
place of those cancelled. When the Armed Services cancel one weapon
because of a change in strategy, they know best what other weapons
need to be made and which can replace cancelled production.

Dividing Our Resources.
From the start of the war, the industrial machine has been making
war and civilian goods, with first call going to war "and essential
civilian requirements; and what is left over going for civilian goods.
So it must continue until the war is won. As war needs slacken, more
can and should bo made available for civilians. The dividing of our
resources has been—and remains—the responsibility of the War Production Board which has full powers to do the job.

Over-All Direction.
The necessary over-all direction in dealing with the many problems of transition is the function of the over-all mobilizing authority—
the Office of War Mobilization. The Office of War Mobilization can
see both the mobilization and demobilization as one whole, laying out
the tasks assigned to each of the operating agencies, eliminating overlapping^ and conflicts of functions, and making certain that no problems fall undone between the agencies.
Primary responsibility for formulating plans and for carrying them
out in the fields assigned them must rest with the different operating
agencies where the governing facts are available. As now, the Director of War Mobilization is available for clarifications of policy or
appeals by one agency against the decision of another.

New Agency Unwise.
No new Office of Demobilization could do these many jobs as well
as the existing agencies, working in unison. In its operation such
a new agency would have to cut across all existing agencies and could
hardly avoid coming in conflict with every war agency. It would
hinder the prosecution of the war. By the nature of its assignment,
and being removed from war responsibility, it would tend to pressure for quickening demobilization for its own sake.
With the bloodiest fighting still to come, we cannot permit any compromise, either among our people, in the country or in the Government, with the fact that war needs come first.

Staffing Difficult
Nor are the difficulties of creating and staffing a new organization
fully appreciated. At present, there already are so many Government
agencies that the best available men already are pressed into service.

Compact Staff.
A small staff set up in the Office of War Mobilization and using
the existing agencies, carefully assigning to each its responsibilities
' and duties and supplying general supervision, can do more than any
new great operating or semi-operating agency that might be created.

Cut Out Overlappings.
There may come a time later when a new, clearly post-war agency
will have a place, particularly in liquidating present war agencies.
That is one reason why we have recommended that the Director of
War Mobilization, using the Bureau of the Budget, maintain a constant study of the functions of all war agencies to eliminate overlappings, discontinue unnecessary functions, merge or transfer units for
greater efficiency, preparing ultimately to liquidate what is left of war
agencies.
All that we have said against the creation of a new agency does not
mean that we do not believe that Congress should lay down the broad
policies and measures for these various agencies to follow in dealing
with the different demobilization problems. Any additional legislation required should be enacted promptly by Congress.

Tightening Needed.
Nor does our opposition to a new demobilization agency mean that
we are entirely satisfied with the existing machinery of the Government. To the contrary, we believe that a general tightening up of the
war machinery is necessary—both for mobilization and demobilization. The changing conditions of the war in this respect can bo

pictured as dislocations that loosen the war mobilization machine and
there must be a steady tightening up.

Requirements.
In addition to jthe running review .of war functions, we recommend
these further tightening up measures:
1. A running conspectus to be maintained by the Office of War
Mobilization of the progress being made by the agencies on
the special tasks assigned them.
2. Intensification of the fine work, so little known by the public,
that has been done in the past seven months by the review
boards, organized through the Director of War Mobilization,
in screening the Services' programs so as to cut out requirements beyond actual needs.
This is in recognition of the fact that there is no sense in producing
tools of war, far beyond what is needed to defeat the enemy. Weapons of war quickly become obsolete and possession of great quantities
of such weapons would fool us into a false sense of security in the
after-war. The cuts already effected by these review boards total
many billions. The potential benefits from sweating down the programs, in avoiding the waste of material, manpower, and facilities
used to produce unneeded war goods, at the same time permitting
increased production of needed goods; the effect of those goods in
lessening the dangers of inflation; the reduction in the dollar cost of
the war, lowering the national debt, and the cost of carrying that debt
which must be met through taxes—these great benefits warrant the
aggressive prosecution of your reviews and their extension to any
field so far untouched.
8. Improvement by the Armed Services and the War Production
Board of their methods of working together, particularly in
the handling of the problems of demobilization, contract cancellations, and the resumption of civilian production* Conflicts and indecisions in demobilization can be more costly than
they were in mobilization.
^
4, Strengthening of the Industry Advisory Committees in the
War Production Board, their functioning and membership.
All other Government agencies should use the same committees.

Industry Committees.
In these industry committees the Government will find the best
groups to advise on all of the many problems of industrial demobilization, particularly on the resumption of civilian production while
still maintaining the war program. These committees should be representative of both small as well as large interests and of all parts of

the country. When carrying out what the Government requests of
them, these committees should live the present protection under the
Anti-Trust law, through the full transition period. Capable of great
good, they could be a source of abuse, and care must be taken to prevent
the abuse of the privileges and responsibilities placed upon them.

Exchange Information.
5. Since the Armed Services will know first the changes in the
program dictated by strategy or war events, it is most important that the Services furnish the civilian agencies full information in adequate time for these agencies to plan their share of
the adjustments to changing war conditions.
6. The civilian agencies, in turn, must organize themselves to
receive and use this information effectively.
7. Closer cooperation between the War Production Board and
the Office of Price Administration to insure the prompt adjustment of price controls when and where needed, to avoid delaying the resumption of civilian production.

Foreign Policy.
We also invite attention to the growing impingement upon mobilization and demobilization problems of foreign policy, diplomacy, and
treaty matters.

Trial and Error.
There must be a constant refinement of policies and methods, and appropriate legislation through trial and error experience. And in this
experience there must be the closest cooperation by all of the agencies
with Congress. In our own inquiry'we have found the committees of
Congress most cooperative. Many of our recommendations were inspired by suggestions from members of Congress.

Balancing the Program.
All that we have said earlier about the great benefits from the fine
work being done by review boards in screening military requirements,
holds with equal force to every other aspect of the war production
program. It argues the need for an early, equally effective review of
the programs for the production of raw materials, for stockpiling, for
imports, for subsidies, premiums, and other devices to stimulate marginal production. To continue any of these programs beyond their
need is a waste of resources. I t prevents the production of more of
what is needed. It adds to the federal debt. It increases the demobilization problems.
Always this must be in the fore—the program must be kept in
balance.
72

Expand Uses Or—
Civilian uses for materials left after war needs are met should be
expanded or, if that cannot be done because of a lack of manpower
or manufacturing facilities, the production or import of these primary materials should be cut back This will release manpower and
facilities for a new balance of the program at a higher level.

Decide Now.
Failure to make the necessary decisions promptly will make later
decisions more difficult On the other hand, by keeping the programs
in constant balance—inventory and planned acquisition on one side and
prospective demands on the othei^-we will be able to carry the economy through the transition period with successively higher utilizations
of our resources.

Stockpiling Trouble.
.Some short-sighted persons will oppose prompt decisions in the
hope of continuing unnecessary production. We call them shortsighted because they are only borrowing employment from the future
when it will be needed, and using it up in the present when there is
more work than all of us can do. Unneeded stocks of raw materials,
beyond the margin of military safety, will hang over the post-war
market, depressing future production, employment and prices. It will
be stockpiling trouble for the future.

Strategic Reserve.
A distinction can be drawn as to those strategic materials which
ordinarily are not produced or are produced in small quantities in
this country. Such materials can always be utilized for future war
needs, for peacetime production, or be held in a strategic reserve.
While not unduly alarmed at the physical size of such stocks, we do
feel that the timing of their acquisition can be most important. Present high costs argue for restricting such stocks to no more than a
reasonable margin of safety above current needs. Also the purchase
of these materials, deferred to later years, can be a helpful factor in
stimulating international trade when such a stimulus could be vital*

"X Day" Planning.
The handling of current cancellations and the advance planning
for the "X Day" on which Germany is defeated both require the
closest working together of the military and civilian agencies. Some
excellent, work is being done by the military, and this information
should be fully available in adequate time to the civilian agencies.

But these civilian agencies must organize themselves to put the information to use.
As far as is practicable—and such planning has its limitations—
this "X Day" plan should seek to estimate cancellations in advance,
the industries affected, and the resources likely to be released; make
tentative selections of the industries and plants to be freed, weighing
how these selections can be guided to improve war efficiency and to
make for the speediest resumption of civilian production and the
smoothest transition to peace.

Many Benefits.
Effectively carried through, we can visualize many benefits from
this "X Day" plan. Contracts can be scheduled better so more of
them will run out in orderly fashion and not have to be terminated
when uncompleted* Some items likely to be cancelled will be found
in demand by other agencies. In such instances arrangements can be
made to transfer the uncompleted portion of the contract, avoiding
terminating the contract with all the difficulties of settling, only to
let another contract for virtually the same goods. This will be particularly important in the field of textiles and ordinary consumer
goods.

Review of Controls.
As one part of the adjusting to changing war conditions—and this
applies both to current adjustments and to those being planned for—
all war production arid limitation controls should be brought under
early review to determine under what conditions these orders can or
should be modified.
This general observation might be made. In the mobilizing for
war it was always safe to err on the side of stringency in control,
since one knew that rising war needs would demand ever tighter controls in the normal course of time. In the unwinding the reverse
will be true. Lessened war demands will result in an extra loosening
of the situation, since there will be a tendency to reduce hoards, to
hold back on advance orders, and so on.
A further improvement in the shipping situation, freeing the seas
to new goods, could cause many shortages to disappear almost overnight.
Therefore we stress an "early" review, since by the natural inertia
of time the adjustment of controls will not be made as quickly as
warranted.

Extend War Powers.
As is pointed out in the section dealing with surplus property, the
adjustment of these controls will be most important in the effective

handling of surpluses. Until the law of supply and demand can function once more the basic wartime controls will have to be retained.
All war legislation due to expire and which still is needed should, be
promptly extended.
During 1944 the Price Control Act will expire; also the requisitioning power given to the President; and the priorities and allocations
powers on which the functioning of the War Production Board rests.
Each of these laws is a vital necessity, both for the continued prosecution of the war and for our return to .peace. Failure to renew these
war powers would be a crippling blow.
In addition to these, other war powers may have to be extended.
We have asked the Attorney General to make a study of the war
powers Of the different agencies to determine when these powers will
expire, which can be allowed to elapse, and which should be extended.
This is a field which the Committees of Congress may want to study,
as well.

Resources Forecast
In general, materials and manufacturing facilities both are likely
to be looser than manpower, even after the collapse of Germany. We
shall have to continue to strive unceasingly for a better utilization of
manpower, for an end of strikes that waste manpower, and for a better
balancing of contracts against available manpower. We have watched
with interest the extension to other parts of the country of the "labor
budget" plan proposed last September for the West Coast. Depending
on the effectiveness that the local people can bring to the plan in the
different communities, they will find in the "labor budget" a valuable
instrument in shifting from war to peace.

Civilian Preferences.
To guide the swiftest resumption of civilian production, when and
to the extent that it becomes possible without interfering with the
war, an advance listing should be made of those civilian needs which
have been restricted during the war and which are to have preference
in the opening up of civilian supply. Highest priority naturally will
be given those tilings which contribute directly or indirectly to improved military efficiency, such as vital repairs, expanded transportation, or improved maintenance.

Two Limiting Chains.
In thinking of the resumption of civilian employment, two important chains of production must be kept in mind—the chain of mate*
rials, and the chain of integration of American industry. Many
civilian articles require a combination of materials and their production may be blocked by the lack of one or two of those materials

Again, some manufacturers will not be able to resume production
because they are makers of parts that are dependent upon the release
of major assembling units.

Fair Competition.
As far as possible, no manufacturer should be permitted to jump the
gun on his competitors. Efforts should be made to treat all alike.
It may not always be possible to do so, however, and. industrialists
must understand that this objective cannot be allowed to interfere
with war requirements or to hold back the production of needed
civilian items and so to contribute to inflation and unemployment

Physical Reconversion.
This should be said about the term "reconversion" itself. Only
a small proportion of American industry will have reconversion problems in the true meaning of the word, in that they will have to change
over their plants physically to shift from war to peace production.
There will be no such problem in the basic food industries, in textiles, and other nondurable goods. The problem will be confined
chiefly to durable consumer goods, where the greatest physical conversion to war has taken place.
A detailed study of the specific industries affected by reconversion
problems is now being made. Preliminary estimates indicate that at
most only 20 percent of our industrial capacity will have these physical
change-over problems. Other industries will have the simpler
reconversion problems of changing over from war goods to peacetime
goods, with no physical change required in the plants.

Advance Tooling.
Reconversion will be quickened and possible unemployment offset
proportionately if those industries which have retooling problems
in connection with peacetime output are permitted to secure their
tools in advance of the end of the war. The facilities for making such
tools can be expected to be available in time. This, along witK the
proper use of Government-owned surplus tools, should meet the needs.
Similarly reasonable quantities of materials that will be wanted for
testing for new products should be released.

The Human Side.
Tightening up is needed so that proper attention will be given the
human side of these demobilization problems.
The war has brought abnormal conditions of employment which
have given rise to human problems which become reflected in every
situation requiring administrative or legislative decision. These problems cannot be separated from the others. They will be greater or
76

smaller directly according to the way in which such programs as
contract termination, surplus disposal, the mustering out from the
Armed Forces, public works, social security, education and benefits
for veterans, and international agreements are handled. There is no
way of isolating problems of human interests from others. But there
is no necessity for losing sight of the personal element in any of the
fields of adjustment—and there will be no excuse for ignoring it.

"Work Director."
Returning soldiers and sailors, war workers, and the population
at large deserve to have their individual and collective interests discussed and acted upon through channels more efficiently geared for
effective action.
It is our hope that the new "Work Director," whose creation werecommend, will see* that the machinery for centralizing, planning,
and action is effected so that the human element is not lost sight of.
For lack of a better title, we are calling him Work Director. His
duties will embrace far more than the title indicates, for his will be the
responsibility of finding every possible way in which the opportunities
for individual Americans to pursue their chosen peacetime pursuits
may be broadened so as to benefit the population as a whole.
Most of our veterans will be seeking jobs in the open employment
market; others who are disabled can find encouragement mending
their broken nerves and bodies through special occupations which
return them also to useful peacetime work. Still others will be eager
to return to colleges or take up vocational training instead of a job.
There is at present a scattering of efforts on the part of many agencies
to plan for the veterans' return. The important point at which
civilian "plans must be coordinated with the military in the demobilization of men-and women in the service is a crucial one and it is now the
final responsibility of no one agency.

Our Labor Force.
The abnormal increase in civilian employment and the geographical
shifts of the national labor force must be dealt with in our preparations
for peace. It is impossible to predict the size of the post-war reduction in our labor forceat this time, for many factors still are unknown.
They include the size of our peacetime Army and Navy; number of
casualties; number of women returning home; retirement of older
people and younger workers; number of veterans returning to school
or going into vocational training.

675025*—44

PART V
Uniform Termination Article.
JANUARY 8,

1944.

For the Press.
The Director of War Mobilization today issued a
directive to all procurement agencies making immediately
effective a uniform article for the termination of Government fixed-price war-supply contracts, and a statement
of principles to be followed by such departments in
determining costs.
The directive was based upon a recommendation by
Mr. B. M. Baruch and Mr. John Hancock. Mr. Baruch
is in charge of the special unit in the Office of War
Mobilization established by Director Byrnes to deal with
war and post-war adjustment problems. Mr. Hancock
is associated with Mr. Baruch in that work and is Chairman of the Joint Contract Termination Board, composed
of representatives of the various departments,- which
Board has agreed to the article and the statement of
principles today made effective for all departments.
In releasing the recommendation of Mr* Baruch and
Mr. Hancock, Director Byrnes stated that the Office of
War Mobilization would keep in touch with the various
departments in order to see that the policies adopted were
made effective. He said that the 'unit headed by Mr.
Baruch had made great progress in considering other
phases of contract termination and in the development of
policies to govern the disposition of surplus property.
Director Byrnes said it was an important step toward
eliminating the delay in a contractor getting his money
and delay in the employee getting a job.
Statement by Director of War Mobilization James F. Byrnes.

JANUARY 8,1944.

Letter from Mr. Baruch and Mr. Hancock to Director
Byrnes, Transmitting the Uniform Termination
Article and Statement of Principles on Cost
Determination
Herewith we are transmitting with our approval, and the recommendation that they be made effective, a Uniform Termination Article
for Government fixed-price war-supply contracts and a Statement of
Principles on the Determination of Costs which have been drafted
and unanimously agreed upon by the Joint Contract Termination
Board, established at your direction on November 12, with representatives of the major war procurement agencies—War and Navy, Treasury, Maritime Commission, the R. F. 0. subsidiaries, and the Foreign
Economic Administration.
To facilitate war procurement and because of the need to insert
this Termination Article into new war contracts and to give contractors the earliest opportunity to have this article included in their
existing contracts, the joint board has asked that the Termination
Article and Cost Statement be announced immediately, in advance of
the broader program of contract-termination policies on which we
are working and which we will recommend to you.

Defines Rights.
This Termination Article and Cost Statement deal with only two
of the many aspects of contract termination policies. They fill a
long-felt need for a clear definition of what are the rights of the
Government and contractors when war contracts are terminated; -a
definition that will be fair to contractors while protecting the Government, and the same definition to bind all of the war procurement
agencies.
The Termination Article and Cost Statement are not intended to
cover and should not be confused with the many other aspects of
contract-termination policies including such questions as payments
and loans, settlement procedures, the keeping of adequate records,
and protection of the public interest, the special problems of subcontractors, appeals, company-wide settlements, the disposal of property, and the need for legislation. All of these problems are enmeshed
in many difficulties which are being cut through and will be reported
on to you.

Unifies Procedures.
The fact that the termination provisions in Government war-supply contracts are to be simplified and made uniform is an important
contribution to and can be described as the first step in developing a
full set of clear-cut, workable policies on contract termination; but
it is only the first step.
We trust there will be no speculation that our release of this Termination Article reflects a belief in an early end of the war. Contracts are being terminated and settled regularly as the needs of war
change. The unifying and simplifying of the Government's contracts is a war measure, as well as a preliminary step in preparing for
demobilization.

Quick Payment.
To clarify some of the questions that are not covered in this Termination Article and Cost Statement, our objectives on some of the
unsettled problems might be stated:
1. How to apply the principles of this Uniform Termination Article
to-Subcontractors is under careful consideration. A number of
serious administrative problems are involved that require further
study. Our objective is to have the same principles of contract settlement apply to subcontractors as well as prime contractors.
2. As to payment, our object is quick payment of what the Government owes so that our great productive capacity can bo fully
utilized for war and peace—destroying the dangers of unemployment
and inflation,
3. The development of the necessary safeguards to protect the Government's interest in both the settlement of contracts and the disposal
of property, including not only adequate records but also protective
methods for the prevention and detection of fraud.

Prompt Clearance.
4. On the clearance of Government-owned materials and equipment
from the plants of both prime and subcontractors, we have set for
ourselves the objective of assuring prompt clearance with a dead line
of not later than 60 days after the filing of inventory lists, and ^ith
manufacturers having the right to remove and store this property at
an earlier date at their own risk.
Manufacturers will benefit from having this termination article in
their contracts. It will assure uniform handling of their claims by
all of the agencies with which they have contracts, eliminating possible conflict and confusion over varying contract provisions; it will
make for swifter and more equitable settlement, give manufacturers a
clear definition of their rights; reduce litigation.

Long-Felt Need.
The desirability of .having a Standard Termination Article for all
agencies has been generally recognized. It has been advocated by business groups, independent organizations, the procurement agencies
themselves as well as several important committees of Congress, including those headed by Senators George and Murray.
Efforts to develop such a uniform termination clause have been
going on within the Government for more than a year and a half.
The fact that agreement has been obtained in these last weeks is a
tribute to the fine, cooperative spirit with which the Joint Contract
Termination Board and its staff has functioned and to the preparatory work that has been done by the other agencies, particularly
that done under the auspices of the War Production Board.

Protect Public Interest.
The article applies only to domestic contracts, not foreign. Consideration is being given to certain other exceptions and an approved
list of such exceptions will be issued soon. Obviously, where the
sums involved are so small or the time of the contract is short, the
termination article is not needed.
In drawing up this article, the joint board was under instructions
to protect the Government's interests fully, not giving contractors
more than they are entitled to under existing contracts, but to assure
them their just and fair rights. The termination article necessarily
is a merging of the many types of contract termination provisions
that have been used by the agencies and will not fit all cases perfectly.
Differences between this article and existing contracts will be outweighed by the advantages of the unified, simpler, and speedier procedure for settling contracts which this uniform termination article
makes possible.

Workable Principle.
Both the Termination Article and Cost Statement are confined to
broad, workable principles, with details left to be covered in administrative regulations, manuals, and instructions. Many points were not
included because they were questions of detail which will require
constant refinement in the light of experience and could be handled
best by regulations which can be revised readily and which are more
easily adjusted to special cases.
Briefly summarized, the Termination Article provides that the
Government may terminate a prime contract at any time by giving
notice, which is the common provision in existing contracts. What
the contractor must do on receiving his termination notice is set
forth. Contractors will be paid for all completed articles at the
contract price.
81

Two Settlements.
Two types of settlement are provided for: One, for the contractor
and the Government to agree upon a fair and reasonable settlement
through negotiation; the second, if such negotiations prove unsuccessful, for settlement through the application of a specified formula.

Profit Formula.
Of particular interest, is the margin of profit allowed on work
which the contractor has begun but has not completed. Clearly, the
simplicity of a flat, uniform rate of profit would yield enormous
administrative benefits in easing the problems of settlement for both
contractors and the Government. However, under certain conditions,
a single flat rate might give excessive profits, as where a manufacturer's costs consisted largely of assembling an inventory of raw
materials.
Accordingly a profit formula was devised which (a) limits the
aggregate profit in all cases to a maximum of 6 percent, and (6)
further limits to a maximum of 2 percent the profit on unprocessed
inventory, and only to the extent that this inventory is properly
allocable to the contract. Both these rates of profit are maximums
and there will be instances where only a fraction of a percent profit
will be allowed on raw materials. Obviously no profit will be allowed
except on work done or cost incurred.
We have felt that it would contribute to fair and speedy settlement,
with protection for both the Government and the contractor, to set
forth a specified, though not too rigid, yardstick for measuring profit.

Allocable Costs.
The Cost Statement is based upon the recognition only of those
costs that are properly allocable to the contract and only to the extent
that they are quantitatively reasonable for the performance of the
whole contract. In determining these costs, recognized accounting
practices are to be used. The Cost Statement goes further to clarify
some of the uncertainties that have arisen in the minds of contractors
as to which costs are properly allocable to the contract and which
are definitely excluded.
In bringing the drafting of this Termination Article and Cost
Statement to decision and conclusion, our thinking has been that the
interests of both contractors and the Government will be best served
by a clear definition of their mutual rights and obligations and by
preparing the ground for prompt settlement on the basis of those
rights and obligations.

BERNARD M. BARUCH,
JOHN M. HANCOCK,

Advisory Unit for War and Post-War
Adjustment Policies, Office of War Mobilisation.
82

2. Uniform Termination Article for Fixed
Price Supply Contracts.
Article termination at the option of the Government: (a) The performance of work under this contract may be terminated by the Government in accordance with this article in whole, or from time to time
in part, whenever the contracting officer shall determine any such
termination is for the best interests of the Government Termination
of work hereunder shall be effected by delivery to the contractor of a
notice of termination specifying the extent to which performance of
work under the contract shall be terminated, and the date upon which
such termination shall become effective. If termination of work under
this contract is simultaneous with, a part of, or in connection with, a
general termination (1) of all or substantially all of a group or class
of contracts made by the Department for the samei product or for
closely related products, or (2) of war contracts at, about the time of,
or following, the cessation of the present hostilities, or any major part
thereof, such termination shall only be made in accordance with the
provisions of this article, unless the contracting officer finds that the
contractor is then in gross or willful default under this contract.
(6) After receipt of a notice of termination and except as otherwise
directed by the contracting officer, the contractor shall (1) terminate
work under the contract on the date and to the extent specified in the
notice of termination; (2) place no further orders or subcontracts for
materials, services, or facilities except as may be necessary for completion of such portions of the work under the contract as may not be
terminated; (3) terminate all orders and subcontracts to the extent
that they relate to the performance of any work terminated by the
notice of termination; (4) assign to the Government, in the manner
and to the extent directed by the contracting officer, all of the right,
title, and interest of the contractor under the orders or subcontracts so
terminated; (5) settle all claims arising out of such termination of
orders and subcontracts with the approval or ratification of the contracting officer to the extent that he may require, which approval or
ratification shall be final for all the purposes of this article; (6) transfer title and deliver to the Government in the manner, to the extent,
and at the times "directed by the contracting officer, (i) the fabricated
or unfabricated parts, work in process, completed work, supplies, and
other material produced as a part of, or acquired in respect of the
performance of, the work terminated in the notice of termination, and
(ii) the plans, drawings, information, and other property which, if
the contract had been completed, would be required to be furnished to
the Government; (7) use his best efforts to sell in the manner, to the.
extent, at the time, and at the price or prices directed or authorized by
the contracting officer, any property of the types referred to in subdi-

vision (6) of this paragraph; provided, however, that the contractor
(i) shall not be required to extend credit to any purchaser and (ii)
may retain any such property at a price or prices approved by the contracting officer; (8) complete performance of such part of the work as
shall not have been terminated by the notice of termination; and (9)
take such action as may be necessary or as the contracting officer may
direct for protection anjl preservation of the property, which is in thb
possession of the contractor and in which the Government has or may
acquire an interest.
(0) The contractor and the contracting officer may agree upon the
whole or any part of the amount or amounts to be paid to the contractor by reason of the total or partial termination of work pursuant
to this article, which' amount or amounts may include a reasonable
allowance for profit, and the Government shall pay the agreed amount
or amounts. Nothing in paragraph (d) of this article prescribing
the amount to lie paid to the contractor in the event of failure of the
contractor and the contracting officer to agree upon the whole amount
to be paid to the contractor by reason of the termination of work pursuant to this article shall be deemed to limit, restrict, or otherwise
determine or affect the amount or amounts which may be agreed upon
to be paid to the contractor pursuant to this paragraph (a).
(d) In the event of the failure of the contractor and contracting
officer to agree as provided in paragraph (<?) upon the whole amount
to be paid to the contractor by reason of the termination of work
pursuant to jbhis article, the Government, but without duplication of
any amounts agreed upon in accordance with paragraph (0), shall
pay to the contractor the following amounts:
(1) For completed articles delivered to and accepted by the Government (or sold or retained as provided in paragraph (&) (7) above)
and not theretofore paid for, forthwith a sum equivalent to the aggregate price for such articles computed in accordance with the price
"or prices specified in the contract;
(2) In respect of the contract work terminated as permitted by this
article, the total (without duplication of any items) of (i) the cost
of such work exclusive of any cost attributable to articles paid or to
be paid for under paragraph (d) (1) hereof, (ii) the cost of settling
and paying claims arising out of the termination of work under subcontracts or orders as provided in paragraph (&) (5) above, exclusive
of the amounts paid or payable on account of supplies or materials
delivered or services furnished by the subcontractor prior to the effective date of the notice of termination of work under this contract,
which amounts shall be included in the cost on account of which payment is made under subdivision (i) above, and (iii) a sum equal
to
percent * of the part of the amount determined under sub1

Not to exceed 2 percent

division (I) which represents the cost of articles or materials not
processed by the contractor, plus a sum equal to —±
percent2 of the
remainder of such amount, but the aggregate of such sums shall not
exceed 0 percent of the whole of the amount determined under subdivision (i), which for the purpose of this subdivision (iii) shall
excludes any charges for interest on borrowings;
(3) The reasonable cost of the preservation and protection of property incurred pursuant to paragraph (I) (9) hereof; and any other
"reasonable cost incidental to termination of work under this contract,
including expense incidental to the determination of the amount due
to the contractor as the result of the termination of work under this
contract.
The total sum to be paid to the contractor under subdivisions (1) and
(2) of this paragraph (d) shall not exceed the total contract price
reduced by the amount of payments otherwise made and by the contract
price of work not terminated. Except for normal spoilage and to the
extent that the Government shall have otherwise expressly assumed
the risk of loss, there shall be excluded from the amounts payable to
the contractor as provided in paragraph (d) (1) and paragraph (d)
(2) (i), all amounts allocable to or payable in respect of property,
which is destroyed, lost, stolen, or damaged so as to become undeliverable prior to the transfer of title to the Government or to a buyer
pursuant to paragraph (ft) (7) or prior to the COth day after delivery
to tlie Government of an inventory covering such property, whichever
shall first occur.
(e) The obligation of the Government to make any payments under
this article: (1) shall be subject to deductions in respect of (a) all unliquidated partial or progress payments, payments on account theretofore made to the contractor and unliquidated advance payments,
(b) any claim which the Government may have against the contractor in connection with this contract, and (c) the price agreed
upon or the proceeds of sale of any materials, supplies, or other things
retained by the contractor or sold, and not otherwise recovered by or
credited to the Government, and (2) in the discretion of the contracting officer shall be subject to deduction in respect of the amount of any
claim of any subcontractor or supplier whose subcontract or order shall
have been terminated as provided in paragraph (6) (3) except to the
extent that such claim covers (a) property or materials delivered to
the contractor or (b) services furnished to the contractor in connection with the production of completed articles under this contract
(/) In the event that, prior to the determination of the final amount
to be paid to the contractor as in this article provided, the contractor
shall file with the contracting officer a request in writing that fin equitable adjustment should be made in the price or prices specified in the
* To be established at a figure which is fair and reasonable under the circumstances.

contract for the work not terminated by the notice of termination, the
appropriate fair and reasonable adjustment shall be made in such price
or prices.
(g) The Government shall make partial payments and payments on
account, from time to uine, of the amounts to which the contractor
shall be entitled under this article, whether determined by agreement
or otherwise, whenever in the opinion of the contracting officer the
aggregate of such payments shall be within the amount to which the
contractor will be entitled hereunder.
(h) For the purposes of paragraphs (d) (2) and (d) (3) hereof,
the amounts of the payments to be made by the Government to the contractor shall be determined in accordance with the statement of principles for determination of costs upon termination of Government
fixed-price supply contracts approved by the Joint Contract Termination Board, December 31,1943. The contractor for a period of 3 years
after final settlement under the contract shall make available to the
Qovernment at all reasonable times at the office of the contractor all
of its books, records, documents, and other evidence bearing on the
costs and expenses of the contractor under the contract and in respect
of the termination of work thereunder.

8. Statement of Principles for Determination of
Costs Upon Termination of Government
Fixed-Price Supply Contracts.
The following is the Statement of Principles for Determination of
Costs upon termination of Government fixed-price supply contracts
approved by the Joint Contract Termination Board, December 81,
1948, referred to in paragraph (h) of the Uniform Termination Article
applicable to the termination of fixed-price supply contracts at the
option of the Government:
"1. General principles: The costs contemplated by this statement
of principles are those sanctioned by recognized commercial accounting
practices and are intended to include the direct and indirect manufacturing, selling, and distribution, administrative, and other costs incurred which are reasonably necessary for the performance of the contract, and are properly allocable or apportionable, under such practices, to the contract (or the part thereof under consideration). The
general principles set out in this statement are subject to the application
of any special provisions of the contract. Certain costs are specifically
described below because of their particular significance, and, as in the
case of other costs, should be included to the extent that they are
allocable to or should be apportioned to the contract or the part thereof
under consideration.
" (a) Common inventory: The costs of items of inventory which are
common to the contract and to other work of the contractor.
"(6) Common claims of subcontractors: The claims of subcontractors which are common to the contract and to other work of the contractor.
"(c) Depreciation: An allowance for depreciation at appropriate
rates on buildings, machinery, and equipment, and other facilities including such amounts for obsolescence due to progress in the arts and
other factors as are ordinarily given consideration in determining depreciation rates. Depreciation as defined herein shall not include loss
of useful value of the type covered by subparagraph (/).
"(d) Experimental and research expense: General experimental
and research expense to the extent consistent with an established prewar program, or to the extent related to war purposes.
tt
(«) Engineering and development and special tooling: Costs
of engineering and development and of special tooling; provided
that the contractor protects any interests of the Government by transfer of title or by other means deemed appropriate by the Government
"(/) Loss on facilities—conditions on allowance: In the case of
any special facility acquired by the contractor solely for the performance of the contract, or the contract and other war production con

tracts, if upon termination of the contract such facility is not reasonably capable of use in the other business of the contractor having
regard to the then condition and location of such facility, an amount
which bears the same proportion to the loss of useful value as the deliveries not made under the contract bear to the total of the deliveries
which have been made and would have been made had the contract
and the other contracts been completed, provided that the amount
to be allowed under this paragraph shall not exceed the adjusted
basis of the facility for Federal income-tax purposes immediately
prior to the date of the termination of the contract, and provided further that no amount shall be allowed under this paragraph unless
upon termination, of the contract title to the facility is transferred
to the Government, except where the Government elects to take other
appropriate means to protect its interests,
"(g) Special leases: (1) Rentals under leases clearly shown to have
been made for the performance of the contract, or the contract and
other war production contracts, covering the period necessary for
complete performance of the contract and such further period as may
have been reasonably necessary; (2) costs of reasonable alteration of
such leased property made for the same purpose; and (3) costs of
restoring the premises, to the extent required by reasonable provisions
of the lease; less (4) the residual value of the lease; provided that
the contractor shall have made reasonable efforts to terminate, assign,*
or settle such leases or otherwise reduce the cost thereof.
"(A) Advertising: Advertising expense to the extent consistent
with a pre-war program or to the extent reasonable under the circumstances.
"(i) Limitation on costs described in subparagraphs (d)y (e),
(/)> (ff)j an<i (*)• * n n<> event shall the aggregate of the amounts
allowed under subparagraphs (d), (e), (/), (g), and (A) exceed
the amount which would have been available from the contract price
to cover these items, if the contract had been completed, after considering all other costs which would hav6 been required to complete it.
"(j) Interests: Interest on borrowings.
"(&) Settlement expenses: Reasonable accounting, legal, clerical,
and other expenses necessary in connection with the termination and
settlement of the contract and subcontracts and purchase orders thereunder, including expenses incurred for the purpose of obtaining payment from the Government only to the extent reasonably necessary
for the preparation and presentation of settlement proposals and cost
evidence in connection therewith.
"(I) Protection and disposition of property: Storage, transportation, and other costs incurred for the protection of property acquired
or produced for the contract or in connection with the disposition
of such property.
83

"2, Initial costs: Casts of a nonrecurring nature which arise fr<?m
unfamiliarity with the product in the initial stages of production
should be appropriately apportioned between the completed and the
terminated portions of the contract. In this category would be included high direct labor and overhead costs, including training, costs
of excessive rejections, and similar items.
"8. Excluded costs: Without affecting the generality of the foregoing provisions in other respects, amounts representing the following should not be included as elements of cost:
"(a) Losses on other contracts, or from sales or exchanges of capital assets, fees and other expenses in connection with reorganization
or recapitalization, antitrust or Federal income-tax litigation, or
prosecution of Federal income-tax claims or other claims against the
Government (except as provided in paragraph 1 (&); losses on investments; provisions for contingencies; and premiums on life insurance where the contractor is the beneficiary,
"(6) The expense of conversion of the contractor's facilities to
uses other than the performance of the contract.
u
(o) Expenses due to the negligence or willful failure of the contractor to discontinue with reasonable promptness the incurring of
expenses after the effective date of the termination notice.
"(d) Costs incurred in respect to facilities, materials, or services
purchased or work done in excess of the reasonable quantitative
requirements of the entire contract.
"(e) Costs which, as evidenced by accounting statements submitted
in renegotiation under section 403 of the Sixth Supplemental National
Defense Appropriation Act, 1942, as amended, were charged off during a period covered by a previous renegotiation, may not be subsequently included in the termination settlement if a refund was made
for such period, or to the extent that such charging off is shown to
have avoided such refund.
"4. To the extent that they conform to recognized commercial accounting practices and the foregoing statement of principles, the
established accounting practices of the contractor as indicated by
his books of account and financial reports will be given due consideration in the preparation of statements of cost for the purposes of this
article.
"5. The failure specifically to mention in this statement any item
of cost is not intended to imply that it should be included or
excluded."

4. Directive Order to All Procurement Agencies
Issued by Director Byrnes.
The Uniform Termination Article for Government fixed price war
supply contracts and the statement of principles on the determinations, adopted by the Joint Contract Termination Board and approved
by the War and Post-War Adjustment Unit of the Office of War
Mobilization, dre hereby made effective.
The Termination Article shall be used to the fullest extent practicable in all new war contracts and contractors shall be given the
earliest practical opportunity to have the article included in existing
contracts.
Situations in which it is deemed impractical to use the Termination
Article" should be promptly reported to this Office for further instructions.

APPENDIX 1
Statement of Policy on Termination Financing
of Joint Contract Termination Board
Introductory
The larger part of the productive capacity of the country is now
engaged in the production of war supplies. The speedy conversion
of this gigantic war economy to a peace economy will be essential
if we are to avoid a disastrous business depression and mass unemployment at the end of the war. This reconversion of industry and
the providing of new jobs for the millions discharged from military
service and the other millions now engaged in war plants will require the release of the working capital of the contractor now
employed in war production. In this situation, it is vital to make
this capital available by prompt and final settlement of war produce
tion contracts. The Board believes :
(1) That the war contracts which are terminated must be settled
and settled promptly by negotiated agreements wherever possible between the contractors and the procuring agencies of the Government.
(2) That settlements so negotiated should be final and not subject
to review by any other agency except for fraud.
(3) That representatives of the procuring agencies who negotiate
settlements or who make disbursements thereunder must not be financially liable for action taken by them in good faith.
Even with simple and speedy procedures, the settlement of terminated contracts for the production of war supplies will inevitably
require a considerable period of time. Therefore, it is vital to the
maintenance of our industrial economy that some means be found
to insure that contractors, subcontractors, and suppliers of any tier
engaged in war production get cash promptly upon termination of
their contracts, to release their working capital from war inventories and receivables, to take care of their obligations to subcontractors and suppliers in the tier immediately below them, and to
permit them to return to peacetime business.
*
*
#
*
*
*
*
It is recognized that the policies and procedures outlined below
are predicated on extensions of existing mechanisms involving contract-by-contract settlements and settlements with subcontractors
through prime contractors and intermediate subcontractors in a
vertical chain. If other methods of settlement such as direct settlements with subcontractors or horizontal over-all company
settlements are adopted, they will call for different or supplementary financing policies and procedures. It is likewise clear to

the Board that provisions for loans and guarantees will be of particular importance if substantial partial payments are not actually made
in such a way as to reach both prime contractors and subcontractors
at all levels.

Existing Policies and Procedures.
During the settlement period the procuring agencies have certain
power to furnish financial assistance to contractors, in addition to
such private financing as may be available or such financing as may
be furnished by other governmental agencies such as the Reconstruction Finance Corporation. Prompt full payment may be made for completed articles. Partial payments may be made to prime contractors
on account of the amounts clearly due the prime contractor or which
are for the purpose of paying approved settlements with subcontractors and suppliers. Advance payments (that is, advances in the nature
of loans made or authorized prior to termination against future deliveries) already made or authorized on the contract and not; yet
expended may be utilized to pay outstanding bills* Pursuant to existing legislation and Executive Order 9112, the procuring agencies are
authorized to make direct loans or to guarantee "V" or "VTW loans
which permit a contractor to obtain financing not only for present
war production but also to finance his war production inventory and
receivables attributable to terminated contracts pending final settlement.
It is the policy of the Board that, in addition to the use of private
financing or financing furnished by other governmental agencies, the
procuring agencies shall use these methods to the maximum extent
Partial termination payments should be made to prime contractors
up to the amounts, less a reasonable margin, clearly due the prime
contractor for his own costs and his financing of approved settlements
with subcontractors and suppliers. Attention is also invited to the
fact that, in the absence of legislation authorizing the guaranteeing
of loans after termination of contracts, a war producer can obtain
a "V" or "VT" guarantee or commitment giving termination protection while still in a war production status but cannot obtain such a
guarantee or commitment thereafter.

Policies and Procedures Under Proposed Financing
Legislation.
The Board recognizes, however, that under existing law and procedure the contracting, certifying, and disbursing officers of the procuring agencies may be subject to financial liability in the event that
a partial payment in excess of the amount actually owed is made and
not recovered; that advance payments in general cannot be made after
war production has ceased and are of only limited value in freeing
92

cash tied up in war production inventory and receivables; that more
workable procedures should bo adopted for the protection of contractors under section 6 of the revised standard form of "V" or "VT"
guarantee'agreement; and that the absence of any provision for interest on termination claims makes it difficult for contractors to obtain
private financing during the settlement period and places them at a
disadvantage as compared with contractors being financed by advance
payments or guaranteed loans, which provide for waiver of interest
after termination.
The Board feels that the heart of the problem presented is the
careful balancing of the urgency of supplying funds immediately
upon termination with protection of the Government's interest. If
by taking a broad over-all view the country will be better off by getting
money out quickly even though some extra expense will result, then,
to that extent, the risk of extra expense must be taken. It is impossible at this time to foresee just what the circumstances will be
and the procuring agencies should be instructed and empowered in an
emergency to take such steps as may be required in the public interest to insure adequate and prompt financing of claims during the
settlement period.
The Board therefore recommends that legislation be enacted containing at least three types of provisions: First, authorizing the
making of advance or partial payments to contractors and subcontractors, after termination and relieving officers of the procuring
agency authorizing or making such payments and prime contractors
or intermediate subcontractors through whom they are made of financial responsibility for excess payments made in good faith; second,
authorizing the making of guaranteed or direct loans to war producers after termination of their contracts or subcontracts; and third,
allowing interest on termination claims during the settlement period
as an-allowable item in termination settlements. Such legislation,
with existing mechanisms, should be such as to permit the adoption
of the following recommended procedures:

Full Payments to Prime Contractors.
1. The procuring agencies shall provide for the prompt inspection
of and payment at the contract rate for all such articles as are completed at the date of termination or as are completed thereafter with
the Government's approval.

Partial Payments to Prime Contractors Under Vertical
Settlement Procedures.
B. In order that the contractor may obtain, in advance of the filing
of a certificate and supporting data as specified in paragraph 3 below,
prompt payment of amounts that are clearly due to him, the procuring
076O2B*--44

agency shall make immediate partial payment of such part of the contractor's termination claim as the agency agrees will be clearly within
tlie amount which the contractor could ultimately obtain under paragraph 3 below.
3. In addition to payments provided for in paragraphs 1 and 2
above, procuring agencies shall, without prejudice to the position of
either party in the final settlement, make partial payments from time
to time to contractors as set forth below:
(a) Each contractor requesting such a partial payment shall file
with the procuring agency handling the termination a certificate
(based on accepted commercial accounting practices and not in conflict with any principles in the "Statement of Principles for Determination of Costs Upon Termination of Government Fixed-Price Supply
Contracts") setting forth his estimate (which may be revised in connection with any subsequent certificates) of all or any of the following
elements:
(1) Cost of raw materials, purchased parts, supplies, direct labor
and manufacturing overhead applicable to the terminated portions of
the contracts^ less any proceeds or estimated proceeds of such items
retained, diverted, or disposed of or agreed to be so retained, diverted,
or disposed of. Manufacturing overhead shall comprise those indirect
expenses reasonably related to production such as indirect factory
labor, maintenance and repairs, property taxes, insurance, factory
rentals, and similar items generally recognized as manufacturing overhead expenses; This category shall not include special obsolescence
of or loss on disposal of facilities, engineering and development, special,
tooling, administrative expenses, costs of terminating leases or other
special costs which are related primarily to the termination of the
contract;
(2) Advances and progress payments made by the contractor for
supplies, parts, raw materials, or other items required for the terminated portions of the contracts, which are outstanding and unliquidated at termination and are not in excess of the subcontractor's claims;
(3) All other elements of cost with respect to terminated contracts
which may. include any allowable items of cost excluded from or not
included by the contractor in (1) above, but which shall not include
any provision for profit;
(4) Unliquidated balance of advance or partial payments made by
the Government to the contractor under the contracts being terminated.
(6) Subject to the limitations set forth in paragraph (d) below,
partial payments shall be made by the procuring agency, within thirty
days after receipt of the certificate, of 100 percent of the amounts set
forth in 3 (a) (1) and 8 (a) (2) unless the procuring agency has
reasoii to believe, based on its examination of the claim, that the costs
and expenses claimed have not been reasonably supported by the con-

tractor, in which case such partial payments will be made within such
period but reduced accordingly. The procuring agency in making its
examination of the claim may require the submission of additional
data to support the certificate.
(<?) In addition to the payments provided for in paragraph 3 (&),
the procuring agency shall, as promptly as possible—and to the extent
possible within such 30-day period—make additional partial payments
from time to time of 100 percent of any balances due on items included
in 3 (a) (1) and 3 (a) (2) and of 100 percent of any amounts due on
items included in 3 (a) (3) to the extent that subsequent examination
by the procuring agency substantiates such elements of cost.
(d) In no event, however, shall the aggregate of the partial payments made under this paragraph 3, when added to those made under
paragraph 2, at any time exceed 90 percent of the procuring agency's
estimate of the aggregate valid claim of the contractor as set forth in
8 (a) (1), 3 (a) (2), and 3 (a) (3) above, less the amounts set forth in
8 (a) (4) above.
(e) Partial payments without regard to the above restrictions may
be made on reasonable terms and conditions, including the use of a controlled account from which only expenses incurred in connection with
canceled contracts may be paid. Such payments out of a controlled
account may be made either to subcontractors and suppliers or to the
contractor for reimbui%scment of expenses already paid by him.

Payments to Subcontractors Under Vertical Settlement
Procedures.
4. Without overlapping the partial payments provided for in paragraphs 2 and 3 above, the procuring agencies shall likewise provide for
partial payments to prime contractors for the purpose of permitting
them to make final or partial payments to subcontractors and suppliers.
In any case where an amount payable to a subcontractor or supplier
and includiblo in the amount payable to the prime contractor has been
finally determined by agreement between the prime contractor and subcontractor or supplier, specifically approved by the procuring agency,
or in accordance with general instructions, the partial payment shall be
100 percent of the amount so determined and such payment shall be
final and conclusive as an element in the prime contractor's claim in
the absence of fraud on his part. Where the amount payable to the
subcontractor or supplier has not been finally determined, the partial
payment to the prime contractor for the account of the subcontractor
or supplier shall be determined substantially in accordance with the
principles, procedures, and limitations established in this statement
for partial payments to prime contractors, together with supporting
data from the subcontractor and prime contractor.

5. In financing contract-by-contract settlements with subcontractors
and suppliers through a vertical chain, as provided for in this statement, subcontractors and suppliers desiring partial payments must
obtain them whenever possible through their prime contractors, but,
in exceptional cases, where hardship is being worked on subcontractors
or suppliers by reason of their inability to deal through their prime
contractors, the procuring agencies should, if practicable, make payment directly to the subcontractors or suppliers. Partial payments
on individual contracts will, in general, be made to subcontractors and
suppliers below the first tier only by agreement with the prime contractor and intermediate subcontractors. Any partial payment made
directly to a subcontractor or supplier shall be determined substantially in accordance with the principles, procedures, and limitations
established in this statement for partial payments to prime contractors
including a certificate and supporting data from the subcontractor or
supplier. In making any direct partial payments to subcontractors or
suppliers under this provision, the procuring agency shall make due
allowance for outstanding setoffs or counterclaims asserted by the
prime contractors or intervening rights asserted by other persons
against such prime contractors, subcontractors, or suppliers. Any
direct partial payments to a subcontractor or supplier, shall be conditioned upon his furnishing appropriate releases for the benefit of
the Government, the prime contractor, and any intermediate subcontractors.

Excess Payments.
6. Any excess payment over the total amount payable on final settlement shall be regarded, to the extent of the excess, as a loan, bearing
interest at 6 percent per annum, to the company ultimately receiving
the same. The officers of the procuring agency authorizing or making
the partial payment and prime contractors or intermediate subcontractors through whom it is paid shall be relieved of financial responsibility for excess payments made in good faith.

Loans.
7. In addition to such private financing as may be available or such
financing as may be furnished by other governmental agencies, the
procuring agencies should guarantee or make commitments to guarantee loans to any contractor, subcontractor, or other person applying
therefor who is engaged or has been engaged in the performance of
a war contract which'has been curtailed or terminated. The guarantee
shall, in general, not exceed 90 percent of the loan, and a reasonable
fee shall be charged therrfor. The amount of the loan shall be based
on an estimate of the applicant's over-all investment in war production
receivables, inventory, work in process, and amounts paid or concur-

rently to be paid to the tier of subcontractors or suppliers immediately
below the applicant. For this purpose a contract will be classified
as a war contract if the procuring agency concludes that it has been
or is connected with the production or procurement of war' supplies.
Such loans, guarantees, or commitments to guarantee will generally be
made by the procuring agency which appears to have or to have had
the dominant interest in the output of the contractor in question but
may be made, in doubtful cases, by any procuring agency or any other
agency authorized to guarantee such loans. Operations will be decentralized; existing agencies and mechanisms now used under Regulation
V will be utilized to the greatest degree practicable; standard forms
of loan and guarantee agreements shall be adopted for use in all cases;
and simplicity of procedure shall be emphasized.
8. Prospective borrowers will be required to seek guaranteed loans
directly through normal financing channels. However, in cases where
it appears that a contractor, subcontractor, or other person described
in paragraph 7 is or will be unable to arrange this type of loan within 30 days from filing of application, a loan will be made directly by a
procuring agency or its agent. In determining the amount of the
loan and tlie method of servicing it, the procuring agency will, if
practicable, employ the same agencies and follow substantially the
same procedures as in the case of a guaranteed loan. In the event
that a direct loan is made, the gross interest charged will be the same
as on a comparable guaranteed loan.

Interest on Termination Claims.
9. Interest should be allowed on the unpaid portion of termination
claims under contracts terminated otherwise than for default, as a
matter of fairness to contractors and subcontractors during inevitable
delays in settlement and to permit and encourage contractors to borrow
from private sources in order to finance themselves during the settlement period. The rate of interest should be 2y2 percent per annum.
10. In determining the amount payable to or for the account of a
prime contractor, the procuring agency should .recognize to an appropriate extent, not in excess of 2y2 percent interest paid or payable
to subcontractors or suppliers.
11. Appropriate deduction shall be made for interest waived on advance payments and guaranteed or direct loans outstanding during the
settlement period.
12. The period of interest payable to prime contractors will run
from the 30th day after dispatch of the notice of termination, but if
the prime contractor unduly delays the determination or payment in
"whole or in part of amounts payable to him, the procuring agency may
stop the running of interest for the period of such delay by the giving
of 10 days' notice to the contractor.

APPENDIX 2
Statement of Policy as to Removal and Disposition of Property 1in Connection With
Contract Termination of Joint Contract
Board.
The speedy adjustment of terminated contracts depends to a large
extent on the prompt removal and disposal of completed articles,
component parts, work in process, raw materials and equipment in the
possession of the contractor at the time of termination. So long as
the war continues it is essential'to clear the contractor's plant as soon
as possible so that it may return to the production of other needed war
materials and to make available for other war production any property which can be used for that purpose. After the war the speedy
disposition of such property is essential in order to clear the contractor's plant for a return to civilian production. To that end it is
essential that broad powers of disposition be vested in the procuring
agencies, and that a central agency 2 should be designated to which may
be transferredproperty not disposed of by the procuring agencies and
no longer required by them.
In some cases legal title to the property in the possession of the
contractor has passed to the Government; in others, it remains in the
contractor. In either case the problem is essentially the same and
there is need for policies permitting uniform administration. Therefore, the following steps should be taken promptly upon termination
or substantial modification of any contract.
1. As soon as possible after receipt of notice of termination or modification of any contract, the contractor should submit lists of property
no longer required for the performance of the contract to which the
Government is entitled or which are the property of the Government.
Separate lists should be prepared of (1) machine tools and other production equipment, (2) completed articles, subassemblies and component parts, (3) work in process, (4) supplies, (5) materials, and
(0) scrap. Partial lists should be presented from time to time giving
preference to those items which, in the opinion of the contractor or
the procuring agency, are immediately needed in war production either
in the contractor's plant or elsewhere. The list should contain an
adequate description of each item and should show the ceiling and
current established market prices for each item if readily available
and any readily available information as to the cost of each item to
held by - '
recommended Herein will be dealt with in a separate repoi
I agency used herein means finch central winner a* mm,
surplm or
to set price pollvy.

the contractor. Where the contractor wishes to retain or acquire an
item, he should state the price at which he is willing to accept the
item. Failure to list an item should not prevent the contractor from
claiming reimbursement therefor in the final settlement and in connection with final settlement the contractor may furnish additional
information as to the cost of any item.
2. Where the contractor has an option to purchase or lease or other
contract rights in any item, he should promptly indicate whether he
desires to exercise such rights or is willing to waive them. If he indicates the former, disposition of the property should be made in
accordance with the terms of the contract.
3. While the lists are in course of preparation and as the necessary information becomes available the procuring agency and the
contractor should seek to make immediate disposition of any items
which can be readily disposed of. If, in the judgment of the procuring agency, the item is. one which it would be appropriate for
the contractor to retain or acquire, the procuring agency should
endeavor to negotiate an agreement for such retention or acquisition.
If the procuring agency determines that the item should be disposed
of to someone other than the contractor for purposes of war production, the procuring agency should endeavor to arrange for such disposition through the contractor or direct. Prior to the cessation
of hostilities, any item not disposed of to the contractor or to others
for purposes of war production, which the procuring agency does not
desire to retain for its own use or that of any other governmental
department, may be disposed of by the procuring agency or by the
contractor with the approval of the procuring agency for any purpose not inconsistent with the policies of the Board. It is expected
that the power of disposition for any purpose other than for war production or to the contractor will be transferred in whole or in part
by action of the Board to the central agency as it becomes ready to
undertake such activity.
4. Each procuring agency may exercise complete discretion as to,
the price at which any item may be disposed of subject to such pricing policies or formulas as may be established by the Board or under
its authority, including any specific instructions referred to in paragraph 9 hereof. In the absence of specific action by the Board the
procuring agency will endeavor to dispose of property at prices which
it may regard as representing fair values under the existing circumstances observing the following general policy as to determination of
fair value.
(a) Where there is an established market price for the item an
effort should be made to obtain that price with due allowance for
the condition of the item, its location and the cost to remove
it to a place of disposal, and the selling cost including cost of
preparation for sale.
09

(6) Where there is no established market price, consideration
should be given to the foregoing factors and any other available
information including the cost of the item, and the speed with
which the item can be reprocessed or otherwise'put back into use.
It is recognized that disposal prices will in many instances bear
little, if any, relationship to cost.
(c) Substantial portions of property involved in contract termination, particularly work in process, jigs, dies, fixtures, and specially designed items having no known commercial application,
may have no value except as scrap. A prompt effort should be
made to determine promptly what items are properly classified as
scrap and to effect prompt disposition of such items.
(d) In cases where disposition is made to a contractor or supplier for the purpose of performing a war production contract
consideration may be given to any lesser value of the item to the
contractor or supplier for that purpose, if war production will
thereby be facilitated. If disposition cannot be made at prices
determined in accordance with the foregoing, then until such time
as the central agency becomes ready to undertake disposition of
the property, sale may be made by the procuring agency under
such other regulations as it may prescribe for the purpose of adequately testing the market.
5. Unless the contract otherwise provides, the contractor may, at
any time after receipt of termination notice, remove from his plant and
store at his own risk, any property, and the Government, with the consent of the contractor, may remove and dispose of any property listed
in accordance herewith prior to final settlement. At all events, unless
the contract otherwise provides, any property not disposed of in the
manner hereinbefore provided within sixty days from receipt of a list
covering the particular item should, upon demand of the contractor,
be removed from the contractor's premises by the procuring agency
unless the procuring agency shall previously determine that the item
is not chargeable to the Government and does not belong to the Government. In the event that any such property is not so removed upon
demand, the property may be stored by the contractor at the expense
and risk of the procuring agency either on the contractor's premises or,
if he determines that space is not available for that purpose, then elsewhere. In such a case the contractor should take reasonable precautions for the protection of the property and should notify the procuring
agency of the action taken. If it is later determined that the procuring
agency was not obligated to take property which was removed or disposed of prior to final settlement, an adjustment should be made in the
final settlement which will allow the contractor the current disposal
value of the property at the time of removal.

100

6. Any property which comes into the hands of the procuring
agency in connection with contract termination which is not disposed
of as hereinbefore provided and which has been determined by the. procuring agency to be surplus to its needs should be reported to the central agency for disposition. Upon receipt of such report the central
agency shall with reasonable promptness take possession accountability, and full responsibility for any further maintenance or utilization
removal, protection, storage, sale, or other disposition of the property.
The central agency shall consult with the procuring agency as to the
disposition of any property of special military significance. The procuring agency shall have the right to remove and store for the account
and at the risk of the central agency any property so reported, pending action by the central agency.
7. The procuring agency shall render all reasonable assistance to
the central agency in performing its obligations under paragraph 0.
The central agency shall be authorized to use any existing storage or
other facilities which the procuring agency finds it practicable to make
available to it.
8. Transfers to the central agency shall be made without values, but
the central agency shall make periodic reports to the procuring agency
as to the aggregate estimated value of items transferred, valuations to
bo based on disposal values at the time of transfer to the central agency,
as estimated by the central agency.
9. Any disposition of property by the procuring agencies or the
central agency shall be made subject to such regulations as the particular agency may prescribe but only in conformity with policies or determinations of the Board and under applicable rulings of the War Production Board, the Office of Price Administration, or any other duly
authorized agency. At the request of any procuring agency or the
central agency or on its own initiative, the Board may establish or
approve pricing formulas under which any article or class of articles
may be sold by a procuring agency, may designate the appropriate
agency to sell any article or class of articles, and may prohibit or
condition the sale of any article or class of articles by a procuring
agency.
10. The foregoing provisions relate solely to property in the hands
of prime contractors. In order to carry out the basic policies of
speedy adjustment of contracts and prompt clearance of plants, the
same principles should be applied to property in the hands of subcontractors of any level where the subcontractor submits lists of such
property prepared in accordance with paragraph 1, with the certificate of the prime contractor that the items listed are believed to be
properly allocable to the prime contract, or any other satisfactory
evidence of that fact.

101

APPENDIX 3
Role of Major War Agencies,
The reconversion of industry from war to peace often is spoken of
as if it were one job. Actually, many jobs are involved, all of which
must be done together. Eight major steps in industrial reconversion
can be listed in the order of their sequence:
1. As the war changes, the production of certain weapons and war
supplies is cut. ^ Minor adjustments already are taking place;
with the defeat of the Nazis, major cuts would come.
2. After the decision as to what is to be cut is inade, the next step is
to decide which producers of these munitions and supplies are
to be cancelled out and which left in production.
8. On all war contracts that are terminated, the Government will
owe the manufacturers money. Step three is to determine what
the Government owes and to pay manufacturers promptly so
they will have ready working capital with which to take on new
business. This is called the settlement of terminated war
contracts.
4. Simultaneously, the plants of these manufacturers are cleared
physically of Government-owned inventories, raw materials,
equipment, semifinished parts—this to make room for new
equipment and new materials to start up peacetime production.
6. Any materials, inventories, equipment, and other properties
coming into the possession of the Government are redistributed
among other war producers as far as practicable to stimulate
war production.
6. As plants, manpower, and materials are freed from war production, such resources are shifted first to other war work as
far as such war work is needed.
7. With war needs satisfied, these resources of manpower, materials, and plants are shifted to increase production and employment for civilians.
8. As war needs slacken, wartime controls are modified or removed.

All One Program.
While theSe steps are listed in sequence, all the programs are to be
carried 'through' concurrently since adjustments already are taking
place and will continue through the end of the war. The entire program must always be kept in balance.
The subject index lists the references to what the various war
agencies are to do in carrying out the recommendations of our report.
Because of their importance, there follows a brief summary of the

102

more important aspects of the roles of the War Production Board and
the Armed Services; also, a brief summary of the legislative action,
requested by the report.

Armed Services:
To decide what weapons and war supplies should be cut as the war
changes, informing the War Production Board as soon as such cuts
are thought of; to work with the WPB and other civilian agencies,
including War Manpower Commissicm on the choices of which contracts are to be cancelled; to negotiate settlements of what the Government owes on terminated war contracts after cancellation; to assist
the Surplus Property Administrator in promptly clearing Government
property from war plants; to work with him and the WPB on redistributing surplus property to stimulate war production; to be prepared to shift contracts to make use of plants and manpower freed
by cancellations; to work with the WPB in the preparation of an
"X Day" reconversion plan; to work with the "Work Director" on the
demobilization of the Armed Forces when that becomes possible.

War Production Board:
To keep (he program of production for war and civilians in constant
balance; to lay down the policies to guide the choices for cancelling
contracts of war goods no longer needed; to work with the Armed
Services and other procurement agencies and with the War Manpower
Commission and other civilian agencies in making the actual choices
of which producers are to be cancelled and which left in war production; to guide the shifting of contracts to make use of facilities or
manpower freed from war production ^ to decide what civilian production and employment is to be resumed'as war needs slacken; to work
with the Surplus Administrator and Armed Services on the disposal
of surplus Government property so as to stimulate both war production and resumption of civilian employment; to keep all war controls
under constant review so that they can be promptly modified; to review
worthwhile local projects, deferred during the war, and which may
be cleared as war needs slacken.

Legislation:
"Congress should lay down whatever policies it feels wise and desirablo to guide the existing agencies in their handling of demobilization problems"; the Work Director to work with Congress on a combined program of legislation and operations for the entire human
side of demobilization; legislation requested for the settling of terminated war contracts; the Surplus Administrator to report to Congress
as soon as possible on legislation needed for surplus Government prop-

108

erty; extension of price control law, the priorities and allocations
powers on which the functioning of WPB rests and the requisitioning
power of the President; extension of Smaller War Plants Corporation's lending authority to permit changeover assistance; liberalization of Federal Reserve's authority to make industrial loans; post-war
tax law on the shelf; Congress consider funds for engineering public
works shelf.

104

SUBJECT INDEX
Agencies i
page
Army and Navy
2, 6,12-14,17,19,20, 22, 32,35, 36, 40, 56, 57,60,71
Attorney General
9, 13, 23, 25, 33, 36, 37,42,57
Budget Bureau
16, 23, 38, 57,66,70
Comptroller General
8,9,33,41-43,40
Federal Reserve
26,38
Federal Works Ageney
13,18,28
Foreign Economic Administration
12,13,40, (57,59
Maritime Commission
12-14,34,40, 57,58
National Housing Agency
18,23,65
Office of Price Administration
17,36,72
Office of War Information
^
19
Office of War Mobilization— 1,2,6,9,13,16, SO, 32-84,36,40,51,54,62,60,70
Reconstruction Finance Corporation
12-14,29,34,40,57
Smaller War Plants Corporation
:
22, 25, 38, 46, 53
State Department
13, 57, 59
Treasury Department
,.
12-14,34,40,57
U. S. Employment Service
18
War Food Administration
13,14,34,57
War Manpower Commission
17,37
War Production Board2,9,
t
13,16,17,19,25,28,33,36,37,39,57, 59,60, (59,71,72
Agriculture
:.
80
Air Bases
29
Airlines
^
:
1
29
Capital Goods, Disposal
14,34,58
Civilian Priorities List
21,35,37,59,73,75
Civilian Production
^. 2,6,7,15,18-20,37,38,56,71
Civilian Shortages
1 . 14,18,27,35,59,73
Company-wide Settlement
i.
11,34,51,53
Complete Financial Kit
10,32,44
Congress, Legislation:
Contract Termination
12,33,34,45,51,52
General Policies
16,29, 70
Human Problems
5,6,32, 76
Lending Powers of RFC
10,38
Price Controls
20,37,74
Priorities
20,21,37,74
Public Works
27,28
Real Property
23,35,65
Requisitioning
20,37,74
Smaller War Plants Corporation
38,40
Stand-by Program
22,56,59
Surplus
14-16,34,61, «2
Taxes
2,13,27,38
Congress, Reports to
5,6,12,14-16,21,22,34,54,61
Consumer Goods, Disposal
I4. H 5 7
Contract Cancellation:
Advance Planning of Cancellations
17-19, 25,36,37, 71, 74
Criteria for Cancellations
16-19,25,37, 38
Informing the Public
17-20,36,37

105

Contract Settlement after Termination:
Appeals
^ 47,48,53
Audit for Fraud
1,8,29,41,42
Company-wide Settlements—I
H» 34,51,53
Contractors Part
12,13,84,44,47,49,54
Financing
7, 8,10,12, 25, 32, 33, 42, 44, 49, 50
Joint Contract Termination Board
9,12,25,33,40,42,43,61,53
Legislation
1--?, 0, 12,38
"Nuisance" Claims
H» 84,50
Removal of Government Property
1,7,13,10,34,52,56
Settlement Teams
9,33,42,43
Subcontractors
11,33,41,47,51,53
draining Schools
12,84,43,44,51,52
Uniform Termination Article
- — 2, 4, 33, 40, 50
Debt
13,24,25,27,28,35,38,39,61,64,71,76
Demobilization Agency, New
15,36,69,70
Depression
3,6,28,41,73
Education
3, 6,22,28,30,32,59, 77
Employment
1
1-4,6,7,15,17,18,24,2S, 32,89,61,73,76
Equipment and Tools
2,7,13,19,23,84,52,56,63,76
Financing
1,2,10,11,23-26,32,33,38,42,44,49,50
Food
14,34,58,76
Foreign Relief and Rehabilitation
8,22,80,31,59
r
Foreign Trade and Policy
1, 6, 7, 20, 22-24, 20, 30, 35, 59, 63, 66, 72
Goldfish Bowl Selling
14,24,35,64
Government and Business
1,3,8,12,23,24,35,43,55,68
Human Side of Demobilization:
Care for Wounded
6,32,77
Child Labor
•_
3,77
Disabled Veterans
6,82,77
Education
3,6T 28,80,32,59,77
Hours of Work
j
3,77
Jobs
1, 2, 4, O-8, 17, 18, 28, 32, 77
Legislation
5,6,32,33,76,77
Migration
6,18,28,77
4
Veterans
1-3,5,6,26,31,82,77
Vocational Trainings
6,30,32,77
War Workers
3,6,7,17,18,24,28,32,42,77
Women
1, % 3,5,6,32,77
Work Director - j
5t 6,32,77
Working Conditions
3,6,24,29-81,77
Industrial Properties, Disposal
14,84
Industry Advisory Committees
16,25,35,36,38,58,62,63,71
Inflation
7,13,21,22,61,66,71
Informing the Public
5, 17-20
International Communications
29
International Currency —
1
29
International RFC
.
29
Inventories
;
_._ llf 13> J4f Jg, 19~22,34*35,62,59
Joint Contract Termination Board
9,12,24,83,40,42,43,5t, 53
Leasing
23,35,38,62,68
Local Ownership
24,85,64,65
Maritime Properties, Disposal
1
12-14,84

100

Pag«

Monopoly
23, 24, 27, 35, 36, 38, 66, 72
T
National Debt
1
13/24,25,27,28,35,38,30,61,64,71,72
Peace Settlement
6,29, <>7,72,77
Planning
1, 4, 5,17r 19, 20, 22, 23, 27, 28, 30, 32-39, 51-53, 61, 70, 71, 73, 74
Pressure Groups
4, 7,12,15,19, 21,24, 29,35, 64
Price Control
2,17,20,37
t
Priorities Powers
2,20,21,25,37,60
Profits
3,24,38,64
Prosperity
1,3,6,29,63,75
Public Sales
2,24,35
Public works
20,27,28,39,77
Raw Materials Production
20, 30,36, 56, 75
Real Property
14,23,35/65
Reconversion
2,3,18,25,26,30,37,61,74-76
Requisitioning Power
2,20,37
Reviews Recommended:
Agency Activities
2,33.35,86,43,47,54,71,72
Imports
20,36,74
Loans
:
33,54
Marginal Subsidies
20,36
Military Requirements
16,19, 20,36, 59, 66, 71
Raw Material Production
20, 3Q, 75
Public Works
39,77
Stock-piling
20, 86, 60,
War Controls
20,21,36,37,74
Rubber, Synthetic
29
Safeguards in Public Interest:
Contract Termination
7-9,33,34,41-43,50,53, i)5
General
6, 22, 38, 76
Surplus
.
14,23,24,35,62
Scientific Research
30
Schools for Termination
I
12,34,43,44,51,52
Scope of Inquiry
2-5, 8,10,14,15,19, 21,29,30, 40,47, 48t 56, 57, 62, 67, 69, 75
Scrap
23,24,35,50
Servicemen, Returning
1-3,5,6,26,32,42,77
Shipping
14,29,80,34,58
T
Small Business
2,18, 22, 23, 25, 26, 35, 36, 38, 58, 62, 71
Small Lot Sales
25,36,38,68
Social Security
77
Speculation
14,24,35,64,65
Speed Essential
7,8,13,14,33,41,45,49,55,61
Stand-By Reserve Program
19,22,56,59
State and LoealOParticipation
18,22,24,28,38,39,45,59
Stock-piling
20, 56, 60, 72, 73
Strategic Reserves
20,73
Strikes
^
3,21,22
Subsidies and Premiums
20p 72
Surplus Administrator i
Duties
13,14, 22, 23, 84,52, 57, 58, 60,63, 65
Qualities
'
- — 22,35,61,62
Reports to Congress
1
14, l f i > 2 3

107

Surplus Disposal:
Page
Destruction of Property
^
23,24,85,63
Disposal Policies
13-16.22-25,29,80.84,35,52,58,61,48
Further Centralization
Jl
15,16,22,01
Good Housekeeping
23, 36, 66
Immediate Surplus
2,. 13, 35, 50
Leasing
23,35,38,02
Legislation
14-16, 34, 61, 62
Local ownership
24, 35, 64, 65
Outlets
13,14, 34, 57
Plants14,18, 22-24, 35, 52, 56, 63, 66-68
Present inadequacies
«
5
Small Lot Sales
23
Speed Needed
14,15, 61
Surplus Abroad
22-24, 35, 59,63, 60
Ten Rules for Disposal
24,33
Timing
1
23, 57, 63
Surplus Property Policy Board:
Duties
13-15, 22, 23, 84, 36, 57, 58, 60, 66
Membership
13, 24, 34, 80, 57, 58
T Loans
i
10,11,32,45,49,54
Taxes
2,13, 27, 38, 64
Teams for Settlement
9,83,42,43
1
Tightening and Reduction of Agencies Activities
L
2,16, 36, 69
V and VT Loans
10, 33, 45, 46, 54
War Effort Related to Demobilization
1,
2,4,13,15,17-19,21,31,30,37,09, 72,77
War Housing
18, 23, 65
War Controls
2, 20, 21, 80,37,60,74
War Powers
2, 20, 30, 37, 74
War Workers
8,6,7,17,18,28,32,42,77
Work Director
5,6> 22, 32,77
"X Day" Planning
,
2,19, 86, 53, 73

108

Full text of Marriner S. Eccles Papers : Report on War and Post-War Adjustment Policies, Box 32, Folder 14, Item 3

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