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Aviation History
1918
1918 - 0308.PDF
to leave to Finance the troublesome questions of price and accounts, but on the contrary the Com- mittee find a disposition on the part of some at least of the Supply Departments to regard the Finance and Contracts Branches as a hindrance to the prompt carrying out of their work, an attitude which makes neither for efficient work nor economy. Although it is necessary at some time to obtain from the Finance Branch sanction for expenditure, the practice appears to be to put off that formality as long as possible. Not only do the Supply Officers ignore the existence of the Finance and Contracts Branches, but they also do not bother their heads about the work of other Supply Officers. To what this leads is shown by an extract from the Report:— " One instance which has come to the attention of your Committee indicates how far the opinion of the responsible Officer of the Supply Branch may be accepted as establishing the necessity for a scheme of extension. A company making aeroplane engines obtained permission on the urgent repre- sentation of the Supply Branch for the erection, among other things, of a forging shop, costing, with the equipment, some £35,000, of which a great part was to be paid from excess profits. When the building had, it is stated, already been partly erected, it had to be abandoned because the officer controlling the supply of the plant refused to furnish it. Labour and material were so scarce that similar plant erected elsewhere was lying idle. Such cases appear to have been so frequent that it was necessary as late as the 29th November, 1917, to issue a General Memorandum regarding them." Bearing this in mind, it is not surprising to hear that national factories have been erected and equipped to a value estimated on the latest computation as 66 millions! It is extraordinary that it should be necessary for a Select Committee to point out that " it is essential that the questions of necessity and of financial sanction should be considered together, and further, that they should be considered as a whole in relation to the whole programme of the Ministry." The work of the Contracts Branch consists of the fixing of prices, whether for purchase or for sale, and Mr. Winston Churchill on his appointment considered this work so important that he made it into a separate branch. Here again, however, the Supply Officer has his finger in the pie. Although it was perhaps inevitable in the early days of the Ministry that the Supply Officers should have carried their negotiations with manufacturers to the point of fixing prices, there should be no necessity for the practice now. As the Committee point out, the Supply Branch is concerned with production, and the man who is forcing on production is the last man to whom settle- ment of price should be entrusted. Yet it is noted as " regrettable " that some Departments have repeatedly attempted to settle prices, and there is apparently a tendency for it to become an established practice. This leads the Committee to once again urge that the sole responsibility for fixing prices should be definitely assigned to the Contracts Branch. Replying to an earlier report of the Committee, the Chancellor of the Exchequer asserted that as negotia- tions with contractors are carried on by the Supply Branch it has information regarding cost of manu- facture. But he was apparently misinformed— as the Committee put itr for " the whole history of the Finance and Contracts Branches of the Ministry in their struggle to reduce prices has lain in the con- tinual effort to obtain information regarding the costs of manufacture which the Supply Branches could not provide." " Further, so far from having costs of the firms with whom they deal, the Supply Branches MARCH 21, do not uniformly assist the Finance Branches in ascertaining them under the compulsory powers- which the Ministry possesses. There is a general indifference on their part to the cost of the commodity if only the required production is reached." Under these circumstances it is not surprising that when costs have been ascertained enormous saving has resulted. Thus on cordite, no less than £3,000,000* has been saved, while experience of costs, &c, in national factories has led to reductions in the prices, of gun ammunition amounting to 35 millions in two- years. In a case of a contract for gun equipments amounting to 7! millions a reduction of 2 millions was effected, and in — " the case of Aircraft Contracts, Accountants' investigations- have reduced provisionally accepted tenders amounting to- about £7,000,000 by at least £1,000,000 ; the contracts of one firm alone originally estimated at £1,500,000 being cut down by £225,000. In all these cases the reductions were- effected off prices which were either accepted as reasonable on the information available from the Supply Branches, or were left unsettled precisely because the Supply Branches- had no adequate information by which to test them." Bound up with the question of costs is that o* profits, and in this connection the Committee em- phasize, the evils of the excess profit taxation scheme. " Now that manufacturers retain a proportion of their profits they are naturally anxious to swell them,, and the greater the proportion taken in taxation the greater they will wish the total to be." The Contracts Branch aim at allowing a maximum profit of 10 per cent, on cost, but price is still only arrived at by bargaining, and the ultimate conclusion largely depends upon the urgency of the demand and the sufficiency of the supply. Instances are given of excessive profits made by contractors for Engineering and Chemical products, and the Committee naively state that— " Something may be learnt inferentially from the considera- tion of the following instance :— " Early in 1917 certain shell manufacturers approached the- War Office with a proposal to acquire works for the manufacture of aeroplane engine spares. According to their calculation an initial expenditure of about £130,000 on plant and build- ings (recognised at the time to be excessive), together with some £30,000 for working capital, would enable them to earn £450,000 in the next 7 months on the basis of the pri ces then being paid by the War Office for the products which they proposed to manufacture. Of this sum £200,000 would be clear profit. It is quite immaterial for our present purpose that the Contract was not drawn up on this basis, and that when an agreement on another footing had been reached, the contractors failed to fulfil any of their promises of supply. The point of importance is that in the agreement which was made, although it had subsequently to be terminated by the Ministry, the figures given, with their very excessive rate of profit, were accepted as affording a basis of negotiations." The Committee conclude with a number of re- commendations chiefly with a view to strengthening the position of the Finance Branches. Incidentally there is a recommendation that the War Office should release qualified accountants for National Service in the Ministry. It is recommended that the Costing Section of the Aeronautical Supplies Department should be combined with the Contracts Branch. Having regard to the scope of " FLIGHT," in dealing with this report, the references to aeronautical matters are naturally more the concern of this journal, but it should be noted that there are many instances of profiteering in other branches of the Chemical and Engineering Industries, which more than justify the continuance of the work of this Select Committee,, and it is to be hoped that this report will be acted upon. 304
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