The knowledge and understanding of procurement planning received by the students of the Army Industrial College played an important part over the years in the work of the Army and Navy Munitions Board and finally in the procurement procedures adopted by the civilian war agencies, notably by the War Production Board. It was one of the best investments in preparing for war in time of peace that was made after World War I. Graduates of the college filled many of the key positions in the Army and Navy and in some of the civilian agencies established by the President during World War II.8 One of its most valuable contributions was the personal contacts it established between officers in the military services and by them with leaders in industry and finance in civilian life.
The Army and Navy Munitions Board. The origin of this Board has been
mentioned. At its first meeting in 1922, a suggestion was made to take up immediately the preparation of an industrial mobilization plan, but nothing specific was done along these lines for some time. The Board at first devoted itself principally to the study of estimated requirements, tentative allocation of production facilities between the Army and the Navy, and some planning for increasing such facilities. The work of the Board was, for one thing, hampered by the lack of strategic war plans. Information was requested from the Joint Army and Navy Board as to what war plans were to be used as the basis for procurement planning. It was pointed out that a specific war plan had to be assumed before a realistic procurement program could be prepared. It goes without saying that the difficulty in all long range procurement planning is the uncertainty as to when, where and how the next war will be fought. some kind of assumption must, however, be made to provide a basis for estimating logistic requirements. There is no record that any satisfactory reply was ever made to these requests of the ANMB. Partly because of this, and partly because the decade following the establishment of the Board was one of world-wide preoccupation with the limitation of armaments and with efforts to make the League of Nations an effective instrument for preventing future wars, the ANMB accomplished very little during the first ten years of its existence.
During th early 30's, there was a revival of interest in procurement planning and industrial mobilization for national defense. The Memoirs of General John J. Pershing the Commander of the American forces in France during World War I, appeared in serial form in the New York Times, beginning in January 1931. Pershing was very critical of the lack of planning before an during the early part of the war. He maintained that the Army General Staff should have been able to furnish the plans and the thinking for industrial mobilization in anticipation of our being drawn into the war, but that this was not done, largely because of opposition from entrenched interests in the War Department itself. he charged that, as a consequence, the Army lacked munitions and even any plan for obtaining them.
By Public Resolution No. 98, Congress, in 1930, created a War Policies Commission "to promote peace and to equalize the burden and to minimize the profits of war." The hearings before this Commission resulted in focusing attention in the Navy Department on the low state of its own procurement planning for war, and indirectly this resulted in a reorganization fo the ANMB in June 1931. An Executive Committee was provided consisting of two officers from the Army and two from the Navy. The Navy members were the Director of the Material Division, Office of the Chief of Naval Operations, and the Chief of Procurement Planning in that
Division. The senior of the four officers was to be the chairman. For the working organization just as before, a number of committees and subcommittees were set up consisting of officers appointed by the heads of the various divisions and subdivisions of the War and Navy Departments. Most of the officers were assigned to this duty on a part time basis with paramount duties elsewhere.
After its reorganization in 1931, the ANMB devoted much time to allocating existing industrial facilities to the Army and Navy, respectively, as part of the plans for the production of their estimated war needs. Some of these facilities were to be used jointly, but most of them were assigned exclusively to either the one or the other of the two services. A tremendous amount of work was necessary to collect the data and to make the studies involved, not only the part of the Board but also on the part of the field forces of the Army and Navy, and of industry itself. At one time, the facilities of some 20,000 industrial firms had been examined and earmarked for the production of specific items of war materials. The possibilities of expanding the facilities of many plants was also studied. Naval Officers working with the Board began early to express doubts as to the practicability of the allocation system, and finally converted the Army to their point of view, to the extent that by 1940 the number of earmarked firms was reduced to about 10,000. All of this work came to nothing when, on representations of the Navy Department in June 1941, the allocations had to be thrown into the discard because it was found that the system was actually slowing down the naval expansion program. That program had acquired considerable momentum by 1941, and needed additional sources of supply not earmarked for the Navy, while plants assigned to the Army capable of taking Navy order had unused capacity. The futility of this type of long-range planning carries a valuable lesson for the future.
In most respects, the Material Division (Op-24) of the Office of the Chief of Naval Operations went along with the thinking of the Army members on the Board. The Bureau of Supplies and Accounts, however, did not agree with some of the planning that was being done. That Bureau had for many years rendered highly efficient service as the principal purchasing activity of the Navy Department, and was particularly reluctant to abandon purchasing by the competitive bidding method in favor of any form of contracting based on negotiation. Negotiated contracts were implicit in the procedures envisioned by the ANMB for wartime procurement. Because of its know views, the Bureau of Supplies and Accounts had been by-passed in some of the earlier policy-making deliberations of the Board. The following memorandum from the Chief of the Bureau to the Chief of Naval Operations, dated July 24, 1935, is quoted, as it
summarizes the position of that Bureau with respect to the commitments the Navy Department, on the recommendation of the Chief of Naval Operations, had made in going along with the ideas of the ANMB in its earlier mobilization plans:
"The published plan states that the Army procurement program is paralleled by one developed by the Navy. The Bureau of Supplies and Accounts has not developed any procurement plan for the Navy at all similar to the one described in the Industrial Mobilization Plan, 1935.
"The Industrial Mobilization Plan sets up certain principles of procurement procedures (replacement of competitive bidding by allocation system) which, in the opinion of the Bureau of Supplies and Accounts and of experienced officer who successfully managed Navy procurement throughout the World War (1917-18) are not adaptable to the Navy and not conducive to its best interests ... By approval of this principle, the Navy Department has consented to discard the plan and principle on which it has built a procurement system which has served without scandal for many years, which has been taken as a model by many other government and industrial organizations, and which has stood the test of two wars with distinction, and which has emerged from every investigation with a clean bill of health. And it agrees to revolutionary methods to be adopted just at the outbreak of a war when of all times the general confusion should not be added to."
Further expansion of the activities of the ANMB took place in 1935. A Commodity Division, a Procurement Control Division, and an Industrial Division were added to the former committees. In August 1935, the size of the Executive Committee was increased and its composition altered from two officers es-officio for each department to three Army officers and three Naval officers. The addition from the Army was an officer from G-4, War Department General Staff, and the one from the Navy was an officer from the Bureau of Supplies and Accounts.
It cannot be said that the Navy Department contributed as much to overall matériel planning during the inter-war period as the War Department. For one thing the Matériel Division of the Chief of Naval Operations had no clear-cut mandate to do the things that the Planning Branch of the War Department was doing. Neither did it have the personnel in number nor in qualifications for entering fully into procurement and industrial mobilization planning. As compared to the Army, the Navy Department has always been handicapped in the matter of Line Officers available for duty of this kind, because the Navy is much more highly mobilized in time of peace than the Army. The demand at that time for officers to fill billets on ships and in the shore establishment left only a small number of Line Officers available for long range logistic planning, whereas the Army with its skeletonized organization in peace times had many officers available for postgraduate education and for war planning in all of its ramifications. In December 1941, for example, the Matériel Division (Op-24) in the Navy Department consisted of 78 officers and
77 civilians; 28 of the officers were actually assigned to work with the Board of Economic Warfare. As against this number, the Planning Branch of the War Department at the same time consisted of some 1,250 persons. The greater numbers employed in the War Department on such work, was however, probably due in part to the Army's General Staff system and to the normal tendency of the Army to overstaff activities of that kind, and does not necessarily represent an correspondingly greater output of planning.
In the matter of competence, there were many naval officers with extensive experience in material production and procurement, who were well qualified for this type of duty, but they were mostly in the Staff Corps. These officers were always in demand for important assignments in their own branches of the service. The Chief of Naval Operations did not in any case, during the pre-war period, look with much favor on the assignment of Staff Corps officers to duty i Operations although some of the most constructive thinking on logistics was being done by such officers.9
Logistic and procurement planning in CNO was furthermore a specialty lying somewhat outside of the field of major interest of Line Officers. There was certainly a belief at that time that an officer whose record showed too much association with the logistics of matériel would be at a disadvantage for promotion to flag rank, as compared to officers who had concentrated on the command segment of Line duties.
Much attention was given by the ANMB to the preparation of an industrial mobilization plan to be put into effect on the imminence of outbreak of war. Several such plans were drawn up before the studies culminated, in 1939, in a plan which met with the approval of the Secretaries of War and the Navy. This plan was later published as U.S. Senate Document No. 134 (in October 1939) under the title, "Industrial Mobilization Plan Revision of 1939. A study of Methods for the Effective and Equitable Utilization of the Industrial Resources of the United States in Time of War."
The document is worth studying because the philosophy of the utilization of national resources, and the mobilization of industry necessary to make these resources available to the Armed Forces as quickly and effectively as possible in time of national emergency, is clearly and concisely set forth. One purpose of the proposed plan was to guide the initials steps of industrial mobilization pending the establishment of an agency under civilian leadership and to provide the nucleus of the personnel for such an activity. It was thought that an organization with a skeleton crew of
already-indoctrinated personnel would be able to inaugurate industrial mobilization more quickly and more effectively than an organization recruited from individuals without any background of thinking on the problems of war production. On the imminence or outbreak of war, the principal objectives of the plan were: to get the country into war production as rapidly as possible; to prevent competition between the Armed Services for the nation's resources; to establish priorities for materials in short supply; to provide for the expansion and conversion to war production of existing facilities; to create new facilities as necessary; and to do all of these things under civilian control and leadership, with due regard to civilian needs and to the requirements of any allies that the country might have.
The Super Agencies
Following the approval of the Industrial Mobilization Plan of 1939 by the Secretaries of War and the Navy, the Secretary of War recommended to the President that a board of qualified civilians be appointed to study the plan. Under date of August 4, 1939, the President authorized the appointment of such a board, which became known as the War Resources Board.10
The War Resources Board approved the Industrial Mobilization Plan and the other recommendations of the ANMB with the comment that the planning branches of the Armed Services had demonstrated an awareness of the industrial problem of modern war and that the plan marked an advance in national preparedness.11 The Board expressed the opinion that the efficient conduct of a future war "might require the temporary abandonment of some peacetime objectives of the Government,"12 and "wartime powers ought to be vested in specially created wartime agencies which will be automatically demobilized when war is over."12
The Board concluded its report with a list of certain other considerations involved in national defense which it thought the ANMB should investigate further. These included the study of legal restrictions which
might interfere with the procurement of munitions, such as the laws relating to employment, hours of work, and overtime, etc., in Government Navy Yards and arsenals, and the Walsh-Healey and Davis-Bacon Acts in their application to suppliers. Further studies of the size of industries to expand, the possibility of converting plants engaged in the production of civilian goods to munitions manufacturing, and the drafting of further legislation that might be needed to adapt the Army and Navy procurement systems to war, were mentioned as important.
At first the report of the Board with its recommendations, received the blessing of the most influential organs of the press and of the nation's leaders in various fields, but it was not long before less favorable comments began to appear. Henry Wallace, speaking for Agriculture, noted with concern the domination of the Board "by Wall Street bankers." Matthew Woll, the labor leader, in a statement in the New York Times of September 21, 1939, declared that labor would surrender its gains of twenty years if the Industrial Mobilization Plan were put into effect. The American Federation of Labor passed a resolution expressing similar anxiety.
Toward the end of August 1939, the President became lukewarm in his earlier support of the findings of the War Resources Board. On the grounds that the law providing for a Council of National Defense passed in 1916 as still on the statute books and left some doubt as to the exact line dividing the authority of the Council from that of the War Resources Board, he instructed the Director of the Budget not to allocate any funds for the Board's use until a more detailed statement of its functions had been prepared and had received his approval. Assistant Secretary of War Louis A. Johnson and Assistant Secretary of the Navy Charles Edison drew up such a statement but the President did not approve it. Later, Mr. E.R. Stettinius Jr. had an interview with the President, as a result of which Dr Harold G. Moulton and Mr. John Hancock were directed to prepare a further statement of the Board's objectives. This was made in November 1939, but it was also unfavorably received by the President. the Board then died a natural death.
The War Resources Board was the first of several attempts to provide appropriate emergency machinery for going from a peacetime to a wartime economy. The experimental organizations that were in turn set up, and their broad general purposes are listed below. After experimenting for more than two years, the organization, purposes, and procedures outlined in the ANMB Industrial Mobilization Plan of 1939 were in a large measure adopted by the War Production Board. The below summary will be followed by a more detailed description of the agencies that preceded the War Production Board.
Name Purpose Date
Date dissolved or
functions taken over
War Resources Board To study ANMB Industrial Mobilization Plan of 1939. Aug. 4, 1939 Dissolved
Nov. 24, 1939
National Defense Advisory Commission To advise President on coordination of defense program. May 20 1940 Dec. 20, 1940 Office of Production Management To coordinate and speed up production of military supplies. Dec. 20, 1940 Jan. 16, 1942 Reorganization of OPM Reorganized and functions enlarged. June 24, 1941 Supply Priorities and Allocation board (SPAB) Created as part of OPM to assign priorities. Aug. 28, 1941 War Production Board Replaced OPM and SPAB and given overall authority on war production and procurement. Organization, functions, and procedures patterned on ANMB Industrial Mobilization Plan of 1939. Jan. 16, 1942 Dissolved
Oct. 4, 1945
The Council of National Defense and its Advisory Commission.14 The criticisms of the War Resources Board resulting in its demise drew attention to certain pitfalls in the path of procurement planning and industrial mobilization which President Roosevelt felt must be avoided in the future. Having these criticisms in mind he decided that requesting Congress for legislation to set up a new agency to deal with industrial preparation for war would be fraught with the hazards of delay and of getting tangled up in party politics. A search revealed that a provision in the Military
Appropriations Act of August 29, 1916,15 authorizing the establishment of a Council of National Defense consisting of six members of the Cabinet aided by an Advisory Commission was still on the statute books and could be brought back to life. The name itself was in its favor as it emphasized defense rather than war. On the Advisory Commission, representatives of labor, agriculture, industry, and other sectors of American life could be appointed, thus correcting another of the defects of the War Resources Board. It was felt that the New Dealers would be pleased with the proposal as it required the least rearrangement of the existing government departments. The Council itself consisting of six Cabinet officers would be brought together anyway every Friday at the regular Cabinet meetings. The work would actually be done by the Advisory Commission and the machinery set up under it.
The President appointed the Commission on September 8, 1939, one week after the outbreak of war in Europe and proclaimed at the same time a limited national emergency. On May 25, 1940, he issued an administrative order establishing by authority of the same statute the Office of Emergency Management in the Executive Offices of the President to assist in the clearance of information and to maintain liaison between himself and such emergency agencies as might, from time to time, be created. Thus, no new legislation by Congress was found necessary to set in motion the processes for going form a national peacetime to a wartime economy. The manner in which the President announced the revival of the Council of Defense, under an old law dating back to before the entry of the United States into World War I, and the appointment of the Advisory Commission, is worth noting. The announcement made no mention of war and in order to be reassuring to the isolationists said, We are trying to expend about $1.25 billion more this year for national defense than the normal process and in order to do that it has seemed wise to put into effect what has been ready and planned for a long time under an existing statute without having to go and propose something entirely new in the way of legislation that would take weeks and months and a great deal of pro and con discussion, partisan and otherwise, and would probably end up in practically the same form that we have on the statute books now."
The Advisory Commission. In the organization of the Advisory Commission of the Council of National Defense and in the selection of its personnel, the President revealed his attitude toward the control of industrial mobilization. This was to remain his way of thinking for the next two years. He appointed to the Advisory Commission representatives of the
principal elements that would have to pull together to form the team handling the overall war production effort.16 But he did not apply a lesson that the first World War had taught, namely, that there must be a recognized single head for such an organization if its work was to be effective. The President believed very firmly at that time that the reins should remain in his own hands. At the first meeting of the Commission, when William S. Knudsen, one of the members of the Commission, asked "Who's boss?," the President replied. "I am."
The duties of the Advisory Commission as set down in the Statute17 were to supervise and direct investigations and to make recommendations to the President and the heads of the Executive Departments with regard to the mobilization of the naval an military resources for defense; the increase o domestic production, essential for the support of the Armed Forces and the civilian population; and the collection of data as to production and availability of military supplies. Inasmuch as each member of the Advisory Commission was designated an adviser to the President on some aspect of the defense program, he was also directly responsible to him for conducting investigations and making recommendations to facilitate the progress of the defense program within the area to which he was assigned.
Donald M. Nelson18 was named Coordinator of Purchasing under an order of the Council of National Defense on June 27, 1940. He was not part of the Commission but had to work very closely with the Commission. He was not to do any buying, but was to advise the Federal Government when and how to buy and he was to coordinate the various material procurement programs of the War and Navy Departments.19 Thus, Donald Nelson became the principal spokesman for the Commission in its procurement relations with the armed services even though he was not a member of the Commission. His appointment as Coordinator of Purchasing in a sense marks the beginning of industrial mobilization, although there is no date that can really be given as a point of departure for the study of the subject. The beginning actually goes back to 1938 before the outbreak of war in Europe when the President, through the ANMB, instituted some measure of control over purchases in the United
States by Great Britain and France of airplanes, airplane engines, guns, and other munitions following Hitler's march into Austria. A Clearance Committee under the ANMB was eventually established in July 1939 to register and to exercise control over such contemplated purchases by foreign countries.
The Advisory Commission did not, however, superseded the ANMB; neither did it make use of its personnel and procedural experience as contemplated in the Industrial Mobilization Plan. Nevertheless, the Commission immediately, on its appointment, took an interest in most of the problems that were visualized as important in the Industrial Mobilization Plan and to which the ANMB and the Bureaus had already given considerable thought. The expansion of plant facilities was one of these, and will be discussed in more detail under that heading later on. In the summer of 1940, the Advisory Commission took an active part in obtaining the passage of an Act on October 4, 1940, for stimulating the expansion of such facilities through tax amortization, but when it came to giving effect to the act, the Advisory Commission contributed little.
In the matter of priorities, Bernard Baruch had pointed out that, based on the experience of World War I, they were the synchronizing element in an overall war effort. The ANMB was largely instrumental in obtaining the passage of an act dated June 28, 1940,20 giving the President power to fix priorities for delivery of material under all Army and Navy contracts, and, it his discretion, to place them ahead of all deliveries for private account or for export. The ANMB established a Priorities Committee to implement the act, and issued a directed dated August 5, 1940, on "Priority in Material Procurement." The Advisory Commission suggested that more detailed instructions be issued to Army and Navy procurement officers. This was done under date of August 12, 1940. The Commission, in a memorandum to the President, expressed approval of the steps that had been taken by the ANMB. However, when shortly thereafter the Commission was informed by Donald Nelson that an amendment was being proposed to the Selective Service Act to give the Army and Navy authority to establish their own priorities, the Commission brought the matter to the attention of the President with the recommendation that the power to establish priorities remain with the President, that is, with the Advisory Commission as his agent. The Selective Service Act21 as passed, authorized the President "through the head of the War Department or Navy Department to place an order with any ... company ... for such product or material as may be required ... and ... capable of
being produced by such ... company." Compliance was mandatory and such orders were to "take precedence over all orders and contracts placed with such ... company."
This was not satisfactory to the Advisory Commission, so it obtained the President's signature to a letter to the Secretaries of War and the Navy instructing them to refer all mandatory orders under the Selective Service Act to it for an opinion. Control of priorities was particularly important at that time for expediting the production of aircraft. This led the Under Secretary of War, Robert Patterson, to send Knudsen a memorandum dated October 4, 1940, covering a "program for expediting production of military airplanes" which provided for the creation of a Priority Board consisting of representatives of the Army, Navy, and Advisory Commission. The Commission reacted by inducing the President to issue an Executive Order22 establishing a Priority Board without including thereon, representatives of the armed services. The Board consisted of Knudsen as Chairman, Stettinius and Hillman as the other members, and Nelson as the Administrative Officer. It had full authority to grant or to withhold priorities. This arrangement was not satisfactory to the War and Navy Departments, and led to an exchange of correspondence and conferences between the Advisory Commission, the War and Navy Departments, and the ANMB. The dispute was finally carried to the White House resulting in an agreement that items on the ANMB critical list would be entitled to automatic preference ratings By Army and Navy contracting officers, but that additions could be made only with the concurrence of the Advisory Commission's Priorities Board.
Differences of opinion over priority matters continued to be a cause of dispute between the various agencies inasmuch as the power to assign priorities lay at the heart of effective production controls. Machine tools were a never-ending battleground for such disputes. The ANMB had recognized machine tools as one of the most critical factors in war production. No agency was willing to give up its interests and rights in that field inasmuch as machine tools remained in short supply right up to the end of the war.
The clearing of defense contracts was another controversial subject which was never satisfactorily adjusted during the life of the Advisory Commission. There was difficulty in reaching agreement on the scope of the clearance function as well as on how it should be carried out. The President had in mind some form of control by the Advisory Commission over the placing of defense contracts, but whether clearance was merely to provide a record fo what contracts had been placed, or whether
the Commission was to be given an opportunity to examine each contract to insure that procurement policies were being followed, was never definitely settled.
One difficulty was that members of the Commission themselves were not in agreement as to what were the fundamentals of a sound procurement policy. Some Commissioners were primarily interested in having the armed services make good business deals; others were more concerned with the interests of the groups they represented; for example, the protection of labor's rights and the safeguarding of social gains that had been achieved. In May 1940, the President finally gave instructions that the executive departments were to obtain the approval of Commissioner Knudsen for all important purchase contracts. In order to avoid being swamped by small contracts, Knudsen issued a directive that all contracts involving an expenditure of more than $500,000 were to be submitted to him for clearance. This led to a jurisdictional clash between Knudsen and Nelson who, it will be recalled, was the Coordinator of National Defense Purchases. The Commissioners also felt that they should have a voice in passing on contracts. After much discussion, the Commissioners finally and reluctantly decided that contract clearance would be left to Knudsen and to Nelson. The exact line marking the jurisdiction of each was never satisfactorily settled.
Only a few of the difficulties in which the Advisory Commission became involved have been cited. There were many others. The days of the Commission were rapidly drawing to a close. As Donald Nelson said later23 "The National Defense Advisory Commission began to stagger in the late summer and early autumn of 1940. In November, it was punch drunk." Its chief defect lay in that it was only an advisory commission. The President never intended it to be anything else and its members reacted accordingly. Each Commissioner concerned himself principally with the interests of the field which he was appointed to represent. The Commission had neither a chairman nor a director. Its most important function form the point of view of mobilizing industry for war, was exercised, in the opinion of most observers, by Donald Nelson as Coordinator of Purchasing, but he was not a member of the Commission. For these reasons, the ANMB did not look at the NDAC as the super-agency contemplated by the Industrial Mobilization Plan, as it was not clothed with administrative powers. According to that plan, the ANMB was to coordinate the defense program until the super-agency was established. Its staff was then to be merged with that of the super-agency; but the President decided against such a merger. The Advisory Commission made very little use of
the ANMB. Donald Nelson remarked in this connection24 "Although this rich reserve (the Industrial Mobilization Plan, the ANMB, and the Army Industrial College) of practical experience and research was on hand the National Defense Advisory Commission went its own way and made little or no use of the available material. I believe most of the members thought that contemporary problems were so much more intricate that newer and fancier remedies would have to be sought." This is an important observation for future guidance.
The Office of Production Management. Commissioner Knudsen in a memorandum to the President dated November 7, 1940, urged the appointment of one man as the executive officer for the Commission. In this he was following one of the recommendations of the ANMB Industrial Mobilization Plan of 1939.Other members of the Commission had come to the same view, but it was clear that the President was still loath to relinquish direct control of national defense planning and production. He did, however, establish a new super-agency which was called the Office of Production Management. In a press conference on December 20, 1940, he expressed himself strongly on his reasons for not turning control over to a single head. He said,25 "(a cardinal principle of our Government) is the fact that one cannot, under the Constitution, set up a second President of the United States.... I am setting up a new organization called the Office of Production Management ... (consisting of) ... the Director, Mr. Knudsen, and the Associate Director, Mr. Hillman, the Secretary of War, and the Secretary of the Navy...."
In March 1941, Donald Nelson, as the head of the Purchasing Division of OPM, was authorized26 or make proposals for the purchase or construction, by the War Department or the Navy Department of materials, articles, or equipment needed for defense." He was also authorized to review procurement procedures, methods, policies, and specifications of the various government departments and to inform himself on the programs of requirements and the desired schedules of delivery. In order to avoid swamping the office with small purchase orders, only those amounting individually to more than $500,000 were to be considered. This limit was later reduced to $200,000.
In the matter of priorities, Edward Stettinius, as Director of Priorities, was given wide powers. Due to the complexity of many of the questions that were raised, it took some time before a working organization could be established to implement these powers. Operations within the Priorities Division were divided among five sections, each handling a related
group of materials or equipment. A Navy Department representative was attached to each section.27 During 1941, with critical shortages developing in many lines, applications for priorities increased rapidly. By September 2, 1941, out of approximately 40,000 applications received by the Priorities Division of OPM, more than 18,000 had not been acted upon. Donald Nelson was finally placed in charge of priorities as the successor to Stettinius, and by expanding the organization, succeeded in speeding up action on priority applications.28
There were many clashes of cognizance between the Office of Production Management and Leon Henderson's Office of Price Administration and Civilian Supply. The former had recruited its personnel largely from industry and business; the latter, largely from career civil servants, universities and research institutions. It was, perhaps, natural that the latter group should take a broader and more nationalistic view of its mission than the former. At any rate, the OPACS often carried the flag for more rapid conversion to war production, usually at the expense of civilian production. The OPACS even made studies to show that the Office of Production Management was underestimating defense needs and was not expanding war industries as rapidly as appeared possible--studies that should have been made by OPM.
One of the problems that led to changes in organization and redistribution of functions in OPM was how to meet the ever-increasing foreign demands for munitions and machine tools; this even before the United States entered the war. As just mentioned, military production was the province of OPM and civilian supply of OPACS, but there was no agency with the responsibility for balancing the needs of the American economy with the needs of the democracies in Europe.
To correct this situation, the President, by Executive Order on August 28, 1941,29 created the Supply, Priorities and Allocations Board and abolished the Priorities Board previously set up in the Office of Production Management.30 The new Board, subject to overall supervision by the President, was to determine the quantity of materials to be allocated to military needs, lend-lease, economic warfare, and the civilian economy. Only broad policies and general regulations for priorities and allocations were to be fixed by the Board. The actual work was to be done by the appropriate divisions of OPM. The quantity of critical materials to be released to foreign governments under lend-lease was one of the first matters of
policy considered by the Board. The Army, the Navy, and the Maritime Commission, as a matter of principle, were opposed to releasing any such materials to foreign governments on the grounds that they were needed for the American war effort. When, in the fall of 1941, Russia asked for $33 million worth of machine tools without any explanation as to their urgency, Secretary Knox objected strenuously to complying with the request. Hopkins, who presumably had discussed the question with the President, stated that the White House considered prompt action on the Russian request essential. It was, therefore, approved.
There were many similar cases of approval of Russian demands unaccompanied by explanations as to urgency. When other foreign governments requested large shipments of steel, aluminum, rubber products, and machine tools, they were always accompanied by full explanations supporting the urgency of the requests. BUt, on orders form the White House, the Russian requests without supporting data were usually give the right of way over those of other governments. The official history of the war prepared by the Bureau of the Budget notes that "the composition of the SPAB created a situation more favorable to the administration's policy of aid to Russia. The Office of Production Management had been weighted against aiding Russia. The inclusion of Wallace, Henderson, and Hopkins in the membership of the SPAB strengthened the hand of the President in checking the disinclination of the Armed Forces to allocate industrial materials to Russia."31 In the light of after events, it would appear that the President's generous policy toward Russian requests was wasted [The author must mean wasted in terms of post-war political capital or "good will". Strengthening the Russians may not have had any profound effects on the U.S. Navy, but it sure may Eisenhower's job on the western front a lot easier! --HyperWar] and prevented genuine international mobilization and control of resources. It was, fortunately, not carried quite so far in furnishing Russian information on the development of new weapons. There was never any reciprocity from Russia in the way of scientific information or lend-lease in reverse.
The War Production Board. The attack on Pearl Harbor on December 7, 1941, brought to a close the prewar phase of the national defense effort. The President was at last prepared to adopt one-man control of industrial mobilization and war production. To this end he established the War Production Board on January 16, 1942, and named Donald M. Nelson as its Chairman. The new Board replaced most of the agencies that were concerned with industrial mobilization and the control of war production. The functions of the Office of Production Management, of the Supply, Priorities and Allocations Board, and of the civilian supply part of the Office of Price Administration and Civilian Supply were absorbed by the new agency. The Office of Price Administration remained as a separate entity and so did the control of Lend-Lease.
The administrative plan adopted for the War Production Board was, in many respects, similar to the one proposed by the ANMB in its Industrial Mobilization Plan of 1939. Although the WPB and its predecessor agencies did not, as contemplated by the plan, make full use of the personnel trained for this work by ANMB and by the War and Navy Departments, a great many career Army and Navy officers were eventually detailed to duty in the WPB and made invaluable contributions to the effective functioning of the Board by reason of their intimate knowledge of the needs of the armed services. None were, however, so highly placed in the hierarchy of the Board as to lead to the criticism that its policies were dominated by military men.
It was fortunate that the WPB inherited Donald Nelson from its predecessor agencies. He provided continuity of a very valuable sort. He had come to Washington in 1939 to look into government purchasing for the Secretary of the Treasury. From there, he had gone to the Advisory Commission of the Council of National Defense and then to OPM. He became the best informed man in the country on the overall aspects of industrial mobilization and war production. There were many individuals and groups in the armed services, in industry, and in politics who were better informed and more experienced than he on specific aspects of converting the country from a peacetime to a wartime economy, but no one was in position to see the overall picture more clearly than he.32
Many changes were made during the war in the organization and procedures of the War Production Board, some springing from clashes between strong personalities in the upper levels of the Board, others from hard-earned experience, and still others from changing conditions. These need not be described in detail, but have been fitted in to the history of Navy Department administration as appropriate.
A number of important policy decisions having to do with material procurement had to be made by Donald Nelson shortly after the WPB came into being. One was that the WPB would not become the purchasing agent for the Army and the Navy, but that the War and Navy Departments would continue to do the actual contract-making and buying as theretofore. Pressure was put on him from many sides to take over these functions, as had been done by the Ministry of Supply for all of the armed service in Great Britain, with the exception of the Admiralty, which continued to handle contract-making and purchasing for the British Navy.
Donald Nelson was strongly advised by some of the political leaders in Congress to take over this function; the advice was, however, often given for diametrically opposite reasons. A good example is contained in the Hearings on June 25, 1942, before the Special Senate Committee
investigating the National Defense program, when the Chairman, Senator Harry S. Truman, in his opening remarks, said to Donald Nelson, who was on the stand, "I am anxious to see that the Procurement and Purchasing Section of the War Production Board be in civilian hands, and I am anxious that they stay in your hands and under your direction" and later, "In other words we want to have these things in the hands of civilians, not in the hands of the 'Brass Hats'." These and other remarks made at the Hearing by Senator Truman indicate that he feared that "Brass Hats" would be too strong-minded and inelastic if unsupervised purchasing were left in their hands.33
Senator Ralph O. Brewster, a Republican on the Committee, voiced the view at the same Hearing that "the emphasis was that civilian responsibility was essential in an emergency because the bureaus with permanent status hesitate to take the responsibility fo short cuts," and later, in speaking more specifically of officers, said "In the experience of generations, in placing final responsibility in civilian hands because their careers are not so intimately involved." In other words, Senator Truman seems to have felt that career officers would be too arbitrary, and Senator Brewster that they would be too timid to perform these functions satisfactorily unless supervised by civilians.
Donald Nelson was, however, neither afraid nor scornful of the thinking of military men. He had the wisdom to make full use of the experience of professional officers in the armed services by weaving them into the organization of the WPB. An example of the esteem in which career naval officers were held by the WPB will be given shortly. None of those officers were placed so high in the hierarchy of the WPB as to jeopardize civilian policy control. The arrangement made it necessary to maintain close liaison between the Navy Department and the War Production Board in all phases of procurement, and was, therefore, all to the good.
Donald Nelson, at the same time, placed in the War and Navy Departments high caliber civilians of his own choosing to coordinate and to carry out the policies of the WPB. The arrangement proved especially successful in the Navy Department, as will be noted from Donald Nelson's description of the working of their interrelationships in his book Arsenal of Democracy. Actually, the Industrial Mobilization Plan of 1939, which had been prepared in the Army and Navy Munitions Board by career officers of the Army and Navy, visualized eventual complete civilian control of industrial mobilization and was the arrangement which, in its essentials, was adopted by the WPB.
While it does not lie within the province of this work to enter into the history of the WPB, it is desirable to give the student of the administration of the Navy Department in World War II some idea of the philosophy underlying Donald Nelson's methods in converting industry to the war effort.
His concept of the task lying before the wPB in this respect can best be stated in his own words. After the war he said:
"As I understood my job, it wasn't up to me or to WPB to tell industry how to do its job; it was our function to show industry what had to be done, and the to do everything in our power to enable industry to do it ... this isn't to say that we did not have plenty of authority and that we didn't use it arbitrarily when we had to. We had authority to force a manufacturer to requisition private property during the war and at times we did just that. We had authority to stop the production of all kinds of goods, and we certainly used it up to the hilt. ... There had been a great deal of talk that perilous winter (the winter of 1942) about the need for a "munitions dictator." I did not then believe, and do not believe now, that we needed anything of the kind. ... We never tried to make, for industry, the thousands upon thousands of decisions that were involved in putting through a production program. We used controls, yes--all kinds of them, yet even a device like the Controlled MAterials Plan, which was certainly a far-reaching exercise of government power, was basically nothing more than a device for enabling industry to get what it had to get, in order to do the job."34
To make these policies and practices effective required close collaboration and cooperation between the military departments and the WPB. The experience of the WPB with the War and Navy Departments, respectively, can best be given in Donald Nelson's own words. After the war he said:35
As far as the Navy was concerned, this delegation of authority and division of responsibility worked out extremely well. The Navy from my observation is a smart organization; it knows how to fit itself and its requirements into the framework of civilian control needed to conduct a war economy.
But the case was different with the Army. The Army's Service of Supply was not satisfied to tell us what its requirements were and when these had to be met; it also insisted on telling us how to get what it wanted. This, I hasten to add, was not true of what may be called the working branches of the Army. ... But above this level we always had trouble. The difficulty arose over a question of policy; from the beginning I had make it a practice to pare down the less essential part of civilian economy whenever this action became necessary in order to insure the production of munitions.
The top men in the Army's supply set up, however, consistently opposed giving any consideration even to the most essential civilian need. For example, they fought against allocating material or machinery for the production of farm machinery, insisting that the farmer could use his old equipment and did not need anything new.
We ran head on into this attitude over the question of making repair parts for civilian use. ... Our controversy over coal mining machinery is a case in point. ... General Somervell insisted that repair parts were not needed, not even for coal mining machinery. .... But my obstinacy raised a storm and the next thing I knew I was attending a meeting in the office of Secretary of War Stimson. Present, in addition to the Secretary and me, were Secretary Knox and Under Secretary Forrestal of the Navy, Under Secretary Patterson of the Army, General Somervell and a number of his assistants. I stuck to my point ... but a breach had been opened between the men of the Army Supply Service and WPB; a breach which was never closed.
The whole question of how to conduct a war economy successfully was implicit in that argument. It illustrates the importance of keeping the control of the economy in civilian hands.36
Donald Nelson gives many other examples of difficulties with the War Department, other Federal Departments, Emergency Agencies, Congress, and with his own organization, in carrying out his responsibilities for war production and priority control, but makes no mention of any trouble in dealing with the Navy Department. This difference in the adaptability of the War Department and the Navy Department to civilian control was partly a matter of personalities, but more importantly, a matter of organization and administrative procedures. The Navy Department administrative mechanism was the Bureau system, augmented by the Chief of Naval Operations and coordinated for the Secretary of the Navy by the Office of Procurement and Material. The latter mechanism was set up as one of the Executive Offices of the Secretary on January 30, 1942, two weeks
after the establishment of the War Production Board. Its functions will now be described.
Office of Procurement and Material
That office, as one of the Executive Offices of the Secretary of the Navy, had its roots in the drive of Frank Knox in the summer of 1940 for more complete and more reliable Navy Department statistics of all kinds. Statistics were an area of interest to the Secretary, not only because, as a businessman, he was accustomed to the use of statistics a tool of management, but also because the National Defense Advisory Commission, which came into being at about the same time, was making frequent calls on the Navy Department for statistical data, which the Navy Department was often not in position to furnish quickly and accurately. The Office of Production Management, the Supply Priorities and Allocation Board, and finally the War Production Board, continued to find fault with the Navy Department on this score, and urged improvement in the quality of the statistics being furnished.
Not that statistics were completely lacking in the Navy Department; the Bureau of Construction and Repair had for many years been compiling fairly reliable monthly reports of progress of ships under construction, but these reports lacked accuracy because that Bureau was dependent on other Bureaus for information as to the progress on their parts of the ship. The Bureau of B&R had no control over the progress of those parts of ships not under its cognizance, nor over the compilation of reports dealing with such parts. Much improvement in the reliability of the reports became possible after the consolidation of the Bureau of Construction and Repair, and Engineering, to form the Bureau of SHips; but, information as to progress of components under other Bureaus still left an area of uncertainty, and emphasized the importance of some coordinating mechanism that could bring these data into focus in one place.
In August 1940, the Secretary directed the establishment of a section in the Office of the Chief of Naval Operations through which all stations were to be channeled, and where they were to be coordinated. This arrangement proved unsatisfactory because CNO had neither the personnel nor the experience to coordinate and compile such data. The Statistical Unit was, therefore, in December 1940, transferred from CNO to the Secretary's Office, where it was merged with the Office of the Budget, which then became known as the Office of Budgets and Reports. Here also the results obtained were unsatisfactory because that office was primarily concerned with fiscal matters and had neither time nor much interest in matériel statistics.
By the end of 1941, the Office of Production Management was urging the Navy Department to forecast its matériel and war production requirements at least 18 months in advance. This brought to a head the need for more scientific treatment of the whole subject. Statistics presented a three-fold problem: the collection of adequate and reliable data, the tabulation and presentation fo statistics in understandable form, and the publication of the statistics with sufficient promptness to serve as the guide for the next steps in planning and production. Statistics meeting these requirements called for their compilation with a background of common policies and standardized practices. This in turn pointed to their compilation in an office directly under the Secretary of the Navy or under one of his high-level civilian executive assistants.
As the mobilization of industry for war production gained momentum, additional reasons arose for setting up such an office. An office was needed to work out for the Secretary common policies and procedures for production and material procurement tor govern the Bureaus in their dealings with each other, with other government agencies and with industry. For this purpose, a single point of contact in the Navy Department, to which the super-agencies and industry could turn, was necessary. The Navy, furthermore, needed a well informed advocate to present its case for priorities before the War Production Board and other emergency agencies. Another aspect of the need for coordination was the frequency with which the Secretary was called upon to act as the referee in Navy Department internal disputes over matériel matters. He had neither the time nor the information to do justice to settling such disputes. A staff was needed to prepare the cases for him and give him impartial advice as to the action to take. The upshot was the establishment of the Office of Procurement and Material, eventually called the Office of Naval Material.
The office was established by General Order No. 166 under date of 30 January 1942.37 The major units transferred to the ne officer were the Resources Planning Division form CNO, the Division of Reports from the Office of Budget and Reports, the Machine Tool Section from the Shore Establishment Division, and the activities having to do with the distribution of work to small business. Eventually the management control of the material inspection service was also assigned to OP&M. Placing the Procurement Legal Division under the new office was at one time considered, but was finally left as an independent unit reporting directly
to the Under Secretary, as has been described in the chapter on "The Judge Advocate General and the General Counsel."
A brief review of the procurement machinery of the Navy Department is in order before describing the organization and functioning of the OP&M during the war. This consisted of a number of co-equal Bureaus, described in previous chapters, each of which was in its own technical field, a self-contained procurement agency. The procurement fields were, broadly speaking, ships, aircraft ordnance, general supplies, medical supplies, and public works. Under each category a multitude of component things had to be provided, many of which were common to all, or at least to a number of, Bureaus.
Specifically, contracts were made by the Bureau of Supplies and Accounts for all standard stock materials, for food, and in general, for items commonly used by two or more Bureaus. The Bureau of Ships contracted for naval vessels and, broadly speaking, their machinery and technical equipment. The Bureau of Aeronautics made contracts for air-frames, engines, propellers, and the special equipment needed by aircraft. The Bureau of Ordnance was the procuring agency for guns, ammunition, armor, fire control and other special ordnance equipment. The Bureau of Medicine and Surgery had the responsibility for medical supplies and hospital equipment. The Bureau of Yards and Docks made the contracts for the public works and for much of the equipment used in the shore establishments of the Navy. There were, thus, in the Navy Department, six major agencies engaged in buying naval material and supplies. There was, however, practically no contract duplication. Each Bureau stuck to its own field. The procurement of many items, such as ammunition, small arms, food, medical supplies, etc., was pooled with the War Department.
Although the Bureaus purchased different kinds of material they were confronted with identical business and contracting problems. Each Bureau was, in a measure, an independent operating unit organized on vertical lines with flow of authority downward, beginning with the Secretary of the Navy. Uniform practices and coordinated effort were expected from horizontal linkage through announced policies and directives. Providing horizontal linkage was to be the principal function of the Office of Procurement and Material. Thus, while procurement would, at the operating level, remain decentralized in a number of autonomous Bureaus, it would, at the policy-making and coordinating level, be effectively centralized by the Office of Procurement and Material.
Although the word "procurement" appeared in its title, the Office of Procurement and Material never purchased anything. This was the policy also of the War Production Board, which did no purchasing of its own, but exercised control over the regularly established procurement activities
of the Government through policy-making, regulation, coordination and the assignment of priorities. The Office of Procurement and Material did not replace the Bureau system in any sense, except in exercising management control (not technical control) of the inspection of naval material. Its basic function remained coordination and the control and regulation of procurement through the formulation of policies covering contract-making and the expansion of production facilities. As the Deputy of the Secretary, it made decisions on innumerable questions that arose continually in connection with material procurement, and it represented the Department of the Navy before the emergency agencies that had been set up by the President to deal with war production.
While the task of OP&M can be simply stated, its execution was far from simple.. The growing scarcity of raw materials, the need for additional industrial facilities, and the competition for the limited manpower of the country underlined the need for close coordination of Navy Department material procurement. The Secretary of the Navy had to keep in mind that the Navy was only one of the claimants for war production; others were the Army with its Air Force, the Maritime Commission, the civilian economy and the Allies. A single office was necessary to present the Navy's needs when in competition with the other claimants. Thus, the Office of Procurement and Material became the instrument not only for coordinating and formulating policies within the Navy Department, but also served as the spokesman for the Navy's logistic needs before the War Production Board and other government agencies.
Four main branches constituted the original organization of OP&M. The Planning and Statistics Branch planned, coordinated and disseminated matériel statistics. In liaison with the super-agencies, it determined what statistics were needed and the form in which they were to be prepared. The Production Branch handled production problems, raw material controls, new facilities, and their financing. The Procurement Branch coordinated the negotiation and awarding of contracts; its work was closely associated with certain functions of the Army and Navy Munitions Board and, in this field, served as the liaison between the Navy Department and the War Production Board. In May 1942, the Management Control of the Inspection Service was added as a fifth branch.38
Planning and Statistics Branch. All of the Bureaus had been compiling statistics and making progress reports of sorts for use in connection with the preparation of their annual budget requests, and to provide them with current information as to the status of their programs. Secretary Knox's interest in statistics and his attempts at improving the statistical service have been mentioned. It was not, however, until OP&M took over the preparation and evaluation of statistics that their full usefulness as tools in Navy Department management was reached.
The branch was staffed by men from civilian life who had made a specialty of compiling, organizing, and evaluating statistical data, and of applying such data to the solution of management problems. These men brought into the Navy Department the latest practices form a profession which in civilian life had become highly specialized and was making important contributions to the management control of industry and finance. The branch assisted and advised the Bureaus on methods and procedures for improved record-keeping in connection with inventory control, scheduling of components to fit into end-product production, the computation of material requirements, and the forecasting of personnel needs. Members of the staff were made available to the Bureaus to assist them in establishing statistical units for handling routine work as well as for handling specific problems. The branch also assisted special boards in reaching sound and reliable conclusions through the compilation and evaluation of statistics. Boards, such as the Procurement Review Board, the Manpower Survey Board, the Joint Production Survey Committee, and the Requirements Review Board profited greatly form the help received form the statistics branch.
Production Branch. The Production Branch of OP&M maintained particularly close liaison with the War Production Board. Its organization was set up to parallel as closely as possible the organization of that Board. Officers in this branch were assigned to addition duty on the various Requirements Committees of the War Production Board. Some twenty officers were so detailed. All had had extensive experience in the Navy Department's shore establishments and in the technical bureaus.
The Vice Chairman of WPB, when this method of providing liaison was started, questioned whether naval officers were serving a useful purpose as members of WPB committees. Admiral S.M. Robinson suggested that the Vice Chairman detail a competent individual of his own choosing to survey the kind and quality of the work being done by these officers. He offered to withdraw the officers if the investigator reported that they were not serving a useful purpose. The Vice Chairman adopted the suggestion and had a thoroughgoing study made, which resulted in a report
to him that the services of the naval officers on the committees were invaluable and that they should, under no circumstances, be withdrawn.39
The Production Branch, because of its close contacts with the Bureaus, was frequently consulted in advance by WPB to ascertain the probable effect on procurement of new regulations under consideration. For example, at one time an amendment to the regulations having to do with the conservation and distribution fo aluminum was under consideration, which would have permitted the use of aluminum in place of copper for certain components of war equipment. While the supply of aluminum had been increased sufficiently to permit of this substitution, the Production Branch found, on looking into the matter, that the change would require permanent mold castings and that this would slow down the entire aircraft production program. As a result, modifications were made in the proposed amendment so as to avoid the imminent delay.
Revitalizing Navy programs that were lagging became an important part of the work of the Production Branch. Delays to be overcome sometimes involved shortages in critical materials and components, in other cases troubles in manufacturing plants, especially in the plants of subcontractors. For example, in order to accelerate the landing craft program it became necessary to place 43,000 and 57,000 additional tons of plates on the already overcrowded rolling mill schedules for the months of December 1943 and January 1944, respectively. The Production Branch, working through the War Production Board, solved the problem without seriously interfering with the programs of the War Department and the Maritime Commission.
Another example involved roller bearings and became the bottleneck of the landing craft program, although production output had been greatly increased. The Production Branch, jointly with the War Department and the WPB, worked out a solution by reducing the number of spare bearings carried in storehouses and by redistributing stocks at naval shore establishments and in private industry. Without a coordinating activity such as OP&M that could act for the Navy Department as a whole, solutions to such problems would have been very difficult.
Procurement Branch. Frank Folsom, the Chairman of the WPB Procurement Policy Division, was given the additional assignment of head of the
Procurement Branch of the OP&M. Wearing two hats, one in the Navy Department and the other in the WPB, worked so well that the arrangement was adopted for many other positions. It promoted harmonious and effective working relationships between the civilian super-agencies and the Navy Department.
With the expansion of negotiation in place of competitive bidding for making contracts, the adoption of standardized practices in such matters became of cardinal importance. The formulation of negotiating policies was one of the duties of the Procurement Branch. In this connection it worked closely with the Procurement Legal Division of the Secretary's Office. The Procurement Branch was also of considerable help to the Bureaus in providing additional personnel for their contract negotiating divisions.
Actually, some of the keenest negotiators for the Government were naval officers who had had long experience in drawing up the specifications for contracts, and in inspecting the finished products called for by the contracts. Naval officers also had for many years represented the Government in determining the cost of changes made during the progress of work in shipbuilding contracts. Nevertheless, men brought in from civilian life with actual purchasing experience were of inestimable value to the Navy Department in adding to such personnel.
The Price Analysis Division of the Procurement Branch and the Price Adjustment Board made available to the negotiators, data on costs, prices, and profits. Policies and practices aiming at price controls, never remained static very long, as prices that today represented excessive profits might tomorrow be inadequate to insure a healthy procurement atmosphere.
Outside of Washington, the Procurement Branch had personnel working with the Smaller War Plants Corporation's regional offices located in some fifty industrial centers throughout the country. These field activities served to advertise nationally the Navy's procurement needs and to bring small firms into the procurement programs either as sub-contractors and as direct contractors.
The prevention of overlapping procurement was one of the most important functions of the War Production Board. This involved the clearing of contracts, especially of large contracts, through upper level reviewing authorities; otherwise, the War and Navy Departments, the Maritime Commission and other agencies would shortly have been in irresponsible competition with one another for the limited supplies of materials available. When the OP&M was established, it was decided to delegate the Navy contract clearing responsibility to that office.
This was a convenient arrangement as the contract-makers were the Bureaus and they were readily accessible for consultation, as they were
located under the same roof with OP&M. The latter, in turn, had direct representation on the WPB.
Probably the most salutary effect of the contract-clearing procedures was their restraining influence on the Bureaus in making excessive demands. Contracting personnel, knowing that their procurement plans and requisitions would be reviewed, were less likely to make unreasonable requests than would otherwise have been the case. The procedures no doubt led to more careful planning and discouraged piling up of excessive stocks.
Industrial Readjustment Branch. In no part of the war effort was coordinating and policy-making more important than in demobilization and industrial readjustment. A new branch of OP&M to handle such matters was formed late in 1943 to study and later to handle contract termination and property disposal. The branch was at first a small policy-making group organized to deal with the Offices of War Mobilization and Reconversion, of Contract Settlement, and with the Surplus Property Board. Collaboration with the War Department in such matters was considered particularly important because the War Department in such matters was considered particularly important because the War Department's procurement methods were very much more complicated than those of the Navy Department. The two departments prepared "Joint Termination Regulations" and the "Joint Termination Accounting Manual" to standardize procedures.
By April 1945, the work of disposing of surplus property had reached large dimensions, making it advisable to separate property disposal from industrial readjustment. A Property Disposition Branch was therefore established and made responsible for coordinating Navy policy internally and to provide a single contact with the Surplus Property Board and the several civilian property disposal agencies.
Post-War Developments. In August 1945, the name of the Office of Procurement and Material was changed to the Material Division and was placed under the Assistant Secretary of the Navy. In December 1945, the Secretary of the Navy assigned the additional duty of inventory control to the Material Division, transferring this work from the Office of th Chief of Naval Operations. Finally, the 80th Congress passed Public Law No. 432, approved by the President in March 1948, giving the Office of Naval Material legal status. This law provided that "The Chief of Naval Material shall, under the direction of the Secretary of the Navy, effectuate policies of procurement, contracting, and production of material throughout the Naval Establishment, and plans therefor. ..." It also provided that "The Office of Naval Material ... shall be headed by a Chief of Naval Material who shall be detailed by the Secretary of the Navy from among officers on the active list of the Navy not below the rank or grade of rear admiral." No stipulation is made in the law as to the professional background of the officer, but the fact that the office is to be headed by a
high ranking naval officer makes it clear that Congress recognized the importance of operational experience whether at sea or in the shore establishments of the Navy as essential to the performance of these administrative duties. Actually, the chiefs of the Office of Naval Material have been selected at various times from unrestricted line officers, officers of the staff corps, and officers restricted to engineering duty.
Spreading War Work
The ANMB Industrial Mobilization Plan of 1939 had touched upon the inevitability of a drastic reduction in manufacturing for civilian consumption in the event of war and on the need for converting non-essential industries to military purposes. It was recognized that this, in turn, would necessitate spreading the production of munitions to the country as a whole and to inexperienced manufacturers. The situation came to the front as a problem of national importance during the spring of 1941 when the $9 billion expansion program of the armed services began to affect the nation's peacetime economy.
Limitations on the use of strategic materials for the production of civilian goods and the practice of awarding most of the defense contracts to a comparatively small number of large manufacturers were the first signs of trouble. It was feared that the situation would develop to the point where thousands of small manufacturers and, in some cases, while industries might be forced out of business.40 However, bringing into war work manufacturers with no previous experience in supplying the needs of the armed services was not a simple matter. It proved particularly difficult to bring small manufacturers into war production.
Statistics released by the Office of Production Management in June 1941 showed that almost three quarters of the Army and Navy contracts in terms of dollar value had gone to 56 companies. Six corporations held $3 billion worth, or almost one-third of these contracts: Bethlehem Steel Corporation, New York Shipbuilding Company, General Motors, Curtiss-Wright, Newport News Shipbuilding Company, and DuPont. Placing the contract with large companies, especially with those accustomed to doing business with the War and Navy Departments, as logical from the point of view of prompt and reliable performance because these companies combined technological know-how, competent engineering staffs, and adequate plant facilities to a greater extent than did small companies. The large companies had always sub-contracted a considerable portion of their work,
but in volume it did not reach many of those concerns whose business consisted principally of filling civilian needs. The vast majority of the 185,000 manufacturers in the United States received no prime contracts under the early defense programs. As a result, unused manufacturing capacity increased rapidly. As early as December 1940, the National Association of Manufacturers had made a survey of 16,000 manufacturing plants and had found that over 400,000 machines were idle, an average of fourteen hours out of the twenty-four hour day. Many complaints, about the situation were made direct to Congress and furnished goo ammunition to Congressmen for criticizing the Navy Department's contracting methods.
The Navy Department was sympathetic to the plight of small manufacturers as it wanted their contribution to the defense programs. But the pressure that could be placed on prime contractors to still further spread their work was limited. The Navy Department could not force a fixed price contractor to sub-contract against his will, as the prime contractor was held liable under bond for the satisfactory performance of his contract by a definite date. To force him to sub-contract might readily lead to failure to meet the contract date. The procedure of sub-contracting also involved much extra administrative work for the contractor. The prime contractor was, therefore, in a strong position to refuse to sub-contract.
The President came to the assistance of the small manufacturer by setting up the Defense Contract Service in February 1941. This service was organized with field officers in the main branch office of the Federal Reserve System, through which it was expected to reach small producers. Under the director of each field office, a technical staff was brought together to advise small manufacturers in the vicinity who were in need of work as to the availability of war work within their capabilities. Three basic steps were necessary to bring small manufacturers into such work. First of all, it was necessary to find the manufacturers who had unused facilities; then to ascertain what work was available, suited to their facilities; and finally to arrive at an appropriate type of contract for doing the work.
Forrestal, on several occasions, requested the Defense Contract Service to make surveys of the sub-contracting situation in the Navy's industrial establishments. One such survey was made in June 1941, resulting in a recommendation that a sub-contract section be established in the Navy Department. The duties proposed for this section were to examine the work done in the Navy's shore establishments with a view to finding items that could be made in outside plants, to study the subject with Navy prime contractors to the same end, and to maintain close contact with the Defense Contract Service offices. For a number of reasons the President, on September 4, 1941, abolished the Defense Contract Service
and established in its place the Division of Contract Distribution in the Office of Production Management41 with Floyd Odlum as its director.
The President's reorganization of the Defense Contract Service also brought to a head the Navy Department's discussions on this subject. What the navy yards might be able to do in distributing work was of considerable interest to Secretary Knox. He, therefore, dealt in the matter through the Shore Establishment Division which was headed by Captain C.W. Fisher, USN, (later Rear Admiral). Fisher pointed out in August 1941 that the efforts to widen distribution should be directed at all material contracts as well as to navy yard work, and that, therefore, this function should be placed in the office of the Under Secretary. This was done with Fisher acting in liaison with the Director of the Contract Distribution Division, in addition to his duties as Director of the Shore Establishments. In his new duties he worked closely with Odlum, who believed that high pressure publicity would bring widespread and immediate results.
It soon became evident that spreading war work through the competitive bid method would not be practicable. On September 19, 1941, in a letter to Odlum, Forrestal outlined the statutory changes that would be necessary in order to make it possible for the Navy Department to comply effectively with the Executive Order. He recommended for one thing, that the Navy Department be authorized to make contracts at its discretion through negotiation instead of through competitive bidding. This was one of the strong arguments used in obtaining passage of the First War Powers Act in December 1941.
To carry out Odlum's idea of wide publicity, the Division of Contract Distribution in OPM put together three display trains and set up a number of production clinics in various parts of the country where representatives of the Army, Navy, and Maritime Commission could exhibit to manufacturers samples of articles needed for the defense program. Interested manufacturers then had their names placed on the bidders list of the Bureau of Supplies and Accounts. Plans and specifications for the articles were also made available to prospective contractors. The Bureaus were along with this idea although somewhat dubiously. It received the full backing of Rear Admiral Fisher and of the Under Secretary's office.
Small manufacturers interested in defense contracts were advised through advertisements to come to Washington to receive further information. This plan did not turn out too well, as manufacturers responded by the thousands, hoping to receive orders for articles that they were already accustomed to making. The Contract Distribution Office was swamped with callers from such companies. Actually, very few of them had
facilities or the know-how to take up immediately the manufacture of the articles that were needed. Simply adding the names of manufacturers to the list of possible bidders or of concerns willing to consider Navy orders was not enough. Critical evaluation of the ability of manufacturers to produce the things desired was essential; that is, a bringing together of competent manufacturers and of specific procurement needs. Some good was, however, accomplished because many small manufacturers make contracts with prime contractors which resulted in business, but in general, the experience of the small manufacturers at these meetings was disappointing and disillusioning.42
Fisher, in a memorandum to Forrestal on February 7, 1942, summed up the situation as follows, so far as Navy policy was concerned: "The instinctive reluctance of procurement officers to trust manufacturers whose technical know-how, engineering skill, and managerial ability are unknown quantities must be overcome. This excessive caution is the normal result of years of inadequate appropriations and ample sources of supply and, perhaps, supplies justifiable reasons for not gambling with the unknown. The necessity for utilizing every additional machine is no longer based on a social or economic objective, but has become a necessity of military survival." The Bureaus felt that, far from being excessively cautious, they were gambling considerably on small contractors. They pointed out that failure of sub-contractors to meet promised deliveries was a major factor in delaying completion of important end products such as ships, aircraft, and ordnance. This fact indicated the need for caution in awarding contracts to small inexperienced companies.
It would, indeed, have been a miracle if the Navy and industry at large could suddenly and without difficulty have gone from long established practices and from procedures that were entirely logical for peacetime procurement to the complexities involved in bringing a host of inexperienced manufacturers into the munitions production field. Out of the policy of spreading war work there emerged, however, a great number of additional manufacturers capable of doing such work satisfactorily. The best introduction was through sub-contracting. This was often followed by direct undertakings. The list of highly specialized work taken on by
manufacturers formerly engaged exclusively on civilian production makes interesting reading. It includes the manufacturer of plumbing fixtures who, as a sub-contractor, took on the production of torpedo tubes; the manufacturer of sterling silverware who produced radar magnetrons for a research laboratory; the structural ironworks thousands of miles from salt water which took on the building of landing craft. Examples could be cited indefinitely.
The spreading of war work to inexperienced manufacturers, especially to small manufacturers who had only very limited engineering staffs underlined the importance of the Navy Department's inspection service. During World War I, the Bureaus had found that competent inspectors could be of great help in getting inexperienced companies underway on war production. The part that this activity played in a similar capacity in World War II will be covered under the heading of the Inspection Service.
Negotiated Contracts and Price Control
Mention has been made of the various considerations that led Congress, in June 1940, to authorize the making of contracts for such costly items as ships, aircraft, and production facilities through negotiation instead of competitive bidding, and of the extension of this authority in the First War Powers Act in December 1941 to all contracts. The negotiated contract made it possible for one thing, to use "the letter of intent" procedure to shorten the time for getting underway on production. The letter, signed usually by the Chief of a Bureau, was addressed to a manufacturer or builder, directing him to undertake certain agreed upon work immediately. The letter contained no definite price agreement, but stated that it was the intent to enter into a formal contract later. The directive to proceed with the work avoided all of the delays of initiation associated with the competitive bid method of arriving at contracts. This often saved the contractor much time in placing firm orders for the materials needed and in planning his production schedules. Navy Department representatives then in negotiation with representatives of the contractor worked out the details of the contract, including the all-important ones of price and profit.
In the beginning, most of the contract negotiating for the Navy Department was done by career personnel in the Bureaus--civilian and in uniform. Negotiations were conducted in various ways: by correspondence, by telephone, by personal interviews and by the conference method. In 1942, Mr. W. Browne Baker was brought into the OP&M as the special assistant to Frank Folsom to concentrate on negotiated contract procedures.43
He had had long experience in such work and brought others in from civilian life to build up negotiating units in the various Bureaus. Physically the negotiators ere placed close to the technical sections where procurement originated. Appropriate machinery was also provided in the OP&M to check and review the proposed contracts. That office also followed up letters of intent issued by the Bureaus, as there was a tendency to postpone the making of formal contracts longer than necessary. Negotiating units were eventually established also in the Marine Corps and in the Chicago office of the Advanced Base Division of the Bureau of Yards and Docks. At their peak strength, the negotiators numbered about 150, and together with the technical experts in the Bureaus, became formidable teams in obtaining for the Government contracts that were not only good business deals, but that made no sacrifices in the quality and suitability for naval use of the materials being purchased. The Negotiation Division of OP&M left to the technical Bureaus, in a large measure, the determination of the extent and character of the functions of its negotiators.
Broadly speaking, four major types of Navy contracts were used, designated according to their price provisions as the fixed price contract, the maximum price contract with provision for later price determination, the cost plus a fixed-fee contract, and the incentive contract. The fixed price contract was the most extensively used type. It resulted from competitive bid procedures as well as from negotiation. In order to make actual cost data available, fixed prices were often not agreed upon until the contract had run for some time.
The maximum price contract differed form the conventional fixed price contract only in the fact that it contained a clause providing for subsequent negotiation of a new price on the basis of the cost incurred in performing an early part of the work, usually the completion of the first units of the order. This type was often the outcome of an impasse having been reached by the negotiators as to what constituted a reasonable fixed price; the contractor for various reasons being unwilling to take the risk of a lower price and the Navy Department believing that the price proposed might result in an excessive profit. A stipulation under such circumstances was included in the contract calling for a later price determination with the provision, however, that the new price was to be no higher than the price stated in the contract. Such later price determination was deferred until sufficient cost data had become available to provide a reliable basis for fixing the final price.
The cost-plus a fixed-fee type was widely used for construction projects and other types of procurement in which costs were unpredictable even after extensive cost data had become available. They were used for the kind of work for which it was impossible to negotiate a realistic fixed
price. There was no incentive in such contracts to keep down costs. It was used, therefore, only when no other type could be negotiated.
It can be said that these three types of contracts protected industry against incurring disastrous losses on war work and that they expedited the industrial mobilization of the country. They also protected the Government against paying excessive profits to its contractors, but they did not provide incentives for industry to lower its production cost. While it was realized for the reasons already given that the Government is fundamentally in a less favorable position for economical procurement than the private buyer, the Navy Department nevertheless continued its efforts to develop a form of contract that would be an incentive for lower costs.
During World War I, various forms of cost plus a fixed-fee contracts had been tried which contained an incentive provision. This provision was in the form of a bonus to be paid to the contractor if he bettered an estimated cost that had been agreed upon. But the best that can be said is that they did not provide an incentive for increasing costs as was the case with the straight cost-plus contracts. In the World Ear II incentive type a very careful estimate of the probable cost of the article to be produced was made. On this target figure the profit to be allowed was based, usually around 6 percent. If this target figure was bettered the contractor was given part of the savings as an additional profit. The larger the saving the greater the percentage of the savings turned over to him, thus providing an added incentive. Supplementary to the base or target price a maximum price was agreed upon, perhaps 50 percent higher than the target figure. Actual costs up to the maximum figure were allowed, but the profit remained the percentage of the base figure agreed upon.
The important difference between the World War I and the World War II incentive contracts was that the target price in the latter was very carefully estimated and was expected to turn out very close to the actual cost. In World War I contracts, such figures were apt to be pure guesses, and were usually on the low side. For example, the estimated cost, that is the target figure, agreed upon with the Ford Motor COmpany for building the Eagle boats in World War I turned out to be only about one-third of the actual cost. This meant that as soon as the contractor realized that he would not be able to better the base price, the incentive of earning a bonus had vanished and there was no longer any urge for keeping down costs. There was also in this older type of contract no maximum cost figure setting the limit for reimbursement, hence there was no incentive to prevent an actual loss on the contract such as there was in the World War II incentive type.
Toward the end of 1943, the Government contract negotiators started an intensive drive to convert fixed-price and cost plus a fixed-fee contract
into incentive contracts. It was soon found, however, that many contractors lacked sufficient production experience and organized cost data to make it possible to negotiate reliable base prices.44 Some of the contractors declined inventive type contracts because of uncertainties in the delivery of materials which might affect their production costs adversely. Others made it a condition to conversion that their profits were not to be subject to renegotiation and still other found stumbling blocks in cost accounting difficulties. Many contracts were, however, converted to the incentive type to the satisfaction of both the Navy Department and the contractor.
The selection of the type of contract best suited to meet specific Navy procurement needs was only the beginning of the problem of getting war production underway promptly and getting the most for the Government's dollar. When the very laudable effort to prevent inflation through overall price controls was under consideration by Congress in December 1941, it became evident to the War and Navy Departments that procurement difficulties would be immensely increased if celling prices were applied indiscriminately to everything in the military area. The War and Navy Departments therefore requested45 that the services be given broad exemptions from the Emergency Price Control Act in order to "conserve for (the services) the power to make their own price determinations in the procurement of goods for defense." The Senate Committee referred the letter to Leon Henderson, the Price Administrator, who replied that while the pricing of military end products, naming "tanks, cannon, armed vessels and bombers," as examples, was properly the function of the War and Navy Departments, control over prices for other commodities and basic materials was an integral part of all price control and could not be relinquished by his agency. The War and Navy Departments saw in this policy, if carried out literally, a crippling blow to speeding up the war production effort.
The matter was finally taken to the President with the argument that, since war goods did not enter into or directly affect the cost of living, any danger of inflation from war production would be prevented by controlling profits and wages and that the application of ceiling prices would be unnecessary. However, the President supported the Price Administrator in principle. More correspondence and further conferences on the question resulted. After almost a year of argument, Leon Henderson in a letter to Under Secretaries Patterson and Forrestal of September 17, 1942, made the following decision: "Accordingly, I am prepared to refrain at this time
from further extension of maximum price control in the area of strictly military goods provided that I receive assurance that the service will use all their powers as effectively as possible to control both prices and profits in the whole of the exempted area...." this policy was spelled out in detail in a joint agreement with OPA under the terms of which the OPA was to refrain from placing any further ceiling prices upon combat military purposes. The OPA also agreed to inform the Army and Navy in advance of any proposed action which might seriously affect their procurement programs, thus giving the services an opportunity to be heard before definite action was taken. To implement this agreement, additional liaison officers were assigned to the OPA form the Navy Department. These officers were ultimately combined in a unit in OP&M. They dealt with hundreds of questions during the war and prevented many small problems from growing into large ones.
Ceiling prices did not always affect Navy procurement adversely. In the case of many of the components entering into end products, ceiling prices were not reached because with increased demands, improvements in technology, and through economies resulting from mass production, the costs of many such items was actually reduced. This was one of the reasons why even after the keenest negotiation to arrive at equitable prices, the final cost would often represent an unreasonably high profit for the contractor. The contract was then renegotiated in order to recapture excessive profits. To insure that the Navy would benefit from economies of this kind, forward pricing was finally introduced. The contractor, under this procedure, was required to enter into a written agreement to reduce future prices as his costs declined.
It will be noted that obtaining the best deal for the Government was dependent not only on making what appeared at the time to be the best form of contract, but that additional means had become available to accomplish this end. Procurement for the Navy became a highly integrated process consisting of careful negotiation of individual contracts, continuous inspection of the contractor's costs, regulation through the OPA of the price of many components entering into end products, statistical studies leading to greater reliability of estimated costs, forward pricing, and finally, renegotiation of contracts where this was indicated. It may be mentioned that according to many businessmen, the methods used by the Government, in some cases to protect the public interest, would in private enterprise have been considered unethical.
Financing Plant Facilities
One of the first problems that arose when the Government embarked on the defense program of 1940, was how best to finance the additional
plant facilities that would be needed to carry out the various projects. Private enterprise could be counted on to only a limited extent to provide additional plant facilities. The experience of industry with unusable war production plants after World War I was too fresh to go unheeded by investment capital. The British and French had advanced more than $150 million for the expansion of aircraft and other munitions plants in the United States after the outbreak of World War II in Europe. In order to encourage industry to finance its own expansion, Congress was giving consideration to tax legislation having for its object the rapid elimination, as taxable assets, of any facilities erected for war work. The legislation was, however, slow in making its way through Congress. In any case, relief through tax amortization was subject to the gamble of how long the war would last. More direct and speedier methods were found to be necessary.
Expanding Government owned and operated facilities such as navy yards, aircraft factories, ordnance plants, and arsenals, was one line that could be and was promptly undertaken, but it was not enough and had its limitations. The important thing was to bring into the defense effort as quickly as possible the enormous reserve of managerial, engineering, and technological manpower and experience available in private industry. A beginning was made when the President, in June 1940, obtained from Congress an emergency fund for direct financing of facilities for the production of Army and Navy war materials; also, authority to make advance payments up to 30 percent on defense contracts, provided such contracts were given priority over all others. Thus, began the policy of Government financing of facilities and of advance payments to munitions contractors. The policy passed through many phases, and, in fact, throughout the war remained in a state of flux to meet changing conditions, but it was a powerful factor at all times in expediting war production.
In the creation of plants to produce munitions and in the expansion of existing facilities, two major problems were involved: one concerned money, the other materials. During the early part of this period, finding the money was the major problem. After Pearl Harbor, however, materials very quick.y became the governing consideration. As already mentioned, only a small part of the money for financing additional facilities came from private sources, but after the Tax Amortization Plan went into effect, more private capital ventured into plant expansions. When so financed, the facilities were privately built, owned, and operated. At the other extreme were the facilities that were Government built, owned, and operated, such, for example, as the expansion of navy yards. In between were the facilities consisting mostly of industrial plant expansions, built or financed by the Government, but operated by private enterprise. It was these that called for the greatest judgment on the part of the Navy Department and of
the super-agencies as to whether the expenditures of money and material involved could be justified. Ownership of some of these projects eventually passed into the hands of their operators, but others were held indefinitely by the Reconstruction Finance Corporation or by the Navy Department.
A clear-cut definition was early found necessary as to what constituted a facility entitled to financing by the Government. The classification finally agreed upon by the Navy Department and the civilian agencies was put in the form of a definition by the War Production Board in Directive No. 23 of January 7, 1944. It actually summarized the various definitions that had been used in the past. The directive classified facilities under two major categories: command facilities and non-command facilities. Command facilities were defined as "airfields, military housing.... overseas or theater of operations construction, seacoast fortifications, parts and depots ... passive defense projects ... flood control projects ... military and naval hospitals; maneuver, training and staging areas and proving grounds."
Non-command facilities covered all other types needed for the war effort. This category was further subdivided into industrial and non-industrial facilities. Naval industrial facilities were those which produced end items, component end materials for the Navy or in part, for the Navy and in part for other military programs. non-industrial facilities were those not directly concerned with the production or repair of end items, but which were, nevertheless, essential to the war effort and often had a significant bearing on material production, such as power plants, office buildings, and privately owned training facilities. Construction, not falling within any of the above types, was barred. A measure of the inadequacy for war production of the existing facilities in 1940 is the money spent on non-command facilities of the industrial and non-industrial types by the Navy alone during the five-year period from July 1, 1940 to June 30, 1945; a total of close to $10 billion. This represented about 10 percent of all of the money spent on the Navy during that period. The expenditures are broken down under purposes in the Annual Report of the Secretary of the Navy for the Fiscal Year 1945.
The funds made available in the Naval Appropriations Act of June 11, 1940, for expanding certain specifically mentioned facilities were soon found to be inadequate. Instead of waiting for Congress to appropriate additional funds directly to the Navy, it was decided to obtain help from other government agencies, as these agencies were not averse to assuming some of the responsibility fo bringing other industries into war production. At this time, also, the Army-Navy Munition Board was attempting to obtain additional funds to stockpile strategic materials. The War and Navy Departments, accordingly, requested Congress to authorize the Reconstruction Finance Corporation to assist the services in both fields of financing. Congress responded by authorizing the RFC, either directly or through
subsidiaries, to "purchase and produce equipment, supplies, and machinery for the manufacture of arms, ammunition, and the implements of war."46 Facilities so financed were to be leased to private corporations for war production. Under date of August 22, 1940k the RFC set up the Defense Plant Corporation to carry out the purposes of the act.
The National Defense Advisory Commission had, in the meantime, started to function and had set up the Emergency Plant Facilities Contract Plan as its own method of financing such plants. These two plans functioned side by side with the Navy's own direct financing operations through funds appropriated for that purpose by Congress. The Bureau of Ships, the Bureau of Ordnance, and the Bureau of Aeronautics were the principal recipients of direct appropriations for such purposes. Each of the three methods had its advantages as well as its limitations. Tax amortization might be termed a fourth method and had the advantage of keeping the Government out of the actual business of financing and eventually, in many cases, out of acquiring the facilities involved. But the paperwork connected with this method was very great and it could not, at the best, have been expected to provide any considerable part of the additional facilities that were needed. Many concerns, even though a plant expansion could, through amortization, be rapidly wiped off the books as a taxable asset, did not want their properties encumbered by facilities that might be unusable after the war.
Broadly speaking, financing directly by the Navy Department turned out to be the simplest and most satisfactory arrangement, although no plan was really simple because of constantly changing conditions and the ever-increasing importance of protecting the public interest caused by the influx if inexperienced and often unreliable organizations and individuals into war production. In its simplest form, direct financing by the Navy Department consisted at first merely of authorizing a contractor to go ahead with an agreed upon facility. As the work progressed, the Navy reimbursed him at stipulated intervals for the expenditures incurred until complete repayment had been made. The Government then took title to the new facility.
With further experience, provision had to be made for more and more contingencies in order to provide safeguards for protecting the Government's interests. Such questions as acquiring title to the land on which the facility was located, procedures for restoring the contractor's property to its original condition, of so elected by him, maintenance of the facility when not in use, the policy with regard to allowable charges that could be made against the cost of construction, and many others had to be ironed out. Later on, contractors were permitted to utilize such facilities for
private work, but Navy work continued to have priority and the contractor could be compelled to use all of his government facilities for war production. The contracts were eventually filled with options exercisable by the contractor as well as by the Navy Department. Most of these were concerned with the rights of purchase and the terms of purchase. The making of these contracts, with all of the variations that became necessary, provided a continuous field day for the lawyers that were brought into the Navy Department.
Loaded with complexities as the contracts were, the Navy's arrangements turned out to provide a quicker and better method than any of the other types. The reason is not hard to find; the contracts were initiated and negotiated by people in the Navy Department who had first-hand knowledge of what was required, and who also had the direct responsibility for what was to be accomplished by the facilities. The contracts were written by lawyers brought into the Navy Department for that express purpose. These two groups dealt directly with the contractors, subject always to appropriate coordination and liaison with the super-agencies. The other three types brought into the negotiations an additional government activity which assumed the ultimate responsibility for the financing. This made for much delay in getting the work underway, and resulted in complicated procedures in the administration of the financing. The Navy was, nevertheless, fortunate in having these alternative plans and made good use of them.
The expansion of facilities very soon presented a serious dilemma to the higher echelons responsible for their authorization. The easiest thing to do, when a shortage in a specific production are appeared, was to increase the production facilities. The lament of "too little and too late" was a potent threat. No one wanted to be responsible for a situation that could have been avoided by a little more spending on facilities. Playing safe paid dividends to the individual as well as to the organization involved. No one, whether civilian or in uniform, had ever been awarded a medal for saving government money, but many had been criticized for insufficient imagination in procurement planning. then, too, during the defense period from 199-1941 and for a short time after Pearl Harbor, there was an abundance of plant construction manpower and material available to put together the buildings that were called for.
The shortage of machine tools with which to equip the buildings was the first sign that the resources of the country were not unlimited and that the availability of money was not the only element involved in the mobilization of the nation for war. These things did not come as a surprise to the professionals in the services. They had been studied by the Army Industrial College and had been pointed out by the Army-Navy
Munitions Board. The dilemma was how to control expansion without discouraging the initiative that was necessary to provide promptly the additional facilities that were actually needed. Here again, the uncertainties that are associated with all was planning lay at the root of the problem. Unnecessary facilities meant waste. Of that, there could be no question. How serious the situation had grown at one time can be visualized from a letter written by Donald Nelson to Secretary Knox late in 1942, in which he said, "As things stand now facilities and construction, including many projects not related to the war effort programmed in 1943 with the carryover of uncompleted 1942 projects, will absorb between one-fifth and one-fourth of the total war effort. As a result, the aggregate demand of such projects for materials, labor, transportation, manpower and technical and engineering services is so great as not only to jeopardize the various military and essential civilian projects in general, but to force the most essential war projects dangerously behind schedule."
Controlling Plant Expansions
The mechanisms that were set up in the endeavor to prevent waste of materials and manpower in expanding plant facilities will be briefly reviewed. Two parallel control systems were established by the Navy. Command facilities, namely, military and overseas construction, originated by the Fleet or the Bureaus were subject to the approval of the Vice Chief of Naval Operations.47 Non-command facilities, namely industrial and all other types of construction in which the Navy was interested originated in the Bureaus and were subject to the approval of the head of the Office of Procurement and Material;48 in effect, the Under Secretary of the Navy.This latter type was brought under increasing control by the ANMB and the WPB. The organization of the ANMB had long provided for a Facility CLearance Committee, but until February 1942, it had little authority to make its decisions binding upon the services. After the reorganization of the ANMB in February 1942, to which reference has already been made, the Facility Clearance Committee had its hand strengthened for controlling expansions.
The War Production Board had its own Facility Utilization Division, which attempted to assist in solving service problems by suggesting alternative solutions, such as more subcontracting or increasing the productive efficiency of existing plants. Its Plant Site Board attacked the problem from the point of view of suitability of the locality selected for a new
facility. The ANMB Facility Clearance Committee had final authority on all projects under $1 million, but over this amount, projects were reviewed by the Plant Site Board of the WPB.
One of the important functions of the ANMB's Facility Clearance Committee was to umpire conflicts between the services o er allocation of existing facilities, particularly in the automobile industry and over the expansion of such facilities. Clearance given by the ANMB was effective only between the Army and the Navy and was not regarded as the final clearance on new plants involving expenditures of more than $1 million. In order to keep both the ANMB and the WPB fully informed, there was cross representation on the two Boards. In spite of all of the efforts that were being made to hold down the expenditures on new facilities, it was estimated that by September 1942, almost $30 billion worth of new facilities were being planned, of which only a small portion were making rapid progress. The war had reached a critical stage and the production of munitions was lagging behind schedule. After this estimate had been made, the WPB established the Facility Clearance Board and the Facility Review Board under Ferdinand Eberstadt.
The Facility Clearance Board of the WPB was authorized to review facility construction projects or programs whose total cost was over $500,000. The Board consisted of two representatives from the War Department, two from the Office of Procurement and Material of the Navy Department,49 one from the Maritime Commission, and one from the Office of Civilian Supply. Propjets to be considered by the Board were introduced for the agencies by their representatives in the organization. To supplement the work of this Board, the Facility Review Committee was created on the same date to handle projects lying in the zone between $100,000 and $500,000.
The Board and the Committee were designed to handle a maximum amount of business with as little duplication of effort as possible. Projects in the Navy Department usually originated in the Bureaus which submitted justifications supporting their requests to OP&M. If, after investigation, it was decided that the project was needed and conformed with existing directives, and application was filed with the Facility Clearance Board. If the chairman of this Board was satisfied with the justification submitted, no Bureau representatives were called on to appear before the Board. If, however, the OP&M did not recommend approval of the project, then the chairman of the Facility Clearance Board gave the Bureau concerned an opportunity to state its case. Projects for expanding facilities
continued to increase and led Secretary Knox to address a letter to the material Bureaus under date of November 26, 1942, inviting their attention to the seriousness of the situation and directing that more drastic steps be taken to curtail all new construction and expansions that could not be justified as absolutely necessary.
At this time, the WPB wished to extend its controls to the command construction projects of the services. But the Army, in particular, objected to this policy. The move of the WPB in that direction had the effect, however, of reducing the number of requests that were submitted for command facilities. Similar pressure to curtail command projects was also put on the office of the Vice Chief of Naval Operations.
Controlled Materials Plan
By the end of 1942, the facility expansion problem moved out of the realm of finding the money into the realm of finding materials. This was true also of the production of munitions. Even as early as the first months of 1942, it had become apparent that the mechanism for controlling the distribution fo such base materials as steel, copper, and aluminum, needed for war production, was not working satisfactorily. Some manufacturers had a greater supply of such materials in their warehouses than needed, others not enough to keep their plants running at full capacity. The ANMB had been studying the problem for the OP&M for some time, and proposed as plan to correct the situation which became known as the Controlled Materials Plan. It was put into effect by a directive of the War Production Board under date of November 2, 1942.50
The purpose of the plan was to assure a balance between supply and demand of certain critical materials, to the end that they would be available in the quantity and form and at the time needed to meet authorized programs and schedules. The "controlled materials" which were initially covered by the plan were steel, copper, and aluminum. Others were added later. The plan provided for the division of available supplies of these materials among various so-called claimant agents. The claimant agencies to which allotments were made were the Army, Navy, Maritime Commission, Aircraft Scheduling Unit (agent for the Army Air Force and the Bureau of Aeronautics), Office of Lend-Lease Administration, Bureau of Economic Warfare, and the Office of Civilian Supply. The word "allotment" as here used is a quantity and not the actual material itself. These
agencies subdivided their allotments of controlled materials among their prime contractors or other consumers under their control, such as the navy yards in the case of the Navy Department. The prime contractors receiving the allotments, in turn, subdivided them among their subcontractors, and they again subdivided them among their suppliers and so on until all knew the amounts to which they were entitled and which they could expect to received by given dates.
Each manufacturer, on receiving an authorized order or authorized delivery schedule for a product, also received a statement of the amount of controlled materials which he and his subcontractors would need and would be allowed to procure for the job. Such allotments were obtained from the claimant agencies mentioned or from the appropriate industry branch of the WPB. With the inauguration of the Plan on November 2, 1942, the Requirements Committee of the WPB was called on to make allotments to claimant agencies before February , 1943, covering deliveries of the controlled materials needed by each for the second quarter of 1943. After the plan was fully in operation, the mills producing controlled materials were not allowed to fill any orders except against allotments made under the plan. The chief difficulty with the plan came during the transition period in going from the procedure formerly followed to the new procedures.
The virtue of the Controlled Materials Plan lay in the fact that it kept the respective claimant agencies conscious of the shortage of materials and made it possible for them to plan their allotments where they were most needed. It kept under constant review the relative importance of the purposes for which it was proposed to use the limited amounts of critical materials that were available.
The foregoing description of the Controlled Materials Plan is an oversimplification of what was really a complex procedure. The complexities, for example, in controlling shipbuilding steel will perhaps make this clear. Steel is not just steel. It must be produced by the mills in many shapes, sizes and thicknesses. It was not enough for the WPB and the steel industry to know that a shipyard needed so many tons of steel per month to meet its ship construction program; the tonnage had to be produced and delivered in many different shapes, sizes, thicknesses and even qualities. Furthermore, if the assortment of shapes and plates did not arrive in the shipyard in the proper sequence, the effect on the yard's ability to build ships was just about as bad as if no steel at all had been delivered. A survey made by the WPB early in 1942 of the plate and shape situation at shipyards revealed that one yard (which could be taken as a fair example of all) needed each month some 763 different kinds of steel plates
and 455 different steel shapes.51 Any failure in the availability of these items meant an immediate slowdown in construction. This could sometimes be relieved by changes in design, but normally this was not possible. The variety of steel as to shapes, sizes, and thicknesses needed in shipbuilding, complicated enormously the practical operation of any plan of control. The situation was almost as bad for copper and aluminum.
Financing War Production
The steps that were taken to provide the additional plant facilities needed to carry out the various procurement programs have been briefly described. The government soon found that it had to furnish, also, a large part of the working capital needed by private industry to get the programs underway promptly and to keep them moving. There is normally a considerable lag between a contractor's expenditures for labor and materials and the payment he receives form the government for the finished product. For supplies and standard stock articles, the contractor receives no payment until after delivery of the goods. For large end items such as ships, buildings, drydocks, etc., he usually receives partial payments as the work progresses, the number of payments being as stipulated in the contract. But in the past such payments had been made only as earned to cover actual expenditures for labor, material, and overhead. In the case of contracts for small ships, partial payments had sometimes been made after certain events had taken place, such as the signing of the contract, the laying \of the keel, the installation of machinery, etc. A consideration underlying all progress payments had been to protect the government by making the payments only as earned. Contractors were expected to make their own arrangements for the working capital needed to bridge the gap between their expenditures and the reimbursement received form the Government.
This peacetime policy was found to be a serious handicap to the rapid conversion of industry to war production, especially when the Government began to take measures to spread war work to concerns other than those normally engaged in such work. The working capital needed to initiate the aviation, shipbuilding, and ordnance programs in particular, was very large. Banks were reluctant to make loans on such contracts, especially when undertaken by companies with no previous experience in work of the kind. There were any such companies, particularly those brought into the work as subcontractors. Many manufacturers were loath to undertake defense work because payments lagged so far behind their own
disbursements. Reimbursements came too late to finance the most difficult part of a new contract, namely, its initiation.
Authority from Congress to make substantial partial payments in advance of production was clearly indicated. [Only clear if the sanctity of capital above all else is a given. The United States drafted over 16,000,000 men and women into involuntary servitude for the war effort. Drafting capital (forcing banks to make the needed business loans--not confiscation of assets) was certainly a reasonable alternative, with the nation's survival at stake. --HyperWar] Largely on representations made by the Bureau of Ships and the Bureau of Aeronautics, Congress on June 28, 1940,52 authorized advance payments up to 30 percent on defense contracts within certain limitations to prevent abuse of the practice. Congress, at the same time, authorized the making of negotiated contracts for the construction and repair of ships and aircraft. These measures made it possible, when the Naval Appropriations Act was passed on July 20, 1940, providing funds for a 70 percent naval increase, to place contracts for over a billion dollars worth of new construction immediately. The prime contractors, in their turn, were able to make purchasing, subcontracting, and payroll commitments promptly, as the delays involved in obtaining working capital through the usual channels were avoided by the advance payments which could now be made.
Many administrative procedures had to be put into effect to prevent abuse of the advance payment practice. When the system was inaugurated, no interest was charged on such payments. This led some contractors to accumulate unnecessarily large stocks of materials. Others solicited such payments and then allowed large balances to accumulate in the bank as standby capital in anticipation of possible future needs. Beginning in April 1942, an interest charge of 2.5 percent was made. This placed a check on requests for advance payments unless actually needed. It was necessary, also, to make certain that advance payments were used only on the contract for which made. Surety bonds were at first required in addition to contract performance bonds to guarantee the return of advance payments in case the contractor went bankrupt. But the surety bond method of protecting the Government was largely defeated by the magnitude of the procurement programs. By the spring of 1942, the amount of bonds outstanding exceeded the combined capital of all of the surety companies in the country. As this situation left the Government without any real protection, and as bonding costs money, the Navy dropped surety bonding except in the case of advances to small companies of doubtful stability. The Navy Department thereupon became, in effect, its own bonding company, following the practice of many large industrial concerns.
To facilitate keeping track of the purposes for which advance payments were being used, the controlled accounts system was established early in 1942. The contractor selected a bank or a trust company, subject to approval by the Navy Department, in which he deposited all payments made
by the Government, advance as well as earned in a special account. He could not draw on this account without the counter-signature of a Navy representative, usually the inspecting officer. Such withdrawals could be made only for the specific purposes authorized in the contract, such as purchase of material, payment of labor and part of the overhead. The advance payment was gradually liquidated by withholding part of the progress and delivery payments as earned, leaving in the account at the end, only the contractor's profit.
There were a number of variations in the form and handling of controlled accounts, depending on the provisions of the contract. One development was the pooled account in which the advance payments for all of the contracts held by the contractor were placed. This, however. added complications and made it difficult to insure that the funds were used for the purposes stipulated in the individual contracts.
The spreading of war work was accomplished largely by subcontracting, but this presented a problem in financing because under the law the Navy was authorized to make advance payments only to prime contractors. It was considered legal, however, for the prime contractor, with the Navy's approval, to make advances under their contracts to subcontractors. This indirect method of furnishing working capital to subcontractors was used to some extent, but prime contractors were, as a rule, unwilling to assume the responsibility that this involved. Other administrative difficulties also arose, including the one of drawing more tightly the lines protecting the security fo advance payments.
The upshot was a complete review, in February 1942, of the problem of financing war production and of the advance payment procedures that had been established. This resulted, finally, in a conference of representatives of the Navy Department, the War Department, the Maritime Commission, and the War Production Board with the Board of Governors of the Federal Reserve System as a result of which a recommendation was made to President Roosevelt to authorize the Federal Reserve System to act as the Fiscal Agent of the Services in financing war contracts. Acting on this recommendation, the President, under date of March 26, 1942, issued Executive Order No. 9112 granting the War Department, the Navy Department, and the Maritime Commission authority to make or to guarantee loans, discounts, and advances for the purpose of financing any contractor, subcontractor, or others engaged in any business or operation deemed by these department to be necessary, appropriate, or convenient for the prosecution of the war," and appointed the Federal Reserve Banks as Fiscal gents of these departments.
To implement the President's Order, the Board of Governors of the Federal Reserve system, 8under date of April 6, 142, issued Regulation V
giving the objectives to be achieved and directing that "for the purpose of facilitating the financing of business enterprises, including the smaller businesses, in order that they may participate more fully in speeding up war production ... to this end the Federal Reserve Banks will arrange guarantees and loans in accordance with the provisions of the Executive Order ... wherever it is believed that they will contribute to the obtaining of maximum war effort expeditiously ..."
In this way, the guaranteed loan method of financing war production was put in motion. Originally it was intended only as an auxiliary device designed to broaden and to make more effective the advance payment practice that had been authorized by Congress. It soon became the framework for all war production financing, and eventually, for war contracts termination financing. The Federal Reserve System was well adapted to perform this function. Its facilities, trained personnel and spirit of cooperation were of inestimable value to the Navy Department.
Loans under this arrangement became known as V loans, the V standing for the alphabetical designation of the Regulation inaugurating guaranteed loans, and not for "victory" as has sometimes been assumed. The Finance Section of the Office of Procurement and Material, in collaboration with the Bureau making the contract, handled the routine of presenting each case to the Federal Reserve Bank. This included the justification for the financing proposed. The Federal Reserve Bank acted not only as the liaison link between the financing institution and the Navy Department, but also rendered invaluable service as an investigating and advisory agency to the Navy Department.
Notwithstanding the advance payment and guaranteed loan procedures which were no available to contractors, they were urged to use their regular banking connections for financing as far as possible. They now had a number of sources from which to obtain working capital to procure their war orders, advance payments from the Navy Department applying to specific contracts; loans from banks or financing institutions guaranteed under the provisions of Executive Order No. 9112 and Regulation V; loans from the Federal Reserve System under the provisions of Section 13(V) of the Federal Reserve Act; loans from the Reconstruction Finance Corporation; loans from the Smaller War Plants Corporation; loans from banks based on normal financing procedures, or a combination of ay of these methods.
While the purpose of the advance payment and guaranteed loan policy was to furnish working capital to contractors and subcontractors quickly and in sufficient amount to speed up war production, it was necessary to process applications for such financing very carefully. The initiating and reviewing personnel in the Bureaus, in OP&M, and in Federal Reserve
Banks had to satisfy themselves that the contractor needed Government financing, that the product called for by the contract was necessary to the successful prosecution of the war, and that the contractor's past record provided reasonable assurance that he would be able to perform satisfactorily. As a matter of sound business, the Navy Department also adopted the policy of making the contractor's bank or other financing institution assume part of the lending risk so that all of the responsibility would not fall on the Navy as the guarantor of the loan. This also insured careful servicing of the loan by the bank. A gradual scale of guarantee fees was established as an incentive for the financing institutions to assume as large a proportion of the risks involved as possible. Ordinarily the Navy guarantee was not in excess of 90 percent, although in a few cases it went as high as 95 percent. The average guarantee on loans outstanding was 85 percent.
The financing or war production may be said to have passed through three phases. The first phase started with the conclusion reached by the technical Bureaus of the Navy Department, during the planning of the naval expansion program in 1940 that the Government would have to furnish much of the working capital that would be needed by contractors to get the program underway promptly and to keep it moving rapidly. As already mentioned this conclusion found expression in Congressional authorization in June 1940 permitting negotiated contracts and advance payments up to 30 percent on contracts. The emphasis during this period was all on broadening war production as much and as quickly as possible, and to this end financial assistance was furnished to contractors without stint. The financial risk involved was a secondary consideration in making advance payments and in guaranteeing loans. Administrative procedures were nevertheless being improved constantly to prevent abuses of Government financing.
This phase may be said to have lasted until the summer of 1941, when the second phase was entered. The crisis had been passed in the production of many of the most urgently needed items. But by that time, the scarcity of war materials, particularly of steel, copper and aluminum, had become acute and the Navy Department was obliged to cut down in procurement schedules wherever possible in order to make way for other claimant agencies for such materials. The summer of 1943 was, therefore, an appropriate time for the Navy Department to overhaul its fiscal policies with a view to reducing the financial risks being taken by the Government. The Navy could now, also, afford to screen out more rigorously manufacturers of questionable competence and stability. Actually the dollar amount of Government financing continued to increase for some time, but under greater safeguards for the capital that was being advanced.
The third phase was one that was in the making from the beginning. It involved the devising of mechanisms for going back to a peacetime economy as painlessly as possible as soon as the shooting stopped. It was a tremendously complicated problem and presented itself in every nook and cranny of the American social and industrial structure; in none more so than in the financing of war production. Planning for it could not be postponed until the end of hostilities. To the armed services it presented the dilemma of wanting production to continue at a high rate until the need was definitely over, but at the same time, of tapering off advance payments and guaranteed loans in order to reduce the risks involved in further financing.
From the beginning, many manufacturers hesitated to take war orders because of the fear of a sudden ending of the war, leaving them not only with all of the problems of reconversion to their peacetime business, but particularly with the refinancing problems involved. This uneasiness was reflected in the attitude of all contractors toward war orders. It was particularly bothersome to the more substantial ones who had the most to lose by hasty and ill-considered termination procedures. If production was to be kept at a high level, some assurance had to be given that industry would not lose heavily by the ending of hostilities.
The armed services, together with the Federal Reserve System, stepped forward on September 1, 1943, to give the manufacturers this assurance by broadening the base for guaranteeing loans. The new guarantee requirements allowed contractors to make arrangements so that they could immediately use most of their working capital for civilian production if war contracts were cancelled for the convenience of the Government. To distinguish the new loans from the Regulation V loans, they were called VT loans. These new loans had two aspects, the production aspect (V) and the termination aspect (T), merged in a single loan. The VT loans guaranteed by the Navy Department came to be used primarily as termination loans.
The VT loan program was actually a stopgap measure to assure industry that the Government was thinking of reconversion problem pending that the Government was thinking of reconversion problems pending the passage by Congress of a Contract Settlement Act. Such a act became law on July 1, 1944. Its provisions were the result of very careful planning by a Joint Contract Termination Board which came into existence in the fall of 1943. In the Contract Settlement Act, Congress outlined the Government's policy with regard to termination financing to be "to assure prime and subcontractors speedy and equitable final settlement of claims under terminated war contracts and adequate interim financing until final settlement." To carry out this policy, the act authorized establishment of the Office of Contract Settlement headed by a Director and
a Contract Settlement Advisory Board. The Board was composed of the Director of Contract Settlement, the Secretary of War, the Secretary of the Navy, the Secretary of the Treasury, the Chairman of the Maritime Commission, and the Administrator of the Foreign Economic Administration.
The Navy Department expected a flood of T-loan applications from contractors to finance reconversion and to provide interim working capital. Actually the volume was small. Only 106 T-loans had to be authorized, totalling $111,340,260 during the year beginning September 1, 1944, notwithstanding that this was a period when reconversion demands should have been the greatest. There is little doubt that psychological factors had much to do with the slight demands made on the Government for such financing. The Contract Settlement Act provided assurance to industry and to lending institutions that the Government stood ready to see them through the financial problems of reconversion, thus making it safe for them to maintain a high level of war production as long as needed by the armed services. Once they had this assurance, most contractors preferred to return to private channels for their financing.
The Navy Department's policy and procedures and in particular, those of the Bureaus with regard to Government credit extensions, were under practically continuous review by financial experts form outside of the Navy Department. Some of their reports were quite critical of the Navy's methods and recommended stricter standards of eligibility for receiving such loans. The blame, where there was any, was thrown largely on the Bureaus for being too free with certifications of military necessity. The losses resulting from government financing were slight but the gains to production were very high. The Navy actually made money on advance payments. An interest charge of 2.5 percent was made beginning in June 1943. Such charges earned over $10 million from January 1, 1943, to August 1945. Losses amounted to less than $2,200,000 on total advances of over $2 billion. Some individual advance payments were very large. In the case of a single contract with the Curtis Wright Company totalling $630 million, the Navy authorized advances of $175 million.
In the matter of the V-loan program, the Navy guaranteed 1,794 loans for a total of more than $2.2 billion. WHen applications were turned down, it was usually because the product to be covered by the loan could not be certified as being essential to the war effort rather than because of the risk involved. This program, like the advance payment program, was also financially successful as the Navy Department made a gain close to $7 million, before losses, as of December 1945. The losses amounted to about $2.5 million.
The Navy was not expected to make a profit on its financing
operations. Interest and fees were charged principally to prevent contractors from using the method unless help was really needed. The Bureaus were, especially at first, besieged by promoters who had no real interest or competence for war production, but these were soon eliminated. There were no scandals whatsoever connected with the Navy's financing operations. The fact that the Navy Department actually came out with a profit on its financing activities is a tribute to the care and competence with which the advance payment and lending programs were administered by the Bureaus and by OP&M.52a
The Inspection Service
Inspection had, through the years, become a very important step in Navy material procurement. Its effectiveness was dependent largely oh the adequacy of the specifications describing the material being purchased. The completeness of specifications was, in turn, dependent on the degree to which sound and progressive engineering underlay the preparation of the specifications. The technical Bureaus, especially after the rebirth of the Navy in the 80's, had been pioneers in recognizing these three steps: sound engineering good specifications, and thorough inspections as essential to healthy material procurement. They had, in fact, made a significant contribution to the industrial development of the United States by their recognition of these principles as fundamental to the technical advancement of the Navy.
From earliest times, the Bureaus had used the inspectors in the field for more than just the work of determining conformity with contract specifications. At private shipyards building naval vessels they were the representatives of the Bureaus and made many technical decisions for the Bureaus. They assisted the contractor in developing important working plans for building the ships and checked all plans made by the contractor's engineering and drafting personnel, as to suitability for carrying out contract requirements.
Inspectors of the end-product components, such as structural material, machinery, equipment, etc., at steel mills and manufacturing plants, were regularly called upon to assist in revising specifications with a view to improving the quality fo such things. Navy specifications, in general, called for a better grade of materials than what is known as commercial quality, and in that way became an important influence in raising the standard of quality of materials in general. The Bureaus through their inspection services also took a prominent part in the founding and development of the
American Society for Testing Materials, which became the organization for promoting higher quality of materials for commercial use.
Naval officers headed the various Bureau inspection services. Their staffs consisted of both officer and civilian specialists. Practically of the officers on such duty had had post-graduate education and experience in the areas they were called on to inspect. During peacetimes, practically all of the officers on such duty were naval constructors, aeronautical engineers, naval engineers, ordnance specialists, and officers of the Supply and Civil Engineering Corps. Civilians, most of them with some claim to being specialists, constituted the larger part of the actual shop and ship inspection forces.
With inspection such an important link in procurement, the Bureaus naturally came to regard control of the inspection of the material coming under their cognizance as vital to the satisfactory performance of their functions. Each Bureau felt that it must have its own specialists to inspect the material purchased under its appropriations. This led to some duplication of inspection personnel because many items were in common use by all Bureaus.Civilian inspectors were only too ready to encourage the idea of specialization, as it enhanced their prestige and also meant that more inspectors had to be employed. The desirability of consolidating field inspection forces so far as possible, nevertheless appealed to many naval officers. It appeared especially important not to have inspectors representing different Bureaus visiting the same plants and inspecting identical material.
Considerable progress was made in correcting this practice in the decade after World War I. Finally, due to the merger of the Bureaus of Construction and Repair, and Engineering, to form the Bureau of Ships in 1940, duplication of naval inspection personnel at manufacturing plants and shipyards had been practically eliminated, although there were isolated cases of representatives from the offices of Inspectors of Ordnance making inspections at plants which were already being served by Inspectors of Naval Material. The temptation to indulge in duplication of this kind was, however, always present.
The field inspection service, when the 1940 naval defense program was launched, consisted of the following seven groups of inspectors:
- Supervisors of Shipbuilding
- Inspectors of Machinery
- Inspectors of Naval Aircraft
- Inspectors of Ordnance
- Inspectors of Naval Material
- Cost Inspectors
- Cost Inspectors operating under the Compensation Board
A brief description of the kind of work performed by each group is necessary to an understanding of the functions of the field inspection service as a whole, and to the part that inspection played in material procurement and quality control.
The principal reason for the segregation of the field inspection service under the seven groups was Bureau cognizance. A firm agreement had, however, been reached as early as 1927 that all inspections at any given plant were to be performed by the inspectors form a single group, thus giving the contractor a single point of contact with the Navy Department in his own plant. It was logical to have that point of contact the same, if possible, as the Bureau with which he had his principal contractual relations. For example, the Supervisor of Shipbuilding, coming under the Bureau of Ships, was the Navy Department representative at a yard building ships and inspected for all Bureaus, thus providing a single point of Navy contact for the contractor in his own plant. He had, of course, technically competent assistants to handle the work for each Bureau. The Supervisor of Shipbuilding did not go outside of his shipyard to inspect the materials that would eventually be delivered to the yard for incorporation in the ships being built under his supervision. Such inspection as might be called for at the place of origin of the materials or other ship components, was made by the Inspector of Naval Material or other inspector, such as an Inspector of Machinery having jurisdiction over naval inspections at that point. Inspectors of Naval Material inspected for all Bureaus, but did not enter the plants served by any of the other groups This system was calculated to provide adequate inspection with minimum personnel. It did not always work perfectly, as will be pointed out later on.
Supervisor of Shipbuilding. At each of the private plants building large ships for the Navy there was a Supervisor of Shipbuilding with a staff of officer assistants, civilian technicians, draftsmen, inspectors, and clerical personnel. THe office also had a multitude of duties connected with making progress reports, payments, and conducting the acceptance trials of ships. The Supervisor of Shipbuilding reported directly to the Bureau of Ships. There was, in addition, at each large shipyard a Navy Cost Inspector under the Bureau of Supplies and Accounts, whose functions will be described in a separate subparagraph.
Inspector of Machinery. A number of large plants, in addition to shipyards, specialized in building propelling machinery, boilers, generators, motors, and other large items of equipment for naval vessels. The inspector for the Navy at such plants was called the Inspector fo Machinery, and dealt directly with the Bureau of Ships. His work was somewhat similar to that of the Supervisors of Shipbuilding. He made the inspections of all naval material produced in the plant, whether or not it came
under the cognizance of the Bureau of Ships or had anything to do with machinery. Only when the volume of such work was sufficiently great or sufficiently specialized was an Inspector of Machinery so assigned, otherwise the inspections were made by an Inspector of Naval Material.
Inspector of Naval Aircraft. Such inspection offices were set up at each of the principal plants manufacturing aircraft. They had staffs similar to those of the Supervisors of Shipbuilding and their work was also similar. They reported directly to the Bureau of Aeronautics. They did not, as a rule, make inspections outside of the plants to which they were assigned, and inspectors from other groups made no inspections in their plants.
Inspectors of Ordnance. Until the defense program was undertaken, there were only a few Inspector of Ordnance. As the name implies, they inspected ordnance material and reported directly to the Bureau of Ordnance. The Inspector fo Ordnance at the Bethlehem Steel Co., Bethlehem, Pa., had charge, also, of a local inspection district which functioned like a district under an Inspector fo Naval Material. When the defense program got underway, the Bureau of Ordnance placed large quantities of ordnance material formerly manufactured at the Washington Navy Yard under private contract. A great many new plants were financed and built to produce such material. When of sufficient size and importance, in Inspector of Ordnance was assigned to the plant. When this occurred in plants already doing Navy work, the Inspector fo Naval Material, in order to avoid duplication, turned over his inspections to the Inspector of Ordnance.
Inspectors of Naval Material. This was the largest, and form that point of view, the most important of the inspection groups. The country had, for any years, for convenience of administration, been divided geographically into material inspection districts. In 1940, there were fifteen such districts. The boundaries of the districts did not coincide with the boundaries of the naval districts, but were based largely on the geographical distribution of the industries form which the Navy did most of its buying. For example, Philadelphia and Pittsburgh were, respectively, the headquarters of the two districts which, for many years, had handled the largest volume of inspection work because they were located in the heart of the steel producing and machinery manufacturing industries of the country. Until World War I, practically all manufacturing for the navy had been done in the North Atlantic states. Gradually, with the industrial development of the Middle West, the South, and finally the Pacific Coast, naval material began to be produced in these areas as well, and inspection arrangements had to be provided to take care of the inspections involved.
A number of the larger districts were subdivided into smaller units to facilitate administration. Inspectors of Naval Material, although they reported to the Bureau of Ships for administrative purposes, served all
Bureaus alike and were in position to furnish complete inspection service to any branch of the Navy. They performed the functions of Supervisors of Shipbuilding at plants building small craft. They also made inspections for other Government departments. Due to the agreement between the Bureaus, there was rarely any duplication of inspection personnel, and a contractor, even when working for several Bureaus, had to deal with only one inspection officer. There were sometimes jurisdictional disputes between districts when a plant was located near a boundary between districts. To save travel, the work at a plant in one district was often turned over to a more conveniently located inspection office of another district.
Cost Inspectors. Cost inspection served an entirely different purpose from material inspection. Cost inspection was necessary for all contracts having price adjustment or profit limitation features. The great majority of contracts had such features before the war was over. During World War I, the Compensation Board was charged with the determination of costs under such contracts, but by 1940, dealt only with costs for new ship construction and plant expansions. Later, this service was merged with that of the Cost Inspectors under the Bureau of Supplies and Accounts. Cost inspection boards were set up at the plants of all large contractors to pass on controversial matters and to harmonize technical and cost matters. These boards consisted of the Cost Inspector and of the technical officer in charge of material inspection, such as the Supervisor of Shipbuilding, or the Inspector of Naval Material.
World War II Material Inspection. So far as the field service was concerned, the inspection process was, on the whole, being logically, economically, and efficiently handled at the time that the World War II emergency arose. The field organizations had the great merit of elasticity and from the administrative point of view, could be expanded easily. But the administration of this service in the Navy Department itself left something to be desired. So far as cost was concerned, there was not much to criticize, as the number of officers in the Bureaus of Ships, Ordnance, and Aeronautics supervising and controlling the field inspection forces was small.53
The chief criticism that can fairly be made of the Navy Department's management of the service was the absence of any coordinating mechanism to deal with problems of overall policy and administration. When
the subject of providing a way for coordinating all inspection work was agitated, there were those who advocated scrambling all of the field groups and starting from scratch with a consolidated service. Consolidation is a catch word that usually makes an appeal when reorganizations are under consideration. However, wiser counsel prevailed and the field groups were left pretty much as they were.
The policy of spreading war work to all parts of the country and especially to small contractors had, however, underlined the need for more centralized administrative control in Washington. With a view to providing such control, the Under Secretary of the navy, on May 2, 1942, issued a directive establishing the Inspection Administration in the office of Procurement and Material The new unit was charged "with the general administration of the officers engaged in the inspection of material purchased by the Navy Department and presently administered by the several Bureaus...." The Bureaus continued to exercise technical control over specifications and over the standards of inspection. Little change was made in the administrative and technical control over supervisors of Shipbuilding, Inspectors of naval Aircraft, Inspectors of Naval Ordnance, and Inspectors of Machinery.
Inspectors of Naval Material were affected more than any other group because the expansion of this group was the greatest. Early in 1941, personnel under the Inspectors of Naval Material numbered about 600. At the height of the production progress it had brown to about 17,500 and constituted approximately two-thirds of the personnel engaged in all types of inspection.54
Staffing the Inspection Administration in the Office of Procurement and Material was one of the problems in getting the new activity underway. Officers, as well as civilians, experienced in navy inspection work were scarce. Civilians from industry skilled in such work were also scarce because inspection in private enterprise does not play the important role it does in Government procurement. Nevertheless, most of the people who were brought into the Inspection Administration had something to offer in the way of experience in expediting production, in the use of statistics in following up programs, in public relations, etc There were, nevertheless, occurrences that did not go down very well with the seasoned officers in the field. Such, for example, as the visit one day of the WAVE junior lieutenant to the office of an Inspector of Naval Material who very competently headed the largest inspection district in the country. She insisted on seeing the Inspector personally, and after asking many questions, the answers to which were already available in the Navy Department, he
asked about her duties in Washington. The girl replied in all seriousness that she was a policy maker in the Inspection Administration of OP&M.55 And she may have been at that!
The Bureaus saw eye to eye with the Inspection Administration on the importance of expediting the delivery of materials. They had, as early as August 1940, pointed out to all Inspectors of Naval Material that they "are in a position to be of great assistance in expediting the flow of materials and obtaining timely deliveries to meet erection schedules revised to the shorter building period. The inspector is in the most direct contact with the contractor, is closest to the factory, often in the same city, and is the only person in the Government who has, at all times, up to date information on the status of the inspection."
The setting up of the office of Inspection Administration in OP&M accentuated a practice that became quite a problem to the Inspectors of Naval Material. People of all kinds from Washington, form the navy yards and from shipbuilders, made frequent visits to the plants of contractors to obtain production information to make complaints, or just to look around. Such visits were usually made without the knowledge of the Inspector. Failing to inform the Inspector of a contemplated visit could be viewed as an oversight, but when the visitor gave the contractor instructions without informing the Inspector fo their nature, as frequently happened, the Inspector had a real grievance.
Inasmuch as management control over the Inspectors of Naval Material had been largely taken from the Bureaus by the establishment of the Inspection Administration, the Bureaus were handicapped in using the field inspection service as it had theretofore for obtaining specific information on the status of contracts and on the causes of delay. This led the Bureau of Ships to recommend that the progressing and expediting function performed by the Inspectors of Naval Material be divorced from the inspection function and that it be established as a separate activity.56
The situation that faced the Bureaus was brought into focus when ev officers from the Bureau of Ships visited the yard of the Manitowac Shipbuilding COmpany in June 1942, to be present at the trials of the first vessel to be completed under the landing craft program. The yard was responsible for supplying plans and construction data and for handling material procurement for the whole program. During the visit, a shortage of stuffing tubes was reported by the yard, but it was stated that delivery was expected the next day. The Bureau officers began
immediately to follow up the promised delivery, and finally, after tracing the order through a maze of contractors, subcontractors, and the War Production Board, found that the tubes could not be expected for at least three months. When the misleading information, and the difficulty of ascertaining the facts became known to the Bureau of Ships, that Bureau decided that drastic action would have to be taken at once if the landing craft program was not to be seriously delayed.
The outcome was the creation of an independent expediting unit known as the Material Coordinating Agency, headed by Elmer Harper of the Bethlehem Steel Corporation. The work was done under contract with the Bureau of Ships on a cost-plus-no-profit bases. The shipbuilding companies expected to benefit indirectly from the greater reliance they expected to be able to place on delivery promises. All did not, however, work out as hoped for because the follow-hp procedures of the various organizations that had to do with material procurement often worked at cross purposes.
When the destroyer escort program was undertaken in the fall of 1942, calling for the construction in 29 months of 800 ships in seventeen different yards, it was appreciated that following up and expediting the program deserved all of the consideration that had been given to the landing craft program. The Inspection Administration attempted to bring about an agreement between the Bureau of Ships, representing all of the Bureaus that had an interest in the new program, the Material Coordinating Agency, the Inspectors of Naval Material, and the War Production Board. The Bureaus felt that the Inspectors of Naval Material should be able, if properly staffed and supported, to do the job. Nevertheless, they went along with the suggestion of the War Production Board that the entire destroyer escort program, including design, procurement, programming, and expediting materials be placed under one head, namely, Rear Admiral J.M. Irish, Supervisor of Shipbuilding, New York, N.Y., with a special representative of the War Production Board on his staff. The Material Coordinating Agency was retained to expedite the program as a whole under Admiral Irish's direction. If the field, the Material Coordinating Agency was expected to work through the Inspectors of Naval Material.
The task was, however, of such magnitude and the pace of production and the difficulties of meeting the pace had reached such a state by that time, that bringing about complete harmony and cooperation between the many organizations and interests involved was very difficult. The Material Coordinating Agency was particularly bitter in its attacks on the Inspectors of Naval Material and made charges which, on investigation, could not be substantiated. In one instance, where it charged that 198 orders had not been processed and reported, investigation disclosed that actually there were only 2 such orders. The general conclusion was that greater
reliance could be placed on information obtained direct from Inspectors of Naval Material than from the MCA.
An appraisal of the Navy inspection service during World War II must, in the light of its accomplishments, lead to the conclusion that it performed with distinction a very difficult and important function. It was perhaps the least glamorous of all of the many sectors of the war effort. There were innumerable activities that made demands on it for information, for expediting services, and that were in position to give it the equivalent of orders without assuming any responsibility, all of which added to the difficulties of performing its principal function.
The only criticism that can be made of the Bureaus in their administration of the field inspection service and of the officers who had more or less specialized in inspection duty and who were in charge of the various inspection offices when the war clouds began ot gather is, that they showed too little imagination in appraising the task with which they were faced, and consequently exercised, too little initiative in preparing for the expansion that lay ahead. As has been mentioned, this expansion turned out to be about thirty-fold. Lack of initiative in preparing for expansion had its roots largely in the fact that the Bureau had been starved for money all during the peace period with which to provide additional floor space for the inspection offices already in being, for additional laboratory facilities, and for greater subdivision of the districts to facilitate administration. But more important than these physical shortcomings, was the lack of money to pay for additional personnel and for rates of pay adequate to provide for the kind of personnel needed.
There would have been no chance during the peace period of obtaining funds for such aids to administration as personnel and public relations specialists, progressing and expediting experts, high grade office management assistants, specialists for handling production bottlenecks, and trining schools for inspectors. Only the urgency of war made these things possible. Most of the officers in charge of inspection activities in the field were quick to grasp the value of such innovations, although there were some who had been so thoroughly indoctrinated with the policy of economy in the employment of personnel, that they did not take full advantage of what the war had made possible. The elasticity of the Naval Reserve system provided the means for recruiting most of the specialist personnel found so useful toward the end of the war.
The question is often asked whether the Navy Department would have benefited by employing civilian agencies to do at least part of its inspection work. Experience in World War II vindicated the long standing Navy Department policy of building up the service around career naval officers. When officers on the active duty list became scarce, retired
regular officers were used to head the inspection offices, the inspection forces at the larger manufacturing plants, and to staff the district headquarters organizations. Naval Reserve officers provided the rank and file of the personnel in uniform. Many were eventually placed in charge of inspection units.
An interesting comment on this practice is made by Robert H. Connery on page 341 of his book, The Navy and the Industrial Mobilization in World War II, as follows:"During the winter and spring of 1946 the author and one of his associates personally visited the plants of fifty Navy vendors in the East and South. These visits made clear that the Navy's policy of always having a naval officer in charge of the inspection unit in a plant, instead of using civilians as the Army and Maritime Commission, did on occasion, was sound. With hardly an exception all of these officers having day-to-day relations with the production line were reservists who had had industrial or business experience before entering the Navy. The prestige of the uniform was high in wartime, and the personal experience of these officers further ensured respect and trust."
The Magnitudes. The task of producing the World War II Navy was a far cry from the first experience of the United States a century and a half earlier in producing the Navy needed by the new nation to protect its interests against the depredations of the Barbary pirates in the Mediterranean. Building and outfitting that first navy may be said to have been accomplished by turning the job over to a half-dozen Navy agents located in the principal seaports along the Atlantic Coast. The cost of the frigates called for the program, and of purchasing and converting a number of merchant ships to naval use was not much more than a million dollars. The procurement aspects of naval administration, like all others, have grown enormously in complexity and magnitude and, consequently, in difficulty since then.
The Navy Department spent approximately $00 billion (A-5) in World War II; the greater part for material of one kind or another. During the five-year period between July 1, 1940 and June 30, 1945, over $22 billion (A-8) were spent to build and equip ships, $4.5 billion ( (A-8) to provide them with armament and ammunition, $2.5 billion for electronic equipment, $9.8 billion (A-133) for facilities for shipbuilding, ship repair, aircraft production, ordnance, ad other facilities, and $6 billion (A-53) for aircraft for naval use plus another $1.5 billion for aircraft for lend-lease and the Army. In that period additions to the fleet totalled (A-25) 10 battleships, 18 large aircraft carriers, 9 small aircraft carriers, 110 escort carriers, 2 large cruisers, 10 heavy cruisers, 33 light cruisers, 358 destroyers, 504 destroyer escorts, 211 submarines, 82,028 landing craft of various types
and many auxiliary craft. The fabrication of 27,000 (A-65) torpedoes, one-half million (A-65) depth charges, 100,000 (A-65) 16-inch shells, are indicative of the quantities of ammunition that were needed to fill combat needs.
At the beginning of this period, the Navy had approximately 1,800 (A-55) airplanes of all types on hand. During the next five years, the Navy accepted more than 80,000 (A-43, A-45) airplanes. Some of these were transferred to the Allies under Lend-Lease, some to the Army, many were used up in training, and many were lost in combat during the war, leaving a balance of about 40,000 (A-55) planes at the end of the war.
Procurement played an important role also in the field of naval medicine. In July 1940, there were 15 (A-93) naval hospitals in the United States and 3 (A-93) outside the Continental limits with total facilities of about 6,000 (A-93) beds. Only 1 (A-93) hospital ship was in commission with a normal capacity of about 500 (A-93) beds. Five years later, the Navy was operating 100 (A-93) hospital facilities on shore and 12 (A-93) hospital ships, with an aggregate capacity of approximately 100,000 (A-92) beds. The clothing purchased for enlisted personnel during this period (officers purchase their own clothing) cost close to $1 billion (A-71).57
Summarized by bureaus and other activities of the Navy Department in direct receipt of appropriations the expenditures for the five-year period from July 1, 1940 to June 30, 1945 were as follows:
Naval Expenditures July 1, 1940 to June 30, 1945
(billions of dollars)
Bureau Expenditures Ships 30.6 Ordnance 13.8 Aeronautics 15.7 Yards & Docks 7.0 Supplies & Accounts 21.1 All Other 6.3 Total 94.5
During the fiscal year ending June 30, 1946, the Navy Department spent an additional $14 billion, chargeable to the war, thus bringing the total to well over $100 billion for World War II.58
The pay of naval personnel is included under the Bureau of Supplies and Accounts and for all bureaus the figures include the pay of civilian administrative and technical personnel. It is impossible to draw a sharp line between expenditures for matériel and for personnel. For example, expenditures for labor at navy yards and other shore establishments doing similar work may well be considered matériel expenditures because the end product of navy yards is matériel of one kind or another, or the improvement or the restoration to suable condition of matériel, such as ships. Thus, the major portion of the above expenditures involved the procurement or production of matériel.
The total expenditures made against appropriations earmarked for the Navy during the five years under consideration does not, however, give a completely accurate picture of the overall procurement task of the Navy Department because all during the war the Navy did a good deal of buying for the other services and received reciprocal benefits form War Department purchasing.59 This was brought about through constant striving for single service procurement and making available to all services any naval supplies on hand. Both the Army and the Navy benefited by procurement made for the other. During the later part of the war about ten percent of the Navy's purchases were for the account of the Army and of the Navy. Another nine percent represented purchases by the Navy in collaboration with the Army and twelve percent by the navy as part of the Army-Navy group purchases. The Army, for example, purchased all the meat and various other food products for both services and manufactured all the .30 caliber small arms of ammunition for the Navy and the Marines, while the Navy manufactured certain larger forms of ammunition used by both services.
In measuring the "magnitude" in dollars, it should be remembered that the purchasing power of the dollar in the 1 July 1940-30 June 1945 period, was considerably greater than it is now (in 1959) and that the cost of the labor and material involved therefore would have been approximately twice as great in present-day dollars.
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1. Annual Report of the Secretary of the Navy, Fiscal Year 1919, p. 692.
2. Ibid., Fiscal Year 1919, pp. 367-368.
3. Ibid., Fiscal Year 1945 p. A 13. (If the Marine Corps and Coast Guard are added, the figure comes to some 4,063.656.)
4. Grosvenor V. Clarkson, Industrial American in the World War, New York 1923, p. 41. Rear Adm. Frank F. Fletcher, USN, was the Navy's Senior Representative on the Board.
5. Bernard Baruch, American Industry in the War, p. 36.
6. 41 Stat. 764.
7. The Army and Navy Munitions Board was created upon recommendation of the Joint Army and Navy board (Letter No. 346, Serial No. 181) dated June 27, 1922, which was approved by the Secretaries of War and Navy on June 29, 1922.
8. Among the graduates of the Army Industrial College were Major D.D. Eisenhower in the Class of 1933, later Chief of Staff of the Army, and President of the United States; Major H.H. Arnold of the Class of 1925, later Head of the Air Force; Major C.B. Cates, USMC in the Class of 1933, later Commandant of the Marine Corps; and many others who later rose to the highest ranks and the most important positions in the Army, Navy, Marine Corps and Air Force.
9. See article, "Procurement Planning for War," U.S. Naval Institute Proceedings, November 1933, by Captain Henry Williams, CC, USN.
10. The members of the Board were: Edward R. Stettinius, Jr., Chairman of the Board of the United States Steel Corporation; Dr. Karl T. Compton, President of the Massachusetts Institute of Technology; Walter S. Gifford, President of American Telephone and Telegraph Company; John L. Pratt, Director of General Motors Corporation; General Robert E. Wood, Chairman of Sears, Roebuck COmpany; Harold G. Moulton, President of Brookings Institution; Colonel Harry K. Rutherford, Ordnance Department, USA, was named Secretary; John Hancock of New York, a partner in the investment banking firm of Lehman Brothers, formerly a Commander in the Supply Corps of the Navy, who handled a branch of Navy procurement in World War I, was added to the Board in September. At this time, some thought was also given to adding a labor representative, but no action was taken.
11. War Resources Board Report to ANMB, p. 12.
12. Ibid., p. 4
13. Ibid., p. 7.
14. The following contain much information about the Advisory Commission: The United States at War, prepared by War Records Section, Bureau of the Budget Government Printing Office; MS by Lawrence I. Radway, The Advisory Commission to the Council of National Defense, prepared for Bureau of the Budget; MS by James Fesler, Relations Between the Armed Services and the Advisory Commission, War Production Board files.
15. 39 Stat. 649.
16. The men appointed to the Advisory Commission were William S. Knudsen, President, General Motors Co., and Edward Stettinius.S. Steel Corporation executive, representing industry, Sydney Hilman, President, Textile Workers Union, labor; Chester Davis, agriculture reformer, agriculture; Ralph Budd, President, burlington R.R., transportation; Leon Henderson, economist, price control; and Harriet Elliot, educator, University of North Carolina, home economics.
17. 39 Stat. 649.
18. Former Vice President of Sears Roebuck and Co.
19. Advisory Commission Minutes published by the Civilian Production Administration, Government Printing Office, Washington, 1946.
20. 54 Stat. 676.
21. Ibid., 892.
22. Executive Order 8572./p>
23. Donald M. Nelson, Arsenal of Democracy, op. cit., p. 116.
24. Ibid., p. 92.
25. Franklin D. Roosevelt, op. cit., (1940), V, X, p. 623.
26. OPM, Regulation 2, March 7, 1941.
27. Captain A.B. Anderson, USN, served as the full-time Navy representative on the Priorities Board.
28. Donald Nelson, op. cit., p. 158.
29. U.S. Bureau of the Budget, The United States at War, p. 76 (giving an account of the creation of the SPAB).
30. The new Board was composed of Knudsen, Hillman, Knox, Stimson, Henderson, Wallace, and Hopkins. Wallace was named Chairman and Donald Nelson, Executive Director.
31. U.S. Bureau of the Budget, The United States at War, p. 79.
32. Donald M. Nelson, Arsenal of Democracy, New York.
33. Hearings before a Special Committee Investigating the National Defense Program, United States Senate, June 25, 1942, p. 5227, et seq., 77th Congress, First Session. Contains also Donald Nelson's reasons for the arrangements adopted by him.
34. Donald M. Nelson, Arsenal of Democracy, New York, p. 208-209.
35. Ibid., pp. 358-359.
36. The below comparison of expenditures by the War and Navy Departments during the five years the country was mobilized or partially mobilized for war is of interest in this connection. (Data taken from Statistical Abstract of the United States, 1946, pp. 220, 221, 313).
Expenditures June 30, 1940 to June 30, 1945
(In billions of dollars)
Total For Personnel
War Dept. (Army, including Air Force) 160.7 -37.1 123.6 Navy Dept. (Navy, Marine Corps, and Coast Guard) 88.4 -17.6 70.8
The figures do not purport to represent all of the war costs incurred by the War and Navy Departments, as large expenditures chargeable to the war were made after the close of fiscal 1945. The expenditures for personnel in uniform are also given and have been subtracted from the totals, providing some measure of the expenditures for the logistics of matériel, although they contain an element of inaccuracy because many of those in uniform were engaged in the production and maintenance of matériel, and vice versa. The figures indicate, however, that the logistics task of the War Department was about 75% greater than the task of the Navy Department.
In the matter of personnel in uniform, the personnel strength of the Army in uniform as its peak, including the Air Force, was 8,266,373 persons as against 4,031,097 for the Navy, consisting of the Navy, Marine Corps and Coast Guard.
37. Among those besides Under Secretary of the Navy Forrestal who had a hand in planning the office were Rear Admiral S.M. Robinson, USN; Rear Admiral C.W. Fisher, USN; Mr. Charles Detmar, Special Assistant to the Under Secretary; Mr. Ferdinand Eberstadt, who had been working with the Army and Navy Munitions Board; and various members of the Procurement Legal DIvision. Rear Admiral Robinson was named its Chief with the rank of Vice Admiral.
38. The men placed at the head of these branches were: Planning and Statistics, Donald Belcher, Treasurer of the American Telephone and Telegraph Company; Production Branch, Joseph W. Powell, a graduate of the Naval Academy who resigned from the Navy shorty after the Spanish-American War and became one of the leading shipbuilders in the United States, he had been acting as special assistant to the Secretary of the Navy and general advisor on shipbuilding matters; Procurement Branch, Frank M. Folson, one of the principal assistants of Donald Nelson, the Chairman of the War Production Board; Resources Branch, Captain Timothy Keleher, USN, who was also assistant to Ferdinand Eberstadt, Chairman of the Army-Navy Munitions Board.
39. Charles E. Wilson was the Vice Chairman of the WPB at the time. He selected G.A. Bower, who had been his management adviser in the General Electric Co., to make the survey. Under date of 20 May 1943, Bower reported to Under Secretary Forrestal that he had personally and independently conferred with the heads of the WPB divisions in which the Navy personnel were working. He reported that, "Also unanimously the WPB heads agree that these representatives of the Navy were performing useful and indispensable service in effecting more efficient working arrangements between the Navy and the WPB, and in materially advancing the war program."
40. Senate Document 161, 77th Congress, Second Section, p. 23.
41. Executive Order No. 8981.
42. The General Motors Corporation, early in 1943, furnished the War Department the following figures, which were published as an advertisement in The Evening Star, Washington, D.C., on July 6, 19453:
Numbers of separate organizations from which GM purchased parts, materials, services, and supplies early in 1943--18,735.
These organizations were listed under three categories as follows:
Firms employing less than 100 people 43% Firms employing 100 to 500 people 31% Firms employing more than 500 people 26%
43. Memorandum by W. Brown Baker, regarding the aims and objectives of the Negotiations Section of OP&M and a brief history outlining its organization and development, Office of Naval History, May 22, 1943.
44. Report of Lt. W.L. Haskell, Jr. to W. Browne Baker, Head of Negotiation Division, OP&M, December 4, 1943.
45. Letter, Robert P. Patterson and James Forrestal to Senator Robert F. Wagner, Chairman, Banking and Currency Committee, U.S. Senate, December 10, 1941.
46. 54 Stat. 572; amended and expanded by 55 Stat. 245.
47. Admiral Frederick J. Horne, USN.
48. Admiral S.M. Robinson, USN.
49. The Navy's representatives were: Joseph W. Powell, Chief of the Production Branch, OP&M, and Rear Admiral E.M. Pace, Jr., USN, of the Bureau of Aeronautics.
50. The details of the plan were worked out by Commander John D. Small, USNR, and were based on the British solution of a similar problem. Rear Admiral Henry Williams (CC), USN, was placed in charge of its operation in OP&M for the Navy Department.
51. Donald M. Nelson, Arsenal of Democracy, p. 248.
52. 54 Stat. 676.
52a. The author is indebted to Robert H. Connery (The Navy and the Industrial Mobilization in World War II, Princeton University Press, 1951) for much of the foregoing information.
53. In the summer of 1941, the personnel of these offices, located in the Navy Department in Washington, consisted of: Bureau of Ships, two officers and two clerks; Bureau of Aeronautics, one officer part-time, one civilian technician and two clerks; Bureau of Ordnance, two officers part=time and two clerks. The new Office of Inspection Administration under OP&M soon employed many times that number, without any reduction in the numbers engaged in such work in the Bureau, an illustration of the Parkinson principle that mergers of that kind do not bring about economies in personnel.
54. Page 324, The Navy and the Industrial Mobilization in World War II, Connery.
55. Personal statement to the author by the late Captain E.C. Hamner (CC), USN, Inspector of Naval Material, Philadelphia, Pa., during World War II.
56. Letter from Captain A.C. Williams, USN, to Rear Admiral Bryson Bruce, USN, June 15, 1942.
57. Secretary of the Navy Annual Report, Fiscal Year 1945. The figures in parenthesis refer to the sections of the Annual Report.
58. Secretary of the Navy Annual Report, Fiscal Year 1946. Summarized expenditures of the Navy Department may be found also on p. 331 of the Statistical Abstract of the United States, 1946, although the figures do not correspond exactly with those given in the Secretary of the Navy's Annual Report for 1945 because the periods and the coverage differ somewhat.
59. See Bureau of Supplies and Accounts letter of 20 January 1948 to Secretary of the Navy and BuSandA publication Contracts Awarded by Navy Department.