Part VII

Contracts and Costs

Part VII. Contracts and Cost.

A. Changes in Function of Office During the War as the Result of Effort to Get Field to Check Expenditures to Prevent Excessive Costs. Has There Been Any Great Change Since the 21 October 1943 Pilot Letter on Cost Consciousness? Effectiveness of Efforts to Prevent Excessive Expenditures.

  1. This subject is not particularly applicable to this activity as all contracts were on a fixed price, or incentive, basis. The general policy of the contractors was for strict economy.
  2. Later, when vessels were being built for costs much below the contract price and savings were being taken away by renegotiation, there may have been a tendency for more flexibility than in the earlier programs, on the accomplishment of developments and extras. However, this was limited to items considered for the best interests of the government and for the morale of the ships' officers and crews. It is believed that there was no tendency to pad costs.
  3. In the opinion of the Supervisor, and of many other observers, the amount wasted on loafing, due to the individual's personal habits, or due to inefficient management and supervision, was much less at these shipyards than in any of the old established shipyards on the coast.
  4. On 7 April 1941, Ensign H. K. Morgan, SC-V(S), USNR, reported at Bay City to establish a Cost Inspection Office at the Defoe Shipbuilding Co., for the purpose of obtaining actual costs of construction of the 20 PC's recently authorized on contracts Nos. 79564 and 110S-83644.
  5. The vessels on these two contracts were completed in August 1942, but although additional PC's were authorized and under construction, it was decided by the Navy Department, in December 1942, that sufficient cost data had been obtained and the Cost Inspection Office at Bay City closed about 24 December 1942.
  6. Subsequent cost inspection work was limited to special visits of representatives of the Detroit Branch Office of the Chicago Supervisory Cost Inspector.
  7. The Supervisor's offices were generally not well organized, especially in the early years, for taking good care of the increase and decrease costs of contract changes. There was a tendency to take care of production first and records afterwards. Similarly, it was difficult to obtain estimates of costs of changes from the contractors. The result was a long delay in the final settlement of several of the contracts.
  8. A summary of the Navy Contracts awarded to the Defoe Shipbuilding Co. is shown on Exhibit No. 3, listed with the vessel designations, and the building periods including the dates of award, fabrication started (in some cases), first keels, first launchings and deliveries shown graphically.
  9. A summary of the Navy Contracts awarded to the Chris-Craft Corporation of Algonac is given in the Algonac History, Exhibit No. 2, pages 33–40; also see Exhibit No. 4.

B. Problems Arising in Connection with Contract Termination and Surplus Property Disposition.

  1. Contract Terminations and Surplus Property dispositions first became a problem during the fall of 1943 and continued to be a factor until the close of this activity. The material section undertook the duties required, and surplus materials to a total value of approximately $4,700,000.00 was disposed of under the direct supervision of this office and approximately $2,500,000.00 by the Assistant Supervisor at Algonac. See Exhibit No. 2, pages 41–42.
  2. The disposal function was rather evenly spread over the entire period and was absorbed by the material section without much of an increase in personnel. In connection with the functions of the MRDO in disposal of large inventories at one location it might be recommended that a branch office, with an officer in charge having delegated authority and with sufficient staff to handle and complete their disposal function, be established at the contractor's plant.
  3. Only three major termination claims and several minor ones were processed by this activity (as separate from the Assistant Supervisor at Algonac for which see Exhibit No. 2, pages 41–42), and all required functions were handled by regularly assigned local personnel, four of whom had special training at the Army Industrial College in the War Readjustment Course.
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