curement involved an aggregate expenditure of $457,140,737, including both the military and civil activities of the War Department. These operations were performed by 778 purchasing and contracting officers; 37,519 formal invitations for bids were issued and a total of 1,161,495 separate purchases were involved. By constant insistence upon the timely submission of information by operating agencies, my office was able to exercise the necessary supervision and to take corrective action when required.

Notwithstanding the increase in the procurement load, purchases have in general continued to be made after advertising and competitive bidding with careful consideration being given to economy, efficiency of purchase, and the principle of impartiality and fairness to all manufacturers and dealers engaged in business with the Government. Meticulous regard has been had to continued compliance with the laws pertaining to procurement.

Procurement of aircraft.-During the fiscal year 1940 an aircraft procurement program was entered into with a view to increasing the strength of serviceable airplanes for the Army to as near the maximum of 6,000 authorized by the act of April 3, 1939, as was possible within the limits of appropriated funds. While it had previously been the accepted policy to allow sufficient time between the issuing of circular proposals and the opening of bids for any qualified manufacturer to design and construct sample airplanes, it was evident that the exigencies of the expedited program would not permit such protracted delay. Resort was therefore had to procurement by design competition, as authorized by the act of July 2, 1926. Under this method of purchase, designs of aircraft accompanied by specifications and performance guaranties were requested from all qualified bidders and awards made as a result of evaluation of the designs submitted. With a view to future needs, bids were requested upon larger numbers of aircraft than it was expected actually to contract for during the fiscal year, in order that such contracts might contain options for further procurement when and if the Congress made appropriations for their purchase.

During the fiscal year 1940 there were actually delivered to the War Department 886 airplanes, having a total value in excess of $49,000,000. Under the fiscal year 1940 appropriations, new contracts were awarded for 3,117 airplanes at an approximate cost of $172,000,000, including bombardment, attack bombers, observation, photographic, one- and two-engine pursuit, training, and transport types. Of the 886 airplanes actually delivered, 602 were received under contracts placed under appropriations pertaining to this fiscal year and are included in the 3,117 airplanes for which contracts were awarded during that period. The number of airplanes purchased from current funds far exceeded previous peacetime purchases in any one year and, in fact, almost equaled the aggregate number purchased during the preceding 8 years.

Profit limitation. The past year was the first complete year in which the War Department has been governed by the profit-limitation provisions of the act of March 27, 1934 (the Vinson-Trammell Act), as made applicable to Army aircraft and portions thereof by section 14 of the act of April 3, 1939. No major difficulties in aircraft procurement occurred as a result of the profit-limitation provisions. However, under the terms of the act approved June 28, 1940 (Public,

No. 671, 76th Cong.), the allowable profit for aircraft was reduced from 12 to 8 percent of the contract price. As a result of this change, coupled with important questions as to amortization of costs for expansion of facilities under the augmented aircraft program of next fiscal year, it is anticipated that serious delay and difficulty in consummating contracts may be encountered.

Legislative matters related to procurement.-After careful consideration in the fall of 1939, it appeared that, under the situation then existing, the emergency needs were not sufficiently acute to necessitate or justify the making of a request on the Congress for the passage of remedial legislation or the repeal or relaxation of existing statutes which restrict procurement in various ways and might have the effect of impeding the expeditious carrying out of the rearmament program. In view of the greatly enlarged procurement program proposed for the coming fiscal year, it became evident that some remedial legislation would be necessary, the most essential being an authorization for the making of procurements without advertising. Such authority and other important provisions relating to procurement were contained in a bill (H. R. 9850), which was passed by the Congress late in June 1940, and at the end of the fiscal year was awaiting the approval of the President.

In substance, the bill permits the placing of contracts by the War Department for purposes of strengthening the national defense with or without advertising and the operation and maintenance of plants and facilities either by Government personnel or through other agencies. The use of the cost-plus-percentage-of-cost system of contracts is prohibited, but not the use of the cost-plus-a-fixed-fee form of contract when deemed necessary by the Secretary of War. Advance payments not exceeding 30 percent of contract price involved are likewise authorized. The regular working hours of War Department laborers and mechanics engaged in manufacture of munitions are prescribed as 8 hours per day or 40 hours per week during the present emergency, but may be exceeded, under regulations of the Secretary of War, with payment of 1% overtime for employment in excess of 40 hours per week. The President is also authorized, when in his opinion it is necessary in the interest of national defense, to prohibit or curtail by proclamation the exportation of military equipment or of machine tools, materials, or supplies.

Concurrently with the consideration of H. R. 9850, there was considered and passed by the Congress a separate bill (H. R. 9822), relating primarily to the Navy, but containing a number of provisions applicable to the War Department. So far as relates to War Department procurement, this legislation, approved June 28, 1940, provides, in substance, that the President may direct priority of delivery under Army and Navy contracts over deliveries for private account or for export; that the provisions of law forbidding more than 8 hours' labor in any 1 day of persons engaged upon work covered by Army, Navy, and Coast Guard contracts shall be suspended; prohibiting the giving of access to aliens employed by a contractor to any secret, confidential, or restricted plans, specifications, or work except with the written consent of the head of the governmental department concerned; and authorizing the President, when necessary in the public interest to suspend any or all of the representations and stipulations required by section 1 of the Walsh-Healey Act. H. R. 9822

also places a limitation of 7 percent of the estimated cost for the fixed fee in case of cost-plus-a-fixed-fee contracts.

Both H. R. 9850 and H. R. 9822 are intended primarily for use during the existing emergency and the authorizations referred to are, in general, of temporary application only.

Measures to expedite future procurement.-Every effort has been concentrated on speeding up by all possible means the accomplishment of the Army's procurement mission. Careful studies have gone forward and anticipatory steps have been taken to set in motion promptly and efficiently the increased procurement program of the coming fiscal year. Thus, special consideration has been given to the necessity for the advance issue of circular proposals, the reduction of time of advertising and making of awards, increasing the number of shifts of work, the increasing of manufacturing equipment at critical points, the making of split awards in order to meet expedited delivery schedules, the avoidance of restrictive or inadequate specifications, the freezing of designs, the speeding up of inspection and acceptances and the elimination of the requirement for pilot models, and the taking of other necessary steps for the efficient and speedy handling of the augmented procurement program.

With the beginning of the expanded program it will no longer be possible to depend upon the former procedure of making purchases in general only after competitive bidding. Under the new legislative authority now awaiting Executive approval, resort will necessarily be had to a system of purchase by negotiation in a large number of cases where such procedure will best serve to expedite or accomplish the important national defense program on which the country is now embarking.

War procurement planning. Since my last report, marked progress has been made in finding answers to the four important questions regarding the items on the essential list of War Department wartime requirements. These questions are as follows: What item is required? How much is needed? Where can it be obtained? And, finally, how can we assure the production of the items in the time and quantity required?

With respect to the first question, types for procurement have been fixed for nearly all important items. The number of Army specifications applying thereto adopted during the year (900) is considerably above those approved in the previous year. There are now available 4,600 Army specifications, pertaining to standard items of equipment, while approximately 750 remain to be processed. The supply arms and services are thoroughly cognizant of the importance in war procurement of standardization in accord with commercial practice and are making every effort to provide for immediate use drawings and specifications in agreement with this objective.

The second question concerns the computation of requirements. Subject to supervision and coordination by the General Staff and The Assistant Secretary of War, this is a function of the supply arms and services. The requirements under the approved defense program of June 30, 1940, required a scaling down and readjusting of previous computations to adapt them to the present emergency. The necessity for such a recomputation has long been recognized as the first step in adapting general procurement plans to specific situations.

This work has now been accomplished in its broad aspects and is rapidly progressing to details.

The third question is in the field of allocation of facilities. Work on the industrial inventory compiled by the procuring agencies was materially accelerated during the year. Additional personnel was assigned to field procurement planning districts and the program for inspection of plants, formerly conducted on a 3-year cycle, was shortened to 1 year. All existing schedules were reviewed in the light of present production possibilities. No wholesale readjustment of schedules or plans was found necessary. This list of allocated plants is the basis on which current orders for munitions are being placed with industry by the various supply branches.

Realizing that large orders placed with allocated plants by foreign purchasers might not be entirely in accord with our own planned procurement schedules, a system for recording all contract awards was set up in the Facilities Division in January. All supply agencies are kept constantly informed of possible disruptions of their schedules because of current orders in order that, where necessary, planned loads may be adjusted accordingly. These data are also being studied as a basis for distributing the industrial load equitably.

In addition to the full utilization of existing productive capacity, a large program of new construction of munitions plants has been found necessary under the approved defense program. In anticipation of this development, in October 1939, there was activated a "construction committee" in the Planning Branch to determine requirements and supervise construction as far as it pertains to the office. These requirements under the defense program of June 30, 1940, total nearly $600,000,000 exclusive of airplane capacity. Funds have been appropriated in part for this construction and estimates for the remainder have been submitted to Congress. Planning for the execution of this program is actively under way.

With respect to the airplane industry, new construction to meet requirements under the munitions program is being provided for by expansion of existing capacity, probably through Reconstruction Finance Corporation loans.

The fourth and most difficult question is how to assure that deliveries will be made at the scheduled rate. This requires a careful study of possible choke points in production. Plans for procurement of specific items vary from those presenting difficulties of procurement such as to require detailed studies, to those which present no problem because of large normal supply. Plans have now been prepared for all basic important items in the first category. Those presenting minor procurement problems do not require detailed study, but do require informal plans. While all of these have not been completed, much progress has been made. The third group of items, where the normal supply is sufficient, require no plans. These are commercial and are greater in number than any other class. For these items, requirements have been determined and compared with the normal supply to assure their availability.

Educational orders.-A method of preparing private industry for its scheduled munitions production that has proved very effective is through an educational order. The sum of $14,250,000 was appropriated for this purpose in the fiscal year 1940, and 109 orders covering 55 items were placed. Based upon experience gained from the orders

which were completed and others under way, it is estimated that there will be a saving of from 4 to 12 months in the time required to get to quantity production in the particular plants having these orders. These orders provide at least for a skeleton production line equipment which will become Government property and for the manufacture of a small quantity of the finished item by quantity production methods. The technique of manufacture is thus established in the plant, although only in a few cases is total equipment needed for quantity production contemplated in an emergency obtained from the educational order. Another method of preparing industry for munitions manufacture is through the "production study." Under the authority to purchase production studies out of regular appropriations, contracts were entered into with 90 industrial facilities covering 97 items at a total cost of $498,180.90. These studies constitute a factory plan for the manufacture of articles of equipment.

Industrial mobilization program.-Funds applicable to planning activities were considerably increased for the fiscal year 1940 over the previous year. Education-order funds in the amount of $14,250,000 were made available for fiscal year 1940 and $16,250,000 for fiscal year 1941. Approximately $25,000,000 was made available for rounding out and rehabilitating existing Government manufacturing establishments. Over $2,000,000 was made available for purchase of reserve machinery to be held for emergency production of problem items, such as powder and small-arms ammunition. While no additional funds were available for production studies in 1940, authority was given to purchase them out of regular appropriations. For the fiscal year 1941, additional funds were requested and made available in the regular War Department appropriation bill passed in June 1940. The funds included $8,788,000 for purchase of reserve machinery, $2,250,000 for purchase of production studies, and increased funds for personnel on planning work; $200,000,000 was also made available for the creation of new facilities to expedite production of critical items ($150,000,000 was a cash appropriation and $50,000,000 contract authorization).

Economic mobilization for war.-The War and Navy Departments are charged by legal mandate with the preparation of plans for mobilizing the national economic resources in support of a possible war effort. The Army and Navy Munitions Board is the agency established to perform these functions and to arrange for their adequate consideration in an emergency. This Board, by a Presidential order dated July 5, 1939, was changed from an administrative agency of the War Department to an agency directly responsible to the Chief Executive. The following have been the more important activities of the Board during the year:

A clearance committee was constituted early in July 1939 to assist in the placement and coordinating of foreign orders for munitions. The committee has been very active during the year and much valuable data with respect to the character of the material being purchased, the factories with which the orders are being placed, and the scheduled dates of deliveries, have been obtained. In cases where allocated facilities have been involved, this information has been of particular interest to the supply arms and services.

In order to perfect existing commodity plans and studies, the Army and Navy Munitions Board has continued its policy of complete