The twelfth was the statutory one forbidding any member of Congress from sharing in the benefits of a contract, except that a congressman was permitted to own stock in a corporation accepting war contracts.
The next provision wiped out the horde of fly-by-night commission brokers who had flocked to Washington to grow rich on commissions paid by gullible producers who accepted the theory that it took pull and influence to secure a war contract. Since these commissions went into the manufacturer’s costs and therefore were paid eventually by the Government, the Attorney General had issued a ruling forbidding the government departments to pay manufacturing costs that included brokers’ commissions. Established selling agencies, however, were exempted from this rule. The thirteenth standard contract provision wrote this prohibition into the contracts themselves.
The next provision dealt with indemnifications for the invasion of patent rights. The fifteenth provided for the settlement of disputes and claims arising out of questions of performance or nonperformance under contracts. Later the Board of Contract Adjustment was organized to fulfill this function. The next three provisions dealt with hours of labor, the settlement of wage disputes, and the conditions of labor at war plants. Then came a provision requiring the producer to make periodic reports of the progress of his work, one defining what costs would be allowed in a cost-plus contract, one allowing the contractor to appeal to the Board of Contract Adjustment in the event that a contracting officer of the Department disallowed costs in excess of $5,000, one providing for uniformity in contractors’ cost accounting, one forbidding the payment of wages above current local rates, and a final provision vesting in the United States the title to all materials in course of manufacture under a cost-plus contract.
Such were the standard contract provisions, protective and fair to the Government and the producers alike. They were not adopted until the end of the summer of 1918, and therefore no important amount of government business was placed on their identical terms. As stated, however, most of their requirements in substance had been written into the war department contracts previously drawn.
The cost-plus contract under which the immense building construction program of the War Department was carried through was of a peculiar form, not used elsewhere. It was known as the cost-plus-with-sliding-scale-and-fixed-maximum-fee contract. The distinguishing feature of it was that each contractor was paid a percentage of the cost as profit up to the extent of a fixed maximum profit, and he could not be paid more than this profit whatever the cost of the job. The profit percentage diminished on a sliding scale as the cost mounted. In its latest form this contract paid a profit of 7 per cent to contractors on jobs costing less than $100,000, and the profit declined gradually in percentage until it reached the low mark of 2½ per cent paid as profit for work costing more than $9,650,000. No building contractor, however, could be paid more than $250,000 profit on a job, whatever its cost; and out of his “profit” he still had to pay his overhead operating expenses.
In its building program the War Department became one of the largest employers of labor in the country, and its building contract was roundly attacked as a chief element in the swift rise in wages. To meet this attack the Department convened a board of construction engineers and other experts to study the contract. Instead of condemning the form of contract, the report of this board endorsed it in unqualified terms and declared that, if anything, the contract tended to check extravagances in the work.
While the tendency was all toward the cost-plus-fixed-profit form of contract, when it came to the production of materials entirely new and strange to our industry the War Department could not escape the cost-plus-percentage form. The Government’s powder-bag-loading plants were operating on the basis of the payment of operating costs, plus 14 per cent. Several of the shell-loading plants worked under contracts providing for the payment of costs, plus 10 per cent. Silk cartridge cloth was manufactured at cost, plus 10 per cent as profit. This profit, as the skill of the cloth weavers increased, was gradually stepped down to 3 per cent. The Modified Enfield rifles were made at cost, plus 10 per cent. When the War Department commandeered plants, it engaged operating companies to run them on a basis of costs paid, plus a fixed monthly remuneration. Certain patriotic contractors built large munitions plants for the Government at cost, plus the statutory $1 as profit.
Then there was the combination contract, adopted for work new to our industrial experience—a cost-plus form graduating into a fixed-profit form as the actual work developed what the costs would be. The Browning machine guns were produced under contracts of this sort.
Contracts for the production of aircraft were not brought under the centralized administration of war department contracts. The aircraft contracts provided for the payment of costs by the Government, plus fixed profits, with bonuses for the producers if they kept under the estimated costs.