So expeditiously was this work started that the first termination schedules reached the Director of Purchase, Storage, and Traffic on November 12, and the schedules poured in upon him every day thereafter. Within a few days the prepared schedules involved the termination of a billion dollars’ worth of work. Each schedule was the product of a comprehensive study of the industries affected, made by the production bureaus, which were in intimate touch with those industries. On December 5 the terminations and reductions reached a total of $2,500,000,000. A large part of the war industry had been reduced or terminated without serious detriment to the condition of business and employment. Consequently, it was decided that no such precautions as were being taken were longer necessary, and a change in the liquidation system went into effect. Thereafter the stoppage of war industry was placed entirely in the hands of the district production officers of the War Department. These men were to consult with the local officers of the Department of Labor as to the effect of terminations upon employment, and were also to make frequent regular reports to the Director of Purchase, Storage, and Traffic. For the rest, they were free to act according to their own best judgment.
The various supply bureaus were well organized to conduct the demobilization in this way. Before 1917 the bureaus had administered the production of supplies directly from their headquarters in Washington. After the war came, the volume of business grew beyond the capacity of such a system to handle it efficiently; and the principal production bureaus thereupon divided the country into manufacturing districts and placed district organizations, subsidiary to the bureau headquarters in Washington, in charge of them. The bureaus in Washington continued to execute contracts, but the work of superintending manufacture, inspecting products, and paying for supplies was placed in the hands of the district organizations. The Ordnance Department, for instance, established twelve manufacturing districts in the United States and one in Canada. The Director of Purchase, in charge of the production of quartermaster supplies, established fourteen such districts, which were called zones. The Air Service had eight districts and the Chemical Warfare Service four. All production for the Signal Corps, Engineers, Construction Division, and Medical Department was administered directly from Washington.
This decentralization of the field administration of war industry had a marked effect upon its efficiency. The administrative officers in charge of a manufacturing district were men of high standing in the business and industry of their respective regions. They knew the manufacturers in those regions. They were always right at the spot when difficulties arose in securing raw materials and fuel and shipping priorities. Even more important, each district organization had within it a representative of the Finance Service of the Army. The War Department was empowered to make advance payments on contracts up to a considerable percentage of the value of work done or supplies actually delivered. These advances, as we have said before, enabled the munitions producers to finance their projects. The district organizations, maintaining finance officers in the field as they did, enabled the producers to obtain these advances in a minimum of time.
Frequently the chief executive officers of the manufacturing districts were civilians. Each district board maintained a strong legal department and also numerous technical assistants, not the least among which were the cost accountants. Since a great portion of the war supplies were produced on the cost-plus plan, the war brought the cost accountant into great prominence, during both the period of production and the period of liquidation afterwards.
These district organizations, in immediate contact as they were with the producers, comprised an organization ready built for the delicate work of terminating war industry. Washington might fix policies and specify the classes of supplies the production of which was to be stopped and the sorts which were to be produced after the armistice in full or curtailed quantities. It was for the district administrations to say how the terminations and reductions should be carried out. Consequently, after the armistice the organizations in charge of the manufacturing districts were changed over into what were variously known as district claims boards and district boards of review. Whatever they were called by the bureaus creating them, their duties were essentially the same—to terminate contracts by mutual consent, to agree with the producers upon the terms of settlement, to take over in the name of the War Department such finished products, raw and semi-finished materials, machinery, buildings, and other equipment as became government property under the terms of the settlements, and to dispose of the materials thus taken over, some being selected for permanent retention among the nation’s war assets, some being turned over to other branches of the Government which could make use of them, and others being disposed of by sale. To assist it in this work, each district board maintained a subsidiary organization known as the district salvage board, which collected the government property and disposed of it.
To supervise this field activity, each procurement bureau of the War Department established at headquarters in Washington a superior board known as the bureau claims board. Each of these supervisory boards, in turn, created as an adjunct to itself a bureau salvage board, which maintained executive control over the district salvage boards. For several weeks there was no specific executive agency to direct the work of this organization, except that all the bureau and district boards were under the general authority of the Director of Purchase, Storage, and Traffic. He unified and controlled their work through what were known as supply circulars, a medium of administration which had come into great importance after the creation of the Division of Purchase, Storage, and Traffic. Through the supply circulars the administration of war industry issued its general and class directions to the production bureaus. The standard contract provisions, for instance, had been brought to the attention of the contracting officers by publication in the supply circulars. The series of supply circulars thus came to be the code of unified army supply.
The Director of Purchase, Storage, and Traffic, however, had many duties other than those of directing the demobilization, though none more important. It was realized that the system needed a controlling head, the sole function of which would be to administer the entire liquidation of war industry. Therefore, late in January, 1919, the Secretary of War created the War Department Claims Board, into which were to focus, through the bureau boards, all the field activities in industrial demobilization. The Assistant Secretary of War became the president of this board. Mr. G. H. Dorr, who was also the assistant Director of Munitions, and Brigadier General (later Major General) George W. Burr, who had succeeded General G. W. Goethals as Director of Purchase, Storage, and Traffic, were the first regular members of the War Department Claims Board. There were also three special members and a recorder, and as time went on the Board was expanded by the creation of subcommittees of experts in various legal and industrial subjects.
The process of liquidation, therefore, originated with the district boards. In settling with a contractor, the district board appraised all the articles completed under the contract. It examined the expenditures which the contractor had made and the obligations he had incurred looking toward the finished production. Under the demobilization policy adopted, the Government was responsible for both of these costs. It paid for completed supplies (the price including the contractor’s profit), for raw materials purchased for the contract but not used, for semi-finished materials, for the contractor’s obligations to his subcontractors (including the costs of canceling the subcontracts), and, finally, for all general operating costs, including the contractor’s “overhead” expenses, factory and machine depreciation costs, and the amortization of new facilities built at the Government’s behest. To the most important production costs (but not including depreciation or amortization costs or interest on money invested in materials) the claims boards were authorized to add 10 per cent of the sum as the contractor’s profit. The Government paid no prospective profits, but only a fair remuneration for work actually done.
This was the proposition extended to the manufacturer when the Government proposed to him the voluntary termination of his contract. Most of the contractors received the terms favorably: they did not wish to collect money for work not done, even though theirs was the technically legal right to do so. If any producer balked at the policy, he always had the remedy of seeking his full pound of flesh in the Court of Claims. However, the slowness of procedure in the Court of Claims made this a weak remedy; and even if the Court of Claims finally granted him his exactions, then he must wait for his money until Congress passed an act appropriating it from the Treasury. Only recently Congress passed a bill to reimburse the estate of a long-deceased individual who was wrongfully deprived of a horse during the Civil War. Such was the prospect which faced the contractor unwilling to accept the War Department’s terms of settlement. With this coercive potentiality in the Government’s position, the Government itself fixed the terms of settlement, at least in broad outline; but the terms were, in the main, fair to all concerned.
The district boards proved to be able to liquidate most of the contracts without dispute. From these boards the settlement agreements went up for approval first to the bureau claims boards and finally to the War Department Claims Board, with certain exceptions to be noted later. If agreements could not be reached by the district boards, appeals could be taken to the bureau boards and, after them, to the War Department Claims Board. The last-named body designated one of its members to sit with each bureau board and to exercise the authority of the War Department Claims Board in approving all settlements after action by the bureau board. The approval of the special member, acting in the name of the Secretary of War, constituted the final step in the settlement, which then passed to the finance officers for payment. Thus only a few of the 27,000 suspended contracts reached the War Department Claims Board for detailed consideration. Nearly all of them came up to the highest authority as agreed-upon settlements, needing only the approval of the proper special member of the War Department Claims Board before being embodied within the original contracts as supplementary agreements. Occasionally questions of fact arose as to the fidelity of a contractor’s performance under the terms of his contract. Such questions were carried by appeal, not to the War Department Claims Board, but to the Department’s Board of Contract Adjustment, which, it will be remembered, was, by inference, set up as arbiter of such questions by one of the standard contract provisions. The Board of Contract Adjustment had other and more important duties in connection with the industrial liquidation, as will be shown later.