sion done so, it would probably have found it necessary to satisfy all or a large part of the creditors whose claims related to these vessels. Such action would, in any event, have been exceedingly expensive and would have also involved difficult questions relating to the rights of various parties, since the Reconstruction Finance Corporation, the Commission, the sureties on the first group of vessels and the sureties under the second group all had rights in this connection, not to mention the possible rights of a trustee or receiver who might be appointed in the interest of the general creditors. Another alternative which was considered was to remove the vessels from the yard in their uncompleted condition and contract for their completion elsewhere. This also would have been very costly and would have been wholly impractical with respect to the fourth of the vessels of this group which had not advanced sufficiently to permit of launching, and the completion of which, therefore, would have probably had to be abandoned.

Any drastic action under default clauses of the first contract would in any event have automatically brought about a default under the second contract and would also have resulted in the immediate loss of the company's supervisory organization, which would have rendered further operation impracticable until such time as a new organization could be recruited, the possibility of which, in view of the temporary character of the resulting operation, would have been remote.

In order, therefore, (1) to preserve the shipyard as a going concern, and (2) to complete the remaining seven vessels, the only feasible plan was that which was actually adopted; namely, to get a new general management and a new corporate entity to take over the situation.

The Commission and the Reconstruction Finance Corporation having come to this conclusion, Mr. George B. Howell, vice president of the Exchange National Bank of Tampa, was approached and agreed to give up his vice presidency of the bank and to form a new company and management and himself to become the active head thereof. Mr. Kreher, the president and principal stockholder of the old company and other stockholders, representing nearly all of the capital stock of the old company, agreed to an arrangement whereby the new company, which was organized with nominal capital, would take over the assets of the old company in consideration of assuming its liabilities. The arrangement included the voluntary surrender by the old company to the Commission of the three uncompleted hulls of the first group of vessels: the sale of these hulls in their then condition to the new company for an amount equal to what the Commission had expended upon them by way of payments to the old company; the making of an agreement with the Navy Department whereby these hulls were taken over from the company under contracts for their completion with the Navy Department at values which would permit the unpaid bills relating to these vessels to be discharged without exceeding what these vessels would have cost had they been built under contemporaneous contracts with other shipyards, and the assumption by the new company of the second group of contracts.

This procedure would not have been practicable had the result been a price for the vessels in excess of their value as determined by other current construction, but careful analysis of the situation indicated that even under these arrangements these three vessels were the cheapest which the Navy could obtain.

The plan had the additional advantage of avoiding a default of the second four vessels, which in view of the working capital available for them and the manage ment being provided by the new corporation could thus be kept alive.

The amount of the unpaid bills on the first group of contracts was approximately $900,000; the guarantor, Mr. Spadaro, was liable for $500,000 of this amount; the other surety, Mr. Kreher, after the wiping out of the value of his stock holding in the company as a result of the losses on the first group of ships, had no substantial assets which could be availed of to meet his obligation.

Analysis of the situation indicated that it was possible that the Government claims against the surety had already been weakened by the arrangements which it had been necessary to make previously in order to keep the company going, and that in any event, we could not change this contract from a contract for merchant vessels to a contract for naval auxiliaries without in effect releasing it. Further more, had recourse been had to Mr. Spadaro as surety, the first claim, as a cal matter, would have been on behalf of the suppliers of machinery, materials,

practi

and services under the payment bond, so that there would have been no salvage to the Government out of his bond.

The reorganization plan however included arrangements with Mr. Spadaro whereby, in effect, he underwrote part of the working capital for the new company, and the new company undertook to pay out of any profits of this or future construction for the Government the amount of the $500,000 liability which Mr. Spadaro had formerly had.

This undertaking was implemented by an arrangement with the new company as to recapture of profits, in addition to those prescribed by law, such that it could make no profit on the first group of vessels, and that it was to give the Government half of all the profits on the second group and on any subsequent Government contracts until all of the $500,000 representing the Spadaro liability was thus recovered.

It is our understanding that the company thhrough work subsequently placed with it by the Navy Department is in process of liquidating this obligation and that its entire liquidation in the very near future is indicated. The Government will therefore have recovered without litigation all that it could have recovered from Mr. Spadaro even disregarding the probability that a suit under this bond would at best have led to a partial recovery by creditors only, with no net recovery by the Government.

It will, therefore, be seen that the maximum possible book loss to the Government is $400,000; all of which went to pay claims which were payable in any event and which were recompensated for by (1) the fact that this was fully offset by the value of the uncompleted hulls acquired by the Navy as determined from contemporaneous contracts with the builders, (2) the avoidance of losses due to disruption of the yard, and (3) the economies involved when the Navy started its conversion work in advance of completion of vessels.

Subsequently, the Navy asked us to turn over all of the four ships in the second group of contracts for conversion to naval auxiliaries. It was not desirable in the interest of the Government that these vessels be first completed as merchant vessels and then taken by the Navy, since most of the value of the work done in the latter stages of construction would have been a complete loss to the Government, and the cost of conversion would have been unnecessarily high. Accordingly, the company was requested by the Commission to consent to the cancelation of these contracts against payment for work actually done and for materials on hand and in progress.

Again careful comparison was made with the cost of these vessels to the Navy Department in their then stages of completion as compared with other vessels of the same type under construction, and it was found that the Navy would be acquiring these vessels on favorable terms. The transaction involved no profit to anyone. The Navy then made its own contractual arrangements with the company for the changes and additional work involved in completing them as naval auxiliaries.

As a result of this last transaction, the Maritime Commission's interest in the Tampa yards and its commitments to the Reconstruction Finance Corporation with respect to their advances which had been given in connection with their advances of working capital is terminated, and a collapse that would have been a serious economic blow to the city of Tampa and the State of Florida was averted. In connection with this and other Navy construction, the Reconstruction Finance Corporation investment is in healthy condition, and the Navy has available for war needs a shipyard with which it is well pleased and which it has subsequently caused to be considerably expanded.

Sincerely yours,

E. S. LAND, Chairman.

OVERTIME PAY TO EMPLOYEES AT SHIPYARDS

Mr. STARNES. Admiral Land, I wish you would give us, for the record, the amount of money which has been paid for overtime work by the Maritime Commission in the various shipyards of the country up to the latest date for which it is available.

Admiral LAND. To attempt an exact answer to this question would involve an accounting analysis of many thousands of pay rolls at some

70 or more shipyards, and, of course, I assume that you have in mind not only the payments that are in the strict category of overtime pay but also the shift bonuses and allowances for swing and graveyard shifts. However, if I can give you a fairly close approximation of the going rate of these charges based upon summaries of 1942 pay rolls and force reports. The figures on an annual basis would be approximately $126,000,000 for regular overtime bonus and $132,000,000 for shift bonuses and allowances.

THURSDAY, JANUARY 14, 1943.

CIVIL SERVICE COMMISSION

STATEMENTS OF HARRY B. MITCHELL, PRESIDENT; LUCILLE FOSTER MCMILLIN, COMMISSIONER; ARTHUR S. FLEMMING, COMMISSIONER; L. A. MOYER, EXECUTIVE DIRECTOR AND CHIEF EXAMINER; JOHN Q. CANNON, LEGAL ADVISER; CECIL E. CUSTER, FINANCE AND BUDGET OFFICER; CHARLES FAHY, CHAIRMAN, BOARD OF LEGAL EXAMINERS, AND RALPH F. FUCHS, EXECUTIVE SECRETARY, BOARD OF LEGAL EXAMINERS Mr. WOODRUM. We will take up next the estimates for the Civil Service Commission, and will be glad to hear Mr. Mitchell at this time.

JUSTIFICATION OF ESTIMATES

Mr. MITCHELL. I would like to offer at this time the justifications for our estimates for the fiscal year 1944.

(The matter referred to is as follows:)

JUSTIFICATION OF ESTIMATES OF APPROPRIATIONS FOR THE FISCAL YEAR 1944

GENERAL STATEMENT

Pursuant to instructions contained in the Appropriation Committee's letter of December 11, 1942, the Civil Service Commission submits herewith its estimates of appropriations for the fiscal year 1944 together with detailed justifications.

There follows two basic statements which pretty clearly present the analysis of the Commission's requests for the fiscal year 1944 in comparison with the funds appropriated for 1943 and 1942.

Statement I is an analysis of the appropriations and estimates for operations, which include all of the functional activities of the Commission.

For convenience and clarity of presentation, the Commission's functions and activities have been divided into nine projects. The first eight of which are continued in the fiscal year 1944. Project nine which covered the extension of civil service under the so-called Ramspeck Act provides for funds through the fiscal year 1943 and no request is made herein for funds for this project during the fiscal year 1944.

For all projects, $16,960,500 is requested for 1944.

The last column of statement I indicates the changes in the amounts requested by projects for 1944 as compared with 1943.

It will be noted that the Commission requests less for 1944 than was appropriated in 1943 for operations by the amount of $370,704.