THE SETTLEMENT OF THE WAR CONTRACTS
In the preceding chapter we have been discussing chiefly the written,
formal contract, the tangible, visible document, duly signed and
witnessed, which could be submitted to any court as prima-facie
evidence of the obligations of both the producer and the Government.
If, however, the impression has been given that all the war business
was conducted under the authority of such instruments, let it now be
dispelled; because thousands of manufacturers did war work for the
Government, and the Government itself became involved for hundreds of
millions of dollars, under another set of arrangements, which became
known, after the armistice, as the informal, or “Bevo,” contracts.
These agreements, while embodying the same terms as those of the formal
contracts, were drawn with no such attention to the niceties of federal
procedure, without which the law says that a government contract is not
enforcible. The informal contracts were a product of the hurry and rush
to get things done. There were several sorts of them, some being formal
in type but defective in detail, others existing in written records,
such as correspondence, but not in formal contracts, and still others
being merely oral agreements between the producers and the agents of
the Government as to what work had to be done.
The law, in theory, assumes that the Secretary of War himself makes and
signs contracts for the production of army supplies. He is permitted
by law, however, to delegate his contracting function to accredited
deputies, who are called contracting officers. In normal times these
contracting officers are able to make all the necessary contracts; but
during the war, with all industry aligning itself in the munitions
organization, it became physically impossible for the regular
contracting officers to handle all the business, and they in turn
appointed deputies or proxies, and conferred on them (quite illegally,
as it afterwards appeared) the right to sign contracts. Then, in the
urgency of the occasion, the procurement officers, who were frequently
business men commissioned in the military service, adopted the common
business expedient of allowing correspondence to stand as evidence of
contractual engagements, expecting to follow up this correspondence
with formal contracts when the ponderous executive machinery of the
Department could get around to it. Sometimes the producer did not even
have the protection of correspondence, but, after coming to an oral
understanding with the contracting officer as to what was to be done
and on what terms, hurried back to his factory to spend, it might
be, hundreds of thousands of dollars in preparation for some large
manufacturing effort, without a scrap of writing to secure him in these
investments. Finally, there was an extensive class of contracts which
lacked correct form. New officers, unfamiliar with the restrictions
which hedge about the governmental administrative acts, restrictions
which the public calls red tape, took the short cut of making out
direct purchase orders, which stipulated quality, quantity, price,
method of payment, time of delivery, and so on; and the producers
accepted such orders in good faith as binding agreements.
All went well with this informal procedure until the armistice brought
the necessity of terminating the war business. The question was, How
might the oral and other informal contracts be settled? And then the
Comptroller of the Treasury rendered the absolutely stunning decision
that all these informal arrangements, including the formal contracts
which had been signed by proxies of the constituted contracting
officers, were illegal and without standing before the Treasury, and
that not a penny of government money could be paid out in settlement of
the obligations of the Government under the terms of these agreements,
except that the Government could pay for goods actually delivered.
At that time the outstanding contracts and agreements of all sorts
involved the Government in the sum of approximately $7,500,000,000. The
informal contracts, thus declared void, accounted for $1,500,000,000
of this sum. The Government, if it chose, could refuse to reimburse
a dollar of hundreds of millions expended freely by patriotic
manufacturers, careless of their own interests in their eagerness to
give their utmost service to the prosecution of the war.
Of course, repudiation of these agreements was unthinkable, if only
for the reason that such action would have brought on an unprecedented
business panic and sent many concerns crashing down into bankruptcy.
Yet the only remedy was legislation to permit the Government to settle
up its obligations under these contracts just as if they had been
properly drawn in the first place. Such legislation, known as the Dent
Act, was eventually passed by Congress, the law being approved by
the President on March 2, 1919. In the interim between the armistice
and that date, the holders of informal and irregular contracts were
subjected to an unavoidable injustice, the nature of which will be
plain when we have somewhat examined the War Department’s method of
terminating its war industry.
The modern contract is the foundation stone of industry and commerce.
If the integrity of that foundation be impaired, we come into a
condition of anarchy of which Anglo-Saxon civilization knows nothing.
The man who breaches a contract can be held in court to indemnify
the other party to it, and the Government itself cannot escape such
liability. On the first day of the armistice there were 30,000
outstanding war department contracts. Three thousand of these,
involving a government expenditure of over $1,500,000,000, either
were so near completion or called for the production of materials
so necessary to the maintenance of the demobilizing Army or for the
future preparedness of the United States that they were allowed to go
through undisturbed. The other 27,000 contracts bore a face value of
$6,000,000,000. Under many of them there had been extensive deliveries
of finished supplies to the Government, these deliveries (including
the deliveries made while the industries were tapering off their
production and adjusting themselves to peace conditions) amounting
to approximately $2,000,000,000 in value. Thus there was left to the
War Department a contractual obligation amounting to $4,000,000,000,
which huge sum would go to pay for a great mass of materials for which
the Government could have no possible use. It was highly desirable to
terminate the unfulfilled portions of these contracts; yet few of the
contracts contained termination clauses. It will be remembered that
the standard termination clause did not appear as a common feature of
the war contracts until the final six weeks of hostilities. Thus the
majority of the 27,000 contractors possessed the plain legal right to
go through with the performance of their contracts, even though the war
had ended, and thereafter to hold the Government to the full payment of
the face value of the contracts. The sum of such determination, had it
been unanimous, would have cost the United States $4,000,000,000 with
nothing to show for it except a great collection of useless munitions
which could be sold to the junk dealers.
Upon the administration of the War Department rested the responsibility
to save for the people as much of this sum as could be saved. Not all
of it could be saved. Millions had been spent by the contractors for
machinery and other equipment, for materials, and to pay manufacturing
costs during the early stages of production. These millions the
Government was bound to reimburse in any event, together with a
reasonable profit upon work already done. The closer the administration
could come to paying these legitimate costs and nothing else, the more
successful would be its conduct of the industrial demobilization. The
question was, what procedure to adopt.
To be sure, the departmental heads might have adopted the policy of
canceling the contracts outright; but such a course would have meant
ruin for many manufacturers, it would have thrown into the courts a
mass of litigation that would have congested them for the next two
generations, and it would have shattered the faith of business in the
Government and rendered difficult all governmental contracting in the
future. Instead of that, the war department heads adopted the shrewd
measure of requesting the producers to suspend work on their contracts.
They made termination a voluntary act on the part of the contractor. It
is obvious that it was fully as much to the interest of the producers
as to that of the Government to liquidate the war business amicably
and, it may be said, inexpensively, since these very men would be the
ones called upon to contribute most heavily in taxes to the payment of
the war debt. Nevertheless, it was greatly to the credit of American
business men that their response to the general request to terminate
war contracts was nearly unanimous. There was scarcely one who stood on
his full legal rights. The business of industrial demobilization was
largely that of negotiating with the individual producers as to the
terms under which they would consent to terminate their contracts. When
the terms were adopted, they were written into the original contracts
as supplemental agreements and thus given legal force. The decision
which resulted in this procedure was one of the great administrative
acts of the War Government. It saved billions of dollars to the
Government and it sent the war producers away fairly well content with
the treatment they had received.
The preliminary steps in industrial demobilization were taken before
the armistice. For one thing, in those final days when it was apparent
that the end was close at hand, the War Department adopted the policy
of terminating the war contracts by agreement. For that purpose, the
war department administration added to the standard contract provisions
already adopted standard forms of supplemental agreements, to the end
that the liquidation of war industry might be carried out uniformly.
On November 9 all production bureaus of the Department were notified
to be ready to enforce the termination clauses of contracts when the
fighting ended. This order, of course, applied only to those contracts
containing termination clauses; but at the same time provision was made
for the suspension of war work when the public interest required it.
This suspension was to be preliminary to the adoption of arrangements
whereby war industry could be gradually stopped down and readjusted
by easy stages. On this date, too, the Department adopted a policy
from which it never afterwards deviated: not to pay to a producer any
profits on prospective production under his contract, but to allow a
profit as high as 10 per cent of the cost on work that had actually
been done but from which no actual production might have resulted. Thus
from the very first the Government showed a spirit of conciliation that
promised well for the producers of war supplies.
On the morning of November 11, after the receipt of the official news
of the armistice, the Secretary of War, the Secretary of the Navy,
and the Director of the United States Shipping Board announced after
a conference that all Sunday work and overtime work on government
contracts would cease at once, and that war industry would be
tapered off by the various procurement agencies in consultation with
the Department of Labor and the War Industries Board. These two
organizations, the one in contact with employers and the other with
labor, were in a position to guard the interests both of labor and of
industry. Meanwhile the procurement bureaus of the War Department,
following the recent instructions, had sent out generally requests to
suspend the manufacture of munitions. These orders were soon modified
to allow production to continue at most of the war plants, but the
brief interim of idleness gave the procurement officers time to survey
the situation and also served as a notice to the manufacturers that
the war was over and that they were to incur no further obligations in
pursuance of their contracts.
Simultaneously with issuing the suspension requests, the procurement
bureaus in Washington began making out what were known as termination
schedules. These were detailed statements of proposed reductions in war
work compiled by individual contracts, by manufacturing projects, by
entire commodities that were being consumed by the Army, and by entire
production programs. These schedules were first sent for approval to
the Director of Purchase, Storage, and Traffic, who also secured the
approval of the War Industries Board and the Department of Labor.
The approved schedules were then sent back to the bureaus for action,
except that the bureaus were instructed to terminate the production
gradually so as not to disturb industry in any particular localities.
The terminations, of course, were made by agreement with the producers,
the agreements embodying the terms under which the manufacturing ceased.
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.
Now this settlement system was able to render an important service to
American industry during the demobilization. Many of the contractors
had gone to the limit of their resources in procuring buildings,
machinery, materials, and work in the prosecution of their contracts.
As long as production was continuing, the Government could finance the
expansion by making advance payments to the cost-plus contractors and
by advancing money to others through the War Credits Board. But when
the contracts were terminated, the Government could no longer follow
this financing system, and the contractors faced a period of months
or even years before they could conclude their settlements with the
Government. During all that time their invested money would be tied
up. Some of the more deeply involved--and large concerns they were,
too--were perilously near actual bankruptcy as a result.
For the relief of such producers the War Department continued in
demobilization its plan of advance payments, with, of course, a
difference. Before the armistice the Government, in making advance
payments, paid a percentage of the cost of work actually done. After
the armistice no work to speak of was being done; yet in practically
all the settlements there were numerous items of cost admittedly
legitimate and about which there was no dispute. These were such items
as materials in sight, appraised, and invoiced to the War Department,
and such items as the contractor’s obligations to his subcontractors.
The War Department adopted the policy of making payments in advance of
final settlement up to 75 per cent of its admitted obligations. These
payments, amounting in all to more than $143,000,000, enabled the
producers to tide over the period between the termination of work and
the final settlement with the Government. The practice of maintaining
officers of the Finance Service as members of the district claims
boards facilitated the prompt payment of these advances. In the final
settlements, of course, the Government subtracted from the amounts due
from it to the producers all advances made to them.
From this outline it will be seen that the War Department, in striking
a balance with war industry, set up within itself what was essentially
a system of courts, with a regular procedure and process of appeal
and--for such the decisions of the War Department Claims Board came to
be--a body of laws and precedents. The court system, however, had the
advantage of flexibility, simplicity, and rapidity of action, being
hampered by none of the rules and customs that circumscribe the regular
courts. The war department courts, if we may call the claims boards
that, were courts of conciliation. The claimants partook of their
benefits voluntarily. They might, under certain conditions, at any
time appeal to the regular federal courts; but there they faced years
of litigation before they could reach final settlement. This gave the
war department system a great advantage, which the Department utilized
to obtain advantageous terms for itself; yet it must be said that the
entire liquidation was conducted in a spirit of desire to make the
contractors whole for all their expenditures.
We are now in a position to understand the unavoidable injury done
to the holders of the informal contracts during the first months
after the armistice. When the Comptroller of the Treasury ruled
that the informal contracts were invalid, he foreclosed the War
Department from making any advance settlement payments to these victims
of patriotism and haste. Many of them were as heavily obligated
financially as the holders of the valid contracts, and their solvency
was equally precarious. Yet not a dollar of government money could
they receive until the wheels of legislation had ground out authority
for the settlement of their claims. Some of their circumstances were
particularly distressing.
Early in October, 1918, one of the war department bureaus ordered a
certain manufacturer to produce 5,000 frames for army trucks on the
security that “formal contract will follow.” He was awaiting the
arrival of this document to justify him in making commitments for
materials when he received an urgent message from Washington beseeching
him to make early delivery of the frames. He yielded, and without
waiting for the formal contract spent over $500,000 for machinery and
materials. The armistice was signed before his formal contract was
executed, and then, with his production stopped, he was unable to
collect a penny of the money due him. Another man spent $400,000 in the
prosecution of a contract, only to find after the armistice that his
apparently valid contract had been improperly signed and therefore was
classed among the invalid contracts.
The Dent Law gave all such claims a legal footing, but that act
was not in force until March 2, 1919. Meanwhile, however, the War
Department’s liquidation machinery had taken up the settlement of the
informal contracts along with the others. The district boards had
determined for many of them what part of the work had been completed,
what amounts the Government should pay for materials delivered, what
reimbursements the producers should receive for expenditures made in
preparation for production, and in many instances had reached complete
agreements as to final lump-sum settlements. When the Dent Law went
on the statute books, these agreements needed only final approval to
become operative; and therefore the settlement of the informal claims
proceeded with great rapidity after the passage of the enabling act.
The Dent Law conferred upon the Secretary of War power to adjust the
informal contracts on equitable terms, with the proviso (already
adopted as policy in the settlement of the valid contracts) that
no prospective profits should be paid. This power the Secretary
delegated to the War Department Claims Board, with two exceptions.
Invalid contracts made with Canadian producers were to be adjusted
by the Imperial Munitions Board, a branch of the British Ministry
of Munitions, which had acted as the agent of the War Department in
procuring army supplies in Canada. All contracts with other foreign
producers--they were principally French and British producers--were to
be settled by various foreign agencies and representatives of the War
Department.
The informal contracts with American producers were of two sorts--those
of which there was written evidence and those of which there was
no written evidence. The former were known as Class A contracts
and the latter as Class B. The Class A contracts were contracts
apparently formal but improperly executed, or procurement orders, or
correspondence setting forth the contract terms. The Class B contracts
were agreements wholly or in part oral. The Class A contracts presented
no difficulty to the War Department Claims Board, and they were put
through to settlement by the regular procedure. It required the taking
of testimony to establish the terms of Class B contracts, and the War
Department Claims Board, with its subsidiary boards, had its hands too
full with the regular routine of liquidation to add to its business
this new, voluminous work; and therefore it in turn delegated the duty
of establishing the terms of the Class B contracts to the Board of
Contract Adjustment, the creation of which was noted above.
The Board of Contract Adjustment heard witnesses and then rendered
a decision as to the terms of a Class B contract. After that it did
one of two things: it referred the now established contract to the
proper district board for settlement, or else it determined itself
the financial obligation of the Government and issued an award to the
producer. In addition to this work the War Department Board of Contract
Adjustment, as a convenient agency, also settled contracts of all sorts
made by such presidential agencies as the War Industries Board and the
United States Food Administration.
After the Dent Act was in operation, the War Department extended to the
informal contractors also the privilege of receiving partial payments
in advance of final settlement.
Such, in outline, was the system which liquidated the war industry
and struck the balance between the War Department and the munitions
producers. A few details of organization should be noted. The War
Department Claims Board greatly expanded its own organization during
the episode by creating various subsidiary bodies. One of these was
its Standing Committee (composed of members of the Board), which did
most of the actual work for the Board and presented its acts for the
consideration of the entire Board in the form of resolutions. These
resolutions in time became a body of precedents to standardize the
whole procedure. To handle engineering and other technical questions,
the War Department Claims Board created its Technical Section, which,
in turn, established within itself its Plant Valuation Group, made up
of men specially qualified to appraise the contemporary value of plants
erected for the War Department by producers with the understanding that
the Department would pay for these plants, or an agreed-upon portion of
their cost. The Special Auditing Committee of the Board also conducted
a work of great importance. During the war numerous manufacturers held
contracts with two or more production bureaus of the War Department.
After the armistice they filed separate claims for the settlement of
such contracts. There was always danger that in these claims there
would be duplicate items of such costs as overhead expense and plant
deterioration. The Auditing Committee consolidated the claims of
individual producers and thus enabled the War Department Claims Board
to strike out duplicate items of cost. Numerous contractors followed
the old peace-time procedure of filing claims with the auditor of the
War Department. So many claims originated from this source that the
War Department Claims Board established in the office of the Director
of Finance a Classification Board to separate all claims coming to the
auditor and to refer them to the proper bureau boards.
This system had nothing to do with the settlement of claims arising
out of the War Department’s operations in real estate during the war.
There were thousands of claims for damage done to property incidental
to the training of the Army. To settle such claims the Secretary of
War utilized the existing War Department Board of Appraisers, which
had been created to establish the values of commandeered property. The
commanders of military posts investigated the validity of real estate
claims and recommended awards. These, after approval by the Board of
Appraisers and the Secretary of War, were paid by the auditor of the
War Department. Numerous real estate claims arose under informal and
invalid agreements, and the condition of such claimants was usually
particularly helpless. When the War Department started to build its
great trinitrotoluol plant at Racine, Wisconsin, a large number
of persons, home owners and renters, moved off the site without
the formality of written contracts. Many of these individuals sold
their farm animals and household goods. The armistice cut short the
construction of the plant, and then the property owners discovered that
they were without legal standing before the Government. The Dent Law
enabled the Department to settle these and other real estate claims
arising under informal contracts, and the Board of Appraisers made the
settlements.
The Canadian contracts, both formal and informal, were adjusted by
the Imperial Munitions Board, acting in conjunction with two American
officers called assessors, one of whom was a special member of the War
Department Claims Board. Mr. D. C. Jackling, the director of United
States Government Explosives Plants, adjusted all the outstanding
contracts and orders in connection with the construction of the Nitro
(West Virginia) Powder Plant. More than 3,200 firms and individuals
had received orders for materials for the plant, and a fire at the
plant immediately after the armistice destroyed the records of all open
orders. The terms of these orders were reëstablished by correspondence
with the contractors. A special settlement board within the Ordnance
Department adjusted the terminated contracts for the construction
of nitrogen fixation plants authorized as a war measure. The Spruce
Production Corporation of the Air Service terminated and settled its
own contracts with the spruce lumber interests in the Northwest.
On July 1, 1920, the War Department Claims Board, which had conducted
the liquidation of the Department’s war business (with the small
exceptions noted above) ended its work and disbanded, turning over to
the regular military organization of the War Department the residue
and remnant of work still left. Of the 27,000 war contracts, 26,000
had been terminated and settled by the Department. There were still
995 claims pending, or less than 4 per cent of the original number;
but more than half the auditing and other preliminary work on these
995 claims was done. The liquidation was therefore more than 98 per
cent complete, and this in little more than a year and a half after
the Government halted the mightiest industrial undertaking upon which
any people ever embarked. The promptness and wisdom shown in that
settlement had allowed war industry to taper off and stop without shock
to the economic structure of the country, had stabilized business,
relieved the banks of the country of a vast load of debt which they
were carrying for the war producers, and thus had brought the nation
safely and easily through what might otherwise have been the sharpest
business crisis it had ever known. Concretely, in dollars and cents,
this work was of great material benefit to the Government and people of
the United States. The rate of liquidation of the unfinished portions
of the war contracts averaged fourteen cents to the dollar--that
is, the payment of fourteen cents by the Government satisfied and
wiped out a contractual obligation of one dollar. At this ratio, the
settlements effected by the War Department Claims Board saved the
people of this country from having to pay out well over $3,300,000,000.
[Illustration:
_Photo by Harris & Ewing_
THE WAR DEPARTMENT CLAIMS BOARD]
[Illustration:
_Photo by Signal Corps_
CONVALESCENT READING _STARS AND STRIPES_]
[Illustration:
_Photo by Signal Corps_
HOSPITAL TRAIN IN UNITED STATES]