The amount credited for marine insurance, &c., at the rate of 1 per cent. in respect of the purchases referred to above was £20,827. The value of losses in transit and general average contributions was £4,937, and the further charges borne by this head in respect of shipping brokers' salaries, dock dues, lighterage, &c., &c., were £10,887. The total debit of £15,824 is in respect of all services and not merely those for which departmental charges and marine insurance are specially levied.

The charge of 2 per cent. for departmental expenses is of very old standing and was sufficient to cover the costs incurred when practically the whole of the stores required by the Government of India were purchased through this Department. The rise in the actual percentage to 3 for the year under review has been caused by a considerable diminution in the value of indents, particularly in the case of the State Railways. The increasing activities of the Indian Stores Department have doubtless contributed to this result.

Although the percentage of departmental charges compares favourably with those made by Departments of the Imperial Government, it is, on the other hand, higher than those shown by some of the Indian Railway Companies, and an investigation has been conducted with the object of discovering the cause of the disparity, The East Indian Railway Company's contracts for 1923-4 and for the nine months ending 31st December, 1924, were examined, analysed and compared with India Store Department contracts for the two financial years. The result may be tabulated thus:

It has evidently been the practice of the Railway Company to buy miscellaneous stores in bulk from merchants, a procedure which naturally involves less work at headquarters. Further, large purchases of rails and other permanent way materials have been made in Europe by this railway, whereas in the case of the State lines stores of this character are mostly purchased in India. For instance, a single East Indian Railway contract for rails of the value of £134,000 has been noted, whereas the total expenditure through this Department for permanent way material for all State lines was only £3,400 during the year. The inspection of stores of this nature is comparatively easy and inexpensive.

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Division of indents.

Comparison of departmental charges.

9. It may not be out of place here to allude briefly to the treatment given to an indent as a preliminary to a call for tenders, since advantageous purchasing depends very largely on this initial step, and because statistics of the number and value of orders placed by the Department are vitally affected by the extent to which items appearing in one or more indents are grouped together in one contract. On the one hand, overgrouping of items will lead to uneconomical purchase, for a firm tendering for the whole schedule will add its profit on each item which it is itself unable to manufacture and has to obtain from a subcontractor. On the other hand, excessive subdivision of an indent will produce a large number of small contracts which are unattractive to the manufacturers and therefore tend to reduce competition, while they involve higher overhead expenditure by duplicating office work and inspection and by adding to packing and shipping charges.

When tenders are under examination it is possible to detect serious overgrouping at the first stage and remedy it by dividing the order between two or more contractors, giving each the items or groups of items for which his tender is lowest. But care has to be exercised here again to see that any saving which might be so effected is not more than counter-balanced by the extra cost of office work, inspection, packing and freight. In short, while overgrouping results in paying middlemen's profits, the other extreme results in less obvious extravagance spread over departmental expenses, packing and freight.

10. Apart from differences of this kind, the comparison which has been alluded to above appears to disclose a difference in the basis of charges which are allocated to overhead expenses in the case of this Department and the headquarters organisation of the company-managed lines. It is not proposed in this report to examine the principles on which the allocation of charges to overhead expenses is based. It may, however, be questioned whether all the items reckoned among the departmental expenses of this Department would be regarded on strict commercial principles as forming part of the cost of the supply of stores. In comparing the working cost of the Store Department with that of an ordinary commercial agency it is necessary to bear in mind that a considerable amount of work has to be done in the way of preparing special returns for the High Commissioner and the Government of India, communication of price intelligence to India and detailed accounting under numerous heads of expenditure on account of the Central and the ten Provincial Governments, which, though necessary, can hardly be regarded as essential features of stores purchase" viewed from a purely commercial standpoint. Appendix E shows the items which have been taken during the years 1921-2, 1922-3, 1923-4 and 1924-5, in calculating the cost of the Department, and Appendix F compares for the year 1923-4 that portion of the High Commissioner's expenses which is allotted to this Depart ment, and therefore determines the amount of departmental

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expenses, and the corresponding items taken as making up the cost of the East Indian Railway Company's headquarters organisation. It will be seen that items totalling something like £55,000 and equivalent to 1·176 per cent. on the stores expenditure for that year were not represented by any corresponding items in the East Indian Railway charges.

The cost of the services rendered in connection with the supply of stores, reckoned as a percentage on the value of the stores (excluding freight and other charges), varies from year to year. Certain overhead charges (e.g., salaries) remain generally stationary, whatever increase or decrease there may be in the value of stores; other charges (e.g., inspection expenses) increase with the value of stores purchased, but not in the same ratio, and consequently the percentage decreases as the total value of stores purchased increases. It is, perhaps, unnecessary to point out that too great importance should not be attached to the proportion which departmental expenses bear to the value of stores purchased as a measure of the efficiency, or of the economical working, of the Department. It will readily be appreciated, for instance, that the combination of items contained in indents into one invitation to tender, to which reference is made in para. 9, if carried to excess, will operate in two ways to reduce the departmental cost percentage. For, in the first place, uneconomical buying, involving large purchases from middlemen, will increase the cost of stores, while, in the second place, a decrease in the number of contracts placed diminishes the cost of office work and supervision.

11. By an arrangement which came into force on 1st April, Allocation 1925, the cost of packing at the India Store Depot of stores of packing charges. delivered there, including not only making the packing cases but the actual labour and other materials used in packing, will be included in the price of the stores debited against the indenting Department instead of being included in the overhead charges of the Department.

of stores ordered by the Chief Controller of Stores in India.

12. Arrangements are made from time to time at the request Inspection of the Chief Controller of Stores in India for inspection by this Department's technical officers or by the Consulting Engineers of stores ordered from Europe by the Indian Stores Department, and the Government of India have recently directed that a charge of 1 per cent. should be levied for the work in respect of orders placed for quasi-commercial Departments of the Central Government and for Provincial Governments.

13. The impending transference of the East Indian and Great Consulting Indian Peninsula Railways from Company to State management Engineers. necessitated consideration of the provision to be made for a considerable addition to the technical, advisory, and consultative work to be performed in London in connection with the State. Railways. The average value of the stores purchased for these two railway systems during the past few years amounted to

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approximately £3,500,000 per annum. The Consulting Engineers to the Secretary of State and the High Commissioner for India, Messrs. Rendel, Palmer and Tritton, were also the Consulting Engineers employed by the East Indian Railway Company. The Great Indian Peninsula Railway Company employed the services of another firm. While fully recognising the eminent services which the latter firm, Messrs. Robert White and Partners, have rendered over a long period of years to the Great Indian Peninsula Railway, the Government of India and the Secretary of State, after very careful consideration, came to the conclusion that it was necessary, in the best interests of the railway administration, to employ one firm of consultants for all the State Railways. Notice of termination of their contract was therefore given to Messrs. Robert White and Partners, and a new agreement entered into with Messrs. Rendel, Palmer and Tritton. which provides for an increase in their remuneration commensurate with the amount of additional work which the Consulting Engineers will be called upon to perform.

14. The main function of the Consulting Engineers is to advise the Government of India on all matters connected with the equipment of the. State Railways, but their duties include such technical work and advice as may be required by other Departments of the Central Government and by the Provincial Governments. Their work falls roughly into two main categories: Firstly, general consultative work not immediately or directly followed by actual purchase of stores, such as advice on the standardisation of railway equipment and designs for bridgework and other large engineering projects; secondly, work of a varied and extensive character in connection with the placing of contracts for the supply of stores, including the preparation of specifications and drawings, technical advice on tenders received, and the inspection of manufacturers' works and of materials during and after manufacture, both in Great Britain and on the Continent and in America. The Consulting Engineers also assist the High Commissioner, when required, in recruitment in England of technical personnel for the Governments in India. They employ a large staff of engineers, inspectors, draughtsmen and clerks, including resident inspectors in the industrial districts. in this country and also on the Continent.

15. The payments made to the Consulting Engineers fall under two heads: (1) the fee paid to the partners as personal remuneration for their services as consulting and inspecting engineers; (2) reimbursement of the actual cost of rent, office expenses, office and technical staff, salaries and travelling allowances of inspectors, &c., as certified by chartered accountants to be ascribable to work done for the Secretary of State and the High Commissioner for India.

The personal fee payable to Messrs. Rendel, Palmer and Tritton for the two years ending 31st March, 1925, was fixed at the rate of £5,000 a year. The expenses mentioned under (2)

naturally show fluctuation. Appendix G shows the amount of those expenses in comparison with the value of orders placed for stores for the two five-year periods 1909 to 1913 and 1919 to 1923. The fluctuations are accounted for by the fact that expensive designing work is, as has been indicated above, not necessarily followed by purchases in the particular financial year.

16. As Consulting Engineers to the East Indian Railway Company Messrs. Rendel, Palmer and Tritton have been in receipt. from the Company of a fee of £1,300 per annum. The Consulting Engineers employed by the Great Indian Peninsula Railway receive a fee of £1,200. The new arrangement entered into with Messrs. Rendel, Palmer and Tritton provides for the increase of the personal fee payable to them by £2,000 per annum to £7,000 per annum, this remuneration to cover all the work that may be required of them in connection with State Railways, including the East Indian and Great Indian Peninsula Railways, and all other work on behalf of the Central Government and Provincial Governments. This sum is less by £500 per annum than the total of the fees paid by the Government of India, the East Indian Railway and the Great Indian Peninsula Railway to their Consulting Engineers before the transference of these two railways to State management, and it is confidently expected that under the new arrangement considerable economies, the extent of which cannot immediately be estimated, will be secured in the cost of inspection and other expenses owing to the concentration of the work in the hands of one firm.

Further economy may be expected to result from the fact that, in respect of the East Indian and Great Indian Peninsula Railways, the staff of the Stores Department will perform duties which, under Company administration, had necessarily to be entrusted to the Consulting Engineers, thus swelling the latter's charges.

The basic principle which is applied to determine the allocation of the work between the Consulting Engineers and the departmental technical staff is that each contract should so far as possible be dealt with by a specialist in the particular line involved. For example, demands for rolling stock and parts thereof, permanent way and signal material, bridge work, and to some extent railway workshop equipment, are entrusted to the Consulting Engineers, who prepare specifications and drawings, report on the tenders, and carry out inspection. Many articles demanded by railways come within classes common to other indenting departments and are therefore more suitably dealt with by the technical officers of the Department who are experts with wide experience in their various trades.

17. The remuneration of the Naval Architects is based on a Naval percentage of the value of the contract. The percentage varies Architects. between 5 per cent. on contracts of £500 or less, and 1 per cent. on contracts over £300,000. The amount paid to the Naval Architects during the year was £2,624.