3 June, 1926.]

cases for deduction of liquidated damages in the event of delay in delivery by the contractor, or for the recovery of excess cost incurred by obtaining alternative supplies in contractor's default."

Mr. Ramsden.

334. You have said that an advance is not made without Treasury consent. That is a case of a contractor having to deliver certain goods to the Government when money is advanced to him in certain cases before the order is completed. Do you, in a case like that, make enquiry as to the man's or the firm's financial standing before allowing an advance to be granted?-I think the commonest case of paying instalments is in contracts for very big works or big contracts, such as for battle ships, where it is found convenient and economical, instead of firms financing themselves through their bankers, to pay instalments on certificates by the Inspecting Officer that a certain amount of work has been done. In those cases there would not be much question. No financial question probably would arise as to the solvency of the firm. You might get other cases, of course in which a firm half way through a contract was getting into difficulties, and asked for an uncovenanted advance. In that case inquiries would be made as to whether they were good for the remainder of the contract if the advance were made, and it would be most unusual for the actual advance to exceed the value of goods manufactured or in such a stage of manufacture that they could be earmarked as Government property.

335. You are sure that under such conditions enquiry would be made?—Yes, I am sure it would be made.

Sir Fredric Wise.

336. With regard to that point raised by Mr. Ramsden in connection with the Air Ministry, I I know they were advanced money without the delivery of the particular machines or tools, without, as far as I remember-I am only speaking from memory-any enquiries being made? -Yes.

337. Would not that come under you? --If it were an uncovenanted advance, that is to say, if the contract did not provide for an advance, I think it would normally have come for Treasury sanction to make an advance; but with the large contracting departments, we give

[Continued,

them a wider discretion in these matters than some of the smaller Departments.

338. Do you ever find that there are large payments on the 31st March against non-delivery of stock?-Against undelivered stock?

339. Undelivered stock.-I believe that that is possible under an arrangement, provided that the advance is made subject to discount and is covered by work that has already been done.

340. Has discount ever been asked for? --Yes, I think so.

341. Would you have control of that Sir George? I know that question was considered as a general question. I am afraid I cannot answer you at the moment, as to whether in any case it was actually done. I believe that Departments do not like doing it, in fact.

342. It has been done, I know, from my experience on the Public Account Committee, and I never remember that the discount has been asked for, because I raised that particular point; but probably it is too detailed for you?—I would like to make enquiry about that and find out whether there have been cases in which discount has been asked for.

Chairman.

343. Then what it really amounts to is that the Departments have got so big that the Treasury lay down certain lines on which they are to act, and then give them a great deal of latitude?-Yes. A Department is expected to carry out its contract business according to certain principles which have been laid down by the Public Accounts Committee and the Treasury.

344. Might I ask you this: I notice in reading, for instance, the Auditor General's comments on a contract dealt with under a vote, the Navy Appropriation Account, it states that the contract was worthless because it did not specify any dates for completion, nor any provision for liquidated damages. I would like to ask you, can you tell us if these contracts are examined by any legal adviser from the legal standpoint?Legal advisers are available, but the great majority of contracts I think are not submitted. I have got here some contract forms which you might like to look at. A great number of the clauses you will find are very nearly common form clauses, and practically all these clauses have been drafted at one time cr another under legal advice.

346. It seems curious. With regard to this particular case I will just read what it says in the Auditor General's Report: "In September 1922, the Admiralty placed an order for four cranes to be erected on a hopper barge for Malta. The contractor's tender had mentioned delivery dates, but the actual form of contract used did not specify any dates for completion, nor any provision for liquidated damages. Considerable delay occurred, and finally the hopper barge left for Malta without the cranes, which had to be tested subsequently in this country and shipped separately, the total extra cost involved being £312 76. 4d." There does seem to be a chance of similar errors continuing to be made. Whose business is it to take up such a matter as that, and to alter the contract, or to give instructions to put the contract before the Solicitor, or whoever it is, and to see that such a thing does not happen again?-I should think that the omission of the date must be a sheer blunder. There, again, I have not seen the papers about it. I looked up that case, but we have not any papers about it in the Treasury.

347. You think again it is human fallibility, and not a mistake in the system? I think so. The question of liquidated damages is more difficult. Although the principle laid down is that provision for liquidated damages, in the event of non-delivery at a date, should be made in contracts, I know that there is a feeling among certain contract Departments that that is a mistaken policy. I think that there is a tendency to say that if you are going always to inflict the penalty, the contractors load their prices against you, whereas if you always going to inflict the penalty you get your prices loaded against you without having at the same time the money advantage. I know that opinion is not unanimous, and that the experts who are accustomed to dealing with the matter are not certain that the provision for liquidated damages is a sound rule.

are not

Sir Fredric Wise.

348. Following on what the Chairman has said, do I understand that practically every Department has a contract department.-No.

Sir Fredric Wise.] The principal ones may, I say.

Chairman.] We are coming to that, Sir Fredric. I think we have got more or less all the information we want as regards the general system of control. I do not know if any Member of the subCommittee would like to ask any further question about it.

3 June, 1926.]

any Department to buy stores. What I am trying to get at is this: If you take the Navy Appropriation Account for 1924-1925, you find there is a loss under the heading of "Modification of Patterns" of £309,000.-These are losses in depreciation in Naval stores and fuel for the Fleet; they come under that heading. It is the ordinary depreciation of stock which any business firm which holds large stocks would on its annual account find. I mean, if Messrs. Selfridge had that item, what they would do would be to have a bargain sale and sell off the stocks. In relation to the total amount of stocks held it is not so very large a figure.

355. Would you say that that is a sort of annual loss?—Yes.

356. Would you suggest that that is not a very big amount for modification of patterns alone, £309,000 in one year? It is annual, apparently.—If you have the Appropriation Account before you, and if you will look at paragraph 15 on the previous page, you will see the various classes of stocks held for the Navy, amounting to something over £30,000,000. "The amount under head (b)" the Comptroller and AuditorGeneral points out, "is due in the main, to writing down to sale value of various stores, obsolete or surplus to requirements of the numerous items making up this total, the largest are £48,000 for wireless telegraphy apparatus, £41,000 for containers for submarine batteries, and £33,000 for steel tubes." When you are dealing with figures of stock of such a magnitude you must not be surprised, I think, if the figures for obsolescence come to rather alarming looking totals. Take for instance, wireless telegraphy apparatus: That is a form of apparatus which is continually being improved upon, and new patterns are coming out. Director of Stores, the new pattern having come out and having been accepted, goes annually over his stock and sees that certain things are becoming obsolete, and he writes those down in value. It is difficult to call them losses in the sense of absolute loss of publie money. It is that certain stores which are held in stock are deteriorating by age.

The

357. I am not suggesting that the amount is too big; I do not know; but you will agree that it is perfectly possible for a department to become somewhat extravagant, especially in departments going in for research, such as

56840

[Continued.

wireless telegraphy, and in consequence of that probably making fairly big losses due to modification of patterns. Really what I want to arrive at is, is there any control by the Treasury over that, or is there any outside control, to prevent more money being spent on patterns than is really necessary, or is that left entirely to the heads of the department concerned? In other words, are they allowed to run wild in regard to experimenting? Is there any control over the loss they make in consequence? -The control operates through the Estimates, the expenditure of any given year, and particularly through the pressure exerted by the Treasury to keep the total of the Estimates down. That pressure is felt and distributed over the whole field, say in the case of the Navy, as you have given the Navy as an example, over the whole field of Naval expenditure. The Board of Admiralty find that they are being pressed most urgently to reduce the Navy Estimates to a given point; they naturally look to see where savings can be made, and each department is anxious to make out its case for its own expenditure; but is naturally critical of the expenditure of its neighbour; I mean each department within the Admiralty; consequently those who have general control of the expenditure within the Admiralty are, I think, quite alive to the importance of picking out those classes of expenditure where they think there is room for economy. That, I think, is the main way in which the Treasury control operates to enforce economy in the expenditure of a department. There are other ways, of course. I mean taking it in detail, there will be a criticism of the stocks; and if it appeared that the stocks held were too high, and the Admiralty claim, for instance, that certain additions to their estimates had to be made to provide for new stocks, the Treasury would have an opportunity of pointing out that their stocks already held amounted to say so many months supply.

358. Chairman: But Sir surely, George, there is no direct Treasury control over the items of expenditure of any one department? No, I do not claim that there is in detail at all.

359. However large the item may be that has to be written off, there is no investigation made by the Treasury as to whether that amount could have been

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3 June, 1926.]

saved or not. They must take the opinion of the Department upon it, and their control really is confined largely to trying to keep the Departments from spending the maximum sum a year. There is no real Treasury control over the details of expenditure except when it breaks down. I am bound to say that I think the most effective form of control is that which I have indicated. It would not be true to say that there is no Treasury control over details, because each sub-head of the Navy Votes, for instance, is subject to Treasury examination, and you can make enquiries. But I am bound to say that on a big expenditure, if you look at the Navy Votes, it is extremely difficult to carry out in any detail the question of reduction of expenditure.

Sir Fredric Wise.

360. And, Sir George, there is no real financial control over the stores-Do you mean Treasury control, or financial control, because I think there is financial control.

Chairman.

361. In the Departments themselves?— Yes; the organisation of the Department provides for adequate control.

Sir Fredric Wise.

362. But the stores are never checked except by the person in charge of the Control Department.-The Treasury certainly does not exercise a detailed control over the amount of stores. I think that a general control is observed through the organisation of the Department. I mean scales of user of stores are laid down for all principal units, say of a ship in a Fleet. It is not a matter which they specially control, but there is a

control in that way, that the Director of Stores is indented upon for Naval Stores of various kinds by the ships of the Fleet, and control is exercised through him over the user of stores. In the same way with the Office of Works, for instance, for supplies of fuel, or carpets, or furniture for public offices, or in the case of the Army in respect of a battalion. The basis of consumption of stores is laid down as part of the administration of the various Departments.

363. Supposing the Office of Works wanted 10,000 more chairs, you agree to that expenditure, but they might have a million in hand. You would have no control over that, would you?-If they

[Continued.

wanted to include in their Estimates a purchase of chairs the obvious question would be: What is your stock of chairs? And of course the Finance Branch of the Department considers the demand and has information as to stocks.

364. But that check would only be made by the individual in the Office of Works. You would not know. We would not know what number of chairs they had; but supposing the question arose of a special purchase of chairs, which for some reason had to require Treasury sanction, we should naturally ask why you want 10,000 chairs, and what your stocks are, and whether your stocks are not excessive.

366. Might I ask a question with regard to depreciation? You instanced, Sir George, the question of wireless apparatus which might be obsolete; a new pattern is introduced, I presume, which renders the other useless. Would that be written off completely in one year?-It is written down to sale value, apparently.

367. And then is an attempt made to sell it immediately, or is it likely to stay there and be depreciated still further next year?-As soon as it is declared surplus to requirements, it would appear on their list for sale. There can be no incentive to the Admiralty to keep it upon their shelves.

368. My point is this: From a business point of view it strikes me that it would he better to sell it as soon as possible after it is declared to be obsolete, and not to waste time, which would mean eventually that probably a much smaller price would be obtained for that obsolete pattern than would be the case had it been sold immediately, and what I want

3 June, 1926.]

to know is, is that carried out?-I think so, but I cannot tell you of my own knowledge whether, as soon as an article on the Admiralty books is declared as being obsolete it is put upon the sale list. I expect so, but I cannot tell you for certain.

Chairman.

369. On that point, supposing one Department wants to sell surplus stores, does it consult with other Departments as to whether they would like to buy them? Is there any sort of co-ordination as regards the selling of surplus stores ?Yes, there is.

370. What is it exactly? I am coming to the question of the Co-ordinating Contract Committee, but that is for the purchase of material. Is there any sort of Co-ordinating Committee to deal with the sale of surplus stores? Not that I know of. I think probably the information would be circulated in the same way.

371. But we would have to get that information really from the Heads of the various Departments. ?—Yes.

372. Now I want to touch for a moment on this question of the system of coordinating contracts. I understand there is a Co-ordinating Committee for the Fighting Services, and for the Fighting Services only?-That is so, yes.

373. Are you quite satisfied that that works well? Yes, I am. The Treasury receive annual reports from this Committee showing the number of times it has sat and the subjects which it has discussed, and I think there is no doubt that its existence is of value, as bringing the Departments into a better knowledge of one another's requirements and making them work together in purchases.

Sir Fredric Wise.

374. Are you represented on that Committee, Sir George?-The Treasury? 375. Yes?-No.

Chairman.

376. The Treasury is not represented?No.

377. Would it not be useful it the Treasury were represented?—I doubt whether it would be of great value that the Treasury should be represented on that Committee.

378. Might it not lead to economy ?-1 I do not think that the Directors of Con

[Continued.

tracts require any pressure from the Treasury to economise. On the whole, I expect it is better that they should get together themselves rather than that it should appear that the Treasury were forcing economy upon them. I attach great value to the fact that these three Directors of Contracts and their staffs meet together and exchange information.

379. Do the Directors themselves meet together, or are these powers delegated? -They meet.

380. How often do they meet, do you know? I think it is about once every two months that they meet.

381. Now, you say that you consider the Co-ordinating Committee for the Fighting Services is very beneficial, but apparently there are no such Committees for any of the other Services. Is that so? -That is so, yes.

Colonel Henderson.

382. Are there not two Co-ordinating Committees, of which, as I say, Sir Frank Baines is Chairman of one and Sir Arthur Durrant of the other? I have got the terms of reference here of the one of which Sir Arthur Durrant is Chairman? That is an Accommodation Committee. That is not exactly a Contract Committee.

383. No; but it deals with general questions of contracts indirectly, because it deals with the question of accommodation? Yes.

Chairman

384. But it would have nothing to do with the purchase of stores or contracts? -No.

Colonel Henderson.

385. How about Sir Frank Baines' Committee?-Have you got the terms of reference of it ?-Yes.

(The terms of reference were read.)

386. Is the Treasury represented on either of those Committees ?-I am afraid I cannot tell you.

387. But is not the Office of Works directly under the Treasury ?-No, not directly.

388. I thought the Office of Works and the Stationery Office were in rather a different position as regards the Treasury from any other Government Department?

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