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ROYAL NAVAL RESERVE, ROYAL FLEET RESERVE, AND ROYAL NAVAL VOLUNTEER RESERVE, &c.

AND ON VOTE 8.

PERSONNEL FOR SHIPBUILDING,

REPAIRS, MAINTENANCE, &c., AT

DOCKYARDS AND NAVAL YARDS AT HOME AND ABROAD.

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Chairman.

6646. There are two questions I should like to ask you on pages 34 and 35 of the account. Under Subhead G, which deals with gun mountings, you have a deficit of nearly £300,000, and I see that the note refers to an advance to a contractor for gun mountings. What was the amount of that advance?-That was an advance of £500,000. It was made to the contractors who were manufacturing the 16-inch mountings of the "Nelson " and the Rodney." Owing to a great many changes that were made in the course of the elaboration of what was quite an experimental design-there had never been such a thing in existence before the contractors were unable to have what are called the pit trials for the turrets for a great many months after they expected. The pit trials were delayed from December, 1924, to September, 1925. In the meantime the firm was at work on the mountings, and was expending money, and they complained to us that by September, 1925, they had spent more than £900,000 beyond the amount that they had been able to claim in instalments. It was thought it was really impossible to let a firm go on being £1,000,000 out of pocket, and with the approval of the Treasury we paid them an advance of £500,000, which was certified to be well within the value of the work they had actually done by that time.

6647. Then with regard to No. 4 of the appropriations in aid on page 35, "Recoveries from contractors in respect of interest on monies advanced," you expected £18,500, and I see you got nothing at all? You see it says: was subsequently decided that Admiralty had no claim to this

terest."

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6648. I see that, but what were the circumstances of the failure to realise anything? I grant, of course, that you had no claim. But was it a case of counter-claim, or what?-This was a case in which an advance was made free of interest to a firm in connection with the provisional order given for gun mountings for two capital ships which were to have been laid down before the Washington agreement took place. In consequence of the Washington Conference the order was cancelled, and the firm was called upon to repay the advance together with interest thereon. The firm objected to paying interest, and the legal advice given to us was that there was no claim to interest.

6649. Have the Treasury any view on that, Mr. Fass?-(Mr. Fass.) I do not think we had the case referred to us.

It was not a case upon which the Admiralty would have to come to the Treasury. I am afraid I have not got a note on it. (Sir Oswyn Murray.) We went to the Treasury Solicitor, and the Treasury Solicitor advised us we had no claim to interest.

Mr. Briggs.

6650. How long had these contractors this money in hand?-The advance was made in October, 1921, and the order was cancelled, I should think, in the following Spring, just after the Washington Conference.

6651. That would be about six months? -Yes.

Sir Fredric Wise.

6652. What was the amount ?-2250,000 was the amount of the advance. 6653. What had you against that amount in the way of security? We had no security at the time. It was represented when we placed the order that

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the firm had had no work of this sort for many years, and would have to lay out a great deal of money in getting together materials and staff and so on, to recommence manufacturing large gun mountings, and that they were not able to finance themselves. The Treasury agreed therefore to allow us to finance them.

6654. What would have happened if they had gone into liquidation? If they had gone into liquidation at the very moment that we had paid the £250,000, I suppose we should not have got it back, but that advance was made to them in order to enable them to collect material and so on.

6655. That is quite separate to the other £500,000 which you advanced?Oh, yes this was advanced for two big capital ships which were never built. They were two "Hoods" which were to be built, and it was decided in consequence of the Washington Conference not to build them. The other advance was for the "Nelson " and "Rodney."

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6656. You say the order was cancelled. Had they not done any work for the £250,000? We got the £250,000 back.

6657. Had they done any work for it? -I have no doubt they had, and that it was utilised in connection with later orders that they got.

Chairman.

6658. As the matter has been left by Sir Fredric Wise, Sir Oswyn, that would not appear to be a very satisfactory record, would it, because it amounts to this, as I understand it; that they had the use of the £250,000 while it is rather difficult to distinguish anything up to this stage that they did in respect of it. Was there not some counter-claim which they entered, which explains the decision regarding the abandonment of this claim to interest?-They did as а matter of fact say that they had on many occasions had very large claims with us on which we had not paid interest, and they did put in a pro forma counter-claim of about £550,000. In other words they said, if interest is to be paid on this advance, why not on claims of ours that you have held up for months and months?

6659. I think we are getting into a rather wider area. Surely there must be some Treasury rule on that, Mr. Fass, which governs an arrangement of this kind? (Mr. Fass.) I have no doubt in

[Continued.

or

this arrangement there must have been Treasury sanction obtained by the Admiralty, through the Minister otherwise, but I have not brought any papers about it with me. I did not look up the case before coming here. If I may be allowed, I could put in a statement as to what action the Treasury took upon it.* (Sir Oswyn Murray.) I should like to point out that this was

a

very exceptional case in which the Government in order to realise an enormous saving of money in consequence of the Washington Conference, cancelled arrangements they had entered into with this firm. When we paid the £250,000 it was not with a view to the firm having the use of the money for nothing; it was with the view of doing certain work, and the Government in order to save the public pocket decided that the work should not be done.

6660. I do not dispute that for a moment, Sir Oswyn. The point that worries me is that in point of fact no work was done under this head, and in those circumstances surely the taxpayers are entitled to some protection either by general rule which applies to advances of this kind, or a specific rule applying to a specific case. Mr. Fass has just said that information may be obtained later on with regard to the specific case, but what I wanted to find out at the moment was whether there was any general rule applying? (Mr. Fass.) The general rule would be against allowing an advance of this sort. Payment can be made under contract before work is completed by instalments up to a percentage of the value of work done. And uncovenanted payments can also be made, as the Committee know, either subject to discount or not, where work has actually been done and can be earmarked as the property of the taxpayer. But this would be entirely outside the ordinary course. In the ordinary course no payment could be made to a contractor in advance of the performance by him of work under him. I imagine that this must have been the result of special negotiations between the Department and the Treasury to get this work started at an early date. I am speaking without the papers.*

Sir Fredric Wise.

6661. How is a contract like this given out? (Sir Oswyn Murray.) In the case of a contract for these very large gun

* See Appendix 42.

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mountings there are, as I have explained on other occasions, only two firms in the country who can do the work, and it is a matter of collaborating the design of the gun mountings with them. There is no competition in the sense that there are not other firms we can put against these two firms.

6662. But I wanted to know more in regard to the ships. Take these big contracts that were cancelled. I suppose there were five or six different companies who could build these big battleships?— There were certainly two-I am not quite certain whether there were separate contractors for the machinery or not-but there were certainly two big firms involved, and as you remember, we had to pay compensation to those firms for the cancelling of the contracts.

6663. I am afraid I do not understand how the contract is given out, considering that you advanced £250,000 without any work being done?-The contracts for the ships themselves and the contracts for the gun mountings are quite separate.

6664. Oh, yes, I quite realise that. Perhaps it is no good arguing it till we hear what Mr. Fass says when he puts in his paper? (Mr. Fass.) I can let you have a statement on this matter before the next meeting of the Committee.*

Major Salmon.

6665. I should like to ask you this, Sir Oswyn. As I understand, you advanced £250,000 for this gun mounting contract. As a fact nothing was done in that connection for six months because you were able at the end of six months to cancel that contract, and the method of settlement, if I understand you correctly, was by saying that you would let them have that money for six months without any interest. That was the limit of the liability. Is that the position? The advance in the first instance was agreed to be free of interest.

6666. The next point I would like to be clear upon, now the facts are settled, is this. Why was £250,000 advanced to any firm without their doing any work for six months?—The money was advanced, as I have said, because they were not willing to go to the expense of collecting the staff and the material for this work without having some advance made TO them. When we say that no work was done, no * See Appendix 42.

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[Continued.

work was done in the sense of reaching an instalment, but I am not prepared to say that the firm went to no expense.

6667. If they went to any expense, surely they would be entitled in equity to be reimbursed for any expense they may have incurred, but, apparently, they did not make any charge for any expense incurred. The difficulty that I find myself in is this. What justification did the Admiralty have in advancing £250,000 to a firm who made apparently no effort to spend any of that money, and six months afterwards you were able to cancel the contract without any cost to the Admiralty. It seems to me an extraordinary method of doing business if the facts, as I understand them, be correct? The firm had subsequent orders from us in connection with the "Nelson and Rodney " which were

use

substituted ships; and they were able, no doubt, to material they had collected in the first instance for the cancelled ships for that new work on the Nelson and "Rodney." That is why we paid them nothing for anything done. under the first contract.

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6668. What was to have been the value of the contract when it was finished for these gun mountings on which you made advances to the extent of £250,000?—I should think it was something like £2,500,000.

6669. Is it a usual thing in giving contracts for gun mountings to make advances to firms?-No, this was exceptional, due to the fact that we were just restarting building capital ships after a lapse of many years owing to the War, and the firms had naturally not got their establishments in going order. 6670. It was felt that it was necessary to help them financially?-Yes.

6671. But so far as the security for the money was concerned all you had was the plant of the firm and the reputation of the firm?—Yes

6672. As regards the question of the building of ships, how many dockyards have you at the present time in work?At home we have four dockyards, viz., Portsmouth, Devonport, Chatham and Sheerness.

6673. Are we doing actual work in all the four dockyards at home?-We are.

6674. The 30,000 odd are spread over those dockyards and abroad as well?— Those are only the home dockyards.

6675. You build ships besides repairing ships in our own dockyards?—Yes.

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28 June, 1927.]

Sir OswYN MURRAY, K.C.B.

6676. I suppose it would be an easy proposition to tell us the difference in the cost of a ship built by your own dockyards against the cost of a ship built in outside yards?-We have not had sufficient experience since the War to be able to tell that, because the two battleships have both been built by contract, and the cruisers, some of which are being built by contract and some by the dockyards, are not yet finished.

6677. I suppose when they are finished you will be able to compare, like with like, the cruisers which are being built by contract and which are being built in your own dockyards ?-I think we shall certainly be able to do that. I do not know whether the comparisons we shall bring out will satisfy everybody, because there is always a discussion as to what you shall charge in when comparing Government work with contract work.

6678. I was particularly interested in noticing how much more the boats cost than the original estimates (a) of contractors, and (b) of the dockyards?— That we shall certainly be able to tell when the "Kents" are finished.

6679. And you will also, presumably, be able to divide up the material into gun mountings and the main features, showing the percentages?-Yes. But, as I say, when you are dealing with a Government dockyard which is not only a building yard but also a repairing yard and a store depot, it is very difficult to satisfy yourself that you are charging in exactly what the contractor is charging in on the other side.

6680. That all depends, of course, on the percentage on which you charge

overheads?—Yes.

6681. That is a matter of whether it is the right percentage or not?—Yes.

6682. Are the dockyards at the present time fairly fully occupied?-Yes. For the last five years we have been gradually reducing the number of men in the dockyards in order to meet the shrinkage which there undoubtedly is in the repair work owing chiefly to the economy measures that have been taken in scrapping older ships.

6683. I suppose it is fair to say that it costs you more per ship taking into account your overhead charges when your dockyards have less in hand than when they are working at their full capacity? Yes. But we try to keep them always going at their full capacity.

6684. So that in making the compari

[Continued.

son we shall be able to say that the dockyards were being run at their full capacity? We should be able to say what the position was in that respect.

Sir Robert Hamilton.

6685. With regard to Subhead B, on page 27, "Wages, &c., of Men," I see the original Vote was £5,750,000, and you took a Supplementary of £25,000, and then there was a deficit of £20,000 on the total. In the footnote it appears that there were actually less men borne on the average than were provided for in the Estimate?-That means the average piecework earnings of the men were rather higher than we had estimated for. They did more work. A large proportion of the work in the dockyards, and an increasing proportion, is done on piecework.

6686. Does that mean that more piecework was given out, or that they actually worked bettor?-They worked better and we also extended the use of piece work.

6687. With regard to Subhead A on page 33,"Propelling, &c., Machinery for His Majesty's Ships, Vessels, &c.," I see a large Supplementary Vote was taken there, and yet there was a deficit of £100,000. What is the explanation of that? The note says it was due to the over-all reduction made at the time the Estimates were prepared. Would the over-all reduction affect a particular item to that extent? -Undoubtedly, because this is one of the big shipbuilding headings. It is machinery for ships building by contract. The overhead reduction was a figure agreed by the Cabinet to be deducted from what the Admiralty considered the probable contract spending. It was decided that as the Admiralty in previous years had been over sanguine as to the amount of money which would be earned by contractors. the amount provided in the Estimates should be somewhat less than the Admiralty thought would be earned. In this particular year the Admiralty forecast proved more correct, and the contractors did earn more than was provided in the Estimates.

6688. So that in fact the cut was incorrect? The cut was not justified to the full extent. The cut was more than £100,000, so that it was partly justified.

28 June, 1927.]

Sir OswYN MURRAY, K.C.B.

[Continued.

6689. Then there is an item on page 30, at the bottom: Charge for the use of official furniture, and miscellaneous receipts." The large difference between the Estimate and the amount realised there appears to be due to salvage claims. Is the bulk of that item relating to salvage claims?—Yes, the bulk of that is salvage claims.

6690. The charge for the use of official furniture cannot amount to very much, I think?-No. It was really due to claims that we had against the U.S.A. Government. As you probably know, there has recently been an agreement between the two Governments to wipe off certain claims against each other, and these are some of the claims that were subsequently wiped off.

6691. Those were outstanding, and they have now gone?—Yes.

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Sir Assheton Pownall.] With respect to Subhead I on page 34, Royal Reserve of Merchant Cruisers," what are those payments? That is a payment which was arranged many years ago with Cunard Company to enable them to build large ships. The payment is now coming to an end. I think 1927 is the last year in which it will appear.

6692. And there is no other line, or no other ships, with which we have a similar agency? No.

6693. So that that is an item which will drop altogether?—Yes.

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6694. Turning to the next page I see there is an item "Receipts for collision damages on which there is a deficit of £22,000. Who collided into whom?-Those would be other people colliding with the Navy, because they are appropriations in aid.

6695. Other people collided with the Navy and you hoped to get £23,000 damages out of them?—Yes.

6696. But during the year under review you only got one-hundredth part of that, approximately ?-Yes.

6697. Has that any bearing on the note at the bottom of page 30, "Collision damages not being settled as anticipated "?-It is all part of the same story.

6698. Therefore the £22,000 is included, presumably, in the larger sum of £64,000 deficit at the bottom of page 30? No, it is not included, but it is the same sort of thing. (Sir Malcolm Ramsay.) The expected receipts were distributed over the three sections of Vote 8.

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6699. But surely the repair of the ship was completed; why should it be necessary to separate it over material and contract work?-(Sir Oswyn Murray.) It would depend whether the ship was repaired by contract or in the dockyard. 6700. Whether the repairs were being done by contract?-Yes.

Mr. Ellis.

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6701. May I draw your attenton Item No. 4 on page 35, "Recoveries from contractors in respect of interest on monies advanced." I have not yet got exactly what was the contract which you made with Vickers. May I put it to you in this way? There would be a contract in which you would agree to advance a definite sum of money, as you did, and they would then go on with the work in the ordinary way. One might call that an instalment in advance. That would be swallowed up as the work was certified and as time went on. That is not an unusual form of contract. Then there might be a loan without interest at all where a firm wants to put up overheads, and that sort of thing, and really wants a little help in beginning all over again. In the third place, there might be a definite loan with interest. Which of those three was your contract? I should say it was the two first. The firm asked for this advance in order to collect their material and their staff because they were not in working order after the long interval between the building of capital ships. But the intention also was to set it against instalments as they became due.

6702. Set if off as certified?—Yes.

6703. If that is the case, what induced anyone in your department to wake up suddenly and say: "We want £18,500 for interest "?-Does the Honourable Member think it was sharp practice?

6704. I am not saying anything of the sort. I want to know what was in the mind of the particular official who advises you, the Accounting Officer, or the Accounting Department, that you ought to claim £18,500 for interest? What put it into his head? Was it the contract, or what?-No. The £250,000 was free of interest, but it was thought that as the firm had had the use of this money and we were asking them to repay it, they should be asked for interest as well. 6705. That surely would be on the assumption that the firm had put the money into the Bank and had used no T3

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