WAR MUNITIONS

Grey River Argus, 5 April 1943, Page 1

WAR MUNITIONS

N.Z. Manufacture COST-PLUS SYSTEM CRITICISED WELLINGTON, April 3. Is New Zealand getting full value for money spent on munitions of war made in the Dominion? The. question was the subject of inquiries made bv “The Post.” It was stated that the cost-plus system was not making for economy. The reasons for adoption of this system at the beginning of the wap were reasonable enough—so far as they went. Demand was urgent; experience in manufacture of munitions had to be learned and new approaches made to the making of articles not in common use; risks had to be taken bv manufacturers in the costing of articles which they had never made before. Therefore contracts were entered into on the basis of the costs of the particular article and a percentage of profit in addition. But, as was learned on inquiry, the time of experiment has long gone past—we are in the fourth year of the war. It was stated that abandonment of the cost-plus system is due. Its defects are set out in the report of the Controller and Auditor-General for 1942 as follows: The contractor receives his percentage to cover overhead and profit, irrespective of results or costs. The more the cost is inflated the greater the fee received by the contractor. Incentive to speed and to economy in the use of labour and materials are lacking. Standardised contract forms have been devised, but the Audit Office understands that Departments (requiring munitions) have not made use of them despite the desirability of enslurfmg that contractors should know’ what, expenses the Crown is prepared to allow or disallow. The Government, however, has fully protected itself against undue profits being made and retained by its legislation under the Excess Profits Act of 1940 and ' amendments Manufacturers of munitions, it was learned, could no longer justify the cost-plus system as ■ a protection against possible loss in undertaking to turn out articles of which they had had no previous experience. They should know their costs by now—should have known them long ere this. Meanwhile this costly system is allowed to persist and to encourage extravagance and waste in the use of time, man-power, and materials. Nor does it ensure delivery, of the goods' in the time required. They should be able to tender for and enter into contracts which will ensure to the State full value for money, and achieve economical results with the highest efficiency, and deliveries in the shortest possible lime. “The contract of the fixed-price type was the fairest and most economical contract and the alternative —or antidote —'to the cost-plus system.” This 'was the (considered opinion of the head of a large manufacturing concern. “When competition is fully effective,” it was added, “the responsibility of making up the price is on the contractor, who will base his tender on his own estimation of costs. Provision could, of course, be made for variation clauses in special circumstances. The impression left by the inquiries made by “The Post” into the operation of this cost-plus percentage system as applied to munitions of war required by; the State and their cost and deliveries, was that the whole matter should be the subject of a thorough Inquiry with a Judge of the S'upre'me Court that evidence should be called from those whose testimony would command attention, such as accountants, engineers, specialists in the United Services, and other technicians. The extravagance of cost-plus vzas serious; deliveries of outputs

were retarded; delay in a searching investigation into the working of the system would inevitably have serious financial and economic results. Defence contracts involve a sum of £22,000,000!