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[No. 126]

A HEARING ON THE BILL (H. R. 12813) FOR THE RELIEF OF THE BETHLEHEM SHIPBUILDING CORPORATION (LTD.)

HOUSE OF REPRESENTATIVES,

COMMITTEE ON NAVAL AFFAIRS,

Wednesday, February 2, 1927.

The committee this day met, Hon. Thomas S. Butler (chairman) presiding.

The CHAIRMAN. We will now take up for consideration the bill H. R. 12813, and we will hear from Mr. Neagle, the solicitor of the Judge Advocate General's office.

(The bill under consideration follows:)

[H. R. 12813, Sixty-ninth Congress, first session]

A BILL For the relief of the Bethlehem Shipbuilding Corporation, Limited

Be it enacted by the Senate and House of Representatives of the United States of America in Congress in Congress assembled, That the Comptroller General of the United States be, and he is hereby, authorized and directed to adjust and settle the claim of the Bethlehem Shipbuilding Corporation, Limited, on account of a judgment rendered in the case of the West and Dodge Company versus The Bethlehem Shipbuilding Corporation, Limited, in the United States District Court at Boston, Massachusetts, which claim grew out of the contract of December 6, 1917, between the Secretary of the Navy and said corporation for the construction of torpedo-boat destroyers.

STATEMENT OF PICKENS NEAGLE, SOLICITOR, OFFICE OF THE JUDGE ADVOCATE GENERAL OF THE NAVY

Mr. NEAGLE. In December, 1917, the department made a contract. with the Bethlehem Shipbuilding Corporation for building 40 destroyers, and the contract contained a provision that orders for material placed with subcontractors should be approved by the compensation board. The ships were to burn oil for fuel, and the subcontractors placed with a company in Boston, the West & Dodge Co., the order for the burners. The compensation board approved the placing of the order but did not approve the price immediately and had the work go ahead, so that the vessels would not be delayed. The work proceeded, and after a while a representative of the board at Quincy, where the shipbuilding company had a plant, approved the price. The material was all delivered and all of the price paid except for five ships, about $16,100. Then the compensation board received information that convinced it that the price approved for the subcontractor was too high, and it revoked that price and fixed another price, a lower price, and ordered the Bethlehem Shipbuilding Corporation not to make any more payments to the subcontractor. The subcontractor brought suit against the Bethlehem Corporation to recover the withheld amount. It was a cost-plus contract, and the department was obligated to pay the costs that the Bethlehem Corporation incurred. In the action that was brought it was maintained that the subcontractor must look to the contractor and not

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to the Government. The court upheld that view and decided that, the compensation board having approved the price, it could not revoke it and that the subcontractor was entitled to the price that was first fixed. The Government resisted that as far as it could, but the lower court and the court on appeal-——

The CHAIRMAN. Rendered a judgment against the contractor? Mr. NEAGLE. Rendered a judgment against the contractor. The CHAIRMAN. Against the Bethlehem Steel Co.?

Mr. NEAGLE. Bethlehem Shipbuilding Corporation. The Navy at the time of making settlement under the contract for the destroyers, made a stipulation with the Bethlehem company that it would protect them against any costs of this kind, having in mind particularly this suit that was then pending. So that the Government is obliged to pay the amount to hold the Bethlehem company free from paying costs incurred in constructing the vessels. It seems to be a very complete case of a Government obligation, and I do not see how we can escape it.

Mr. MCCLINTIC. How much money is involved?

Mr. NEAGLE. About $23,000.

Mr. COYLE. The Government defended the suit?

Mr. NEAGLE. The district attorney at Boston, assisted by the Navy Department, defended the suit.

The CHAIRMAN. The Government got the advantage of this work? Mr. NEAGLE. Yes, sir.

The CHAIRMAN. In your judgment, it is an obligation on the part of the Government that ought to be discharged?

Mr. NEAGLE. Yes, sir. If this is not paid by the Government the Bethlehem company will have to pay it, which is not in accordance with the contract.

Mr. VINSON. I move that the amount be put in the bill, not exceeding this sum of money.

Mr. NEAGLE. Well, that raises at once the question of interest on the judgment.

Mr. VINSON. We can not pay that.

Mr. NEAGLE. The amount is about $23,000.

Mr. VINSON. What is the amount of the principal?

Mr. NEAGLE. $16,000 is the principal, and the costs and interest up to the time the judgment was rendered, run it up to about $23,000. Mr. VINSON. The Supreme Court has held against it, and the President has just vetoed a bill for interest on a claim of the Indians. The Government does not pay interest; it pays the principal.

Mr. BRITTEN. Mr. Chairman, this is quite a different case; this is not a case of an Indian claim at all. Here is a case where a subcontractor, through direction of a governmental agency, was accorded a certain price for certain material to be installed in ships. It developed that he had to sue, not the Government, but the company, the general contractor, and in that suit the court gave to the subcontractor a judgment against the contractor. Now, are you going to say to the contractor, "We will protect you, not for $23,000, the amount of the judgment of the subcontractor against you, but we are only going to protect you for $16,000 or $18,000, and you can lose the rest, as the general contractor." Of course, we can not do that consistently. You see the point. It is not a question of the interest at all; it is a question of an obligation of the Government.

Mr. MILLER. For what amount did the subcontractor obtain a judgment?

Mr. NEAGLE. The principal he claimed was $16,100, and the interest and costs bring it up to about $23,000.

Mr. MILLER. Then judgment was rendered for $23,000?
Mr. NEAGLE. Judgment was rendered for about $23,000.

Mr. MILLER. That includes the principal and the interest on it?
Mr. NEAGLE. Interest up to that date.

Mr. MILLER. Then we are paying costs and interest on the primary amount.

Mr. VINSON. I am willing to let the bill stand as it is. Of course, that question will come up in the House, but the report will show these facts.

(The question was put and the bill was ordered favorably reported.) (Thereupon the committee proceeded to the consideration of other business.)

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