Naval History and Heritage Command

Naval History and Heritage Command

Secretary of the Navy Josephus Daniels to Congressman Lemuel P. Padgett, D-Tennessee, Chairman, United States House Committee on Naval Affairs

NAVY DEPARTMENT,

Washington, D.C.,       

January 8, 1917.

Subject:  Preparedness Program.

My dear Mr. Padgett:-

     The situation with regard to the preparedness program is such that if the manifest intention of Congress and the country is to be carried out, radical action is necessary. It is required by the Act of August 29, 1916, that the vessels authorized be completed speedily. The Department has done its utmost in this connection, but finds that the private shipbuilders of the country are unable or unwilling to undertake the complete program with any assurance of speed in completion, even at prices which the Department regards as unreasonably high.

     The preparedness program halts by reason of this condition. The present situation demands that the Government largely increase its building facilities at the earliest possible moment. Six million dollars were authorized in the Act of August 29, 1916, for improvement of our navy yard plants, in order to enable them [to] assist in connection with the program. Ships have been ordered built at the navy yards fully up to the limit of our present facilities, there being already under construction or on order at the navy yards nineteen naval vessels of various types. I recommend that [$]12,000,000 more be authorized for fitting up navy yards, to be made immediately available.

     The present conditions as regards the vessels authorized by the Act of August 29, 1916, are as follows: Four battleships, one scout cruiser, eighteen destroyers, and twenty-nine coast submarines, have been awarded to private builders. Two destroyers, one coast submarine, one fuel ship, one hospital ship, one gunboat, and one ammunition ship have been assigned for navy yard construction. This leaves four battle cruisers and three scout cruisers for which as yet no satisfactory arrangements have been made.

     The battle cruisers were advertised on October 2, 1916, and bids were opened on December 6, 1916. No bids at a fixed price were received for the construction of these vessels, but bids were received from four private shipbuilding companies to construct these battle cruisers on a basis of cost plus profit. The Department was authorized to place contracts on this basis by the following proviso of the Naval Appropriation Act:-

     “That if, in the judgment of the Secretary of the Navy, the most rapid economical construction of the battle cruisers authorized herein can be obtained thereby, he may contract for the construction of any or all of them upon the basis of actual cost plus a reasonable profit to be determined by him.”

The cost of direct labor and material for these vessels, although not a simple matter, can be obtained during the course of their construction with a reasonable degree of accuracy. It is not, however, so easy to apportion fairly and accurately the indirect cost.

     The bids as received proposed that the Government pay the actual cost of direct labor and material, plus a percentage to cover the indirect costs, plus a percentage for profit. The Department felt unwilling to place contracts on this basis without thorough investigation, as the proposed percentages for indirect costs differed in the various bids and might or might not be a measure of the actual cost of building the ship. Several conferences have been held with representatives of the ship builders, who have also given the Department experts access to their books, in order that some basis of agreement might be reached in regard to the question involved in the indirect cost.

     The Department finally requested the Fore River Shipbuilding Corporation and the Newport News Shipbuilding and Dry Dock Company to submit in writing their best final offer for the construction of the battle cruisers. The letter of the Fore River Shipbuilding Corporation is quoted below:-

 

 
 

 


FORE RIVER SHIPBUILDING CORPORATION,

Washington, D.C., January 4, 1917.

Sir:-

     With reference to the proposals submitted by this Company, to build one of the battle cruisers 1 to 4 on a cost and percentage basis, submitted to the Department on the 6th ultimo, and to the various conferences since held between representatives of the Department and of this Company, the following revised proposal is herewith submitted. Detailed consideration of the estimated cost of construction of this vessel, and taking account of certain modifications in its requirements that can be permitted by the Department, as outlined in the memorandum handed to the Chief of Bureaus on this date, has resulted in the following revised estimate of cost for this vessel. The item given are for direct labor and for direct material as at present charged by this Company, and it is upon this basis of changes that the following proposal is submitted:-

New Estimate of Cost January 4, 1917.

 

Material

Labor

 

HULL

$4,653,000

$3,259,000

 

MACHINERY

5,901,500

777,700

Total Material

$10,554,500

$4,036,700

Total Labor

4,036,700

$14,591,200

 

       

 

     Accepting the above figures as base cost, this Company is prepared to construct and deliver to the Government at its yard otherwise in accordance with the terms of its previous proposal, one battle cruiser for the actual direct material and direct labor cost, plus 35% of such direct material and direct labor cost to cover all overhead charges and profit. Based on the above estimated cost, this 35% amounts to $5,106,920, making the total estimated cost of the vessel to the Government $19,698,120.

     It is further proposed that in case the actual returned costs for direct labor and direct material are less than $14,491,200, this Company will receive, in addition to such amount, 35% of the same and one-half of the difference between such amount and $14,591,200.

     In case the actual cost for direct labor and direct material exceeds $14,591,200, this Company shall be entitled to 35% of such sum, but shall refund to the Government 25% of the excess of the actual direct material and direct labor costs beyond $14,591,200.

     The Department’s early action on this proposal is requested.

Very respectfully,      

FORE RIVER SHIPBUILDING CORPORATION.

By     J.W.Powell,__

President.    

The Honorable

The Secretary of the Navy,

Navy Department, Washington,D.C.

 

 
 

 


     The Department had previously informed the representatives of the shipbuilders that it considered the percentage of 35% named by them too high. The Department also regarded the estimate for material submitted by the shipbuilders as unduly high. This question is being taken up with various material contractors, and the Department will be prepared at an early date to make final report and recommendation with reference to the minimum limit of cost for these vessels if built by contract.

     It is evident that in any case the cost will exceed the limit of $16,500,000 of the authorizing Act. This Act also allowed an additional sum of 20% as premium “to provide for the speedy construction of the vessels herein authorized and for the additional cost incident thereto.”  Adding 20% to the limit of $16,500,000, we reach a limit of $19,800,000, and apparently the Department could at the present time contract for these vessels with a prospect of not exceeding that limit. The four bids that were received provide, in two cases, for construction within 48 months; in one case for construction within 51 months, and in the other case no time is named. The shipbuilders state that they can do no better as regards time under the present and prospective conditions of the industry.

     Without specific authorization, the Department would not feel justified in entering into a contract exceeding the limit of $16,500,000, even if under the limit of $19,800,000, in view of the fact that the times named for construction could not be considered as “speedy”. It has been suggested that the Act in authorizing the additional 20% for “speedy” construction did not define the latter. Some light, however, is thrown upon the intention of Congress in this connection by the fact that while the bu bill was in House, on yea and nay vote on an amendment requiring, among other things, that five battle cruisers should be completed within two years from date of contract, there were, yeas 183, nays 189.

     As regards the scout cruisers, when bids were opened for these four vessels on November 1, 1916, but one bid was received on the basis of a fixed price, this being for one vessel for the sum of $4,975,000 and within the limit of cost of $5,000,000; contract was awarded for this vessel. The remaining three vessels were re-advertised, and bids were opened on January 3, 1917. A bid was received from only one company, the price named being $5,9,00,000 for one vessel, or $5,825,000 for each of two vessels. This leaves on scout cruiser for which no bids have been received. The bids of January 3, 1917, were below the limit of $5,000,000 plus 20%, but as the times named were 40 and 42 months, the additional 20% for “speedy” construction is not regarded as available any more than in the case of the battle cruisers.

     To sum up: The Department has made earnest and strenuous efforts to carry out the provisions of the Act and to begin at the earliest date possible the construction of the sixty-six vessels directed therein to be begun as soon as practicable. It has been found impossible to place satisfactory contracts for the whole of the vessels with the private shipyard of the country, and, as previously stated, our present nav[y] yard facilities are fully obligated.

     In view of this fact, and in view of additional vessels of the program which must be taken in hand in the comparatively near future, it seems to the Department necessary that the Government building facilities should be largely expanded, so that the Navy may be in a position to build a much larger part of the program than at present. This expansion, in view of present conditions, appears it, the Department will do its utmost to fit up the Yards at the earliest possible moment.1

Sincerely yours,

Source Note: TL, DLC-MSS, Josephus Daniels Papers, Special Correspondence, Roll 37. Address below close: “Hon. Lemuel P. Padgett, M.C.,/Chairman, Committee on Naval Affairs,/House of Representatives.”

Footnote 1: With America’s entry into the war and the need to build large numbers of ships, the Navy Yards operated by the Navy did expand dramatically during 1917. Annual Report of the Navy Dept., 1918, 43-44