Contracts (Control of Prices).

Oral Answers to Questions — Royal Air Force. – in the House of Commons on 18th July 1935.

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Photo of Dr Christopher Addison Dr Christopher Addison , Swindon

40.

asked the Secretary of State for Air whether, in view of the fact that formal contracts are only now beginning to issue in which a clause is inserted by which the officers of the Ministry may examine and verify the costs of production, the standards of prices previously paid for aircraft supplies are being accepted as a guide for contracts now being issued; and what steps, if any, have been taken to ascertain the rate of profit provided for in such prices?

Photo of Mr Philip Lloyd-Greame Mr Philip Lloyd-Greame , Hendon

No, Sir; the standard of prices previously paid for aircraft supplies will not be accepted as the basis of new contracts without full consideration of all relevant factors, including the effect that increased and steady output over a given period may have upon the contractors overhead expenses and the rate of profit to be allowed. I should perhaps explain that the prices previously paid, where there has not been competitive tendering, have been based on independent technical estimates of the cost of production. Finally, I may add that in the case of all major orders which it is necessary to place as a matter of urgency, the "Instructions to Proceed" now being issued contain a clause providing for the examination and verification of costs by inspection of books in the event of disagreement as to the price to be paid.

Photo of Dr Christopher Addison Dr Christopher Addison , Swindon

41.

asked the Secretary of State for Air whether, in view of the fact that formal contracts are only now being issued in which a clause is inserted whereby the officers of the Ministry may examine and verify the costs of production of aircraft supplies, he will state under which powers possessed by him as Minister such investigations are made, and to what extent his officers are in a position to investigate the general and overhead charges of the firms providing the supplies?

Photo of Mr Philip Lloyd-Greame Mr Philip Lloyd-Greame , Hendon

I would refer the right hon. Gentleman to the replies which I gave to him on the 3rd July.

Photo of Dr Christopher Addison Dr Christopher Addison , Swindon

May I ask the right hon. Gentleman whether, in view of the evidence recently given by the secretary of his Department before the Public Account's Committee, he is satisfied that the powers already possessed are sufficient without coming to Parliament for more powers?

Photo of Mr Philip Lloyd-Greame Mr Philip Lloyd-Greame , Hendon

Yes, Sir, I also read with some care the evidence given by the secretary on this and other occasions, and I think that if the right hon. Gentleman refers to that evidence he will see that the secretary said exactly what I said in this House, that if we needed powers we should not hesitate to come to Parliament. But as I told the right hon. Gentleman before, I infinitely prefer to proceed by a sound business agreement rather than by coercion unless coercion is proved to be necessary.

Photo of Dr Christopher Addison Dr Christopher Addison , Swindon

In view of the fact that the secretary himself stated before the Public Account's Committee the possibility of coming to Parliament for further powers, is it not evident that the powers the Minister now possesses are insufficient; and, while I agree that arrangements are always acceptable if they are fair, is it not the fact that the powers he already possesses are insufficient to enable him to verify costs?

Photo of Mr Philip Lloyd-Greame Mr Philip Lloyd-Greame , Hendon

No, Sir. The question of powers can only be judged by results, and, as I told the right hon. Gentleman, I had every belief that I was going to be met by the industry in a perfectly fair manner, and I speak with the concurrence of those gentlemen, including Sir Hardman Lever, who advised the right hon. Gentlemen, and who are now advising me; and I do rather resent the suggestion that these firms will not play the game unless they are compelled.

Photo of Mr Arthur Samuel Mr Arthur Samuel , Farnham

Will my right hon. Friend draw the attention of the right hon. Gentleman opposite to the fact that in the evidence which he gave before the Public Accounts Committee the official of the Air Ministry satisfied the members of the Committee that everything would be done to see that the public interests would be fully safeguarded?

Photo of Mr John Wilmot Mr John Wilmot , Fulham East

Can the right hon. Gentleman say whether he does in fact possess the powers referred to in the last sentence of the question? Has he the power to make an independent investigation of overhead charges and then to check up the information supplied by the firms?

Photo of Mr Philip Lloyd-Greame Mr Philip Lloyd-Greame , Hendon

I have no statutory power, certainly not, but if I find that it is necessary to apply for statutory powers I shall not hesitate to ask for them. Surely it is much better to get all that you want by agreement than to anticipate trouble.

Photo of Dr Christopher Addison Dr Christopher Addison , Swindon

42.

asked the Secretary of State for Air whether in view of the great increase in values recently recorded in the shares of companies providing aircraft supplies and of the profits made in connection with the issue of shares, he has asked any of the experts whom he has appointed to advise him on prices to make any report to him on the great economies obtained during the War in national factories and by the system of cost ascertainment associated therewith?

Photo of Mr Philip Lloyd-Greame Mr Philip Lloyd-Greame , Hendon

I have made inquiry into the results obtained by Government aircraft factories during the War; and they are such as would make me extremely anxious not to repeat a similar experiment.

Photo of Dr Christopher Addison Dr Christopher Addison , Swindon

Is it not a fact that there is no special feature attached to the manufacture of aircraft engines any more than to any other types of engines, and are not the experiences of the War worth at least the right hon. Gentleman's examination?

Photo of Mr Philip Lloyd-Greame Mr Philip Lloyd-Greame , Hendon

It is because I have most carefully examined the experiences of the War and I found in regard to aircraft that without allowing anything for capital, it cost three times as much to buy an aeroplane from a Government factory as from a private factory manufacturing similar aeroplanes, that I should hesitate to repeat the experiment.

Photo of Dr Christopher Addison Dr Christopher Addison , Swindon

Can the right hon. Gentleman give the name of any Government factory during the War to which that applied?

Photo of Mr Philip Lloyd-Greame Mr Philip Lloyd-Greame , Hendon

Yes. It applied to a Government factory in Lancashire. I think it was at Heaton Chapel. Very soon the whole country will have the history by the war historian, on the basis of which I have given my answer.

Photo of Dr Christopher Addison Dr Christopher Addison , Swindon

Was it not a fact that it was only after the Ministry undertook to supply the ingredients and to control all the detailed prices of the aircraft industry that we obtained a big reduction in prices?

Photo of Mr Philip Lloyd-Greame Mr Philip Lloyd-Greame , Hendon

That is a wholly different question. The right hon. Gentleman wants a Government factory established. I have given the fact ascertained by the impartial war historian that it costs three times as much—

Photo of Mr Philip Lloyd-Greame Mr Philip Lloyd-Greame , Hendon

The right hon. Gentleman was not the war historian. I am not giving my own information. I was asked to make inquiry. I have done so, and the fact is that it cost three times as much to make them in a Government factory as in a private factory.

Photo of Mr Wilfred Paling Mr Wilfred Paling , Wentworth

43.

asked the Secretary of State for Air whether, in view of the fact that formal contracts are only now beginning to issue in which a Clause is inserted by which the officers of the Ministry may examine and verify the costs of production, he will state what was the aggregate value of aircraft supplies obtained during the past 12 months when such a Clause was not being used?

Photo of Mr Philip Lloyd-Greame Mr Philip Lloyd-Greame , Hendon

The total payments made to the aircraft and engine manufacturers for supplies during the financial year 1934 amounted to approximately £5,400,000. The hon. Member will be aware from previous answers I have given of the work of the technical costings staff of the Air Ministry in framing their own independent estimates and of the other criteria of fair prices which have been applied in the past.

Photo of Mr Maurice Petherick Mr Maurice Petherick , Penryn and Falmouth

If the right hon. Gentleman wishes to increase the cost of a similar amount of supplies, will he take the right hon. Member for Swindon (Dr. Addison) into consultation?