The Select Committee on Estimates, in their first report for 1937, stated that they were satisfied that the methods followed in placing noncompetitive contracts were soundly conceived, and were fair both to the taxpayer and to the contractor, and that so far as an estimate could be formed, they have been effective up to date in preventing profiteering at the taxpayer's expense. The Select Committee also stated that they were satisfied that in the case of noncompetitive contracts the Departments concerned are fully seized of the importance of excluding excessive allowance for overhead costs, due regard being had to any increase in the scale of output of the particular contractor whether on public or private account. I can assure the hon. Member that the Departments are very much alive to the problems involved in non-competitive contracts and the related question of on-costs. The matter is being kept under continuous review in order that improvements may be made in the methods in force, in the light of the experience gained.
I remember that on Thursday of last week my right hon. Friend the Chancellor of the Exchequer dealt at some length with the whole question, and showed that we regard it of great importance to get full value for the contracts placed, and do not cease to do our best to secure that.
Is my right hon. and gallant Friend aware that in industrial circles there is a strong feeling that they must not, if they can help it, take too much Admiralty work because the profit is so meagre?
As stated by the Select Committee on Estimates in their First Report for 1937, the investigation of costs paid under sub-contracts presents peculiar difficulties. For competitive contracts, main contractors will, in their own interests, obtain the best possible terms for any sub-contracts. In shipbuilding contracts, it is the practice to require at least three competitive tenders to be obtained for certain units which are supplied complete by sub-contractors, and these tenders are checked by technical specialists in the same way as are the main contractors' tenders. This is also the practice in agency contracts. Technical costing is extensively used, and the practice then is to apply technical costing methods to the sub-contracts also when the circumstances justify this course. It is the practice to reduce sub-contracting by making direct purchases of important units where this is not precluded by the necessity of maintaining the responsibility of main contractors for quality and performance; for example, armour and gun mountings are bought by the Admiralty direct for ships built in the dockyards and in private yards, and engines and numerous items of equipment are bought by the Air Ministry. The whole question of the prices paid under sub-contracts will continue to be kept under close review.
Will the Financial Secretary consider the need of the auditors and technical specialists having access to the men's rate tickets in order that there may be the most minute checking in places where there are Government contracts so as to eliminate a good deal of the suspicion which arises?
We are ready to entertain any practical suggestion, but if the hon. Member will consider the full answer which I have given, he will see that the technical costing is very close.
asked the Financial Secretary to the Treasury whether the recommendation of the Select Committee on Estimates has been put into operation, namely, to adopt the system of direct purchase and issue to contractors, on behalf of the State, of raw materials and of manufactured goods which are required on a large scale?
It is already the practice of Departments in suitable cases to make issues of manufactured and of semi-manufactured materials to contractors for finishing, and this practice will be continued. But in present circumstances it is not thought desirable to extend the system to cover the issue of raw materials, since such a procedure would infringe the contractor's responsibility for the soundness of the article which he has contracted to supply, and would involve great practical difficulties. This was explained in the Treasury Minute of 1st June, 1937, which is published as an appendix to the Second Report of the Select Committee on Estimates, 1937.
I have explained that, so far as manufactured and semi-manufactured articles are concerned, the practice recommended is really being carried out. As far as raw material is concerned, I have explained the position. I can assure the hon. Member that we are alive to the necessity of watching this matter.