1 Leases valued at $22,797 excluded. These were practically all for machinery.

The SWPC field offices performed many services for small business in addition to those which might be classified under the established war contract, loan, technical advisory service and surplus property programs. These additional services included liaison work between individual small businesses and other Government agencies such as WPB, WMC, and OPA. Small business found in SWPC field offices men who were familiar with rules, regulations, and practices of Federal agencies and their relations with small business. In addition to liaison work with Federal agencies, the SWPC field staff, because of its wide contact with small business in the locality of its many offices, was able to provide many valuable services to individual small businesses. This type of assistance is illustrated by efforts made on the behalf of individual small businesses in locating specialized equipment, scarce raw materials, etc.

In the field of civilian production the SWPC aided small businesses during the war by assisting them in filing appeals under WPB restrictive orders, by providing interpretations and explanations of limitations and orders, by helping them obtain higher price and manpower ceilings, and by proposing and advocating plans which would permit small firms to undertake civilian production if it did not interfere with the war effort. For example, the SWPC aided more than 4,000 small firms in filing appeals under WPB restrictive orders.

NEED FOR SMALL DEFENSE PLANTS CORPORATION

Almost without exception, the testimony presented to the House Small Business Committee at its field hearings relates to subjects within the scope of the proposed amendment for establishment of a Small Defense Plants Corporation.

Some of the witnesses specifically called for the enactment of the Small Business Defense Plants Act. Others were not aware that such legislation had been introduced, but discussed in general terms the need for such an agency. A number of witnesses confined themselves to statements of their problems and did not make recommendations for action. The solution of these problems, however, requires the enactment of an agency such as the Small Defense Plants Corporation.

The witnesses were virtually unanimous in stating that small businesses are not receiving fair consideration in obtaining scarce materials, in obtaining defense contracts, in obtaining adequate financing, and in obtaining recognition of the special problems they face in complying with price, wage, and credit controls. The Small Defense Plants Corporation would provide assistance in each of these general categories:

1. Inability to obtain defense contracts.-The Small Defense Plants Corporation would have authority to certify qualified small manufacturing plants to procurement agencies for prime contracts. Iu addition, the Corporation would have authority to take contracts as a prime contractor and break them down into subcontracts for small businesses. The Corporation would coordinate and determine the means by which the productive capacity of small firms may be utilized for defense and essential civilian production. The Corporation also would be directed to make an inventory of small-business concerns, and it would take action to assure that subcontracts are let to small businesses on fair and equitable terms. 2. Inability to obtain scarce materials.-The Corporation would have authority to act as a claimant agency to assure small businesses an equitable share of scarce materials for defense and essential civilian production. This is one of the most important sections of the proposed amendment; small-business men throughout the Nation are suffering from a shortage of basic materials resulting from maldistribution of the available supply.

3. Inability to obtain adequate financial assistance.-The Small Defense Plants Corporation would be authorized to recommend to the Reconstruction Finance Corporation loans or advances to small business for working capital, for research work, or for conversion or expansion in connection with defense or essential civilian projects. In addition, the Corporation would be empowered to lease or buy land, buildings, equipment, or supplies and lease or sell them to small business. 4. Difficulties in complying with price, wage and credit controls. The Small Defense Plants Corporation would be authorized to study the effect of such controls upon small business and make recommendations to the appropriate agencies whenever it determines that these controls discriminate against or impose undue hardship upon small businesses.

These general problems may be broken down into scores of specific difficulties facing small business at present. In the following pages, these problems are analyzed in greater detail and are illustrated by summaries of the testimony presented by small-business men who have appeared before the committee.

The amendment for establishment of a Small Defense Plants Corporation was designed to meet these problems. Its 'adoption will answer the appeal for fair treatment which is being made by small businessmen throughout the Nation.

SUMMARY OF TESTIMONY

Ernest D. Hartman, Food Display Cover Co., Inc., Indianapolis, Ind.: Feels that some type of organization should be formed, completely controlled by Congress and similar in combined operations to that of the World War II Smaller War Plant Corporation and larger offices of the War Production Board.

Patrick W. McDonough, McDonough Steel Co., Oakland, Calif.: Only really helpful thing that Congress has done for small business was enactment of Public Law 603 setting up the Smaller War Plants Corporation, during World War II. Walter C. Roberts, Glenwood Manufacturing Co., Burbank, Calif.: The solution (of small business problems) is to us relatively simple. During World War II there existed a Smaller War Plants Agency. We were not privileged to work with them, but have known people who did.

Using the basic operating techniques of the old agency, we need now merely to give an existing agency the necessary power and authority, or better, instead of teaching an old dog new tricks, a new agency with local nonpolitical heads * With this group we would have

*

1. A central clearinghouse for the skills and know-how of small business. 2. A group who would know how to introduce new developments of the smallbusiness engineers who can't quite "cut it" alone.

3. A better understanding of the location and disposition of critical materials. 4. An intermediary between the procurement officer and the prime or subcontractor, saving the small businessman many cross-country trips, which he enjoys but cannot afford.

5. A source of a working capital loan not based on a "thick or thin" balance sheet, but on management and military productive ability.

6. A group who could suggest critical materials substitutes; for example, formed plywood in place of aluminum.

*

*

7. A location for a central file on all Government directives, orders, specifications, and other material needed to obtain or perform on a contract. Granville B. Fuller, Fuller & Son Lumber Co., Brighton, Mass.: I feel very strongly that House bill No. 1600, should be supported, at least in its main points. I base my recommendations on my World War experience * I wish to urge the passage of this bill as soon as possible because already the small companies are finding it difficult to obtain defense business. Efforts are being made to contact the large companies who now enjoy prime contracts, but they are reluctant to sublet the business as naturally they enjoy the profit made from the manufacture of the component parts themselves. SWPC obtained help for small businessmen in getting contracts, financial assistance, supplies, and in solving manpower problems.

Howard D. Williams, president, Smaller Business Association of New England, Boston, Mass.: We do not believe that the great capacity to produce and serve which smaller businesses have will either be utilized properly, or even recognized unless an agency is brought back into being to have for its sole purpose the development of the capacity of the smaller businesses. We do not believe that the creation of a vast number of small businesses offices in existing Government agencies, and all apparently in junior and rather impotent positions, will have any effect other than to increase the already staggering cost of Government and add to the complexities of doing business with Washington. What is apparently in process is merely the creation of another group of offices in existing agencies, duplicating each other, powerless to make any decisions or take action, yet on which smaller businesses are going to be invited to call. * In World War II, the Smaller War Plants Corporation performed an outstandingly successful service to the Nation. The act now before both Senate and House of Representatives, which would create a Small Defense Plants Corporation should, in our opinion, receive the immediate consideration of Congress, and be promptly enacted after such revisions as may seem advisable.

* *

Kenneth R. Charlton, treasurer, Manufacturers Association of New England, Boston, Mass.: An organization similar to the Smaller War Plants Corporation is needed to distribute information and spread contracts.

A. Dudley Bach, New England Metallurgical Corp., South Boston, Boston, Mass.: In order to protect the small businessman I suggest that, first, establish an independent organization such as the Smaller Defense Plants Corporation.

Hon. Maury Maverick, San Antonio, Tex.: The creation of an agency similar to the Smaller War Plants Corporation is necessary for the following reasons:

1. Such an agency would serve to break up a pattern which is developing in contract awards. Under the present set-up a new-comer into a particular field (a small-business man converting to military items) has very little chance of getting into the picture.

2. The agency would be able to direct attention to existing plant facilities. As a consequence, this would eliminate a lot of unnecessary certificates of necessity which are being issued today without a serious effort being made to determine whether or not a particular plan for expansion will actually duplicate facilities which exist in some other part of the country.

3. The agency should be given authority to allocate scarce materials to small concerns which are converting from defense production back to civilian production. In this period of transition, experience has illustrated the difficulties which such concerns have in obtaining a quantity of material which would permit them to hold their labor forces together until such time as the economy adjusts itself to permit a freer and more equitable distribution of scarce materials. This "spot authorization plan" would be put into effect at a time when military demands are decreasing and would in no way interfere with defense production.

4. The agency should establish a technical and advisory service which would provide small businesses with engineering and technical assistance to maximize production during critical periods.

5. The prime purpose of a SWPC is to secure prime contracts for small businesses. This will alleviate the need of small business to subordinate itself to large business through subcontracts and will have additional advantages, from the military viewpoint, of decentralizing our defense production. A dispersal of vital industries would make the country less vulnerable to a crippling air attack.

Ed Bogue, Niles, Mich.: Uncertainties of Government regulations and confusion as to the proper function of manufacturers' representatives have intensified the production problems of this company. Believes there should be a Government agency "to help get business to us fellows and to help us with our problems."

83473-51-pt. 3———41

Patrick W. McDonough, McDonough Steel Co., Oakland, Calif., (steel fabricating plant): He believes enactment of Public Law 603, establishing Smaller War Plants Corporation of World War II, only helpful thing Congress ever did for small business. He thinks most important function was financing small business.

Chet Cary, Fresno Chamber of Commerce, Fresno, Calif.: He wants immediate enactment of H. R. 1600. Machine shops of Fresno in World War II operated as a local pool, and enactment of H. R. 1600 would enable them to carry on defense work now. Financing was no problem in this pool arrangement.

Nat Kushner, international representative, Retail, Wholesale and Department Store Union, CIO, representing the Rhode Island Industrial Union Council, CIO, Providence, R. I.: Wants Small Defense Plants Corporation with authority to certify loans.

Granville B. Fuller, president, G. Fuller & Son Lumber Co., Brighton, Mass.: Believes H. R. 1600 should be enacted. Thinks SWPC provided adequate financing in World War II.

Howard D. Williams, Smaller Business Association of New England, Inc., Boston, Mass.: Favors creation of Smaller Defense Plants Corporation, and believes it should have power to aid smaller business financially. Does not think creation of a vast number of offices of small business in existing Government agencies will do the job.

Hon. Jerry Voorhis, executive secretary, Cooperative League of the United States, at Chicago hearing: I believe this bill (H. R. 1600) should be passed because, unless it is, the impact to national defense production upon our economy will almost certainly be to increase the size and power of already overlarge corporations and to drive into an even more disadvantageous position the smaller business of the country * * * Obviously, small business is in desperate need of a Washington representative that will fight for its rights and interest. The proposed Small Defense Plant Corporation would be such an agency.

Speaking for the Cooperative League of the United States and for its 1,800,000 members and for its member organizations, most whose business consists in keeping the farmers of the Nation supplied with the things that are necessary to get their all-important work done, I urge passage of the small defense plants corporation act at the earliest possible date.

PROBLEMS OF SMALL BUSINESS RELATED TO THE NATIONAL EMERGENCY When the House Small Business Committee was reconstituted by the Eightysecond Congress, it was authorized to make a study and investigation into the problems of small businss relating to the national emergency.

In fulfillment of this duty, the committee has conducted field hearings in most major sections of the Nation. Subcommittee No. 1 has conducted hearings in 23 cities in 18 States on the general topic of current small business problems. Subcommittee No. 2 has engaged in a study of the problems of small business in participating in Government procurement. In this connection, a series of joint hearings were held in Washington in cooperation with the Senate Small Business Committee. Subcommittee No. 3 has conducted hearings in Washington on problems of small fabricators of aluminum and in Chicago on problems of small manufacturers of agricultural equipment.

Approximately 500 small-business men have testified at these hearings. Their testimony has been analyzed and classified. The testimony-more than 5,000 pages presents a clear picture of a segment of our economy which is laboring under extreme difficulties and which is in immediate need of assistance. The dislocations inherent in a period of mobilization press most heavily upon the shoulders of the Nation's nearly 4,000,000 small businesses.

The following pages include analysis of the major current problems of small business and scores illustrations of these problems drawn from the testimony of witnesses. This testimony demonstrates the clear and urgent need for establishment of a small defense plants corporation. The committee is of the opinion that no real solution to the current problems of small business can be found unless such an agency is established.

CURRENT PROCUREMENT PROBLEMS OF SMALL BUSINESS

The field hearings conducted by Subcommittee No. 1 have shown beyond question that the small-business man is experiencing considerable difficulty in operating under the present procurement policies of the military departments.

In general, the testimony discloses that

1. The small-business man is experiencing difficulty in obtaining adequate information regarding military procurements. The change-over to contract negotiation, rather than public advertisement of bids, has increased this problem, as has the decision not to publish the quantity and dollar value of contract awards. Witnesses in some parts of the country, particularly on the west coast, have complained that there is no way for them to obtain adequate information regarding procurement unless they make expensive trips to the East.

2. Many small-business men have experienced difficulty in obtaining bid invitations. A number of witnesses have testified that, when they do receive invitations, specifications and drawings are not included or are not adequate. Many have complained that they receive invitations too late to make bids, or that by the time they obtain specifications it is too late to bid.

3. There has been a failure to utilize small-business facilities adequately in the mobilization effort. A number of small-business men have reported that they have gone through all the procedures recommended by the various procurement agencies to obtain contracts without receiving any invitations to bid or to negotiate. One businessman reported that he had spent 167 man-days in this effort, with no results.

Testimony indicates that some large firms are expanding their facilities, while small firms have the same kind of facilities and equipment lying idle. One businessman reported that he had received several subcontracts from a large firm, with the understanding that the large firm, would take over the work as soon as it had obtained additional equipment. Obviously, this involves the use of manpower and scarce materials to duplicate machine tools which already are available in the plants of small firms.

An example of the difficulties small-business firms are experiencing in fitting themselves into the mobilization effort is provided by the New Orleans Chamber of Commerce Defense Production Council. This group has made a detailed inventory of the facilities of more than 50 small manufacturing plants in the New Orleans area, which are operating at only 65 percent of one-shift capacity. though the council has spent 3 months in a concerted effort to obtain contracts for small business firms in the area, the net result has been the obtaining of only three small contracts.

Al

There also has been testimony to the effect that the production allocation program, under which manufacturers sign up with various procurement offices for utilization in the event of all-out mobilization, has not been correlated closely enough with the current procurement program. Companies whose facilities would be urgently needed in the event of all-out mobilization are facing extinction now because they are not being utilized in the current program.

4. The committee has received complaints that contract awards are being handled in ways which discourage small-business participation. Specific complaints have been received to the effect that contracts are not broken down into small enough lots to enable small business to bid, and that the provision allowing firms to bid on any part of a contract does not work out in practice. The slowness of Government payments also has worked hardships on small firms, which do not have the working capital to allow them to wait months for money owed them for performance of a contract. There also have been complaints that the Government has delayed several months in awarding a contract after the bids have been opened. This means that a bid may be submitted when costs were considerably lower than they were at the time the contract actually was awarded, and the successful bidder may take a loss on the contract as a result.

There also is evidence to indicate that the use of contract negotiation is narrowing the base of procurement, rather than broadening it. Small-business men have complained that under negotiated procedures they are unable to learn what items are being procured. This problem will be alleviated by the recent decision of the Munitions Board to publish notices of prospective negotiations. However, it appears that there has been a tendency for negotiations to be conducted with established suppliers, to the exclusion of small-business firms which have not dealt previously with the Government. Under the advertised-bid system, such firms had a chance to compete for Government business. It appears that this opportunity has been decreased by the change-over to negotiation. Of the total dollar value of Army procurement actions during March 1951, only 4.7 percent were handled through advertised bids, and the rest through negotiation.

An excellent summary of the current difficulties of small business is provided in the Attorney General's second report under section 708 (e) of the Defense Production Act, issued April 30.