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War Economy

Urgency Leads to New Types of Contract

page 341

Urgency Leads to New Types of Contract

A MAJOR economic problem in wartime was the collapse of the system of competitive tendering for government contracts. Whether in peace or war, special problems arose when the assistance of private firms was needed to carry out work on behalf of the Government. Both in allocating the work and in arranging payment, there were ample opportunities for corrupt practices unless watertight systems could be evolved and rigidly applied.

In peacetime, a wide variety of government work was allocated to private firms by inviting competitive tenders for jobs whose content had been carefully defined. Where there was genuine competition for the work by a number of firms with the capacity to undertake it, the system was effective, solving the problem of allocating the work, and providing some assurance that the price paid was reasonable.

Under war conditions, it was not long before pressure to get work done in a hurry led to the use of special types of contract designed to cut delays in assigning jobs to private enterprise. Speed was essential when the war situation became critical, but out of the speed with which much work was assigned arose uncertainties and muddlement as a result of newer, less definite forms of contract. Moreover, the competitive spirit, which provided a valuable safeguard against waste in any form of contracting, was severely weakened as firms became overloaded with war work.

Some change from peacetime contract arrangements was essential to get war work completed. So great was the volume of contract work to be done and so severe the shortage of materials and labour that the more cautious peacetime methods of assigning page 342 contracts could hardly have coped. Nevertheless the loss of departmental control over some types of contract work seems to have gone much too far and to have involved not only unnecessary money cost but often waste of scarce resources, and even on occasions a sacrifice of time—the very thing the less rigid types of contract were intended to save.

Problems were created by the great volume of war work to be done, as well as by its urgency. Private contractors were being offered more work than they could handle. Competitive tendering was not effective in an industry overloaded with work to do; it depended on the existence of spare capacity. Moreover, when the productive capacity of contractors became saturated, some of them were reluctant to come to any form of advance agreement which would significantly restrict their ability to make high profits. Because the Government's hand was forced by the need for urgency, a number of very loose contracts resulted.

The extent to which looseness should be allowed to creep into contract arrangements in the interests of speed must always be open to question. Getting started on a job earlier does not always mean that it is finished earlier, or done better. Workmen or firms who refuse to operate in a muddling or untidy way may take longer to get started, but are likely to work more efficiently and to complete a job earlier. It is equally likely that, even where competitive tendering breaks down, properly drawn contracts, requiring a clear understanding in advance of what is to be done, and the basis of payment, may in the long run save much more than the time involved in preparing them.

Difficulties over government contracts were experienced in most allied countries as a result of the volume and urgency of war work.