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War Economy

Special Contracts for Shipbuilding and Repair

Special Contracts for Shipbuilding and Repair

As with defence construction work, special types of wartime contract were soon in use for shipbuilding and repair. Excessive pressure of work on this small industry1 made it difficult to obtain competitive tenders, and uncertainties about important items of cost prevented agreement being reached on prices before contracts were signed.

Prior to the war the Marine Department's engineers could estimate fairly accurately in advance the cost of most jobs, but after war broke out labour and material costs were so uncertain that accurate estimation became difficult, both in shipbuilding and in ship repairs. This led to the adoption of the ‘cost-plus’ system of charging, and its near relative the ‘time-and-line’ method. Firms were no longer willing to submit competitive tenders and began to ask that repairs and ship construction should be paid for on the basis of the cost of labour and materials, a percentage of the labour cost for overhead, and 10 per cent on all these items for profit. Although there was at first some reluctance on the part of the Navy and the Treasury to adopt this system, it came to be used, with only a few minor exceptions, for all shipbuilding and repair work.

The basis of the ‘time-and-line’ method was that all materials used were paid for at gross cost, the trade and cash discounts going to the contractor, and labour was paid for at ‘schedule’ rates, which included the award rate for those employed plus an extra 40 to 50 per cent to cover the administrative costs, overhead and profit of the contractor.

As with defence construction contracts, uncertainties and suspicions of overcharging soon arose with regard to shipbuilding and repair work. For shipbuilding an attempt was made to improve the situation by fixing target prices and by trying to write terms into the contracts which would give firms a profit incentive to keep within the target prices.2

page 345

1 See also pp. 16873.

2 See also p. 352.