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War Economy

Increasing Urgency and Looser Contracts

Increasing Urgency and Looser Contracts

In spite of this rather more optimistic view, the position was to get worse rather than better. Pressure of work was increasing and contractors were often able to refuse or circumvent the modifications designed to tighten up the special contracts.

The entry of Japan into the war in December 1941 accelerated war preparations within New Zealand and made urgency absolutely paramount in assigning contracts.

With the increasing volume of war work, and the mounting unsatisfied public demand for consumer goods, pressure of demand became excessive for a wider range of industries. The peacetime system of letting contracts by competitive tendering, already difficult to apply in some industries, now became unworkable over a large portion of the economy. Work banked up for depleted departmental staffs struggling with the preliminary estimating and final checking associated with the special types of wartime contract.

Departmental control became less and less effective and there were increasing abuses of the looser contracts.

Attention has been drawn to some early attempts to cope with the special weakness of cost-plus contracts—the fact that higher costs led to higher profits. Target cost figures were fixed for contracts and profits were based on the targets. A bonus could be earned by working within the target.1 This arrangement did exercise some measure of restraint, as long as target costs were realistic. However, on many occasions the target figures were too far removed from actual costs and had to be revised. The revision completely defeated their purpose.

Moreover, it was not always possible to let contracts under the target cost type of contract. Many firms were looking for looser arrangements where more profits could be made. In some industries, any attempt to insist on a certain type of contract just meant that contractors would concentrate on other work. There was no lack

1 See also p. 352.

page 347 of jobs offering, and some firms could and did threaten to refuse war work unless their conditions were met.

With ship repair work, where the exact requirements were more difficult to settle in advance, targets were usually not practicable. In an attempt to improve contract arrangements, the Shipbuilding and Repairs Committee1 early in 1942 made an unsuccessful application to the Price Tribunal for a price order for ship repair work. In support of its application the Chairman said that the Committee was disturbed by:


the exorbitant charges made by ship repairing firms, both main contracts and sub-contracts and


the spirit of competition which exists between ship repairing firms as between ship repair work which returns handsome profits and other Government work such as minesweeper construction, where profits are limited.’2

1 This was a programme organising committee appointed by the Minister of Supply and Munitions on 1 July 1941. It was superseded in November 1942 by a Controller of Shipbuilding.

2 Marine Department file M. 12/888. A later application was granted, see p. 355.