Renegotiable Sales and Profits

Abstract

IT HAS been suggested in articles by Senator Walsh and Mr. James that basic purpose of Renegotiation Act is avoidance of public scandal incident to exorbitant war profits; that distinctive features of renegotiation result from effort of Congress to prevent profiteering without discouraging production or putting a premium on waste and inefficiency. It was to be expected that categories of business subject to act would be determined by consideration of purpose of act and of problems of administration. The history of legislation and of its interpretation has been one of continuous controversy as to proper scope of renegotiation. No attempt will here be made to discuss subject comprehensively. Instead, a few of disputed areas will be considered, in order to illustrate problems of policy involved. With a few exceptions, original act was expressed as covering all contracts with Army and Navy Departments and Maritime Commission and thereunder. The act contained no definition of subcontracts, but Departments soon adopted an interpretation of term as including not only subcontracts under which production of some or all of articles contracted for is delegated to a subcontractor, but also purchases by contractor of component parts and of supplies, materials, machinery, or equipment required for performance of contract. A similar definition of subcontract was inserted in act in October, I942, a definition which has been amended in minor respects only by Revenue Act of i943.1 (The amendments effected by this act are referred to in this article as the I944 amendments.) This definition is obviously very broad, and it is proposed to examine its scope first by considering principal proposals for limitation or exemption. Standard commercial articles.-The contention has been almost continuously made that sales of standard commercial articles should not be subject to renegotiation. It is pointed out that standard products are not like new types of heavy artillery, as to which costs of production defy estimate. The pricing of standard products is not a matter of guess. It is