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716 WAR BXPEin)ITUBES.
Col Stearns. I think it would probably.be a little bit more than
that It may run to $111,000 or $112,000 a mile.
Mr. Frear. Does that include the cost of rails?
Col. Stearns. It includes the complete costs; yes.
Mr. Frear. Does it include the operating machinery — that is, I
mean equipment, locomotives, cars, etc. ?
Col. Stearns. No, sir; that is road cost.
Mr. Fbear. There are no expense of terminals?
Col. Stearns. No, sir.
Mr. Frear. In fact, you have no terminals excepting that little one
at the lake? *
Col. Stearns. The little one at Lake Pleasant.
Mr. Frear. I was thinking of the oAe at Disque Junction. That
road runs* from Disque Junction to Lake Crescent and then down to
Lake Pleasant?
Col. Stearns. Yes.
Mr. Frear. Do you know anything about the comparative cost of
logging roads? Have you ever had any experience in that?
Col. Stearns. I Rave had no experience in building lodging rwck
Mr. Frear. Do you know the valuations of transcontmental line?
per mile, counting equipment terminals and all?
Col. Stearns. Only a general information.
Mr. Frear. What information have you as to the value^, for in-
stance, of either the Milwaukee or the Northern Pacific, or the South-
ern Pacific - as to the valuation per mile ?
Col. Stearns. I object to that question, because that is swnethiiu:
I had nothing to do with. I had nothing to do with the engineeriiu!
end of this thing, and I object to having my knowledge or lack of
knowledge on engineering brought out, sir.
Mr. Frear. Your objection is noted. Now you are the command-
ing officer, the president of this corporation with these million^ '^f
dollars in your hands. Can you tell this committee anything about
the comparative cost of other transcontinental lines per mile—do yoo
know anything about them?
Col. Stearns. Yes, I know.
Mr. Frear. What do you know?
Col. Stearns. General information.
Mr. Frear. That is all we want.
Col. Stearns. That railroads may run from $50,000 to $100.0ft''
a mile, depending on the conditions of labor and material used.
Mr. Frear. What transcontinental lines can you name that nin<
anything like those figures?
Col. Stearns, I have never made any particular study of tnn^*-
continental lines.
Mr. Frear. You do not know, is that it?
Col. Stearns. Exactly so.
Mr. Frear. That is all, then, on that subject.
Col. Stearns. Not the kind of a road we had to have in the tin*
we had to have it and at the time we had to have it.
Mr. Frear. I see.
Col. Stearns. I have made a request, Mr. Frear, and I would li»
to have it acted upon either one way or the other, to make a definite
statement of costs that I consider of importance to the committ**-
Mr. Frbar. In regard to this road ?
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AVIATIDN. 717
Col. Stearns. Not in regard to this particular road; no, sir.
Mr. FsEAR. When we get to it we wul take up any question you
have on any cost, we will be glad to. Do you know anything al)out
railroad constructing yourself?
Col. Stearns. No, sir.
Mr. Frear. You are not an engineer?
Col. Stearns. I am not an engineer.
Mr. Frear. Do you know anything about the timber business? Are
you a logger?
Col. Stearns. No, sir. I am a soldier. You have my history.
Mr. Frear. Now, referring to the spruce contract. This spruce con-
tract was dated May 12, 1918, for 250,000,000 feet of flitches, which
Siems-Carey-Kerbaugh Co. agreed to deliver within 18 months from
the 1st day of December, 1918. This is just to make a brief record, so
the contract will be understood. The price of the spruce flitches was
$100 per thousand, board measure, for No. 1 grade^ $60 per thousand
for No. 2 grade. The payments were to be made within 10 days after
notification, as appears from the contract.
Under article 16 it says:
If, Ui the opinion of the Secretary of War, the public Interest so requlrinK,
this contract may be cancele<l by 30 days' notice in writing from the contracting
officer to the seller.
And thereupon, of course, there is a settlement to be agreed upon
between the contractor and the one with whom the agreement was
made. This was a cost-plus contract of 7 per cent, as appears under
article 16. That 7 per cent applied on practically everything, did it
not?
Col. Stearns. No, sir. There were a good many things it did not
apply on. We tried where we could— I mean the corporation — to
make a saving through our ability to buy perhaps at a more reasonable
price, and we did so. That was the general rule on all our cost-plus
contracts, and where we made a purchase there was no percentage
allowed, and no percentage was allowed on commissaries and boarding
houses. On practically all other expenditures the percentage was
allowed.
Mr. Frear. What proportion of material did you furnish to those
people under the spruce contract?
Col. Stearns. I can not answer that now.
Mr. Frear. A very large proportion?
Col. Stearns. Not a great deal, I do not think. But I can give you
that later.
Mr. Frear. You say that the corporation would occasionally buy
material and turn it over to this spruce corporation ?
Col. Stearns. That was our policy with all contractors. In this
particular case I will have to get the data for you.
Mr. Frear. If any purchase was made by this Siems-Carey-Ker-
bau^h Corporation for carrying out these spruce contracts, either for
buying an Army truck or for a dish pan, or whatever it might be^
the 7 per cent cost plus was figured on that, was it not?
Col. Stearns. WTien it was made by the corporation ?
Mr. Frear. When it was made by the corporation.
Col. Stearns. We furnished those trucks from our supplies.
Mr. Frear. Yes, I assumed that you did. In case of a right of way
their men were receiving certain payments, certain monthly pay-
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718 WAR SXPEKDITUBES.
ments or bimonthly payments, I assmne, wertn^t they, und^ the con-
tract?
Col. Stearns. I do not believe the contract covers that.
Mr. Frear. The contract prdvided^fesf it
Col. Stearns. They were paid every month I think; in tome
instances twice a month.
Mr. Frear. On those payments the Siem^-Carey-Kerbangh Co. goC
7 per cent of the amount paid to the employees!
Col. Stearns. Yes.
Mr. Frear. If a soldier was emploved they received 7 per cent cost
plus on the amount paid the soldier?
Col. Stearns. Just the same amount as if they had hired civilitos.
Mr. Frear. In the case of rights of way^ if they bou^t the ri(|iit
of way would the cost plus apply there? Say they paid to the in-
dividual who sold a right of way a thousand dollars for that right oi
way, then the cost plus would apply, would it?
Col. Stearns. Yes.
Mr. Frear. How much was that for the right of way, do you re-
member, for the railroad?
Col. Stearns. I could get that figure for you later.
Mr. Frear. Let me suggest this : That I believe that the cost pins
contract applies in this case to the spruce contract only in case of t
settlement. That is the understanding, is it, Mr. Leai
Mr. liBA. Yes.
Mr. Frear. And under article 17 it is provided that the amount
over such excess shall not exceed 15 per cent profit. That was tbe
limitation fixed in that. You are not familiar with the terms of the
contract, are you ?
Col. Stearns. Only casually.
Mr. Frear. That is what appears under article 17.
Mr. Lea. That was on the basis of a completed contract.
Mr. Frear. The completed contract. The three deliveries nude
before the time fixed in the contract as a premium or bonus for eark
delivery. This contract was signed by the Seims-Carey-Kerbauyn
Corporation b^ Mr. Seims, president, and Mr. Kerbaugh, vice preo-
â– dent, and by this young officer, Capt. Crisp, on the part of the Govern-
ment, and approved May 28, 1918, by the Director of^ Aircraft Pro-
duction, John B. Ryan. That is right, is it not?
Col. Stearns. If it appears there it is right.
Mr. Frear. It will be unnecessary to go into the details of the con-
tract beyond what was suggested, because the contract will be a mattir
of record.
A contract was entered into about the same time by the abow
corporation with the Seims-Carey-Kerbaugh Co. for building a rail-
way?
Col. Stearns. Yes.
Mr. Frear. This contract gives the date of June 20, 1918. liflij*
in article 1 :
This agreement Is supplementary to the contract made between tbe mrt^
hereto approved May 28, 1918, by the Hon. John B. Ryan, Director ef Autitft
Production, together with modiflcatiODs and ameiidiiieiits» etc.
That relates to the spruce contract, does it not; that otber coatrKl
that we have just been discussing?
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AVIATION. 719
Col. Stearns. I think it does, Mr. Frear. I am not positive.
Mr. Lea. Yes, it does.
In the interest of both parties hereto (that is, the Oovernraent oa one side
and the Siems-Oarey-Kerbaugh Corporation on the other), and in order to expe-
dite the delivery ot said supplies, the Government shall make an advance pay-
ment to the contractor, under the principal agreement, to an amount not
exceeding the sum of $6,000,000, on the terms and securities hereinafter men*
tioned, and shall make payment by checks directly to ttte con&actor.
And then follows a provision whereby these payments are to be
made in advance payments. Were those payments made, or do you
know?
Col. Stbakns. To vrhat extent?
Mr. Frear. That is what we want to find out, to what extent were
advance payments made.
Col. Stearns. Quite considerably. Those figures will be here to-
night or later, showing exactly what advance payments had been
made.
Mr. Frear. This was a cost-plus contract at 7 per cent?
Col. Stearns. Yes.
Mr. Frear. And getting back to the subject of the right of way, I
will ask you for an illustration of the workings of the cost-plus con-
tract, to see if I hare a correct understanding. The Siems-Carey-
Kerbaugh Co. would send out their men to make arrangements.
After, as I understand, the corporation had gotten some understand-
ing what the terms were to be — ^that is, the corporation negotiated the
terms, as I understand it, for the right of way, did they not?
The $6,000,000 advance was to apply on the spruce contract, which
was the principal contract, and the $750,000 that was advanced on
the spruce contract, which presumably was done according to that
settlement.
Getting back to the right of way, the individual employed by
Siems-Carey-Kerbaugh Co, went out and negotiated for the right of
way; he was paid 7 per cent upon his expenses, and his time is paid,
that was to be had by the Government. That was one item, was
it not?
Col. STE.VRN8. I am not prepared to answer that. In making up
our contract for railroads we secured the right of way ourselves.
Mr. Frear. I am speaking about the Siems-Carey contract.
Col. Stearns. I am not prepared to answer that.
Mr. Frear. That shows in the neighborhood of $99,000 was paid
for the right of way on this contract — I mean from your book. It
will then be assumed that that was a 7 per cent basis ; that the cost-
phis contract at 7 per cent applied on the $99,000, wouldn't it?
Col. Stearns. No ; it could not be so assumed unless it was actually
tile cost. As I stated a minute ago, in making up our cost-plus con-
tract we secured the right of way ourselves. I mean, we sent a man
down from our office to do it. But these things ^ot very crowded
toward the end, and whether we did that or the Siems-Carey, I am
not prepared to state, because I had nothing to do with it.
Mr. Frear. I was about to ask, in the name of the Siems*Carey-
Kerbaui^h Corporation, if you in any case bought the land for the
right oi way and then turned over to them the rights.
Col. Stearns. I am not prepared to answer that.
Mr. Frear. If you did not, and it appears that $99,000 was paid, it
is assumed, is it not — ^and I want to get the facts, that is all, if that is
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720 WAR EXPENDITtJRES.
the case — it is assumed that the Siems-Carey-Kerbaugh Corpontion
paid that money out and were entitled to the 7 per cent-plus contract
Col. Stearns. Not if our men did it.
Mr. Lea. I think the fact is that the Siems-Carey-Kerbau^ Cor-
poration people did negotiate for the right of way and were piid a
percentage. So, if that is the fact, there is no use wasting any farther
time on it. I understand that is the fact.
Mr. Frear. You assume that that is the fact from the. facts stated.
Now, here is the situation that arises : First, the Government paid the
man who yvas employed to go out and take the right of way ; and ther
after he had succeeded, acting for the Government practically, atl
bought this, then the Government turns around and pays him m a
cost-plus basis for the amount of money that ho pays out on the
right of way.
Col. Stearns. I am not familiar with that. I can not answer
either of those questions. There are men in our organization that
would give the exact information. I think Maj. Sawyer could.
Mr. Frear. All right, we will call Maj. Sawyer later if necessary.
This contract for the building of the railway states in one of thcee
"Whereases" that it is estimated that the total cost of construction "f
said railway, exclusive of rolling stock, will amount to approxiniat<?I)
$2,500,000. That is to be a standard-guage railway from a point of
the line of the Chicago, Milwaukee & St. Paul Railroad in the State
of Washington, to be determined by agreement between the parties, t •
the contractor's mill site, to be constructed at or near Lake Plea>aDt
in said State. This is provided that the parties themselves sliouli
ai^ree i»pon Ihc Itne that the rojid was to fallow. That was aiii
to nil the time, cr do you know?
Col. Stearns. Whether they agreed on that?
Mr. Frear. Yes.
Col. Sri:Ai:NS. I do know thoy did agree on the way that line vi?
to run.
Mr. Frear. The contract itself does not give the line. It siniplj
gives the two terminal points.
Col. Stearns. Yes.
Mr. Frear. One was the connection with the St. Paul RailrmiL
and the next was Lake Pleasant. So that was to be determined with-
out relation to the contract so far as any specific provision occurs?
It is provided here that neither excessive salaries nor excessive cnn:-
pensation of any kind should be paid by the contractor. Do yoc
know what the salaries were that were set apart at Uiat time?
Col. Stearns. I do not know, no sir,
Mr. Frear. Can you give the Committee the benefit of any in-
formation you have on that?
(\)1. SiEAKNs. We will have the exact figures late \
Mr. Frear. Those will come this evening.
Col. Stearns. Yes.
Mr. Frear. There is a provision in article 6, beyond that, u
follows :
Notwithstamliiig anytliiiiK h(M*eiul)efi»re contailniHl, the iimtraftor ma.' '*
any time before innking or incurring liubllity for any oxiM'tidlture for inft!«r»jt.
equipment, or supplies, or beforo ninking any subc^m tracts, or h«»fun» pur-fca*-
ing any laml or rights of way to be acquired by the performnnr^ lierviff. •^•
ceeding $^25,000, give written notiw of such iuteudeil exijendliure to \bc si*-«
engineer.
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AVIATION, 721,
That is the engineer who was to be employed, as I understand,
for the building of the railroad, who was the Government engineer
-or his representative.
And thereafter the officer in charge of the accounts section of the Spruce
Production Division of the Signal Corps hereinafter referred to as the ac-
counting officer, shall be precluded from questioning the propriety of the said
expenditure unless the said Engineer or his representative shall v before the
close of the fifth business day after service of notice of such intention express
in writing his disapproval thereof.
In other words, if the engineer failed for any reason to give notice
of this change that was contemplated or this liability that was con-
templated by the contractor in excess of $25,000 at any time, the
Government would be held. There was no protection for the Gov-
ernment excepting this engineer, is that right? That may be a ques-
tion of law?
Col. Steahns. I would prefer not to answer that without going
more into detail.
Mr. Frear. I am reading now from Article VIII of the contract
which reads in substance that all such records shall be kept in shape
for ready reference and preservation for a period of six years after
the completion of this contract. Is that being done? Are they
keeping their records now, or do you know ?
Col. Stearns. Yes.
Mr. Frear. Has your corporation got possession of them?
Col- Stearns. We have not yet gotten possession of them. We
have possession of most of our cost-plus records, or rather we expect
to have them agreed to. I do not know in the case of the Siems-
Carey-Kerbaugh Corporation whether arrangements have been made
with them yet or not. It was our expectation, however, to take over
all cost-plus records where the cost-plus contractor was willing to
have such records under our custody. Thejr were his records, of
course, and we had no right to them without his consent.
Mr. Frear. What protection would the Government have in exam-
inging the records in the hands of the contractor in determining
whether the cost-plus contract was entered into properly unless the
Government gets hold of the record? That is, these are matters
that lie intimately in the hands and the knowledge of the contractor,
would they not? That is, you could not tell whether a dishpan
was bought or whether it was a car that was bought?
Col. Stearns. We have our own records of a great deal of that
kiud of thing, and we have requested that our contractors that have
settled up so far should turn over their records to our oflSce. They
all have agreed to do so with the exception of one contractor, and he
preferred to hold his own records together, and stated — and truth-
fully stated — ^that he was the man who had to answer for the correct-
ness of those records, and he had to answer a congressional committee
S'ust as much as we did, and therefore he preferred to have them in
lis own custody.
Mr. Freak, What contractor was that that you are referring to?
Col. Stearns. The Airplane Spruce Co.
Mr. Frear. Who was that contractor?
Col. Stearns. The Airplane Spruce Co.
. Mr. Frear. You do not know about the Siems-Carey-Kerbaugh
Corporation ?
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722 WAB EXPENDITUBBS.
Col. Stearns. No ; I might add, Mr. Fre^r, in this connection, that
I had practically nothing to do with the production end of the busi-
ness at the time this contract was being executed. Mv duties were
practically all military at that time. I am hardly a valuable witness
to you in this connection.
Mr. Frear. That would be true so far as the relations of the enter-
ing into of the contract are concerned, but you were president of tlm
corporation, and you are the chief oflicer responsible for the determina-
tion and settlement of the question between you and the contractor,
and you naturally must have some knowledge of the terms of the con-
tracts themselves. It was with that thought that the conmiittee is
pressing the question.
Col. Stearns. When the time comes for settlement there will be
an exhaustive study made of it.
Mr. Frear. Article 6 provides that the Government shall provide at
the work a competent engineer who shall pass upon all questions relat-
ing to the compliance of the work with the plans and specifications,
and shall have power to interprete and to revise the plans and speci-
fications, and all purchases of prcxperty, real and personal, and all
subcontracts made by the contractor relating to the performance of
this contract shall be subject to the approval of the said engineer,
and his decision upon all of the above shall be final and binding upon
the parties hereto.
Mr. Frear. Who was the engineer?
Col. Stearns. Mr. Sawyer, later commissioned ; Maj- Mott Saw]rer.
Mr. Frear. What was his business when he was first employed!
Col. Stearns. The railroad business, as I understandL
Mr. Frear. Whereabouts, under what employment?
Col. Stearns. He was with the Milwaukee Bailroad. In jost
exactly what capacity I am not sure.
Mr. Frear. He was an engineer with the Milwaukee Railroad I
Col. Stearns. I do not know whether he was an engineer.
Mr. Frear. He is an engineer, is he not?
Col. Stearns. Now I understand he is assistant to the general
manager.
Mr. Frear. Of the Milwaukee Road ?
Col. SiEARNs. Yes, sir.
Mr. Frear. And he was an employee of the Milwaukee Boad be-
fore?
Col. Stearns. Yes.
Mr. Frear. He had the power under this contract to say as to the
performance of the contract.
Col. Stearns. Yes.
Mr. Frear. So let us read his powers for the record :
He shall imiss upon all questions relating to the cttnipllance «C tke ««it
with plans and specifications. auU shall have power tn ioterprel ami riTl«r lb»
plans and specifications and all purchases of property real ami per»n«ul. ■•»'
all subcontracts made by the contractor relating to the perfortnance of tt«
contract shall be subject to the approval of the said engiae^^ and his dirt**
upon all of the above shall be final and binding upon the parties hereta
In other words, the Government of the United States is repre-
sented by your corporation. Sims-Carey A Cb. had no right ti»
interfere, could not change the terms of the contract, the charirter
of the buildings of this railway, or the plans and specifications I*-
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â–²VIATIOK. 723
cause they were entirely controlled by this engineer who was taken
from the Milwaukee Koad and is now employed by the Milwaukee
Road. Is that right ?
Col. Stearns. Yes, that is true. Of course if there was anything
serious it would have been taken over his head to Gai. Disque, but
in ordinary matters that is perfectly true.
Mr. Frear. What right had Gen. Disque to act in this? This
gives the engineer the exclusive power.
Col. Stsasns. It would have I^en easy, Mr. Frear, to have a new
engineer if his work had not been satisf atrtorily conducted.
Mr. Frear. You did not make an^ change in the engineers?
Col. Stearns. No sir, we were satisfied.
Mr. Frear. You were perfectly satisfied with everything that was
done by the engineer.
CoL Stearks. As far as he was concerned — I do not know how
the General feels about it, but I believe I speak for him when I say
he was satisfied with the way Mr. Sawyer hired out his duties.
Mr. Frear. I am simply questioning as regards the terms of the
contract and the power that was exercised. Do you know of any
other contract that your corporation let in which those terms are
placed, giving those large powers?
Col. Stearns. I do not know whether the contract so stated, but
I do know Gen. Disque picked out the ablest men he could find to
represent him on these different cost-plus operations, and gave them
full authority to use their judgment with the understanding that they
were to have his backing and to see that the Government's interests
were carried out to the fullest, and he took sundry men who were
experienced in their work, some of the ablest men in the lumber
industry for these different positions. He picked Mr. Yeon
The Chairman. Let us confine it to the engineers; Did he employ
any Union Pacific engineer}
Col. Stearns. When the question of where this road was to be
located came up there was difference of opinion, apparently, where
the best place would be, and you can readily see from the various
routes opened, and in order to get an unbiased view of the matter I
understand that
Mr. Frear. Do you know what you are going to testify to now?
We have his testimony.
Col. SixARNS. I saw a letter written by Gen. Disque to the vice
president of the Union Pacific Eailroad requesting
Mr. Frear. Just strike that out, because it is not testimony ; it was
not sworn to, and you are raising the point that Mr. Disque requested
only sworn testimony, and we are adhering to that I asked you if
you knew and you said that you saw a letter. I want something of
your own knowledge, and you say you saw somethinjg in a letter.
You see the point of the testimony which you have insisted upon we
are simply applying at this time.
Mr. Lea. He was only testifying to what he saw in that letter.
Mr. Frear. We want the letter not the judgment or recollection
of the witness. We would be glad to have the letter. The state-
ment of Mr. Disque is in the record, as I understand, in the Ray
proceedings. My question was simple. I asked you, Colonel, if you
knew whether he employed any engineer of the Union Pacific. Do
you know of your own knowledge?