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Wednesday, 24 May 1939

Mr casey (Corio) (Minister for Supply and Development) [8.54]. - Recently the Government decided to set up an advisory panel of accountants to advise the Government on schemes of costing and profit control for the production of munitions by private industry. The Government has given great thought and attention to this problem of profit control, and it is anxious to get the best advice possible from sources, outside the Government and the Public . Service in order still further to lessen the opportunity for other than the most reasonable profits to be made from the supply of munitions and the other manifold requirements of the Defence Department. After consultation with . the various accountancy institutes and bodies and after informing its mind from many quarters on this subject, the Government has decided to invite the following gentlemen to serve on the Advisory Accountancy Panel: - 7

S.   W.Griffith, Esq., F.L'C.'a'. : " ' "

T.   D. Hadley, Esq., F.C.A. (Aust.), F.A.I.C.A.

E.   V. Nixon, Esq., C.M.G., F.C.A. (Aust.), F.I.C.A.

D.   J. Nolan, Esq., F.A.I.C.A., A.M.I.E. (Aust.).

L.   A. Schumer, Esq., F.A.I.C.A., A.I.C.A.

Mr. Griffithis the general president of the Commonwealth Institute of Accountants in Sydney.

Mr Fadden - And a costing expert.

Mr CASEY - Yes. Mr. Hadley is the senior partner of Offner, Hadley and Company, chartered accountants, Sydney, and is a past president of the Australasian Institute of Cost Accountants.

Mr. Nixonis a senior partner of Edwin V. Nixon and Partners, chartered accountants, Melbourne. Mr. Nixon has been a member of two royal commissions.

Mr Beasley - That is no testimonial.

Mr CASEY - It is in this case.

Mr. Nolanis the assistant general manager of the Sydney County Council, and is the president of the Australasian Institute of Cost Accountants.

Mr. Schumeris the general manager of the Yellow Express Carriers Limited, Melbourne. He is a lecturer in cost accounting at the Melbourne University, and is the author of a well-known handbook on cost accounting.

Mr Francis - Are there no other States than Victoria and New South Wales?

Mr CASEY - The Government looks forward to getting considerable valuable assistance and advice from the panel, which will be given full and free opportunity to investigate existing checks and safeguards, and will welcome its advice as to any additional methods that should be employed to safeguard the public interest. The Government counts itself fortunate to have secured the services on an honorary basis of these five eminent gentlemen.

As is quite clear from the debate in committee up to this stage that the minds of honorable members are turning very largely and rightly on the question of the control of profits, it is right that I should enlarge somewhat on the existing methods of purchase of materials and commodities for defence requirements in order that honorable gentlemen may see the degree to which their remarks are justified. Generally speaking, defence purchases are made by the contracts branch, which will in future be associated with the Supply Department. Hitherto it has been a branch of the Defence Department. The head-quarters of the Contracts Board is in Melbourne, and there are sub-branches in each of the other capital cities. The contract system, as it has been developed over a great number of years, provides, as I am advised, very complete checks and safeguards against anything beyond quite moderate profits. The vast bulk of the purchases are made by open tender, well advertised in advance, throughout the whole of the Commonwealth. In the case of the more important items, there is usually a large number of tenderers. Although the tenders are called throughout the Commonwealth as a whole, there is a provision that tenders may be put in on an f.o.b. basis in any State of the Commonwealth. This is to give to contractors in the smaller, or more distant States, an equal opportunity with those in the more populous States.

Mr Fadden - Are the lowest tenders always accepted?

Mr CASEY - Yes, except in a few instances where, on the advice of the technical staff of the department, there is some good reason for doing otherwise. There is, in the opinion of those who are now advising me, and who were advising the Defence Department in the past, a very good check on undue profitmaking in the competitive system of public tendering.

Mr Lazzarini -What about the armaments firms?

Mr CASEY - The manufacture of armaments is not involved. Armaments and munitions willbe made in the Commonwealth's own factories, or in the defence annexes. . The contracts of which I have been speaking are for the supply of goods other than arms and munitions - for such goods as boots, uniforms, and other items of equipment for the three services.

Already this financial year, more than 7,000 contracts have been placed, and it is probable that, by the end of the year, approximately 10,000 contracts will have been let by the Contracts Board. I have had the figures analysed for the information of honorable members. By the end of the year, contracts for the purchase of material will have been let through the Contracts Board to the value of £2,000,000. Of that amount, about £500,000, or one-quarter of the total, will he in respect of woollen and cotton textiles for uniforms and the like. There were 21 tenderers for those items, representing practically the total number of firms engaged in the manufacture of such material. Of the 21 tenderers, sixteen received contracts. This is a larger number than usual, and the contracts were more widely distributed because of the necessity for getting the material for uniforms and equipment manufactured as quickly as possible. With this end in view, contracts were let in every State of the Commonwealth. Contracts to the value of £100,000 have been, or will be, let for the supply of boots. There were ten or twelve tenderers, and the result of the tendering was announced by the Minister for Defence in the House this morning.

Mr Lazzarini - Was there much difference in the prices of the various tenderers ?

Mr CASEY - There was a considerable difference between the tenders received from the smaller manufacturers in. the more distant States, and those in the larger States.

Mr Anthony - Does the f.o.b. system of which the Minister spoke apply to inland country districts, or only to the seaports ?

Mr.CASEY. - It applies to any tenderer wherever situated. If the tender of a firm in a distant part of the Commonwealth is accepted, the Defence Department has to meet the cost of freight to the point at which the material is required.

Mr Fadden - But is that cost taken into account in deciding who shall be the successful tenderer?

Mr CASEY - No. The system was introduced to remove the disadvantage under which manufacturers in the more distant States would normally labour. Without it there would be very little chance of those manufacturers obtaining any appreciable part of defence contracts.

Mr Jolly - When was the system introduced?

Mr CASEY - In 1933. The goods required are used chiefly in the States in which the large manufacturers are situated, but the f.o.b. system gives the contractors in the more distant States a chance to obtain contracts.

Mr Green - Did not an Adelaide tenderer obtain a contract for supply of most of the boots required?

Mr CASEY - I think so. I understand that the manufacturer referred to is supplying boots to the value of £70,000. By far the greater part of the material purchased by the department is obtained under the open tender system. From time to time a situation arises in which there may be only two or three or, perhaps, four firms in a position to tender for the supply of certain material. In those instances an additional check is imposed. A special committee considers the tenders, and advises the Minister regarding prices, &c. ; but, in all instances, tenders are called publicly. The Minister for Defence, who has had more experience of these matters than I have had, advises me that, up to be present, the system of calling for public tenders, and the intense competition associated with it, have proved to be a very good safeguard against excessive profit-making.

Mr White - Does the Minister say that public tenders are called in all instances? Surely he must know that sometimes they are not.

Mr CASEY - In most instances public tenders are called, but it sometimes happens that there is only one firm in the whole of Australia able to supply a particular requirement. Sometimes no firm is prepared to submit a tender, and special arrangements have to be made. I mention a typicalcase. Recently, the department wanted a line of goods not previously manufactured in Australia. A certain manufacturer in Adelaide had plant suitable for the making of the article, but he had never made it. He was unwilling to tender, but eventually he agreed to undertake the work on the basis of cost, plus a small profit. The work was done satisfactorily, and the final cost of the goods was rather less thain that at which similar goods could have been imported. Moreover, he obtained valuable experience in the manu.ture of the goods.

Mr Beasley - Is the Minister aware that the Tender Board in Sydney has not been able to supply specifications to interested parties on some occasions?

Mr CASEY - I am surprised to hear that.

Mr Beasley - I shall supply the Minister with some particulars later.

Mr CASEY - I confess that my experience in regard to some of these matters is limited. I know that sealed patterns are made available by the Defence Department so that tenderers in the various centres may see the actual articles wanted. The sub-branches of the Contracts Board, acting as agents for the board itself, supply full information to tenderers regarding what is wanted.

Mr Beasley - In the case I have in mind the tenderer could not get the specifications when he asked for them. Tenders had been called for the supply of bolts and shackles.

Mr CASEY - I have made inquiries of the Contracts Board in the last few days regarding the amount of profit made generally by contractors. It is difficult to give specific information because of the many thousands of contracts let, but I have been advised by the board that it does make a running calculation as to the make-up of the prices charged. Up to the present, the estimate is as follows : 60 per cent, of the amount paid for items bought by tender is paid away in wages, and 20 per cent is expended on the purchase of materials, leaving a balance of approximately 20 per cent, to cover overhead charges, depreciation, rent, taxation, profit, &c. Therefore it does not appear to me that there is much opportunity for the making of excessive profits.

Mr Frost - Then why were certain companies able to refund 25 per cent.

Mr CASEY - I am speaking of those goods bought under contract. Of the £2,000;000 which will be paid this year for goods bought by contract through the board, roughly £1,000,000 represents the value of the output of the Government munitions factories, and the Government clothing factory.

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