and Plant Obtained from National Factories and by Contract"; "Buildings "; "Miscellaneous " and "Noneffective Charges." There must be a limit to the kind of things you were at liberty to make at the Ordnance

Factories; it must come under the general head of "Ordnance."-The Vote of £6,878,000 is conditional really upon our recovering that sum from the people who get our productions, and it was our failure to get anybody to take up this order to the Ordnance Factories from whom we might recover the expenditure that is the root of the trouble.

199. Do you say that out of that Vote you were at liberty to make locomotives or anything else you liked?-There is no limitation placed by Parliament upon the character of the things which shall be manufactured at Woolwich Arsenal; the only limitation is really, as the Vote implies, that we shall see our way to make somebody pay for it. That limitation is where we failed and the Treasury did not at the time order that in default of a customer to pay for those engines we must ask Parliament substantively for the money that we spent on them.

200. Do you not think one can say that as it is the Ordnance Factories Vote, you could only make ordnance and you could only make it for Government Departments, and that to make things which are not ordnance and which are made to sell to the general public is ultra vires? The Articles of Association are very wide; I would not like to say that it is ultra vires, but I admit it is not within the main intention.

201. Very well. Last year I think you told us that you hoped to sell these locomotives to a foreign Government?Yes, there were three negotiations, all having in view to sell to the same foreign Government, and from one cause and another they all broke down.

202. Are the locomotives still unsold? -They are now in the hands of the Disposal and Liquidation Commission. unsold, that is to say so far as they have been finished.

Mr. Myers.

203. Have any of the locomotives been sold? None of them have been sold; between forty and fifty are now finished and have been reported for sale, and the rest are in various stages of manufacture.

[Continued

204. There has been no completed locomotive sold at any time?-None of these locomotives made in Woolwich Arsenal have been sold.

Chairman.

205. You cannot say what the loss will be then, of course?-No, that is a question which only the ultimate purchaser, I am afraid, can answer.

206. Then with regard to loss on acetone, you proposed to carry forward that loss in the expectation that it would be covered by profits on sales of other stocks? Yes.

Mr. Stewart.

207. Before we leave the locomotives, are those locomotives all of one particular gauge, 4 feet 8 or whatever it is ?— Yes; and 2-6-0 is the type, I think.

208. So they are narrow gauge?—They are standard gauge. We were advised

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by the Railway Executive Committee that that was the pattern which would be most likely to find a ready purchaser. At one time we had hoped (and when I say we, War that stage the Office had do nothing to with it and I am speaking as the temporary representative of another Department) that the Railway Executive Committee acting on behalf of the Government would themselves take these engines and would distribute them to the railway companies when the period of control finished, but they did not see their way to do that. The fact is that the country is rather overstocked with locomotives at the present time, but we had the best technical advice on the design to which they should be built.

Chairman.] Perhaps we had better finish this question of the locomotives if other Members of the Committee have any questions to put with regard to it.

Sir William Barton.

209. I presume there was an order for these locomotives from somebody—I do not mean any outside person?-There was an order by the Cabinet that they should be built.

210. Did you work to any estimate at all? An estimate was made at the time which showed that the locomotives would cost about £16,000 apiece. I have had that estimate revised on the latest information and last week I was given for the final cost of the locomotives about £17,000 apiece, which is very close.

14 March 1922]

212. But they had no experience of making locomotives?-None.

213. Was any outside advice taken as to the proper cost of a locomotive?-It is difficult to say what would be the proper cost.

214. What I mean is that in the absence of that they would simply go on working and no one would know, whilst this work was proceeding, whether they were on an economic basis or not unless you had some outside estimate of what ought to be the cost of a locomotive. Apparently there was none: Is that so? -I cannot say whether the Minister of Munitions advised himself whether the £16,000 was a reasonable cost for a locomotive at that time. Of course everything depended upon getting your locomotives manufactured quickly and getting them on to the market before the bottom fell out of it. Unfortunately first of all we were rather late in starting, and, secondly, a firm from whom we ordered boilers got involved in a strike with its workmen and there was some delay in delivery of the boilers, and the consequence was that the locomotives were not finished till many months after we had expected they would be coming forward finished, and the bottom was right out of the market before we could sell.

215. Have you had in fact any cash offers for them?-We had no firm offer, but we had three different series of negotiations having in view the sale of these locomotives through intermediaries to one of the Balkan States, and we were met with various difficulties. One of the difficulties was that the firm of intermediaries wished to have the transaction financed out of a Government fund for financing trade abroad and it was held by the administrators of the fund that it was not available to help Government manufacture but only available to help trade manufacture. Therefore we were told that we could not finance the deal through that fund and the most promising of our series of negotiations broke down over that.

216. What is in my mind is this: locomotives have been ordered since this transaction in considerable numbers. Have you put a price on these which is preventing or hindering the sale of them? -We named prices at which we were prepared to sell to those intermediaries who were going to sell them to a foreign

[Continued

Government; we named prices which would have made a certain loss, but higher prices than we have any prospect whatever, I may say, of making now.

217. That is the whole point; it seems to me that it is manifest here that you are being held up because you are asking a price which is not a market price. They have been produced under conditions which were not economic conditions, you could not help it, but you may keep them for ever and ever unless you get to really what is a market price and take something off that because you want to get clear? I should say that so far as I had any voice in the question of the price to be asked, my advice was: "Put on such an attractive price that we shall not fail to sell."

218. I thought yours was the only voice? Oh, no, it is not my department at all-selling; I am not a sales department-I am many things, but not that. The fact is, of course, that the War Office is not provided with a sales department; we are not well equipped for that.

Mr. Spencer.

219. I understand that 100 locomotives were to be constructed?-Yes.

220. And I understand from you that 41 have been completed-between 40 and 50?-Rather more than 41.

221. Put it at 45; does that 45 account for this sum of £582,000?-No, that is the number completed up to date; the sum of £582,000 is the amount of work which had been done, complete or incomplete, by the 31st March, 1921, a year

ago.

222. Is it fair to assume that when you have completed the 100 that figure will be more than doubled? I take it that when the engines have been all completed the total expenditure will be about £1,700,000. At the present time about £1,300,000 has been spent, and there remains about £400,000 to £450,000 still to be spent.

Mr. Marshall Stevens.

223. The amount we are dealing with, £582,000, represents the whole amount expended in locomotives?-Up to the 31st March, 1921.

224. But you are unable to tell us to what extent you have locomotives for that money?-At that date I am not sure that any were actually finished. At the present date something like 45 are actually finished.

14 March 1922]

[Continued

225. You rather gave us to understand to begin with that from 40 to 50 locomotives had been completed for £582,000, but you do not mean that?-I am sorry if I gave that impression; I had no intention whatever of conveying that

226. As a matter of fact the 40 to 50 locomotives-you do not know the exact number-cost approximately one million of money?-Well, you must make allowance for the fact that not only have 40 or 50 locomotives been completed, but all of the second 50 are in a very advanced stage, and the expenditure up to to-day is, roughly, £1,300,000.

227. But you are unable to say what that amounts to in work-what work you have for that?-We have got 45 finished locomotives standing on rail and we have a mass of work in the shops to show for the rest, but the average price at which they will come out when the whole batch is finished is £17,000 apiece.

228. Following on that, this work was put in hand to keep the men at Woolwich employed?-That was so.

229. How much of the amount has been spent outside in boilers and in other machinery?-I may be able to give you a figure which is nearly what you want; I have taken out some figures. Of the £1,260,000 spent up to date, about £660,000 is for material including the boilers.

230. Did the whole of that material come from outside?-The whole of that is from outside; it is partly raw material and partly half-wrought stuff in different stages. About a quarter of a million pounds has been spent in wages-as direct wages; then the machinery charges and the oncost account for about £350,000, and that makes up the sum.

Sir Alfred Yeo.

231. I would like to ask if in the making of these engines there was any consideration with a view to getting them on the market, any technical knowledge or expert advice with regard to the production at the right price before they were proceeded with, as would have been done in any other concern in the country. -I find it difficult to answer that question because the matter was in the hands of the then Minister of Munitions, Lord Inverforth, and his technical advisers during the early stage. The matter only came to the War Office in July, 1920, when we were well committed to the

whole thing, the boilers had been contracted for, and all the rest of it. I am not able to say-I am sorry-what technical advice Lord Inverforth had.

Mr. Stewart.

232. I would only like to ask this further question. When your running of the thing showed it was not going to be a success and you had to pay out money, to what was it debited? Was it debited to the Army?—No, it was debited to the Ordnance Factories Account, the Account that is really now before the Committee, and in consequence the money that we spent and have not recovered is one of the main features of this £1,000,000 deficiency on that Account.

233. That Account is now under the War Office, the Munitions Department having come to an end?-Yes, the Munitions Department handed over to the War Office at the end of June, 1920, and the War Office then began to take stock of the position and find out where it stood.

234. Is there any limit to the amount you can go on debiting to the Munitions Vote?—The only limit is that we have got to finish this order for the hundred locomotives. We considered on three separate occasions whether it would pay us to cut our losses and stop the order, but it never appeared that that would be a prudent thing to do, having in mind always this: that the main object of the whole thing was to keep a reasonable number of people at Woolwich out of unemployment. I discussed the matter of whether even now, with £400,000 still to go out, it would be desirable to close down and say: "We will finish 50 engines and scrap all the rest." I discussed that with the Director-General of Factories this morning, and his view is quite decidedly that it is too late to do that, because by stopping you would not save in fact £400,000; a great deal of that is your own oncost which runs on and you would have to face compensation to your sub-contractors who would all cry out if their contracts were broken. Therefore it has never seemed to us a practical proposition, although we have considered it anxiously and repeatedly, to stop the production.

235. Are these engines of a gauge suitable for India? One sees that the Indian Government orders a lot of engines?-I do not know what the Indian gauge is, but I would like to say that on the 6th December, 1918-it began as long

14 March 1922]

ago as that Sir Herbert Walker, as Chairman of the Railway Executive Committee, wrote this letter to the Ministry of Munitions, saying: "We are prepared to advise the Minister that he may place orders for 300 six-wheeled coupled goods engines or 700 four-wheeled coupled mixed traffic engines." We limited the order to 100 of the six-wheeled coupled engines, and as far as the design was concerned, and that sort of thing, we put ourselves entirely in the hands of the Railway Executive. As to the point you raised just now, it may be that the Indian Government has no money at present to spend; the Indian railways are largely a Government concern, and the Government of India has perhaps no more flourishing a Budget than we have just at present.

Mr. George Barker.

236. I would like to ask what effort has been made to sell these locomotives to Japan or China or Russia. It is quite evident we do not want them in this country, but there is a great scarcity of transport material on the continent? I do not know whether they are suitable for Russian railways nor do I know that there is any one who would finance a deal of that magnitude with Russia, but all that is now in the hands of the Disposal and Liquidation Commission under Sir Howard Frank, which works as a SubDepartment of the Treasury, and it is out of the War Office hands. We have reported those engines for disposal.

Chairman.

237. Shall we have an opportunity—the Treasury can perhaps tell us of questioning the Disposal Board at any time this year?-(Mr. Niemeyer.) You will have the Disposal Board before you presumably on their account.

238. And we can ask them then?-Yes, it would be a convenient opportunity.

Mr. George Barker.

239. I was thinking that when those locomotives were designed they must have been designed for some particular railway, because there are various gauges in various countries? (Sir Charles Harris.) They were of a type which would have been suitable for use upon the railways of this country.

240. You designed them primarily, then, for use in this country?-Yes, we

[Continued

hoped originally that we should have got an order from the Railway Executive for them.

Mr. Myers.

241. The point I desire to bring out, and which has been partly met is whether, when the work of producing locomotives at Woolwich was at its inception, it was a particularly speculative movement, or had the Department any hope or promise or any definite order for these locomotives? I understood the gentleman to say just now that they had a letter from the Indian Government?-I beg your Governpardon-not from the Indian

ment.

Chairman.

242. From the Railway Board in this country, I think it was?—Yes, our anticipation was that the Railway Executive Committee, which was then managing under the Government the railways of this country, would have been able to place the locomotives with the Home railways. That was the original idea.

Mr. Myers.

243. Had you any guarantee, or any promise, or any hope that that would be done, or was the production of those locomotives a purely speculative operation?There was no promise, but there was a hope. I read an extract some minutes ago from a Treasury letter in which the Treasury said (by that time it was October, 1919): "While my Lords regret that no undertaking to purchase can be obtained from the Railway Executive," and I think that confirms what I said, that the original idea was that the Railway Executive Committee would have taken these engines for use on the railways of this country; but it is very easy to understand why they did not, because they have exactly the same problems in their manufacturing shops at Crewe, Swindon, and so on that we have at Woolwich-the problem of keeping their men employed.

224. What decided the policy of the Department to fix upon 100 locomotives to be constructed?-The Government decided in 1918, as a matter of high policy. that locomotive engines were likely to be wanted in the country. At that time all the railways were very short of rolling stock, and it was a type of manufacture

14 March 1922]

[Continued

of a non-warlike kind for which the plant at Woolwich Arsenal would be suited.

245. I understand that between 40 and 50 locomotives are completed with the boilers and other material which have to be purchased from outside for the remaining 50: has that to be ordered or purchased or is it on the spot to any extent?-All the boilers have been contracted for; how many of the boilers have been actually delivered at Woolwich I cannot say, but the majority of them have certainly.

246. And in a falling market which the Department is confronted with, so far as the sale of the locomotives is concerned, they are to be committed to paying the original contract price for goods which have not yet been delivered?

Clearly the Government must stand to its contract with the boiler-makers or pay forfeit.

Mr. Spencer.

247. Were those boilers ordered at the 1918 or 1919 prices?-In 1919 they were all ordered.

com

248. In December, 1918, you menced?-The Government's decision to initiate the manufacture of locomotives at Woolwich was taken in December, 1918.

249. And we are still taking these boilers based on the 1919 prices?—Yes.

Mr. Myers.] For the 50 locomotives which have already been constructed we have against us the loss which is presented, and if these outside materials are purchased and an additional 50 locomotives are constructed we shall be confronted with still another item which is not before us in respect of the loss on construction of the remaining 50.

Chairman.

250. Yes, there will be a loss on the construction of the remaining 50.—Yes. The figure I have given of £1,700,000 for the total expenditure on the order covers the whole.

Sir William Barton.

251. There is a great deal of this material still to be delivered; the producers are producing that on a lower wage bill and cheaper raw materials. Are they still to have the contract price

-is there no sliding scale?-As we have signed the contract, I have no doubt whatever about that; it was a firm contract to which the contractor holds the Government.

252. However much wages or raw materials may fall?-I am not aware whether there was any sliding scale provision in the contract which would enable us to claim a reduction.

Mr. Myers.] All the Government contractors seem to do well from that point of view, Mr. Chairman !

Sir William Barton.

253. This is a thing which is happening regularly in commerce to-day, and what is really happening is that the men who have placed these contracts, realising that wages have fallen and that materials have fallen, go to their producers and put the case before them, and in the. vast majority of cases the producers realise it and come to some arrangement. That is happening all around to-day in the ordinary way of commerce. In a Government transaction is nothing of that kind attempted, because if it is not, somebody is going to make an enormous profits at the Government expense on something which was done by the Government to find employment at a very critical stage of the country's history?I am not sure whether one could put one's finger on the enormous profit, because the boilermaker would say, Yes, but I made my contracts with the makers of boiler plate," and so on, and it would require a very lengthy investigation tracing the whole thing right back to the primary materials in order to determine exactly how that lies. I cannot pretend to have made any such investigation.

Mr. Marshall Stevens.

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254. May I ask on that for a copy of one of the contracts made with the manufacturers, because in my recollection at that time I do not think contracts were made in the country in the ordinary way by business people which did not provide for a sliding scale?-It may be. These contracts you will understand were made by the Minister of Munitions and I have never seen them. I will obtain such a contract and put in a statement to the Committee about it.*

Chairman.] If you please; kindly obtain such a contract and put it in.