§ 35. Major CHAPPLEasked the First Lord of the Admiralty whether his attention has been called to the disregard of expenditure, both in method and amount, on the works being carried out at Throsk, in Stirlingshire; whether the 6½ per cent. commission being paid on the cost tends to encourage this disregard; and whether he will devise some new method of payment of commission in works under his authority that will increase the payment in proportion to the economy effected, and not in proportion to the extravagance?
§ Dr. MACNAMARAThe work was urgent and the contract let on the prime cost plus percentage basis, the profit being fixed at 5 per cent., together with 1½ per cent. establishment charges for the contractors' London office expenses. It has been arranged that any increase in labour rates of wages authorised subsequent to the placing of the contract shall not entitle the contractors to an increased profit. The policy of the Admiralty is to avoid contracts on the net-cost basis wherever an alternative method is practicable; and, with regard to the last part of the question, it has now been arranged that in such contracts an endeavour should be made to arrive at an agreed estimated cost of the work on which the percentage profit is to be calculated, in order that any actual increase of cost above the estimate shall not bring additional profit to the contractors. The plan of increasing contractors' profits in proportion to the economy effected in carrying out the work is one to which we have given considerable attention, and, as a matter of fact, we have applied it in certain 1845 shipbuilding time and line contracts; but its administration is likely to be complicated.
§ Major CHAPPLECan the right hon. Gentleman say what that system is?
§ Dr. MACNAMARAMy hon. and gallant Friend means the system under which we endeavour to measure the profits by the economy effected?
§ Major CHAPPLEYes.
§ Dr. MACNAMARAI will explain it to my hon. and gallant Friend and give him full particulars.