Morning Oregonian. (Portland, Or.) 1861-1937, September 12, 1919, Page 9, Image 9

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Huge Profit Commissioners
Paid to Operators Cited.
Contractors Assumed Xo Risk and
Could Not Lose, According to
Testimony at Spruce Hearing.
Cost-plus spruce production and rail
road construction contracts employed
by General Brice P. Disque in the gov
ernment's northwestern logging oper
ations were portrayed in expenditures
and profits at yesterday afternoon's
.ession of the congressional committee
on spruce Investigation, when a riot of
figures bombarded Chairman James A.
Frrar and hlM colleagues. Representa
tives W. W. Magee and Clarence F. Lea.
Guy George Gabrielson. expert ac
countant with the congressional party,
was testifying with reference to cost-
plus data he had obtained from the
books of the spruce production corpo
ration, settlement with cost-plus op
erators, it developed, had netted them
handsome returns on their operations.
regardless of the spruce produced.
"That Is. as I understand it." inter
polated Representative Magee. "t.iose
cost-plu contractors assumed no risk I
they couldn't lose?"
"It was a sure game," returned Ac
countant Ciabrielson.
Contract Held Liberal One.
"I think this contract." commented
Kepresentative Magee. referring to the
iems-Carey-Kerbaugh flitch agree
ment in particular, "is well described
by General Mclntyre. in his communi
cation to the secretary of war, as a
liberal contract."
It had been shown that Siems-'Carey-M.
SL Kerbaugh were advanced $731,009
without interest, on their i. ".0.0)0. 0(10
feet spruce contract on the Olympic
peninsula, with which to carry on tho
work: that no spruce was produced in
appreciable quantity, and that a per
cent cost-plus settlement was .he basis
of final adjustment.
Previous witnesses, earlier In the hear
ing, had testified that the Siems-Carey-Kerbaugh
spruce project was but In
the last stage of organization and that
the end of the war alone prevented it
from lending full vigor to the increased
spruce output contemplated by General
iMsque and his advisors and demanded
by America and her allies. Expendi-
tures had been made with a view to
sledgehammer regularity when actual
logging operations began in the Pleaa
ant lake spruce.
Operator' t'ommlMona Cited
Profits, or cost-plus commissions, paid
to cost-plus operators, aggregated
i.asi.zb. according to Mr. Gabriel
sons' testimony and data, apportioned
as follows:
Grant Smith-Porter brothers, $203.
498; Warren Spruce company, $358,
871.92; Aeroplane Spruce & Lumber
company, SIU0.148.8S; Siems-Carey-Ker-
oaugn. railroad contract. 1255. 567. 97
fciems-Carey-Kerhaugh. spruce flitch
contract, 1329,268.25. Other witnesses
testified that the basis of settlement
was uniformly 7 per cent on actual ex
How railroad costs of construction
may be computed from at least two
angles was demonstrated In the con
fiicting testimony of Majof George B.
Herringlon. chief engineer of the sp.-uce
production corporation, and Guy George
Ga brii-!.on. expert accountant, who
pased his calculation of mileage cost on
the equivalent main-line trackage of
the entire road, reducing spurs and
sidings to the main-line ratio. Mr
C-abrielson based his calculation upon
the actual operating miles of the lines.
f main-line construction.
Coat Karlmatea Vary Widely.
The conflicting estimates of cost per
nine oi spruce-production roads In Ore-
f-on and Washington were as follows:
Taquina northern road. Maior Her
rington's estimate. $90,000 per mile; Mr.
aoneison s estimate. $143,459 per mile.
laquina southern road, to BNodgett
tract. Major Herrington's estimate.
tio.uuu per mile; Mr. Gabrielson's esti
mate, $89,076 per mile! Lake Crescent
road. Major Herrington's estimate
$100,000 per mile; Mr. Gabrielson's esti
mate. $110,180 per mile.
That General Disque. in the daya of
iis coioneicy. signed the extensive cost
plus contracts without delegated au
thority, and thta such action resulted
in criticism in the finance division of
the aircraft bureau at Washington, was
also shown by Mr. Gabrlelson through
excerpts from letters taken from the
official files at the capital, consisting
of correspondence between officers of
the bureau.
Officials of the spruce production di
vision arose to instruct the committee
that all of the contracts under discus
sion would be found in the files at
Washington, fully approved by the
chief signal officer of the signal corps.
Chairman Frear and Mr. Gabrlelson in
sisted that they had made a search for
jLhe contracts in the proper bureau and
had been advised that they were held
In Portland. Major Campbell insisted
that the contracts were still in Wash
ington, and agreed to send a message
to the capital in order to locate them
for the convenience of the committee
upon its return to the east.
Testimony that the Hammond Lum
ber company, operating on the Necani
cum river. Clatsop county, had amor
tised its claim with the snruce urn.
I in ii I
Rochester New'Vbrk
The Man, a style book for Autumn is ready for you
c) Merchandise ofc Merit Only
Exclusive Representatives for Portland, Oregon.
rived spruce at $144.08 per thousand
u'tiAF-oa th, atralirht nrlp nnfri
duction corporation for $452,824. the to independent operators ranged from
u-inB uancu upon railroad con- $90 to $100.
struction in anticipation of filling a .
60.000.000 feet spruce contract, brought Co.t-Pla. Co.tly.
from Both Chairman Frear and Repre- "In other words, the cost-plus con-
sentative Magee a question as to the tracts were the most expensive way,"
exact status of the settlement. The commented Chairman Frear.
company had produced but 2.3S4.000
feet of aircraft logs at the signing of
the armistice.
Hammond Co.trart Analyzed.
"They would acquire the road at
about 32 per cent of its cost, regardless
of the logs hauled over the line,
whether the full 60.000.000 feet were
hauled, or none at all." stated Mr.
Gabrielson. in his analysis of the Ham
mond contract.
On the basis of the Hammond settle
ment, said Mr. Gabrielson, the aircraft
logs cost the government $255.25 per
thousand feet, and would have produced
aircraft lumber at a cost of $1200 per
thousand feet.
The committee also closely scru
tinised the settlement with Grant
Smith-Porter Bros., builders of the
Lewis A. Clark railroad, who were
awarded . final settlement of $64,000
upon their claim. The charge was made
that Captain Markham and John B.
Yeon. under the agreement, were given
full authority to administer the rail
road contracts of this company, and
that they do not appear to have made
any recommendation. Major Herring
ton was named by Mr. Gabrielson as the
officer who investigated the claim of
the company and advised the adjust
ment board to settle on the $64,000
By Mr. Gabrielson's computations, the
cost-plus operators produced rived
spruce at an average cost far in ex
cess of that paid to individual and
private operators. The cost-plus
operators, said the witness, produced
"Tes." answered Mr. Gabrielson.
It was shown that the average cost
of logs under cost-plus operations
practically tallied with the price paid
by the spruce production corporation
to private loggers. The cost-plus
average was $34.77 per thousand feet,
while the fixed price for private opera
tors, since 1917, bad been $35 for Xo. 1
The following figures on mill con
struction costs were also placed in
record by the witness:
Port Angeles mill, cost 1926.040, un
completed; would cost when completed
$1,200,000; Lake Pleasant mill, cost
$404,174, uncompleted; would cost when
completed $1,000,000: Toledo mill, cost
$955.347( uncompleted, would cost when
completed $1,000,000; Vancouver cut-up
mill, $884,427, total cost, now com
pleted. The recent settlement with England,
co-partner in the cost of spruce pro
duction, has .been figured on a basis of
10 per cent salvage of the properties,
and had resulted in the payment of
$13,000,000 in full for all claims. Mr.
Gabrielson, on this basis, computed that
England had paid $320 a thousand for
all aircraft lumber received from the
American operations.
Lumber Shipments Estimated.
Aircraft lumber shipments to the al
lies were rated in feet as follows: Great
Britain. 41.437.047; France. $34,595,701;
Italy. 14.630.894. The United States
utilized 52,315.313 feet of airplane stock.
of the total of 143,000,000 feet of fin
ished material produced.
Mr. Gabrielson was asked by Chair
man Frear to furnish an estimate of
settlement with Great Britain, France
and Italy, computing the cost of air
plane material sent to these nations,
on the basis of 10 per cent, 20 per cent,
30 per cent and 40 per cent, of salvage
values. Ten per cent is the basis upon
which England already has settled.
The accountant produced the following
table of cost per thousand feet on the
four suppositious salvage settlements:
Ten per cent cost to allies per 1000
feet, spruce. $422.97; fir, $203.77; cedar,
Twenty per cent Cost to allies per
1000 feet, spruce,- $402.65; fir, $193.98;
cedar. $777.82.
Thirty per cent Cost to allies per
1000 feet, spruce, $382.32; fir, $148.19;
cedar. $738.56.
Forty per cent Cost to allies per
1000 feet, spruce, $362; fir, $174.39;
cedar, $699.29.
Huge Total . Ia Shown.
A 40 per cent salvage valuation on
the spruce production property would
total $41,789,866.61, testified Mr. Ga
brielson. "tl includes, Mr. Lea, the lumber ac
tually produced and set against the to
tal outlay," explained the witness in
response to one question.
Dr. J. B. Ziegler of Tualatin, one of
the earliest advocates of riving, testi
fied briefly in criticism of the policies
of the spruce production division, par
ticularly with reference to methods em
ployed in spotting trees for selective
"It has recently developed that Col
onel Disque assumes that ho has the
right to sign all contracts," ran one
letter, the bignature of tl.e cost
plus spruce contracts, from an officer
of the war credits board to the finance
division of the bureau of aircraft pro
duction. This letter expressed alarm
that such' should be the case, and sug
gested that steps be taken to obviate
a recurrence of the alleged breach.
Authority Held Desirable.
"It would bring no grief to the con
tract section of the aircraft bureau if
Ryan (director-general of aircraft pro
duction) would delegate full authority
to Colonel Disque," read another let
ter, referring to the official anxiety
and desire to "stand from under" oc
casioned by the same action on the
part of Colonel Disque.
Cecil Letter Produced.
The omission by General Disque, dur
ing his testimony, of a pertinent paraC
graph contained in a letter to the
spruce commander from George H.
Cecil, district forester, relative to op
erations on the Olympic peninsula,
caused Chairman James A. Frear to
summon Mr. Cecil before the congres
sional committee yesterday morning,
with a complete copy of the letter in
In his testimony General Disque had
introduced in the record portions of
this letter,' wherein Forester Cecil ad
vocated the building of the Lake Cres
cent line to Clallam county spruce at
Lake Pleasant, as against the con
struction of the Deep creek extension
of the Milwaukee to reach the same
Having ascertained that the copy
furnished the committee was an au
thentic one. Chairman Frear read the
first paragraph of the Cecil letter. For
immediate spruce production, said For
ester Cecil in this paragraph, ba"sed
upon the report of the department's
own engineer, spruce timber in quan
tity could be reached by a logging
road up the Hoko river from Clallam
"General Disque read all the rest of
the letter," explained Chairman Frear, I
"but he left out the first paragraph.'
"I request that the 'complete letter
be placed in evidence," added Repre
sentative Magee.
On cross-examination by Representa
tive Clarence F. Lea. Mr. Cecil said that
he had recommended the Lake Crescent
route to Lake Pleasant, as against the
Deep creek route, but had favored the
Hoko river route to Clallam bay for
immediate spruce production.
"When this country was asking for
airplane spruce," queried Chairman
Frear, "you wrote Colonel Disque that
this Hoko river spruce could be opened
up in 90 days, with a 15-mile road?"
"Yes, sir," answered Forester Cecil.
"The report shows that it could have
been opened up in 90 days."
The chairman .also requested Mr. Ce
cil to prepare such data as his records
afford relative to the amount of spruce
in the Siletz basin, Lincoln county, Ore
gon. Testimony of Siletz timbermen
has .been that the "tract ranges from
550,000,000 to 1,000,000,000 feet in
spruce, while Amos Benson of Port
land, director of the spruce corpora
tion, has testified that the entire Siletz
basin does not contain more than 200,
000,000 feet of spruce. The Siletz ba
sin was not opened up in the spruce
programme, but the northern line was
built from Yaquina along the coast, to
tap the west slope.
W. C. Butler's Xante Mentioned.
During General Disque's testimony
reference was made to E. B. Chinn, W.
C. Butler and other Puget Sound lum
bermen, as having been concerned in
an alleged profiteering contract for the
logging of the Blodgett tract. Later
General Disque had withdrawn the ob
jectionable phraseology of his charges,
when it was shown that the same men
had presented an offer, which was ac
cepted, to log the Blodget tract with
out profit.
The chairman produced an affidavit
from Mr. Butler, banker and financier
of Everett, Wash., and brother of Nich
olas Murray Butler, president of
Columbia university, in which Mr. But
ler declared that he had participated in
no proffer to log spruce, save that
which was entered into for the profit
less logging of the Blodgett tract.
Representative Lea and Chairman
Frear wrangled for a moment or so in
discussion of the apparent aspersions
cast upon Mr. Butler during the testi
mony of General Disque, the former
contending that he believed they were
to some extent justified.
"I have a very good reason for my
opinion of Mr. Butler, said Represent
ative Lea, in dismissing the discussion.
"It's not at all complimentary to him."
General financial matters and the
settlement of claims were testified to
by Major E.; C. Campbell, district
finance officer of the spruce corpora
tion, during the morning session.
Hammond Claim Adjusted.
The claim of the Hammond Lumber
company, which had constructed exten
sive logging roads on the Necanicum
river tract, in Clatsop county, had been
adjusted for $452,824.14, Major Camp
bell reported. At the time of the ar
mistice, when operations ceased, the
company had not attained full produc
tion and had produced but 2,384,000 feet
of aircraft timber.
"What has the government got out
of it, besides the logs?" asked Chair
man' Frear. 1
The witness replied that the logs
produced represented all that the gov
ernment had received.
Considerable testimony was taken
relative to the contract of the Willapa
Lumber company for the purchase of
commercial lumber from the spruce
production corporation, as bid of Feb
ruary, 1919, at a price of $18.10 per
thousand. The contract provided that
the purchaser should pay upon the1
shipping amount of lumber produced,
after the odd sizes of spruce produc
tion by-product had been cut to com
mercial standards.
Mitchell Salary Brought Out.
Major Campbell also testified that.1
the present maximum salary of H. S.
Mitchell, as sales manager of salvage
equipment now at Vancouver. Wash.,
is $1500 a month maximum, bused upon
a sales commission. Mr. Mitchell was
formerly in charge of the Vancouver
cut-up plant, at a salary of $1"U0 per
Hood School Holidays Off.
HOOD RIVER. Or., Sept. 11 (Spe
cial.) Hood River schools will ob
serve no apple harvest recess this year.
Xor, as was recently planned, will the
high school be dismissed at noon each
day that the older students may help
with the harvest unless a shortage of
labor strikes the valley.
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