March 10, 1939 (18th Parliament, 4th Session)


Ian Alistair Mackenzie (Minister of National Defence)


Mr. MACKENZIE (Vancouver):

Certainly; I see no objection to its being tabled. It was part of the evidence taken before the Davis inquiry. I see no reason why it should not be placed on the table of the house-in fact, I am informed it has already been tabled. It continues:
2. It is considered impossible to generalize a rule or rules of conduct in statutory form.
That is in reference to legislation.
The range of articles needed for the forces is so wide, that to attempt such legislation, would amount to an attempt to regulate the profits of a great part of the ordinary industry of the country. The problem appears to be essentially an administrative one.
The control of profits and prevention of excess can, it is believed, be most effectively sought by means of appropriate administrative practice on the part of the departments responsible for the placing of government contracts and orders involved in the defence program.
Where a really competitive market exists, the practice long pursued of calling for competitive tenders, appears to afford an effective safeguard against undue profits. For special articles, or work where the government will be the only or the main purchaser, other methods are required. In the one or two contracts of this type which have recently been placed, the Department of National Defence have taken special steps to guard against unreasonable profits arising.
This is early in 1937.
(3) Re special contracts: While the committee do not believe that any single hard and fast rule can be laid down* it is reasonable to assume that by careful study certain useful financial principles and safeguards might be evolved for each type of contract which may arise. It is suggested that there be instituted a standing interdepartmental financial committee to assist the officials charged with the placing of contracts under the defence program, the committee to be representative of the contracting departments and the Departments of Finance and National Revenue, and others, if considered desirable.
Such a committee might study and classify the requirements of the defence program from the financial point of view, and formulate and advise upon the financial principles or safeguards to be observed in placing contracts of various types, and as to rules of procedure. It might also be available for consultation upon the financial aspects of any unusual specific cases or conditions arising from time to time. It would be limited to this function of assisting in the prevention of undue profits.
Re Special considerations. The commissioner of income tax attached a separate report dealing with certain technical provisions, recommending that as a result of certain defects in the Business Profits War Tax Act of the last war, certain precautionary measures, with regard to capitalization and set-up of companies receiving armament contracts, be taken.

The committee recommended that there be referred to the interdepartmental committee,
(a) Mr. Elliott's special recommendations.
(b) The advisability of inserting in all contracts not awarded through competitive tendering, a stipulation granting to government inspectors or auditors, complete access to the contractors' books and records.
(e) The extent to which costing principles established in government arsenals or factories might be effective, in facilitating the control of the costs and profits of private manufacturers.
Re Publicity. The committee believe it important not only to ensure that contractors will be limited to reasonable profits, but also to satisfy the public that safeguards in this sense are being provided. It is, therefore, suggested that on some appropriate occasion, the House of Commons be informed in this regard.
Just a comment or two on these findings. As suggested in No. 1, the government is making the maximum use of its own arsenal plants. I say that deliberately. The advice given me by the officials of the Department of National Defence and by the highest ranking officers, those who are in favour of the principle of public ownership, in regard to the development of the Lindsay arsenal is that until we proceed with the filling group and the ammunition group at Valcartier, until we have made Quebec available, we should not proceed with the development of the Lindsay arsenal as planned for the manufacture of small arms ammunition. It must be kept in reserve. However, since this government came into office the production of our necessities at the arsenals at Quebec and Valcartier has been increased by four, six or seven times. We have made a modest beginning at the arsenal at Lindsay and it is my fervent desire that as soon as possible we should proceed with the further development of the facilities at Lindsay.

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