Veto of Bill To Amend the Contract Settlement Act of 1944.

To the House of Representatives:

I am returning herewith, without my approval, the enrolled bill, H.R. 834 "To amend the Contract Settlement Act of 1944 so as to authorize the payment of fair compensation to persons contracting to deliver certain strategic or critical minerals or metals in cases of failure to recover reasonable costs, and for other purposes."

H.R. 834 would compensate the mining industry for virtually all losses sustained during the war in connection with mining, or attempting to mine, strategic or critical metals and minerals. It would provide compensation for losses including net capital expenditures which occurred in filling or attempting to fill formal contracts. It would also provide compensation for losses which occurred in attempting to supply such metals and minerals even where no contract was entered into and no Government official knew of the efforts being made to supply the material.

The principle that the Government should compensate war contractors, and volunteers acting without contracts, for losses sustained by them in activities related to the war has not generally been accepted. The implications of this principle are profound, both with respect to our finances and with respect to our free enterprise system, and should be carefully considered before this principle is accepted.

H.R. 834 adopts this principle with respect to a single industry, the mining industry.

During the war many important metals and minerals were in short supply and efforts were made to increase their production. The U.S. Bureau of Mines and the U.S. Geological Survey provided assistance in exploration and development work, at no direct cost to the miner. The Reconstruction Finance Corporation stood ready to make mining loans to persons in need of finances to develop mining properties. The Defense Plant Corporation stood ready to construct and equip mining projects. The Metals Reserve Company offered to purchase the materials produced, either through specific contracts or by purchasing odd lots. The Premium Price Plan for copper, lead and zinc provided an operating subsidy for increased production.

All of these activities were carried out within the traditional framework of our free-enterprise system. The terms and conditions of the assistance which would be provided were specified in advance. A man who thought he could operate profitably under these conditions was free to do so, and to retain the profits if his operation was successful. If, however, the operation was unsuccessful, either because his costs were higher than expected or because his expectations as to the supply of ore were not realized, it was assumed that he would bear the loss.

The Government might have made use of the cost-plus contract system for operating the mines of the country during the war, in spite of the general reluctance to do so because of the increased costs which would be expected to result from this system. However, this would have eliminated and deprived the mining industry of any profits during the war, except to the extent of the fee involved. Whether this would have been more effective in getting out the needed materials, whether it would have been more economical to the Government, and whether the mining industry would have welcomed it, cannot now be determined. The fact is that the Government did not enter into cost-plus contracts for the operation of the mines. To compensate the unsuccessful for their losses, while the successful retain their profits, leaves the taxpayer with all the harmful results of the cost-plus system and none of its benefits.

I do not believe that the mining industry as a whole wants to adopt the policy that the Government should guarantee it against loss in time of emergency. Regulation of industry and assistance to industry in time of war are necessary. They can be carried out without eliminating all risk of financial loss and opportunity for profit with the resulting incentive for greater efficiency and lower costs.

While the mining industry differs in many respects from other industries, I find no valid basis for the discrimination proposed by H.R. 834. Other industries were urged to do their part in the war program, and other industries responded as splendidly to the challenge of the wartime programs as did the mining industry. Many of these industries were also exposed to risks that were unique to them. They too sustained losses in enterprises undertaken as a part of the war effort. Approval of this bill would likely result in demands by many other classes of persons for amendments which would grant similar relief to them.

Section 2 of H.R. 834 carries the principle of reimbursing war contractors for their losses over to persons who may have had no dealings at all with the Government, and who may have engaged in a mining operation which the Government would have discouraged or forbidden, if the matter had been brought to its attention. Where the Government specifically requested that an operation be undertaken for the purpose of supplying materials to a contracting agency or war contractor, under circumstances which would have led the miner to expect reimbursement, relief can now be had by a person acting on such a request under section 17 of the Contract Settlement Act. Here the elements of a contract are present, together with a fair basis for compensation for the loss resulting from failure by the Government to live up to the expectations it had brought about. Under the proposed amendment, no such basis for liability exists. In fact, the opposite might be the case. A person, hearing of the need for a scarce mineral over the radio might in good faith hurt the war effort considerably by making, on his own initiative, a substantial expenditure of manpower and materials in a fruitless mining operation (however much reason he had to believe minerals were present and however free he might be of fault, negligence or speculative purposes). Furthermore, the application of the principles in this section would subject the Government to an unknown and undeterminable liability and would have a disturbing effect upon wartime controls over materials and manpower.

The Contract Settlement Act of 1944 has been in effect for almost five years. The provisions of this Act were enacted for the speedy settlement of terminated war contracts. Many settlements have been made under it and many decisions have been made by the boards established under it. I consider it a highly successful piece of legislation, and one which has contributed substantially to the transition from all-out war production.

The Lucas Act, too, of August 7, 1946 (60 Stat. 902) made generous provisions for the payment of equitable claims of contractors including those in the mining industry for losses which occurred in the performance of their contracts.

The enrolled enactment would reopen the entire contract settlement program with respect to minerals and metals at a time when that program has been practically completed. The principle of the finality of settlements, which was adopted in the Contract Settlement Act and which experience has demonstrated to be sound, would be abandoned. Contracts which were canceled because of default by the contractor, contracts which were completed, contracts which have been approved by the Courts would be reopened and new claims could be filed by the contractors. This would add a tremendous administrative burden and expense. Moreover, since the personnel familiar with the metals and minerals program have, for the most part, left the Government, it would be very difficult to protect the Government's interest. It would be especially difficult to ascertain the facts with respect to claims made under section 2.

It should be noted that the Office of Contract Settlement reported to Congress that, as a result of a thorough survey, it had determined that the provisions used by Metals Reserve Company (and Reconstruction Finance Corporation as its successor) in terminating and settling contracts for the purchase of metals and minerals provided fair compensation in accordance with the principles of the Contract Settlement Act of 1944.

In my opinion, it would be a serious error to introduce at this time a new principle-insurance against war-caused losses. This would involve reopening the entire program of financing the war, with incalculable effects upon our finances.

To introduce this principle in the case of a single industry would not only give effect to an unsound principle and establish an unfortunate precedent but it would give rise to an unjustifiable discrimination.

HARRY S. TRUMAN