It is frequently stated that it costs more to build a battleship in a government yard than in a private one. This is true in a degree; it does cost something more for reasons that will be explained further on, and this notwithstanding that the government pays no taxes, makes no allowances for depreciation, pays no interest on the capital invested (i. e., appropriations) and has no indemnity nor insurance cost. Moreover, as the clerical and drafting forces and other classified employees are paid from the appropriations designated in their appointments, their pay does not constitute a proper charge against new construction, nor likewise does the pay of the naval officers on duty in the yard. In this particular the government has the advantage of a private yard which has an overhead expense not only in the pay of the classified employees, but also in that of the officers of the company.
The charge has been made in some portions of the press and elsewhere that navy-yard figures are juggled, that estimates are purposely made low, with a view to asking later on for an additional appropriation and that work is thus obtained for a government yard to the permanent injury of private concerns and the deprivation of hundreds of skilled workmen in various parts of the country.
There are probably no more conscientious estimators in the country than those who habitually estimate on the cost of work in the navy-yards, and it is certainly not the purpose of this article to discuss this argument of those opposed to government-built ships. Rather the endeavor will be made to show:
First: Why navy-yard work costs anything more in view of the above-mentioned exemptions, and
Second: That the difference is not excessive, and that therefore it is not an extravagance to build ships in navy-yards nor,
Third: An offence against preparedness which demands not only economy but promptness in securing results.
It will first be necessary to describe in some detail the methods of cost accounting used at the navy-yards and, authorized by the regulations established by the Navy Department. The cost to manufacture any article in the navy-yard be it a piston-rod or a ship, is made up of three factors, viz.:
(1) The direct labor;
(2) Material; and also what is known as
(3) Indirect, or overhead, charges.
It is the determination of this vexing third factor, the indirect, that has caused so much discussion and has given the accounting experts no end of trouble.
In brief, the indirect charges are composed of charges for services of a general nature, whether labor or material, which cannot be located directly to a job order, such as wages of engineers, firemen, etc.; fuel, power, oil, waste, etc. Now, outside firms have overhead charges as well as the government factories, but whether they are estimated in the same manner or not, I do not know. In my opinion, the proper overhead charges for the construction of a ship should exclude every item not directly and intimately connected with the construction. In other words, no item should be charged in any way to the construction of the ship that would exist if the ship were not being built.
The indirect expense is divided into three separate classes, viz.:
(a) The direct shop expense;
(b) The power expense; and
(c) The general expense.
In the first is included the cost of operating each shop, and is located daily between labor and material under certain definite accounts.
The power expense is, as its name implies, the cost of operating the central power plant, and is located daily between labor and material under separate accounts. The charges to the general expense show the various miscellaneous expenses which cannot be placed against a specific shop or the central power plant, and are located daily between labor and material under accounts of its own. It will thus be seen that it is possible to make the ship under construction bear a proportion of almost every expense incurred by the yard, because, as a logical sequence, there is practically no expense in the yard that cannot be connected up, by a simple process of reasoning, to the construction of a ship. A new roof, a new building, cleaning shop windows, repairs to a garden hose—all of these impose a certain tax, small or great, on the innocent ship in the cradles, and so it happens that items that are as far removed from the building of a ship as Dan from Beersheba, are linked up with it and are dragged in under the third factor, general expense. The regulations allow any repairs in the shops which cost less than twenty-five dollars, to be charged to the general expense account, so that repairs to a floor in a stable loft, the painting of a fire plug, etc. thus assist to lay a burden of cost upon a ship. It is to exclude such unnecessary and unjustifiable items of expense that the Secretary of the Navy appointed a board to suggest a revision of the system of accounting, so that a just determination of the actual cost of the ship might be obtained. It is evident then that the apparent cost of a ship is not its actual cost.
It is not true, however, as is often stated, that any part of the cost of a new building, or the cost of a crane, and similar constructions, are in any way charged to the construction of a ship. This has been incorrectly stated to be the case. For instance, if a new building were to be erected in a navy-yard, it would be paid for out of a special appropriation. When a crane was erected, for example, at the New York Navy-Yard, 1906, its cost, $70,000.00, came out of a special appropriation which was made for the development of the government yards in which battleships appropriated for that year would be built.
There is another very large expense which is frequently, but improperly, reported as being charged against the cost of the ship. This is what is known as leave, holiday and disability pay, three huge items of expense that outside firms do not have. These are charged directly to the main appropriations, and do not appear in the cost of the work. The law allows every employee in the government service 15 days leave and 15 days sick-leave with pay. It also allows him pay for all national holidays, which up to date amount to six; and furthermore, 13 half-holidays during the summer months. The disability pay is a generous grant which Congress has wisely allowed to men injured temporarily or permanently in the line of duty. As a matter of interest, and as an illustration to indicate the amount of this holiday pay, the amount of holiday pay charged to the "Increase of the Navy" appropriation on account of labor for battleship No. 39 on May 30, 1914, at the New York Navy-Yard, amounted to over $3,200.75, which was one-third of the total amount of holiday pay distributed for Decoration Day. This shows very well the way in which a ship is sometimes said to be charged with something that it is not responsible for. In the course of the three years' building of the New York, the indirect charge for leave, holiday and disability, amounted to $363,288.17, and the pay of the classified (clerks and draftsmen) to $316,000.00.
There is another reason why it costs more to build a ship in a navy-yard than outside, aside from reasons due to methods of accounting. A navy-yard is handicapped by the provision in Civil Service Regulations which forbids a man to do work of a higher grade than his rating warrants. A machinist's helper, for instance, at $1.28 per day, may be perfectly capable of doing the work of a machinist, at $3.04 per day, but the yard is prohibited from so employing him. It is clear that this restriction greatly increases the cost of work.
It is obvious that the greater the difference in actual cost between a navy-yard-built ship and a private-built ship, the less likelihood there is of the navy-yard getting the work. It is also clear that the ship-building interests do not favor .the policy of the Navy Department in increasing the ship-building facilities in all the yards. The question was under discussion in Congress last year, and the following is quoted from the Congressional Record of May 29, 1914:
MR. O'GORMAN: There are interests in this country which look with disfavor upon the building of battleships in our own navy-yards. It is sometimes stated that it costs more to build a battleship in our own yards than in private yards. I heard it stated in the Naval Committee but a day or two ago by the distinguished chairman of the committee, in the presence of all the members, that there was a time, not many years back, when the private shipbuilding interests of the country had sufficient influence with respect to legislation and with respect to the conduct of public departments to make it appear, by a fictitious and erroneous system of bookkeeping, that a ship built in a government yard was far more expensive to the government than a ship built in a private yard.
MR. HUGHES: A determined effort was made to discredit government construction of battleships. That effort was met by men just as determined that we should not return to the old system under which private manufacturers held the whip hand over the government, and dictated the prices at which battleships should be constructed and the time of delivery. Whether a ship costs more constructed in a government yard than in a private yard is a matter of very little consequence to anybody who knows the facts and has an idea of the real difference between the cost of a ship constructed in a private yard and the cost of a ship constructed in a government yard. The cost does not make very much difference, because it is relatively small; but we do gain in the fact that we compel the private manufacturers to construct our ships for a great deal less, comparatively, than they constructed them years ago; and we compel them to deliver the ships to us in the same length of time in which they are required to deliver them by other nations for whom they construct battleships. So far as I am concerned, I do not look with favor upon an abandonment of that policy for a single moment.
MR. LA FOLLETTE: I am in favor of building this battleship, if it is to be built at all, in a government navy-yard. I am certain, if built in a government yard, it will be better built than if built in any private navy-yard; and I am certain, Mr. President, if the government navy-yard is given an even chance with the private navy-yard, it will be built cheaper in the government navy-yard.
In comparing the cost of a private-built ship and government-built ship, it is necessary to note that, while information concerning the cost of the latter is public property, the actual cost to a private firm is unknown, only the contract price is known. If the firm in question has built at a loss, the fact is not apt to be divulged. Perhaps a private plant would be willing to suffer a loss, to gain the prestige of building a battleship and the advertising it affords. At all events, when we are told that the Connecticut (Brooklyn Navy-Yard) cost $374,000.00 more than her sister ship, the Louisiana (private) and that the Florida likewise cost $269,000.00 more than the Utah, it would be more accurate and more just to say that they cost that much more "than the contract price of the Louisiana and Utah."
We know, for instance, that the contract price of the Texas, built by the Newport News Shipbuilding Company, was $5,830,000.00 (hull and machinery) because it is so published in the Green Book issued by the Bureau of Construction and Repair, Navy Department, but we do not know what was the actual cost of the ship to the company. The limit of the cost of the New York, by act of Congress, was fixed at $6,400,000.00, and the actual cost of the ship was only $6,135,168.35, or nearly $265,000.00 less than the estimates, this amount being the cost of the material, direct labor, and the indirect on the direct labor and material.
The overhead for leave, holiday, and disability amounted to $363,288.17, and the pay of the classified forces was estimated at $316,000.60, a total of over a half million, but fortunately, this amount, as stated above, is charged to other appropriations and is not charged against the ship. But if this were permissible, then to be logical it would be necessary to include also the pay of naval officers connected with the construction of the ships, in the same way, which would further largely increase the apparent cost of the vessel.
The cost of the New York to the government is as follows:
Material/Direct labor $5.272955.25
Indirect $862,213.10
Actual cost of New York $6,135,168.35
Contract price of Texas $5,830,000.00
Excess over contract price of Texas $305.168.35
The keel of the Texas was laid April 17, 1911; the keel of the New York was laid September 11, 1911.
The Texas was launched May 18, 1912; commissioned March 12, 1914. The New York was launched October 30, 1912; commissioned April 15, 1914.
While the interval between laying the keel and launching the battleships was practically the same (13 months) the New York was finished in five and one-half months less time. Moreover, ten days after the commissioning of the New York she went to sea fully armed and equipped and ready for any service, an unprecedented record, beating the corresponding time of the Texas by two months and three days.
The difference in cost of repairs to ships after going into service is not a fair criterion of efficiency of the construction, nor does it make a fair comparison, unless the ships compared have had identical service and identical alterations. In the case of the Connecticut and Louisiana, where the service has been the same, the balance is in favor of the government-built ship:
Connecticut Louisiana
1st year $236.97 $5,851.09
2d year 53,557.94 99,851.09
3d year 111,833.00 149,167.00
$165,627.91 $254,869.18
Comparison, however, between the Florida (Brooklyn Navy-Yard) and Utah (New York Shipbuilding Company) shows the balance the other way, but the difference in both cases is not excessive, and shows the worthlessness of any argument for or against government-built ships based on such a comparison:
Utah Florida
1st year (after date of commissioning) $14,017.74 $5.304.89
2d year 59.962.45 25,322.10
3d year 14,705.34 104,170.69
$88.685.53 $134.797.68
Difference in favor of private-built ship: $46,112.15.
From the above it will be seen that the final balance is in favor of the government-built ships by $43,129.12. However, the differences are not excessive, and for practical purposes, the result of such comparisons is as indefinite as the conclusion to be drawn from the fable of Les Trois Anneaux.