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COMMON OFFICERS OF RAILWAY AND SUPPLY COMPANIES.

THURSDAY, JULY 13, 1916.

UNITED STATES SENATE,
SUBCOMMITTEE OF THE COMMITTEE ON THE JUDICIARY,

Washington, D. C. The subcommittee of the Committee on the Judiciary having under consideration S. J. Res. 129 met in the room of the Committee on the Judiciary in the Capitol at 10 o'clock a. m.

Present: Senators Overman (chairman), Chilton, Clark of Wyoming, and Nelson.

Senator OVERMAN. This is a hearing on Senate joint resolution 129, which is as follows:

JOINT RESOLUTION Extending until October fifteenth, nineteen hundred and eighteen, the effec

tive date of section ten of the Act entitled "An Act to supplement existing laws against unlawful restraints and monopolies, and for other purposes," approved October fifteenth, nineteen hundred and fourteen.

Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That the effective date on and after which the provisions of section ten of the act entitled “An act to supplement existing laws against unlawful restraints and monopolies, and for other purposes," approved October fifteenth, nineteen hundred and fourteen, shall become and be effective is hereby deferred and extended to October fifteenth, nineteen hundred and eighteen.

I have here a letter from the firm of Dudley & Michener, transmitting a memorandum in regard to this resolution. Mr. Michener is here this morning. Do you want this to go in the record, Mr. Michener ?

Mr. Louis T. MICHENER. Yes.
(The matter referred to is here printed in full, as follows:)

(Louis T. Michener, Perry G. Michener. Dudley & Michener, counsellors at law, Pacific Building, Washington, D. C.)

JUNE 6, 1916. Hon. CHARLES A. CULBERSON,

Chairman Senate Committee on Judiciary, Washington, D. C. DEAR SIR: We represent the Philadelphia and Reading Railway Co., in support of S. J. Res. 129, and we ask leave to file the enclosed memorandum of an argument prepared by that company, which we will thank you to lay before the committee or a subcommittee, if one should be appointed.

The purpose of the resolution is to postpone the effective date of section 10 of the Clayton Act until October 15, 1918. It seems to be clear that such postponement is necessary in order to enable the railroads to adjust themselves to the provisions of that section.

The Interstate Commerce Commission will continue its hearings on the subject on the 20th instant. If your committee or its subcommittee should grant a hearing on this resolution, a representative of the Railroad Company would be glad to attend and testify: Very truly yours,

DUDLEY & MICHENER. Enc.

5

MEMORANDUM BY P. & R. RY. CO. IN RE COMPETITIVE BIDDING UNDER RULES TO BE

FORMULATED BY THE INTERSTATE COMMERCE COMMISSION UNDER SECTION 10 OF THE CLAYTON Act, WHICH SECTION IS PROPOSED TO BE EXTENDED AND MADE EFFECTIVE OCTOBER 15, 1918, UNDER S. J. Res. 129 AND H. J. Res. 217.

It is submitted that the effective date of that act should be extended to October 15, 1918.

1. A very serious objection to such rules if adopted now is that it would be impracticable to obtain emergency supplies which, in many instances, must be ordered for immediate delivery in order to prevent delay to important work. It is not always practicable, even with the best possible system of purchasing, to keep stocked up with all the varied kind of materials required by a railroad company, and the inability to order materials immediately might result in delay in the erection of engines, bridges, or buildings where such delay would entail very serious consequences.

2. In view of the great responsibility that rests upon a railroad, the quality of the materials it buys and the time of delivery are quite as important as the price, in determining the award on bids for materials or work. Our company has, as the result of years of experience, built up a list of parties from whom bids are invited for certain lines of materials or work, these parties having earned our confidence through years of mutually satisfactory dealings. When an order is given to one of these parties for materials or a contract for construction work of any kind is awarded, the company can depend on getting material or workmanship in strict accord with its specifications. If we were required to advertise, as provided in the rules proposed by the commission and to accept the lowest bid, we would frequently be compelled to deal with irresponsible parties who would either furnish low grade material or work or be unable to complete their contracts and cause serious loss and delay. For instance, a great deal of the wrought iron pipe, of which our company buys a large quantity, is purchased from one concern whose product can always be depended upon. It is difficult, from an outward examination, to tell the difference between wrought iron pipe and steel pipe, but the iron pipe is much more durable than the steel.

Accordingly, if we were compelled to deal with a party who could not be depended upon to furnish wrought-iron pipe, it is quite probable that the result of taking the lowest of a great many competitive bids would be that we would have on our hands large quantity of steel pipe which would rapidly deteriorate and result in loss out of all proportion to the difference between the bids. This is, of course, but a single illustration and the same possibility of loss from compulsory dealing with the low competitive bidder would exist with respect to most of the numerous materials which a railroad company purchases. In some instances our orders or specifications provide that material manufactured by a designated concern must be used. This is due to the fact that, after long experience, the products of the designated factory have been found to give the most satisfactory results.

3. There seems to be grave doubt whether, under the proposed rules of the commission if adopted now, it would be possible to purchase materials of such standard makes if other could be furnished more cheaply.

4. In many instances, the proposed rules if adopted now would result in increased prices to railroad companies on account of the inability to accept a bid when made. Frequently a concern that has on hand a large quantity of certain materials which they customarily furnish to a railroad company will, in order to obtain cash quickly, make a very low bid on condition that it be accepted immediately. The opportunity to secure bargain prices under such circumstances would be taken away in dealings carried on under the proposed rules. Furthermore, it frequently happens that a bidder, who has established confidential relations with the purchasing agent of a railroad company, will quote a lower price, knowing that same will be treated as confidential, than he would be willing to do in open competition where his bid would be known to all in the same line of business. There can be no doubt that the effect of the proposed rules would be greatly to increase the cost of many lines of materials and work.

5. Compliance with these proposed rules if adopted now would greatly increase the clerical work required to handle the purchasing of materials and construction contracts, and the cost of such increased clerical work, together with printing and advertising, would amount to many thousands of dollars in the course of a year's business. In these times, when railroad companies are constantly under pressure to reduce their expenses to the lowest level consistent with safety, it seems unreasonable to ask them to conduct their business in accordance with rules which would greatly increase their expenses without any corresponding advantage to themselves or to the public.

6. The foregoing brief statement of serious business objections to the proposed rules is not based in anywise on the desire of our company to evade the Clayton Act.

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