Many Years After

Just seven years ago, Bainbridge Colby, personal friend of President Wilson, invited two steel men to lunch at Washington. Mr. Colby, later Secretary of State, was then a member of the U. S. Shipping Board. At lunch he begged one guest, Charles M. Schwab, to become Director General of the U. S. Shipping Board Emergency Fleet Corporation. The other guest, Eugene G. Grace, admonished Mr. Schwab, his business associate, to refuse.

At 2 p.m. they were to see the President. As they drove to the White House, Mr. Schwab was heeding the words of Mr. Grace.

The President, confident in Mr. Colby's power of persuasion, greeted Mr. Schwab with both hands, earnestly thanked him for his acceptance of the job, praised his patriotism.

Mr. Schwab was drafted. He went back to his office, wrote a letter stating in no uncertain terms that as Director General of the Emergency Fleet Corporation he would have nothing to do with any transactions between the U. S. and any company in which he was directly or indirectly interested. He named 13 companies.

Then it was April, 1918, and the U-boats were sinking about 1,000,000 tons of Allied shipping per month--Mr. Schwab raced across the country from one shipyard to another. Tons of shipping slid completed from the ways.

Meanwhile, his own companies were making vast profits for part of which the U. S., last week, filed suit in the Federal District Court of Philadelphia for "upwards of $11,000,000." The suit attacked Mr. Schwab because he forced other companies to keep within a 10% profit, but failed to interfere with profits of his own concerns-"Bethlehem."

Other concerns signed contracts to build ships at "cost plus 10%." Most of the Bethlehem contracts were "cost plus fixed fee, plus a percentage of the savings on the estimated cost."

The U.S. claims against Bethlehem are chiefly 1) for "excessive, unreasonable and unconceivable profits" derived from fixing too high an estimated* cost and 2) for sums expended on permanent improvements to Bethlehem plants. Simultaneously, the Bethlehem companies, through the famed law firm of Cravath, Henderson & De Gersdorff, filed suit for $9,744,899.94 for sums due from the U. S.

Mr. Grace, now President of the Bethlehem Steel Corporation, from the vantage point of "I-told-you-so," issued a statement berating the Government's suit. Defending Mr. Schwab, he said:

"Bethlehem was very successful in keping down costs, and on its entire program of 86 vessels built under that form of contract it effected savings below the estimated costs aggregating about $30,000,000 of which about $16,000,000 inured to the benefit of the Government and $14,000,000 increased Bethlehem's profits.

"Insofar as has been ascertained:

"1) No other shipbuilder was successful in effecting substantial savings below estimated costs.

"2) No other shipbuilder built ships of like designs so cheaply as those that were built by Bethlehem."

*The suit pointed out that Mr. Schwab was in a position to estimate with fair accuracy the cost of ships.