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Published online by Cambridge University Press: 13 December 2011
During the Second World War leading belligerents such as Britain, the United States, and Germany, favored the use of fixed-price contracts for purchasing military aircraft. These contracts were believed to encourage economical and efficient production. Yet only Britain succeeded in developing contractual procedures based primarily upon the fixed price. This article examines the evolution of British contractual policy in the later 1930s, drawing upon both corporate and official records to explain why Britain succeeded where both America and Germany failed. Efforts to develop the fixed-price system in Britain were initially frustrated by the technological revolution which transformed aviation during the 1930s. Moreover, divided opinions within both the government and the aircraft industry helped prevent the emergence of a coherent contractual policy. By 1939, however, British aircraft manufacturers were unanimous in their support for fixed-price contracts.
1 In the historiography of British industrial decline the following texts assign a key role to die state: Gamble, Andrew, Britain in Decline: Economic Policy, Political Strategy and the British State (London, 1985)Google Scholar; Pollard, Sidney, The Wasting of the British Economy (London, 1984)Google Scholar; Newton, Scott and Porter, Dilwyn, Modernization Frustrated: The Politics of Industrial Decline in Britain since 1900 (London, 1988).Google Scholar
2 Hall, P. A., “The State and Economic Decline,” in The Decline of the British Economy, ed. Elbaum, Bernard and Lazonick, William (Oxford, 1987), 273.Google Scholar
3 Overy, R. J., The Air War, 1939–1945 (New York, 1981), 232.Google Scholar
4 Ashworth, W., Contracts and Finance (London, 1953), 66Google Scholar; Holley, I. B. Jr, Buying Aircraft: Materiel Procurement for the Army Air Forces (Washington, D.C., 1965), 82.Google Scholar
5 Ashworth, Contracts and Finance, 37. The term “commercial” here denotes contracts between the state and private companies who provided fixed and working capital for production in return for a profit. The main alternative form of remuneration was the agency agreement, under which contractors were paid a management fee while die state provided both fixed and working capital for production.
6 Holley, Buying Aircraft, 334–5.
7 Ibid., 415.
8 Overy, R. J., War and Economy in the Third Reich (Oxford, 1994), 348–9, 357–8.CrossRefGoogle Scholar
9 The most thorough accounts are: W. Ashworth, Contracts and Finance, and Shay, Robert Paul Jr, British Rearmament in the Thirties: Politics and Profits (Princeton, N.J., 1977)Google Scholar; see also Peden, G. C., British Rearmament and the Treasury: 1932–1939 (Edinburgh, 1979)Google Scholar; Cross, J. A., Lord Swinton (London, 1982).Google Scholar
10 Holley, Buying Aircraft, 332–4.
11 The Handley Page archive (hereafter cited as “AC”) is located at the Royal Air Force Museum in Hendon, London. The Vickers archive (hereafter cited as “Vickers”) is located at Cambridge University Library. The Hawker-Siddeley archive is located at Slough. Permission to reproduce material from the Vickers archive is gratefully acknowledged by the author.
12 Freudenthal, E. E., “The Aviation Business in the 1930's,” reprinted in The History of the American Aircraft Industry: An Anthology, ed. Simonson, G. R. (Cambridge, Mass., 1968), 87.Google Scholar
13 Secretary of the Air Ministry to US of S, 31 May 1933, Sir Christopher Bullock papers, RAF Museum, Hendon.
14 Memorandum by McLean, 29 Oct. 1928; memorandum by Messrs. Deloitte, Plender, and Griffiths (Vickers' accountants), Aug. 1928, Vickers K757.
15 Freudenthal, “The Aviation Business,” 89.
16 Statistical Digest of the War (London, 1951), table 130, 152; UK Census of Production, 1935; J.B. Rae, Climb to Greatness: the American Aircraft Industry, 1920–60 (Cambridge, Mass., 1968), 80. A total of 1,807 airframes was produced in Britain in 1935, of which the Air Ministry purchased 893.
17 Blackburn board minutes, 18 July 1935, Hawker Siddeley Archive.
18 On the American industry, see Simonson, American Aircraft Industry, 84–5; Rae, Climb to Greatness, 84—8.
19 These differences are illustrated by the fact that while Air Ministry airframe contracts were distributed to 14 firms, 78 percent of all British military aircraft built between January 1933 and December 1935 were produced by Vickers, A.V. Roe, or Hawker, or were designed by Hawker and subcontracted to other firms. See aircraft delivery charts, Public Record Office, London (hereafter cited as PRO) AIR 19/524. Moreover, the market for private aircraft was dominated by just one company, de Havilland.
20 Holley, Buying Aircraft, 274; Rae, Climb to Greatness, 78.
21 Shay, British Rearmament, 105–8.
22 Air Ministry and Ministry of Aircraft Production price books, RAF Museum Archive.
23 Holley, Buying Aircraft, 332–4.
24 Note on factory extensions by Sir Robertl McLean, 11 Feb. 1935, Vickers 1392.
25 Managing director to works manager, design engineer and production engineer, 1 Aug. 1935, AC 70/10/159; note by Sir Robert McLean, 11 Feb. 1935, Vickers 1392; The Statist: A Journal of Practical Finance and Trade (6 April 1935).
26 The Statist (28 Dec. 1935).
27 In Germany funds for expansion were provided principally by the Air Ministry directly or through bank credits guaranteed by the Air Ministry, while in the United States the aircraft industry was the beneficiary of $72 million provided by Britain and France between 1938 and 1940, before the American government itself began to invest directly in the industry. See United States Strategic Bombing Survey (USSBS), Report 4, Aircraft Division Industry Report; Holley, Buying Aircraft, 294–9.
28 Ashworth, Contracts and Finance, 200; Handley Page to Fairey, 15 Nov. 1935, AC 70/10/54.
29 Holley, Buying Aircraft, 285, 334–5.
30 Memorandum by Director of Contracts, 4 June 1935, Lord Weir Papers, Churchill College, Cambridge (hereafter cited as “Weir”), 19/16.
31 Reader, W. J., Architect of Air Power: The Life of the First Viscount Weir of East-wood, 1877–1959 (London, 1968), 215Google Scholar; meeting of the SBAC council, 8 Oct. 1935, AC 70/10/54.
32 Scheme C, the plan for 1935–37, envisaged an average annual output of 1,900 largely obsolescent aircraft. Under Scheme F average annual output was to increase to 2,667 aircraft, the majority of which were of modern design.
33 Handley Page to Fairey, 15 Nov. 1935, AC 70/10/54.
34 Allen to McLean, 29 Nov. 1935; Handley Page to McLean, 31 March 1936, AC 70/10/54.
35 Note by McLean of a meeting with Sir Hardman Lever, 30 March 1936; McLean to Handley Page, 30 March 1936; Allen to Handley Page, 27 Feb. 1936; Allen to McLean, 2 April 1936, AC 70/10/54.
36 Meeting between the Air Ministry and McLintock, 20 May 1936, PRO AIR 6/45.
37 Report by McLintock, 27 May 1936, AC 70/10/54.
38 McLintock to Swinton, 4 Aug. 1936, PRO AIR 2/9165.
39 Shay, British Rearmament, 121–2.
40 Holley, Buying Aircraft, 82–3.
41 Overy, War and Economy, 348–9.
42 Ashworth, Contracts and Finance, 117.
43 Meeting between the SBAC and McLintock, 16 June 1936; note by McLean of a meeting with Sir Hardman Lever, 30 June 1936, AC 70/10/54.
44 Handley Page to McLean, 31 March 1936, AC 70/10/54.
45 Report by McLintock to the SBAC, 28 Sept. 1936, PRO AIR 2/9165.
46 Shay, British Rearmament, 121–4.
47 Ibid., 123.
48 Handley Page to the SBAC, 18 Nov. 1937, AC 70/10/54; Ashworth, Contracts and Finance, 118.
49 Note by Self, 31 Jan. 1938, PRO AIR 2/9165.
50 Meeting between the Air Ministry and the SBAC, 17 Jan. 1938; Allen to Handley Page, 25 Jan. 1938, AC 70/10/54.
51 Meeting between Deputy Under-Secretary (DUS), Contracts, Accounting and Technical Cost staff, 1 Nov. 1937, PRO AVIA 10/241.
52 Meeting between Self, Contracts, Accounting and Technical Cost staff, 1 Nov. 1937, PRO AVIA 10/241.
53 Gregg (Inland Revenue) to Gilbert (Treasury), 1 Dec. 1938, PRO T 161/922 S40730/04.
54 Reid-Young (Vickers) to the Secretary of the Air Ministry, 18 May 1938, Viekers 324.
55 Sir Donald Banks (Air Ministry Permanent Secretary) to Self, 15 Jan. 1938, PRO AVIA 10/242.
56 Reid-Young (Vickers) to the Secretary of the Air Ministry, 18 May 1938, Vickers 324.
57 DDC (2) to PDDC, 17 Oct. 1938, PRO AIR 2/2572.
58 Boddis (Supermarine) to Yapp (Vickers-Armstrong), 7 Nov. 1938, Vickers 339.
59 Memorandum by Self, Oct. 1937, PRO AVIA 10/241.
60 Calculated from Air Ministry and Ministry of Aircraft Production price books, Royal Air Force Museum, Hendon; statement of Hampden costs, Handley Page to Secretary, 20 Dec. 1940, AC 70/10/139.
61 Ashworth, Contracts and Finance, 118. The size of the technical costing staff grew from 10 in 1934 to 74 by February 1938.
62 Ernest Hives (Rolls-Royce general works manager) to Rolls-Royce board, 25 Oct. 1937, Rolls-Royce archive, Derby, Hives file, “Policy.”
63 Statement of aircraft prices, prepared by Deputy Director of Contracts, 12 April 1938, PRO AVIA 10/241; Ashworth, Contracts and Finance, 118.
64 Overy, War and Economy, 357–8; USSBS report 4, 86.
65 Rae, Climb to Greatness, 121; Holley, Buying Aircraft, 410–15.
66 For a detailed discussion of the Treasury's role see Ashworth, Contracts and Finance, chaps. 2 and 3.
67 Shay, British Rearmament, 121–5.
68 Note by the Air Ministry's Directorate of Contracts (flagged at lE), 11 April 1938, PRO AIR 2/9167.
69 Shay, British Rearmament, 125.
70 Director of Aircraft Production to Air Member for Supply and Organization, 11 May 1936, 27 Aug. 1937, PRO AIR 2/1790.
71 Shay, British Rearmament, 116.
72 “Note on Aircraft Contracts,” by Messrs. Deloitte, Plender, Griffiths and Co., Chartered Accountants, 23 Jan. 1939, PRO AIR 2/9167.
73 Handley Page Ltd. annual accounts, 31 Dec. 1938, Handley Page archive.
74 Lloyd, Ian, Rolls-Royce: The Years of Endeavour (London, 1978), table 11, 231CrossRefGoogle Scholar; The Statist, 25 June 1938.
75 Hawker Aircraft Ltd. annual accounts, 31 March 1936 and 31 March 1938, Hawker-Siddeley Archive, Slough. Accounts for 1937 have been lost.
76 Identified Board Documents, 1936–38, Vickers 315; report and annual accounts to 31 Dec. 1936, Vickers 1798; report and annual accounts to 31 Dec. 1937, Vickers 1799; Vickers Ltd. minute book of board meetings, 1935–37, Vickers 1371.
77 Statement of capital expenditure prepared by the Air Ministry for the Treasury, 28 Feb. 1938, PRO T 161/1323/S40700/42.
78 Gregg to Gilbert, 1 Dec. 1938, PRO T 161/922/S40730/04.
79 See pages 86–87 above.
80 Handley Page to McLintock, 28 March 1939, AC 70/10/54.
81 H.A.P. Disney to Lord Weir, 2 July 1937, Weir 19/1.
82 Shay, British Rearmament, 250.
83 Calculated from chart showing labor position, Jan. 1936 to April 1940, PRO AVIA 12/194; Statistical Digest of the War, table 131, 153. The labor force increased from 65,000 to 130,000; output, in structural weight, increased from 9.82m. lb to 28.9m. lb.
84 Ashworth, Contracts and Finance, 87; Hornby, W., Factories and Plant (London, 1958), 196.Google Scholar There is no comprehensive survey of the distribution of state and private capital in the rearmament years, but in 1941 state capital accounted for only 12.9 percent of the capital employed in manufacturing the products of eight leading aircraft firms. See statement by the Ministry of Aircraft Production of capital employed by the aircraft industry, 12 June 1941, PRO AVIA 10/253.
85 Report by Messrs. Deloitte, Plender, Griffiths and Co., Chartered Accountants, 23 Jan. 1939, PRO AIR 2/9167.
86 Memorandum by Self, 26 Jan. 1939; note by Principal Deputy Director of Contracts, 28 Feb. 1939, PRO AIR 2/9167.
87 Shay, British Rearmament, 254–7.
88 Treasury Committee on Contract Procedure: Interim Report on Aircraft Contracts, 10 March 1939, PRO T 161/1189/S.46398. The report stated: “We requested the Air Ministry representatives to outline a revised basis of contract which, in their opinion, would meet the circumstances of today.”
89 Memorandum by the Air Ministry, 1 March 1939, AC 70/10/54; meeting between the Air Ministry and the SBAC, 1 March 1939, PRO AIR 2/9168.
90 Rae, Climb to Greatness, 78. The Vinson-Trammell Act of 1934 restricted profits on U.S. naval aircraft contracts to 12 percent of cost; the McLintock profit allowance varied between 7 and 10 percent, although by reducing their costs contractors often earned more than this in practice.
91 Memorandum initialled EAE/BMH, 1 March 1939; Handley Page to McLintock, 28 March 1939; meeting between McLintock and the SBAC, 29 March 1939, AC 70/10/54.
92 Notes of a meeting at the Air Ministry, 13 April 1939, PRO T 161/1189/S.46398.
93 Dunbar to Self, 17 March 1939, Vickers 389. “Agency” agreements were already in use in government-owned factories managed by automobile companies.
94 Record of a meeting between Sir Frank Spriggs and W. L. Scott, 18 March 1941, PRO AVIA 10/253; Ashworth, Contracts and Finance, 84–5.
95 Note of a discussion between the SBAC and the Treasury Committee on Contract Procedure, 1 March 1939; Treasury Committee on Contract Procedure: Interim Report on Aircraft Contracts, 10 March 1939; memorandum entitled “Aircraft Contracts: formula to be applied by way of variation of the McLintock Agreement,” 17 April 1939; second McLintock Agreement, July 1939, PRO T 161/1189/S.46398.
96 Street to McLintock, 18 April 1939; Kingsley Wood to Bruce-Gardner, 12 June 1936; Bruce-Gardner to Handley Page, 12 June 1936; note of a meeting between the SBAC and the Air Ministry, 14 June 1939, AC 70/10/54.
97 Ashworth, Contracts and Finance, 84.
98 Meeting of the SBAC, 21 June 1939; meetings between the SBAC and the Air Ministry, 6 and 7 July 1939, AC 70/10/54.
99 Statement by the Ministry of Aircraft Production of profits in relation to capital employed in 1941, PRO AVIA 15/1040.
100 Scott (Deputy Secretary) to Permanent Secretary of the Ministry of Aircraft Production, 30 Dec. 1940, PRO AVIA 15/1040.
101 Ashworth, Contracts and Finance, 91–2, 120; Public Accounts Committee, Second Report (London, 1944), appendix 15. The industry earned substantially more in 1944 because of improvements in productivity and the increasing ratio of state to private capital.
