Right Hon. W. L. MACKENZIE KING (Prime Minister) moved:

That the name of Mr. Maclnnis be substituted for that of Mr. Rowe (Athabaska) on the standing committee on public accounts.

Mr. A. E. MacLEAN (Prince):

Mr. Speaker, I wish to present a petition from the residents of O'Leary, Prince Edward Island, in opposition to any measure to legalize sweepstakes in Canada.

Mr. C. G. MacNEIL (Vancouver North):

Mr. Speaker, having given the notice required under the rules of the house, I wish to move, seconded by Mr. Rowe (Athabaska):

That a copy of the agreement between the government and the Montreal Construction Supply and Equipment Limited, Montreal,

War Munitions-Mr. MacNeil.

Quebec, for the machining of billets and forgings in the manufacture of shells, together with all related orders in council, documents, correspondence, minutes of the interdepartmental committee, and statements of claim, be referred to the standing committee on public accounts.

I consider it my duty very briefly to explain my reasons for requesting the reference to the standing committee on public accounts. I desire to make it very clear that I am actuated only by the conviction, which I hold very strongly, that the manufacture of armaments, or at least the primary implements of warfare, should be manufactured under national auspices. It is also my earnest desire to eliminate all forms of profiteering in the manufacture of armaments. I have had abundant evidence in recent weeks that this desire is shared by a large number of exservice men across the Dominion of Canada.

The reasons for suggesting that the house should refer this contract to the committee are found in the form and substance of the contract itself, which has been tabled in the house. It presents features very similar to those of the Bren machine gun contract, which necessitated a judicial inquiry, and which were found objectionable by many hon. members in this House of Commons.

The contract was placed by the government with the Montreal Construction Supply and Equipment Limited, Montreal, the president of which company is Mr. A. Janin. The contract was executed on November 17, 1937, and is for the machining of billets and forgings in connection with the manufacture of 20,000 quick-firing 18-pounder shell bodies, and 10,000 quick-firing 4-S-inch howitzer shell bodies. Although this contract was approved, I notice, by the interdepartmental committee, it was awarded on the basis of selection and not on the basis of competitive bids. I refer to the answer given by the Minister of National Defence (Mr. Mackenzie) as it appears at page 627 of Hansard for February 3, 1939. According to that answer, this is the only contract which has been placed for the manufacture of shells in Canada, in Great Britain or any other country. In his answer the minister indicates that deliveries have not yet been made.

I believe the onus rests upon the government to explain fully, either in the house or before the public accounts committee, just what was involved in the negotiations leading up to the execution of this contract. I would remind the house that the government of Canada was committed at Geneva to a policy of the public manufacture of armaments, and on former occasions the Prime Minister (Mr. Mackenzie King) and the Minister of National Defence assured the house they would

endeavour to follow such a policy. They also stated that the next best alternative would be manufacture on the basis of competition, under a suitable regulation of profits.

I ask the government to explain, either now or before the committee, why in the giving of this contract there has been such a marked deviation from a policy enunciated in the house and accepted by hon. members in good faith. I ask that, and propose that the committee should examine why the contract was awarded to this particular company.

I find, on reference to a directory issued by the Engineering Institute of Canada, that it is not listed as one of the companies in possession of facilities for the manufacture of products of this kind. Other companies are listed, and it is made abundantly clear that they have such facilities. I refer, at random, to companies included in the directory-five, for instance, named by the interdepartmental committee, with reference to the Bren gun, and companies such as Canadian Vickers, Limited; Montreal Locomotive Works, Limited; Ingersoll-Rand Company, Limited; Allis Chalmers Company; Dominion Engineering Works, Limited; Canadian Locomotive Company; Canadian Car and Foundry Company, Limited, and many others. These companies are established and actually in possession of the machine shop facilities required for the manufacturing or machining of the billets and forgings used in the manufacture of shell bodies.

I say that the committee should scrutinize closely the reasons why this construction company, a company interested mainly in the construction of buildings, with a machine shop which I understand is used chiefly for the overhauling of equipment used in construction, should be selected for this contract.

I think the committee should find out to what extent the public interests were safeguarded when the responsibility was assumed by the department or by the interdepartmental committee for the selection in this way of a favoured contractor. The committee should examine carefully the terms of the contract itself.

Under the provisions of the contract the government, the party of the first part, has undertaken to supply free of charge to this company, Montreal Construction Supply and Equipment Limited, all billets cut to length, forgings, base plates and driving band rings, special paint and varnish, and packages and boxes required for the said shells. These are all provided without charge. I believe the onus rests upon the government to explain to the committee or to the house from what source the billets and forgings will be ob-

War Munitions-Mr. MacNeil.

tained and if in that connection other contracts have been awarded. If other contracts have been awarded, we should be told upon what basis.

In another clause of the contract provision is made whereby the government shall supply such machinery as is set out in exhibit B of the contract, together with any additional machinery as may in the opinion of the said party of the first part be considered desirable. Referring to exhibit B, I find listed therein the type of machinery that one would expect to find in any well-equipped machine shop, and particularly the shops of those companies to which I have referred. There are listed heavy duty turning lathes, heavy duty boring lathes, ordinary lathes, rivetting machines, production drills, shaping and milling machines, universal tool and cutter grinder, and so on. Such machines are in common use in all well equipped machine shops. The question immediately arises: If the government already had any such equipment, why was it not used for government manufacture in connection with this order?

I believe there will be a responsibility upon the committee to examine closely the cost clauses of this contract, particularly in view of the answer given by the minister on February 3. At that time he said:

The contract was placed on a cost-plus basis at an upset manufacturing cost of $4 per shell for 20,000 shells, quick-firing, 18-pdr. high explosive, and $6.75 for 10,000 shells quickfiring, 4-5" Howitzer high explosive.

Clause 4 of the contract states:

The price to be paid by the party of the first part for the machining of the said billets and forgings shall be as follows:

(a) The cost of electric current necessary for proper and healthy lighting of the shop, offices, corridors, lavatories, men's rooms and yard, which is hereby fixed in the sum of $1,270 per annum, commencing March 15th, 1938.

(b) The cost of providing comfortable heat in cold weather, which is hereby fixed in the sum of $1,067 per annum, commencing March 15th, 1938.

(c) The proportionate amount of all taxes, business, real estate and special, other than income tax, which amount is hereby fixed in the sum of $900 per annum, commencing March 15th, 1938.

(d) The cost of the water supply in shop, yard, offices, men's rooms and lavatories, which is hereby fixed in the amount of $100 per annum, commencing March 15th, 1938.

(e) The cost of maintenance and repair of railway siding, hereby fixed in the amount of $300 per annum, commencing March 15th, 1938.

(f) The cost of power supplied from the machine shop of the party of the second part for the ammunition ship compressor, in the maximum of 50 h.p., fixed in an amount at $1,500 per annum, the party of the first part hereby agreeing that any power in excess of

that herein mentioned which may be required shall be paid by it on a meter basis, commencing March 15th, 1938.

(g) . The cost of four telephone connections and signal system from office to shop, fixed in an amount of $360 per annum, commencing March 15th, 1938.

(gg) The cost of maintaining railway siding yard, roof and entrances clear of snow during winter, fixed in an amount of $1,200 per annum, commencing March 15th, 1938.

(h) The cost of premiums in respect of fire and riot insurance on buildings, on shops, and of a night patrol, fixed in an amount of $1,200 per annum, commencing March 15th, 1938.

And also the cost of rentals, depreciation on buildings, heating and plumbing, repairs, administration charges, assessments or payments made to the province of Quebec under the workmen's compensation act, and any expenses incurred in or imposed by the observance of provincial or dominion labour legislation. The contract then goes on to say:

(m) Subject to the provisions of clause (o) of this section, the wages and salaries to be paid, with the prior written approval of the party of the first part, for labour employed directly on-

The various types of labour required are then enumerated. Then the next paragraph reads:

(n) Ten per centum (10 per cent) of the amount of wages and salaries paid for labour as mentioned in clause (m) of this section.

The next section then deals with restrictions. I would direct the attention of the house to the fact that although this section specifies S4 for the 18-pounder and $6.75 for the 4-5 inch howitzer shell bodies, it refers exclusively to the wages and salaries to be paid. The $4 and $6.75 mentioned as the upset manufacturing prices are somewhat misleading, as it is impossible, in the absence of comparative prices, to estimate what will be the cost of these shells. In addition to the wages and salaries paid in connection with their manufacture, there must be added the cost of the material and other overhead charges, as mentioned in the contract, and to which I have referred.

I think it rests upon the government to explain why there has been delay in connection with the delivery of these shells. The contract states that delivery must begin, in one instance, within nine months of the date of the installation of the machines and commencement of the machining of the shell bodies, and, in the other instance, the 4-5 inch shells, within twelve months. The items of cost have been fixed and are stated in the contract as beginning on March 15, 1938. Almost an entire year had elapsed on February 3 when the minister indicated that no deliveries had been made. Upon computing

War Munitions-Mr. MacNeil.

the charges which are fixed, and which the minister can best explain, I find that the government of Canada apparently is now liable to pay approximately $12,000 in this connection.

Mr. MACKENZIE (Vancouver):

Absolutely incorrect.

Mr. MacNEIL:

I have totalled the charges for electrical current, heating, taxes, water supply, maintenance and repair of railway siding, telephones, snow clearance, insurance premiums, rentals, depreciation and administration charges, all of which were to begin on March 15, 1938, and I find they total $12,209. I make it that that is approximately 8-27 per cent of the total maximum cost of labour, plus ten per cent. In addition we must take into consideration the expenses under the workmen's compensation act and other dominion and provincial labour legislation, the cost of the material used by the company which is to be furnished free by the government, the cost of wages and salaries-for only wages are fixed by the schedule-and ten per cent of such wages and salaries.

As I say, no deliveries have been made. As I read the contract the government is under an obligation to pay ninety per cent of the costs so stipulated, upon presentation of a claim by the company. I think the minister should take this opportunity to offer to the house an explanation as to the rumour which is in circulation that there is some dispute with regard to this matter, which accounts for the serious delay in delivery.

I refer also to section 9 of the contract which states:

The party of the second party hereby agrees that the machining of said billets and forgings into shell bodies shall commence immediately following the complete installation of all necessary machinery tools, dies and equipment, and that delivery of said shell bodies shall be made as follows-

In the case of the 4-5 inch, within nine months, and in the case of the 18-pounder, within twelve months.

It is not necessary perhaps at this stage to go into further details with regard to this contract, but I think I have indicated why it should be thoroughly examined by the public accounts committee.

There is one other point that occurs to me upon an examination of this contract and other mntracts awarded under the auspices of the Department of National Defence. In view of the fact that they are adopting a policy of assisting in the equipment of these plants -for after all in this particular contract the government has agreed to pay the costs of

installation, the costs of conversion of equipment loan, the cost of transportation of equipment and the cost of additional equipment that may be required-I think the government should explain why they are establishing a virtual monopoly among favoured contractors for the manufacture of armaments in Canada. To pursue such a policy means, I contend, the establishment of a virtual monopoly; for it is to be assumed and expected that the government will be strongly influenced to place further orders with companies which have been established in this way.

I wish it understood that I am fully aware of the fact that Mr. Janin, the president of this company, is an engineer of repute. There is no question about his professional standing, but there is no evidence yet produced to show that at the time of the execution of this contract he was in command of the necessary facilities to manufacture the munitions in question.

It is also known that Mr. Janin is a staunch supporter of the Liberal party. I have no objection to his political convictions, but I contend that that in itself is not sufficient justification for placing a vital contract with regard to defence with a favoured contractor. I submit, Mr. Speaker, in view of the seriousness of the situation, that contracts particularly of the Department of National Defence should be placed with regard only to the national interest and without regard to considerations of political advantage.

Hon. IAN MACKENZIE (Minister of National Defence):

Mr. Speaker, I accept with the utmost pleasure the resolution moved by the hon. member for Vancouver North (Mr. MacNeil) to have this contract referred to the standing committee on public accounts. All hon. members of the house who were here a year ago will recall that on two different occasions I offered to have all contracts of the national defence department referred to this same standing committee. If the only desire of the hon. member for Vancouver North had been to have a fair investigation and examination of this contract all he had to do was to indicate this to the committee or to the minister. But he was absolutely compelled in the interests of propaganda and for the sake of creating distrust in the country to make this matter the subject of a debate in the house.

I should like, Mr. Speaker, to leave with the house very briefly the essential details of this contract, and in giving the reasons for the contract I should like, with the permission of the house, to lay upon the table two documents from which I am going to quote:

War Munitions-Mr. Mackenzie (Vancouver)

first, a report made by the then master general of the ordnance to the deputy minister, and thence to myself, on October 4, 1937, which gives comprehensive reasons why this particular contract should be effected; and second, the recommendation to council which was signed by myself on November 1, 1937. As I shall quote from these documents I should like, under the rules of the house, to lay them on the table, and I am sure that my hon. friend the leader of the opposition (Mr. Manion) and any other fair-minded member of the house upon reading them will be convinced that this contract is definitely in the public interest.

May I first quote three brief paragraphs from the recommendation to council:

The method of acquiring such a plant has been the subject of careful consideration as it is realized that in an emergency very large quantities of shell of different types would be required with the least possible delay. In order to develop the industry of shell-making in Canada, orders have been placed for shell steel and other raw materials required in the manufacture of shell, and deliveries are now being made.

My second reference is this. I quote again from the recommendation to council:

A practice of the war office in connection with such types of plants is to provide special machines required for machining operations and to install the machinery in the plant of a selected firm for operation.

We in this case, Mr. Speaker, followed exactly the practice of the British war office, but evidently that is not good enough for our critics at this time. I quote further:

After full consideration, it has been suggested by the technical officials of the department that the war office practice be followed and that the Department of National Defence purchase the machines necessary for the manufacture of steel billets and forgings into shell bodies, and install the machinery in a plant suitably located for use as a model and auxiliary plant in close proximity to the source of supply of raw material and having available satisfactory transport facilities by road, rail and water, and located in a district where ample skilled labour of the type required is available.

My last quotation from the recommendation to council is this:

A proposal submitted by Montreal Construction, Supply and Equipment Limited, to operate such a plant on a cost plus basis in accordance with the provisions set out in the draft agreement attached hereto, has been considered fair and reasonable by the interdepartmental committee on the control of profits on government armament contracts.

We had the reasons there for taking this step; and we had the safeguarding supervision of a very eminent body of the ablest civil servants in the Dominion of Canada.

Mr. MANION:

May I ask my hon. friend a question? I know nothing about this matter except what I have learned in the last hour or two, but may I ask, did the interdepartmental committee recommend Montreal Construction Company for this contract?

Mr. MACKENZIE (Vancouver):

What

probably happened was this, that the suggested agreement with the Montreal Construction Company was referred to the interdepartmental committee, and they referred it back with a recommendation as being a fair and reasonable contract.

Mr. MANION:

If I may ask a further question, did any other companies submit a form of agreement such as this which was later submitted to the interdepartmental committee?

Mr. MACKENZIE (Vancouver):

There

were two other companies investigated by the departmental officials from the point of view of contiguity to supervision by the superintendent of the dominion arsenal at Quebec, but the propositions they advanced were not considered satisfactory, while this one from Montreal was considered financially and in every other way satisfactory to the department.

As I do not want to detain the house I shall now summarize the various points.

Mr. COLDWELL:

Satisfactory to the Department of National Defence, or to the interdepartmental committee?

Mr. MACKENZIE (Vancouver):

To the officials of the department from the point of view of the preliminary proposals made. I do not think they had the necessary facilities to justify a report being made to the interdepartmental committee.

Mr. COLDWELL:

There was no representation or report from the interdepartmental committee to the government on this contract?

Mr. MACKENZIE (Vancouver):