Cost-Plus Contract System

The Cost-Plus Contract System reimbursed a contractor for project expenses and added a fixed-percentage profit. During the rapid wartime expansion of military construction, Harry S. Truman found that the arrangement could leave the government paying for waste while assuring contractors a profit. His inspections and committee investigations brought the system’s incentives, costs, and oversight failures into public view.

How the System Worked

Under cost-plus contracts, the government paid the contractor’s costs and a fixed percentage on top. Truman’s investigation found that officials had not consistently asked contractors what they had earned in peacetime or what fee they would accept. Instead, the government offered large fixed fees, while contractors faced little financial risk. Because the profit was tied to costs, the arrangement could reward expenditure rather than thrift.

The resulting gains could be striking. Some contractors made in a few months three or four times what they ordinarily cleared in a year. One architect-engineer increased his income through an Army contract by 1,000 percent. The findings made the problem more than a matter of bad bookkeeping: the contract structure itself could turn hurried public spending into unusually lucrative, low-risk business.

Waste in the Defense Build-Up

Truman’s concern grew from what he saw on inspection. At Fort Leonard Wood, costly equipment and supplies lay exposed to snow and rain, some of it unusable or never needed. Hundreds of men stood idle while collecting pay, and one contractor had no previous construction experience. Truman took notes as he walked the sites and spoke with people, usually without identifying himself unless asked.

The committee’s wider inspection tour revealed construction costs far beyond estimates. At Indiantown Gap in Pennsylvania, a camp cost more than ten times its original estimate. Camp Wallace in Texas, initially expected to cost $480,000, ultimately cost $2,539,000. The Army had also failed to use a previous study of camp construction, despite the waste and inefficiency that had followed the last war. Truman reported that if military campaign planning matched the construction effort, the situation would be deplorable.

Not every wasteful practice identified on the tour was itself a cost-plus contract. The committee estimated that renting trucks and other construction equipment instead of buying it at the outset had wasted $13 million. Such findings formed part of the broader case that hurried defense procurement lacked adequate economy and planning; the cost-plus arrangement was the central contracting problem, not a label for every overrun.

Investigation and Resistance

Truman first raised his findings with Franklin D. Roosevelt, who received him warmly, but the cordial meeting left Truman unsure whether he had made an impression. He resolved to put the matter before the Senate and spent weeks preparing a speech, consulting senators, friends, and staff. He told William Helm that greed among large businesses, and some labor unions, was among the things he found wrong with the defense effort.

The committee then pursued the issue through camp inspections and hearings. Brehon B. Somervell, a senior Army supply official known for efficiency, objected to the committee as politically motivated and argued that time and money could not both be saved. His resistance did not deter Truman. The contrast sharpened the institutional stakes: military officials faced pressure to build quickly, while the committee investigated whether that urgency was being used to excuse excessive costs.

Oversight and Civilian Authority

For Truman, scrutiny of procurement belonged to a larger question about who controlled the wartime effort. In the first six months of 1942, military contracts added $400 billion to the economy, and he worried that military leaders were gaining influence over industry and agriculture. He argued that civilian authority had to remain responsible for the shape of the war effort, while generals and admirals should specify what they needed to fight.

The Cost-Plus Contract System therefore mattered both as a way of paying for construction and as a test of public accountability during mobilization. Its fixed-percentage fees could insulate contractors from the consequences of rising costs; its scale made careful oversight urgent. Truman’s investigations documented concrete failures and challenged the assumption that haste alone justified the terms. The evidence here establishes the system as a focus of sustained scrutiny, but does not show that the investigations ended its use.