Cost-plus contracts

Cost-plus contracts reimbursed contractors for their costs and added a fixed percentage profit, a structure that Harry S. Truman’s wartime investigations found could reward expensive, poorly controlled construction. In the rush to build military camps, he saw the arrangement not as a technical detail but as a way public money could be squandered while oversight gave way to urgency.

How the contracts worked

Much of the camp construction Truman examined was performed on a cost-plus basis: the government paid the contractor’s costs, then added a fixed percentage as profit. Because the fee rose with the costs being reimbursed, the arrangement could act as an open-ended invitation to excessive spending. Truman objected that officials had not asked what contractors ordinarily earned in peacetime or what they would be willing to accept for the work. Instead, some received large fixed fees, while bearing little risk if costs climbed.

The issue belonged to a broader pattern of hurried defense expansion. Truman found costly materials and equipment left exposed to snow and rain at Fort Leonard Wood, where they were deteriorating despite never being needed. A contractor without prior construction experience had been hired, and hundreds of men stood idle while drawing pay. He also worried that a large share of defense work was going to a small group of major corporations, mostly in the East, while ordinary safeguards in government transactions were being set aside.

Findings from the inspection tour

The Senate committee’s inspection tour made the scale of construction overruns tangible. Beginning at Camp Meade on April 23, 1941, it visited nine camps across the country. At Indiantown Gap in Pennsylvania, construction had cost more than ten times the original estimate. Camp Wallace in Texas, initially expected to cost $480,000, ended up costing $2,539,000. The committee also found poor judgment in the selection of some camp sites and estimated that renting trucks and other construction equipment, rather than buying it at the outset, had wasted $13 million.

The cost-plus system was central to the committee’s explanation of why public spending could balloon without a corresponding increase in value. Some contractors earned in a few months three or four times what they normally cleared in a year, without taking comparable risks. One architect-engineer increased his income through an Army contract by 1,000 percent. The committee also learned that the Army’s earlier study of camp-construction waste, prepared after the previous war, had been lost. For Truman, that disappearance made the problem more than a matter of individual bad bargains: the government had failed to preserve and use its own lessons about how to prevent waste.

Investigation and resistance

Before taking his concerns to the Senate, Truman sought to alert Franklin D. Roosevelt. The President received him warmly in the White House and spoke with him for half an hour, but Truman left unsure whether the meeting had made any impression. He decided to present the matter to the Senate and spent weeks preparing a speech, consulting other senators and soliciting advice from friends and staff. He described himself as outraged by greed among both large businesses and some labor unions, and insisted that too much was wrong with the defense effort to leave unchallenged.

The committee’s inquiry began with senior military and civilian officials appearing on April 15, 1941. Truman came to respect George C. Marshall after the Army chief of staff spoke about the importance of selective promotion. The committee’s scrutiny of construction contracts, however, drew sharp resistance from Lieutenant General Brehon B. Somervell, the efficient but hot-tempered head of the Services of Supply. Somervell accused the committee of having been formed for political purposes and argued that time and money could not both be saved. Matthew Connelly, the committee’s chief investigator, later recalled that Somervell resented interference, but that this did not deter Truman: the senator continued the investigation.

Significance in the book

Cost-plus contracts illustrate the tension between rapid mobilization and public accountability in the defense buildup. The system offered a way to undertake extensive construction quickly, but the committee’s evidence showed how reimbursement plus a percentage fee could weaken incentives to control costs. Truman’s response was to inspect projects, document specific failures, and press for congressional scrutiny even when military officials objected. The controversy thus established the cost-plus arrangement as a concrete test of whether wartime urgency would excuse waste or remain subject to oversight.