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"Naval Administration", by Sir Vesey Hamilton, G.C.B. (1896)



CHAPTER VIII.

THE DIRECTOR OF NAVY CONTRACTS.

The reader will have seen in the foregoing chapters that, save in regard to the hulls and machinery of ships, and, I may add, the chief requirements of the Director of Works, the heads of the Civil Departments of the Admiralty are not purchasing officers. The work of contract and purchase, except as specified, rests with the Director of Navy Contracts, who is under the Financial Secretary generally, and is also supervised to a limited extent by the Lords for whose Departments purchases are made. The new system dates from the re-organization of 1868-69, when the purchasing powers of the executive officers at the Admiralty were transferred to a newly-created Contract and Purchase Department, which was also charged with the sale of old and obsolete stores. Before that time the Storekeeper-General had bought for the dockyards, the Controller of Victualling for the fleet, the Medical Director-General for the Medical Department, and the Controller of the Coastguard for the Coastguard Service; but, at the time I speak of, the whole of these duties were concentrated in the new Purchase Department, supervised as above indicated, the executive head of the Department being the Superintendent of Contracts, whose title was afterwards changed to that of Director. The new system was found generally to work well. When a very large amount of stores was required for the re-victualling of Paris, 2,500 tons of food were despatched from Deptford and the two other yards in three days, without the slightest detriment to the naval service, the stocks being made up with the greatest facility through the working of the new Department; and an officer of the Department was borrowed by the Lord Mayor, and despatched to Paris to supervise arrangements.

It is not necessary to enter here into many arguments that have been raised as to the system of contract and purchase. The practice is that the head of any Department requiring stores, naval, victualling, medical, or other, makes a demand for them to the Director of Contracts, who determines in what manner the same shall be obtained. On July 30th, 1883, the Board of Admiralty laid down a "general scheme for the purchase and sale of stores" for the guidance of the Director of the Contract Department and his officers, and the course then indicated is followed at the present time. The broad principle was that supplies should be obtained by public lender called for by advertisement; but, recognizing that this was not always a practicable procedure, the Admiralty indicated four courses as open. Advertised public tender was to be resorted to in regard to stores of a general character largely produced as ordinary articles of trade. Where articles were dealt in by a few well-known firms, or it was necessary to place the quality beyond dispute, or where quantities and value were small, tenders were to be sought by limited competition among selected firms. Patented articles or stores of small value might be purchased direct from first-class firms. Articles bought in the market, generally by public auction, were to be obtained through brokers. Contracts were to be made for the specific quantities required for each financial year, except for certain classes of articles, in regard to which running agreements, generally for a period of three years, were found advantageous.

In September, 1880, an Admiralty Committee was appointed, under the presidency of Mr. A.B. Forwood, to inquire into the whole system of Admiralty contracts, including the procedure in regard to hulls and machinery, as well as into the organization and functions of the Department, and its relation to the executive departments of the Admiralty, the dockyards, victualling yards, and medical establishments at home and abroad, and with the users of stores and supplies. The Report of the Committee, with the evidence taken, was presented to Parliament in the following year. Generally, no objection was taken to the scheme, of which I have indicated the main features above, but the Committee were of opinion that it should not be regarded as a hard and fast regulation, but as one requiring constant revision to meet the varying conditions of trade. In their view the plan of intrusting the purchasing of the greater proportion of the Admiralty supplies to one officer was of advantage to the public service; but they found grave defects in the administration, owing to the want of co-operation between the Director of Contracts and the authorities requiring supplies, those who receive and examine them, and the users of the various articles. Their recommendations were largely directed to the removal of this evil, to improving the system of selecting firms to be invited to tender for stores required, mainly by giving the heads of departments a greater voice in the matter, to the devising of a better procedure in regard to the stores delivered, and generally to amending the business methods and establishing a stronger chain of responsibility for the correctness of particulars supplied to the Director of Contracts, the examinations of stores, and other matters.

In addition to these recommendations, the Committee advised that the operations of the Contract and Purchase Department should be so extended as to include, as far as possible, contracts for the hulls and propelling machinery of ships, and the requirements of the Works Department, excluding only the hire of transports. In view of the great importance of the work of building warships and their engines, the Committee recommended that tenders, under this head, should be submitted to the full Board, after having been submitted to the members individually; but they had no hesitation in declaring that, subject to certain modifications of practice, the conclusion of all contracts, and the effecting of all purchases, should rest with the Director of Contracts, under the Financial Secretary, and the Supervising Lords. From this recommendation of the Committee, however, one of its members, Captain (now Vice-Admiral Sir Charles) Hotham, recorded his entire dissent, on the ground that the Director of Navy Contracts could have no knowledge whatever of the matters involved, and could not be expected to understand the specifications on which such contracts are based. From the change proposed, Captain Hotham expected that delay, friction, and inefficiency would arise.

The special recommendation in regard to ships, propelling machinery, and the requirements of the Department of Works was not, however, adopted; and, indeed, the report of the Committee did not lead to any material alteration in the system pursued. New instructions, which were drawn up in March, 1888, and presented to Parliament, were chiefly directed to clearing up certain special points and regulating some details of practice, The responsibility of the Directors of Navy Contracts was defined as "for the purchase of all stores, supplies, and machinery required for the use of Her Majesty's naval and marine forces and establishments, and for the conclusion of all contracts in connection therewith, excluding only contracts for ships and propelling machinery, and the following requirements of the Director of Works, viz.: purchases not exceeding £100 in value, and cement, materials, and machinery of a nature not used in the Dockyard Department." These latter exceptions, with the contracts for new shore works and repairs, remained, and still remain, with the Director of Works.

It is under the instructions of 1883 and 1888 that the Director of Contracts carries on his operations. Requisitions for the purchase of stores are accompanied by all necessary particulars of pattern, make, description, and quality, and where articles are of a new design or character, specifications and drawings, or patterns, are furnished. Tenders are obtained and purchases made by one of the four procedures indicated above. Mr. Collett, Director of Contracts, told the Select Committee on the Navy Estimates, 1888, that tenders from selected firms represented fully half, or perhaps more, of the gross value of purchases, because they comprised articles like armour-plates, steel-plating, castings, and other articles involving the expenditure of very large sums. Tenders called for by public advertisement, he said, might probably represent two-thirds of the balance, while purchase by direct negotiation, chiefly for patented articles, would be but a small amount, and the same was the case in regard to purchase through a broker, save in the case of victualling stores, such as cocoa, rum, and sugar, which are bought on the market. In so far as victualling stores are concerned, arrangements exist, upon emergency, for securing vast supplies within a very few days, including great quantities of biscuit outside the ordinary naval resources.

In view of the very high importance of preserving good relations with contractors, so that many firms may be familiar with Admiralty requirements and the needs of the Navy, and be encouraged to furnish themselves with the necessary plant for producing naval material and stores, great interest attaches to the system of selecting the firms which are invited to tender. In this matter, rigid integrity, and whole-hearted devotion to the interests of the service, combined with a clear knowledge of the best ways in which those interests may be fostered, are essential. Generally speaking, firms are placed upon the Admiralty list upon their own application. The Director of Contracts will assure himself as to their financial position, the Director of Naval Construction will send down an officer to inspect their establishments and to report upon their facilities for undertaking and satisfactorily completing Admiralty work, and, the reports being considered, a submission will be made to the Financial Secretary, with whom rests the decision as to whether they shall, or shall not, be added to the Admiralty list. The instruction is that, among limited tenders - and the practice is to be "encouraged in preference to general invitation by advertisement" - the principle of accepting the lowest offer, other things being equal, shall prevail. In practice, among firms on the Admiralty list, the lowest tender has not always been accepted. The selection of firms is naturally an invidious work, and it has sometimes happened that the lowest tenders have not come from firms judged by the responsible officers best fitted to execute the work. It is obvious that, in regard to some of the most important classes of Admiralty work, there are but few firms available. Particular instructions are issued to the Director of Contracts concerning the purchase of goods by public tender, direct negotiation, and the employment of brokers; and careful directions have been given as to the practice to be observed in opening tenders, this being a matter to which the Admiralty Board attaches great importance.

In the case of tenders for special articles, or for such as he desires information or advice upon, or in relation to which the head of a Department has expressed a wish to be consulted; the Director of Contracts is instructed to obtain the opinion of the head of the Department, before submitting the tender, with his recommendations, to the Superintending Lord concerned, and to the Financial Secretary, with whom the decision as to acceptance or non-acceptance rests. In case of extreme urgency the Director of Contracts is authorized, on his own responsibility, to accept the lowest tender, and to decide upon any offers respecting which he considers immediate action to be required; and he may order goods of the same description at the rates of a previous purchase made during the same financial year. Arrangements exist to secure full collaboration between the Director of Navy Contracts and the heads of departments in the matter of contract business. The examination of stores, as I have shown in previous chapters, rests with these latter, who communicate directly with the contractors in relation to supply; but, in the final resort, in the case of harmful delay after repeated applications, and of complaints as to the quality of stores delivered or in use, the business passes, after protest or examination, through the hands of the Director of Navy Contracts.

The varied nature of the business conducted by this officer renders it necessary for him to make himself acquainted with the changing conditions of commerce, and with improvements and alterations in regard to the designs and qualities of stores, and he is directed to visit establishments and sources of supply as often as possible, and to be in frequent communication with the users of stores. The heads of departments report to him their satisfaction or otherwise as to the manner in which contracts are being executed, so as to furnish ground for decision as to whether firms shall be maintained on or be removed from the Admiralty list.

It is not necessary to enter into a multitude of details touching the special methods of conducting contract and purchase business for the Navy, such as the practice of arbitration attaching to contracts for manufactured articles or stores, the buying of stores locally abroad at a cheaper rate or greater advantage than by shipment from home, the course taken to avoid the accumulation of excessive stocks, and other such matters.

In addition to being a purchasing officer, the Director of Navy Contracts is instructed to sell old ships and naval stores of all kinds. His business is to obtain the best price, and to sell under the best conditions, and he furnishes particulars of his operations in this matter to the departments concerned, the account of sale itself going to the Accountant-General upon the question of finance. Generally speaking, in this work, as in that of purchase, the procedure is based upon the principle adopted under the reforms of 1869-70, many improvements in business methods having been introduced from time to time.

Mr. Forwood's Committee of 1886-87 entered at great length into the question of contracts for ships and propelling machinery, which, as I have said, is a matter lying outside the Contract and Purchase Department, I shall not, therefore, enter at any length into the question in this place, reserving some remarks upon the relations existing between the Admiralty and contractors until the concluding part of the volume. The chief reason why the Committee proposed to transfer the contract business concerning ships and propelling machinery to the Director of Navy Contracts, was that it was considered "desirable in the public interest that those who design and have to see the work carried out, should be distinct from those who negotiate and conclude the contract." It had been given in evidence before them that in many instances of contracts concluded prior to 1886, the lowest tenders, among selected firms, were not accepted, and that designs were adopted quite at variance with the specifications sent out. Tenders, for example, had been asked for ordinary compound engines, and contracts had been made for those of triple expansion. They alluded as "illustrative of the unsatisfactory effect of the system" to the contracts for the Renown, Sans Pareil, and for the engines of the Nile and Trafalgar. They referred also to the discrepancy that existed in some cases between the terms arranged with contractors for engines and the conditions eventually embodied in the contracts in regard to penalties and to payments for extra indicated horse-power. The matter, however, is one more of administrative wisdom than of administrative machinery, though I may observe that the methods of contract and purchase are not under the most rigid system of control.


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