I am reading, among other things, “The Myth of the Robber Barons,” which is a fascinating book about 19th and early 20th century big business. This particular quote deals with the government’s decision to build its own munitions factories so they would no longer “be at the mercy of identical bids from the “greedy and hoggish” steel companies.”
The identical bids were the result of the government’s policy of, after seeking bids from the three companies who could produce armaments, going to the losing companies and offering them a part of the contract if they would agree to the winning low bid. This of course removed any incentive on the part of the companies to actually bid low since they would all get part of the contract so they might as well keep bids higher than they might otherwise in a “winner take all” scenario.
Bethlehem Steel
It should be noted that the government took this action after, some years before, asking Bethlehem Steel to produce military equipment, the making of which is complicated and expensive. If not for the promise of Navy contracts (for armor plating) Bethlehem Steel would not have spent the $7 million (roughly $200 million today) needed to make the change from making rails.
The legislation passed by a two to one margin and $11 million was appropriated to build the new factory. The result is likely not too surprising to anyone.
Congress soon raised the appropriation to $17.5 million [$363 million today] and authorized the South Charleston plant to make guns and projectiles, as well as armor. Construction began in 1917 on the new factory and on hundreds of houses for the workers. The war delayed the building, but it was continued later. Higher construction costs after the war meant an overrun of several million dollars [tens of millions today]. By 1921, the new plant was making guns, projectiles, and armor–all at prices apparently much higher than that of Bethlehem Steel. Within a year the whole plant was shut down, put on “inoperative status,” and never run again.