Renegotiation Act Enables Limited War Profit Recovery After Corporate Resistance

Congress passes the Renegotiation Act on April 28, 1942, establishing a process to recapture “excessive profits” from war contractors. While presented as a check on war profiteering, the act’s weak enforcement mechanisms and industry-friendly implementation allow most excessive profits to remain in corporate hands.

The Truman Committee’s investigations reveal rampant war profiteering under cost-plus contracts, where contractors receive guaranteed profit margins on top of all expenses. Some companies report profit margins of 50 percent or higher on war work. Public outrage demands action, but Congress crafts a remedy acceptable to business interests.

The Renegotiation Act authorizes the War and Navy Departments to renegotiate contracts and recover excessive profits after the fact. However, the definition of “excessive” is left vague, and enforcement is placed in the hands of military procurement officers who work closely with contractors and anticipate future industry employment. The act explicitly allows contractors to retain “reasonable” profits, with reasonableness determined through negotiation rather than fixed standards.

Defense contractors mount intense lobbying to weaken enforcement. Industry representatives argue that profit recovery discourages production efficiency and threatens vital war output. They successfully push for exemptions, delays, and generous interpretations of allowable profits. Recovered amounts represent a small fraction of excess profits actually earned.

Over the course of the war, renegotiation recovers approximately $11 billion in excess profits out of an estimated $100 billion in total contractor profits. While significant in absolute terms, this represents only a modest reduction in war profiteering. The more significant wartime profit control mechanism remains the Excess Profits Tax, though that too is weakened by corporate lobbying and extensively evaded through accounting manipulations. The Renegotiation Act’s legacy demonstrates the limits of post-hoc profit controls when enforcement depends on agencies captured by the industries they regulate.