quirement of a representation in the contract that no such arrangement existed in connection with the contract is of recent vintage.23 For the Department of Defense 24 the statutory requirement is now found in 10 U.S.C. § 2306 (b) which provides that:

Each contract negotiated under section 2304 of this title shall contain a warranty, determined to be suitable by the head of the agency, that the contractor has employed or retained no person or selling agency to solicit or obtain the contract under an understanding or agreement for a commission, percentage, brokerage, or contingent fee, except a bona fide employee or established commercial or selling agency maintained by him to obtain business. If a contractor breaks such a warranty, the United States may annul the contract without liability or may deduct the commission, percentage, brokerage or contingent fee from the contract price or consideration.

A similar provision is found in section 304 (a) of the Federal Property and Administrative Services Act of 1949.25

6. Implementation. a. The standard contract clause. ASPR 7103.20 (1 Jul 1960) sets forth the Covenant Against Contingent Fees clause (Jan 1958). The statutory requirement, which is limited to including the clause in negotiated contracts, has been extended administratively to require the inclusion of the clause in advertised contracts as well.26

b. Representation and agreement required from prospective contractor. As an aid to enforcing the covenant against contingent fees, each department is required to secure a written representation from each prospective contractor as to whether he has employed or retained any company or person (other than a full-time employee working solely for the prospective contractor) to solicit or secure the contract together with a written agreement to furnish such information relating thereto as shall be required by the contracting officer.27 In the event that a prospective contractor makes an affirmative representation that he has employed a company or person (other than a full-time employee) to solicit or secure the contract, he will be required to file a complete disclosure of the facts concerning such employment.28 This disclosure is made on a form 29 which is designed to elicit information from which an evaluation of the circumstances of the employment may be made to ascertain whether such employment qualifies as an exception to the policy against contingent fees.

23 Armed Services Procurement Act of 1947, sec. 4(a), 62 Stat. 21 (1948) (now substantially 10 U.S.C. § 2306 (b) (1958)).

24 Also the Coast Guard and the National Aeronautics and Space Administration, 10 U.S.C.2303 (a) (1958).

63 Stat. 395 (1949); 41 U.S.C. § 254 (a) (1958).

20 ASPR 1-503. Unless the contrary is indicated, all citations to ASPR in this chapter are to the 1 July 1960 edition. If a citation is followed by a date subsequent to 1 July 1960 the citation is to an ASPR revision of the indicated date.

ASPR 1-506. Exceptions to the general requirement are set forth in ASPR 1-507.2. 29 ASPR 1-507, 508(b).

Standard Form 119 (Dec. 1952 ed.).

c. Interpretation of the clause. The Covenant Against Contingent Fees clause excepts from its applicability "bona fide employees" and "bona fide established commercial or selling agencies maintained by the Contractor for the purpose of securing business." ASPR 1-505 (1 Jul 1960) contains a discussion of various factors to be considered in determining whether an exception to the covenant exists in a particular case. Among these factors are (1) the continuity of the relationship between the agency and the contractor, (2) the length of time the agency has been established, (3) whether the agency limits its activities to the field of sales to the Government or operates to obtain contracts for its clients in the regular commercial market as well and, (4) the reasonableness of the fee in relation to the services actually rendered.

Of these factors, the first, which relates to the requirement that an agency be "maintained by" the contractor, has been of significance in several reported cases. In one, an established manufacturer's representative (for the sale of metal castings) was determined not to be within the exception where he was engaged on a contingent fee basis for the purpose of assisting his client in securing a single Government contract. The court was of the opinion that “maintained by the Contractor" suggested an intention to restrict the exception to a continuing relationship between the contractor and the agent.30 It has elsewhere been held that the purpose of the exception as indicated by the use of the word "maintained," was to allow contractors to continue the existence of something already in use, not to introduce a special method of securing Government contracts. The exception was intended to preserve a method of doing business to which a businessman has become accustomed.31 The extreme in the application of this theory is perhaps illustrated by the case of Ballard v. Tingue Mills.32 There the contractor had given the agency, which had been established for nine years, an exclusive agency for securing Government contracts and a nonexclusive agency as to all other contracts. The court was of the opinion that the agency was not within the exception to the Covenant since the evidence did not show that the contractor's "accustomed way" of doing business was to compartmentalize its sales activities in such a manner.

Determined to be within the exception to the clause was an individual employed on a full time basis as "sales director" of a corporation whose sole compensation was to be a five per cent commis

30 Bradley v. American Radiator & Standard Sanitary Corp., 6 F.R.D. 37 (S.D.N.Y. 1946), aff'd 159 F.2d 39 (2d Cir. 1947).

"United States v. Paddock, 180 F.2d 121 (5th Cir. 1950), cert. denied, 340 U.S. 813 (1950). In an earlier opinion in the same case (178 F.2d 394 (5th Cir. 1949)), the court held that in view of the definition of "maintain" which means to support, sustain, bear the expenses of, an agency is not within the exception if the only contribution towards its support received from the contractor is in the form of a contingent fee. The later opinion appears clearly to be a retreat from this narrow interpretation.

83 128 F. Supp. 638 (D. Conn. 1954).

sion on all contracts-Government and private-which he obtained.3 However, a contingent fee employment agreement which contemplates the use by the employee of influence to obtain the award of a Government contract precludes his being a bona fide employee.34 Finally, the Comptroller General expressed the opinion that licensed real estate agents who have not obtained such licenses for the sole purpose of effecting a particular lease or leases with the Government may be considered within the exception.35

A separate and distinct question is whether or not a particular agreement is one "to solicit or obtain" a contract. There is no inherent evil in the contingent fee method of compensation. Thus, there would appear to be no conflict between the covenant and an agreement for a mechanic to rebuild the machinery of an insolvent company, compensation for the work being contingent on the company's success in being awarded a Government contract. It has been held that the performance of technical, engineering, and administrative work in the preparation of cost estimates, bidding data and specifications for successful bids did not constitute assistance in securing the resultant Government contracts.36 On the other hand, having a firm's name placed on the Government's bidders list has been held to constitute such assistance.37

Illustrative case: The approach used by the Armed Services Board of Contract Appeals in construing the exception provision of the clause is illustrated by its decision in the appeal of Scafaria Brothers, Inc.38 The Government was seeking to recover $24,000 representing contingent fee payments to a manufacturer's agent partnership. Officials of the contractor, which had never had a Government contract, contacted one of the agency partners who had been in the textile business for forty-five years, including about eight as a manufacturer's agent. After several discussions between the parties and several visits to the contractor's plant by the agent, an informal contingent fee arrangement was made. The agent performed the following services: introduced a representative of the contractor to officials at the New York Quartermaster Procurement Agency; had contractor's name placed on the bidders list; gave advice on the submission of a proposal (which resulted in the negotiated contract involved in the dispute); made visits to the contractor's plant and gave assistance in dealings with the Government during the performance

33 Reynolds v. Goodwin-Hill Corp., 154 F.2d 553 (2d Cir. 1946). The contingent fee clause involved in this case was that prescribed by Exec. Order No. 9001, 6 Fed. Reg. 6787 (1941) which contained only the "bona fide established commercial or selling agencies" exception; it did not contain the "bona fide employees" exception.

"Eglin Manor v. United States, 279 F.2d 268 (Ct. Cl. 1960).

85 22 Comp. Gen. 124 (1942).

36 Brown v. R.&R. Engineering Co., 264 F.2d 219 (2d Cir. 1959).

"Id.; Mitchell v. Flintkote Co., 185 F.2d 1008 (2d Cir. 1951), cert. den., 341 U.S. 931 (1951).

ASBCA No. 3248 (26 Jul 1956), 56–2 BCA 1018.

of the contract; continued to represent the contractor and was successful in obtaining one civilian contract for it. In holding that the agency fell within the exception to the clause and thus that payments to it were proper the Board commented that: (1) the fee was reasonable in view of the services rendered; (2) the agency had knowledge of the contractor's operations and capabilities; (3) there was a continuity in the relationship between the parties to the agreement, and, (4) the evidence failed to disclose the use of improper influence by the agency.39

IV. Officials Not to Benefit

7. General. Since the year 18080 there has existed a statutory policy prohibiting certain Government (legislative) officials from having any interest in Government contracts. The policy has both criminal and civil aspects, and while the statutory provisions relating to each differ in certain particulars, they appear to have been construed in pari materia.11

8. Criminal aspects. A penal sanction is provided for the violation of the proscription against any Member of Congress holding or enjoying any interest in a contract with the United States.42 Furthermore, a contract entered into in violation of the proscription shall be void.43 Penal sanction is also provided for any person who, acting in behalf of the United States, enters into a contract which violates the proscription." There are exceptions to the prohibition, the most important of which is that relating to "any contract . . made or entered into, or accepted by any incorporated company for the general benefit of such corporation." 45 The Attorney General has ruled that the Government may contract with a corporation whose president is a member of Congress and the owner of thirty percent of the stock of such corporation. Similarly, he has held that a member of Congress might lawfully be accepted as surety on the bond of a contractor with the United States. On the other hand, the statute prohibits the Government from contracting with a partnership in which a member of Congress is a partner.48

46

47

39 Accord, Illinois Lumber Mfg. Co., ASBCA Nos. 54 & 651 (28 Feb 1951), 5 CCF § 61, 235. Also, compare the factors considered by the Board with those listed in ASPR

1-505.4.

40 Act of April 21, 1808, ch. 48, sec. 3, 2 Stat. 484.

41 Cf. 39 Ops. Att'y Gen. 165 (1938).

43 18 U.S.C. § 431 (1958). Also within the proscription are Delegates to Congress and Resident Commissioners. On the date of this revision there are none of the former and one of the latter, from Puerto Rico.

43 18 U.S.C. § 431 (1958). United States v. Dietrich, 126 F. 671 (C.C. Neb. 1904) in which it was held that a valid Government contract with an individual who became

a member of Congress subsequent to its execution is terminated only in so far as it remains executory.

4418 U.S.C. § 432 (1958).

45 18 U.S.C. § 433 (1958).

46 39 Ops. Att'y Gen. 165 (1938).

47 18 Ops. Att'y Gen. 286 (1885). 484 Ops. Att'y Gen. 47 (1842).

9. Civil aspects. There is a statutory requirement that every contract entered into for or in behalf of the United States contain a provision to the effect that no member of Congress shall be allowed to own any share or part of or to benefit from the contract.19 While the important criminal statute exception relating to contracts with a corporation for its general benefit (discussed above) is not a part of the civil statute, the contract clause adopted for use by the Armed services does in fact incorporate that exception.50

V. Policy Against Contract Gratuities

10. Policy against contract gratuities. Commencing in 1951 the annual Department of Defense Appropriation Acts contained a recurring provision requiring the inclusion of a so-called Gratuities clause in all Government contracts (other than those for personal services) which involved the expenditure of funds appropriated by the Acts. Such a requirement was made permanent legislation in 1954.52 Pursuant to the statute the clause is to provide the Government the right to terminate the contract if the Secretary of the department concerned finds, after notice and hearing, that gratuities (in the form of entertainment, gifts or otherwise) have been offered or given by or in behalf of the contractor to any officer or employee of the Government with a view to securing the contract or securing favorable treatment with respect to any phase in the administration of the contract. The clause is also to provide that in the event of such a termination, the Government shall still retain its common law right to damages for breach of contract and in addition, shall be entitled to certain exemplary damages. In addition to incorporating the provisions required by the statute, the clause used by the armed services provides that the rights and remedies set forth herein are in addition to any other rights and remedies provided by law or elsewhere in the contract.53 The rules for notice and hearing under the clause are contained in ASPR, Appendix D. In addition to the sanctions contemplated in the clause for the giving or offering of a gratuity, the donor or offeror thereof may be subject to prosecution for bribery of an officer or employee of the United States,5* defrauding the United States 55 or conspiracy to defraud the United States.50 Furthermore, the offending contractor may be debarred and thus

Rev. Stat. 3741 (1875), as amended, 41 U.S.C. § 22 (1958). Also included are Delegates to Congress as to which see note 42, supra.

50 Officials not to Benefit (Jul 1949), ASPR 7-103.19.

51 Defense Appropriation Act, 1952, ch. 512, sec. 631, 65 Stat. 450 (1951).

52 Department of Defense Appropriation Act, 1955, 68 Stat. 353 (1954), 5 U.S.C. § 174d (1958).

53 Gratuities (Mar 1952), ASPR 7-104.16 (3 Oct 1960).

54 18 U.S.C. § 201 (1958).

5518 U.S.C. § 371 (1958). 18 U.S.C. § 1001 (1958).