LEGALITY OF CONTRACTING WITH GOVERNMENT EMPLOYEES FOR PROCUREMENT PURPOSES.

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP57-00384R000700060061-4
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 6
• Document Creation Date: December 12, 2016
• Document Release Date: May 25, 2001
• Sequence Number: 61
• Publication Date: October 16, 1951
• Content Type: MFR

Approved For Releasl*1002/05/06 : CIA-RDP57-00384R0007h60061-4
16 October 1951
SUBJECT: Legality of Contracting with Goverment Employees for
Procurement Purposes.
1. Title 18 U.S.C. 434 provides:
fl-Whoever., being an officer, agent or member of, or directly
or indirectly interested in the pecuniary profits or contracts of
any corporation, joint-stock company, or association, or any firm
or partnership, or other business entity, is employed or acts as
an officer or agent of the United States for the transaction of
business with such business entity shall be fined not more than
$2,000 or imprisoned not more than two years, or both."
This section is based on a statute of 1907 under which most of the de-
cisions have been made. The 1907 statute was revised in 1948 to tt...
further what appeared unquestionable to be the intent of Congress,
namely, to cover all persons acting for the United States Government
in any official function."
2. No appellate decision, which could be related to the facts of
the Beechcraft situation has been made on this statute. However, this
and a related statute, 18 U.S.C. 216, which provides criminal penalties
for Government employees who obtain any material benefits through Gov-
ernment procurement, are referred to iln.MuschaAy v. United States, 65
S. Ct. 442 (1945). This case dealt with the legality of commission
contracts" but some of the terminology indicates the Court's senti-
ments beyond those immediate facts. The quotations set forth below
intimate that the court strictly construes these statutes.
(a) "No other case has come to our attention which has
declared that a commission or purchase contract is invalid on
the ground of public policy. Public policy is to be ascertained
by reference to the laws and legal precedents and not from gen-
eral considerations of supposed public interests.
(b) "As the term 'public policy*is vague, there must be
found definite indications in the law of the sovereignty to
justify the invalidation of a contract as contrary to that
policy.
(c) "It is a matter of public importance that good faith
contracts of the United States should not be lightly invalidated.
... Only dominant public policy would justify such action. In
Approved For Release 2002/05/06 : CIA-RDP57-00384R000700060061-4
 Approved For Release 2002/05/06 : CIA-RDP57-00384R000700060061-4
the absence of a plain indication of that policy through long
Governmental practice or statutory enactments, or of violations
of obvious ethical or moral standards, this court should not
assume to declare contracts of the War Department contrary to
public policy. The courts must be content to await legislative
action."
3. The Attorney General, in an opinion on a still older but
similar statute, held:
"There is in the statutes no general provision whereby
officers of the executive branch of the Government are for-
bidden to contract directly with the Government as principals,
in matters separate from their offices and in no waY connected
with the performance of eir official duties, nor are t
officers forbidden tone connectetc w~~' h contracts after
they are procured, by acquiring an interest therein." 14) Op.
Atty. Gen. 1.83 (18Th) .
The underlinings are mine and bear notice in the fact situation at
hand.
A later opinion by the Attorney General considers, in light of
certain analogous statutes, the legality of a Postmaster bidding
for printing work of the Postal Department:
"It seems obvious that the provisions of the statutes
referred to above, including Section 226, were aimed, to
speak generally, at the evil arising from the use, by a pub-
lic officer or employee, of his official position to procure
contracts, favors or benefits from the Government of -which
he is a member. Those statutes all seem to have in view an
act by the employee, which shall enter into the procuring of
some favor from the Government and be influential to that
ehd. Of course, the act of the public official need not be
the entire moving cause of the awarding of a contract with
the Goverment, or the procurement of a favor or benefit
therefrom, but it must be influential to that end and con-
cerned therewith.tt 29 Op. Atty. Gen. 199
4. The Comptroller General has consistently been more stmt
in dealing with these contracts and his refusal to authorize funds
has undoubtedly been paramount in formulating a general policy against
entering into such situations on the basis of moral, rather than legal
limitations. A few fact situations and holdings will illustrate
Approved For Release 2002/05/06 : CIA-RDP57-00384R000700060061-4
 w
Approved For Release 2002/05/06 : CIA-RDP57-00384R000700060061-4
-3-
(a) !a. Comp. Gen. 116.
Employees of the Labor Department rented their personal
automobiles to the Department. The vehicles in turn were used
by any official or employee of the division on official business.
The rental rate was said to be much cheaper than if the vehicles
had been rented from outside parties.
Held: The practice was apparently established in good
faith and the Comptroller General will authorize the payment
for past vouchers. However, further authorization is denied
because "... it has been repeatedly held that contracting with
employees of the Government though not expressly prohibited by
statute is authorized only in exceptional cases, such practice
being contrary to public policy, provocative of trouble, and
having a tendency toward favoritism. The practice is especially
objectionable when the contracting is between the employee and
the particular service in which he is employed, as in the in-
stant cases.'
(b) 5 Comp. Gen. 94.
The only doctor at Kodiak, Alaska, was appointed public
health officer. Bids for a hospital at the station were let.
The only hospital within 325 miles was owned by same doctor
appointed as public health officer. This doctor bid to pro-
vide the service.
Held: While not necessarily unlawful, if not in contra-
vention of specific statutory prohibitions, contracts between
the Government and its employees present an undesirable situ-
ation, suggesting favoritism, and are not to be entered into
except for the most convincing reasons, such as the non-avail-
ability of other sources for the services to be rendered and
even the non-availability of other sources may not always
justify such contracts. Especially is the practice objection-
able when the contracting is between an employee and the par-
ticular service in which he is employed, as in the instant
case.
(c) 13 Comp. Gen. 281.
A Federal employee, as a governmental contracting officer
rented office typewriters from himself -- at a price equal to
lowest competitive bid.
Approved For Release 2002/05/06 : CIA-RDP57-00384R000700060061-4
 Approved For ReFse 2002/05/06 : CIA-RDP57-00384R00W00060061-4
Held: Contracts between the United States and an em-
ployee to furnish a service the extent of, and the necessity
for which rests upon the determination of the contracting em-
ployee, are open to criticism irrespective of the bona fides
with which the employee's determination may be exercised, and
cannot be sanctioned.
(d) 14 Comp. Gen. 403.
A supervisor of field work bid for the delivery of a
tractor to be used on the homestead projects.
Held: Aside (underlining mine) from the terms of the
acts of Marci h, 1909, and August 10, 1917, it has been re-
peatedly held that the United States should not, where the
needs of the Government reasonably can be otherwise supplied,
contract with its officers or employees for the reason that
such contracts are against public policy and would afford
grounds for complaint as to alleged favoritism, fraud, etc.,
in the conduct of public business. Accordingly-, you are ad-
vised that no bids should be considered or contracts entered
into with any employee of the Government ... of the United
States -- whether such employees be temporary or permanent for the delivery of supplies and materials.
(e) Similar language is repeated in 17 Comp. Gen. 123 where
a government employee "procured from his company the supplies
paid for on the involved vouchors, after informal bids had
been received, on purchase orders evidencing the informal
agreement signed by himself as purchasing agent for the Civil
Works Admin=stration.
(f) Exceptions to the rule of the Comptroller General can be
found but the situations are very circumscribed and the general
rule against such practices is stressed.
(1) 21 Comp. Gen. 705.
The Comptroller General permitted employees of the
Puerto Rico Reconstruction Administration to partic9_pate
in a lottery with other qualified applicants to obtain
leases on low-cost housLng projects construe d by the Ad-
ministration. The Comp oiler General laid stress on the
fact that those employees participating in the lottery
would not act on the applications in behalf of the United
States.
Approved For Release 2002/05/06 : CIA-RDP57-00384R000700060061-4
 Approved For Release 2002/05/06 : CIA-RDP57-00384R000700060061-4
-5-
(2) 25 Comp. Gen. 690.
The Interior Department sought to obtain through
competitive bids, a pilot and his airplane for seasonal
forest fire patrol. If the joint service was obtained
under the plan proposed, it would result in having an
employee of the Government also acting as a contractor
furnishing equipment to be used by him in connection with
his employment.
The Comptroller General authorized this arrangement
but these points stand outs
(a) The contract for such joint services was
let by competitive bids, thus If... it was not open
to criticism for possible favoritism and preferential
treatment..."
(b) Considerable economic advantage could
be achieved through the joint service.
(c) The pilot was in no way acting as an
agent for the Government in its acceptance of the
bid.
(d) The Comptroller General cited a statute
relating to the Department of Agriculture permitting
the renting of equipment from employees of the De-
partment provided the property rented would be used
others than the rentor. This was seen as ind -
cat thoh7Me saute was not applicable in
the instant case) "a policy of Congress to prohibit
the hiring or renting of equipment from employees
for use by the employees from whom hired or rented."
(3) 27 Comp. Gen. 735.
In this case a Bureau of Standards employee
submitted the only bid to supply the Bureau with
an electron microscope. The same employee was
to use this instrument in his work. The Comptrol-
ler General approved the purchase, recognizing
it to be an exceptional case since this microscope
was the on one of its kind in existence. Cer-
TM .y3 -t e departure in this case di not open much
of a hole in the line of the general rule.
Approved For Release 2002/05/06 : CIA-RDP57-00384R000700060061-4
 Approved For Rele 2002/05/06 : CIA-RDP57-00384R000060061-4
-6-
(g) In summary., it appears that though little may be found in
court decisions which would prohibit transactions of this nature,
the Comptroller Generall has established general Governmental practice
and concepts of morality which frown upon;
(1) Transactions where the Government employee buys
from himself as an agent for the Goverment.
(2) Transactions where the employee is selling to the
Agency in which he is employed.
(3) Transactions where the employee selling to the
Government is not doing so by participating in open compet-
itive bidding.
(4) Transactions vLere the employee selling will be
using the article sold in his duties.
(h) The general rule admits these exceptions:
(1) Where the situations enumerated above are non-
existent; or,
(2) Where the article desired'cannot be purchased
elsewhere.
OGC/b?LL,MCD
Distribution:
Qrig - Add (subject)
1 - Legal
1 - Vital
1 - Chrono
Approved For Release 2002/05/06 : CIA-RDP57-00384R000700060061-4