A-28907, OCTOBER 28, 1929, 9 COMP. GEN. 169

A-28907: Oct 28, 1929

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WHICH MAY BE OBTAINED WITHOUT ADVERTISING WHEN SPECIFIC AUTHORITY IS SECURED THEREFOR IN LIEU OF EMPLOYMENT UNDER THE CIVIL SERVICE LAWS AND IN ACCORDANCE WITH THE CLASSIFICATION ACT. IS THE SERVICE OF INDIVIDUALS RENDERED DIRECTLY TO THE GOVERNMENT AND NOT THROUGH THE INTERMEDIARY OF A CORPORATION WHICH IN TURN SECURES THE SERVICES OF INDIVIDUALS. WHEREIN YOU REQUEST DECISION WHETHER THE BOARD OF COMMISSIONERS OF THE DISTRICT OF COLUMBIA IS AUTHORIZED UNDER SECTION 3709. THE QUESTION PRESENTED FOR DECISION IS WHETHER IN EMPLOYING (BY CONTRACT) ARCHITECTURAL OR OTHER PROFESSIONAL SERVICES AS AUTHORIZED BY THE PUBLIC RESOLUTION OF JUNE 15. SET FORTH THAT THE PARAMOUNT PURPOSE OF THE CORPORATION IS TO ADVANCE THE ART OF ARCHITECTURE.

A-28907, OCTOBER 28, 1929, 9 COMP. GEN. 169

ADVERTISING - CONTRACTS - PERSONAL SERVICES THE PERSONAL SERVICE REFERRED TO IN SECTION 3709, REVISED STATUTES, WHICH MAY BE OBTAINED WITHOUT ADVERTISING WHEN SPECIFIC AUTHORITY IS SECURED THEREFOR IN LIEU OF EMPLOYMENT UNDER THE CIVIL SERVICE LAWS AND IN ACCORDANCE WITH THE CLASSIFICATION ACT, IS THE SERVICE OF INDIVIDUALS RENDERED DIRECTLY TO THE GOVERNMENT AND NOT THROUGH THE INTERMEDIARY OF A CORPORATION WHICH IN TURN SECURES THE SERVICES OF INDIVIDUALS.

COMPTROLLER GENERAL MCCARL TO THE PRESIDENT OF THE BOARD OF COMMISSIONERS OF THE DISTRICT OF COLUMBIA, OCTOBER 28, 1929:

THERE HAS BEEN RECEIVED YOUR LETTER DATED SEPTEMBER 24, 1929, WITH COPY OF BRIEF DATED SEPTEMBER 19, 1929, PREPARED BY THE ATTORNEYS FOR THE ALLIED ARCHITECTS (INC.), AND OPINION OF THE AUDITOR FOR THE DISTRICT OF COLUMBIA, WHEREIN YOU REQUEST DECISION WHETHER THE BOARD OF COMMISSIONERS OF THE DISTRICT OF COLUMBIA IS AUTHORIZED UNDER SECTION 3709, REVISED STATUTES, AND PUBLIC RESOLUTION 15, APPROVED JUNE 15, 1929, 46 STAT. 19, TO ENTER INTO A CONTRACT, WITHOUT ADVERTISING, WITH THE ALLIED ARCHITECTS (INC.) FOR ARCHITECTURAL AND PROFESSIONAL SERVICES AS CONTEMPLATED IN THE DEVELOPMENT OF PLANS FOR THE BUILDINGS FOR THE MUNICIPAL CENTER PROPOSED TO BE ERECTED ON SQUARES NOS. 490, 491, AND 533, RESERVATION NO. 10, IN THE DISTRICT OF COLUMBIA.

SECTION 3709, REVISED STATUTES, PROVIDES THAT:

ALL PURCHASES AND CONTRACTS FOR SUPPLIES OR SERVICES, IN ANY OF THE DEPARTMENTS OF THE GOVERNMENT, EXCEPT FOR PERSONAL SERVICES, SHALL BE MADE BY ADVERTISING A SUFFICIENT TIME PREVIOUSLY FOR PROPOSALS RESPECTING THE SAME, WHEN THE PUBLIC EXIGENCIES DO NOT REQUIRE THE IMMEDIATE DELIVERY OF THE ARTICLES, OR PERFORMANCE OF THE SERVICE * * *. AND PUBLIC RESOLUTION NO. 15, APPROVED JUNE 15, 1929, 46 STAT. 19, APPROPRIATED $3,000,000 FOR THE MUNICIPAL CENTER TO BE ERECTED ON THE SQUARES REFERRED TO WITH THE PROVISION THAT---

OF SUCH AMOUNT NOT TO EXCEED $10,000 SHALL BE AVAILABLE FOR THE EMPLOYMENT BY CONTRACT OR OTHERWISE FOR ARCHITECTURAL AND OTHER PROFESSIONAL SERVICES AS SHALL BE APPROVED BY THE COMMISSIONERS OF THE DISTRICT OF COLUMBIA AND WITHOUT REFERENCE TO THE CLASSIFICATION ACT OF 1923, AS AMENDED.

THE QUESTION PRESENTED FOR DECISION IS WHETHER IN EMPLOYING (BY CONTRACT) ARCHITECTURAL OR OTHER PROFESSIONAL SERVICES AS AUTHORIZED BY THE PUBLIC RESOLUTION OF JUNE 15, 1929, A CONTRACT MAY BE ENTERED INTO WITH THE ALLIED ARCHITECTS (INC.) WITHOUT ADVERTISING AS REQUIRED BY SECTION 3709, REVISED STATUTES, FOR SUPPLIES AND FOR SERVICES OTHER THAN PERSONAL SERVICES.

THE BY-LAWS OF THE ALLIED ARCHITECTS (INC.) SET FORTH THAT THE PARAMOUNT PURPOSE OF THE CORPORATION IS TO ADVANCE THE ART OF ARCHITECTURE, AND BY PROFESSIONAL COOPERATION AND COLLABORATION, TO PROVIDE BUILDING PROJECTS WITH THE HIGHEST TYPE OF ARCHITECTURAL SERVICES AS WELL AS TO FURNISH ARCHITECTURAL ASSISTANCE TO ARCHITECTS WHO ARE STOCKHOLDERS IN THE CORPORATION. IT IS FURTHER PROVIDED IN THE SAID BY-LAWS THAT NO STOCK SHALL BE SOLD IN THE CORPORATION EXCEPT TO SUCH ARCHITECTS AS THE BOARD OF DIRECTORS MAY DETERMINE TO BE QUALIFIED BY TRAINING, EXPERIENCE, AND PROFESSIONAL STANDING, AND THAT NO STOCKHOLDER SHALL TRANSFER HIS STOCK TO ANYONE WHO IS NOT AN ARCHITECT NOR UNTIL AFTER THE NAME OF THE PROPOSED TRANSFEREE SHALL HAVE BEEN SUBMITTED TO AND APPROVED BY THE BOARD OF DIRECTORS AS TO HIS QUALIFICATIONS BY TRAINING, EXPERIENCE, AND PROFESSIONAL STANDING. ALL CONTRACTS WITH THE ALLIED ARCHITECTS (INC.) WHEREBY THE CORPORATION OBLIGATES ITSELF TO PERFORM ARCHITECTURAL SERVICES MUST BE APPROVED BY A MAJORITY OF THE BOARD OF DIRECTORS AND SIGNED ON BEHALF OF THE CORPORATION BY THE PRESIDENT AND ATTESTED BY THE SECRETARY UNDER ITS CORPORATE SEAL. THE GENERAL AND SPECIAL POWERS OF THE CORPORATION ARE STATED IN SECTIONS 6 AND 7 OF THE BY-LAWS AS FOLLOWS:

SEC. 6. GENERAL POWERS: THE BOARD OF DIRECTORS SHALL HAVE THE MANAGEMENT OF THE BUSINESS AND AFFAIRS OF THE CORPORATION, SHALL HAVE THE POWER TO APPOINT, REMOVE, AND SUSPEND SUBORDINATE OFFICERS AND AGENTS, TO DETERMINE WHO SHALL BE AUTHORIZED ON BEHALF OF THE CORPORATION TO MAKE AND SIGN BILLS, NOTES, ACCEPTANCES, ENDORSEMENTS, CHECKS, RECEIPTS, CONTRACTS AND OTHER INSTRUMENTS, TO MAKE AND ALTER THE BY-LAWS, TO DELEGATE ANY OF THE POWERS OF THE BOARD IN RELATION TO THE ORDINARY BUSINESS OF THE CORPORATION TO ANY STANDING OR SPECIAL COMMITTEE OR TO ANY OFFICER OR AGENT, UPON SUCH TERMS AS THEY MAY DEEM PROPER, AND SUBJECT TO THE RESTRICTIONS IMPOSED BY LAW, BY THE CERTIFICATE OF INCORPORATION, AND BY THESE BY-LAWS.

SEC. 7. SPECIAL POWERS: IN ADDITION TO, BUT NOT BY WAY OF LIMITATION OF THE GENERAL POWERS BY THESE BY-LAWS, BY STATUTE, OR BY THE CERTIFICATE OF INCORPORATION CONFERRED UPON THE BOARD OF DIRECTORS, SAID BOARD SHALL HAVE THE POWER TO ACQUIRE ANY PROPERTY, REAL OR PERSONAL, DEEMED BY THEM NECESSARY FOR THE PURPOSES OF THE CORPORATION, TO BORROW MONEY FOR THE PURPOSES AND USE OF THE CORPORATION AT SUCH TIMES AND IN SUCH AMOUNTS AS THEY MAY DEEM PROPER, AND TO SECURE THE PAYMENT OF THE SAME BY THE OBLIGATION OF THE CORPORATION OR OTHERWISE, AS THEY MAY DEEM BEST.

IT IS URGED IN THE BRIEF SUBMITTED BY THE ATTORNEYS FOR THE CORPORATION THAT IT IS A PERSONAL SERVICE CORPORATION AND REFERENCE IS MADE TO SECTION 200 OF THE REVENUE ACT OF 1918 AND THE DECISIONS IN CERTAIN CASES ARISING THEREUNDER, INCLUDING KARNS-SMITH COMPANY V. COMMISSIONER, 13 B.T.A. 449; APPEAL OF RHOADS, ETC., 2 ID. 194; INNES BEHNEY OPTICAL COMPANY, 7 ID. 982. SEE CUYAHOGA COMPANY V. COMMISSIONER, 29 FED.REP. (2D) 448; AND SHIPLEY SCHOOL V. MCCAUGHN, 34 ID. 281. THESE DECISIONS, HOWEVER, ARE NOT HELPFUL, AS WE ARE DEALING NOT WITH SECTION 200 OF THE REVENUE ACT OF 1918, BUT WITH SECTION 3709, REVISED STATUTES. TRUE THE TYPE OF WORK--- ARCHITECTURAL--- THE CORPORATION WAS ORGANIZED TO DO REQUIRES FOR ITS ACCOMPLISHMENT THE EXPENDITURE OF PERSONAL EFFORT, AND IN THE DOING OF THE WORK THE PERSONAL SERVICES OF ITS STOCKHOLDERS ARE UTILIZED. THE MANNER IN WHICH SUCH SERVICES ARE SO UTILIZED IS DETAILED IN ITS BY LAWS AND IS SUCH THAT THE FINAL RESULT IS QUITE IMPERSONAL, THE PRODUCT OF COOPERATION AND COMPROMISE.

THE EXCEPTION OF PERSONAL SERVICES FROM THE REQUIREMENTS OF SECTION 3709 OF THE REVISED STATUTES, THAT CONTRACTING FOR THE GOVERNMENT SHALL BE AFTER ADVERTISING, IS IDENTIFIED WITH AND ATTACHES TO THE INDIVIDUAL--- AND GOES TO THE CHARACTER OR STATUS OF THE ONE CONTRACTING AND MEANS THAT THE PERSONAL ELEMENT PREDOMINATES--- AND NECESSITATES THAT THERE BE SELECTION OF THE PERSON AND THAT THE CONTRACTING BE DIRECTLY WITH AND BINDING UPON THAT PERSON. IT IS PERSONAL TO THE ONE CONTRACTING AND NOT AN AUTHORITY TO CONTRACT FOR THAT ONE'S SERVICES THROUGH ANOTHER.

IT IS NOT QUESTIONED THAT A CORPORATION MAY CONTRACT FOR A CHARACTER OF SERVICES THAT MAY BE CLASSED AS PERSONAL, BUT THAT DOES NOT BRING THE CORPORATION WITHIN A CHARACTER OF PERSONAL SERVICE CONTRACTING THAT IS THE EXCEPTION TO THE REQUIREMENTS OF SECTION 3709 OF THE REVISED STATUTES FOR CONTRACTING WITHOUT ADVERTISING. CHIEF JUSTICE MARSHALL, IN THE FAMOUS DARTMOUTH COLLEGE CASE, 4 WHEATON, 518, SAID THAT: "A CORPORATION IS AN ARTIFICIAL BEING, INVISIBLE, INTANGIBLE, AND EXISTING ONLY IN CONTEMPLATION OF THE LAW. BEING THE MERE CREATURE OF THE LAW, IT POSSESSES ONLY SUCH PROPERTIES WHICH THE CHARTER OF ITS CREATION CONFERS UPON IT, EITHER EXPRESSLY OR AS INCIDENTAL TO ITS VERY EXISTENCE.' THAT IS TO SAY, THE CORPORATION IS A SEPARATE AND DISTINCT LEGAL ENTITY FROM ITS SHAREHOLDERS. UNITED STATES V. STRANG, 254 U.S. 491. CLEARLY THE TYPE OF PERSONAL SERVICE AUTHORIZED BY SECTION 3709, REVISED STATUTES, TO BE EMPLOYED WITHOUT ADVERTISING, IS THE SERVICES OF INDIVIDUALS AS SUCH AND WITH DIRECT PERSONAL RESPONSIBILITY, AND IT APPEARS EQUALLY CLEAR THAT THE TYPE OF SERVICE THE ALLIED ARCHITECTS (INC./--- "AN ARTIFICIAL BEING, INVISIBLE, INTANGIBLE, AND EXISTING ONLY IN CONTEMPLATION OF THE LAW"- - IS ORGANIZED TO RENDER IS NOT SUCH SERVICE. WHATEVER PERSONAL SERVICE MAY ENTER INTO THE PRODUCT OF THE ALLIED ARCHITECTS (INC.), IS RENDERED THROUGH THE MEDIATORY OF THE CORPORATION AND NOT DIRECTLY BY THE CORPORATION AS SUCH.

HOWEVER, IT IS NOTED THAT IN THE FORM OF CONTRACT TENDERED BY THE CORPORATION, IT IS PROPOSED TO PLEDGE ITSELF TO FURNISH THE SERVICES OF THREE ARCHITECTS NAMED THEREIN. THE NAMING OF PARTICULAR ARCHITECTS WHOM THE CORPORATION WILL SELECT TO PERFORM THE SERVICES, DOES NOT BIND THEM AS INDIVIDUALS NOR MAKE THE CONTRACT OTHER THAN THAT OF THE CORPORATION--- OTHERWISE THE CONTRACT WOULD COME TO NOTHING MORE THAN AGREEING THE CORPORATION MAY NAME THE ARCHITECTS INSTEAD OF THE COMMISSIONERS SELECTING THEM. AND SO, ALSO, IF IT BE URGED THAT THE COMMISSIONERS ARE SELECTING AND EMPLOYING ARCHITECTS, THEN THE CONTRACT WITH THE CORPORATION AS AN INTERMEDIARY IS UNNECESSARY. FURTHERMORE, THERE HAS BEEN SUBMITTED NOTHING TO SHOW AUTHORITY IN THE CORPORATION TO PLEDGE THE SERVICES OF SUCH ARCHITECTS--- EVEN THOUGH THEY BE STOCKHOLDERS OF THE CORPORATION. BUT EVEN IF IT BE CONSIDERED THAT THE FACT THE ARCHITECTS ARE STOCKHOLDERS IN THE CORPORATION CONFERS ON THE CORPORATION, UNDER THE BY-LAWS, THE AUTHORITY TO SO PLEDGE AND BIND THE ARCHITECTS IN QUESTION, NOTHING WOULD BE GAINED BY SUCH AN INDIRECT ROUTE TO ACCOMPLISH WHAT APPEARS DESIRED BY THE COMMISSIONERS--- THE PERSONAL SERVICES OF THE PARTICULAR ARCHITECTS NAMED IN THE PROPOSED CONTRACT AND, AS STATED, THE CONTRACTING WITH THE CORPORATION AS AN INTERMEDIARY WOULD SERVE NO USEFUL PURPOSE.

IT MAY BE STATED FURTHER THAT SECTION 3709, REVISED STATUTES, ORIGINATED IN THE ACT OF MARCH 2, 1861, 12 STAT. 220, AT A TIME IN THE DEVELOPMENT OF CORPORATE HISTORY WHEN THE ORGANIZATION OF A CORPORATION BY ARCHITECTS THROUGH WHICH TO POOL THEIR INDIVIDUAL TRAINING, EXPERIENCE, AND SKILL WAS UNKNOWN TO THE LAW. THE PERSONAL SERVICES REFERRED TO IN SAID SECTION TO BE OBTAINED WITHOUT ADVERTISING ARE SERVICES RENDERED BY AN INDIVIDUAL DIRECTLY TO THE GOVERNMENT, WHICH SERVICES ARE TO BE OBTAINED UNDER THE SUBSEQUENT CIVIL SERVICE LAWS AND IN ACCORDANCE WITH THE CLASSIFICATION ACT, EXCEPT WHERE SPECIFIC AUTHORITY IS GRANTED, AS IN THE PUBLIC RESOLUTION APPROVED JUNE 15, 1929, TO SECURE THE SERVICES OTHERWISE. SEE 15 OP.ATTY.GEN. 538; 6 COMP. GEN. 295; 9 ID. 67. SECTION 3709, REVISED STATUTES, PERMITS CONTRACTING WITHOUT ADVERTISING WITH A PERSON WHO IS TO RENDER THE PERSONAL SERVICE, BUT IT DOES NOT PERMIT CONTRACTING WITHOUT ADVERTISING WITH AN INTERMEDIARY CORPORATION SUCH AS THE ALLIED ARCHITECTS (INC.), WHICH IN TURN IS TO SECURE THE SERVICES OF INDIVIDUALS TO RENDER THROUGH THE CORPORATION SUCH PERSONAL SERVICE AS IS IN QUESTION HERE.

ANSWERING YOUR QUESTION SPECIFICALLY, YOU ARE ADVISED THAT THERE IS NO AUTHORITY GIVEN BY SECTION 3709, REVISED STATUTES, OR THE PUBLIC RESOLUTION OF JUNE 15, 1929, TO ENTER INTO A CONTRACT WITHOUT ADVERTISING WITH THE ALLIED ARCHITECTS (INC.), FOR FURNISHING ARCHITECTURAL AND PROFESSIONAL SERVICES OF ITS STOCKHOLDERS AS CONSULTANTS IN THE DEVELOPMENT OF THE MUNICIPAL CENTER.