A-86151, MAY 18, 1937, 16 COMP. GEN. 1010

A-86151: May 18, 1937

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IS AS FOLLOWS: THE UNITED STATES MARITIME COMMISSION IS CONFRONTED WITH A GRAVE EMERGENCY IN DISCHARGING ITS DUTIES UNDER THE MERCHANT MARINE ACT OF 1936. I SHOULD LIKE TO RELATE THE CIRCUMSTANCES OF THIS GRAVE SITUATION AND THE ACTION WHICH THE COMMISSION PROPOSES TO TAKE WITH THE HOPE THAT WE MAY PROMPTLY RECEIVE FROM YOU AN INDICATION THAT THE CONTEMPLATED ACTION AND SUBSEQUENT EXPENDITURE WILL BE RECOGNIZED AS APPROPRIATE. THE SITUATION IS AS FOLLOWS: UNDER TITLE IV OF THE MERCHANT MARINE ACT OF 1936. THE COMMISSION IS CHARGED WITH THE DUTY OF SETTLING ALL THE RIGHTS OF THE PARTIES UNDER THE OCEAN MAIL CONTRACTS AND TO SUBSTITUTE IN WHOLE OR IN PART THEREFOR A CONTRACT OR CONTRACTS AUTHORIZED IN TITLES V AND VI OF THE ACT.

A-86151, MAY 18, 1937, 16 COMP. GEN. 1010

PERSONAL SERVICES - EXPERTS - COMPENSATION IN EXCESS OF CLASSIFICATION ACT RATES - UNITED STATES MARITIME COMMISSION SECTION 207 OF THE MERCHANT MARINE ACT, APPROVED JUNE 29, 1936, 49 STAT. 1988, AUTHORIZING THE UNITED STATES MARITIME COMMISSION TO ENTER INTO CONTRACTS, UPON BEHALF OF THE UNITED STATES, IN THE SAME MANNER THAT A PRIVATE CORPORATION MAY CONTRACT WITHIN THE SCOPE OF THE AUTHORITY CONFERRED BY ITS CHARTER, DOES NOT ENLARGE ITS POWERS WITH REGARD TO THE EMPLOYMENT OF PERSONAL SERVICES AS SPECIFICALLY PROVIDED IN SECTION 201 (E) OF THE ACT, AND SPECIAL EXPERTS, ALTHOUGH APPOINTED WITHOUT REGARD TO THE CIVIL SERVICE LAWS OR THE CLASSIFICATION ACT, AS AMENDED, MAY NOT, BECAUSE OF THE PROHIBITION IN SAID SECTION, BE PAID AT A RATE IN EXCESS OF THE ANNUAL SALARY PROVIDED UNDER THE CLASSIFICATION ACT, AS AMENDED--- A DAILY RATE OF $25.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE CHAIRMAN, UNITED STATES MARITIME COMMISSION, MAY 18, 1937:

YOUR LETTER OF MAY 11, 1937, IS AS FOLLOWS:

THE UNITED STATES MARITIME COMMISSION IS CONFRONTED WITH A GRAVE EMERGENCY IN DISCHARGING ITS DUTIES UNDER THE MERCHANT MARINE ACT OF 1936. I SHOULD LIKE TO RELATE THE CIRCUMSTANCES OF THIS GRAVE SITUATION AND THE ACTION WHICH THE COMMISSION PROPOSES TO TAKE WITH THE HOPE THAT WE MAY PROMPTLY RECEIVE FROM YOU AN INDICATION THAT THE CONTEMPLATED ACTION AND SUBSEQUENT EXPENDITURE WILL BE RECOGNIZED AS APPROPRIATE.

THE SITUATION IS AS FOLLOWS: UNDER TITLE IV OF THE MERCHANT MARINE ACT OF 1936, THE COMMISSION IS CHARGED WITH THE DUTY OF SETTLING ALL THE RIGHTS OF THE PARTIES UNDER THE OCEAN MAIL CONTRACTS AND TO SUBSTITUTE IN WHOLE OR IN PART THEREFOR A CONTRACT OR CONTRACTS AUTHORIZED IN TITLES V AND VI OF THE ACT. AT THE TIME THE ACT WAS PASSED A SUBSTANTIAL PERIOD OF TIME REMAINED WITHIN WHICH THIS WORK COULD BE ACCOMPLISHED. EVENTS BEYOND THE CONTROL OF THE PRESENT COMMISSION HAVE MADE IT NECESSARY THAT APPROXIMATELY ONE YEAR'S WORK BE CONSUMMATED IN A TWO MONTHS' PERIOD. THIS CONNECTION, PERMIT ME TO POINT OUT THAT THE COMPANIES HOLDING OCEAN MAIL CONTRACTS HAVE FILED CLAIMS FOR DAMAGES IN EXCESS OF FOUR HUNDRED AND FIFTY MILLION DOLLARS ($450,000,000) AS A CONSEQUENCE OF THE CANCELLATION OF THE OCEAN MAIL CONTRACTS. THE COMMISSION ITSELF WILL ASSERT LARGE CLAIMS, IN MANY INSTANCES, AGAINST THESE SAME CONTRACTORS. I AM CONFIDENT THAT YOU WILL AGREE THAT THIS PROBLEM ALONE, IN VIEW OF THE SHORT SPACE OF TIME REMAINING, PRESENTS GRAVE DIFFICULTIES AND REQUIRES PROMPT AND EFFICIENT ACTION IF THE PUBLIC INTERESTS IS TO BE ADEQUATELY PROTECTED. CAREFUL HANDLING OF THESE NEGOTIATIONS WILL, IN MY OPINION, SAVE THE TAXPAYERS LARGE SUMS OF MONEY. AN INTEGRAL PART OF THIS IMMEDIATE PROBLEM ARISES IN DEVELOPING THE FORMULAE FOR THE OPERATING DIFFERENTIAL AND CONSTRUCTION DIFFERENTIAL SUBSIDIES UNDER TITLES V AND VI OF THE MERCHANT MARINE ACT OF 1936. THE COMMISSION IS DIRECTED TO ARRANGE FOR THE NEGOTIATION OF CONTRACTS FOR OPERATING DIFFERENTIAL SUBSIDIES TO AMERICAN CITIZENS UNDER CERTAIN CIRCUMSTANCES WHERE AN OPERATING SUBSIDY IS DEEMED NECESSARY TO MEET COMPETITION OF FOREIGN FLAG SHIPS. BY THE TERMS OF TITLE IV THE EXISTING CONTRACTS FOR THE CARRIAGE OF THE MAILS MADE BY THE POSTMASTER GENERAL PURSUANT TO THE MERCHANT MARINE ACT OF 1928 ARE TERMINATED AS OF JUNE 30, 1937. THE STATUTE PROVIDES THAT THE OPERATING DIFFERENTIAL SUBSIDY PURSUANT TO TITLE VI SHALL BE A SUBSTITUTION OF THE RIGHTS UNDER THE EXISTING MAIL CONTRACTS. IT THUS BECOMES THE OBLIGATION OF THE COMMISSION TO ARRANGE FOR THESE SUBSIDIES AT THE EARLIEST MOMENT PRACTICABLE. INTERWOVEN WITH THE QUESTION OF THE OCEAN MAIL CONTRACT SETTLEMENTS AND DEVELOPMENT OF THE OPERATING AND CONSTRUCTION DIFFERENTIAL SUBSIDIES IS THE PROBLEM OF ANALYZING THE FINANCIAL BACKGROUND AND PROJECTING THE FINANCIAL FUTURE OF THE VARIOUS STEAMSHIP COMPANIES OPERATING UNDER THE ACT.

THE COMMISSION IS NOT AUTHORIZED TO APPROVE AN APPLICATION FOR AN OPERATING DIFFERENTIAL SUBSIDY UNTIL CERTAIN DETERMINATIONS ARE MADE. FIRST, THAT THE OPERATION OF SUCH VESSELS IN THE SERVICE IS REQUIRED TO MEET FOREIGN FLAG COMPETITION AND PROMOTE THE FOREIGN COMMERCE OF THE UNITED STATES; SECOND, THAT THE APPLICANT OWNS OR CAN AND WILL BUILD OR PURCHASE APPROPRIATE VESSELS NECESSARY TO MAINTAIN THE SERVICE; AND THIRD, THAT THE APPLICANT POSSESSES THE ABILITY, EXPERIENCE, AND FINANCIAL RESOURCES TO CONDUCT THE PROPOSED OPERATIONS. THIS LATTER REQUIREMENT, THAT THE COMMISSION DETERMINE THE FINANCIAL ABILITY OF THE COMPANIES SEEKING THE OPERATING DIFFERENTIAL SUBSIDY RAISES FURTHER PROBLEMS FOR THE COMMISSION, IN VIEW OF THE MANIFEST INTENTION OF THE STATUTE. AT LEAST ONE IMPORTANT LINE NOW OPERATED UNDER A MAIL CONTRACT IS UNDER SECTION 77 B OF THE BANKRUPTCY ACT, AND A PLAN OF REORGANIZATION HAS BEEN CONSIDERED BY THE COURT, THOUGH NO DETERMINATION HAS YET BEEN MADE REGARDING ITS FEASIBILITY. ANOTHER LINE IS IN SERIOUS FINANCIAL DIFFICULTIES AND MUST REARRANGE ITS CAPITAL STRUCTURE IF IT IS TO COME WITHIN THE TERMS OF THE ACT. STILL OTHER COMPANIES ARE, AT PRESENT, WITHOUT FINANCIAL ABILITY TO COMPLY WITH THE REQUIREMENTS OF THE ACT, EVEN THOUGH THEY OPERATE LINES WHICH MAY BE DETERMINED TO BE ESSENTIAL TO THE MAINTENANCE OF NATIONAL DEFENSE AND THE MERCHANT MARINE PRESTIGE OF THE UNITED STATES AS CONTEMPLATED BY THE ACT.

BECAUSE OF THESE PROBLEMS, IT IS ESSENTIAL THAT THE COMMISSION HAVE AT ITS DISPOSAL FOR THE DURATION OF THIS GRAVE EMERGENCY EXPERTS IN THE FIELDS OF CORPORATE REORGANIZATION AND RECAPITALIZATION, WHO WILL ADVISE WITH THE COMMISSION AS TO THE BUSINESS POLICY TO BE ADOPTED, THE CORPORATE REARRANGEMENT TO BE INSISTED UPON AS A CONDITION FOR THE GRANTING OF A SUBSIDY, THE AMOUNT AND SOURCE OF NEW CAPITAL, AND THE KIND OF SECURITIES TO BE REPRESENTED THEREBY IN THESE COMPANIES WHICH ARE DESIROUS OF SECURING A SUBSIDY, EITHER OPERATING OR CONSTRUCTION.

RECOGNIZING THE DESIRABILITY OF HAVING THIS WORK ACCOMPLISHED BY PERSONS NOW IN THE GOVERNMENT SERVICE, THE COMMISSION CAREFULLY CANVASSED VARIOUS GOVERNMENT AGENCIES WHICH MIGHT HAVE TALENT OF THE KIND I HAVE INDICATED, BUT HAS FOUND NO ONE AVAILABLE WHO WOULD FULFILL THESE STRICT REQUIREMENTS. THEREFORE, THE COMMISSION HAS FOUND IT NECESSARY TO SEEK THE SERVICES OF CERTAIN EXPERTS WHO HAVE INDICATED THEIR WILLINGNESS TO SERVE ON A CONTRACTUAL BASIS AND WHO HAVE ALREADY FURNISHED THE COMMISSION WITH INVALUABLE ADVICE AND COUNSEL ON THE QUESTIONS I HAVE INDICATED, AND WILL BE AVAILABLE FOR CONSULTATION AND ADVICE ON SUCH OTHERS AS MAY ARISE IN CONNECTION WITH THE SETTLEMENT OF THE OCEAN MAIL CONTRACTS AND THE DEVELOPMENT OF THE OPERATING AND CONSTRUCTION DIFFERENTIAL SUBSIDIES. THE COMMISSION DESIRES TO HAVE AVAILABLE, ON A PER DIEM BASIS, THE SERVICES OF JUDGE JOHN J. BURNS, FORMER GENERAL COUNSEL OF THE SECURITIES AND EXCHANGE COMMISSION, OF BOSTON, MASSACHUSETTS. BECAUSE OF JUDGE BURNS' UNUSUAL SKILL IN LEGAL AND FINANCIAL MATTERS, THE COMMISSION BELIEVES THAT HIS SERVICES ARE ESSENTIAL TO A PROPER FUNCTIONING UNDER THE ACT. WE BELIEVE THE SERVICES OF JUDGE BURNS CAN BE NEGOTIATED ON A CONTRACT BASIS OF FIFTY DOLLARS ($50.00) PER DAY OF ACTUAL SERVICE.

THE COMMISSION ALSO BELIEVES THAT THE SERVICES OF ARCHIBALD R. GRAUSTEIN, ESQUIRE, CAN BE NEGOTIATED ON THE BASIS OF AN UNDERTAKING BY THE COMMISSION TO PAY FIFTY DOLLARS ($50.00) PER DAY OF ACTUAL SERVICE. MR. GRAUSTEIN IS A FORMER PARTNER IN THE BOSTON LAW FIRM OF ROPES, GRAY, BOYDEN, AND PERKINS AND IS NOW ENGAGED IN PRIVATE PRACTICE IN NEW YORK. HE WAS FORMERLY CHAIRMAN OF THE EXECUTIVE COMMITTEE OF THE NEW ENGLAND POWER COMPANY AND RECENTLY RESIGNED AS PRESIDENT AND CHAIRMAN OF THE BOARD OF THE INTERNATIONAL PAPER AND POWER COMPANY.

TO ASSIST IN THIS WORK AND TO ADVISE THE COMMISSION ON QUESTION OF LONG RANGE FINANCIAL POLICY, THE COMMISSION ALSO DESIRES TO ENGAGE THE SERVICES OF JAY DUNNE, ESQUIRE, OF NEW YORK. MR. DUNNE WAS FORMERLY A PARTNER IN THE FIRM OF A. G. BECKER AND COMPANY AND IS RECOGNIZED AS POSSESSING OUTSTANDING ABILITY IN THE FIELD OF CORPORATE FINANCE. MR. DUNNE, AS IN THE CASE OF JUDGE BURNS, WAS WITH THE SECURITIES AND EXCHANGE COMMISSION WHEN I SERVED AS ITS CHAIRMAN. WE BELIEVE THE SERVICES OF MR. DUNNE CAN BE NEGOTIATED ON THE BASIS OF AN UNDERTAKING OF THE THIRTY-FIVE DOLLARS ($35.00) PER DAY OF ACTUAL SERVICE.

IT IS BELIEVED THAT SECTION 207 OF THE MERCHANT MARINE ACT OF 1936 EMPOWERS THE COMMISSION TO ENTER INTO SUCH A CONTRACT UPON BEHALF OF THE UNITED STATES AND THAT THE LANGUAGE OF SECTION 201 (E) IS NOT CONTROLLING, IN VIEW OF THE FACT THAT THE CONTRACT CONTEMPLATES SERVICES OF A SPECIFIED NATURE IN THE RELATIONSHIP OF AN INDEPENDENT CONTRACTOR AND THAT THE SERVICES SHALL BE OF A SPECIALIZED NATURE, INCLUDING FINANCIAL AND BUSINESS ADVICE.

THE COMMISSION BELIEVES THAT THROUGH THE SERVICES OF THESE MEN, UNDER SUCH AN ARRANGEMENT, THE SETTLEMENT REORGANIZATION AND FINANCIAL PROBLEMS ARISING UNDER THE ACT WHICH REQUIRE IMMEDIATE ATTENTION AFFECTING THE GOVERNMENT CAN BE THUS HANDLED EXPEDITIOUSLY, ECONOMICALLY, AND TO THE ADVANTAGE OF THE GOVERNMENT OF THE UNITED STATES. CONSEQUENTLY, THE COMMISSION RESPECTFULLY REQUESTS AN EXPRESSION OF OPINION THAT THE PROPOSED CONTRACTS WOULD BE WITHIN THE POWERS OF THE COMMISSION TO NEGOTIATE. THE COMMISSION HAS NO DESIRE TO AVAIL ITSELF OF THE SERVICES OF THESE MEN LONGER THAN THE GRAVITY OF THIS SITUATION REQUIRES.

YOUR EARLY CONSIDERATION AND SUGGESTIONS IN THE PREMISES WILL BE DEEPLY APPRECIATED.

SECTIONS 201 (E) AND 207 OF THE MERCHANT MARINE ACT APPROVED JUNE 29, 1936, 49 STAT. 1986 AND 1988, PROVIDE:

(E) WITHOUT REGARD TO THE CIVIL SERVICE LAWS OR THE CLASSIFICATION ACT OF 1923, AS AMENDED, THE COMMISSION MAY APPOINT AND PRESCRIBE THE DUTIES AND FIX THE SALARIES OF A SECRETARY, A DIRECTOR FOR EACH OF NOT TO EXCEED FIVE DIVISIONS, A GENERAL COUNSEL, A CLERK TO EACH MEMBER OF THE COMMISSION, AND NOT MORE THAN THREE ASSISTANTS, NOT MORE THAN A TOTAL OF TWELVE EACH OF NAVAL ARCHITECTS, SPECIAL EXPERTS, ATTORNEYS, AND EXAMINERS AND NOT MORE THAN TWO INSPECTORS AT EACH SHIPYARD AT WHICH VESSELS ARE BEING CONSTRUCTED BY IT OR UNDER ITS SUPERVISION. NO EMPLOYEE SO APPOINTED MAY RECEIVE AN ANNUAL SALARY AT A RATE IN EXCESS OF THAT PROVIDED UNDER THE CLASSIFICATION ACT OF 1923, AS AMENDED. THE COMMISSION MAY, SUBJECT TO THE PROVISIONS OF THE CIVIL SERVICE LAWS AND THE CLASSIFICATION ACT OF 1923, AS AMENDED, APPOINT SUCH OTHER OFFICERS, ENGINEERS, INSPECTORS, ATTORNEYS, EXAMINERS, AND OTHER EMPLOYEES AS ARE NECESSARY IN THE EXECUTION OF ITS FUNCTIONS: * * *

SEC. 207. THE COMMISSION MAY ENTER INTO SUCH CONTRACTS, UPON BEHALF OF THE UNITED STATES, AS MAY, IN ITS DISCRETION, BE NECESSARY TO CARRY ON THE ACTIVITIES AUTHORIZED BY THIS ACT, IN THE SAME MANNER THAT A PRIVATE CORPORATION MAY CONTRACT WITHIN THE SCOPE OF THE AUTHORITY CONFERRED BY ITS CHARTER. ALL THE COMMISSION'S FINANCIAL TRANSACTIONS SHALL BE AUDITED IN THE GENERAL ACCOUNTING OFFICE ACCORDING TO APPROVED COMMERCIAL PRACTICE AS PROVIDED IN THE ACT OF MARCH 20, 1922 (42 STAT. 444): PROVIDED, THAT IT SHALL BE RECOGNIZED THAT, BECAUSE OF THE BUSINESS ACTIVITIES AUTHORIZED BY THIS ACT, THE ACCOUNTING OFFICERS SHALL ALLOW CREDIT FOR ALL EXPENDITURES SHOWN TO BE NECESSARY BECAUSE OF THE NATURE OF SUCH AUTHORIZED ACTIVITIES, NOTWITHSTANDING ANY EXISTING STATUTORY PROVISION TO THE CONTRARY. THE COMPTROLLER GENERAL SHALL REPORT ANNUALLY OR OFTENER TO CONGRESS ANY DEPARTURE BY THE COMMISSION FROM THE PROVISIONS OF THIS ACT.

SECTION 201 (E) PROVIDES A COMPLETE AND EXCLUSIVE PROCEDURE FOR THE EMPLOYMENT OF PERSONAL SERVICES INCLUDING A LIMITED NUMBER OF "SPECIAL EXPERTS" AND SPECIFICALLY PROVIDES THAT NO EMPLOYEE SO APPOINTED SHALL RECEIVE AN ANNUAL SALARY AT A RATE IN EXCESS OF THAT PROVIDED UNDER THE CLASSIFICATION ACT OF 1923. THE MAXIMUM ANNUAL SALARY OF $9,000 PROVIDED BY THE CLASSIFICATION ACT REDUCED TO A DAILY RATE PERMITS NOT EXCEEDING $25 PER DAY. 13 COMP. GEN. 167. IN 11 COMP. GEN. 252 IT WAS STATED WITH RESPECT TO A SIMILAR QUESTION:

SECTION 2 OF THE CLASSIFICATION ACT OF 1923, 42 STAT. 1488, AS AMENDED, PROVIDES THAT THE TERM ,EMPLOYEE" MEANS "ANY PERSON TEMPORARILY OR PERMANENTLY IN A POSITION" AND THE TERM "POSITION" IS DEFINED AS "A SPECIFIC CIVILIAN OFFICE OR EMPLOYMENT WHETHER OCCUPIED OR VACANT IN A DEPARTMENT OTHER THAN THE FOLLOWING.' THE EXCEPTIONS THEREIN MENTIONED ARE NOT HERE INVOLVED, BUT IT IS TO BE NOTED THAT NO EXCEPTION IS MADE AS TO EXPERTS IN ANY PARTICULAR LINE OF BUSINESS OR ENDEAVOR, AND, THEREFORE, THE INVESTIGATION OF THE BANKING CONDITIONS IN THE VIRGIN ISLANDS AND THE REPORTING THEREON MAY NOT PROPERLY BE CONSIDERED ON ANY OTHER BASIS THAN A PERSONAL SERVICE TO BE PERFORMED BY REGULAR GOVERNMENT EMPLOYEES CLASSIFIED UNDER THE CLASSIFICATION LAWS OR BY THE EMPLOYMENT OF SUCH TEMPORARY PERSONNEL AS MAY BE NECESSARY AT RATES OF COMPENSATION PROVIDED BY SAID LAWS. 6 COMP. GEN. 140, 324, 820.

THIS OFFICE FULLY REALIZES THE EMERGENCY WHICH NOW CONFRONTS YOUR COMMISSION, BUT SUCH EMERGENCY WOULD APPEAR TO CONSIST PRIMARILY IN THE LACK OF TIME UNTIL THE DATE THE MAIL CONTRACTS ARE TERMINATED BY LAW, AS THE CONGRESS HAD MADE WHAT IT CONSIDERED AMPLE PROVISION FOR EXPERT ASSISTANCE TO YOUR COMMISSION AND IN VIEW OF THE PROVISIONS OF SECTION 201 (E) IT MUST BE HELD THAT SECTION 207 HAS NO APPLICATION TO PERSONAL SERVICES SUCH AS HERE INVOLVED.

IF, AS STATED IN YOUR SUBMISSION, THERE ARE NO PERSONS NOW IN THE FEDERAL SERVICE QUALIFIED AND AVAILABLE FOR THE SPECIAL SERVICES DESIRED, AND IT IS NOT POSSIBLE TO PROCURE EXPERTS OUTSIDE OF THE GOVERNMENT SERVICE WITHIN THE LIMITS AUTHORIZED BY SECTION 201 (E), THE MATTER WOULD APPEAR TO BE FOR PRESENTATION TO THE CONGRESS, NOW IN SESSION, WITH A VIEW TO OBTAINING SPECIFIC LEGISLATIVE AUTHORITY FOR SUCH EMPLOYMENT AS THE CONGRESS MAY CONSIDER DESIRABLE OR NECESSARY IN THE CIRCUMSTANCES.