B-111732(2), OCT 26, 1953

B-111732(2): Oct 26, 1953

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THERE WAS DEDUCTED ON THE VOUCHER THE AMOUNT OF $8. 660 WAS TO BE PAID TO MR. IT WAS ALSO DISCLOSED THAT BRADLEY MILLER & COMPANY REPUDIATED THE AGREEMENT WITH MR. THIS FIGURE WAS ORIGINALLY CONSIDERED BY THE DEPARTMENT OF THE ARMY AS REPRESENTING THE SUM FOR RECOVERY BY THE GOVERNMENT BY REASON OF THE BREACH OF THE COVENANT AGAINST CONTINGENT FEES AND IT APPEARS THAT YOU WERE ADVISED THAT THE FINAL PAYMENT UNDER THE CONTRACT WOULD BE IN THE AMOUNT OF $7. FOR BREACH OR VIOLATION OF THIS WARRANTY THE GOVERNMENT SHALL HAVE THE RIGHT TO ANNUL THIS CONTRACT WITHOUT LIABILITY OR IN ITS DISCRETION TO DEDUCT FROM THE CONTRACT PRICE OR CONSIDERATION THE FULL AMOUNT OF SUCH COMMISSION. THE INCORPORATION OF THIS CONTRACT ARTICLE WAS REQUIRED UNDER THE PROVISIONS OF SECTION 4(A) OF THE ARMED SERVICES PROCUREMENT ACT OF 1947.

B-111732(2), OCT 26, 1953

PRECIS-UNAVAILABLE

MICHIGAN NATIONAL BANK:

UNDER DATE OF SEPTEMBER 3, 1952, THE OFFICE OF THE CHIEF OF FINANCE, DEPARTMENT OF THE ARMY, TRANSMITTED TO THIS OFFICE A VOUCHER IN THE AMOUNT OF $15,628.80, STATED IN FAVOR OF BRADLEY MILLER & COMPANY, C/O MICHIGAN NATIONAL BANK, SAGINAW, MICHIGAN, AND COVERING THE DELIVERY OF 8,448 AMMUNITION SHIPPING BOXES, M23, UNDER CONTRACT NO. DA-36-038-ORD 2393, DATED DECEMBER 12, 1950, AS AMENDED.

THERE WAS DEDUCTED ON THE VOUCHER THE AMOUNT OF $8,263.62 AS AN ADJUSTMENT DUE THE GOVERNMENT ON ACCOUNT OF A BREACH OF THE CONTRACT ARTICLE ENTITLED "COVENANT AGAINST CONTINGENT FEES."

INVESTIGATION BY THE ARMY AUDIT AGENCY DISCLOSED THAT UNDER THE TERMS OF AN AGREEMENT BETWEEN MR. HARRY K. TUCKER, JR. AND MR. EUGENE D. GWISDALA, ACTING AS TRUSTEE OF THE ESTATE OF BRADLEY MILLER & COMPANY, THE APPROXIMATE MAXIMUM AMOUNT OF $42,660 WAS TO BE PAID TO MR. TUCKER FOR SERVICES RENDERED IN SECURING THE CONTRACT WITH THE GOVERNMENT. IT WAS ALSO DISCLOSED THAT BRADLEY MILLER & COMPANY REPUDIATED THE AGREEMENT WITH MR. TUCKER AFTER PAYMENT OF FEES AMOUNTING TO $8,263.62. THIS FIGURE WAS ORIGINALLY CONSIDERED BY THE DEPARTMENT OF THE ARMY AS REPRESENTING THE SUM FOR RECOVERY BY THE GOVERNMENT BY REASON OF THE BREACH OF THE COVENANT AGAINST CONTINGENT FEES AND IT APPEARS THAT YOU WERE ADVISED THAT THE FINAL PAYMENT UNDER THE CONTRACT WOULD BE IN THE AMOUNT OF $7,365.18, OR $15,628.80 LESS $8,263.62.

HOWEVER, IN FORWARDING THE VOUCHER TO THIS OFFICE, THE DEPARTMENT OF THE ARMY RAISED THE QUESTION AS TO WHETHER THE CONTRACTOR MIGHT PROPERLY BE HELD LIABLE FOR THE AMOUNT OF $42,660, THEREBY LEAVING NO BALANCE TO BE PAID ON THE VOUCHER FOR $15,628.80.

ARTICLE 20 OF THE GENERAL PROVISIONS OF THE CONTRACT, ENTITLED "COVENANT AGAINST CONTINGENT FEES," PROVIDES AS FOLLOWS:

"THE CONTRACTOR WARRANTS THAT NO PERSON OR SELLING AGENCY HAS BEEN EMPLOYED OR RETAINED TO SOLICIT OR SECURE THIS CONTRACT UPON AN AGREEMENT OR UNDERSTANDING FOR A COMMISSION, PERCENTAGE, BROKERAGE, OR CONTINGENT FEE, EXCEPTING BONA FIDE EMPLOYEES OR BONA FIDE ESTABLISHED COMMERCIAL OR SELLING AGENCIES MAINTAINED BY THE CONTRACTOR FOR THE PURPOSE OF SECURING BUSINESS. FOR BREACH OR VIOLATION OF THIS WARRANTY THE GOVERNMENT SHALL HAVE THE RIGHT TO ANNUL THIS CONTRACT WITHOUT LIABILITY OR IN ITS DISCRETION TO DEDUCT FROM THE CONTRACT PRICE OR CONSIDERATION THE FULL AMOUNT OF SUCH COMMISSION, PERCENTAGE, BROKERAGE, OR CONTINGENT FEE."

THE INCORPORATION OF THIS CONTRACT ARTICLE WAS REQUIRED UNDER THE PROVISIONS OF SECTION 4(A) OF THE ARMED SERVICES PROCUREMENT ACT OF 1947, WHICH ADOPTED THE POLICY SET FORTH IN EXECUTIVE ORDER NO. 9001, DATED DECEMBER 27, 1941, WHEREIN THE PRESIDENT, PURSUANT TO THE AUTHORITY VESTED IN HIM BY TITLE II OF THE FIRST WAR POWERS ACT, 1941, DETERMINED THAT FOR THE PROTECTION OF THE INTERESTS OF THE UNITED STATES EVERY CONTRACT AUTHORIZED UNDER SAID ORDER SHOULD CONTAIN A WARRANTY SIMILAR TO THAT MADE A PART OF THE CONTRACT WITH BRADLEY MILLER & COMPANY. IN THE CASE OF THE CONTRACT AWARDED TO BRADLEY MILLER & COMPANY, IT WAS CERTIFIED ON THE BID FORM USED IN THE NEGOTIATION OF THE CONTRACT THAT THE BIDDER HAD NOT EMPLOYED A COMPANY OR PERSON OTHER THAN A FULL-TIME EMPLOYEE TO SOLICIT OR SECURE THE CONTRACT.

IN ADDITION TO THE EVIDENCE OF RECORD BEFORE THE DEPARTMENT OF THE ARMY, THIS OFFICE HAS FURTHER INVESTIGATED THE ACTIVITIES OF MR. TUCKER AND THE CIRCUMSTANCES SURROUNDING THE CONTINGENT FEE AGREEMENT. UPON THE BASIS OF THE ENTIRE RECORD, THE CONCLUSION IS REQUIRED THAT HARRY K. TUCKER, JR., WAS NOT A BONA FIDE EMPLOYEE OF THE CONTRACTOR AND THAT THE FIRM OF HARRY K. TUCKER ASSOCIATES CANNOT BE SAID TO HAVE BEEN A BONA FIDE COMMERCIAL SELLING AGENCY "MAINTAINED BY THE CONTRACTOR FOR THE PURPOSE OF SECURING BUSINESS." ON THIS BASIS THE GOVERNMENT IS ENTITLED TO AN ADJUSTMENT ON ACCOUNT OF THE BREACH OF THE WARRANTY AGAINST CONTINGENT FEES. SEE REYNOLDS V. GOODMAN-HILL CORP., 154 F. 2D 553; BRADLEY V. AMERICAN RADIATOR AND STANDARD SANITARY CORPORATION, 159 F. 2D 39; UNITED STATES V. PADDOCK, 178 F. 2D 394; MITCHELL V. FLINTKOTA CO., 185 F. 2D 1008, CERTIORARI DENIED, 341 U.S. 931; AND BEACH V. ILLINOIS LUMBER MANUFACTURING CO., 92 F. SUPPL. 564.

IT IS THE VIEW OF THIS OFFICE THAT IN THE EVENT OF A BREACH OF ANY SUCH CONTRACT WARRANTY THE GOVERNMENT SHOULD NOT BE CONCERNED WITH WHETHER THE CONTRACTOR MAY HAVE REFUSED TO COMPLY FULLY WITH THE AGENCY AGREEMENT. OTHER WORDS, IT IS CONSIDERED THAT THE AMOUNT PAYABLE UNDER THE AGREEMENT AND NOT THE SUM PAID THEREUNDER IS THE PROPER MEASURE OF DAMAGES FOR THE BREACH. THUS, IN THE CASE OF UNITED STATES V. PADDOCK, SUPRA, WITH REFERENCE TO A SIMILAR CONTINGENT FEE ARRANGEMENT, THE COURT SAID:

"*** WHEN ANY SUCH CONTRACT WAS BREACHED, THE RIGHT AROSE TO LIQUIDATED DAMAGES IN THE AMOUNT OF THE CONTINGENT FEE NAMED IN THE AGREEMENT BETWEEN THE CONTRACTOR AND THE PERSON EMPLOYED TO SECURE THE GOVERNMENT CONTRACT. ***" THEREFORE, THIS OFFICE IN PROTECTION OF THE INTEREST OF THE GOVERNMENT MUST REFUSE PAYMENT OF ANY PART OF THE CLAIM FOR $15,628.80.