B-204892 L/M, JUN 30, 1982, OFFICE OF GENERAL COUNSEL

B-204892 L/M: Jun 30, 1982

Additional Materials:

Contact:

Ralph O. White
(202) 512-8278
WhiteRO@gao.gov

Kenneth E. Patton
(202) 512-8205
PattonK@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

ADVISING THAT WHETHER PARTICULAR COMPANY IS ELIGIBLE FOR FUTURE AWARDS. WATERVLIET ARSENAL: THIS IS IN REPLY TO YOUR REQUEST FOR AN ADVANCE OPINION CONCERNING THE PROPRIETY OF AWARDING FUTURE GOVERNMENT CONTRACTS TO CAMMACK ENGINEERING & MACHINING CO. THAT AWARD WAS NOT MADE TO THE FIRM BECAUSE MR. CAMMACK WAS A GOVERNMENT EMPLOYEE. CAMMACK STATED THAT HE WAS UNAWARE OF THE REGULATIONS PROHIBITING THE GOVERNMENT FROM CONTRACTING WITH FIRMS OWNED OR CONTROLLED BY GOVERNMENT EMPLOYEES. IS THAT OF A PART-TIME TECHNICAL CONSULTANT. "(A) CONTRACTS SHALL NOT KNOWINGLY BE ENTERED INTO BETWEEN THE GOVERNMENT AND EMPLOYEES OF THE GOVERNMENT OR BUSINESS ORGANIZATIONS WHICH ARE SUBSTANTIALLY OWNED OR CONTROLLED BY GOVERNMENT EMPLOYEES.

B-204892 L/M, JUN 30, 1982, OFFICE OF GENERAL COUNSEL

DIGEST: LETTER TO THE CHIEF, PROCUREMENT POLICY & PRICE ANALYSIS BRANCH, DEPARTMENT OF THE ARMY, WATERVLIET ARSENAL, ADVISING THAT WHETHER PARTICULAR COMPANY IS ELIGIBLE FOR FUTURE AWARDS, WHERE FEDERAL EMPLOYEE DIVESTED HIMSELF OF OWNERSHIP IN COMPANY IN FAVOR OF HIS WIFE, DEPENDS ON DETERMINATION OF WHETHER FEDERAL EMPLOYEE RETAINS SUBSTANTIAL CONTROL OF THE COMPANY FOR PURPOSES OF DAR SEC. 1-302.6 (1976 ED.).

MR. J. A. CONSTANZA, WATERVLIET ARSENAL:

THIS IS IN REPLY TO YOUR REQUEST FOR AN ADVANCE OPINION CONCERNING THE PROPRIETY OF AWARDING FUTURE GOVERNMENT CONTRACTS TO CAMMACK ENGINEERING & MACHINING CO. (CAMMACK). YOU REPORT THAT CAMMACK SUBMITTED THE LOW BID UNDER SOLICITATION NO. DAAA22-81-B-0488, BUT THAT AWARD WAS NOT MADE TO THE FIRM BECAUSE MR. CAMMACK WAS A GOVERNMENT EMPLOYEE.

BY LETTER TO YOU DATED AUGUST 8, 1981, MR. CAMMACK STATED THAT HE WAS UNAWARE OF THE REGULATIONS PROHIBITING THE GOVERNMENT FROM CONTRACTING WITH FIRMS OWNED OR CONTROLLED BY GOVERNMENT EMPLOYEES. BECAUSE OF THESE LIMITATIONS, MR. CAMMACK ADVISED THAT FULL TITLE AND CONTROL OF THE CAMMACK FIRM HAD BEEN TRANSFERRED TO HIS WIFE. HE STATED THAT THIS ACTION CHANGES THE STATUS OF THE BUSINESS FROM A PARTNERSHIP TO A PROPRIETORSHIP, REDEFINES THE BUSINESS AS 100-PERCENT WOMAN OWNED AND OPERATED AND REMOVES HIS AUTHORITY TO MAKE CONTRACTUAL COMMITMENTS FOR THE COMPANY. MR. CAMMACK FURTHER STATED IN THE LETTER THAT HIS INVOLVEMENT WITH THE FIRM, UNTIL SUCH TIME AS OTHER ARRANGEMENTS CAN BE MADE, IS THAT OF A PART-TIME TECHNICAL CONSULTANT.

DEFENSE ACQUISITION REGULATION (DAR) SEC. 1-302.6 (1976 ED.) PROVIDES:

"CONTRACTS BETWEEN THE GOVERNMENT AND ITS EMPLOYEES OR BUSINESS ORGANIZATIONS SUBSTANTIALLY OWNED OR CONTROLLED BY GOVERNMENT EMPLOYEES.

"(A) CONTRACTS SHALL NOT KNOWINGLY BE ENTERED INTO BETWEEN THE GOVERNMENT AND EMPLOYEES OF THE GOVERNMENT OR BUSINESS ORGANIZATIONS WHICH ARE SUBSTANTIALLY OWNED OR CONTROLLED BY GOVERNMENT EMPLOYEES, EXCEPT FOR THE MOST COMPELLING REASONS, SUCH AS CASES WHERE THE NEEDS OF THE GOVERNMENT CANNOT REASONABLY BE OTHERWISE SUPPLIED."

THIS REGULATION IMPLEMENTS A GENERAL, WELL-ESTABLISHED GOVERNMENT POLICY THAT CONTRACTS BETWEEN THE GOVERNMENT AND ITS EMPLOYEES ARE UNDESIRABLE FROM A PUBLIC POLICY STANDPOINT AND SHOULD BE AUTHORIZED ONLY IN EXCEPTIONAL CASES WHERE THE GOVERNMENT'S NEEDS CANNOT REASONABLY BE OTHEWISE SUPPLIED, BECAUSE THEY INVITE CRITICISM AND GIVE RISE TO THE APPEARANCE OF FAVORITISM AND FRAUD. SEE ELOGENE THURMAN, B-206325, MAY 24, 1982, 82-1 CPD 487, AND CASES CITED THEREIN; BURGOS & ASSOCIATES, INC., 59 COMP.GEN. 273 (1980), 80-1 CPD 155.

WE BELIEVE THAT THE ROLE OF GOVERNMENT EMPLOYEES IN THE MANAGEMENT AND CONTROL OF THE FIRM IS, FOR PURPOSES OF THE APPLICABILITY OF DAR SEC. 1- 302-6(A), A SEPARATE CONSIDERATION FROM WHETHER THE GOVERNMENT EMPLOYEES SUBSTANTIALLY OWN THAT FIRM. THE RATIONALE OF THE RULE PROHIBITING THE GOVERNMENT FROM CONTRACTING WITH ITS OWN EMPLOYEES IS NOT MERELY TO AVOID ANY CONFLICT OF INTEREST THAT MIGHT ARISE BETWEEN THE EMPLOYEES' INTERESTS AND THEIR GOVERNMENT DUTIES, BUT ALSO TO AVOID POSSIBLE CRITICISM OF FAVORITISM OR PREFERENTIAL TREATMENT BY THE GOVERNMENT TOWARD ITS EMPLOYEES. MR. CAMMACK STATES THAT FULL TITLE AND CONTROL OF THE COMPANY HAS BEEN TRANSFERRED TO HIS WIFE AND THAT HE WILL NOT HAVE A ROLE IN THE MANAGEMENT AND CONTROL OF THE FIRM.

HOWEVER, WE NOTE THAT IN THE PREAWARD SURVEY, IT IS STATED THAT MR. CAMMACK IS CURRENTLY EMPLOYED BY THE FOREST SERVICE, "BUT HE IS PERSONALLY COMMITTED TO QUITTING THIS POSITION IF A PROFITABLE LEVEL OF BUSINESS CAN BE PROCURED FOR HIS MACHINE SHOP. HIS PURCHASE OF EQUIPMENT AND THE ESTABLISHMENT OF HIS MACHINE SHOP APPEARS TO SUPPORT THIS COMMITMENT." ALSO NOTE THAT THE RECORD SHOWS THAT MR. CAMMACK WAS UNAWARE OF THE PROHIBITORY REGULATION AND THE LIMITATION IT IMPOSES AND HE WAYS THAT "BECAUSE OF THESE LIMITATIONS, EFFECTIVE 31 JULY 1981, FULL TITLE AND CONTROL OF CEM HAS BEEN TRANSFERRED TO MY WIFE." IN VIEW OF THESE QUOTATIONS, IT IS NOT CLEAR WHETHER MR. CAMMACK HAS GENUINELY TRANSFERRED CONTROL OF THE COMPANY TO HIS WIFE.

IN THESE CIRCUMSTANCES, IT SHOULD BE DETERMINED WHETHER, IN A PARTICULAR PROCUREMENT, MR. CAMMACK (IF HE REMAINS A FEDERAL EMPLOYEE) RETAINS SUBSTANTIAL CONTROL OF THE COMPANY FOR PURPOSES OF THE REGULATION AND, THUS, WHETHER THE COMPANY IS ELIGIBLE FOR AN AWARD.

Oct 20, 2020

Oct 16, 2020

Oct 15, 2020

Oct 14, 2020

Oct 9, 2020

Oct 8, 2020

Looking for more? Browse all our products here