B-26993, AUGUST 7, 1942, 22 COMP. GEN. 124

B-26993, AUGUST 7, 1942, 22 COMP. GEN. 124

FEES - PROCUREMENT OF GOVERNMENT BUSINESS - LICENSED REAL ESTATE AGENTS OR BROKERS LICENSED REAL-ESTATE AGENTS OR BROKERS HAVING LISTING ON INDUSTRIAL PROPERTY FOR RENT, IN ACCORDANCE WITH THE GENERAL BUSINESS PRACTICE, AND WHO HAVE NOT OBTAINED SUCH LICENSES FOR THE SOLE PURPOSE OF EFFECTING A PARTICULAR LEASE OR LEASES WITH THE GOVERNMENT, MAY BE CONSIDERED "BONA FIDE ESTABLISHED COMMERCIAL OR SELLING AGENCIES MAINTAINED BY THE CONTRACTOR FOR THE PURPOSE OF SECURING BUSINESS" WITHIN THE MEANING OF THE EXCEPTION TO THE WARRANTY THAT THE CONTRACTOR "HAS NOT EMPLOYED ANY PERSON TO SOLICIT OR SECURE THIS CONTRACT UPON ANY AGREEMENT FOR A COMMISSION, PERCENTAGE, BROKERAGE, OR CONTINGENT FEE," WHICH WARRANTY IS REQUIRED BY EXECUTIVE ORDER 9001, AS AMENDED, TO BE INCLUDED IN EVERY CONTRACT ENTERED INTO PURSUANT TO THE EXECUTIVE ORDER.

COMPTROLLER GENERAL WARREN TO THE DIRECTOR, THE OFFICE OF DEFENSE TRANSPORTATION, OFFICE FOR EMERGENCY MANAGEMENT, AUGUST 7, 1942:

I HAVE YOUR LETTER OF JULY 16, 1942, AS FOLLOWS:

REFERENCE IS MADE TO YOUR LETTER OF JUNE 29, 1942, FILE B-26993, WHICH WAS WRITTEN IN RESPONSE TO A LETTER ADDRESSED TO YOU ON JUNE 25, 1942, BY THE GENERAL COUNSEL OF THIS OFFICE, WITH REGARD TO THE EMERGENCY WAR PROGRAM OF PROVIDING STORAGE SPACE AND PUBLIC WAREHOUSING SERVICES FOR THE USE OF THE GOVERNMENT IN VARIOUS CITIES OF THE UNITED STATES. PARTICULAR REFERENCE WAS MADE IN THAT CORRESPONDENCE TO THE INCORPORATION IN LEASES WHICH MAY BE ENTERED INTO BY THE GOVERNMENT IN CONNECTION WITH THE PROGRAM DESCRIBED, OF THE PROVISIONS OF PARAGRAPH NUMBERED 5, TITLE II OF EXECUTIVE ORDER NO. 9001 (6 F.R. 6787).

AS THE GENERAL COUNSEL POINTED OUT IN HIS LETTER TO YOU, IT IS ANTICIPATED THAT IT WILL BE NECESSARY TO NEGOTIATE SOME THREE HUNDRED TO FIVE HUNDRED LEASES OF INDUSTRIAL PREMISES TO PROVIDE THE STORAGE FACILITIES CONTEMPLATED BY THE PROGRAM. ALL OF THIS MUST BE DONE WITHIN A COMPARATIVELY SHORT PERIOD OF TIME IN ORDER TO MEET THE IMMEDIATE REQUIREMENTS OF THE GOVERNMENT IN THE PRESENT EMERGENCY. IN ORDER TO AVOID DELAY IN LOCATING SUITABLE PREMISES, WE DESIRE TO OBTAIN THE COOPERATION OF LICENSED REAL-ESTATE BROKERS DOING BUSINESS IN VARIOUS PARTS OF THE COUNTRY. WE HOPE THAT THIS COOPERATION WILL RESULT IN BROKERS BRINGING TO OUR ATTENTION SUITABLE PROPERTIES WHICH HAVE BEEN LISTED WITH THEM FOR LEASE TO ANY SATISFACTORY TENANT UPON SUITABLE TERMS AND CONDITIONS. NOTICES OF THESE LISTINGS WILL BE GIVEN US NOT UPON ANY SPECIFIC REQUEST THEREFOR, BUT AS A RESULT OF THE GENERAL PUBLICITY AFFORDED THE WAREHOUSING PROGRAM. IN FACT, THIS HAS ALREADY BEEN OUR EXPERIENCE.

UPON RECEIPT OF THESE NOTICES FROM THE VARIOUS BROKERS, WE PROPOSE TO INVESTIGATE THOSE INDUSTRIAL PROPERTIES SO LISTED WHICH APPEAR TO BE OF VALUE TO THE GOVERNMENT IN CONNECTION WITH THE EMERGENCY PROGRAM DESCRIBED. IF IT IS FOUND THAT ANY PARTICULAR PROPERTY IS DESIRABLE FROM THE STANDPOINT OF THE USE CONTEMPLATED BY THE PROGRAM, IT IS THE DESIRE OF THIS OFFICE TO OPEN NEGOTIATIONS WITH THE LICENSED REAL ESTATE BROKER REPRESENTING THE OWNER OF THE BUILDING, OR REPRESENTING A TENANT WHO MAY BE WILLING TO SUBLEASE OR ASSIGN HIS LEASE TO THE GOVERNMENT. IF A LEASE IS MADE OF THE PREMISES AS A RESULT OF SUCH NEGOTIATIONS, IT IS REASONABLE TO ASSUME THAT THE BROKER WILL HAVE EARNED, AND UNDOUBTEDLY WILL BE PAID BY THE LESSOR, A REASONABLE COMMISSION.

IN THE LIGHT OF THE CONCLUSIONS EXPRESSED IN YOUR LETTER OF JUNE 29, 1942, IT APPEARS TO ME THAT COMMISSIONS PAID TO BROKERS UNDER THE FACTUAL SITUATION HERE PRESENTED, PROPERLY WOULD BE CONSIDERED COMMISSIONS PAYABLE BY CONTRACTORS UPON CONTRACTS "MADE THROUGH BONA FIDE ESTABLISHED COMMERCIAL OR SELLING AGENCIES" AND, FOR THAT REASON, THE SITUATION WOULD FALL WITHIN THE EXCEPTION CONTAINED IN PARAGRAPH NUMBERED 5, TITLE II, EXECUTIVE ORDER NO. 9001.

BEFORE PROCEEDING IN THE MANNER INDICATED, I SHALL VERY GREATLY APPRECIATE YOUR ADVICE AS TO WHETHER YOU AGREE WITH THE CONCLUSION I HAVE REACHED AND WHETHER THE VIEWS EXPRESSED IN YOUR LETTER OF JUNE 29, 1942, WILL APPLY TO THE FACTUAL SITUATION PRESENTED IN THIS LETTER. PARAGRAPH 5, TITLE II OF EXECUTIVE ORDER NO. 9001, AS AMENDED, PROVIDES AS FOLLOWS:

5. EVERY CONTRACT ENTERED INTO PURSUANT TO THIS ORDER SHALL CONTAIN A WARRANTY BY THE CONTRACTOR IN SUBSTANTIALLY THE FOLLOWING TERMS:

"THE CONTRACTOR WARRANTS THAT HE HAS NOT EMPLOYED ANY PERSON TO SOLICIT OR SECURE THIS CONTRACT UPON ANY AGREEMENT FOR A COMMISSION, PERCENTAGE, BROKERAGE, OR CONTINGENT FEE. BREACH OF THIS WARRANTY SHALL GIVE THE GOVERNMENT THE RIGHT TO ANNUL THE CONTRACT, OR, IN ITS DISCRETION, TO DEDUCT FROM THE CONTRACT PRICE OR CONSIDERATION THE AMOUNT OF SUCH COMMISSION, PERCENTAGE, BROKERAGE, OR CONTINGENT FEES. THIS WARRANTY SHALL NOT APPLY TO COMMISSIONS PAYABLE BY CONTRACTORS UPON CONTRACTS OR SALES SECURED OR MADE THROUGH BONA FIDE ESTABLISHED COMMERCIAL OR SELLING AGENCIES MAINTAINED BY THE CONTRACTOR FOR THE PURPOSE OF SECURING BUSINESS.'

THE QUESTION PRESENTED BY YOUR LETTER WOULD APPEAR TO BE, SPECIFICALLY, WHETHER LICENSED REAL ESTATE AGENTS OR BROKERS HAVING LISTINGS ON AVAILABLE STORAGE SPACE MAY BE CONSIDERED "BONA FIDE ESTABLISHED COMMERCIAL OR SELLING AGENCIES MAINTAINED BY THE CONTRACTOR FOR THE PURPOSE OF SECURING BUSINESS," WITHIN THE MEANING OF THE EXCEPTION IN THE ABOVE-QUOTED PARAGRAPH. IF IT BE DETERMINED THAT THE AGENTS MAY BE SO CONSIDERED THEN, OF COURSE, THE FACT THAT THEY MAY TAKE THE INITIATIVE IN BRINGING TO THE ATTENTION OF THE GOVERNMENT PROPERTY LISTED WITH THEM FOR RENTAL PURPOSES HAS NO MATERIAL BEARING SINCE ESTABLISHED COMMERCIAL OR SELLING AGENCIES MAY BE EXPECTED TO TAKE SUCH STEPS AS PART OF A NATURAL COURSE OF CONDUCT CALCULATED TO EFFECT SUCCESSFULLY THE PURPOSE FOR WHICH THEY WERE ENGAGED AND EARN THE FEE PAYABLE FOR SUCH SERVICE BY THEIR RESPECTIVE CLIENTS.

THAT THE WARRANTY CONTAINS AN EXCEPTION IS RECOGNITION OF THE FACT THAT IN SOME INSTANCES DEALING WITH AGENTS OR CONTRACTORS IS NOT OBJECTIONABLE AND, IN FACT, MAY BE DESIRABLE FROM A GOVERNMENT STANDPOINT. CONSEQUENTLY, IN CONSTRUING THE APPLICABILITY OF THE EXCEPTION TO A PARTICULAR FACTUAL SITUATION ESPECIAL ATTENTION SHOULD BE DIRECTED TO THE EVIL WHICH THE PROVISION IS DESIGNED TO PREVENT. ALTHOUGH NO SPECIFIC DECLARATION OF PURPOSE IS SET OUT IN THE EXECUTIVE ORDER ITSELF, THE UNDESIRABILITY OF THE CONNIVANCY AND MALEFACTIONS OF CERTAIN TYPES OF COMMISSION BROKERS IN SECURING GOVERNMENT BUSINESS IS PERHAPS SO WELL KNOWN THAT SUCH A DECLARATION WOULD BE BUT A STATEMENT OF THE OBVIOUS. MR. JUSTICE FIELD EXPRESSED THE SENTIMENT RATHER FORCEFULLY IN THE CASE TOOL CO. V. NORRIS, 2 WALL. 45,54, IN WHICH HE SAID:

* * * ALL CONTRACTS FOR SUPPLIES SHOULD BE MADE WITH THOSE AND WITH THOSE ONLY, WHO WILL EXECUTE THEM MOST FAITHFULLY, AND AT THE LEAST EXPENSE TO THE GOVERNMENT. CONSIDERATIONS AS TO THE MOST EFFICIENT AND ECONOMICAL MODE OF MEETING THE PUBLIC WANTS SHOULD ALONE CONTROL, IN THIS RESPECT, THE ACTION OF EVERY DEPARTMENT OF THE GOVERNMENT. NO OTHER CONSIDERATION CAN LAWFULLY ENTER INTO THE TRANSACTION, SO FAR AS THE GOVERNMENT IS CONCERNED. SUCH IS THE RULE OF PUBLIC POLICY; AND WHATEVER TENDS TO INTRODUCE ANY OTHER ELEMENTS INTO THE TRANSACTION, IS AGAINST PUBLIC POLICY. THAT AGREEMENTS, LIKE THE ONE UNDER CONSIDERATION (BETWEEN A GOVERNMENT CONTRACTOR AND A COMMISSION BROKER), HAVING THAT TENDENCY, IS MANIFEST. THEY TEND TO INTRODUCE PERSONAL SOLICITATION, AND PERSONAL INFLUENCE, AS ELEMENTS IN THE PROCUREMENT OF CONTRACTS; AND THUS DIRECTLY LEAD TO INEFFICIENCY IN THE PUBLIC SERVICE, AND TO UNNECESSARY EXPENDITURES OF PUBLIC FUNDS.

APPARENTLY, IT IS NOT THE PURPOSE OF THE PROVISION OF THE EXECUTIVE ORDER, SUPRA, TO INTERFERE WITH THE ORDINARY TRADE PRACTICES OF PERSONS DESIRING TO CONTRACT WITH THE GOVERNMENT. THUS THE EXCEPTION SPEAKS OF ESTABLISHED COMMERCIAL OR SELLING AGENCIES "MAINTAINED" BY THE CONTRACTOR FOR THE PURPOSE OF SECURING BUSINESS. OF THE VARIOUS DEFINITIONS ASCRIBED TO THE WORD "MAINTAIN" IN WEBSTER'S NEW INTERNATIONAL DICTIONARY THE ONE MOST CONSONANT WITH THE SPIRIT AND PURPOSE OF THIS EXCEPTION IS "TO PRACTICE AS A MATTER OF HABIT OR CUSTOM.' SINCE IT IS A GENERAL BUSINESS PRACTICE FOR OWNERS OF INDUSTRIAL PROPERTY DESIRING TO RENT THEIR PROPERTY TO ENGAGE BY MEANS OF A LISTING AN AGENT TO ACCOMPLISH THAT RESULT, IT WOULD APPEAR THAT THE OWNERS DO IN FACT MAINTAIN AGENTS FOR THE PURPOSE OF SECURING BUSINESS.

WHETHER A PARTICULAR REAL ESTATE BROKER IS A "BONA FIDE ESTABLISHED" COMMERCIAL AGENCY DEPENDS, OF COURSE, ON MANY FACTORS, WHICH NEED NOT BE DISCUSSED AT THIS TIME. THE FACT THAT A BROKER HAS BEEN DULY LICENSED BY COMPETENT AUTHORITY IS SOME EVIDENCE THAT THAT BROKER IS WITHIN THE CONTEMPLATION OF THE EXCEPTION TO THE WARRANTY. HOWEVER, POSSESSION OF A LICENSE MAY NOT BE CONCLUSIVE IN ALL CASES, FOR UNDER NO CIRCUMSTANCES MAY THE ABOVE-QUOTED PARAGRAPH 5 OF EXECUTIVE ORDER 9001 BE CONSTRUED TO EXCEPT PERSONS WHO HAVE PROCURED SUCH LICENSES FOR THE SOLE PURPOSE OF EFFECTING A PARTICULAR LEASE OR LEASES WITH THE GOVERNMENT.

ACCORDINGLY, I CONCUR IN THE VIEWS EXPRESSED IN YOUR LETTER THAT COMMISSIONS PAID TO LICENSED REAL ESTATE BROKERS BY LESSORS OF STORAGE SPACE TO THE GOVERNMENT MAY BE CONSIDERED AS INCIDENT TO CONTRACTS "MADE THROUGH BONA FIDE ESTABLISHED COMMERCIAL OR SELLING AGENCIES" PROVIDED SUCH BROKERS ARE IN FACT "BONA FIDE" AND "ESTABLISHED" FIRMS ENGAGED IN THAT BUSINESS GENERALLY.