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of the prime contract to the United States" and notice to the prime contractor to withhold funds would be made a function of the General Accounting Office. Under existing laws the General Accounting Office is charged with the power to review payments made under cost-plus-a-fixed-fee contracts by the various contracting agencies of the Government and under such power can take appropriate action with respect to improper items of cost. It seems unnecessary to charge that office with the additional responsibility for the policing of fixed price subcontracts under such cost-plus-a-fixed-fee contracts. Insofar as this Department is aware, the evils sought to be remedied by the bill are not sufficiently great to warrant such special treatment. Furthermore, the obligation to police, which naturally accompanies the powers given in the bill, may impose such a burden upon innocent contractors as to outweigh any benefits that may be derived by the Government. Also, it should be borne in mind that cost-plus-a-fixed-fee contracting is only resorted to where necessary and represents only a small portion of the total of Navy contracts.

All cost-plus-a-fixed-fee contracts provide that all payments are made by the contracting department and all contractual relations are between the contracting department and the prime contractor. It is recommended that no legislation be enacted under which agencies other than the contracting departments would be interjected into these relations and be given authority to give directions to withhold sums reported to have been paid in violation of the provisions of the bill. For the reasons stated, the Navy Department recommends against enactment of the bill in its present form.

The Navy Department has been advised by the Bureau of the Budget that there would be no objection to the submission of this recommendation.

Sincerely yours,

H. STRUVE HENSEL, Acting.

TREASURY DEPARTMENT,
Washington, August 25, 1944.

The DIRECTOR OF THE BUREAU OF THE BUDGET. SIR: Reference is made to letters dated February 10 and May 11, 1944, from the Assistant Director, Legislative Reference of your office, requesting an expression of the views of this Department with regard to H. R. 3558, a bill, to eliminate the practice by subcontractors, under cost-plus-a-fixed-fee contracts of the United States, of paying fees or kick-backs, or of granting gifts or gratuities to employees of cost-plus-a-fixed-fee prime contractors or of other subcontractors for the purpose of securing the award of subcontracts or orders.

The primary purpose of the bill, as stated in a letter of recommendation by the Comptroller General to the Congress dated October 5, 1943, B-34055, is to provide to the United States a clear statutory right to recover the amounts of any fees, • commissions, or compensation, or the cost of any gifts or gratuities paid by subcontractors to the purchasing agents of prime contractors or other subcontractors for the purpose of obtaining the award of subcontracts or orders under cost-plus-a-fixed-fee prime contracts, with the result that costs reimbursable by the Government to the prime contractor probably have been or may be increased. The Comptroller General's letter refers to a Truman committee investigation at which certain practices of that kind were brought out.

This Department has entered into contracts on the cost-plus-a-fixed-fee basis in only a few cases and has no information indicating whether or not the practices which this bill seeks to reach are so prevalent generally as to warrant legislation. The Department has no objection to the enactment of properly framed legislation to prohibit such practices, if there be need for it, and to permit recovery by the Government of amounts paid by reason of violations of the prohibition.

The Department does object to that portion of section 1 of the bill, at lines 9-16 on page 2, providing that the amount of any prohibited payment, whether past or future, "shall not be charged to or reimbursed from appropriated moneys, either directly or indirectly, as a part of the price charged by the subcontractor to the prime contractor or another subcontractor." The effect of such a provision would be to make illegal whatever amount has been or may be paid to any cost-plus-afixed-fee prime contractor that might be said to represent the amount of a prohibited payment by a subcontractor, and to subject certifying or disbursing officers to possible personal liability to that extent, when they have had and could have no practicable means of ascertaining the existence of any such prohibited payment. Even though certifying and disbursing officers might be entitled to expect relief from the Comptroller General under section 2 of the act of December 29, 1941

(55 Stat. 875, U. S. C., supp. I, title 31, sec. 82c), such relief rests in the discretion of the Comptroller General and would by no means be certain. If such relief were granted, moreover, the effect of the provision would merely be to give rise to exceptions in the accounts of accountable officers that would serve no useful purpose but would nevertheless entail considerable administrative work. The Department believes the sentence in question should be eliminated in its entirety.

The Department also objects to so much of the last sentence of section 1 of the bill, at lines 4-11 on page 3, as would empower the General Accounting Office to direct prime contractors to withhold from subcontractors "any amount reported to have been found to have been paid by a subcontractor" in contravention of the provisions of section 1. The sentence in question would permit the General Accounting Office to direct such withholding without even a preliminary determination that a payment in contravention of section 1 had been made. Apart from that feature, it would vest in the General Accounting Office an executive function that has been and should remain vested exclusively in the contracting department or agency. To permit the General Accounting Office, even upon a formal determination by the Comptroller General, to interfere in any such way with the performance of public contracts, especially when that office does not have responsibility for procuring the goods or services contracted for, would place it in a position where the effects of its action, even though inadvertent, might be to prevent or seriously to delay the performance of contracts for vital war supplies or services or for other essential Government requirements. The Department believes that the words "or of the General Accounting Office", at lines 5-6 should be deleted, and recommends also the deletion of the words "reported to have been" at lines 7-8.

The bill is also peculiar in that its penalties are imposed exclusively upon the subcontractors making prohibited payments and that it does nothing to curb the activities of corporate officers and others who may be recipients of such payments. They are certainly not less guilty than the subcontractors making the payments, and legislation penalizing only the subcontractors might well fall short of affording an adequate deterrent to the prohibited activities.

In general, section 1 of the bill is loosely drawn, and its effectiveness would seem doubtful. Means would surely be found to cover up payments of the prohibited type, and proof that any such payment was made either as an inducement for the award of a subcontract or order from the prime contractor or any subcontractor, or as an acknowledgment of a subcontract or order previously awarded" would be difficult even in civil actions. If legislation is needed to prevent such practices, a more forceful measure that would operate as a real deterrent to those for whom penal statutes have some persuasiveness would appear desirable. The Department sees no objection to section 3 of the bill, which would extend the inspection and audit provisions of title XIII of the Second War Powers Act, 1942, to the General Accounting Office with respect to cost-plus-a-fixed-fee contracts and subcontracts thereunder. Legislation is not needed for that purpose, however, since a designation by the President under title XIII would suffice.

Very truly yours,

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79TH CONGRESS HOUSE OF REPRESENTATIVES 1st Session

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REPORT No. 213

EXPRESSING THE INTENT OF CONGRESS WITH REFERENCE TO THE REGULATION OF THE BUSINESS OF INSURANCE

FEBRUARY 22, 1945.-Ordered to be printed

Mr. SUMNERS of Texas, from the committee of conference, submitted the following

CONFERENCE REPORT

[To accompany S. 340]

The committee of conference on the disagreeing votes of the two Houses on the amendments of the Senate to the bill (S. 340) to express the intent of the Congress with reference to the regulation of the business of insurance, having met, after full and free conference, have agreed to recommend and do recommend to their respective Houses as follows:

That the Senate recede from its disagreement to the amendment of the House and agree to the same with an amendment as follows:

In lieu of the matter proposed to be inserted by the House amendment insert the following:

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Congress hereby declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States.

SEC. 2. (a) The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.

(b) No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance: Provided, That after January 1, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended, shall

be applicable to the business of insurance to the extent that such business is not regulated by state law.

SEC. 3. (a) Until January 1, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended, and the Act of June 19, 1936, known as the Robinson-Patman Antidiscrimination Act, shall not apply to the business of insurance or to acts in the conduct thereof.

(b) Nothing contained in this Act shall render the said Sherman Act inapplicable to any agreement to boycott, coerce, or intimidate, or act of boycott, coercion, or intimidation.

SEC. 4. Nothing contained in this Act shall be construed to affect in any manner the application to the business of insurance of the Act of July 5, 1935, as amended, known as the National Labor Relations Act, or the Act of June 25, 1938, as amended, known as the Fair Labor Standards Act of 1938 or the Act of June 5, 1920, known as the Merchant Marine Act, 1920.

SEC. 5. As used in this Act, the term "Stete" includes the several States, Alaska, Hawaii, Puerto Rico, and the District of Columbia.

SEC. 6. If any provision of this Act, or the application of such provision to any person or circumstances, shall be held invalid, the remainder of the Act, and the application of such provision to persons or circumstances other than those as to which it is held invalid, shall not be affected. And the House agree to the same.

HATTON W. SUMNERS,
FRANCIS E. WALTER,
C. E. HANCOCK,

Managers on the part of the House.

PAT MCCARRAN,

JOSEPH C. O'MAHONEY,

HOMER FERGUSON,

Managers on the part of the Senate.

STATEMENT OF THE MANAGERS ON THE PART OF THE HOUSE

The managers on the part of the House at the conference on the disagreeing votes of the two Houses on the amendment of the House to the bill (S. 340) to express the intent of the Congress with reference to the regulation of the business of insurance, submit the following statement in explanation of the effect of the action agreed upon by the conferees and recommended in the accompanying conference report:

The House amendment struck out all of the Senate bill after the enacting clause. The committee of conference recommends that the Senate recede from its disagreement to the amendment of the House, with an amendment which is a substitute for both the Senate bill and the House amendment, and that the House agree to the same.

It was the purpose on the part of the managers of the House to have the agreement between themselves and the managers on the part of the Senate to state in as clear language as possible that a moratorium be granted to the insurance business from the operation of the act of July 2, 1890, as amended, known as the Sherman Act, and the act of October 15, 1914, as amended, known as the Clayton Act, and the act of September 26, 1914, known as the Federal Trade Commission Act, as amended, and the act of June 19, 1936, known as the Robinson-Patman Antidiscrimination Act, until January 1, 1948, leaving the taxing and regulatory powers of the several States fully protected.

The principal difference between the conference report and the bill as it passed the House lies in the inclusion of the act of September 26, 1914, known as the Federal Trade Commission Act, as amended, and the act of June 19, 1936, known as the Robinson-Patman Antidiscrimination Act, in the moratorium provision, and making clear the intention of the Congress that the acts of boycott, coercion, and intimidation are subject to the operation of the suspended statutes even during the moratorium period.

HATTON W. SUMNERS,
FRANCIS E. WALTER,
C. E. HANCOCK,
Managers on the part of the House.

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