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the afternoon, while she was sitting on her front porch, a distance of about 50 feet from the highway, she observed Milton Moran start crossing the highway from the north to the south at a point approximately 300 feet west of her house; that when he reached the center of the highway he stopped and said something to his twin brother, who was on the north side; that she then observed an Army truck approaching from the west at a speed of not less than 50 miles an hour; that the child then started running to get across the highway, but the truck struck him and carried him along the pavement a distance of approximately 200 feet, dropped him, ran over him, and then ran on and stopped almost directly in front of her house, traveling altogether approximately 300 feet from the time it struck the child; that it was still daylight, and there was nothing to obstruct the view of the driver of the Army truck; that the truck was loaded with approximately 20 soldiers; that prior to striking the child, who was around 2 feet from the south side of the pavement, the driver of the truck applied the brakes, and the right wheels were off the pavement at the time the child was struck; that the child was killed by the truck running over it and was 5 years old at the time of his death.

Affiant further states that she is over 21 years of age, that R. F. D., Route 1, Spring Hill, Ala., is her address, and that she is not related to the Morans.

Miss MAE ADAMS. Subscribed and sworn to before me on this 24th day of January 1944.

HARRY SEALE, Notary Public, Mobile County, Ala.

KICK-BACKS ON CONTRACTS

FEBRUARY 22, 1945.-Committed to the Committee of the Whole House on the

state of the Union and ordered to be printed

Mr. Manasco, from the Committee on Expenditures in the Executive

Departments, submitted the following

REPORT

[To accompany H. R. 2284)

The Committee on Expenditures in the Executive Departments, to whom was referred the bill (H. R. 2284) to eliminate the practice by subcontractors, under cost-plus-a-fixed-fee or cost reimbursable contracts of the United States, of paying fees or kick-backs, or of granting gifts or gratuities to employees of a cost-plus-a-fixed-fee or cost reimbursable prime contractors or of higher tier subcontractors for the purpose of securing the award of subcontracts or orders; having considered the same, report favorably thereon without amendment and recommend that the bill do pass, and submits the following report in explanation of the accompanying bill to eliminate the practice by subcontractors, under cost-plus-a-fixed-fee or cost reimbursable 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 or cost reimbursable prime contractors, or of higher tier subcontractors, for the purpose of securing the award of subcontracts or orders.

H. R. 131 of the Seventy-ninth Congress was a reintroduction by the chairman of H. R. 3558 of the Seventy-eighth Congress. Reports were received from the interested departments on this legislation under both numbers and hearings were held early in the Seventy-ninth Congress on H. R. 131. After several strengthening amendments were made, the committee recommended the introduction of a clean bill incorporating the amendments, and this was done. It is this latter bill, H. R. 2284, upon which this report is being made.

PURPOSE OF THE BILL

The purpose of the bill is to eliminate the practice of subcontractors of paying fees or kick-backs, or of granting gifts or gratuities, to employees of cost-plus-a-fixed-fee or cost-reimbursable prime contractors, or of higher tier subcontractors, for the purpose of securing the award of subcontracts or orders. Legislation of this character and in substantially the form of the present bill was recommended in a report of the Comptroller General of the United States to the Congress under date of October 5, 1943, which report, explaining in detail the need for such legislation, is set forth hereinafter.

The practice which the bill would prohibit was revealed in the audit of payments under certain cost-plus-a-fixed-fee contracts by the Genearl Accounting Office and was brought to the attention of the chairman, Special Committee to Investigate the National Defense Program, United States Senate, and to the chairman, Military Affairs Committee, House of Representatives, by the Comptroller General of the United States by letters dated April 24, 1943. Thereafter the matter was investigated by representatives of the said Senate committee and later was the subject of hearings conducted by a subcommittee thereof on May 20, 21, and 22, 1943. It was revealed that gratuities or gifts in the form of money, War bonds, and entertainment had been given by certain concerns to individuals employed in the purchasing departments of the prime contractors in acknowledgment for orders previously given to the concerns through the influence of said individuals, or for the purpose of inducing the award of future orders by their influence. Since cost-plus-a-fixed-fee or cost reimbursable prime con. tractors are reimbursed by the United States for the cost of all subcontracts and purchase orders performed thereunder, the Government undoubtedly bears the ultimate cost of such fees, commissions, and gratuities without receiving any benefit therefrom.

Section 1 of the bill would prohibit the granting of such fees, gratuities, etc., and would authorize the recovery thereof by the United States by withholding amounts otherwise due the subcontractor who pays such fees or gratuities, or the recipient thereof, either directly by the United States, or by a prime contractor, or by an action in an appropriate court of the United States. There is no existing statutory or other authority of law under which it may be said that the United States clearly has a right to recover the amounts of any such fees or gratuities.

Section 2 of the bill merely defines the terms "subcontractor" and "person" as used therein.

Section 3 of the bill authorizes the General Accounting Office to inspect the plants and to audit the books and records of any prime contractor or subcontractor engaged in the performance of a costplus-a-fixed-fee or other cost reimbursable contract for the purpose of ascertaining whether fees, commissions, gifts, etc., have been paid or granted by subcontractors. The General Accounting Office has no clear right to make such inspections and audits under existing law but such authority is imperative if the bill is to be fully effective.

Section 4 of the bill would authorize the fine or imprisonment, or both, of any person who knowingly, directly or indirectly, makes or receives any such payments as are prohibited by the bill.

The Comptroller General of the United States appeared before this committee, at its request, and strongly urged enactment of legislation prohibiting the payment or granting of fees, gratuities, etc., under the circumstances indicated. Also, representatives of the War Department, the Navy Department, and the Maritime Commission appeared

befcre the committee and expressed the need and desirability of legislation which would prohibit such practices.

The report of the committee on H. R. 2284 is unanimous and there follow copies of the reports which were filed with the committee by the various departments.

FEBRUARY 9, 1945. Hon. CARTER MANASCO, Chairman, Committee on Expenditures, in the Executive Departments,

House of Representatives, Washington, D. C. MY DEAR MR. Manasco: Receipt is acknowledged of your letter of January 8, 1945, requesting the views of the Bureau of the Budget regarding the proposal contained in H. R. 131, a bill“To eliminate the practice by subcontractors, under cost-plus-a-fixed-fce 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." Reference is made, in this connection, to my letter of July 27, 1944, copy attached, transmitting the views of certain Federal agencies more or less adverse to the same proposal as contained in H. R. 3558, Seventyeighth Congress, and expressing my general concurrence with those views. There is also transmitted herewith a copy of a letter, dated August 25, 1944, from the Treasury Department in criticism of certain provisions of that bill.

The agencies which submitted views on the bill, H. R. 3558, have informally advised this office that they have no comments to make at this time that would be different from the views expressed on that bill, nor does the Bureau of the Budget have any suggestions to make with respect to the legislation other than as set forth in my letter to you of July 27, 1944. Very truly yours,

HAROLD D. Smith, Director. Enclosures: Copy of Director's letter of July 27, 1944; copy of Treasury's letter of August 25, 1944.

EXECUTIVE OFFICE OF THE PRESIDENT,

BUREAU OF THE BUDGET,

July 27, 1944. Hon. Carter MANASCO, Chairman, Committee on Expenditures in the Executive Departments,

House of Representatives, Washington, D. C. MY DEAR MR. Manasco: Your predecessor as chairman of the Committee on Expenditures in the Executive Departments, Congressman O'Leary, by letter dated February 2, 1944, referred to me for comment H. R. 3558, “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 subcontractors or orders."

In order that we might have the benefit, in our consideration of this matter, of the views of the major procurement departments and agencies, this office requested their comments, and copies of their replies (with the exception of the Treasury and Maritime Commission which have not, as yet, been received) are attached for your information.

It will be noted that the War Department, the War Production Board, and the Attorney General, with some reservations and suggestions for amendment, would have no objection to the enactment of the bill. The Navy Department, on the other hand, believes that no substantial benefits would result from the legislation, were it to become law, since every effort is being made by that Department to detect and disallow, as reimbursable costs, fees, and gratuities of the character which the bill is designed to outlaw.

I have no strong feelings in the matter, but I am wondering whether, in view of the administrative efforts which the procurement agencies are making to proscribe this practice, and their present policy of limited use of the cost-plus-a-fixedfee form of contract, there is any important need, at this advanced stage of the war procurement program, for your committee favorably to report legislation of the character proposed. If your committee feels that the present remedies available to the procurement agencies are inadequate, you may be impressed by the

H. Repts., 79–1, vol. 1—79

suggestion of the Secretary of War that the desired result could be achieved, without unreasonably complicating the administration of the war procurement program, by the adoption of provisions somewhat like those in section 112 of the Criminal Code. Very truly yours,

HAROLD D. Smith, Director.

GENERAL ACCOUNTING OFFICE,
COMPTROLLER GENERAL OF THE UNITED STATES,

Washington, D. C., October 5, 1943. The CONGRESS:

In compliance with that part of section 312 (a), Budget ana Accounting Act, 1921 (42 Stat. 25), requiring recommendations to the Congress looking to greater economy in public expenditures, I have the honor to recommend the enactment of legislation which has for its purpose the elimination of the practice by subcontractors under cost-plus-a-fixed-fee prime contracts of paying fees or kickbacks, or of granting gifts or gratuities to employees of cost-plus-a-fixea-fee prime contractors, or of other subcontractors, for the purpose of securing the award of orders or subcontracts thereunder. The proposed legislation is as follows:

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the payment of any fee, commission, or compensation of any kind or the granting of any gift or gratuity of any kind, either directly or indirectly, by or on behalf of a subcontractor, as hereinafter defined, (1) to any officer, partner, employee, or agent of a prime contractor holding a contract entered into by any department, agency, or establishment of the United States for the furnishing of supplies, materials, equipment, or services of any kind whatsoever, on a cost-plus-a-fixed-fee basis, or (2), to any officer, partner, employee, or agent of a subcontractor holding a subcontract under the prime contract, either as an inducement for the award of a subcontract or order from the prime contractor of any subcontractor, or as an acknowledgement of a subcontract or order previously awarded, is hereby prohibited. The amount of any such fee, commission, or compensation or the cost or expense of any such gratuity or gift, whether heretofore or hereafter paid or incurred by the subcontractor, 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 amount of any such fee, cost, or expense shall be recoverable on behalf of the United States from the subcontractor by set-off of moneys otherwise owing to the subcontractor either directly by the United States, or by a prime contractor under any cost-plus-8fixed-fee contract, or by an action in an appropriate court of the United States against such subcontractor. Upon a showing that a subcontractor paid fees, commissions, or compensation or granted gifts or gratuities to an officer, partner, employee, or agent of a prime contractor or of another subcontractor, in connection with the award of a subcontract or order thereunder, it shall be conclusively presumed that the cost of such expense was included in the price of the subcontract or order and ultimately borne by the United States. Upon the direction of the contracting department or agency or of the General Accounting Office, the prime contractor shall withhold from sums otherwise due a subcontractor, any amount reported to have been found to have been paid by a subcontractor as a fee, commission, or compensation or as a gift or gratuity to any officer, partner, employee, or agent of the prime contractor or another subcontractor.

"Sec. 2. For the purpose of this Act, the term 'subcontractor' is defined as any person, including a corporation, partnership, or business association of any kind, who holds an agreement or purchase order to perform all or any part of the work or to make or to furnish any article or service required for the performance of s cost-plus-a-fixed-fee contract or of a subcontract entered into thereunder.

"Sec. 3. For the purpose of ascertaining whether such fees, commissions, compensation, gifts or gratuities have been paid or granted by a subcontractor, or whether any other irregularities exist in connection with the performance of subcontracts which increase the cost of the prime contract to the United States, the General Accounting Office shall have the same powers with respect to any prime contractor or subcontractor engaged in the performance of a cost-plus-a-fixed-fee contract that an agency designated by the President to exercise the powers conferred by title XIII of the Second War Powers Act, 1942, has with respect to any contractor to whom such title is applicable."

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