advanced on the retired list under the provisions of 10 U.S.C. 6151. This exception with respect to enlisted retirees applies even though the retired member is carried on the retired list in warrant officer or other officer status and receives retired pay computed on the basis of that status.' Furthermore, the statute does not prohibit all types of employment by, or association with, a company which does business with the Government. It is directed only at activity by the retired officer which assumes the character of "selling." A retired officer may properly be employed in any variety of managerial, administrative, or technical positions, may own shares in the company, may act as one of its officers, or may even serve as its sales manager, so long as his activity does not cross the thin line into "selling." And there's the rub. What activities constitute "selling, contracting for sale or negotiating for sale"? The quoted terms have been interpreted to include virtually all activities surrounding the selling process. More specifically, "selling," for the purpose of this statute, has been defined as embracing the following activities: (1) signing a bid, proposal, or contract, (3) contacting an officer or employee of the Depart- (i) obtaining or negotiating contracts, (iii) settling disputes concerning performance of (4) any other liaison activity with a view toward the ultimate consummation of a sale though the actual contract therefor is subsequently negotiated by another person (Department of Defense Directive 5500.7 of May 17, 1963). The Comptroller General has specifically approved this definition of "selling" for the purpose of 5 U.S.C. 59c, but has indicated that the definition is limited in scope to the terms of that statute and does not create a new or more extensive restriction." Any activity undertaken to effect sales is prohibited even though no actual sale or contract is made. The Comptroller has held that contacts made for the purpose of promoting good will which may lead to future sales fall within the scope of the statute. Demonstrations or explanations of a company's products are considered a part of the selling process." Contacts made for the purpose of determining the requirements of a uniformed service for products which the employer may desire to manufacture would be similarly considered.10 Under the decisions of the Comptroller General a retired Regular officer may not permit his name to be used as a key to open the door to armed service procurement offices for his employer's salesmen.11 And as indicated in the above definition of "selling," merely signing a contract or a proposal for a contract has been considered a selling activity.12 On the other hand, the fact that a retired officer has over-all responsibility for the sales department of a company that contracts with any of the agencies listed in 5 U.S.C. 59c does not bring him within the scope of the statute if he himself does not engage in any of its proscribed activities.13 Whether the participation of a retired Regular officer in consultant activities for companies that sell to the uniformed services comes within the restrictions of the statute is a question to be decided on the basis of the facts of each case.14 The statutory provisions do not encompass purely social contacts or contacts occasioned by membership in technical and advisory organizations which offer nothing for sale to anyone.15 A retired officer of the Regular Navy who does no more than respond to requests from service officials for assistance, information, or advice is not engaged in selling, even though the request may be a step toward the procurement of some supply or material." Futhermore, it is permissible to negotiate and contract for concession privileges at government installations, because under those circumstances the officer is actually purchasing a right from the Government." The only sales made by a concessionaire are to individual patrons, an activity not prohibited by the statute.18 The Comptroller General has also ruled that random "over-the-counter sales" involving such items as paint, small tools, aircraft and automotive gasoline, automotive parts and tires. 8. Ibid. 9. Seastrom v. United States, Ct. Cl. No. 220-57, November 4, 1959; 41 Comp. Gen. 642 (1962). 10. 40 Comp. Gen. 511 (1961). 11. Ibid. 12. 39 Comp. Gen. 366 (1959). 13. 41 Comp. Gen. 784 (1962). 14. 42 Comp. Gen. 236 (1962). 15. 41 Comp. Gen. 799 (1962). 16. Ibid. 17. 39 Comp. Gen. 751 (1960); 41 Comp. Gen. 784 (1962). 18. JAG:134.1: HJW:sb of 9 December 1963. lumber, or books may be made by a retired officer when they are not solicited by the seller and do not involve the forbidden processes of bidding and contract negotiation set forth in DOD Directive 5500.7. In these instances the transaction occurs largely by chance, the government or military representative merely making a miscellaneous purchase at a business establishment operated or represented by the retired officer either as owner or employee. The sale is thus initiated by the government, and the officer, rather than bidding or negotiating for a contract, is simply performing the routine duties of a sales clerk.19 "Liaison" and "contacts" with purchasing agencies. The most elusive area of "selling" activity, and that which most defies definition, is so-called "liaison" or the making of "contacts" with contracting agencies before a contract is signed. The following excerpts from several decisions of the Comptroller General are presented to assist in appreciating the breadth of this restriction. In one decision 20 the Comptroller considered the case of a retired Navy officer employed as "sales promotion and public relations man" for a corporation selling beer to Navy officers' clubs and exchanges. He ruled that, since the conflicts statutes are intended to prevent favoritism and preferential treatment in Government contracting, . . . activities calculated to induce the purchase of supplies and materials, even though the mechanical acts of actually consummating sales or negotiating sales or contracts for sales may be done by another person, must be viewed as coming within the scope of the statutes . . . . That is so even though the actual purchasing officers be different from those with whom the retired officer deals if the latter in fact have the authority to determine, or occupy a position that would substantially influence, the selection of the supplier or the brand of supplies and materials that may be purchased. Activities undertaken to effect sales are prohibited even though no actual sale or contract may be made. The Comptroller expanded upon this position in a later decision 21 in which a retired Marine Corps officer was employed by a military supply company to guide the company's product line and, among other duties, to visit military installations and consult with "various officials" in order to ascertain current and future military procurement needs. The Comptroller found no objection to the officer's advising his employer about military needs so long as he did not "con 19. 42 Comp. Gen. 87 (1962). 20. Supra note 7. 21. Supra note 10. tact the Navy concerning such matters," and concluded: Discussions held in such contacts may form the very foundation upon which the final contract is based, particularly when negotiated contracts constitute a high percentage of Navy procurement volume. The statute is directed not only at favoritism, but at conduct that tempts favoritism. A not unlikely result of such contacts by a high ranking retired officer is the award of Navy contracts, even though the retired officer does not participate in the contract negotiations. Where a contact ultimately ripens into a contract, it cannot be realistically said that the contact and subsequent events were not interrelated and interconnected. The Comptroller further amplified this decision in another case 22 by stating that it was based upon the view: ... that if the statutes were to be completely effective, the contacts contemplated by the contract provision must be regarded in the first instance as being for the purpose of selling. We recognize, however, that such a prima facie case may be rebutted by the actual facts in a particular case, but such contingency afforded no basis for ignoring the apparently intended sale results of the contacts. While we agree that not every pre-contract is to be viewed as a sales activity for purposes of the statutes, it is our view as indicated above that such contacts generally, either direct or indirect, with officials of Defense agencies by retired officers representing companies who sell supplies or war materials to those agencies, should be viewed as coming within the scope of the statutes and the provisions of the Department of Defense Directive unless clearly and adequately shown to be for some other purpose. Concerning those cases involving contacts by technical consultants with defense technicians, we have recognized that not every contact by a retired officer is to be viewed as coming within the scope of the statute. We do not believe that a contact by a retired officer in his capacity as a non-contracting technical consultant with a non-contracting technical specialist which involves no sales activities but is merely for the purpose of acquiring technical information, whether about the future needs and programs of the service or for other purposes, must be viewed on the basis of the contact alone as subjecting the officer to the proscription of the mentioned anti-sales statutes. Neither do we believe that an officer who occasionally accompanies other members of his firm as a technical advisor at meetings with Department of Defense personnel to discuss performance or progress or similar matters under awarded contracts may reasonably be viewed as being engaged in selling, etc., for the purposes of the statutory provisions, however, such meetings for the purpose of discussing any supply procurement proposals or for the purpose of negotiating or discussing proposed changes in 22. Supra note 14. any of the terms of an existing contract, would seem clearly to come within the purview of the provisions of the definition contained in the Department of Defense Directive and therefore, it is our view that the officer's attendance at such meetings must be viewed as participation in the proscribed activities. Most recently the Comptroller reviewed the case of a retired officer employed by an aircraft manufacturer under a contract of employment requiring him to make and supervise contacts with all levels of Government space agencies in order to keep his employer apprised of new developments, plans and Government requirements. In his first consideration of this case 23 the Comptroller recognized the above-quoted exception concerning technical consultants, but held that: ... grave doubt exists where, as here, the contacts are made by a retired officer on behalf of his company with procurement and budget personnel, that such contacts are made for purposes other than those enumerated in the above-quoted provisions of the Department of Defense Directive. In a later reconsideration of the case 24 the Comptroller reaffirmed his conclusion that the officer's liaison activities fell within the scope of the statute: Having in mind that private contractors are in business to make a profit, it would be unreasonable to view contacts of the type here involved as being primarily for any purpose other than to increase the contractor's sales to the military. From the progression of these decisions, at least three generalizations can be drawn as guidelines. The first is that in every case the retired officer's actual conduct is the controlling factor, not the job description contained in his contract of employment or Statement of Employment (DD Form 1357). A noncommittal description of official duties may avoid initially raising a question of conflicts of interest, but will not protect the officer from possible adverse administrative action later on. Second, the Comptroller has indicated that he will presume that precontract contacts by retired officers with Department of Defense personnel are for the purpose of prohibited selling activity. Thus he has placed a heavy burden upon the officer involved to demonstrate "clearly and adequately" that those contacts were made for some other purpose-as, for example, that they were purely social in nature. Third, the Comptroller appears to attach some importance to the level at which the contacts were made. It is permissible for technical 23. Comp. Gen. B-152160 of 24 October 1963. 24. Comp. Gen B-152160 of 11 December 1964. The representatives of industry to consult with technical representatives of contracting agencies, even if it concerns discussion of future military needs. Presumably this is so because technical specialists are deemed incapable of exerting any significant influence upon future contracts. The result is the opposite, however, when the retired officer occupies a more general advisory or policy-making position within the contractor's organization, and he contacts "procurement and budget personnel," or government personnel who "in fact have the authority to determine, or occupy a position that would substantially influence, the selection of the supplier or the brand of supplies and materials that may be purchased," whether or not that person actually acts in completing that particular sale. What are "supplies or war materials"? words "supplies or war materials" have been interpreted to include almost any conceivable item of tangible property. Anything from missiles to pocket combs, from beer to bearings, falls within the scope of the statute.25 Persons or firms, however, who engage in furnishing "services," such as the furnishing of plans, specifications, studies, designs, drawings, or the transportation of household goods, are not engaged in selling supplies or war materials." The emphasis in the foregoing exception is upon the furnishing of services and like intangibles, as distinguished from the transfer of tangible products or "hardware." This exception would not permit a retired officer to sell bulk quantities of books, drawings, engineering designs and other publications to agencies of the Department of Defense or to the uniformed services in any case where the essence of the transaction is the transfer of property rather than the performance of services. Where a transfer of property is merely incidental to the performance of a service, such as selling and installing replacement parts in the course of repairing a television set or an automobile, however, the transaction retains its basic character as a "service" and does not become subject to 5 U.S.C. 59c. This rule holds true as well for the sale of meals in a restaurant, whether by contract or in exchange for government meal tickets, or for the sale by a public utility company of telephone service, water, electricity or gas to the Government.27 Purchasing agencies within scope of the statute. As noted, 5 U.S.C. 59c restricts "sell25. 38 Corp. Gen. 470 (1959); JAG:II:JAC:mks of 5 March 1956; CMO 3-1950, 89; See also 39 Comp. Gen. 366 (1959). 26. 41 Comp. Gen. 677 (1962); 38 Comp. Gen. 470 (1959); and Comp. Gen. B-12238 of 7 November 1940. 27. Supra note 19. ing" within the proscribed period to any agency of the Department of Defense, or to the Coast Guard, the Coast and Geodetic Survey or Public Health Service. All of the military departments (Army, Navy and Air Force), as well as the Department of Defense and all agencies of the Department of Defense, come within the interdiction of the statute. The restrictions of the statute extend to nonappropriated fund activities of the military departments, such as Exchanges, Ships' Stores, Commissaries and Officers' Messes.28 It is permissible for a retired officer employed by a subcontractor to "sell" his employer's product to a prime government contractor, so long as he does not visit or consult with government officials or otherwise exert his personal influence on the contracting agency in a manner tending to enlarge or extend the prime contract.29 The effect of selling in contravention of the statute. 5 U.S.C. 59c is not criminal in nature and does not purport to make illegal the selling, contracting for sale or negotiating for the sale of supplies or war materials to the specified departments and agencies. It merely provides that if a retired officer engages in any of the proscribed activities he will not be entitled to receive retired pay while so engaged during the prohibited period. In this connection the Comptroller General has established the rule that, subject to the three-year limitation of 5 U.S.C. 59c, when the activities of a retired Regular officer contravene the statute, the prohibition against payment of retired pay "continues during the entire period while his engagement in these activities is required or continues and thereafter during the period covered by any contract resulting from such activities." 30 The Comptroller General in his comprehensive decision at 42 Comp. Gen. 87 (1962) summarized his prior interpretations of the civil statutes relating to selling activity on the part of retired Regular officers as follows: Such definition [from DOD Directive 5500.7, stated above] is in line with our decisions and the decision of the Court of Claims in the Seastrom case. See 38 Comp. Gen. 470; 39 Comp. Gen. 366; 40 Comp. Gen. 28. 38 Comp. Gen. 470 (1959); 41 Comp. Gen. 642 (1962); JAG:II: 2: JAC:mks of 5 March 1956; See CMO 3X1950, 98, and JAG:II: JG:mmt of 31 March 1950. 29. JAG:134:WEN:sb of 30 January 1962; JAG:134.1:HJW:sb of 4 December 1963. 30. 42 Comp. Gen. 87 (1962), citing 39 Comp. Gen. 366 (1959); 41 Comp. Gen. 642 (1962) and 42 Comp. Gen. 32 (1962). 511; 41 Comp. Gen. 642; Seastrom v. United States, 147 Ct. Cl. 453. The statutory provisions and the directive definition are aimed at an actual engagement in selling or contracting or negotiating for the sale of supplies and materials. It is our view that they apply only to those situations in which the retired officers may be considered as representing themselves or others before the department concerned for the purpose of the actual sale of property. The comments in our decisions to the effect that the statutes include virtually any activity surrounding the selling process have reference to those situations and are not intended to imply that the statutes have application to any other employment, or to any other activity of any business concern or individual. Thus, the sale of services and the employment of retired officers in nonsale executive and administrative positions have been held to be outside the purview of the statute. 41 Comp. Gen. 677; 41 Comp. Gen. 784. Also, the purchases by retired officers of concession rights on Government property and actions by retired officers in response to departmental requests for assistance, information or advice, or in their capacity as members of technical and advisory organizations which offer nothing for sale are not proscribed by the statute. 39 Comp. Gen. 751; 41 Comp. Gen. 799. And, as we observed in the decision of June 12, 1962 [41 Comp. Gen. 799], the statute and the regulations do not operate to isolate retired regular officers from social contacts with their fellow officers or to prevent the departments concerned from purchasing property from a supplier who has a retired regular officer in his employ. While 5 U.S.C. 59c has gradually been illuminated by the Comptroller General, its companion, 18 U.S.C. 281, permanently barring sales to the officers' own service, remains an enigma. A recent attack on its constitutionality and interpretation within the Department of Defense failed in the federal courts, and there is no prospect for legislative relief." Dean Bayless Manning of Stanford Law School has remarked that today's political climate demands that changes made in this field of law be made only in the direction of more stringent, rather than more lenient, restrictions.32 It may be that the retired Regular officer caught up in the selling imbroglio will have to be content with the freedom he has. If he is in doubt about his status in this area, he is encouraged to request an advisory opinion from the Judge Advocate General. Any such request should, insofar as possible, include a detailed statement of his duties in the employment in question. 31. Taussig v. McNamara, 219 F. Supp. 757 (D.C. D.C. 1963). 32. Manning, The Purity Potlatch: An Essay on Conflicts of In terest, American Government, and Moral Escalation, 24 Fed. B.J. 239 passim. (1964). GRATUITIES (Continued from page 74) 1965 (30 F.R. 12529). There is every indication that the revised DOD Directive, insofar as concerns gratuities, will be essentially a restatement of the provisions contained in DOD Directive 5500.7 of May 17, 1963, as amended, and in SecNav Instruction 5370.2C of December 1, 1964, quoted above. The various interpretations of the gratuities clause made under these regulations are expected to be equally applicable to the restrictions to be promulgated in the revised DOD Directive. CONCLUSION As the Association of the Bar of the City of New York Committee observed, "Regulation of conflicts of interest is regulation of evil before the event; it is regulation against potential harm. These regulations are in essence derived, or secondary-one remove away from the ultimate misconduct feared. The bribe is forbidden because it subverts an official's judgment; the gift is forbidden because it may have this effect, and because it looks to others as though it does have this effect . . ." 16 There is general agreement that the unrestrained acceptance of gratuities by public officials from those who transact or seek to transact business with the government is a condition fraught with evil portent. How should the restraints be applied? doubtedly, an absolute prohibition against the acceptance of any gratuity would be the least difficult form of restraint to administer and for some officials and governmental agencies doubtless would be the most satisfactory kind. Current DOD and Navy regulations represent an attempt to strike a balance, to attain a discriminatory golden mean. Legal interpretations of the directive have been enlightened and liberal. If experience demonstrates the desirability for change in the present restrictions, the machinery is readily available to produce the modification. COUNSEL FOR P.E.B. Un (Continued from page 67) regulations. Congress has conferred upon the Secretary of the Navy the sole authority to make the determination that a member's disability 16. Conflict of Interest and the Federal Service, op. cit. supra note 2 at 19. was or was not incurred due to his own misconduct. It is the responsibility of the physical evaluation boards to present findings to the Secretary that are based on a consideration of all the evidence, pertinent to the issues, that is reasonably available and to ensure that such evidence is included in the record for Secretarial consideration. An unintentional failure to fulfill this function subjects the Government to the risk of assuming unwarranted responsibilities; a conscious failure is a perversion of the statute because it effectively precludes the exercise of discretion by the Secretary that is granted to him by the Congress. FOREIGN-BORN CITIZENS (Continued from page 84) If the application is granted, a Certificate of Citizenship will be issued and the claimant, unless he is too young to understand the meaning thereof, will take an oath renouncing all allegiance and fidelity to any state or sovereignty of which he was a citizen and professing allegiance to the United States." The Certificate issued in the name of the child, bears a photograph and personal description of the child, and certifies the United States citizenship of the child. Delivery of the Certificate will be made in the United States, to the claimant or the acting parent or guardian, either personally or by certified mail. During recent years, the Immigration and Naturalization Service has simplified and shortened the procedures involved in the issuance of a Certificate of Citizenship. A well-documented case, uncomplicated by issues of expatriation requiring further investigation, may be completed and the Certificate issued immediately after the oral examination by the Office of the Immigration and Naturalization Service. Every parent of a child born abroad owes a duty to that child to secure promptly and to safeguard for him either a Certification of Birth or a Certificate of Citizenship-both are inexpen sive but vital documents which will smooth his path through life. Wide local dissemination of a reminder to this effect could pay dividends as a preventive legal service. 11. 8 C.F.R. § 337.1 (1957). U.S. GOVERNMENT PRINTING OFFICE: 1966 |