Atlanta semi-weekly journal. (Atlanta, Ga.) 1898-1920, 1918-06-21
ATTORNEY GENERAL
To BREAK Up FEES
IN ARMY CONTRACTS
Government Is on Trail of
Middle Men Who Have Prof.
tied by Jobs and Held Up
Manufacturers


thousand letters and documents con-
tanning proofs of an elaborate system
of obtaining government contracts on
the illegal contingent fee basis, were
received today by the department of
justice from it's agents who conducted
raids on hundreds of contractors bust
offices late yesterday.
The commissions paid on these con-
tracts, il was disclosed, ranged from
five to twenty per cent, and the aggre-
gate fees probably ran into millions
of dollars. Evidence was discovered
of hundreds of contracts made under
these arrangements heretofore unsus-
pected by the department of justice.
Manufacturers were threatened in
many cases with being deprived Of
contracts if they refused to negotiate
with these agents on a commission
compensation plan. Some agents rep
resented that they had special influ-
ence over members of congress.
In addition to these documents, other
information came to the department
from manufacturers who had been
solicited by contract commission agents
located in Washington. The manufac-
turers offered their assistance in stamp
ing out the illegal system.
An immediate result of the disclos-
ures was a letter sent by Attorney
General Gregory to heads of all gov
eminent departments making war con-
tracts, proposing that all future con-
tracts should contain a clause pledS-
ing the manufacturer not to employ
any third party in negotiations with
the government.
Action Is Required
"a situation which has arisen in the
matter of government contracts seems
to me to require summary action" said
the attorney general. Owing to the ire
mendous increase in government bust
ness and the speed with which it must
be executed, some manufacturers be-
cause of ignorance or mlSinformation
have thought it necessary to negotiate
with the government through contract
brokers or contingent fee operators 1t
follows that the system requires a con-
tractor in making his estimate to load
his bid with the contingent fee item.
The courts have universally condemned
the contingent fee contract The meth
DDS employed by the contingent fee oper
ator are often insidious and reprehensi-
BILE, and, in view of the fact that the
average fee is per cent, the resulting
cost to the government is very great.
"As a means of breaking up this
practice / have prepared the following
form of covenants, which the president
ment contracts:
1.-The contractor expressly warrants
that he has employed NO Tnird persons
to solicit or obtain this contract in his
behalf, or to cause or procure the same
to be obtained upon compensation in
any contingent, in whole or in part upon
such procurement; and that he has
not paid, or promised or agreed to pay, |
to any third persons, in consideration
ant In fir,y1I
for services in connection Herewith any
brokerage, commission or percentage |
upon the amount receivable by him |
hereunder; and that he has not, in esti- |
mating the contract price demanded by |
him, included sum by reason of any |
such brokerage, commission or percent !
age, and that all monies payable to him |
hereunder are free from obligation to |
any other person for services rendered, |
or supposed to have been rendered, in
the Procurement of this contract. He |
further agrees that any breach of this |
warranty shall constitute adequate |
cause for the annulment of this con- |
tract by the United States, and that
the United States may retain to it's own
use from any sums due or to become |
due Hereunder an amount equal to any
brokerage, commission or percentage so
paid, or agreed to be paid
additional Safeguard
"As an additional protection il is re-
quested that your department adopt as
regulation the following language taken |
from section 1922, page 735, revised
statutes, as applied to the navy de- |
partment:
land no person shall be received as |
a contractor who is not a manufactures
of or regular dealer in the articles |
which he offers to supply
This will synchronize the action of
officials of your department with that
of the contractor he is prohibited by the |
law from transferring his contract or
order, or any interest therein to any
other party"
The government will prepare a rec. |
ord of all contracts now being exc. |
cuted, on which it has proof of the |
payment of contingent fees, and may |
deduct from the payment to these con
mission fee. Officials calculate rough |
" that this will save millions of dol
lars to the government on contracts |
now under way. There is no ground, |
however, for taking criminal action
against the manufacturers who had |
these agreements
Neither can commission agents be
for accepting fees. although |
in many cases ii is demonstrated that |
Acy to violate the law forbidding cor
tingent fees and subletting of contracts.
and consequently are liable to prose-
cuton under conspiracy laws.
Officials today declined to say def
nitely whether they were planning ar
rests in addition to the four made
here yesterday, but ii is considered GER
tain that action will be taken against
a number of commission agents nov
known TO have operated in Washing
ton. and to a lesser extent in New
York and other cities.
In the documents seized during the
raids yesterday were a number Of cir
,ulars distributed boldly to manufac-
turers by a commission contract agent,
who stated in plain terms that they
mad great influence with government
officers who let contracts and guaran.
iced to obtain orders for their clients.
In addition to the ten offices raidet
BY secret agents in Washington,
number Of others are under surveil
ance II was reported today that some
Of these had closed their headquar-
-ers this morning after reading of the
department. If Justices disclosures
Further steps to stamp out contract
frauds were discussed today at the
cabinet meeting. Secretaries Baker and
Daniels particularly sought to hasten
inquiries into contracts let by their
departments to ascertain whether any
officers actually were influenced by
or their agents.