oversight

Information Concerning Contingent Fees Paid to Private Companies

Published by the Government Accountability Office on 1971-03-26.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

       In your letter   dated January 23, 1970, you requested that we
review the legality     of the contingent  fees paid by contractors   under the
Department of Labor's      Special Impact program in Los Angeles, California,
to the investment     banking firm of Dempsey-Tegeler    and Company, Incorpo=-
rated, and that we look into the entire question of contingent        fees paid
to private    companies who act as a liaison    with the Federal Government,
In your discussion     with members of my staff on February 26, 1970, you
stated that your interest      was limited to contingent   fees for contracts
awarded under Federal manpower programs,

       By letter    dated April 17, 1970, we advised you that, in our current
evaluations      of contracts  awarded under Federal manpower programs adminis-
tered primarily      by the Department of Labor, we would:

     1,   Determine whether a substantial  percentage of contractors
          indicated that contingent  fees had been paid to firms or
          persons to help secure the contracts0

     2,   Look specifically      for an indication     as to whether contingent
          fees were paid in connection with contracts            for the Food
          Service Industry      Training  Project,   Incorporated,     of Hartford,
          Connecticut,     which administers     a Department of Labor on-the-
          job training     program for cooks, waiters,       and waitresses     under
          the Manpower Development and Training          Act of 1962, as amended
          (42   U.S,C.   25711,

     30   Consider recommending that the Secretary of Labor revise the
          Department's  regulations to prohibit   the payment of continm
          gent fees for securing manpower training    contracts, if our
          reviews showed that payment of contingent    fees was a common
          practice0

        We also advised youl by letter  dated July 23, 1973, of our belief
that the fees paid by the Special Impact program contractors        in Los
Angeles to Dempsey-Tegeler     and Company, Incorporated,   were not in
violation     of the law or the Federal Procurement Regulations,

     In summary, our reviews over the past 12 months revealed  no other
payments of contingent  fees to firms or individuals to secure any of
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the manpower training     contracts which we reviewed,   including  the con-
tracts awarded to, and administered      by, the Food Service Industry
Training  Project,   Incorporated,   Further particulars    on our examination
are set forth below0

BACKGROUND

        In accordance with section 254(a) of Title          41, United States Code,
and with the Federal Procurement Regulations             (FPR l-1.5031,   every con-
tract executed by executive        agencies,   including    the Department of Laborgs
Manpower Administration,        is required  to contain a "covenant       against
contingent     fees" provision,    which reads as follows:

            "The Contractor     warrants that no person or selling               agency
      has been employed or retained         to solicit     or secure this con-
      tract upon an agreement or understanding             for a commission, per-
      centage, brokerage,      or contingent      fee, excepting bona fide
      employees or bona fide established            commercial or selling         agenm
      ties maintained     by the Contractor       for the purpose of securing
      business,      For breach or violation        of this warranty      the Govern-
      ment shall have the right to annul this contract without                    liabil-
      ity or in its discretion        to deduct from the contract           price or
      consideration,     or otherwise    recover,     the full amount of such
      commission, percentage,       brokerage,      or contingent    fee."

        The regulations     require   each executive      agency to secure from prospeco
tive contractors,       before a contract    is awarded, a written          representation
as to whether they (1) have employed or retained                 any company or person
(other than a fullmtime         employee working solely for the prospective               con-
tractor)     to solicit    or secure the contract        and (2) have paid or agreed to
pay a fee contingent        upon award of the contract,           The regulations      also
require    the contractors      to agree to furnish       information    relating    thereto
as may be required       by the contracting     officer,

      During the past 12 months we          reviewed     312 contracts  awarded primarily
during fiscal   years 1969 and 1970         under the Department of Labor's major
Federal .manpower training      programs,        The contracts    in the total amount of
$38,7 million   were selected on the          basis of their size, significance,
complexity,   and representativeness          of overall    program operations,

        The contracts  provided for manpower training   activities   to be
carried out in eight of the Department of Laborus 10 Manpower Administra-
tion regions in accordance with the institutional       training   and on-the-job
training    provisions  of the Manpower D'evelopment and Training    Act of 1962,
as amended; the Concentrated      Employment Program, and related    programs
authorized     by the Economic Opportunity  Act of 1964, as amended
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(42 U,S,C, 2740); the Job 0 pportunities      in the Business Sector program;
and the work incentive program authorized        by title  El. of the Social
Security Amendments of 1970 (42 U,S,C. 630) D The manpower programs
authorized by the Economic Opportunity       Act are administered    by the
Department of Labor under authority      delegated    from the Office of
Economic Opportunity,

         We also reviewed a contract,              in the amount of $379,373, awarded by
the Department to the Food Service Industry                        Training      Project,    Incorpom
rated,     to administer       on-the-job      training       projects      for cooks, waiters,
and waitresses        in eight States during fiscal                 years 1969 and 1970, The
contract required          that the Food Service Zndustry Training                      Project,
Incorporated,       enter into subcontracts              with various         restaurants      and food
service operators          to provide on-the-job            training      and, if necessary,
institutional       training      for cooks, waiters,            and waitressesa          We examined
about 215 subcontracts,             amounting to about $9l,OCO, awarded by Food
Service Industry         Training     Project,       Incorporated,        to various      food service
facilities      located in the States of Connecticut,                     Maryland, Massachusetts,
and New York,

RESULTS OF REVIEW

       Our review revealed      no indications      that contingent    fees had been
paid to firms or individuals          to help secure any of the manpower training
contracts   we reviewed,     including      the contract with the Food Service
Industry   Training   Project,     Incorporated,      and 215 of the subcontracts     it
awarded to restaurants       and food service facilities,           We found that the
manpower training     contracts      usually contained a covenant against contin-
gent fees clause as required          by the regulations      or the contract   files
contained a representation         that no contingent      fees had been paid to
secure the contracts0

      We also discussed the matter of contingent              fees with the administra-
tor of the Food Service Industry       Training     E'roject,      Incorporated, and with
Department of Labor regional    officials       responsible       for manpower training
programs,    These officials advised us that they knew of no instances where
a company or an individual   had been retained          and/or paid for helping a
firm to .secure a manpower training       contract,

        On the basis of our review,  we believe that there is no need for
recommending that the Secretary of Labor revise the Department%      regulam
tions to prohibit     the payment of contingent fees for securing manpower
training     program contracts,,

     We plan to make no further   distribution  of this report unless copies
are specifically requested,   and then we shall make distribution   only
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after your agreement has been obtained or pubLi.c announcement          has been
made by you concerning the contents of the report.

     We trust   that   the foregoing   informstion   wiEL serve   the purpose   of
your request,




                                          Comptroller  General
                                          of the United States



The Honorable William A, Steiger
House of Representatives