13 T.C. 276">*276 The War Contracts Price Adjustment Board determined that $ 29,910 of the profits realized by the petitioner during the year 1943 on renegotiable contracts and subcontracts with the Navy Department were excessive. This proceeding is brought for a review of the Board's determination under section 403 (e) of the Renegotiation1949 U.S. Tax Ct. LEXIS 99">*100 Act. ¹

Petitioner in his amended petition made five assignments of error in which he contended (1) that he was not a contractor or subcontractor within the meaning of section 403 (a) (5) of the Renegotiation Act; (2) that none of the profits earned by him in 1943 were excessive; (3) that the statute of limitations barred respondent's determination of excessive profits earned by petitioner in 1943; (4) that the Renegotiation Act is unconstitutional in that it is an improper delegation of power by Congress; and (5) that the Renegotiation Act is unconstitutional in that it authorizes a deprivation of petitioner's property without due process of law.

The first two of petitioner's assignments of error, that he was not a contractor or subcontractor within the meaning of the Renegotiation Act and that none of the profits earned by him in 1943 were excessive, are the only ones in issue here. The issue as to limitations was1949 U.S. Tax Ct. LEXIS 99">*101 waived by oral stipulation of the parties at the hearing. The two constitutional issues were both decided adversely to the petitioner in , and were not pressed in petitioner's brief, so that they must be deemed to have been abandoned.

Some of the facts were stipulated and are so found. The stipulation filed is incorporated herein by reference.

FINDINGS OF FACT.

The petitioner is an individual, residing in San Pedro, California. For many years prior to 1943, the year here involved, he was engaged in business as a manufacturers' representative on a commission basis, selling his principals' products to the United States Navy in the eleventh, twelfth, and thirteenth naval districts, which comprise the Pacific coast area of the United States. He had acquired considerable knowledge of naval buying procedures and established contacts with many naval supply officers in this area in the course of his extensive experience in selling to the Navy.

Petitioner's net earnings were $ 1,977.22 in 1940, $ 2,126.65 in 1941, and $ 20,428.72 in 1942. These earnings consisted entirely of commission paid by his principals1949 U.S. Tax Ct. LEXIS 99">*102 on sales made by them to the Navy.

During 1943 petitioner continued to represent his former principals and some additional manufacturers who were interested in selling their products to the Navy. His contractual arrangement with all his principals was substantially the same. He was not an executive, officer, partner or full time employee of any of his principals during 1943, but worked on a commission basis alone. As a manufacturers' representative, petitioner called on major ships and naval stations in the three naval districts to distribute samples of his principals' products and otherwise encourage naval personnel to order the products manufactured and sold by his principals. This practice created interest in the products and led to orders for them by purchasing officers against contracts held by his principals. He was paid commissions varying from about 2 1/2 per cent to about 10 per cent of gross sales to the Navy by his principals in the three naval districts. The commissions were paid to petitioner on all sales made by his principals in that area, whether the petitioner actually procured the sales contracts or not.

Petitioner's contracts with his principals set out the1949 U.S. Tax Ct. LEXIS 99">*103 territory in which petitioner worked, gave him exclusive sales rights to his principals' products to the Navy Supply Department in his territory, and provided for furnishing the petitioner with samples. The contracts prescribed no duties for petitioner other than to sell the products to the Navy, although it was understood that the petitioner would assist his principals in servicing the sales contracts.

13 T.C. 276">*278 The nine companies which petitioner represented during 1943 had total sales to the Navy in the eleventh, twelfth, and thirteenth naval districts in that year and paid commissions to petitioner as follows:

During 1943 the Navy followed its established practice of issuing invitations to manufacturers to bid on specific items to supply estimated Navy requirements. Interested manufacturers submitted bids to the naval procurement officers, stating unit prices at which they were willing to supply needed products to the Navy. The Navy then awarded quarterly supply contracts to 1949 U.S. Tax Ct. LEXIS 99">*104 the manufacturers providing for delivery of products ordered up to the estimated contract quantities at the bid price, ordinarily awarding the contracts to the lowest bidders. The Navy was not obligated to order any supplies under the contracts, but the contractors were obligated to deliver products ordered at the contract prices up to the estimated quantities.

In 1943 the naval supply officers in the twelfth naval district were responsible for filling orders from ships and bases in the Pacific Ocean area outside the continental limits of the United States. At that time the needs of the Navy for many items were greater than the amounts called for in the regular quarterly contracts, and some special contracts were awarded to manufacturers who were able to supply the Navy with greater amounts of supplies. Also, naval supply and procurement officers were making strenuous efforts to expedite deliveries of supplies and often requested contractors to supply greater amounts of products. Due to wartime difficulty in servicing contracts and making deliveries, there was virtually no actual solicitation of Navy contract business by the manufacturers or their agents in that area, since they1949 U.S. Tax Ct. LEXIS 99">*105 had orders, in most cases, for greater quantities of their products than they could deliver.

As a representative of several manufacturers, petitioner was frequently contacted by the naval representatives in their efforts to procure additional quantities of supplies and to expedite delivery on orders already placed. During 1943 the petitioner worked as much as 16 hours a day, 6 days a week. A considerable portion of his time and effort was spent in servicing contracts and orders given to his principals by the Navy. He advised his principals on Navy packing, stenciling, and shipping requirements and also rendered substantial services in arranging priorities, shipping, dock permits, and delivery schedules with the Navy. He was not compensated separately for 13 T.C. 276">*279 those services, but considered them a part of his duties as a manufacturers' representative and performed them as an aid to the promotion of satisfactory relations between his principals and the Navy.

All manufacturers submitted the name of some representative to receive purchase orders under contracts from the Navy. In some instances orders were placed directly with the manufacturer and in some instances they were 1949 U.S. Tax Ct. LEXIS 99">*106 placed with the petitioner, where he had been designated by his principal to receive orders. Petitioner sometimes requested such a designation in order that he might be informed of orders and deliveries on contracts held by his principals.

During 1943 the petitioner, acting as a manufacturers' representative, devoted his efforts to ascertaining the needs of the Navy, advising his principals of contracts of interest to them, insuring the issuance of invitations to his principals to bid on Navy contracts, and assisting his principals in the preparation and submission of bids on Navy contracts. He also contacted Navy purchasing officers to stimulate interest in his principals' products and secured promises of orders against supply contracts held by his principals. Petitioner also did some direct solicitation for his principals with the Ships' Service Department of the Navy for the sale of certain products which were not being sold to the regular supply department of the Navy.

The petitioner's renegotiable profits from commissions received on gross sales by his principals to the Navy Department during 1943 were excessive in the amount of $ 29,910.

OPINION.

Petitioner contends that respondent1949 U.S. Tax Ct. LEXIS 99">*107 erred in its determination that he was a contractor or subcontractor during 1943 within the meaning of section 403 (a) (5) of the Renegotiation Act, which provides in part that the term "subcontract" means:

(B) Any contract or arrangement * * * (i) any amount payable under which is contingent upon the procurement of a contract or contracts with a Department or of a subcontract or subcontracts, or determined with reference to the amount of such a contract or subcontract or such contracts or subcontracts, or (ii) under which any part of the services performed or to be performed consists of the soliciting, attempting to procure, or procuring a contract or contracts with a Department or a subcontract or subcontracts * * *.

Respondent contends that petitioner was a subcontractor within the meaning of the Renegotiation Act in 1943 because his compensation was received on the basis of sales to the Navy by his principals on orders which petitioner solicited or procured.

The intent of the Renegotiation Act was to allow the Government to recover excessive profits and fees earned by manufacturers' agents as contractors or subcontractors on contracts to supply commodities 13 T.C. 276">*280 to the Government1949 U.S. Tax Ct. LEXIS 99">*108 for war end use. ² Section 403 (a) (5) (B) applies to manufacturers' agents or representatives whose compensation is contingent upon the amount of contract business they procure for their principals or whose contracts of employment provide that any part of their services consists of procuring or attempting to procure contracts with departments of the Government. It does not apply to manufacturers' agents whose compensation is fixed by the amount of business procured by their principals if under their contracts the compensation is not contingent upon the agents' procurement or attempted procurement of business for their principals. ; .

1949 U.S. Tax Ct. LEXIS 99">*109 The petitioner here admittedly was employed as a sales representative by his principals. His contractual relationship was substantially the same with all of his principals. His contracts provided for no duties other than selling and for no basis of compensation other than sales. He was employed to locate Navy business for his principals and to help them to secure contracts for that business. He represented his principals' interests in their dealings with the Navy by utilizing his considerable experience in buying procedure and the numerous "contacts" he had developed among Navy procurement and purchasing officers to stimulate interest and demand for his principals' product and to secure promises from naval personnel to order those products under open purchase contracts held by his principals.

The fact that petitioner's compensation was not contingent upon the amount of Navy business he personally secured for his principals and that he was paid commissions on all gross sales to the Navy in his territory, whether he actually made the sales or not, is not controlling of our question here. Section 403 (a) (5) (B) (ii) is applicable to "Any contract * * * under which any part1949 U.S. Tax Ct. LEXIS 99">*110 of the services performed or to be performed consists of the soliciting, attempting to procure, or procuring a contract or contracts with a Department or a subcontract or subcontracts." (Italics supplied.) Thus, we think that the petitioner was a subcontractor, within both the letter and the spirit of the law.

Petitioner relies heavily on the case of , for the principle that a manufacturers' agent is not a subcontractor within the meaning of section 403 (a) (5) (B) of the Renegotiation Act merely because his compensation was based upon the amount of contracts or subcontracts procured by his principal if the compensation was not contingent upon the amount of contracts procured by him for his principal. The Fine case is readily distinguishable from this case, however, since Fine was employed as a service representative for his 13 T.C. 276">*281 principal, and not as a salesman. His contract provided that he should perform field services from time to time designated to him in connection with the performance of his principal's contracts and that he should be paid commissions computed or based upon the amounts collected by his principal1949 U.S. Tax Ct. LEXIS 99">*111 on all specific projects and orders referred to him for field work. There was no contract for compensation for services to be performed as a salesman.

In this case the petitioner undoubtedly rendered services of value to the Navy and to his principals by supervising the packing and shipping of goods to be delivered to the Navy, arranging delivery schedules, and otherwise promoting expeditious and satisfactory relations between his principals and the Navy Supply Department. However, his contracts were for locating and procuring Navy business for his principals, with the understanding that he would render these additional services.

Since petitioner was a subcontractor within the meaning of section 403 (a) (5) (B), all of his compensation based on gross sales to the Navy Supply Department by his principals is renegotiable. It is necessary to point out, however, that the business which the petitioner solicited from the Ships' Service Department of the Navy is not subject to renegotiation, since it does not involve funds appropriated by Congress. .

The petitioner has failed to produce any evidence that the determination by1949 U.S. Tax Ct. LEXIS 99">*112 the War Contracts Price Adjustment Board of the amount of excessive profits received by him in 1943 was erroneous. We therefore find that petitioner's renegotiable profits from commissions received from his principals on sales to the Supply Department of the Navy during 1943 were excessive in the amount of $ 29,910, as determined by the War Contracts Price Adjustment Board.

An order will issue in accordance herewith.