Section 22 of the I. C. Act and Transportation for the Federal Government †

A Review of Its History and Development, Practical Uses, Governmental Policies, and Legal Problems Incident to Practices and Procedures Followed Thereunder

BY EDWIN W. CIMOKOWSKI

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History and Development of Section 22

In recent years section 22 of the Interstate Commerce Act 1 has been the object of considerable attention and suggestions for revision among shippers, carriers, and public agencies, due to increasing reliance upon its authority for the issuance and application of special rate and service quotations or tenders covering the movement of property and passengers for the Federal Government.2 The inclusion of section 22 in the original Act, as approved on February 3, 1887, did not, if contemporary reports are to serve as a trustworthy guide, create much notable comment or controversy. Although according to the old rule of statutory construction, the sovereign Government is not subject to the general provisions of a statute not making specific reference to it,3 the legislators obviously decided that in order to remove any doubt as to such exception it would be better form to establish a definite exempIn this article the writer does not intend to commit his office to any point of view that is stated.

*Mr. Cimokowski is Assistant General Counsel, General Accounting Office, United States Government. A.B. in Bus. Adm., George Washington University; LL.B., Southeastern University; LL.M., National University. He is a member of the Bar of the District of Columbia.

149 U. S. C. 22. While this article will use the broad terms "section 22" and "section 22 quotations" or "tenders," within the terms of part I of the Act, it is also intended usually to comprehend and denote similar authority contained in the related provisions in 49 U. S. C. 317(b), 906(c) and 1005(c), concerning motor carriers, water carriers, and freight forwarders, respectively.

2 The I. C. C. received, indexed, and filed 20,296 quotations or tenders submitted pursuant to section 22 during fiscal year ended June 30, 1959. 73rd Annual Report of the I. C. C. submitted to Congress December 1, 1959. The term "tender" is now widely utilized by Government shipping agencies in place of "quotation."

3 Sutherland on Statutory Construction, 3rd ed., vol. 3, section 6301. Note, however, that no similar preferential treatment is spelled out in the Civil Aeronautics Act of 1938 (now Federal Aviation Act of 1958), 72 Stat. 806. There has been no serious challenge to the premise that exemptions from tariff rates are not permitted unless within the explicit authority of that Act. The conference committee on S. 939 (P. L. 85-246, 71 Stat. 564) requiring the filing of section 22 quotations with the I. C. C., noted that while section 416(b) of the Civil Aeronautics Act of 1938, 49 U. S. C. 496(b), may not contain sufficient authority with respect to transportation by air carriers for the United States, the question whether that Act should be amended to provide language comparable to that of section 22 is a matter for further consideration. House Report No. 1171, 85th Cong., 1st Sess., August 14, 1957.

tion for governmental bodies, among others, from adherence to the provisions of the regulatory statute. The Cullom bill survived any change, in meetings between House and Senate conferees, insofar as transportation free or at reduced rates for the United States, State, or municipal Governments is concerned. Hardly any mention of section 22 is made in the protracted debate and discussions over the Cullom bill. Most of the spirited argument seemed to center on the provisions prohibiting pooling and unjust discrimination, the nature and powers of the regulatory body, and the long-and-short-haul section.

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It has been said that section 22, insofar as the Federal Government is concerned, was originally intended only to provide a lawful method of extending the rate concessions which had been given to the Government by the land-grant railroads for many years prior to the inception of the Interstate Commerce Act, but apparently there were other reasons. Pertinent in this connection is the fact that a specific reference to the transportation of persons for the United States free or at reduced rates was not added to section 22 until September 18, 1940. The Land-Grant Acts almost invariably reserved the privilege of free or reduced rate transportation for United States property and troops, but, of course, there were many lines, particularly east of the Mississippi River and north of the Ohio River, which were not the beneficiaries of land grants from the Federal Government.6

4 S. 1532. 49th Cong., 2nd Sess. In the Cullom Committee report, January 18, 1886, accompanying S. 1093, the last Senate predecessor of S. 1532 (which became law, 24 Stat. 379) various state statutory provisions and railroad regulation practices are reviewed. Apparently, the legislative practice of specifically authorizing reduced rates on freight carried for the United States was not standard with most states and territories. Nevada, in an act of 1879, did so provide. Senate Report No. 46, 49th Congress, 1st Session.

5 See report of hearings on S. 939 and other bills, before the Subcommittee on Surface Transportation, Senate Committee on Interstate and Foreign Commerce, 85th Congress, 1st Session, April 22, 1957, p. 266. Representative Reagan of Texas introduced a series of bills for the regulation of interstate railroads beginning in 1878. After one of these, H. R. 5461 was approved by the House, Senator Cullom's bill (S. 1532) was passed by the Senate on January 30, 1886. Both bills expressly excluded application of any of the provisions of the proposed legislation to property handled for the United States free or at lower than published rates. Extensive amendments were added to the Act of 1887 by an act approved March 2, 1889, 25 Stat. 855. Section 22 was then modified to read that "nothing" in the Act shall prevent free or reduced rate transportation for the United States. It would seem, therefore, that the Congress then desired that all other provisions of the Act, not otherwise excluded, would apply to voluntary or negotiated concessions to the United States.

6 Transportation Act of 1940, 54 Stat. 898, 900. In Baltimore & Ohio R. Co. v. Thompson, 80 F. Supp. 570 (1948), affirmed 180 F. 2d 416, the court noted that the railroads which had no land-grant mileage were under a competitive disability with those having received grants and that to meet this competition the non-land grant carriers (at about the beginning of the 20th century) started making equalization agreements with the Government under section 22. 30 Op. Atty. Gen. 381, noting that transportation for the Government free or at reduced rates under section 22 at the time under consideration (1915) was limited to "property," construed the Interstate Commerce Act as not forbidding a contract for the movement of troops at less-than-tariff rates. This was in line with Interstate Commerce Commission Conference Ruling No. 218, April 1, 1913.

For many years prior to 1946, the railroads and the military agencies negotiated joint military passenger equalization agreements, and the so-called land-grant equalization agreements seem to have been the principal and continuously employed product of section 22 until World War I brought an upsurge in Government traffic. In fact, there seems to have been no outspoken opinion for revision of section 22 to limit or eliminate Governmental privileges, until the backwash of the depression years brought the realization that the Government was then the carriers' best single customer. Truck competition and regulation about this time may have served to stimulate increased dependence by rail carriers on the relatively quick, simple, and sometimes temporarily confidential method of maintaining business advantages. In their turn the truckers perceived (not always with commendable vision), profits and good will gains in agreeing to protect the lowest net land-grant rates applicable for railroad transportation. Most interested carriers were reluctant to do away with this convenient device of doing business with the Government. The adverse economic effect of the land-grant deduction burden, with its inevitable equalization corollary, inspired the marshalling of railroad industry forces in the Thirties for a campaign of previously unmatched vigor to gain Congressional approval of landgrant laws repeal. It was not until October 1946, however, that landgrant deductions were completely eliminated.8

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If, as the courts have said, section 22 is declaratory of the common law, it becomes the problem of the legislature to determine whether the political, social and economic conditions which justified preferential treatment and accommodation for the sovereign government and other special classes of shippers continue to exist in essentially the

7 An interesting opinion of the Attorney General of the United States conditionally approved an effort to dispense with land-grant deductions. The Army had negotiated a special arrangement with a land-grant railroad which provided that no deductions would be made for land grant. This was found to be valid provided that adjustment was made in the contract price for the land-grant deduction. The negotiated instrument had to reflect, in terms or impliedly, that allowance was made for land grant. 16 Op. Atty. Gen. 607 (1878). By World War II, however, the popularity of the land-grant exclusion clause in section 22 quotations did not suffer because of the potential challenge as to the legality of its form, since the quotation-covered services were usually distinguishable from tariff covered services. The Government is entitled like any other shipper to regular tariff rates and a contract resulting in payment of more than a net land-grant rate obtainable through regular tariff procedures would be, as to the excess, a gift of public money with no consideration therefor. 19 Comp. Dec. 208 (1912); ibid. 762 (1913); 8 id. 334 (1901).

859 Stat. 606, 49 U. S. C. 65. The Illinois Central Railroad was the first railroad aided by a Federal land grant-in 1850-51. Hadley, A. T., Railroad Transportation (1885), page 37. The War Department appropriations act of June 7, 1924, 43 Stat. 477, 486, required the Secretary of War to pay just and reasonable rates, but not more than 50 percent of tariff or special lower rates, for the transportation of United States property or troops over land-aided railroads. Earlier appropriation acts starting with that of March 3, 1879, 20 Stat. 390, had somewhat similar 50 percent limitations. This was permanent law until the general repeal in 1940 and 1946.

9 Interstate Commerce Commission v. Baltimore & Ohio R. Co., 145 U. S. 263; Nashville, C. & St. L. Ry. v. Tennessee, 262 U. S. 318.

same way and in the same laissez faire atmosphere that began to permeate business enterprise as the smokestacks of the Industrial Revolution darkened city skylines. In this kind of atmosphere English railway legislation took shape and furnished the mold for the I. C. Act. The English prototype, compounded of a variety of experimental laws starting in the middle 1800's, contained explicit preferential provisions for government transportation 10 and it was no accident that Congress, sensitive, as it always has been, to the needs of the military and postal services in peace and especially in war laid the groundwork, in section 22, for preferential rate and service adjustments which in recent years have assumed proportions hardly foreseeable in the year of creation.

Before the Interstate Commerce Act, strict adherence to such tariffs as published by the carriers was notoriously lacking in enthusiasm, since the practice of rebating was frequently employed and was an important factor in instigating state and federal regulation. The Cullom Committee report and the debates on the floor of the House and Senate at the time the Cullom bill was under consideration show that the practice of rebating was freely confessed; not all as freely condemned it.

Government procurement officers are at all times charged with the duty of obtaining goods and services at the lowest available cost, bearing in mind the responsibility and reliability otherwise of the contractor, and it was not uncommon for Government traffic prior to 1887 to move at rates established by contractual arrangement before any particular movement occurred.1 Whether traffic is moved at tariff or lower negotiated rates, however, payments are not permitted prior to proof that the service was performed.12 Nevertheless, the lack of mention of

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10 For example, see section 6 of the Cheap Trains Act, 1883. 46 and 47 Victoria, Chapter 34 relative to military and naval passenger fares; also, see part II, section 24(12) and (13), Act of August 10, 1888, 51 and 52 Victoria, Chapter 25, relative to the conveyance of mails and war office stores.

11 The conflicts which arise as to the authority of Government accounting officers to limit payments to reasonable rates without first having obtained an I. C. C. ruling are not new. The early practice, although recognizing the exclusive jurisdiction of the I. C. C. in this area, reflects the belief that the accounting officers should not be forced to take the initiative to obtain the necessary ruling and that the burden was on the carrier to show entitlement to the charges billed. Apparently the land-grant deduction element helped to lend credence to this view, since the allowable rate was somewhat lower than a particular tariff rate.

20 Comp. Dec. 206 (1913); 19 id. 208 (1912); cf.

20 Comp. Dec. 769 (1914).

P. L. 85-762, 72 Stat. 859, removes any doubt as to the necessity for applying to the I. C. C. when a question of reasonableness arises.

12 Section 3709 (41 U. S. C. 5) and Section 3648 (31 U. S. C. 529) Revised Statutes, the first requiring advertising for purchases and the second prohibiting payments in advance of goods and services. Procurement authority now exercised by the Department of Defense, Atomic Energy Commission, the General Services Administration, and others, is specifically exempted from the requirements of the advertising and advance payment statutes in certain situations. Common carrier services of various kinds ordinarily are not subject to the advertising requirement, but it has been found necessary to make special provision for exclusion of such requirement, as in section 321(a) of the Transportation Act of 1940, 49 U. S. C. 65(a).

section 22 quotations in early I. C. C. reports leads one to conclude that there was not any significant volume of Government traffic, and differences (except where land grant was involved), if any, between Government and other rates merely scratched the surface of the transportation economy. For many years they apparently were insufficient, in ultimate effect on the revenues and operations of the carriers, to provoke any criticism from either industry or the railroads.

The rumblings of discontent with the existing form and use of section 22 grew more pronounced after the repeal of land-grant deduction requirements effective October 1, 1946, and various bills were introduced in Congress beginning in 1950, with the purpose, at first, of attaching a conclusive presumption of reasonableness to the negotiated rates, and, later, to repeal the reduced rates provision insofar as the United States, State, or municipal governments are concerned.13 Most of the Government agencies have lined up against revision of section 22 in the manner thus far proposed. The Interstate Commerce Commission has consistently supported legislative proposals restricting or repealing the reduced rate provision, maintaining that tariff procedures for the establishment of Government rates would place it on an equal footing with commercial shippers and overcome the objection by such shippers that low rates to the Government have the effect of increasing

13 The following list is not all-inclusive, but identifies most of the measures introduced in Congress between 1950 and 1957, when efforts at circumscribing Government preferences were diverted to the successful promotion of legislation making the United States subject to the time limitation provisions of section 16(3) and comparable sections of the I. C. Act. P. L. 85-762, 72 Stat. 859. S. 4067 and H. R. 9503, 81st Cong., 2nd Sess. (1950); S. 2355 and S. 2653, 82nd Cong., 2d Sess. (1952); S. 2653 would take away section 22 reduced rate privileges from household goods. S. 904, which failed of passage in the 83rd Congress, had the same purpose. S. 906, 83rd Cong., 1st Sess. (1953). This bill, approved by both Houses, contained a so-called finality of contracts or conclusive presumption of reasonableness provision. It was vetoed by President Eisenhower on September 2, 1954.

H. R. 4504, 83rd Cong., 1st Sess. (1953), H. R. 8029, 83rd Cong., 2nd Sess. (1954), S. 543, S. 2114, and H. R. 6141 and H. R. 6142, 84th Cong., 1st Sess. (1955), H. R. 525, 84th Cong., 2nd Sess. (1956). The last six bills proposed to prohibit reduced rates for the transportation of Government property.

S. 377, S. 939 and H. R. 3233, 85th Cong., 1st Sess. (1957). These bills started out as proposals to limit reduced rate authority for the United States to time of war or national emergency and contained the finality of contracts provisions. H. R. 3233 was later changed to remove household goods from section 22, leaving reduced rate authority otherwise in the law, but the finality of contract provision was retained. S. 939 was later changed to require only the filing of section 22 quotations with the I. C. C. and the disagreement of the House and Senate on the bills as passed was resolved in joint conference by the adoption of S. 939 with a further amendment to exempt subsequent quotations made pursuant to agreements under section 5a of the I. C. Act from the Antitrust laws. After some heated debate, revolving about the effect of the antitrust exemption, S. 939 was passed and enacted as P. L. 85-246 (71 Stat. 564), effective August 31, 1957.

S. 1448, 85th Cong., 1st Sess. (1957). Proposed to exclude reduced rates privilege from Alaskan traffic, but the later Alaska Railroad bill restored the section 22 privilege-S. 1508, 86th Cong., 1st Sess. Passed Senate January 26, 1960.