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PERSONAL AHD
COKFIDBIiTIAI.

Hay 6,

Honorable Kenneth D» MoKellar,
United States Senate,
Washington 25, P« C.
%

dear Senator McKellar*

Chairman Lilienthal, of the Tennessee
Valley Authority, thought it appropriate to send
to me a oopy of your letter to him under date of
April 25 cmd a oopy of his reply to you under
date of April 29 inasmuch as those letters in**
elude references to me* Because of your interest
in the TVA contract let to the Utah Construction
Company and because of your ref ersnoe to my connection with that construction company, I am
sending you a oopy of ray reply to Chairasai
Ulienthal.
Sincerely yours,

M. S. Ecoles,

Enclosures 2
MSE:VE:b

TENNESSEE VALLEY AUTHORITY

Knoxville, Tennessee
April 29, 1944
OFFICE OF THE CHAIRMAN

Dear Chairman Eccles:
I enclose copy of a letter
addressed to me by Senator K. D . McKellar
and our reply.
In view of the fact that the
Senator's letter and our response include
references to you, it seems appropriate
that I send you these copies.
Sincerely,

David E. Lilienthal
Chairman
Hon. Marriner S. Eccles
Chairman, Federal Reserve Board
Washington, D . C.
DEL.mr




UNITED STATES SENATE
COMMITTEE ON POST OFFICES AND POST ROADS
C
0
P
I

April 25,

Mr. David E. Lilienthal,
Tennessee Valley Authority,
Knoxville, Tennessee.
Dear Sir:
I am advised that prior to work being done by the TVA on
the Watauga and South Holston or one or both of them the contract
was let to the Utah Construction Company of which Marriner S.
Eccles, Chairman of the Federal Reserve Board, is a director and
part owner; that the contract was let privately and not by public
bidding and that the prices paid for such work as was done were
very large.
Please send me copy of the contract; state whether the
contract was let after bidding; why it was let to a company in
which a well known official of the Government was interested;
what has been paid out on the contract; what, if anything, was
paid when the contract was stopped and such other facts concerning
these contracts as may be within your possession.
Include any correspondence between the WPB and the TVA
with reference to the stoppage of those two dams.
A week or two ago I wrote you for information about other
matters and have not had a reply. I want these letters answered.
I am asking you for information regarding the conduct of the TVA
and I have a right to ask it and I have a right to have
them answered.
Yours truly,
/s/

m




Kenneth McKellar

TENNESSEE

VALLEY

KNOXVILLE.

AUTHORITY

TENNESSEE

DAVID E. LILIENTHAL
CHAIRMAN
HARCOURT A. MORGAN
DIRECTOR

April

29,

JAMES P. POPE
DIRECTOR

Honorable Kenneth 33. McKellar
Senate Office Building
Washington, D. C.

Dear Senator McXellarj

This will acknowledge receipt of your letter of April 25 requesting information concerning the contract between the Authority end The Utah
Construction Company covering tunnel construction work on the l&tauga and
South Holston projects* You have apparently overlooked previous correspondence on this seme matter. On May 29, 1942, you wrote to us requesting
information on this contract and copies of documents. Onder dste of June 11,
194*, our general manager, Mr. Ciapp, responded to your letter by giving
detailed information concerning the circumstances and by forwarding copies
of all of the relevant documents. You acknowledged the receipt of that
material under date of June 13, 194-2* #e $re enclosing copies of this
correspondence.

The following statement covers the facts that were before the
TVA Board of Directors at the tiaie the contract was approved by the Board.
The facts and details were prepared for the Board ty the General Manager and
staff.

The contract wag not soleiy with the Utah Construction Company but
wag a joint bid, submitted by that Company and the Morrison-Knudsen Company.
The contract wag let after inviting bids from three companies known to have
equipment immediately available with which to do the work. One company
declined to bid. The other two submitted & joint bid end a contract was
thereafter entered into.

The details are as follows! In view of the priorities situation
existing at the time that this work was commencfc! it was necessary to
ascertain what construction companies with experience in this type of work
had available the necessary equipment to undertake tunnel projects of this
magnitude without unnecessary dels/. This was an important point because
it would h*ve been futile to let • contract to & contractor who did not
have the equipment available and who could not have obtained it under the
priorities available for this job. Accordingly, the purchasing officials



-2-

Honorable Kenneth D. McKell&r

April 29, 19U

of the Authority made inquiry throughout the trade and ascertained that
three companies, the Morrison-Xnudsen Company, The Utah Construction
Company, and the Pleasantville Constructors were the only concerns in a
position to undertake this work. These three companies were contacted
by telephone. Pleasantville Constructors declined to bid. Morrison-Knudsen
Company and The Utah Construction Company submitted a joint bid for both
the Watauga and South Holston jobs. Both of these companies are nationally
recognised as thoroughly reliable contractors on important construction work.
At the time thst this contract was l e t the Mcrrison-iCnudsen
Company had just finished construction of the Anderson Flet Dam for the
Bureau of Reclamation in Idaho. This same comp&ny had previously constructed
the GlenviHe Power Project for the Aluminum Company of America and was
under contract with us on the construction of the Ocoee tunnel at Ocoee
Project 80• 3. The Utah Construction Company at the time of the letting of
t h i s contract was j u s t finishing the Ngntahal& Lam end tunnel for the
Alusinu® Comp&ny of America and had recently completed contracts with the
Hew fork Board of Water Supply for tunnel work a t Croton Fails, Hew lork.
This same company was also constructing the Siorfork Dam in Arkansas, involving expenditures of approximately |i±#OOQ,QGC, and important ¥;orks at Pearl
Harbor, Samoa, Palssyre, and Johnson Islands, involving the expenditure of
approximately $12,000,000 per month. The awarding of this contract on
informal bidding without advertising was authorised tgr statutory provisions
in effect at the time. This procedure permitted the construction of these
dams to proceed with speed not possible otherwise.

You ask wry the contract was l e t to a company in jrhieii *& wellknown official of the Government was interested" m'd state further that
Marriner 3, Eccles, Chairman of the Federal Reserve Bo&rd, i s & director
and p t r t owner of ons of the contracting companies, The Utah Construction
Company. The contract was l e t for the reasons above stated, reasons related
to necessity for obtaining a qualified contractor who had the special
equipment and could do the job at a fair price and under conditions of
speedy entrance on the undertaking.

The statement in your l e t t e r i s the f i r s t suggestion that we
have received that Mr. Eccles has any interest in this company. Even if
that be a fact, we are not clear whether i t l i your position that before
letting this contract we should have undertaken an investigation of the
personnel of the board of directors and stockholders of this company and
if the fact which you now state had been revealed should have refused to
c o n t r a ^ wi,fc$i a company otherwise qualified, at a price otherwise reasonable,
because of.J|xw-:jBcclesf relationship to the company. I t should be noted that
tfcle iaase cSaipariy has in recent years contracted not only with the TVA but
also with the Corps of Engineers, the Bureau of Reclamation, end other



-3-

Honorable Kenneth D. McKeliar

April 29, 1944

federal agencies engaged in construction *ork. So far s.® we know there i s
no principle of law or policy supporting the exclusion froa government
contracts of an otherwiie qualified contractor.
Jon ask about the price. This contract was on what i s known as
a unit price basis. Those unit prices were 19.70 par cubic yard for tunnel
excavation &t lataaga and $18.80 per cubic yard for spillway excavation at
the same project. The corresponding prices at South Holston were |10.70
per cubic yard for tunnel excavation and $18.80 per cubic yard for spillway
excavation. These unit prices reflect the fact that TVA agreed to furnish
power to the contractors to operate their electrically driven construction
equipment.
At the time that theee t^o projects, along pith w.&nj others,
were stopped fcgr the general stop order of the War Production Board on
October 20, 1942, the tunnel work was not entirely completed, ^e appeared
before the War Production Board and urged an extension of time to permit the
tunnels Zo be finished. An amendjiient to the original stop ordtT WJ granted
to permit u© to continue v.orfc to December I , 194-2, in the case of the South
Holstoc project, enc to March 1, 1943, in the case of the natauge. project.
These extensions ,of time permitted u& to complete the tunnels. r»e paid to
the joint contractors under the contract the amount to sbleh ttay were
entitled on the unit price basis for the -work actually done. The total
paid on the Watauga job to the two joint contractors was 11,66.7,337.35.
The total on the South Halfttoo job, also ptid to the two joint contractors,
was |2,195,313«1B. Mo cancellation or termination charge was paid.

In accordance with /our request, we ere enclosing herewith
another copy of the principal contract between the Authority snri the two
contractors, together with copies of the tnpplWiitii contracts relating to
details of performance. Also, is accordance with your request, *« f^re
forwarding copies of a l l tiie corresj>ondenee between the Authority ©nd the
War Production Board relating to the stoppage of work QB these two projects.
We note the l a s t paragraph of your l e t t e r . The previous request
for information to which you refer was dated April 19 and T*as received by
us on April 21. The reply containing a l l the information requested was
mailed on April 25.

Copy to Honorable Marriner 3. Eccles




Sincerely yours,

JtgfgYAM
Federal Reserve Board
David E* Lilienthal
Chairman

PEHSOHAL AND COHFIDEKTIAL

May 6, l%k.

Mr. David £. Lilienthal, Chairman,
Tennessee Valley Authority,
Knoxville, Tennessee.
Dear Chairman Lilienthal:
I wish to thank you for your letter of April 29 enclosing
copy of a letter addressed to you by Senator K. D. McKellar and a
copy of your reply. I hare read them with a great deal of interest.
Inasmuch as Senator McKellar questions the propriety of
the TVA letting a contract to the Utah Construction Company because
of ray connection with that company, I feel that in defense of my
own position as well as that of the company, my connection with it
should be more fully understood. I am the president of the Secies
Investment Company, a family corporation organised twenty-eight years
ago for the purpose of taking over the various interests of myself
and eightYj&r^%hera and sisters from my father's estate. The family
company ojn* ten per cent of the Utah Construction Company, which
was acquired through my father's estate. I own one-ninth of the
stook of the Ecoles Investment Company. Thus, I have an indirect
interest in the Utah Construction Company of just slightly more than
one per cent. £l became a director of the company in 1920 and while
I remain nominally as Chairman of the Board, I represent stockholders ' interests only and am not active in the management of the "
company's affairs. The active management of the company is in the
hands of men who have little or no stook interest in the company."J
X have devoted my full time to the affairs of the Federal
Reserve System since I became a member of the Board more than nine
years ago. My relationship with the Socles Investment Company and
the Utah Construction Comoany became a matter of public record before the Senate Banking and Currency Committee when my nomination as
a member of the Board was presented to the Committee in April, 1935*
Tou may be interested in the restrictions imposed by law upon the
political and financial connections of members of the Federal Reserve
Board, and for that purpose I am enclosing a copy. I have fully complied with these requirements.




Mr. David E. Lilienthal

-

(2)

May 6, I9I4U

The contract referred to in Senator MoKellar'a letter
was entered into without any knowledge whatever on ay part* I
have taken no part in the securing of any contracts, either directly or indirectly, for the Utah Construction or for any other
company. Nor have X ever been asked to intercede in any way on
behalf of any company in connection with the securing of contracts.
A oonspany with which I have nominal connection, such as
is the oase with the Utah Construction Company, should not be
penalised because of that connection when there is no legal prohibition against It. As you know, there are many people in every
branch of the Government service who have both private business
and professional connections and whose firms do a good deal of
business with the Government* It would be diffieult, if not impossible, to get many of the best qualified men to take public
office if they had to aever all of their private connections for
an uncertain public position.
1 am sending Senator MoKellar a copy of this letter, and
for your information 1 am enclosing a copy of my letter to Senator
MoKellar.
Sincerely yours,

II. S. Socles.

Enclosures 2

MSE:VE:b




KSSTBICTIOIfS IMPOSED BY U® XJPOlf POLITICAL AMD FIHAHCIAL COTOCTIOirS OF
APPOINTIVE MEHBEBS OF IKE FEDEML M S E W E BQAHD

The following restrictions are Imposed by law upon appointive
members of the Federal Beserve Board:
1. Appointive members shall devote their entire time to the business of the Federal Reserve Board* (P. H. Act, Section 10)
2* They shall be ineligible during the time that they are in
office to hold any offioe, position, or employment In any member bank.
(Section 10)
3* They shall be ineligible for two years after the tine they are
in offioe to hold any office, position, or employment in any member bank, except that this restriction shall not apply to a j&ember who has served the
full term for which he was appointed. (Section 10)
k* Ho member of the Federal Maervm Board shall be an officer or
director of any bank, banking institution, trust company, or Federal Keserve
Bank, and before entering upon his duties as a member at the Federal Reserve
Board, he shall certify, under oath, that he has complied with this requirement and such certification shall be filed with the Secretary of the Board.
(Section 10)
5» Ho aeiabor of the Federal Reserve Board shall hold stock in any
bank, banking institution, or trust company, and before entering upon his
duties, he shall certify under oath that he has complied with this requirement,
and such certification shall be filed with the Secretary of the Board. (Section 10)
6. Ho Senator or Representative in Congress shall be a member of
the Federal Reserve Board. (Section k)
7* Ho member of the Federal Reserve Board shall be an officer or
director of any international or foreign banking or financial corporation organised under the provisions of section 25(a) of the Federal Reserve Act, or
of any corporation engaged in a similar business organised under the laws of
any State, nor hold stock In any such corporation, and before entering upon
his duties as member of the Federal Heaerve Board, he shall certify, under
oath, to the Secretary of the Treasury, that he has complied with this requirement. (Section 25(a))
(Section 25(a) of the Federal Beserve Act provides for "corporations to be
organised for the purpose of engaging in international or foreign banking
or other international or foreign financial operations, or in banking or
other financial operations in a dependency or insular possession of the
United States, either directly or through the agency, ownership, or control
of local institutions in foreign countries, or in such dependencies or insular possessions as provided by this section.")