Government Contract

Last week, in Washington, Post Office officials opened for the second time bids to supply the U. S. with 12,800,000,000 stamped envelopes, its quota for the next four years (TIME, Aug. 20, Sept. 17). Once before bids had been opened and rejected. This time figures were much lower. The Middle West Supply Co., now holding the contract, offered an estimate of $13,314.954-98. But the International Envelope Co., subsidiary of International Paper, underbid its rival by $105,161.18. International Envelope won the contract.

To the unsuspicious reader, newspaper reports of this routine transaction of government business held nothing alarming, suggested no sinister note. Surprising, therefore, was the following headline in the Cleveland Plain Dealer:

POSTAL ENVELOPE JOB FACES PROBE

SENATE COMMITTEE EXPECTED TO LOOK INTO $16,000,000 CONTRACTS

Cleveland readers were amazed. Whispers of the stamped envelope scandal were broadcast. The Plain Dealer's story was guarded, vague. What were the facts? Envelopemen assembled them, thus:

In 1907, the Mercantile Corp. won the non and lucrative U. S. stamped envelope contract, making a tidy profit for Stockholder Myron Charles Taylor, now a potent U. S. Steel executive.* Not until 1917 was the contract wrested away from the Mercantile Corp. In that year, the Middle West Supply Co. submitted low bid. And as this contract is not transferable, the only way for the Mercantile Corp. and Stockholder Taylor to regain it was to buy the Middle West Supply Co. This they did. They were not again disturbed in its possession until last week.

But there had been rumblings in 1924. At that time, International Paper made an ill-prepared attempt to oust the well-entrenched Middle West Supply Co. Stockholder Taylor had retired from active management. International paper's bid, while some 15% lower than the previous contract price, was about 5% higher than the bid of Middle West Supply. International Paper bided its time, waited for 1928.

Last summer, it created the International Envelope Co. and proceeded to figure on a bid. It cut close to $5,000.000 from the existing contract price. Middle West Supply, guessing shrewdly what was in store, also cut deeply, but not enough. International Envelope, with a bid of $15,300,000, thought it had won the guessing contest, since its bid was some half million dollars under its rival's.

Far from expressing pleasure and gratitude at a prospective saving of $5.000.000, Postmaster Harry Stewart New found that no bids met the U. S. specifications, rejected both International Envelope and Middle West Supply. The slashings and guessing contest began again. Middle West Supply sliced its figure most, about $2,500,000. But with a $500,000 handicap, International Envelope could slash" $2,100,000 and win by its narrow margin of $100,000. Postmaster New had saved millions.

Investigation-loving Washington had plenty of material. There was abundant opportunity for pregnant questions. If nearly $7,000.000 could be cut from the 1924-1928 contract, what profits had Middle West Supply and Stockholder Taylor piled up in the last 21 years? Why had not the U. S. made its envelopes in its own printing office? Why had International Envelope been forced into such a struggle to win the monopoly? Out of these and similar questions, trouble-brewing legislators last week thought some trouble might be brewed when Congress opens.

*Successor of E. H. Gary as chairman of the finance committee.