                IN THE UNITED STATES COURT OF APPEALS

                          FOR THE FIFTH CIRCUIT

                             _______________

                               No. 94-11056
                             _______________


                       UNITED STATES OF AMERICA,

                                                     Plaintiff-Appellee,


                                   VERSUS

                         CLAUDE EDWARD LANDERS,

                                                     Defendant-Appellant.


                       _________________________

            Appeal from the United States District Court
                 for the Northern District of Texas
                      _________________________

                             October 31, 1995

Before SMITH, BARKSDALE, and BENAVIDES, Circuit Judges.

JERRY E. SMITH, Circuit Judge:



     Claude Landers appeals his sentence for one count of conspir-

acy to pay and accept illegal bribes in violation of 18 U.S.C.

§ 371 (1993), amended by 18 U.S.C. § 371 (1995), and one count of

paying bribes in violation of 41 U.S.C. §§ 53 and 54 (1995).

Landers argues that the district court misapplied U.S.S.G. § 2B4.1

(1994) by deducting only the cost of goods sold (“CGS”) from the

gross value of the wrongfully-obtained supply contracts.1            Landers


     1
        The CGS, in a merchandising company, is the price the company pays for
the products that it sells.
contends that overhead costs should also be deducted from gross

value to determine the appropriate enhancement under U.S.S.G.

§ 2F1.1 (1994).   Because the trial court correctly interpreted the

sentencing guidelines, we affirm.



                                 I.

     Landers was a sales representative for Electro Enterprises,

Inc. (“EEI”), a representative for distributors and manufacturers

of aerospace and avionics equipment.    EEI supplies parts to Bell

Helicopters Textron, Inc. (“Bell”), and other businesses throughout

the country.   EEI does not manufacture the parts it sells.

     From December 1989 until September 1992, Landers made cash

bribes totaling approximately $10,000 to employees of Bell, as a

result of which EEI netted over $1 million in contracts.       The

bribes also led to a five-count indictment against Landers and two

other defendants.

     Pursuant to a plea agreement, Landers pleaded guilty to one

count of conspiracy to solicit and accept kickbacks in connection

with defense contracts and one count of soliciting and accepting

kickbacks in connection with defense contracts. At sentencing, the

district court determined that EEI had made a gross profit of

$204,071 from contracts obtained by Landers.   The court arrived at

the gross profit figure by deducting the CGS from the contract

price. Landers objected, but to no avail; the court used the gross

profit figure to enhance his sentence under §§ 2B4.1 and 2F1.1.




                                 2
                                        II.

     The    only    issue   on   appeal       is    whether    the     district   court

correctly applied § 2B4.1.         Landers argues that the court should

have used a net profit figure for sentencing.                    In particular, he

asserts that the court should arrive at a net profit figure by

deducting the CGS and a share of EEI’s overhead from the gross

value of the contracts.

     A district court’s interpretations of the sentencing guide-

lines are conclusions of law, reviewed de novo.                      United States v.

McCaskey, 9 F.3d 368, 372 (5th Cir. 1993).                    The guidelines set a

base offense level of 8 for cases of commercial bribery.                       When “the

greater of the value of the bribe or the improper benefit to be

conferred       exceed[s]   $2,000,”      the       level     should    be    increased

according to the table in § 2F1.1.                 U.S.S.G. § 2B4.1.

     We must discern the meaning of the phrase “value of the

improper benefit to be conferred.”                  The phrase could mean gross

value,    net    profits,   or   some     intermediate          result       reached   by

deducting some but not all costs from gross value.                     The meaning of

the phrase is not obvious, but the commentary provides insight:

“The ‘value of the improper benefit to be conferred’ refers to the

value of the action to be taken or effected in return for the

bribe.”     U.S.S.G. § 2B4.1, application note 2.                         For further

clarification, the commentary cross-references U.S.S.G. § 2C1.1

(1994), covering bribery involving public officials.

     Application note 2 of the commentary to § 2C1.1 states:

     The value of “the benefit received or to be received”
     means the net value of such benefit. Examples: (1) A

                                          3
      government employee, in return for a $500 bribe, reduces
      the price of a piece of surplus property offered for sale
      by the government from $10,000 to $2,000; the value of
      the benefit received is $8,000. (2) A $150,000 contract
      on which $20,000 profit was made was awarded in return
      for a bribe;     the value of the benefit received is
      $20,000. Do not deduct the value of the bribe itself in
      computing the value of the benefit received or to be
      received. In the above examples, therefore, the value of
      the benefit received would be the same regardless of the
      value of the bribe.

The very use of the adjective “net” before “value” implies that

some costs should be deducted.

      This is supported by the two examples in note 2.                 In both

examples, costs are deducted from gross value.                   Finally, the

instructions in note 2 that the value of the bribe should not be

deducted from gross value implies that something else should be

deducted; if no deductions were allowed, then there would be no

need to prohibit the deduction of bribes.

      Although the guidelines do not explicitly state which costs

should be deducted, the commentary demonstrates that, at the least,

direct costs are deductible.2         In this case, the CGS is certainly

a direct cost.

      Both examples in the commentary deduct direct costs from gross

value in order to determine a net value.          In particular, the second

example equates a $20,000 profit on a $150,000 contract with the

value of the benefit received.         The language of the note leaves no


      2
        We define direct costs as all variable costs that can be specifically
identified as costs of performing a contract. This might include, for example,
transportation costs for the goods in question. Thus, variable overhead costs
that cannot easily be identified to a specific contract are not direct costs.
This definition differs from the accounting term “direct costs” in that it
excludes those variable costs that cannot readily be apportioned to the contract.
We also note that under § 2F1.1 application note 8, sentencing courts are not
required to make precise calculations.

                                       4
doubt that direct costs should be deducted from the gross value of

the contract.     No other interpretation of profits makes sense.

      Finally,    deducting    direct       costs   is   consistent   with     the

language of the guidelines that net value measures the “benefit

received.”      Any benefit from a contract is reduced by the direct

costs of performing the contract.           This is so because direct costs

have no independent value; the only benefit from direct costs is

that they are necessary to secure the value of the contract over

and above those costs.

      The district court arrived at a gross profit of $204,071 by

deducting the CGS from the contract price. Landers admits that EEI

incurred   no    other   direct   costs.        Because    Landers    failed    to

establish that EEI incurred any direct costs other than the CGS,

the district court’s gross profit finding accurately represents the

gross value of the contracts minus all direct costs associated with

performing the contracts.



                                     III.

      The only remaining question is whether indirect costs should

also be deducted from gross value,3 or to put it another way,

whether “net value” means “net profits.”                 Landers points to the

second example in application note 2 of § 2C1.1 for textual support

that net profits is the correct measure of net value.

       3
         Indirect costs (fixed costs) are the costs incurred independently of
output. For example, rent and debt obligations are costs a business incurs no
matter how many contracts it receives. For the most part, overhead costs are
fixed costs. The marginal increase in variable overhead costs from a wrongfully
obtained contract is normally so de minimis that accounting for them during
sentencing would be impractical.

                                        5
     The guidelines do not support Landers’s position.            Although

the second example in note 2 uses profit interchangeably with net

value, it leaves the phrase undefined.         The one-time use of the

word “profit” is an unconvincing indication that “net value” means

“net profits.”   If the Sentencing Commission wanted courts to use

a “net profit” figure, presumably it would have employed that term.

Instead, the Commission chose to use “net value” throughout the

commentary.

     The Commentary’s treatment of bribes provides textual support

for refusing to deduct indirect costs.             The background to the

commentary to § 2C1.1 states:      “In determining the net value of the

benefit received or to be received, the value of the bribe is not

deducted from the gross value of such benefit; the harm is the same

regardless of value of the bribe paid to receive the benefit.”

(Emphasis added.)   In this passage, the Commission rejects using

net profits to measure the value of the benefit received.             It does

so implicitly by noting that one type of direct costs, bribes, is

not deductible from gross profits.

     The   Commission’s   stated    reason   for   not    deducting   bribes

informs us in analyzing whether indirect costs should be deducted.

The reason bribes are not deducted from gross profits is that the

remaining measure does not adequately reflect the harm from the

bribe.   As a sister circuit explained, “This concept of ‘net value

received’ has nothing to do with the expense incurred by the

wrongdoer in obtaining the net value received.           This is clear from

the Note’s instruction that the value of the bribe is not to be


                                     6
deducted in       calculating        the   ‘net      value.’”      United    States    v.

Schweitzer, 5 F.3d 44, 47 (3d Cir. 1993) (refusing to deduct the

amount a defendant paid a government employee for confidential

information).

     The harm caused by a bribe is the value lost to a competing

party had the bribe not been paid.                    See, e.g., United States v.

Ford,    986    F.2d   1423     (6th    Cir.     1993)    (table)    (rejecting       the

contention that the benefit should be measured by the difference

between what the government paid under the contracts and what it

would have paid had it not been for the bribes).                          That harm is

independent of the value of the bribe.

     The rationale for refusing to deduct the amount of a bribe

from gross value applies equally to indirect costs.                       Like a bribe,

indirect costs have no impact on the harm caused by the illegal

conduct.       This is true whether one considers the pecuniary benefit

to the bribing party or the pecuniary loss to a competitor.                           For

both parties, the benefit of an additional contract is measured by

gross revenue minus direct costs. By definition, indirect costs do

not affect that value.

     Excluding indirect costs is also consistent with the guide-

lines’    general      goals    of     achieving      “reasonable        uniformity   in

sentencing by narrowing the wide disparity in sentences imposed for

criminal        offenses       committed        by     similar      offenders”        and

“proportionality        in    sentencing        through   a     system    that   imposes

appropriately different sentences for criminal conduct of differing

severity.” U.S.S.G. ch.1, pt. A.3. Allowing a wrongdoer to deduct


                                            7
indirect costs would result in differing culpability not only for

similar acts, but also for the very same act.

     Take for example a case in which two defendants bribe the same

government official for the same contract.       If indirect costs were

deductible, the defendants could receive different sentences if one

of them worked for a company with higher indirect costs.         Although

the harm is the same, deducting indirect costs would result in

disparate “net value” calculations and different enhancements under

the guidelines.   Respective defendants would receive different

enhancements for the same crime and harm.



                                    IV.

     For the foregoing reasons, we conclude that the “value of the

improper benefit to be conferred” is measured by deducting direct

costs from the gross value received. Because we are convinced that

the district court in this case correctly excluded deductions of

overhead and   allowed   only   a   deduction   for   direct   costs,   the

judgment of sentence is AFFIRMED.




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