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CHAPTER 2

Disputes Arising in Connection With Contract Performance

This chapter covers our findings, conclusions, and recommendations concerning the resolution of disputes arising in connection with the performance of a contract. The chapter is divided into four major sections: The first deals with the contracting officer's role in the disputes-resolving process; the second with administrative disputes-resolving institutions and procedures other than the contracting of ficer; the third with the role of the courts; and the final section covers other topics not uniquely related to any one of the other three areas, but that constitute important elements of the process. Included in the latter section are subcontracts, payment of interest, payment of awards and judgments, and the contractor's current obligation to continue work pending resolution of most disputes.

contracting officer for particular contractual functions. These may include a procurement contracting officer (PCO) who awards the contract or directs changes and additions; an administrative contracting officer (ACO) who monitors performance of the contract; and a termination contracting officer (TCO), who represents the Government in the event of contract termination.3

The contracting officer's role is crucial in the disputes-resolving process because it is his duty to administer the contract so as to avoid disputes whenever possible; to attempt to settle disputes by negotiation after they have arisen; and, if negotiation should fail, make the initial decision for the Government on the dispute. Under the present remedial system

THE CONTRACTING OFFICER

The contracting officer is a representative of the Government in the administration of the contract. Unless the contract provides otherwise, he is the official spokesman of the Government for the purpose of interpreting the contract, directing action to be taken under the contract, and, in connection with the foregoing, resolving disputes. There may be one contracting officer for the entire contract performance or there may be a number of individuals representing the Government as

+ The contracting officer derives this power from the disputes clause appearing in most Government contracts. E.g., the standard ASPR disputes clause for supply and construction contracts (ASPR 7-602.6(a)) provides :

(a) Except as otherwise provided in this contract, any dispute concerning a question of fact arising under this contract which is not disposed of by agreement shall be decided by the contracting officer, who shall reduce his decision to writing and mail or otherwise furnish a copy thereof to the contractor. The decision of the contracting officer shall be final and conclusive unless, within 30 days from the date of receipt of such copy, the contractor mails or otherwise furnishes to the contracting officer a written appeal addressed to the Secretary. The decision of the Secretary or his duly authorized representative for the determination of such appeals shall be final and conclusive unless determined by a court of competent jurisdiction to have been fraudulent, or capricious, or arbitrary, or so grossly erroneous as necessarily to imply bad faith, or not supported by substantial evidence. In connection with any appeal proceeding under this clause, the contractor shall be afforded an opportunity to be heard and to offer evidence in support of its appeal. Pending final decision of a dispute hereunder, the contractor shall proceed diligently with the performance of the contract and in accordance with the contracting officer's decision. (b) This “Disputes" clause does not preclude consideration of law questions in connection with decisions provided for in paragraph (a) above: Provided, that nothing in this contract shall be construed as making final the decision of any administrative official, representative, or board on a question of law.

1 For additional discussion and recommendations concerning the role of the contracting officer, see Part A, Chapter 5.

See Spector, Anatomy of a Dispute, 20 Fed. B.J. 398 (1960).
See, e.g., ASPR 1–201.3.

not mean, of course, that the failure to settle prior to appeal to a board is always entirely or even significantly that of the contracting officer. Often the contractor's refusal or inability to present sufficient evidence or persuasive arguments to the contracting officer is the reason for failure in early settlement attempts. However, the large number of cases settled at the board level, and the widespread complaints of inadequate settlement prosecution, indicates that more settlement effort is needed.

Contracting Officer Authority

Recommendation 1. Make clear to the contractor the identity and authority of the contracting officer, and other designated officials, to act in connection with each contract.

the contracting officer's decision on many small claims is for all practical purposes final, since two-thirds of small businesses we questioned indicated they would not appeal an adverse contracting officer decision on a claim of $5,000 or less.5

The contracting officer is an agent of the Government charged with the responsibility of administering the contract, which inherently makes him the Government representative in any dispute, yet he is legally required to act independently and impartially in resolving disputes. Formulation of a decision under the disputes clause may not be legally delegated to or usurped by anyone not authorized by the terms of the contract to make the decision.

This dual role has led to much confusion and misunderstanding on the part of contractors. Nearly a third of the businesses questioned indicated that they believe contracting officers are generally unwilling to resolve disputes, or at least are not encouraged to perform a disputes-resolving function. Moreover, 16 percent believe that the reasons given by contracting officers in their final decisions are not the ones that prompt their decisions. This reflects an apparently widespread belief that contracting officers may avoid difficult decisions for any number of reasons, including fear of damage to their careers and of conflicts within their own staff. However, 20 Government agencies were nearly unanimous in stating that it was their policy to attempt to resolve disputes at the contracting officer level. Only two agencies indicated a policy of having close issues decided by a board of contract appeals.?

Whatever view one may take of this rather complex problem, which is extremely dependent on personalities, there is evidence to show that the disputes-resolving procedure is not being carried out as effectively on the contracting officer's level as it should be. Our data indicate that 38 percent of all cases brought to the boards are subsequently settled. This does

While the initial steps in the disputes process are under the cognizance of the contracting officer, the extent to which he makes decisions under the contract depends both on his own knowledge and judgment and the advice, judgment, and sometimes the direction of others. The contracting officer does not operate in a vacuum. He has at his disposal legal, fiscal, and other expert advisors and assistants. He discharges his responsibilities under specific authority delegated to him, within the framework of the agency procurement regulations, and subject to the policy direction, surveillance, and, if required, approval of higher authority. It is unrealistic to assume that the various levels of management that bear the responsibility for the propriety and wisdom of the agency's actions should at all times remain aloof from the manner in which contracts are administered and contractual actions are taken, including matters in disputes.

The role of the contracting officer must vary with the nature of the procurement and the organizational structure in which he functions. This covers a spectrum from total independence and responsibility for all contractual actions taken under a contract to delegated authority limited and circumscribed by many management reviews and directions. Within this framework of authority and responsibil

5 Study Group 4, Final Report, vol. II, p. A-87.

6 Climatic Rainwear Co. v. United States, 88 F. Supp 415 (1950); Penner Installation Corp. v. United States, 89 F. Supp 545 (1950); Beals Plumbing & Heating, GSBCA No. 1163, 1964 BCA | 4358.

For a contrasting view, see Shedd, Principles on Authority of Contracting Officers in Administration of Government Contracts, 5 Pub. Contract L.J. 88 (1972).

* Study Group 4, Final Report, vol. II, p. A-53. & See Appendix A, p. 75.

ities, the contracting officer's role in disposing of disputes will vary according to the facts and circumstances of a particular case.

For these reasons, it is not possible to define an “ideal” contracting officer in dealing with contract disputes or to describe in detail his function, authority, and degree of independence. The definition will vary from agency to agency and even from contract to contract, according to the differing circumstances. Efforts should be made by each procuring agency to define the roles of its contracting officers and other Government officials in various situations and make these roles clear to the contractors who must deal with the Government contract personnel.

To avoid misunderstandings, promote confidence in the procurement process, and improve the climate for the negotiated settlement of disputes, the disputes authority of the contracting officer, and of every other Government agent the contractor must deal with, should be made clear to each contractor. If the contracting officer is in fact not empowered to make an “independent and personal” disputes decision in connection with a contract, but must consult his superiors, he should tell the contractor who will make or influence the decision. If a contracting officer has for all practical purposes delegated authority to make purely technical decisions to the project engineer, the contractor should be told this. The contractor should be made to understand, as clearly as possible, just where and how the decisions for the Government under a contract are made. If this area of confusion and misunderstanding were eliminated, we believe disputes settlement at the contracting officer level would be easier to achieve.

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officer's decision, such disputes inevitably will continue to arise. Therefore, we recommend that a mechanism be established to provide an improved means for review and settlement of contract disputes prior to the initiation of relatively expensive and time-consuming litigation.

This review should be informal and take place within 30 days following the contractor's receipt of the contracting officer's final decision. The reviewing officials should include an agency official or officials at a level above the contracting officer. The contractor's attendance at a review conference should be mandatory if the contractor intends to proceed directly to court in accordance with Recommendation 6, or if the amount in dispute exceeds $25,000.

Many procuring agencies now subject proposed contracting officer final decisions to substantive and procedural review prior to issuance, and almost all agencies provide for a formal or informal review of the contracting officer's findings prior to a board or court proceeding. However, the contractor does not normally participate in such review.

The recommended informal review conference has several goals. First, the conference is designed to promote settlements before litigation by bringing in Government officials who have not been closely associated with the dispute to hear both sides of the question. We believe that many disputes go to litigation simply because the disputing parties have become too personally involved in the dispute to see that settlement is possible and desirable. Second, if contracting officers are, as many contractors apparently believe, often reluctant to issue decisions that may be controversial or unpopular with their superiors, the knowledge that a final review prior to litigation can be invoked may give them additional confidence to make decisions. This factor alone could be instrumental in improving the contracting officer role in the disputes-resolving process. Third, giving the contractor an opportunity to have disputes considered in such a review conference should increase its confidence in the procurement process. The contracting officer will no longer be the contractor's only recourse before relatively expensive and time-consuming appeals procedures. Finally, the procuring agencies should benefit from the conference. It will en

Informal Review Conference

Recommendation 2. Provide for an informal conference to review contracting officer decisions adverse to the contractor.

Although an effort to clarify the role and authority of the contracting officer will reduce the number of misunderstandings ripening into full-blown disputes requiring a contracting

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the contracting officer's decision on many small claims is for all practical purposes final, since two-thirds of small businesses we questioned indicated they would not appeal an adverse contracting officer decision on a claim of $5,000 or less."

The contracting officer is an agent of the Government charged with the responsibility of administering the contract, which inherently makes him the Government representative in any dispute, yet he is legally required to act independently and impartially in resolving disputes. Formulation of a decision under the disputes clause may not be legally delegated to or usurped by anyone not authorized by the terms of the contract to make the decision.

This dual role has led to much confusion and misunderstanding on the part of contractors. Nearly a third of the businesses questioned indicated that they believe contracting officers are generally unwilling to resolve disputes, or at least are not encouraged to perform a disputes-resolving function. Moreover, 16 percent believe that the reasons given by contracting officers in their final decisions are not the ones that prompt their decisions. This reflects an apparently widespread belief that contracting officers may avoid difficult decisions for any number of reasons, including fear of damage to their careers and of conflicts within their own staff. However, 20 Government agencies were nearly unanimous in stating that it was their policy to attempt to resolve disputes at the contracting officer level. Only two agencies indicated a policy of having close issues decided by a board of contract appeals.?

Whatever view one may take of this rather complex problem, which is extremely dependent on personalities, there is evidence to show that the disputes-resolving procedure is not being carried out as effectively on the contracting officer's level as it should be. Our data indicate that 38 percent of all cases brought to the boards are subsequently settled. This does

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5 Study Group 4, Final Report, vol. II, p. A-87. & Climatic Rainwear Co. v. United States, 88 F. Supp 415 (1950); Penner Installation Corp. v. United States, 89 F. Supp 545 (1950); Beals Plumbing & Heating, GSBCA No. 1163, 1964 BCA 4358.

For a contrasting view, see Shedd, Principles on Authority of Contracting Officers in Administration of Government Contracts, 5 Pub. Contract L.J. 88 (1972).

? Study Group 4, Final Report, vol. II, 1). A-53. & See Appendix A, p. 75.

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