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able the agencies to detect and correct erroneous contracting officer decisions at an early point, and will give the agency time to examine carefully large claims, legally important claims, or claims the contractor intends to take directly to court. These conferences should give management level agency personnel a better understanding of the functioning of their agency at the working level.

We do not recommend that attendance at the conference by the contractor be mandatory in disputes involving $25,000 or less. The obvious reason for this is that such a conference in processing small claims would impose a timeconsuming layer of review and would work against the purpose of the efficient and inexpensive forum for small claims. See Recommendation 4. On the other hand, we recommend that contractor attendance be man datory for any size dispute if the contractor intends to proceed directly to court in accordance with Recommendation 6. The reason for this is that the procuring agency will lose cognizance over the dispute to the Department of Justice when the court suit is filed. We believe there should be a strong effort to settle the dispute within the agency prior to the transfer.

ing system. The origin of the boards of contract appeals generally is traced to 1868, when the Supreme Court upheld the right of the Secretary of War to use a board to hear and settle claims voluntarily submitted by contractors. The first formal use of boards occurred during World War I. Boards were used to a lesser extent in the 1920's and 1930's and came into full use during World War II.10

There are at present 11 agency-affiliated boards of contract appeals in the executive branch, as well as boards maintained by the House Office Building Commission, the Postal Service, and the Government of the District of Columbia. The Armed Services Board of Contract Appeals (ASBCA) is the largest of the boards, with approximately 32 members. Some 1,092 appeals were filed with that board during fiscal 1972.11 Table 1 shows the number of members and docketed appeals, as of July 1972, for each of the agency boards, and if the board members are full-time, part-time, or ad hoc.

With the exception of boards (usually called “contract adjustment boards”) established in certain agencies under Public Law 85–804 (discussed in Chapter 4) the agency boards of contract appeals are the only formal administrative disputes-resolving forums available to

THE ADMINISTRATIVE FORUMS

The agency boards of contract appeals are the central focus of the present disputes-resolv

United States v. Adams, 74 U.S. (7 Wall.) 463 (1869). 10 See Shedd, Disputes and Appeals: The Armed Services Board of Contract Appeals, 29 Law & Contemp. Prob. 39 (1964), reprinted as S. Doc. No. 99, 89th Cong., 2d Sess., app. B (1966).

11 See 14 G.C. © 291.

a contractor subsequent to a contracting officer decision on a Government contract. 12

Characteristics and Problems

Specifications were involved in 30 percent of the disputes; contract changes in 26 percent; while default terminations accounted for 16 percent of the appeals. 16 All of these are primarily factual disputes.

In 36 percent of the board appeals that were analyzed, no hearings were held, while in 29 percent hearings were held. Hearing data on the remainder of the appeals analyzed were unavailable. Approximately 40 percent of appeals analyzed resulted in decisions on the merits, while 38 percent were settled prior to board decision. The contractor enjoyed some success in 57 percent of appeals resulting in settlements or decisions on the merits.17

The boards derive their jurisdiction from contract clauses. Under the present disputesresolving system, the boards have jurisdiction over all claims arising under the contract; that is, claims covered by a contract clause covering the particular act or failure to act.13 Acts or failures to act not covered by such a clause generate claims for breach of contract that can only be resolved in the courts.":

Although many disputes involving large sums of money are adjudicated by the agency boards of contract appeals, an analysis of some 2,800 disputes made by our Study Group 4 (Legal Remedies) showed that 63 percent of disputes appealed to the boards involved $25,000 or less. 15 Thus, most board appeals involve relatively small amounts of money.

Actual claim figures for certain boards were as follows:

THE JURISDICTIONAL SPLIT BETWEEN ADMINISTRATIVE FORUMS AND COURTS

TABLE 2. AMOUNT INVOLVED IN BOARD

APPEALS

There are at present two general categories of disputes. The first, and by far the most common, is a dispute for which there exists a contract clause granting the procuring agency jurisdiction over the dispute. This means the contracting officer and, if necessary, the boards adjudicate the dispute. There may then be limited judicial review of the board decision if the contractor seeks such review. These disputes are said to arise “under the contract.” 18

The second category, which is relatively rare under the present system, involves disputes for which no contract clause grants jurisdiction to the procuring agency. Contracting officers generally issue decisions on these disputes, but since agency boards derive their jurisdiction from contract clauses, they refuse to hear such disputes. The contractor must instead file a suit directly in the Court of Claims or in a U.S. district court after an adverse contracting officer decision. These disputes are said to be in "breach of contract.” 19

Several problems result from this distinction. First, the Court of Claims and the Comptroller General differ with regard to the authority of procuring agencies to settle and pay claims for breach of contract. The Court apparently has endorsed the conclusion that the

$25,000
$10,000

$1,000 Board

or under

or under or under Armed Services

61%
48%

16% AEC

73%
56%

13% Commerce

38%
30%

15% Corps of Engineers 49%

34%

11% GSA 81%

23% Interior 61%

17% NASA

56%
37%

6% Transportation

54%

36% 96% 92%

83% Overall

63%
51%

22% Source: Study Group 4, Final Report, Feb. 1972, vol. II, pp. A-57, A-58.

65%

0

VA

Although the boards can and do decide complex issues of law when required to do so, the same analysis showed that disputes brought before the boards were essentially factual.

19 There are, however, some less formal boards designed to review contracting officer decisions in some agencies.

13 See Sachter, Resolution of Disputes Under Government Contracts, 2 Pub. Contract L.J. 363, 365 (1969).

** United States v. Utah Constr. & Mining Co., 384 U.S. 394 (1966) (hereinafter Utah).

15 See Appendix A, p. 74.

16 See Appendix A, pp. 72–73. Other problem areas included changed conditions, liquidated damages, and time extensions.

17 Ibid., p. 75.
1* Sachter, su pra note 13.
19 Utah, su pra note 14.

head of a procuring agency within the executive branch has implied and delegable authority to settle breach of contract claims by agreement.20 This conclusion, however, has been rejected by the Comptroller General.21 However, if the contract contains a clause that provides a remedy, the Comptroller General recognizes there is authority to settle, either by agreement or unilateral decision.22

Second, the split in jurisdiction between the boards and courts can lead to a problem of identification and fragmentation of disputes and remedies between those under the contract and those for breach of contract. Although the choice of forums for each is clear, the distinction between disputes under the contract and those for breach of contract often is not. Since Government contracting officers in practice settle both types of disputes—a remedy that is less expensive and faster than that provided by the boards or the courts—contractors usually initially present their breach of contract disputes to those officers.2? If a contracting officer denies a claim, the contractor is faced with a jurisdictional decision that might place its entire claim in peril. A dispute subject to the contract disputes clause must be appealed within 30 days to a board of contract appeals.24 The statute of limitations for a breach of contract claim allows the contractor six years to institute a suit in the court.25

The critical question facing the contractor is which course to take. If the contractor chooses to follow the breach theory and goes directly to court, it may lose entirely if the court determines that the dispute is properly under the contract and must be processed according to the contract disputes clause provision; that is, through the agency board of contract appeals. Once the 30-day appeal time under the disputes clause has been exhausted, there is usually no further recourse to the boards, and the claim may be forfeited. For this reason, contractors often go through the agency boards to the courts because only this

will assure them of having a full hearing on the merits of the dispute.

Some advantages in this distinction between types of disputes have been claimed. One is that claims for breach of contract tend to be characterized by complicated legal issues, are relatively costly and time-consuming, and often are not confined to the particular items directly involved, but extend through the whole contract and even to the contractor's other work. In view of this, it has been argued that because the boards presently lack the power to subpoena and swear witnesses, compel discovery, and in general have less procedural safeguards than do courts, they are unsuited for handling such disputes. It also has been argued that since breach claims often involve sophisticated legal issues, they should not have to be presented to non-lawyers (the contracting officers) for initial determination. Rather, these disputes should go through some legal pleading process with lawyers representing each side to determine those facts that are relevant, and the facts should be defined from the outset in exhibits and transcripts for comparison with the law. Another contention is that contracting officers and even boards cannot reach decisions that are entitled to credit for fairness and impartiality, since breach claims may charge illegality, corruption, discrimination, or favoritism on the part of the contracting officer or head of the agency, or in the policies and regulations promulgated by them.26

Whatever the merits of the distinction between types of claims, however, the problem caused by the distinction is of real concern in a relatively small number of cases and has declined as a problem because the procuring agencies tend to insert clauses into their contracts that bring more and more disputes under the contract.

SPEED AND ECONOMY VS. DUE PROCESS IN THE BOARDS

A more serious problem often raised in connection with board proceedings today is a conflict between a speedy and economical res

20 Cannon Constr. Co. v. United States, 162 Ct. Cl. 94, 319 F.2d. 173 (1963) : see also Brock & Blevins Co. v. United States, 170 Ct. Ci. 52, 343 F.2d. 951 (1965); Constr. Serv. Co. v. United States, 174 Ct. Cl. 756, 357 F.2d 973 (1966).

21 44 Comp. Gen. 353 (1964). 22 Utah, su pra note 14.

23 Morrison-Knudson Co. v. United States, 170 Ct. CI. 757, 345 F.2d 833 (1965).

24 ASPR 7-602.6(a). See supra note 4 for text. 25 28 U.S.C. $ 2401 (1970).

26 See Speck, Concerning an AU-Breach" Clause, 29 Fed. B.J. 47, 51-54 (1969).

Contract Disputes

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olution of disputes and the amount of due process available at the board level.

While the present boards began after World War II as expeditious, economical forums with relatively little due process, Supreme Court decisions and pressure from the bar have forced the boards in the past 20 years to make more due process available in their proceedings. In consequence, board proceedings have become more expensive and more time-consuming. In the first of the decisions, United States v. Carlo Bianchi & Co.,-- the Supreme Court concluded that by virtue of the terms of the Wunderlich Act,2" which prescribes standards for judicial review, all U.S. district courts and the Court of Claims were precluded from conducting a trial de novo on issues of fact relevant to a dispute cognizable by a board of contract appeals. These courts, according to the Supreme Court, were limited, aside from any question of fraud, to consideration only of that evidence contained in the record made before the board of contract appeals. The rule was further refined in United States v. Utah Construction & Mining Co.,29 which involved a claim for breach of contract that the boards had no jurisdiction to decide. In that case the Supreme Court said that the Federal courts were also precluded from conducting a trial de novo on any issues of fact common to both the breach action and matters relevant to any dispute arising under the contract. Finally, in United States v. Anthony Grace & Sons, Inc.,30 the Supreme Court held, in a case where the Court of Claims had reversed the action of a board that dismissed a dispute for lack of a timely appeal,

that the appeal had to be remanded to the board of contract appeals for a trial of the factual issues on the merits.

The effect of these decisions is to require that the parties before a board be given maximum due process under the system, since the board findings on the facts are virtually conclusive. On review, the court will only set aside those findings if they are fraudulent, capricious, arbitrary, so grossly erroneous that they imply bad faith, or are not supported by substantial evidence.31 Such requirements on the boards to increase their due process safeguards led to increased formalization of board proceedings. The boards have been criticized for not providing adequate due process in spite of the increased formalization.

However, the boards have been criticized also for being “overjudicialized": too formal, time-consuming, and expensive. The requirement for formal pleadings, the increased use of discovery procedures, and the extensive preparation of a record required by the Wunderlich Act court decisions not only generate increased costs, but, as a practical matter, require the contractor to obtain an attorney to make an adequate presentation. This is particularly true since the Government is always represented by an attorney before the boards. Although board members generally will travel when requested by the contractor, the extent of travel is subject to budgetary limitations. Thus, a small businessman might have to spend several days or more in Washington with his witnesses in order to get a hearing. Moreover, even if unlimited travel funds were available to the boards, the cost of such travel to the Government in relation to the size of the dispute may represent a misuse of resources.

It is clear that the present agency boards have become formalized and judicialized to the extent that they are generally too time-consuming, costly, and complicated to handle relatively small claims efficiently. This problem affects prime contractors as well as subcontractors, large businesses as well as small businesses,

After a contract is awarded, the operation of the disputes-resolving system is in general institutionally and substantively no different for a small claimant than for a large claimant,

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27 373 U.S. 709 (1962) (hereinafter Bianchi).

98 41 U.S.C. $$ 321–22 (1970). Enacted in 1954, the Wunderlich Act provides : $ 321 LIMITATION ON PLEADING CONTRACT-PROVISIONS

RELATING TO FINALITY: STANDARDS OF REVIEW No provision of any contract entered into by the United States, relating to the finality or conclusiveness of any decision of the head of any department or agency or his duly authorized representative or board in a dispute involving a question arising under such contract, shall be pleaded in any suit now filed or to be filed as limiting judicial review of any such decision to cases where fraud by such official or his said representative or board is alleged : Provided, however, that any such decision shall be final and conclusive unless the same is fraudulent or capricious or arbitrary or so grossly erroneous as necessarily to imply bad faith or is not supported by substantial evidence. $ 322 CONTRACT-PROVISIONS MAKING DECISIONS FINAL

ON QUESTION OF LAW No Government contract shall contain a provision making final on a question of law the decision of any administrative official, representative, or board. 29 Utah, supra note 14. 30 384 U.S. 424 (1966) (hereinafter Grace).

31 41 U.S.C. $ $ 321-22 (1970). See supra note 28 for text.

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because the accelerated procedures for small claims now available in the agency boards are not being utilized. In mid-1970 there were 1,123 disputes pending before the ASBCA of which only 38 were being processed under the accelerated procedures. Yet fully 48 percent of the board's appeals were eligible for the accelerated procedures. Overall, accelerated procedures were used in only seven percent (149) of the appeals that we examined, although 51 percent of those appeals involved $10,000 or less. Half the boards stated that no appeals on their dockets used accelerated procedures.32

We believe there are two primary reasons for the failure to use accelerated procedures. One is the inclination of the board members, familiar with the panoply of procedural safeguards provided in board rules, to give the full procedural treatment. The other is the preference of appellants and their lawyers to choose the “higher class” remedy, even though it may be more expensive.

Moreover, as a result of inflationary pressures, an increasing number of claims that are too large to qualify for the accelerated procedure under present agency board procedures are, nevertheless, too small to justify economically the full agency board hearing procedure. This does not mean necessarily that the contractor must spend more on claims preparation and presentation than the claim is worth, although this may sometimes be the case. Rather, it means that too many resources, in relation to the size of the claim, are expended by both contractor and Government in resolving the dispute, even though the contractor may make a “profit” if it wins. The proceeding is not cost-effective.

The contractor can, if it decides to appeal, often expect to wait a year or longer after docketing for a board decision. Data assembled and analyzed by Study Group 4 (Legal Remedies) indicate that 30 percent of the cases appealed to the boards were resolved within six months, 27 percent within six to 12 months, 19 percent within 12 to 18 months, nine percent within 18 to 24 months; and a full 15 percent took longer than 24 months. However, the board members and attorneys who handle cases before the boards have correctly pointed out that the time a case is on the docket is not

While a further analysis of the figures in table 3 would probably show that smaller cases took less average time for resolution than larger cases, the time required to process a small claim through the contracting officer and board level today is often substantial.

PRESENT BOARD STANDARDS

The failure of some boards to make their decisions widely available; the conflicting interpretation of the same contractual language; and the qualifications, rank, pay, and method of selection of board members all have been suggested as candidates for reform within the agency board system. Another source of widespread dissatisfaction among contractors is the belief that members of some boards are not sufficiently separated from agency contracting and legal functions to possess the objectivity and independence expected. It is also claimed that the members of part-time boards and of some ad hoc boards have such heavy demands imposed on their time by other agency responsibilities that the quality of their

3- See Appendix A, p. 75.

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