Mr. SPECTOR. Yes, sir. We are not stamped out of the same mold. This is one of the big tribulations in any judicial or quasi-judicial work, the fact that mankind differs from person to person. This is precisely the reason why we have review of every decision. This function occupies a great deal of my time. Every proposed decision is reviewed by me and the two vice chairmen before it is concluded and published. This procedure is specifically designed to iron out the differences between the individuals because, as I emphasize daily, these decisions are decisions of the board, and not of the individual member who presided over the taking of the record.

Senator MONTOYA. For instance, in our court decisions you could usually tell if you study the opinions of certain justices what they are going to decide in a certain given case because they are philosophically infused with a certain trend of thought and action to a certain set of facts.

You perhaps have that situation in your board makeup.

Now, who makes the assignment of these particular cases to the different panels?

Mr. SPECTR. That is done in our recorder's office, by a recording officer who fills a role similar to that of a chief clerk of a court. It is done on a rotational basis so that there can be no shopping for specific board members by either side.

I am sure the courts have this problem too.

Senator MONTOYA. What do you do when you get two or three customary dissenters on a given proposition and they get the same set of facts in a particular case over which they have dissented or disallowed any claim in a previous litigation?

Mr. SPECTOR. Well, we try to persuade them once again in the process of the review by the vice chairmen and the chairman, and, if we fail to change that view, we try to outvote them under the board's established procedures.

Senator MONTOYA. Have you encountered such situations?

Mr. SPECTOR. I would be less than candid if I didn't say we have encountered them. I review a great number of decisions every day and every month and I find that this is a very interesting and difficult business, one in which we try from day to day to be just as right as we can in every case.

Senator MONTOYA. Now, what do you think of the idea of having the tenure of full-time board members limited to a term of 5 to 10 years so that there would be fairly frequent infusion of new blood and thinking on the board?

Mr. SPECTOR. Well frankly, sir, I had never given that any thought. It would, of course, have the infirmity which you earlier suggested with respect to Judge Advocate General officers who serve for a term of years; that this is not good because they may have first loyalty to the place from which they came, and to which they are going to return. So, I more or less favor the present system which is consistent with the career structure of the Government, the lawyer career service. We do not discard the rich experience of a board member. As for deficiencies in a board member, we have a much better opportunity to correct them than, let us say, the public has with respect to Federal judges, and we have been reading quite a bit about that in the press recently.

Senator MONTOYA. What is their present tenure?

Mr. SPECTOR. On good behavior.

Senator MONTOYA. Subject to your wishes and your recommendations to the Secretary?

Mr. SPECTOR. Well, sir, I would say to some extent, but that is not an authority which I would have or could exercise frivolously. It would have to be on the soundest of good cause.

Senator MONTOYA. What is the normal tenure of those who serve on the board now?

Mr. SPECTOR. They are usually appointed as mature men, and terminate for either retirement or death or voluntary transfer or one reason or another. They are very much like the hearing examiners of the Administrative Procedure Act agencies, or commissioners of the court of claims. We have a turnover that is brought about by attrition of that type.

Senator MONTOYA. Do you think first- or second-tier subcontractors should be able to bring a claim directly before an appeals board when that claim was generated primarily by Government act, in other words should the subcontractor have a direct right to appeal when the claim was in fact or in actuality caused by the Government?

Mr. SPECTOR. I think in all sincerity that is the case today. Just as a matter of good economic sense and pressure, a very substantial number of the appeals that we hear are brought by a prime contractor wholly or partially in the interest of a subcontractor. You can see it there, a subcontractor sitting in the hearing room, and he is often represented by his own counsel, and has control of the proceeding, so far as it relates to him. All we ask, in accordance with ordinary common law, is that they maintain the contractual relationship between the Government and the prime contractor by bringing the appeal in the name of the prime. The prime contractor is, of course, very much interested in doing this, we find, because he usually has an obligation to that effect in his subcontract, to which he and the subcontractor, not the Government, are parties. Furthermore, should he be sued by the subcontractor in a State court, and have a judgment taken against him, and meanwhile have neglected his remedy over against the Government until after final payment, then that remedy no longer exists. The prime contractor would be caught, in effect, between the upper and the nether millstones and be responsible to the subcontractor in a situation where he, the prime, no longer had a remedy by which he could make himself whole.

So we find, as a practical matter, subcontractors are in effect asserting claims of the type you describe, through and in the name of the prime on a regular basis.

Senator MONTOYA. Do they have to do that with the consent of the prime, before they invoke your jurisdiction?

Mr. SPECTOR. They have to, as in the common law, use the name of the prime contractor, and I assume that would include his consent, but I would say, sir, that this consent is ordinarily willingly given for the very good sound economic reasons which I mentioned.

Senator MONTOYA. Do you think it is a good procedure?

Mr. SPECTOR. I think that it is a good procedure, yes, sir; because it is consistent with that in the court. As I pointed out, we are just a link in a chain between a contracting officer and a courthouse. If

the procedure were otherwise, you would have contracting officers of varying ability, thousands of them, being asked to decide disputes between two private parties.

You would have the court having to abandon its usual rules of law to the effect that the parties to the contract must appeal before the court, and not others. I would say that the present procedure also has another practical benefit, if I may mention it, that is that the sub in this situation gets the support of the prime contractor who often has a related claim of his own. A prime contractor often adds a percentage for overhead and profit on any claim of a subcontractor, and he often has a related claim of his own, and they are joined together.

Now, if they were severed, in some cases the prime contractor would step over to the Government's side of the case and the subcontractor would be confronted with two adversaries instead of an ally.

Senator MONTOYA. Would you say that this is promotive of the best interests of the Government?

Mr. SPECTOR. The present procedure? I think it is, yes, sir; because subcontractor's rights are derivative from the prime contract; they are not greater than that. I do not know of a situation where the Government would be responsible to a subcontractor unless it was first responsible to the prime.

Senator MONTOYA. Would you say that the fact that the prime contractor would share in any increased award is the sole motivating factor for giving his consent to the initiation of the litigation by the subcontractor?

Mr. SPECTOR. No, sir. I think the motivating factor would be the terms of the subcontract which, if well drawn, should require the prime to champion the cause of the subcontractor in a matter of this type, plus the fact that the sub and prime are two private parties who can litigate this matter in a State or Federal court, and if the prime permits a judgment to be taken against him in a matter for which the Government is ultimately responsible, and neglects his remedy against the Government, he would, as I indicated, be caught between the upper and the nether millstones. He would have an obligation but no remedy, so he is all too anxious in the average case to present that matter to the Government and get it settled in a single proceeding.

Senator MONTOYA. Do you do this quite often?

Mr. SPECTOR. Yes, sir. I would say we observe subs in many, many appeals brought in the name of the prime contractors.

Senator MONTOYA. Now, you mentioned that you have certain rules of procedure, with perhaps limitations of time in invoking the different rights under those procedures.

Now, what are those fixed limitations? Can a subcontractor say after he discovers that he has been injured financially and has grounds for a certain claim that the dispute claim must come in within 6 months, let us say?

Mr. SPECTOR. Well sir, claims should ordinarily be presented before final payment under the contract. In other words

Senator MONTOYA. That is one of your rules, is that right? Or is it

a provision of the contract?

Mr. SPECTOR. It is a provision of the contract; yes, sir.

62-084-66- -2

Senator MONTOYA. So he, the litigant, is foreclosed after the contractor has supposedly

Mr. SPECTOR. Been finally paid.

Senator MONTOYA. Been finally serviced?

Mr. SPECTOR. Yes, sir. The theory behind that, I believe, is that this is an administrative remedy and it should not outlive the administration of the instrument out of which it arose. I might add that we are quite liberal in finding that a payment which was charged to have been final is in fact not final because the Government had an awareness of the dispute before they issued the so-called final pay

ment.

Senator MONTOYA. In other words you do on occasion reopen the contract so that the matter can be adjusted administratively?

Mr. SPECTOR. Yes, sir. We do in the circumstance that I mentioned, where we can find that in one manner or another the Government had an awareness of that claim, that a claim was pending when it proffered the so-called final payment to the contractor.

Senator MONTOYA. Would you insert at this point in the record the general provision with respect to the settlement of disputes that goes into most of, or all of the contracts entered into by the Defense Department?

Mr. SPECTOR. The general provisions?

Senator MONTOYA. You have a stock provision, do you not?

Mr. SPECTOR. Yes, sir. It is the disputes article which gives rise to the disputes procedures. It is an article which has existed about 100 years.

Senator MONTOYA. Would you insert that at this point in the record?

Mr. SPECTOR. I certainly shall, sir.

Senator MONTOYA. And any other provision relating to the resolution of those disputes or appeals therefrom

Mr. SPECTOR. All right, sir.

Senator MONTOYA (continuing). Found in any contract.

Mr. SPECTOR. The various adjustment clauses to which I alluded formerly? May I do that at the conclusion of my remarks, because I will have to get them together.

Senator MONTOYA. Yes, you may.

(The contract clauses referred to were subsequently received, and appear as enclosures to the following letter:)

Hon. JOSEPH M. MONTOYA,

ARMED SERVICES BOARD OF CONTRACT APPEALS,
Washington, D.C., March 15, 1966.

Acting Chairman, Subcommitee on Government Procurement, Select Committee on Small Business, U.S. Senate.

DEAR SENATOR MONTOYA: In the course of my testimony before your subcommittee on March 8 you asked that I insert in the record, at a point which you indicated, a copy of the standard "disputes" clause found in all Government contracts, together with the text of all other contract adjustment clauses which interrelate with these "disputes" procedures.

The enclosed sets forth the standard "disputes" clause and the "definitions" clause with which it should be read. Following that there are set forth in full text the following standard clauses under which disputes and appeals most frequently arise.

Changes.

Changed conditions.

Termination for default-Damages for delay-Time extensions.
Default.

Excusable delays.

Price adjustment for suspension, delays, or interruption of work.
Stop work orders.

Termination for convenience of the Government.

Price redetermination.

Limitation of cost.

Price reduction for defective cost or pricing data.

Government furnished property.

In addition there are listed below by title and citation to the Armed Services Procurement Regulation, a number of additional clauses under which appeals have been or may be heard. In choosing the following from hundreds of possible clauses which could be listed in this category, I have been governed by the following considerations: (a) cases have been heard involving the clause; (b) the clause refers to the "Disputes" procedure specifically; (c) the clause refers to other clauses which refer specifically to the "Disputes" procedure, or to a clause under which appeals regularly arise; or (d) appeals can reasonably be expected to arise under the clause.

The list has been subdivided to reflect the type of contract in which the clause ordinarily appears. Once listed, a clause title is not repeated even though it may appear in other types of contracts, unless the form in which it appears in such other contracts is different.

FIXED PRICE SUPPLY CONTRACTS

7-103.3 Extras.

7-103.5

Inspection.

7-103.6 Responsibility for supplies.

7-103.7 Payments.

11-401.1(c) Federal, State, and local taxes (general clause).

11-401.2 (d) Federal, State, and local taxes (certain negotiated contracts). 12-303.1 Contract Work Hours Standards Act-Overtime compensation. 9-103.1(a)

9-107.5(a)

9-107.5(b)

Patent indemnity.

Patent rights.

Patent rights (license).

6-104.5 Buy American Act.

10-404 (a) Ground and flight risk.

7-104.12 Military security requirements.

1-707.3(b) Small business subcontracting program.

13-703 Government property (cost reimbursement).

13-704 Special tooling.

7-104.29 (a)

Price reduction for defective cost or pricing data.

7-104.29 (b) Price reduction for defective cost or pricing data-price adjust

7-105.5 Liquidated damages [added when appropriate, as subparagraph (f) of default clause].

7-106.1 Price escalation [basic steel, aluminum, brass, bronze and copper mill

products].

7-106.2 Price escalation [nonstandard steel items].

7-106.3 Price escalation [standard supplies].

7-106.4

Price escalation [semistandard supplies].

7-107 Price escalation [labor and material].

7-108.1 Incentive price revision (firm target).

7-108.2 Incentive price revision (successive targets).

7-109.2(b) Price redetermination (type A) [prospective periodic price redetermination at stated intervals].

7-203.2 Changes.

COST REIMBURSABLE SUPPLY CONTRACTS

7-203.4 (a) Allowable cost, fixed fee, and payment.

7-203.4(b) Allowable cost, incentive fee, and payment. 7-203.5 Inspection of supplies and correction of defects.

3-704.1 Negotiated overhead rates.

3-704.2(a) Negotiated overhead rates (postdetermined) [contracts with educa

tional institutions].

3-704.2(b) Negotiated overhead rates-predetermined.