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This Court is again called upon to determine the meaning of the "finality clause" of a standard form Government contract. Respondents agreed to build a dam for the United States under a contract containing the usual "Article 15." That Article provides that all disputes involving questions of fact shall be decided by the contracting officer, with the right of appeal to the head of the department "whose decision shall be final and conclusive upon the parties thereto." Dissatisfied with the resolution of various disputes by the department head, in this instance the Secretary of the Interior, Wunderlich brought suit in the Court of Claims. That Court reviewed their contentions, and in the one claim involved in this proceeding set aside the decision of the department head. 117 Ct. 01. 92. Although there was some dispute below, the parties now agree that the question decided by the department head was a question of fact. We granted certiorari, 341 U.S. 924, to clarify the rule of this Court which created an exception to the conclusiveness of such administrative decision.

The same Article 15 of a Government contract was before this Court recently, and we held, after a review of the authorities, that such Article was valid. United States v. Moorman, 338 U.S. 457. Nor was the Moorman case one of first impression. Contracts, both governmental and private, have been before this Court in several cases in which provisions equivalent to Article 15 have been approved and enforced "in the absence of fraud or such gross mistake as would necessarily imply bad faith, or a failure to exercise an honest judgment * * *." Kihlberg v. United States, 97 U.S. 398, 402; Sweeney v. United States, 109 U.S. 618, 620; Martinsburg & P. R. Co. v. March, 114 U.S. 549, 553; Chicago, S.F. & C.R. Co. v. Price, 138 U.S. 185, 195.

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In Ripley v. United States, 223 U.S. 695, 704, gross mistake implying bad faith is equated to "fraud." Despite the fact that other words such

' as "negligence," "incompetence," "capriciousness," and "abritrary'' have

' been used in the course of the opinions, this Court has consistently upheld the finality of the department head's decision unless it was founded on fraud, alleged and proved. So fraud is in essence the exception. By fraud we mean conscious wrongdoing, and intention to cheat or be dishonest. The decision of the department head, absent fraudulent conduct, must stand under the plain meaning of the contract.

If the decision of the department head under Article 15 is to be set aside for fraud, fraud should be alleged and proved, as it is never presumed. United States v. Colorado Anthracite Co., 225 U.S. 219, 226. In the case at bar, there was no allegation of fraud. There was no finding of fraud nor request for such a finding. The finding of the Court of Claims was that the decision of the department head was "arbitrary," "capricious," and "grossly erroneous." But these words are not the equivalent of fraud, the exception which this Court has heretofore laid down and to which it now adheres without qualification.

Respondents were not compelled or coerced into making the contract. It was a voluntary undertaking on their part. As competent parties, they have contracted for the settlement of disputes in an arbitral manner. This we have said in Moorman, Congress has left them free to do. United States v. Moorman, supra, at 642.

at 642. The limitation upon this arbitral process is fraud, placed there by this Court. If the standard of fraud that we adhere to is too limited, that is a matter for Congress.

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Since there was no pleading of fraud, and no finding of fraud, and no request for such a finding, we are not disposed to remand the case for any further findings, as respondents urge. We assume that if the evidence had been sufficient to constitute fraud, the Court of Claims would have so found. In the absence of such finding, the decision of the department head must stand as conclusive, and the judgment is Reversed.


373 U.S. 709 (1963)

MR. JUSTICE HARLAN delivered the opinion of the Court.

This case involves the interpretation and application of the "Wunderlich Act," 68 Stat. 81, 41 U.S.C. $$ 321-322, an Act designed to permit judicial review of decisions by federal departments and agencies under standard "disputes" clauses in Government contracts. The issue before us is whether in a suit governed by this statute, the Court is restricted to a review of the administrative record on issues of fact submitted to administrative determination or is free to receive new evidence on such issues.

In 1946, the respondent, Carlo Bianchi and Company, entered into a contract with the Army Corps of Engineers for the construction of a floodcontrol dam. Included in the work performed was the construction of a 710-foot tunnel, designed for the diversion of water, to be lined with concrete and to have permanent steel supports as protection for a 50-foot section at either end. The specifications did not call for such permanent supports throughout the remainder of the tunnel but only for "(t)emporary tunnel protection . . . where required for the safety of workmen." The contract contained a standard "changed conditions" clause authorizing the contracting officer to provide for an increase in cost if the contractor encountered subsurface conditions materially different from those indicated in the contract or to be reasonably anticipated, and also contained the standards "disputes" clause, quoted, supra.


After the tunnel had been drilled by a subcontractor, but before it was lined with concrete, the respondent took the position that unforeseen conditions created extreme hazards for workmen, requiring permanent protection. The contracting officer decided that compensation would not be made, and pursuant to the "disputes" clause a timely appeal from his decision was taken to the Board of Claims and Appeals of the Corps of Engineers. While the appeal was pending, respondent installed the tunnel supports and completed work on the tunnel.

An adversary hearing was held before the Board, at which a record was made and each side offered its evidence and had an opportunity for crossexamination. In December 1948, the Board issued a decision against the contractor, resolving certain conflicts in the evidence in favor of the

Government and holding in substance that there were no unanticipated or unforeseen conditions requiring the use of permanent steel protection throughout the tunnel.

Almost six years later, in December 1954, respondent brought the present action for breach of contract in the Court of Claims, seeking substantial damages and alleging that the decisions of the contracting officer and the Board were "capricious or arbitrary or so grossly erroneous as necessarily to imply bad faith, or were not supported by substantial evidence." At a

a hearing before a Commissioner in 1956, the Government took the position that on the question whether the Board's decision was entitled to be considered final, no evidence was admissible except the record before the Board. But the Commissioner received evidence de novo, including, over

. Government objection, a substantial amount of evidence that had not been before the Board. He subsequently made extensive findings of fact and concluded that the respondent was entitled to recover.

In an opinion issued in January 1959, the Court of Claims accepted the Commissioner's findings and conclusions ruling that "on consideration of all the evidence, the contracting officer's decision (as affirmed by the Board) cannot be said to have substantial support," and thus "does not have finality." 144 Ct. Cl. 500, 506. On the question whether it was limited in its consideration to the evidence before the Board, the court stated:


"In our opinion in Volentine and Littleton V.
United States, 136 C. Cls. 638, holding that the trial
in this court should not be limited to the record made
before the contracting agency, but should be de novo,
we recognized that there were logical weaknesses in
our position. We concluded, however, that the intent
of Congress in enacting the Wunderlich Act was in
accord with our conclusion, and we adhere to that
conclusion in this case." Ibid.

After receiving additional evidence on damages, the court entered judgment for respondent in the amount of $194,617.46. Ct. ci. We granted certiorari, 371 U.S. 939, to resolve a conflict among the lower courts on important question of the kind of judicial proceeding to be afforded in cases governed by the Wunderlich Act.


The jurisdiction of the Court of Claims in the present case is conferred by 28 U.S.C. § 1491, since this is a suit for judgment against the United States "founded'' upon an "express or implied contract with the United States." Ordinarily, when questions of fact arise in such suits, the function of the court is to receive evidence and to make appropriate findings as to the facts in dispute. But this Court long ago upheld the validity of clauses in government contracts delegating to a government employee the authority to make determinations of disputed

questions of fact, and required such de terminations to be given conclusive effect in any subsequent suit in the absence of fraud or gross mistake implying fraud or bad faith. See Kihlberg v. United States, 97 U.S. 398; Ripley v. United States, 223 U.S. 695. Thus the function of the Court of Claims in matters governed by "disputes" clauses was in effect to give an extremely limited review of the administrative decision, and although the scope of review was somewhat expanded by that court over the years, it was expressly restricted in United States v. Wunderlich, 342 U.S. 98, 100, to determining whether or not the departmental decision had been founded on fraud, i.e., "conscious wrongdoing, an intention to cheat or be dishonest."

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The Wunderlich decision, rendered, over strong dissents, evoked considerable effort to obtain legislation expanding the scope of review beyond questions of fraud. A number of bills were introduced in the Eighty-second and Eighty-third Congress; hearings were held in the Senate and House of Representatives; and the resulting statute known as the "Wunderlich Act" was ultimately approved by both Houses in 1954. This statute, quoted in full, supra, is entitled an Act "To permit review of decisions of the heads of departments . . . involving questions arising under Government contracts," and provides in substance that a departmental decision on a question of fact rendered pursuant to a "disputes" clause shall be final and conclusive in accordance with the provisions of the contract

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"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

Respondent has not argued in this Court that the underlying controversy in the present suit is beyond the scope of the "disputes" clause in the contract or that it is not governed by the quoted language in the Wunderlich Act. Thus the sole issue as stated supra, p. l, is whether the Court of Claims is limited to the administrative record with respect to that controversy or is free to take new evidence. In considering this issue, we put to one side questions of fraud, which are not involved in this case, which normally require the receipt of evidence outside the administrative record for their resolution, and which could be considered in judicial proceedings even prior to the enactment of the statute.

It is our conclusion that, apart from questions of fraud, de termination of the finality to be attached to a departmental decision on a question arising under a "disputes" clause must rest solely on consideration of the record before the department. This conclusion is based both on the language of the statute and on its legislative history.

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1. With respect to the language used, we note that the statute is designated as an act "To permit review' and that the reviewing function is one ordinarily limited to consideration of the decision of the agency or court below and of the evidence on which it was based. Indeed, in cases where Congress has simply provided for review, without setting forth the standards to be used or the procedures to be followed, this Court has held that consideration is to be confined to the administrative record

and that no de novo proceeding may be held. Tagg Bros. & Moorhead v. United States, 280 U.S. 420; National Broadcasting Co. v. United States, 319 U.S. 190,227. And of course, as shown by the Tagg Bros. and NBC cases themselves, the function of reviewing an administrative decision can be and frequently is performed by a court of original jurisdication as well as by an appellate tribunal.

Moreover, the standards of review adopted in the Wunderlich Act -"'arbitrary," "capricious," and "'not supported by substantial evidence" have frequently been used by Congress and have consistently been associated with a review limited to the administrative record. The term "substantial evidence" in particular has become a term of art to describe the basis on which an administrative record is to be judged by a reviewing court. This standard goes to the unreasonableness of what the agency did on the basis of the evidence before it, for a decision may be supported by substantial evidence even though it could be refuted by other evidence that was not presented to the decision-making body.

2. The legislative history supports our conclusion that the language used in the Act should be given its customary meaning. It is true that several witneeses representing contractors explained the purpose of the proposed legislation as restoring rights the contractors had before Wunderlich, and that it had apparently been the practice of the Court of Claims to receive evidence on matters covered by "disputes" clauses. But it seems clear in context that these witnesses meant only that the standards of review should cover more than conscious fraud, as the Court of Claims had assumed prior to Wunderlich. Indeed with respect to the procedural significance of the substantial evidence test, a leading contractor's representative stated that it would

"'result in these various departments and agencies
feeling that they will have to produce their wit-
nesses at these hearings and permit the contractor
to examine them, in order to have in the record
some substantial evidence to support their decisions
when they go up on appeal to the court."

The House Report recommending the bill ultimately enacted leaves little doubt that the review intended was one confined to the administrative record. H.R. Rep. No. 1380, 83d Cong., 2d Sess. The explicit references to the Administrative Procedure Act, 60 Stat. 243, 5 U.S.C. § 1009, and to this Court's discussion of the standards of review in consolidated Edison Co. v. Labor Board, 305 U.S. 197,229, are only the least indications. Even more significant is the Committee's view, echoing that of the witness quoted above, that the standards proposed would remedy the practice in many departments of failing to acquaint the contractor with the evidence in support of the Government's position:

"It is believed that if the standard of substantial evidence is adopted this condition will be corrected and that the records of hearing officers will hereafter contain all of the testimony and evidence upon which they have relied in making their decisions. It would not be possible to justify the retention of the finality clauses

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