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Introduction and Summary of Recommendations






This part covers legal and administrative remedies involving resolution of disputes arising in connection with the performance of Government contracts, and resolution of disputes occurring during the process leading to the award of Government contracts. It also analyzes the authority granted by Public Law 85-804 to facilitate procurement for the national defense, and the authority and procedures for debarment and suspension of Government contractors. Each of these areas is summarized in this chapter and discussed in greater detail in later chapters. Appendix A contains data, assembled by Study Group 4 (Legal Remedies) and the Commission staff, concerning the institutions and procedures discussed here.

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ment contracts, the contracting officer is required to consider each dispute concerning a question of fact presented by the contractor and render a decision as to what contract adjustment (time or money), if any, should be made.

The disputes clause is not required by statute, but is a creation of the executive branch. Its purpose is to provide and initially require the use of administrative disputes-resolving procedures and institutions in an effort to avoid the delays and expense of judicial litigation. Contractors are usually required by its terms to continue work pending resolution of a dispute.

If a mutually agreeable resolution of the dispute cannot be achieved through negotiations, the contracting officer is required to make a unilateral decision. Then, under the disputes clause, the contractor is usually required to proceed with contract performance in accordance with that decision.

The contracting officer's unilateral decision on a contract dispute for which the contract provides an administrative remedy may be appealed by the contractor to the head of the agency or to a designated agency board of contract appeals. An appeal must be made within a stated time (usually 30 days), or the contracting officer's decision generally becomes final on the contractor.

If the dispute involves an alleged Government breach of contract for which the contract provides no administrative remedy, the Court of Claims or a U.S. district court (for claims of $10,000 or less), not a board of contract appeals or other agency representative, has jurisdiction over the appeal.

contract disputes clause and in agency regulations rather than in congressional enabling acts. Most of these boards now function, under delegated authority to act for the head of the agency, as independent, quasi-judicial tribunals.

At present, there are 11 boards of contract appeals in the executive branch, a drop from 19 boards in July 1966. The reduction to the present number is attributable to consolidation of boards within some agencies, abolition of boards by some agencies with assignment of appeals to boards in other agencies, and reorganization of some agencies. The boards of contract appeals in the executive branch had nearly 2,000 appeals on their dockets as of July 1972.

When a contractor appeals an adverse contracting officer's decision to a board of contract appeals, the board rules generally require that the contracting officer transmit to the board and to the assigned Government attorney all information that relates to the dispute. This information constitutes the appeal file. The board usually assigns one or more members to hold hearings and examine witnesses if determined by the board to be necessary or if requested by at least one party. In addition to the material submitted by the contracting officer, the board considers the pleadings, records of prehearing conferences, evidence presented in open hearings by both parties, pre- and post-hearing briefs, and such depositions and interrogatories that are permitted.



If the contractor's claim is one for which an administrative remedy is available, the first level of appeal from a contracting officer's decision is the agency head, or, more often, his designated board of contract appeals. The contracting agencies originally established such boards to review disputes, as representatives of agency heads, at a level above the contracting officer. The present agency boards of contract appeals have their legal basis in the

If a contractor's claim is denied by a board of contract appeals, the contractor may file a suit in the Court of Claims or, if the claim is less than $10,000, in a U.S. district court. The scope of judicial review is set forth in the Wunderlich Act. Approximately five percent of the board cases decided in recent years have been sent to the Court of Claims by contractors for judicial review.

If the board sustains the contractor's appeal, either in whole or in part, the procuring agencies have, as a rule, complied with the decision, although it is not entirely clear whether the Government, under the present statutes, may seek judicial review of a board decision adverse to the Government.

If the dispute is not administratively redressable under the terms of the contract, the contractor's remedy is to file suit directly in either the Court of Claims or a U.S. district court, thus bypassing the boards of contract appeals.

Certiorari to the Supreme Court may be requested by either party directly from decisions of the Court of Claims or the U.S. courts of appeals.

safeguards in the boards and the quality and independence of the board members are uneven. Yet, because of the Wunderlich Act and judicial interpretation of it, the findings of fact by the boards are essentially final on subsequent judicial review. While most if not all boards appear to be independent of control by their agencies, the board members are appointed by the agencies and must depend on them for career advancement.


Summary of Findings


The present disputes-resolving procedures are leading to increased contractor frustration and disillusionment. This widespread view has been clear in every type of input received by the Commission, including open hearings, answers to questionnaires, and individual letters and recommendations. Government procurement is based primarily on open competition, but without sufficient incentive to compete, competition cannot be achieved. It is essential to the competitive system that there be a sufficient number of prospective or actual competitors in the procurement process. If the concerns about inequities and inefficiencies in disputes-resolving procedures cause potential contractors to avoid Government work, the procurement process will suffer.


We have concluded that the present system for resolving contract disputes needs significant institutional and substantive change if it is to provide effective justice to the contractors and the Government.

On the one side, the system is often too expensive and time-consuming for efficient and fair resolution of claims. Small businesses, or any business with a relatively small claim, often find that the money required to pursue a claim equals or exceeds the amount of the claim. The result is that contractors with enough money to finance litigation under the system may recover; contractors without enough money cannot. Even if recovery of a small claim is made, the relative cost of that recovery represents a waste of resources.

On the other side, the present system often fails to provide the procedural safeguards and other elements of due process that should be the right of litigants. Contractors are now forced to process most disputes through a system of agency boards of contract appeals that, while essentially independent and objective forums, do not possess the procedural authority or machinery to ensure that all the relevant facts and issues in complicated cases are brought before the boards and given adequate consideration. The boards lack adequate discovery and subpoena powers. The procedural

We found no evidence of an overall plan or program to improve the method of handling contract disputes. The present system appears to be more evolutionary in nature following the enactment of the Wunderlich Act and a series of later court decisions that have tended to judicialize the administrative procedures by placing more emphasis on due process, independence of boards, judicial review of board decisions, and remand practice. This has led the boards to adopt more judicial-like procedures, and to demands for other procedures such as discovery and subpoena powers. At the same time most of the boards have attempted to maintain a degree of flexibility and informality not usually found in court procedures. INCREASED COST








Our recommendations to improve procedures for the resolution of contract disputes may involve some increased administrative costs, since the contractors will have more incentive to use the procedures. Ultimately, both the Government and its contractors will benefit from less complicated and more economical means for resolving disputes. At present, contractor either is deterred by the high cost of litigation or must undergo lengthy processing that is expensive to it as well as to the Government. Several of our recommendations are pointed toward procedures tailored to the complexity of the dispute, so that small claims or less important issues can be disposed of without the expense of protracted litigation.

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• Induce resolution of more contract disputes by negotiation prior to litigation • Equalize the bargaining power of the parties when a dispute exists • Provide alternative forums suited to handle the different types of disputes • Ensure fair and equitable treatment of contractors.

We believe that these objectives are best met with a flexible disputes-resolving system that provides alternative forums for the resolution of disputes, with each forum designed to handle disputes of varying degrees of complexity, size, and importance. The claimant should, within certain parameters, be able to choose the forum best suited to his claim.

The major elements of our recommended system are shown in figure 2. Following a contracting officer decision adverse to the contractor, an informal review conference should be held by the agency to review that decision in an effort to seek resolution of the dispute

prior to litigation. The claimant should be invited to attend the conference, and his attendance should be mandatory if he intends to take the dispute directly to court.

Should the informal review conference fail, we propose that the claimant be given a choice of three alternative forums: (1) an improved cognizant agency board of contract appeals, (2) a regional small claims board of contract appeals if the dispute involves less than $25,000, or (3) the Court of Claims, or a U.S. district court (up to $100,000).

The contractor, but not the Government, could obtain de novo review of a decision of the small claims board. We recommend, with five members dissenting, that both parties be granted appellate-type judicial review of adverse decisions of the agency boards of contract appeals. In addition, the present remand practice between the reviewing courts and the agency boards should be modified to allow the courts the discretion to take additional evidence necessary finally to dispose of the case.

We further recommend that the authority of the contracting officer and other officials to act in connection with each contract be made clear to the contractor; the present distinction between “breach of contract" disputes and disputes arising "under the contract” be abolished; the time periods for seeking review of adverse administrative decisions be uniform and relatively short; interest be paid on all claims awarded by administrative and judicial forums; and court judgments on contract claims adverse to the Government be paid from agency appropriations.

These recommendations are presented as a “package" approach to achieving our objectives. Some of the recommendations serve more than one objective. For example, the recommendation to pay interest when a contractor obtains a favorable board or court decision is intended to make it whole for the expense of obtaining what was rightfully due it. But it also represents a cost to the agency that should make the agency more management conscious about disputes, and thus cause the agency to improve its contract administration, as well as consider the possibilities of a fair and equitable settlement through negotiation.

We do not say that every recommendation is necessary in order to achieve the objectives described above, or that some adjustments in the recommendations would be fatal to the objectives. It will be important, however, to consider the individual recommendations in context with each other and the stated objectives, and to balance the effect of excising one or more of the recommendations. Should some recommendations be adopted and others not, the balance designed in the recommended system could be disturbed to the detriment of its efficient and fair operation.

Our recommendations dealing with the resolution of disputes arising in connection with contract performance are discussed in detail in Chapter 2.

leads to the award of a Government contract. These disputes are called "award protests” i and may be defined as complaints lodged by interested parties against any part of the contract award process. Protests are usually initiated by a company that has made an offer for a Government contract or would like to make an offer. Typical protests have included allegations that (1) the technical evaluation of a proposal was not properly conducted, (2) the type of solicitation used was not in accordance with statutes or regulations, (3) the low bidder was not qualified to perform the work, or (4) the bidder who was awarded the contract was not responsive to the terms of the solicitation.

Unlike disputes occurring under a contract, no clause in the solicitation gives the offeror a right to protest. Nor is such right found in any statutory language. The basic executive procurement regulations and procedures promulgated by the General Accounting Office (GAO) permit protests against the award of a contract to be lodged with the agency that solicited the award and with GAO. Protests also may be filed with U.S. district courts or the Court of Claims. This “award protest system” for resolution of disputes related to the award of a Government contract is outlined in figure 3.


The executive procurement regulations do not provide detailed procedures on how a protest may be lodged with a procuring agency. They do require contracting officers to consider all protests involving the award of a contract, whether submitted before or after award. Unlike the requirements of the disputes clause, agency internal regulations govern whether contracting officers will decide protests submitted to a particular agency. Some agency regulations require most protests to be decided at a senior level within the agency, while the policy of other agencies is for the contracting officer to decide all protests unless special considerations require the forwarding of particular protests to higher headquarters.


The Present System

1 Historically they have been called "bid protests." Since many protests today involve negotiated procurements, we have chosen "award protests" as a more accurate term.

Disputes also occur during the process that

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