31 658 Contractors, Inc v. United States 8212 88, No. 70

CourtU.S. Supreme Court
Writing for the CourtDOUGLAS
Citation92 S.Ct. 1411,406 U.S. 1,31 L.Ed.2d 658
Decision Date21 October 1971
Docket NumberNo. 70
Parties. 31 L.Ed.2d 658 S & E CONTRACTORS, INC., Petitioner, v. UNITED STATES. —88

406 U.S. 1
92 S.Ct. 1411.
31 L.Ed.2d 658
S & E CONTRACTORS, INC., Petitioner,

v.

UNITED STATES.

No. 70—88.
Argued Oct. 21, 1971.
Reargued March 20, 1972.
Decided April 24, 1972.

Syllabus

In a contracts disputes procedure, the Atomic Energy Commission (AEC) approved claims of its contractor for additional compensation. In response to an AEC certifying officer's request for advice as to one item, however, the General Accounting Office (GAO) ruled that the claims could not be certified for payment. When the AEC then refused to pay the compensation, the contractor brought suit in the Court of Claims alleging that the GAO had no authority to overturn the AEC approval. The Government, through the Department of Justice, defended on the ground that the AEC determination was not final but was subject to judicial review under the standards specified in § 321 of the Wunderlich Act, '(t)hat . . . 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.' The Court of Claims held that 'the Government has the right to the same extent as the contractor to seek judicial review of an unfavorable administrative decision on a contract claim.' Held:

1. The AEC, which for the purpose of this contract was the United States, had exclusive administrative authority under the disputes clause procedure to resolve the dispute here at issue, and neither the contract between the parties nor the Wunderlich Act permitted still further administrative review by the GAO. Pp. 8—12.

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2. The Wunderlich Act does not confer upon the Department of Justice the right to appeal from a decision of an administrative agency, nor is this a case involving a contractor's fraud, concerning which the Department has broad powers to act under several statutory provisions. Pp. 12—19.

433 F.2d 1373, 193 Ct.Cl. 335, reversed.

Geoffrey Creyke, Jr., Washington, D.C., for petitioner.

Irving Jaffe, Washington, D.C., for respondent.

Mr. Justice DOUGLAS delivered the opinion of the Court.

The question presented in this case is whether the Department of Justice may challenge the finality of a contract disputes decision made by the Atomic Energy Commission (AEC) in favor of its contractor, where the contract provides that the decision of AEC shall be 'final

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and conclusive.' Section 1 of the Wunderlich Act leaves open for contest a claim that 'is fraudulent or capricious or arbitrary or so grossly erroneous as necessarily to imply bad faith, or is not supported by substantial evidence.'1

Moreover, 41 U.S.C. § 322, provides that '(n)o Government contract shall contain a provision making final on a question of law the decision of any administrative official, representative, or board.'

The Department of Justice challenged the settlement made by the AEC on two grounds, (1) that the decision was 'not supported by substantial evidence' and (2) that it was 'erroneous as a matter of law.'

But the disputes clause in the contract2 says that the decision of the AEC is 'final and conclusive,' unless

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a court determines that the award is vulnerable under §§ 1 and 2 of the Act. There is no federal statute which submits disputes of this character to review by one or more administrative agencies, where as here there is no charge of fraud or bad faith. Nor is there a statute which enables another federal agency to contest in court the validity of the decision of the AEC, absent fraud or bad faith.

In plain lay language the question then is whether, absent fraud or bad faith, the contractor can rely on the ruling of the federal agency with which it made the contract or can be forced to go through still another tier of federal review. We hold that absent fraud or bad faith the federal agency's settlement under the disputes clause is binding on the Government; that there is not another tier of administrative review; and that, save for fraud or bad faith, the decision of AEC is 'final and conclusive,' it being for these purposes the Federal Government. We reverse the judgment of the Court of Claims.

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I

On August 4, 1961, petitioner contracted with the AEC to build a testing facility at the National Reactor Test Station in Idaho. The work was completed and accepted by the AEC on June 29, 1962. Because of various changes in contract specifications and difficulties in meeting performance schedules, petitioner submitted a series of claims to the contracting officer for resolution under the standard disputes clause contained in the contract, asking for equitable modifications of the contract and additional compensation. On August 8 and November 8, 1962, the contracting officer approved some of the claims and disapproved others, and the petitioner sought review of the adverse decisions with the AEC.

Since it did not then have a contract appeals board,3 the Commission referred petitioner's appeal to a hearing examiner, before whom an adversary hearing was held. On June 26, 1963, the examiner decided in favor of eight of petitioner's claims and remanded the dispute to the contracting officer for negotiations to determine the exact amount due petitioner. 2 A.E.C. 631. The contracting officer then sought review of this decision by the Commission. See 10 CFR § 2.760 (Jan. 1, 1963).

The Commission declined to review four of the claims, 2 A.E.C. 738, which had the effect of sustaining the examiner's decision on them. 10 CFR § 2.762(a) (Jan. 1, 1963). Included within this group was the examiner's determination that amounts due petitioner could not be retained to offset claims allegedly owed by petitioner to other contractors and other agencies of government. The

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Commission modified the examiner's decision on three of the remaining claims and reversed him on the last, which petitioner has since abandoned. It 'remanded to the contracting officer with instructions to proceed to final settlement or decision in accordance with the decision of the hearing examiner dated June 26, 1963, as modified by (its) order of November 14, 1963, and by (that) decision.' 2 A.E.C. 850, 856.

On March 6, 1964, prior to the AEC's final ruling but after it had upheld the examiner's decision on the 'retainage' claim, a certifying officer of the Commission requested the opinion of the General Accounting Office on whether a voucher for the retainage claim could be certified for payment. Jurisdiction for the Comptroller General's review was purportedly founded upon 31 U.S.C. § 82d.4 After some 33 months of what amounted to a plenary review of the proceedings before the examiner, the Comptroller General concluded that the voucher could not be certified for payment. 46 Comp.Gen. 441. On March 27, 1967, the AEC wrote petitioner, saying, 'The Atomic Energy Commission's view is that § & E Contractors, Inc. has exhausted its administrative recourse to the Commission. The Commission will take no action, in connection with the claims, inconsistent with the views expressed by the Comptroller General . . ..' The petitioner then brought this action in the Court of Claims seeking a judgment of $1.95 million and an order remanding the case for negotiations on the time extension

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to which it claimed it was entitled under the AEC's original decision.

The defenses tendered raised no issue of any fraud or bad faith of the contractor against the United States.

On cross-motions for summary judgment, a commissioner of the Court of Claims ruled in favor of petitioner, holding that the General Accounting Office lacked authority to review the decision of the AEC and that the AEC's refusal to follow its own decisions favorable to petitioner was a breach of the disputes clause of the contract. On review by the Court of Claims, however, that decision was reversed by a four-to-three vote. While the majority acknowledged 'that the Comptroller General effectively stopped payment of the claims,' it did not pass upon the legality of that action. 433 F.2d 1373, 1375, 193 Ct.Cl. 335, 340. Reasoning, instead, that the Wunderlich Act allowed both the Department of Justice and contractors an equal right to judicial review of administrative decisions and that the AEC's refusal to abide by its earlier decision was a permissible means of obtaining this review, it remanded petitioner's claims 'to the commissioner for his consideration and report on the various claims under Wunderlich Act standards.' Id., at 1381, 193 Ct.Cl., at 351.

The Commissioner did not base his opinion on any issue of fraud or bad faith of the contractor against the United States, nor did the Court of Claims. The case is now here on a petition for writ of certiorari which we granted. 402 U.S. 971, 91 S.Ct. 1659, 29 L.Ed.2d 135.

Petitioner argues that neither the text nor the legislative history of the Wunderlich Act supports the right of the United States to seek judicial review of an administrative decision on a contractual dispute, that the General Accounting Office was without statutory or contractual authority to overturn the AEC's decision, and that the

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AEC should not be allowed to abandon after some 33 months its own decision that had been made in petitioner's favor. In response, the Solicitor General contends that the Wunderlich Act does give the Department of Justice the right of judicial review of contract decisions made by federal administrative agencies and that the Department of Justice is free to assert whatever defenses it desires in the Court of Claims without regard to the earlier actions of the federal contracting agency.

II

The disputes clause included in Government contracts is intended, absent fraud or bad faith, to provide a quick and efficient administrative remedy and to avoid 'vexatious and expensive and, to the contractor oftentimes, ruinous litigation.' Kihlberg v. United States, 97 U.S. 398, 401, 24 L.Ed. 1106 (1878). The contractor has ceded his right to seek...

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