United States v. Utah Construction and Mining Co

• Decision Date: 06 June 1966
• Docket Number: No. 440,440
• Citation: 384 U.S. 394,16 L.Ed.2d 642,86 S.Ct. 1545
• Parties: UNITED STATES, Petitioner, v. UTAH CONSTRUCTION AND MINING CO
• Court: U.S. Supreme Court

384 U.S. 394

86 S.Ct. 1545

16 L.Ed.2d 642

UNITED STATES, Petitioner,

v UTAH CONSTRUCTION AND MINING CO.

No. 440.

Argued March 23 and 24, 1966.

Decided June 6, 1966.

[Syllabus from pages 394-396 intentionally omitted] Irving Jaffe, Washington, D.C., for petitioner.

Gardiner Johnson, San Francisco, Cal., for respondent.

Mr. Justice WHITE delivered the opinion of the Court.

The typical construction contract between the Government and a private contractor provides for an equitable adjustment of the contract price or an appropriate extension of time, or both, if the government orders permitted changes in the work or if the contractor encounters changed conditions differing materially from those ordinarily anticipated. Likewise, it is provided that the contract shall not be terminated nor the contractor charged with liquidated damages if he is delayed in completing the work by unforeseeable conditions beyond his control, including acts of the Government. See Armed Services Procurement Regulations (hereinafter ASPR), 32 CFR §§ 7.602—3 to 7.602—5; Atomic Energy Commission Procurement Regulations (hereinafter AECPR), 41 CFR s 9—7.5005—2.¹ Article 15 provides that 'all disputes concerning questions of fact arising under this contract' shall be decided by the contracting officer subject to writ- ten appeal to the head of the department, 'whose decision shall be final and conclusive upon the parties thereto.' ASPR, 32 CFR § 7.602—6; AECPR, 41 CFR s 9—7.5004—3.² Appeals from the decision of the contracting officer are characteristically heard by a board or committee designated by the head of the contracting department or agency. Should the contractor be dissatisfied with the administrative decision and bring a Tucker Act suit for breach of contract in the Court of Claims or the District Court, 28 U.S.C. § 1346(a)(2) (1964 ed.), the finality accorded administrative fact finding by the disputes clause is limited by the provisions of the Wunderlich Act of 1954 which directs that such a decision 'shall be final and conclusive unless the same is fra(u)dulent or capricious or arbitrary or so grossly erroneous as necessarily to imply bad faith, or is not supported by substantial evidence.'³ With respect to this statutory provi- sion we held in United States v. Carlo Bianchi & Co., 373 U.S. 709, 83 S.Ct. 1409, 10 L.Ed.2d 652, that where the evidentiary basis for the administrative decision is challenged in a breach of contract suit, Congress did not intend a de novo determination of the facts by the court, which must confine its review to the administrative record made at the time of the administrative appeal.

The issues in this case involve the coverage of the disputes clause and a recurring problem concerning the application of Bianchi to certain findings made during the administrative process. We granted certiorari because of the importance of these questions in the administration of government contracts. 382 U.S. 900, 86 S.Ct. 234, 15 L.Ed.2d 155.

I.

The contractor, Utah Construction & Mining Company, executed a contract in March 1953 to build a facility for the Atomic Energy Commission. After completing the project in January 1955, it filed with the contracting officer a 'Pier Drilling' claim, which asked for an adjustment in the contract price and an extension of time under Article 4, the 'changed conditions' clause. The contractor asserted it had encountered float rock in the course of excavating and drilling which, among other things, had increased its costs and delayed the work. Contrary to the decision of the contracting officer, the Advisory Board of Contract Appeals found the float rock to be a changed condition within the meaning of Article 4. But the Board nevertheless denied the request for a time extension and for delay damages. It found that the increased costs had been incurred by a subcontractor rather than the contractor and that the delay experienced by the contractor was not caused by the float rock but by a dispute over the quality of concrete aggregate furnished by the Government, a dispute not then before the Board for adjudication.

Another claim filed by the contractor, its 'Shield Window' claim, asserted the existence of changed conditions calling for relief under Article 4 by reason of inadequate specifications and drawings furnished by the Government. Additional compensation and additional time were demanded. The Board found there was no changed condition within Article 4 and denied additional compensation. However, it found the delay involved to be the result of difficulties inherent in a new field of construction rather than the fault of either party, and it therefore authorized a time extension under Article 9.

In the contractor's subsequent suit for breach of contract, the Court of Claims held both the Pier Drilling claim and the Shield Window claim to be claims for delay damages alleging a breach of contract by reason of the Government's unreasonable delay. In its view, such breach of contract claims were not within the disputes clause and the administrative findings regarding the responsibility for the delays were subject to de novo determination in the Court of Claims. The disputes clause limited the authority of the Board to "disputes concerning questions of fact arising under this contract." That meant 'a dispute over the rights of the parties given by the contract; it (did) not mean a dispute over a violation of the contract.' Utah Constr. & Mining Co. v, United States, 339 F.2d 606, 609—610, 168 Ct.Cl. 522, 527 (1964). Because the Advisory Board of Contract Appeals was clearly authorized to determine the cause of the delay in granting or denying the request for an extension of time under Articles 4 and 9, the dissenting judge thought the findings were reviewable only on the administrative record and therefore objected to the de novo trial ordered by the majority. 339 F.2d, at 615, 168 Ct.Cl., at 537 (Davis, J.).

The meaning of the Court of Claims' distinction between disputes over rights given by the contract and disputes over a violation of the contract has been clarified in a subsequent decision holding that to the extent complete relief is available under a specific contract adjustment provision, such as the changes or changed conditions clauses, the controversy falls within the disputes clause and cannot be tried de novo in a suit for breach of contract. Morrison-Knudsen Co. v. United States, 345 F.2d 833, 837, 170 Ct.Cl. 757, 762 (1965). With respect to relief available under the contract, therefore, the contractor must exhaust his administrative remedies and the findings and determination of the Board would be subject to review under the Wunderlich Act standards, as applied in Bianchi. But the Court of Claims has also ruled that when only partial relief is available under the contract—e.g., an extension of time under Article 4—the remedies under the contract are not exclusive and the contractor may secure damages in breach of contract if the Government's conduct has been unreasonable. See Fuller Co. v. United States, 69 F.Supp. 409, 108 Ct.Cl. 70, 90—102 (1947); Kehm Corp. v. United States, 93 F.Supp. 620, 119 Ct.Cl. 454, 465—473 (1950). The issue raised by the decision of the Court of Claims respecting the Pier Drilling and Shield Window claims is therefore whether factual issues that have once been properly determined administratively may be retried de novo in subsequent breach of contract actions for relief that is unavailable under the contract.

The other issue of significance in this case is raised by a third claim filed by the contractor and involves the matter referred to by the Advisory Board of Contract Appeals in disposing of the contractor's Pier Drilling claim. The contractor, as it was permitted to do under the contract, elected to purchase concrete aggregate from the government stockpile, discovering very shortly that the aggregate was dirty and its poor quality the cause of understrength concrete. The Government suspended the work for a time, directed temporary corrective procedures and itself undertook more permanent remedial measures. After completing the contract, the contractor claimed extra compensation based on the poor condition of the aggregate, which was alleged to be a changed condition under Article 4. The contracting officer rejected the claim and the Board ruled the appeal was untimely. It remarked, however, that if the claim was one for unliquidated damages for breach of warranty or for delay, it had no jurisdiction to award monetary relief. Rejecting the Government's position that even if a claim sought only a remedy that was not available under Articles 3, 4 or 9, it nevertheless was within the scope of the disputes clause and subject to 'final' administrative determination, the Court of Claims held that unless the claim sought relief for a 'change' under Article 3 or 'changed conditions' under Article 4 or 'excusable delay' under Article 9 and was adjustable by the terms of those provisions, the claim was not within the disputes clause, was not subject to administrative determination and was a matter for de novo trial and decision in the proper court.⁴

II.

We deal first with the issue of the scope of the disputes clause which is raised by the Court of Claims' treatment of the concrete aggregate claim. The Government reasserts here its position in the Court of Claims⁵ that the disputes clause authorizes and compels administrative action in connection with all disputes arising between the parties in the course of completing the contract. In its view, the disputes clause is not limited to those disputes arising under other provisions of the contract—Articles 3, 4 and 9 in this case—that contemplate equitable adjustment in price and time upon the occurrence of the specified contingencies. If the Government is correct, the concrete aggregate claim was a proper subject for administrative handling even if the substandard aggregate was not a...