Crown Coat Front Co v. United States

CourtUnited States Supreme Court
Citation87 S.Ct. 1177,18 L.Ed.2d 256,386 U.S. 503
Docket NumberNo. 371,371
PartiesCROWN COAT FRONT CO., Inc., Petitioner, v. UNITED STATES
Decision Date10 April 1967

386 U.S. 503
87 S.Ct. 1177
18 L.Ed.2d 256
CROWN COAT FRONT CO., Inc., Petitioner,



No. 371.
Argued Feb. 13 and 14, 1967.
Decided April 10, 1967.

[Syllabus from pages 503-504 intentionally omitted]

Page 505

Edwin J. McDermott, Philadelphia, Pa., for petitioner.

David Rose, Philadelphia, Pa., for respondent.

Mr. Justice WHITE delivered the opinion of the Court.

The standard disputes clause in government contracts requires that 'any dispute concerning a question of fact arising under this contract,' not disposed of by agreement, shall be decided by the contracting officer, with the right of appeal within 30 days to the department head or his representative (normally a board of contract appeals) whose decision shall be final 'unless determined by a court of competent jurisdiction to have been fraudulent, arbitrary, capricious, or so grossly erroneous as necessarily to imply bad faith.'1 The 'arising under' claims

Page 506

subject to final administrative determination are those claims asserted under other clauses of the contract calling for equitable adjustment of the purchase price or extensions of time upon the occurrence of certain events.2 One of these clauses is the so-called 'changes' clause which permits the contracting officer to make changes within the scope of the contract, provides that if any change causes an increase or decrease in the cost of, or the time required for the performance of, the work, 'an equitable adjustment shall be made in the contract price or delivery schedule,' and states that failure to agree upon an adjustment shall be a question of fact within the meaning of the disputes clause.3

Page 507

This case involves a claim for an equitable adjustment, asserted under the changes clause and rejected by the contracting officer and the Armed Services Board of Contract Appeals. The contractor brought suit in the District Court under 28 U.S.C. § 13464 alleging that the decision of the Board was arbitrary, capricious and not supported by substantial evidence. The District Court dismissed the case as barred by 28 U.S.C. § 2401(a) which provides that 'Every civil action commenced against the United States shall be barred unless the complaint is filed within six years after the right of action first accrues. * * *' The principal question here is whether the 'right of action' with respect to a claim within the disputes clause first accrues at the time of the final administrative action or at an earlier date.

The facts are quite simple. On May 14, 1956, petitioner contracted with the United States to furnish a specified number of canteen covers which were to be

Page 508

lined with mildew-resistant felt of certain specifications. The Government, which was authorized to inspect materials to be used under the contract, tested and rejected certain samples of felt purchased by petitioner because they allegedly did not contain the contract quantities of mildew inhibitors. Petitioner agreed to a price reduction, however, and was permitted to complete the contract. Final delivery, originally scheduled for October 11, 1956, was made on December 14, 1956. Allegedly, in March 1959, petitioner first discovered the nature of the tests which the United States had performed on the felt. Claiming that the use of such tests was not within the contemplation of the contract and constituted a change in contract specifications, petitioner filed a claim with the contracting officer in October 1961, demanding an equitable adjustment in the contract price in the form of a refund of the price reduction and compensation for increased costs occasioned by substantial delay resulting from the Government's rejection of the felt samples. The contracting officer denied the claim. On February 28, 1963, the Board of Contract Appeals affirmed the contracting officer's decision. On July 31, 1963, more than six years after petitioner had completed performance of the contract, petitioner brought suit in the District Court alleging that the Board's decision was capricious, arbitrary and not supported by substantial evidence and that it was entitled to an equitable adjustment as provided in the contract. The United States, among other things, denied that the claim was within the disputes clause and asserted that the suit was time-barred by § 2401(a). Without deciding whether the claim arose under the contract within the meaning of the disputes clause, the District Court dismissed the suit as barred by the statute of limitations. The Court of Appeals, sitting en banc, affirmed in a five-to-four decision. 2 Cir., 363 F.2d 407. Relying on McMahon v. United States, 342 U.S. 25, 72 S.Ct. 17, 96 L.Ed. 26, and its own

Page 509

decision in States Marine Corp. of Delaware v. United States, 2 Cir., 283 F.2d 776, which arose under the Suits in Admiralty Act, the majority below concluded that the right of action first accrued no later than December 14, 1956, the date of the final delivery of the disputed canteen covers, and was therefore time-barred by § 2401(a). The court disagreed with the decision of the Court of Appeals for the Third Circuit in Northern Metal Co. v. United States, 3 Cir., 350 F.2d 833, which, like States Marine, supra, involved the Suits in Admiralty Act. 41 Stat. 525, as amended the Court of Appeals for the Third Circuit had agreed with States Marine as to when the time bar begins to run but had held that the statute was tolled during the pendency of the administrative proceedings. Because of this apparent conflict, we granted certiorari, 385 U.S. 811, 87 S.Ct. 87, 17 L.Ed.2d 52. We reverse.

Since the decision below, the Court of Claims has decided Nager Electric Co., Inc. v. United States, 368 F.2d 847, 177 Ct.Cl. 234, an unanimous decision by that court supported by an exhaustive opinion by Judge Davis dealing with the application of the 'first accrual' language of 28 U.S.C. § 25015 to both breach and disputes clause claims under the typical government contract. The conclusion of the Court of Claims was that it would adhere to what it considered to be its long-standing rule: (1) when administrative proceedings with respect to a contractor's claim subject to the disputes clause extend beyond the completion of the contract, his right of action first accrues when the administrative action is final,6 and not before,

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and (2) when the contractor has breach claims as well as disputes clause claims the statute begins to run on breach claims as well only at the conclusion of administrative action on the claims arising under the contract.7 As will be evident below, we do not reach the question of breach claims in this case. But with respect to claims arising under the contract, such as one asserted under the changes clause, we agree with the Court of Claims and essentially for the reasons which that court articulated.

1. We start with the obvious: Section 2401(a) provides a time limit upon bringing civil actions against the United States. The 'civil action' referred to is a civil action in a court of competent jurisdiction. Cf. Unexcelled Chemical Corp. v. United States, 345 U.S. 59, 73 S.Ct. 580, 97 L.Ed. 821. Such a civil suit is seemingly barred if the right to bring it first accrued more than six years prior to the date of filing the suit. Our initial inquiry is, therefore, when the right of the contractor in this case to bring suit in the District Court

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first accrued. In our opinion, if its claim arose under the contract, it first accrued at the time of the final decision of the Armed Services Board of Contract Appeals, that is, upon the completion of the administrative proceedings contemplated and required by the provisions of the contract.

With respect to claims arising under the typical government contract, the contractor has agreed in effect to convert what otherwise might be claims for breach of contract into claims for equitable adjustment. The changes clause, for example, permits the Government to make changes in contract specifications. Such changes are not breaches of contract. They do give rise to claims for equitable adjustments which the Government agrees to make, if the cost of performance is increased or the time for performance changed. But whether and to what extent an adjustment is required are questions to be answered by the methods provided in the contract itself. The contractor must present his claim to the contracting officer, whose decision is final unless appealed for final action by the department head or his representative, here the Armed Services Board of Contract Appeals. Until that Board has acted, the contractor's claim is not subject to adjudication in the courts.8 Until then, he has only the right to have the existence and extent of his claimed adjustment determined by the administrative process agreed upon. But, as we have said, the 'right of action' of which § 2401(a) speaks is not the right to administrative action but the right to file a civil action in the courts against the United States. Under the contract we have here, the contractor's claim was subject only to administrative, not judicial, determina-

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tion in the first instance, with the right to resort to the courts only upon the making of that administrative determination.

It is now crystal clear that the contractor must seek the relief provided for under the contract or be barred from any relief in the courts. In United States v. Joseph A. Holpuch Co., 328 U.S. 234, 66 S.Ct. 1000, 90 L.Ed. 1192, the question was whether a contractor's failure to exhaust the administrative appeal provisions of a government construction contract bars him from bringing suit in the Court of Claims to recover damages. The Court held that it did. According to the Court, the disputes clause

'is a clear, unambiguous provision applicable at all times and binding on all parties to the contract. No court is justified in disregarding its letter or spirit. * * * It...

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