United States v. Carlo Bianchi and Company

• Decision Date: 03 June 1963
• Docket Number: No. 529,529
• Parties: UNITED STATES, Petitioner, v. CARLO BIANCHI AND COMPANY, Inc
• Court: U.S. Supreme Court

373 U.S. 709

83 S.Ct. 1409

10 L.Ed.2d 652

UNITED STATES, Petitioner,

v CARLO BIANCHI AND COMPANY, Inc.

No. 529.

Argued April 29, 1963.

Decided June 3, 1963.

David L. Rose, Washington, D.C., for petitioner.

William H. Matthews, Washington, D.C., for respondent.

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—322,¹ an Act designed to permit judicial review of decisions made by federal departments and agencies under standard 'disputes' clauses² 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 flood-control dam. Included in the work to be 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 safety of the 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 rea- sonably anticipated, and also contained the standard 'disputes' clause quoted, supra, note 2.

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 throughout the tunnel, and that it should be compensated for installing such 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 cross-examination. 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 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.' 169 F.Supp. 514, 517, 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, 145 F.Supp. 952, 136 Ct.Cl. 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 $149,617.36. We granted certiorari, 371 U.S. 939, 83 S.Ct. 321, 9 L.Ed.2d 274, to resolve a conflict among the lower courts³ on the important question of the kind of judicial proceeding to be afforded in cases governed by the Wunderlich Act.

I.

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 determinations 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, 24 L.Ed. 1106; Ripley v. United States, 223 U.S. 695, 32 S.Ct. 352, 56 L.Ed. 614. 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,⁴ it was expressly restricted in United States v. Wunderlich, 342 U.S. 98, 100, 72 S.Ct. 154, 155, 96 L.Ed. 113, to determining whether or not the departmental decision had been founded on fraud, i.e., 'conscious wrongdoing, an intention to cheat or be dishonest.'

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 Congresses; hearings were held in the Senate⁵ and House of Representatives; ⁶ and the result- ing statute known as the 'Wunderlich Act' was ultimately approved by both Houses in 1954. This statute, quoted in full in note 1, 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

'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 evidence.'

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. 710, 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, determination 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.

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, 50 S.Ct. 220, 74 L.Ed. 524; National Broadcasting Co. v. United States, 319 U.S. 190, 227, 63 S.Ct. 997, 1014, 87 L.Ed. 1344. 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 jurisdiction 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.⁷ 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 reasonableness 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...