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A PRIMER ON GOVERNMENT CONTRACT CLAIMS
RULES OF THE BOARDS OF CONTRACT APPEALS
Procurement stands as one of the major activities of Government.1 It involves nearly all of the departments and agencies in some way. Some $60.5 billion was spent in fiscal year 1972 for procurement, which amounted to roughly one-fourth of the total Federal budget. Nearly 80,000 Federal employees are engaged in this activity. Over 22,000 firms have government contracts. Small businesses play a large and significant part in this program. For fiscal year 1972, 19.2 percent of all Federal procurement dollars for which small business can compete went to small business contractors. On the subcontracting level, it is reported that small business received about $3.9 billion, or some 35% of the money flowing from the prime Government contracts. The subject of Government procurement and the attendant problems associated with Government contracting have received particular attention in the past two and one-half years. With the formation of the Commission on Government Procurement, this broad field of governmental activity has received the first systematic review since the First Hoover Commission in 1949 and the Second Hoover Commission Task Force in 1955. The report of the Commission was made available to Congress early this year. Some of its 149 recommendations bear directly on the matters covered in this print, and may point to future changes in the law and policy.
While the field of Government contract claims is much discussed and constantly evolving, the Primer should provide a basic guide to the procedural rights of the contractor claimant.
PRELIMINARY CONCERN OF THE CONTRACTOR
At the outset, it is important to note that contractors typically have difficulty in recognizing when the circumstances of their work indicate the necessity of making a claim. This may seem a simple exercise, but it is not.
When the Government submits a change order in writing clearly directing a change in the work as provided for in the Changes clause, the contractor is immediately put on notice to segregate his costs for this additional work and submit a request for reimbursement accordingly. A far more difficult circumstance is when the contractor discovers his operating costs are greater than expected. It then is a hunt1 "Government," as referred to in this pamphlet, is confined to the Federal Government as distinguished from State, local and other governmental bodies.
ing game to find the cause. He may find that Government engineers have suggested informally to his employees certain changes in the work not otherwise provided for in the contract. There is no written' record of the change order, and it is difficult to track the increased costs that resulted from it. Nevertheless, there is adequate cause for submitting a claim. The contractor should do so at the earliest opportunity. Depending on the Government's willingness to accept this demand for additional compensation, we move from a contract claim to a dispute.
CONTRACT CLAUSES PERTAINING TO THE DISPUTES PROCESS
In addition to the fact that the Government may be sued only by its consent, there are some unique aspects of a Federal Government contract, particularly in the realm of settlement of disputes between the parties. The Disputes clause, which is contained in most Government contracts, is designed to assist the parties in the resolution of the disputes; and at the same time obligate the contractor to continuing performance of the work during the course of the claim process.
The first question which should come to the mind of a contractor having a claim against the Government is whether the claim must or should be presented in accordance with the Disputes clause found in his contract. The Disputes clause (a reproduction of which is found in Appendix A) provides that disputes pertaining to certain types of factual matters will be referred to the contracting officer for resolution. As a practical matter, most claims can be, and in fact must be, disposed of within the disputes process described in the clause. Contractors who would by-pass this process and go directly to a court in seeking relief could find that the doctrine of exhaustion of administrative remedies applies and requires that they conform to the administrative hearing process described in their contract before they can apply to the court.
A claim asserting a course of conduct that is a breach of the contract. terms is not subject to this administrative process. A board of contract appeals may dismiss such a claim brought to it on the basis that the board does not have jurisdiction. The following discussion should assist the contractor in determining whether his claim properly comes within the disputes process.
The Disputes clause states that the question of fact must be one which "arises under this contract." These words are a shorthand means of describing that a claim which is based on some provision of the contract is to be resolved procedurally in accordance with the Disputes clause. For instance, a common subject of a dispute is the cost of a change in the work ordered pursuant to the Changes clause. The clause provides that, if the contractor and contracting officer do not agree on the claim for adjustment of the contract price or time extension, it is a "question of fact" within the meaning of the Disputes clause. Thus, if the contracting officer issues a change order modifying the drawings, designs or specifications, method of shipment or packing, or the place of delivery, it constitutes a change under the Changes clause. The contractor has the right to submit a claim to increase the contract price by the value of the change ordered. The contracting
2 Another type of Disputes clause is known as an "All Disputes" clause. Although not commonly used, it has the advantage of being applicable to any alleged violation or breach of the contract. 3 Manpower, Inc., GSBCA-3622, Nov. 29, 1972.
officer can either accept the cost of the change as submitted or refuse it and offer a different sum or refuse to alter the contract price.*
Similarly, the Default clause (ASPR 7-103.11, FPR ̄§ 1-8.707) is an example of another clause which requires the contractor to present his claim to the contracting officer pursuant to the Disputes clause. In paragraph (d) of that clause, it states: "Payment for manufacturing materials delivered to and accepted by the Government and for the protection and preservation of property shall be in an amount agreed upon by the contractor and contracting officer; failure to agree to such amount shall be a dispute concerning a question of fact within the meaning of the clause of this contract entitled 'Disputes.'
There are occasions when the administrative process has been extended to claims not strictly pertaining to clauses which refer to the Disputes clause. For example, failure of the Government to comply with the Payments clause (ASPR 7-103.7, FPR § 1-7.101.7, and other payment clauses) might be a claim within the disputes process.
Some clauses such as the Government-Furnished Property clause (ASPR 7-104.24), Stop Work Order clause (ASPR 7-105.3) and Differing Site Conditions clause (ASPR 7-602.4, FPR § 1-7.601-3) refer to an "equitable adjustment" being made if the condition described in the clause should occur during the performance of the contract. In these instances, if the contractor does not find the equitable adjustment offered by the contracting officer adequate, the provisions of the Disputes clause are generally considered applicable to resolve this difference of opinion, and the parties are governed by its
This difficult area of applicability of the Dispute clause is subject to debate and is not easily defined. Suffice to say, the rationale seems to be that, if a claim can be made to fit within the contract provisions, it will be treated as a dispute subject to the Disputes clause; otherwise it is a breach of contract not subject to the administrative procedures. Actually, there are very few claims which are found to be a result of a breach of contract and hence in most cases the contractor can expect to follow the administrative disputes procedure as outlined below. Contracting Officer's Decision
There are several steps in the disputes process. The first is simply bringing the facts surrounding the claim to the attention of the contracting officer. It may be, and often is, possible to arrive at a full and fair agreement at this point without resort to the formal disputes procedure. The contract can be modified, if that is required, and the problems resolved.
One of the greatest obstacles at this point of the discussion is simply the failure of the contractor to provide all of the essential facts pertaining to his claim. He either assumes that the contracting officer is fully aware of all facts concerning the performance of the contract work or fails to supply supporting evidence which proves the expense or other difficulties he has encountered. The ability to set out the heart of the claim and not dilute it with irrelevant facts and arguments greatly
4 The administrative settlement of claims has been expanded through the doctrine of constructive change. This is an informal order, as distinguished from a formal order, to perform additional work. It may result from the requirement for the contractor to use defective Government-furnished property or defective specifications or perform in accordance with the contract schedule regardless of circumstances which would permit excusable delay in performance.
benefits the negotiations at this stage as well as later in the disputes process.
If the contracting officer does not agree to the request of the contractor or the parties fail to reach a compromise, the contractor must follow the process described in the disputes clause. This second step requires that the contractor submit his claim in writing to the contracting officer with evidence of the claim and costs, if reimbursement is the requested relief.
This second step may merge with the first step if the contractor has fully presented the facts during the informal period of assertion of the claim. If the contracting officer has not met the request of the contractor in the first step, this is the time to reevaluate the claim and be certain all relevant evidence is provided to the contracting officer prior to his final decision.
There is no time limit in which the contracting officer must render his final decision in writing. In coming to his decision, the contracting officer may consult with his legal, engineering, and other advisors. His written decision includes a statement of facts, and the determination with the reasons therefor. Also required is a statement on how the contractor can appeal the decision of the contracting officer. Boards of Contract Appeals
The third step is the appeal of this final decision of the contracting officer. Only one appeal is made in 10,000 contracting officer decisions; hence appeals are not as common as one might think. This may be for a variety of reasons apart from the satisfaction of the contractor with the decision. Appealing the decision prolongs the outcome of the dispute considerably. On the average, it will be a year before there is a decision by the board from the time the appeal is docketed, unless the parties settle sooner. In the meantime, if the contract work has not already been completed, the contractor is required to continue performance as directed. Furthermore, there is the cost of the appeal in the time and effort involved as well as the possible expense of an attorney to represent the contractor before the board.
The Secretaries of nearly all agencies have delegated the function of hearing these appeals and writing a decision to a board of contract appeals, or a similarly designated body. At the present time, there are fifteen boards. Agencies which have contract appeals but do not have a board will usually by prearrangement refer the appeal to a board of another agency. For example, the State Department and United States Information Agency refer their appeals to the Armed Services Board of Contract Appeals. The board of the agency receiving the case will consider and act upon the claim as if it arose within its own agency.
The procedures of the boards are governed by their "Rules." The Rules of most of these boards are collected in Appendix C of this pamphlet. The provisions of the various Rules are similar in many respects.
Joel P. Shedd, Jr., "Fragmentation of Remedies-The 'All Disputes' Solution," Federal Bar Journal, Summer 1968, p. 188.
The Commission on Government Procurement similarly reports a low proportion of contractor decisions appealed. "Under the present remedial system the contracting officer's decision on many small claims is for all practical purposes final, since two-thirds of small businesses we questioned indicated they would not appeal an adverse contracting officer decision on a claim of $5,000 or less.
U.S. Commission on Government Procurement, Report of Commission on Government Procurement, (Washington, D.C.: Government Printing Office, 1972) vol. IV, p. 11.