S & E CONTRACTORS, INC. v. THE UNITED STATES, 193 Ct. Cl. 335

Nichols, Judge/ delivered the opinion of the court: This is a contract case before us on defendant’s request for review of our commissioner’s recommended opinion. Stripped of subordinate and extraneous issues, the central question presented is whether the “Wunderlich” Act, 41 U.S.C. §§ 321-22 (1964) (hereinafter referred to as the Act), affords the Government a right to obtain judicial review — coextensive with that of the contractor — of decisions of administrative tribunals unfavorable to it, on contract claims made in the course of the standard “disputes” procedure under the Wunderlich Act.

On August 4, 1961, plaintiff S & E Contractors, Inc. contracted with the Atomic Energy Commission (AEC) to build a testing facility at the National Reactor Test Station in Idaho. Performance of this contract generated numerous claims which the contractor properly filed with the contracting officer; those decided adversely to the contractor were seasonably 'appealed to the AEC.

Since at this time the AEC did not have a contract appeals board to represent it, the contractor, under the AEC’s then current procedures, was referred to a hearing examiner specially appointed to hear grievances and render findings of fact. Consequently, eight of plaintiff’s claims were sustained by the hearing examiner and remanded to the contracting officer for negotiation and settlement on damage questions. Contrary to this directive, the contracting officer petitioned the AEC to review the hearing examiner’s findings 'as to these eight claims.

His petition was accepted and the AEC’s review resulted in an affirmance of the hearing examiner’s findings on seven of the eight claims. (The Government explains that the AEC did not actually affirm on these seven claims, but rather it merely declined to exercise its certiorari-like discretion to rehear them. This procedural clarification is of no real importance to our analysis, however, because the Government conceded at oral argument that the AEC’s refusal to review these claims was itself sufficient to give the hearing examiner’s findings administrative finality).

Again the matter was remanded to the contracting officer for final settlement. This time, however, settlement discussions were interrupted and finally terminated by the intervention of the General Accounting Office (GAO). Our commissioner found that an AEC certifying officer requested advice from the GAO with regard to the certification of a voucher for the making of payment on one of the successful claims. No mention was made nor was any advice solicited concerning paying out on the remaining claims. Despite the narrowness of this request, the GAO advised the AEC in decision No. B-153841 (46 Comp.

Gen. 441 (1966)) that payment on any of the disputed claims would be improper because the AEC’s findings as to these claims were not supported by substantial evidence and were erroneous on matters of law. In view of this decision, the AEC informed plaintiff that plaintiff had “exhausted its administrative recourse to the Commission. * * * [and that] no action [would be taken by the Commission], in connection with the claims, inconsistent with the views expressed by the Comptroller General in * * * B-153841.” This information impelled plaintiff to bring suit in this court. Cross motions for

summary judgment supported only by arguments 'and counter-arguments regarding the evidential substantiality and the legal correctness of the AEC’s findings and conclusions were submitted to our trial commissioner. He, however, chose to disregard these arguments in favor of other theories. Essentially his opinion recommends that the A.

EC’s failure to implement its own decision made under the contract’s disputes provision (which he terms a repudiation) “must be regarded as a breach of that provision.” Moreover, he suggests that the GAO intervention on substantiality and on legal 'grounds exceeded its authority and that therefore decision No. B-153481 “was too slender a reed * * * to support the Commission’s repudiation of its own decision.” The commissioner granted plaintiff’s motion for

summary judgment, and rather than have the parties go back to the AEC for findings on quantum, he concluded that in view of the AEC’s continuing refusal to pay plaintiff over a period of five years since its original decision, future relief there would be inadequate and unavailable. Hence, he recommends that plaintiff’s damages be fixed by this court under a Buie 131 (

c) proceeding. The points are ably made and the arguments are substantial, but we disagree. The pervasive question running through this controversy is whether the Government has a right at all to seek judicial review based on Wunderlich Act standards where a tribunal of its own creation issues a contract disputes decision favorable to the contractor. Should this question be answered affirmatively, we must also decide whether the Government’s method of obtaining judicial relief in this case, simply by denying payment w'as proper.

Before tackling these provocative questions, we think it appropriate to define clearly the perimeters of our analysis. The factual background indicates that the Comptroller General effectively stopped payment of the claims. The Government, however, 'as represented by the Justice Department, which alone speaks for it in court, says that plaintiff would have been victorious by default in this court at the outset had Justice not decided to defend this suit.

Specifically, it argues that this decision to defend was not prompted by any sort of requirement to give mandatory defense to opinions of the Comptroller General, but rather it was the uninfluenced product of the Justice Department’s own thorough and independent review of the Case. The Department considered the AEC’s decision erroneous on matters of law and unsupported by substantial evidence in this case before us.

Counsel for the Government therefore urges us to ignore the Comptroller’s intervention as being the occasion but not the cause of the litigation and in no way itself an administrative decision having effect here or coming under our review. We agree that the Comptroller’s powers of decision and settlement, though great, may be assumed to lapse and fail at the Court House door. Therefore, it is not necessary for us to determine what decisions he might make or what finality they might have in cases not brought before us.

When a Wunderlich Act case is pending here, the only question is how much finality attaches to the findings and holdings of the Board set up to execute the powers of the head of the agency in the premises. Really it makes no difference now whether the failure of defendant to pay out as the Board determined results, as here, from the Comptroller General’s implied threat to charge the certifying officer’s account, or from a change of heart in the agency itself, as was the case in C. J. Langenfelder & Son, Inc. v. United States, 169 Ct. Cl. 465, 341 F. 2d 600 (1965).

We hold that in either event, a refusal by defendant to pay a Board award is not a breach of the disputes clause if the involved award is not supported by substantial evidence or otherwise is not entitled to finality under the Wunderlich Act. The reasons for this view follow. The focus of our inquiry is the Wunderlich Act; the exact wording of the contract disputes clause in question has no bearing, at least as applied to the case before us. As we said in an earlier case, “it is the Wunderlich Act which is determinative.

The minimal bounds of judicial review must be drawn from the terms, history, and policy of that Act, not from policies speculatively drawn from the contract clauses which are themselves governed by the statute.” C. J. Langenfelder & Son. Inc. v. United States, 169 Ct. Cl. at 477 n. 7, 341 F. 2d at 607 n. 7 (1965). Enacted in 1954 and unmodified thereafter, the Wunder-lich Act reads as follows: §321.

LIMITATION ON PLEADING CONTRACT-PROVISIONS RELATING TO FINALITY; STANDARDS OF REVIEW No provision of any contract entered into by the United States, relating to the finality or eonclusiveness of any decision of the head of any department or agency or his duly authorized representative or board in a dispute involving a question arising under such contract, shall be pleaded in any suit now filed or to be filed as limiting judicial review of any such decision to cases where fraud by such official or his said representative or board is alleged: Provided, however, That any such decision shall be final and conclusive unless the same is fradulent (sic) or capricious or arbitrary or so grossly erroneous as necessarily to imply bad faith, or is not supported by substantial evidence. (Emphasis supplied for word any). §322.

CONTRACT-PROVISIONS MAKING DECISIONS FINAL ON QUESTIONS OF LAW No Government contract shall contain a provision malting final on a question of law the decision of any administrative official, representative, or board. (Emphasis supplied). Strictly read the Act favors neither Government nor contractor : judicial review to whatever extent prescribed, seems extended equally and under like conditions to both contracting parties. The legislative history, albeit not explicitly, in general supports this construction.

Both the House of Eepresentatives and the Senate held full hearings on various bills introduced to undo the Supreme Court’s decisions in United States v. Wunderlich, 342 U.S. 98 (1951); and United States v. Moorman, 338 U.S. 457 (1950), making administrative disputes clause decisions final in the absence of fraud. (Hearings on H.R. 1839, S. 24, H.R. 3634 and H.R. 6946. Before Subcomm.

No. 1 of the House Comm. on the Judiciary, 82d Cong. 1st and 2d Sess., ser. 12 (1953-54)), (hereinafter referred to as the House Hearings); Hearings on S. 2487 Before the Senate Subcomm. of the Comm. on the Judiciary, 82d Cong., 2d Sess. (1952), (hereinafter referred to as the Senate Hearings). Spokesmen representing public and private interests presented contrasting views on the proposed legislation and the compass of its judicial review privileges. A sampling of their statements follows: ■And of course, the [Supreme Court’s Wunderlich'] rule works both ways.

A deciding administrative official can make decisions adverse to the Government as .well as to contractors, in which event an improper decision results in a burden, an improper burden, to the taxpayers * * *. The experience of the General Accounting Office has been that this is not an infrequent situation. * * * Sji sfs íj: sfi * * *. The enactment of such a [curative] bill would preclude administrative officers from making final decisions in contract matters on questions of law, but would leave such final decisions for determination by the General Accounting Office and the courts.

On the other hand, it would permit them to make determinations on questions of fact which would have final effect if the decisions were not found by the General Accounting Office or the courts to be fraudulent, arbitrary, capricious, et cetera.

Such a law would not only protect a contractor from fraudulent, arbitrary or capricious action by giving him, in addition to resort to the courts, a further administrative remedy before the General Accounting Office, a time saving and less expensive proceeding, but it also would provide a protection, through the General Accounting Office, against decisions adverse to the interests of the United States. Certainly the rights of contractors and the Government to review or appeal should be coextensive. * * * * * Now, we feel, * * *, that this is a two-sided proposition.

The interests of the contractors are clearly and undoubtedly involved. But likewise involved are the interests of the Government. I mean the Government as a whole, not just the Government as represented by one department or by one contracting officer. Senate hearings, supra, at 9,11, and 12, remarks of Frank L.

Yates, Assistant Comptroller General of the United States. (Emphasissupplied). * ¡Ü * * * The position of the * * * [Associated General Contractors of America] is: We believe that any decision made by a contracting officer or head of a department, agency, or bureau, should be subject to judicial review, in order to guarantee that such decision is reasonable, made with due regard to the rights of both the contracting parties, and supported by the evidence upon which such decision was based. (Senate Hearings, supra, at 29, remarks of John C.

Hayes, counsel for the Associated General Contractors of America). (Emphasis supplied). * * * * * The essence of the legislative proposal now before this committee is that the contractor is to be given three reviews, that is one before a contracting officer, a second before the head of the department concerned, and a third before the Court of Claims, while the Government has but one [before the contracting officer]. Senate Hearings, supra, at 16, remarks of Bonnell Phillips, attorney Department of Justice. (This criticism was directed at the original proposal, not the draft subsequently enacted into law).

Specific citations to further testimony on this subject are as follows: Senate Hearings at 83-84, remarks of Gardiner Johnson, attorney at law; House Hearings at 4, remarks of Elwyn L. Simmons, President, J. L. Simmons Co., Contractors ; Id. at 12, statement of Plarry D. Ruddiman representing certain contractors; Id. at 19-20, remarks and letter of Alan Johnstone, attorney; Id. at 32-84, statement of the Honorable Edwin E. Willis (Representative, Louisiana) sponsor of H.R. 6946; Id. at 38-39, remarks of E. L. Fisher, General Counsel, General Accounting Office; Id. at 48, remarks of U.

Bonnell Phillips, Assistant to the Assistant Attorney General, Civil Division, Department of Justice; Id. at 69, remarks of J. H. Macomber, Jr., Associate General Counsel, General Services Administration; Id. at 109-11, remarks of Franklin M. Schultz; Id. at 140, letter of Lindsay C. Warren, Comptroller General of the United States; Id. at 138-139, letter of William P. Rogers, Deputy Attorney General of the United States; 99th Cong. Rec. 4573 (1953), remarks of Senator McCarran.

Plaintiff concedes that the recorded question and answer dialogue of the House and Senate Hearings “show Congressional awareness and intent that an administrative resolution of a contract dispute be amenable to review by both contracting parties”, but it denies nevertheless “that the reviewing authority to be vested in the Government was to be anything other than the review function that had, in previous times, been exercised by the General Accounting Office.” Simply, plaintiff’s “basic position” is that “under the Wunderlich Act, Congress contemplated that the GAO alone would be vested with the limited authority [over cases of fraud and gross error] to speak for the Government in respect to matters involving contract payment decisions.” (Emphasis supplied).

Contrarily, the Government argues that the qualified brand of judicial review afforded by the Wunderlich Act was intended to be equally available to both Government and contractor. Although it has been accurately observed that the Act’s legislative history “has something for everyone” (Kipps, The Right of the Government to Have Judicial Review of a Board of Contract Appeals Decision Made Under the Disputes Clause, 2 Pub. Contract L.

J. 286, 295 (1969)), we are convinced that Congress through the Hearings received a presentation emphasizing more the need for courts of competent jurisdiction to be open to both parties. The committee reports resulting from these Hearings reflect adoption of this position. The Senate Report accompanying S. 24 (S. Rep.

No. 32, 83d Cong., 1st Sess. (1953)), which reflects the Wunderlich Act as passed, subject to modification to clarify the Comptroller General’s status and other matters, makes the following observation: It must also be borne in mind that to the same extent this decision [Wunderlich] would operate to the disadvantage of the aggrieved contractor, it would also operate to the disadvantage of the Government in those cases, as sometimes happens, when the contracting officer makes a decision detrimental to the Government interest in the claim. $ $ $ $ # S. 24 will have the effect of permitting review in [the General" Accounting Office] or a court with respect to any decision of a contracting officer or head of an agency wmch is found to be 'fraudulent, grossly erroneous, so mistaken as necessarily to imply bad faith, or not supported by [reliable, probative,] and substantial evidence.

Tn other words, in those instances where a contracting officer has made a mistaken decision, either wittingly or unwittingly, it will not be necessary for the aggrieved party to, in effect, charge him with being a fraud or a cheat in order to effect collection of what is rightfully due. (Emphasis supplied). [Bracketed language denotes corresponding language in S. 24 later deleted by pre-enactment amendment.] Identical language to that quoted above can be found in Senate Report No. 1670, supra. Although the House Report (H.R. Rep.

No. 1380, 83d Cong., 2nd Sess. (1954)) did not include similar language, it did make this statement: After extensive hearings it has been concluded that it is neither to the interests of the Government nor to the interests of any of the industry 'groups that are engaged in the performance of Government contracts to repose in Government officials such unbridled power of finally determining either disputed questions of law or * * * fact arising under Government contracts, nor is the situation presently created by the Wunderlich decision consonant with the tradition that everyone should have his day in court and that contracts should be mutually enforceable. * * *. (Emphasis supplied).

Considering the plain language of the Act and the basic premises of equity surrounding its passage, we reaffirm our reasoning in C. J. Langenfelder, supra, and Acme Process Co. v. United States, 171 Ct. Cl. 251, 258-59, 347 F. 2d 538, 543-44 (1965), and hold 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. Our commissioner ruled and plaintiff now argues that the AEC’s “repudiation” of its own decision was a breach of the disputes clause thereby entitling the plaintiff to automatic

summary judgment on appeal. We have already rejected similar positions in C. J. Langenfelder and Acme Process, and for the reasons stated in those cases, plaintiff’s assertion must likewise fail. We recognize that these two cases tacitly condoned the Government’s withholding technique — exercised to the fullest here — as a way of forcing suit in this court and obtaining “at the very least” judicial review on questions of law. The instant case, however, not only involves questions of law, but also questions of fact and those elusive abominations known as mixed questions of law and fact.

We do not perceive this to be a distinction substantial enough to cause different results. Neither the Act nor its history will sustain foreclosing the Government from judicial review on this basis. Divided into two sections, the Act precludes the attachment of finality to any administrative decision rendered on a question of law or issued as a result of fraud, caprice or arbitrariness or so grossly erroneous as to imply bad faith, or not supported by substantial evidence.

The same equity which permits us to relieve the parties from legally erroneous decisions also dictates our intervention where factual determinations are fraught with any of the above deficiencies. The Supreme Court’s United States v. Utah Constr. Co., 384 U.S. 394 (1966), anticipates our conclusion with approval. There the contractor under the disputes procedure brought two claims against the contracting agency, the Atomic Energy Commission. The “Pier Drilling” claim asked for an equitable adjustment of the contract price and a time extension under the contract’s changed conditions clause.

The second claim — denominated as the “Shield Window” claim— sought additional compensation and time for inadequate specifications and drawings supplied by the Government. Both claims alleged that the additional .compensation was needed to balance losses incurred by the contractor consequent to Government-caused delays. The AEC’s Contract Appeals Board made findings generally unfavorable to the contractor thus prompting suit in this court. We found the contractor’s claims for delay damages to be breach of contract claims and as such ineligible for administrative consideration under the disputes procedure.

We held, with one dissent, that the Board’s findings on these claims were not final and that it was appropriate for us to consider the factual circumstances de novo. The Supreme Court rejected this reasoning. The Court noticed that the Board’s findings as to the causes of the contractor’s delays were common to both the disputes claims for time extensions and the breach claims for damages.

It held therefore that where a Board makes findings within the scope of its disputes authority, the presumed finality of these findings statutorily prescribed by the Wunderlich Act does not evaporate merely by changing the labels on the claims.

Crucial to our .case, however, is the concluding pronouncement made by the Court in Utah at 422: In the present casethe Board was acting in a judicial capacity when it considered the Pier Drilling and Shield Window claims, the factual disputes resolved were clearly relevant to issues properly before it, and both parties had a full and fair opportunity to argue their version of the facts and an opportunity to seek court review of any adverse findings. * * *. (Emphasis supplied).

Hence the Court recognized the Government’s right to judicial review of administrative factual determinations not meeting Wunderlich standards. The trial commissioner’s theory presupposes an identity between the Boards which adjudicate “Disputes Clause” cases and the directing heads of the agencies which make the contracts. When the Boards have spoken, the agencies have spoken, he thinks and if they sustain the contractor, there is no dispute and nothing for the judicial power to operate on.

It is true the differentiation is imperfect in the AEG procedure under review here, where the AEC itself is the final arbiter. But even so, the hearing examiner had no management functions. Under the Armed Services and GS A contracts, which generate the largest number of contract disputes, the Boards operate independently of the procurement authorities. The Armed Services Procurement Kegulation establishes the Armed Services Board of Contract Appeals and authorizes it to decide appeals under the Disputes Clause of the contract, “as fully and finally as might each Secretary.” 32 CFB §30.1 (1962).

The Federal Procurement Begula-tions contain similar provisions for the General Services Administration Board of Contract Appeals. 41 CFB § 5-60.101 (1963). The Secretary of Defense and the Administrator of GSA reserve to themselves no power of review or ratification of Board decisions. If one of them tried to tell a Board what to do in a pending case, he would commit a reprehensible ex parte approach, Camero v. United States, 179 Ct. Cl. 520, 375 F. 2d 777 (1967).

We think the Wunderlich Act and the Supreme Court decisions interpreting it, in attributing finality to the extent they do to decisions of these Boards, necessarily imply an expectation that the Boards, while in the nature of things not as independent as

Article III courts, will enjoy a degree of independence approaching and comparable to that of the various independent quasi-judicial and regulatory boards and commissions which, too, can make binding fact findings. E.g. National Labor Belations Board, 29 U.S.C. § 153 (1947); Securities Exchange Commission, 15 U.S.C. §78d (1934); Federal Communications Commission, 47 U.S.C. § 151 (1934); Civil Aeronautics Board, 49 U.S.C. § 1321 (1958); Interstate Commerce Commission, 49 U.S.C. §11 (1935).

Having achieved this, it would be inconsistent and unfair for the law to turn around and pretend that the Board and the Secretary were the same. The Supreme Court characterized a disputes clause as an agreement “for the settlement of disputes in an arbitral manner”, in the Wunderlich case, supra, 342 U.S. at 100. Appeals Boards of course, like the rest of us, sometimes err, but we see scant reason to believe they think of themselves as closer to one party than the other. To do so would demean the high standards they are sworn to as members of the bar.

The Armed Services Board must consist of qualified attorneys admitted to the bar. 32 CFR § 30.1. The GSA Board includes at least three lawyers of whom each panel must include one or more. 41 CFR § 5-60.102. These requirements imply not only standards of education and training but also standards of ethics. From lawyer members, we believe, the public has a right to ezpect conformity to Canon 13 of the Canons of Judicial Ethics when they are acting in what the Supreme Court quot supra, calls a “judicial capacity.” Canons 17, 24 and 29 also have special application to lawyer members of Contract Appeals Boards.

We think, in the existing circumstances, a Board power to extinguish a case or controversy merely by agreeing with the contractor is inconsistent with true independence. If, e.g., the Secretary of Defense has established a Board that binds him as fully -as he could bind himself, even as to legal conclusions and even in case of an arbitrary or capricious Board decision, he has created a Frankenstein monster. The temptation either to appoint persons to the Board who would be subservient to management wishes, or to make improper ex parte approaches, would be near to impossible to resist.

Within the four walls of 'an executive establishment, the real independence of a Board would 'be suspect, the facts as to this would be difficult to come by, and contractors could never be sure they were getting from disputes clause procedures what they had contracted for. On the other hand, if the Secretary has the right to seek review within Wunderlich Act limitations, there is a safety valve and Boards can call cases as they see them without so much pressure building up. It would seem therefore, that even an egomaniac Board member would not desire the powers it is asserted on his behalf he possesses.

Most of us have enjoyed the blessed relief of saying: “If you don’t like my decision, the courts are open!” 'In the administration of revenue laws, the differentiation between administration and adjudication is often not spelled out. The result is tbe rule of selecting among possible

interpretations of law, tbe one that appears likely to raise tbe most tax. This rule has a name, tbe “Protect the Revenue” principle, under which it is heresy to abandon an arguable non-frivolous line of legal reasoning on the mere ground that another line, generating less revenue, appears to be right. Abandonment of the most favorable line to the Government would normally not be reviewed by a court, and would be final, while insistence on it produces judicial review, and this is the controlling reason why the administrator-adjudicator is apt to prefer the latter.

Prom these observed facts it seems clear that decisions of a truly impartial and independent tribunal should always be equally reviewable, for whomsoever it decides. Breach of this principle is a prime cause of slanted decisions. It is true, as we have already noted, that the AEC had not delegated its disputes clause powers to an independent Board. In this, however, the situation was somewhat unusual. We think we are justified in analyzing the position of the Congress and the Supreme Court in light of their knowledge that delegation to an independent Board was then common and doubtless would remain so.

Since the Wunderlich Act, the head of an agency would appear to be acting in a judicial capacity when he reserves to himself the adjudication of a claim under disputes clause procedure. He has for the nonce set his managerial responsibilities aside and put on another hat. Otherwise he would not be entitled to claim Wunderlich Act finality for his decision against a contractor’s attack. The employment, as in this case, of a hearing examiner facilitates this differentiation of roles, and makes it more than a sham.

Despite the emphasis of one of our dissenters on the absence of an independent Board in this case to execute the powers here involved, no reason is offered why legal consequences should flow from the distinction, and it would appear there are none. If we held that the AEC’s action obliterated the dispute, we would have to hold that the decision of a Board it created would do the same.

We are assured on behalf of defendant that the GAO has in the past but sparingly tripped up the implementation of a Board decision favorable to a contractor, by means of threatening to charge a certifying officer’s account, or otherwise. We are asked to infer it will exercise like self-restraint in the future. If so, the effect of our decision will not be to encumber further the already deplorably slow and rocky road to the final adjudication of Government contract disputes under the Wunderlich Act.

If not, this would be for the further attention of Congress rather than warranting us in frustrating its evident purpose as to the full mutual availability of judicial review under the statutory standards. As long as procedures remain as they are, there is need for special diligence on the part of all concerned to keep cases moving along and to avoid multiplication of needless technical maneuvers. In view of the foregoing, we remand the case to the commissioner for his consideration and report on the various claims under Wunderlich Act standards.