Contract Disputes Act (1978)

Steven L. Schooner

The Contract Disputes Act (P.L. 95-563) allows federal government contractors to sue the United States government for monetary damages related to their contractual dealings. This act is tremendously important to the numerous contractors that provide the federal government with more than $200 billion of services, supplies, and construction each year. The act waives the government's sovereign immunity, permitting contractors to sue the government in either an administrative tribunal (a board that hears appeals) or in a court. The act establishes the procedures to be used by contractors and contracting officers (those authorized to bind the government in contract) in resolving disputes involving contracts with the federal government, specifically the executive branch.

Congress intended the act to replace the existing system for resolving government contract disputes, a system that had developed over time without good planning, and to impose order on the process. Accordingly, the act contains detailed provisions for handling contract claims by and against the government, which, ultimately, evolve into disputes. It is important to distinguish disputes, which arise between a contractor and the government during or after the performance of a contract, from protests, which involve an offeror, or prospective contractor, contesting the award of the contract or the conduct of the contractor selection process.

THE CLAIMS AND DISPUTES PROCESS

The disputes process begins with a claim. A claim is a written demand for a sum certain of money (but cannot be an invoice or routine request for payment). The Contract Disputes Act (CDA) requires that, prior to litigation, the parties to the contract (the contractor and the government agency) exhaust an administrative remedy, intended to facilitate negotiation and settlement. For example, the CDA requires that, if contractors' claims exceed $100,000, they must certify that: (1) the claim is made in good faith, (2) the claim's supporting data are accurate and complete to the best of their knowledge and belief, and (3) the amount requested is an accurate tally of how much the contractor believes the government is liable for.

This certification requirement has prompted staggering amounts of litigation. The requirement was added at the urging of Admiral Hyman Rickover, the father of the nuclear navy, who sought to deter contractors from artificially inflating their claims in the hope of extracting favorable negotiated settlements from the government. For that reason, the act also includes a severe penalty for contractors that improperly inflate their claims: "If a contractor is unable to support any part of his claim and it is determined that such inability is attributable to misrepresentation of fact or fraud on the part of the contractor, he shall be liable to the Government for an amount equal to such unsupported part of the claim in addition to all costs to the Government attributable to the cost of reviewing said part of his claim."

Prior to litigation, the disputed claim must be the subject of a written decision of a contracting officer, who has the authority to resolve the matter. The contracting officer's decision requires certain formalities, the most important of which is that the decision must notify the contractor of its rights to initiate further litigation. If the contracting officer fails to render a decision within a specified period, typically sixty days, the claim is considered to have been denied, and the contractor can initiate its suit.

Once the contractor receives a contracting officer's decision, the CDA provides contractors with their choice of a forum in which to litigate their claims. A contractor may appeal a contracting officer's decision to an agency board of contract appeals (BCA) or to the United States Court of Federal Claims. Regardless of which forum a contractor chooses, if the contractor is dissatisfied with the result, it may appeal the decision to the United States Court of Appeals for the Federal Circuit. If still dissatisfied, either party can petition for review in the Supreme Court.

BCAs AND THE COURT

Under the act, boards of contract appeals can grant any relief that would be available to a litigant asserting a contract claim in the United States Court of Federal Claims.

The main difference between the BCAs and the Court of Federal Claims is that the court can also hear a counterclaim in fraud, whereas the BCAs lack jurisdiction over fraud matters. Another difference has to do with the authority to settle disputes. If a contractor chooses to litigate at a board of contract appeals, the government's settlement authority rests with the agency's contracting officer. If the contractor files suit in the Court of Federal Claims, settlement authority rests with the U.S. attorney general. If a contractor decides to file separate but related claims in more than one forum, the Court of Federal Claims may order that all of the suits either be consolidated at the court, or transferred to a BCA.

The CDA formally created the boards of contract appeals and established the position of administrative judge to preside over board proceedings. Each BCA must have at least three administrative judges. In the 1990s the number of BCAs decreased. The largest of the agency boards is the Armed Services Board of Contract Appeals (ASBCA), with approximately two dozen administrative judges. The General Services Administration Board (GSBCA), with less than half as many judges, is the second largest. Most boards have attempted to maintain uniform rules.

In an effort to make resolution of claims efficient, quick, and inexpensive, the CDA provides expedited procedures for small claims (of $50,000 or less) and accelerated procedures for claims of $100,000 or less. If a contractor chooses these procedures, the BCA must render a decision within 120 or 180 days, respectively. The act also provides for the payment of interest from the time the contracting officer receives a contractor claim until payment.

HISTORICAL BACKGROUND

Prior to the CDA, a contractor's right to sue the government depended on the terms of the contract, which typically included a standard disputes clause. The pre-CDA disputes clause required contractors to exhaust their administrative remedy (in other words, litigate in the boards of contract appeals) before pursuing litigation in court. The precursor to the CDA was the Wunderlich Act of 1954. The purpose of that act was to overcome the effect of the 1951 Supreme Court decision in the case of United States v. Wunderlich. Under the ruling in Wunderlich, the decisions of government officers in relation to the disputes clause were held to be final in the absence of fraud on the part of the government officers. The Wunderlich Act ensured that contract clauses would not prevent judicial review of agency decisions on disputes. It also permitted the courts to overrule administrative decisions that were not supported by "substantial evidence."

One of the CDA's most significant contributions was that it included claims that both arose out of and related to the contract. A claim arising out of the contract is a claim that can be resolved under a contract clause that offers a remedy. A claim relating to the contract is one for which no specific contract clause provides such relief.

AMENDMENTS

The act has been amended in attempts to resolve unanticipated jurisdictional problems. The most controversial of these problems dealt with nonmonetary claims, such as claims related to the termination of a contract for contractor default. In addition, the act now specifically endorses the use of alternative dispute resolution (ADR) procedures.

See also: Walsh-Healey Act (Public Contracts Act of 1936).

BIBLIOGRAPHY

Bond, Gene Perry, et al. "The Contract Disputes Act of 1978 Twentieth Anniversary Essays." Public Contract Law Journal 28, no. 4 (summer 1999): 525-676.

Cibinic, John, Jr., and Ralph C. Nash, Jr. Administration of Government Contracts, 3d ed. Washington, DC: George Washington University Press, 1995.

Peacock, Robert T., and Peter D. Ting. Contract Disputes Act: Annotated. Washington, DC: Federal Publications, Inc., 1998.