B-222029 February 13, 1986

B-222029: Feb 13, 1986

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Efros SUBJECT: Legal review of S.2006 (99th Cong.) for CG testimony on President's Management Legislative Initiative & Related Legislation - B-222029 We have reviewed the text and "section-by-section" analysis of S.2006. Which are reprinted in the Congressional Record of January 22. Our review was intended to identify possible issues for discussion in the Comptroller General's planned testimony on the captioned legislative package. Although we have not had much time to study the bill as closely as we would like. If you have any questions about our comments. It could include language to the effect that the claim will be "forever barred" if not brought before that period expires. It might also be modified to indicate whether any exceptions are contemplated.

B-222029 February 13, 1986

TO: Director, GGD - William J. Anderson

FROM: Associate General Counsel - Rollee H. Efros

SUBJECT: Legal review of S.2006 (99th Cong.) for CG testimony on President's Management Legislative Initiative & Related Legislation - B-222029

We have reviewed the text and "section-by-section" analysis of S.2006, 99th Cong. (entitled "Contract Disputes Amendments of 1986"), which are reprinted in the Congressional Record of January 22, 1986, on pages S206-07. Our review was intended to identify possible issues for discussion in the Comptroller General's planned testimony on the captioned legislative package. The bill consists of proposed amendments to the Contract Disputes Act of 1978, 41 U.S.C. Section 601 et seq. (1982).

Although we have not had much time to study the bill as closely as we would like, we do offer the following comments on the issues that we spotted in our review. If you have any questions about our comments, please feel free to contact Mr. Neill Martin-Rolsky of my staff at 275-5544.

Section 2

Contents: This section would create an effective statute of l imitation of 18 months after the claim "accrues" in which a contractor may file a claim under the Contract Disputes Act with a contracting officer (CO).

Comments: Perhaps the bill should be modified to make explicit the consequences of missing that deadline. For example, it could include language to the effect that the claim will be "forever barred" if not brought before that period expires. It might also be modified to indicate whether any exceptions are contemplated, and if so, what they might be, or what criteria should be used to determine them on a case-by-case basis. CF., e.g., 28 U.S.C. Sections 2415-16 (1982). Finally, the bill should also clarify when claims "accrue." For example, the date of : the invoice; the Government's refusal to accept the goods or services; the Government's unexplained lateness or refusal to pay the amount billed; etc.

Section 3

Contents: Presently contractors have 90 days to appeal adverse CO decisions under the Contract Disputes Act to a Board of Contracts Appeals (BCA) or 12 months to appeal the CO decision to the federal courts. The bill would reduce the time to appeal to the courts to the same 90 days for appealing to the BCA.

Comments: We have no problems with this provision.

Section 4

Contents: Subsection (a)--Requires payment or performance (as appropriate) by the contractor within 90 days after receipt of adverse CO decision issued under the Contract Disputes Act unless the contractor commences an appeal within that period. The "section-by-section" analysis says this section is to established that "failure to take an appeal requires immediate payment."

Subsection (b)--If the contractor doesn't comply with (a), the Government may file suit in "an appropriate district court of the United States" to compel payment or performance.

Subsection (c)--(1) Appropriate district courts may grant the Government "provisional relief" (i.e., "injunctive relief to protect the assets of a contractor" if the Attorney General petitions and the court concludes there is a "reasonable likelihood" that the contractor will act to "hinder, delay, or frustrate" the payment or performance required by CO decision; and (2) "Provisional relief" may be requested by the Government at any time after the CO decision is issued, regardless of whether the contractor has or will appeal the CO decision.

Subsection (d)--The courts may not review the merits of CO decisions that are the subject of actions to enforce (brought under (b)) or actions for "provisional relief" (brought under (c)).

Comments: Subsection (a)-- Presently, agencies may insert clauses into Government contracts that require contractors to promptly pay or perform (as appropriate) after an adverse CO decision. 41 U.S.C. Section 605(b) (1982). We have been informally advised by staff members of the Department of Justice (whom we understand drafted this bill) that this provision reflects Justice concern that some agencies are not inserting such clauses into their procurement contracts. According to them, this provision was intended to moot the absence of agency contract provisions and make clear, as is stated in the "section-by-section analysis," that contractors can be compelled to promptly comply with adverse CO decisions.

It is our opinion that the "unless" clause would encourage contractors to file dilatory or frivolous appeals in order to delay the requirement to promptly pay or perform. We were advised by the Justice staff that they did not intend this result, but agree with our assessment. They advised us that Justice would be willing to support an appropriate amendment to reduce the possibility that this provision would be abused.

If the Committee desires to retain the "unless" clause, we recommend that the bill be modified to include some restrictions to reduce the possibility of contractor abuse, or to grant the BCA some authority to penalize contractors who appeal in bad faith. Consideration might also be given to requiring contractors to post a bond or place a sum of money in an escrow arrangement when appeals are filed. Interest on the escrow would go with principal to the ultimate winner on appeal. Cf. 41 U.S.C. Section 611 (interest to contractors). We note that, for claims in excess of $50,000, contractors are already required to "certify" the amount and basis of their claims, and their "good faith" in filing the claim. 41 U.S.C. Section 605(c)(1). Perhaps this requirement should be modified to apply to all claims filed and appealed.

However, we prefer that the "unless" clause be eliminated, and that section 4(a) be revised to read as follows:

"Notwithstanding the pendency of the contractor's request for relief, claim, appeal, or other action arising under or relating to the contract, within 30 days after receiving a copy of a contracting officer's decision (issued under section 6(a)), the contractor shall comply with any requirements imposed by that decision to pay any amounts found owed, or to proceed diligently with performance of the contract, unless the contracting officer finds, in the exercise of reasonable discretion, that the contractor's compliance with that requirement should be suspended in the best interests of the United States."

The language we are proposing is based, in part, on both the Justice Department's formulation of section 4(a), and the language of section 52.233-1 of the Federal Acquisition Regulation (which concerns the Government's right to compel performance pending appeals of CO decisions). While we agree with Justice that a statutory provision is appropriate for this topic, we think the provision drafted by Justice unnecessarily reduces the authority of the Government and ties the CO's hands by requiring the contractor to pay or perform immediately--even though the CO might otherwise find it to be in the Government's best interests to waive the requirement to act immediately. For example, a requirement to pay a disputed amount immediately might bankrupt the contractor and thereby impair the Government's ability to accomplish the contract's purposes. Presently, even where the Government has inserted a clause into the contract to authorize the CO to compel payment or performance, the CO often finds it necessary or appropriate to enter into an agreement with the contractor to delay payment or performance, pending the appeal, etc. So long as the Government's rights are adequately protected, (for example, through an agreement by the contractor to pay interest on the deferred payment--should the appeal fail), we think this discretion should be retained. Our revision of section 4(a) preserves this discretion, while simultaneously granting the Government statutory authority to compel enforcement of the CO's decision, notwithstanding the existence of an appeal.

Subsection (b)--No comments are offered on this subsection at this time.

Subsection (c)--It is not presently clear to us that this provision is necessary, because the Government may already have the right to obtain such an order. However, if such a provision is included, we think that it should authorize such "provisional relief" for BCA as well as for CO decisions.

Subsection (d)--We have no problems with this provision.

Section 5

Contents: Exempts debts arising under the Contract Disputes Act from the scope of 31 U.S.C. Section 3716 (which is section 10 of the Debt Collection Act of 1982). The "section-by-section" analysis states that this provision is to overturn recent BCA decisions applying Section 3716 to contract debts--which contractors have used to impede collection and demand duplicative and burdensome procedural requirements.

Comments: We think that this provision is unnecessary and recommend that it be deleted. Although we have not yet formally considered whether we agree with the BCA decisions at issue, we note that some agencies have argued that contract debts are not entitled to any hearing procedures prior to offset, while some contractors have argued for duplicative procedures. (In this regard, we point out that the Contract Disputes Act only provides a dispute resolution process governing contract debts within its scope. It does not address collection and compromise authority, which are the subject of the Federal Claims Collection Act, 31 U.S.C. ch. 37 (1982).) The Federal Claims Collection Standards (FCCS), 4 C.F.R. Section 102.3(b)(2)(ii)(1985), specifically provide that duplicative notices and hearing procedures need not be given. Under that regulation, the procedural requirements of Section 3716 and Section 102.3 of the FCCS will be satisfied by compliance with administrative notice and hearing procedures granted under other statutory or regulatory authority, such as the Contract Disputes Act. Perhaps the bill or its history might refer to the FCCS provisions to clarify the relationship of these two statutes, and avoid confusion and misinterpretation.

cc: Earl Walter, GGD Neill Martin-Rolsky, OGC Tom Armstrong, OGC