B-191484 MAY 11, 1978

B-191484 MAY 11, 1978

Edward C. McConnaughey Jr. Assistant Executive Director Federal Trade Commission Washington, D.C. 20580

Dear Mr. McConnaughey:

We refer to your letter of March 13, 1978 requesting our views as to the legality of a proposed bilateral contract modification which would result in the substitution of binding arbitration for the dispute resolution procedure contained in the "Disputes." clause of a contract to which the Federal Trade Commission is a party. As described by Mr. Krug of your General Counsel's office, this request arises out of a dispute over a contractor's entitlement to money in excess of the contracting officer's valuation of work performed under a fixed-price supply contract which was terminated for default.

It is our understanding that the contractor has suggested, and the Commission is considering, resolution of this factual dispute through binding arbitration, notwitnstanding the inclusion in the contract of Standard Form 32 (November 1979 Edition), containing the "Disputes" clause of Federal Procurement Regulations (FPR) Sec. 17.102.12. We note that the use of that clause is required by FPR Sec. 1-7.101 which states:

"The clauses set forth in this subpart shall be used in fixed-price supply contracts entered into either by formal advertising or by negotiation * * *."

The regulations do authorize deviations from the prescribed clauses. FPR 5 1-1.009-1. However, we are advised that, at the present time, no deviation has been authorized by the Commission and that no specific clause has been proposed as a substitute for the Disputes clause.

In 32 Comp. Gen. 333 (1953), we held (quoting from the headnote):

"There is no general authority for the establishment of a board of arbitration to determine the rights of the United States in the absence of specific statutory authority, and therefore a Government contracting officer has no authority to settle and adjust disputes arising out of a contract by any form of submission to arbitration.. See also B-175521, July 17, 1972.

You cite no specific legislative authority for the proposed arbitration and we know of none. While we note that arbitration has been approved in the area of employee relations, 54 Comp. Gen. 312 (1974), arbitration has not been sanctioned for use in the resolution of Government contract disputes. Consequently, substitution of an arbitration provision in the instant contract for the existing disputes clause would in our view, be inconsistent with the requirements of appo site procurement regulations and holdings of our Office.

We think it is important to note that, while the substitution of binding arbitration for the prescribed dispute resolution procedure would not be proper, the use of an appraiaer as an adjunct to the disputes procedure might well be acceptable, even desirable. This distinction has been recognized by the courts, boards of contract appeals, and our Office. In United States v. Ames, 24 F. Cas. 784, 789 (No. 14, 441) (C.C.D. Mass. 1845), the court held that while no Government officers could bind the United States by submission to arbitration in the absence of a statutory grant, "such submissions and awards are sometimes useful, as they may be afterwards accepted and voluntarily enforced by the proper authority a guide to what is supposed to be nearly right and safe * * *. "

In Sabin Metal Corp., GSBCA No. 3059, 70-2 BCA 8424, the Board placed its imprimatur on a post-award bilateral contract modification providing for the use of an "umpire" laboratory to determine the precious metal content of alloy samples. (we note that this contract modification did not result in removal of the Disputes clause, but was an adjunct to it.)

Finally, in 20 Comp. Gen. 95 (1940), our Office considered the propriety of "arbitration" as a method of determining the reasonable value of a contractor's Government-financed facilities. In that case, we stated:

Respecting the proposed arbitration provision, if, as is understood from your submission, they go no further than to provide for a determination of the fact of reasonable value, without imposing any obligation on the Government, and leave no questions of legal liability for determination by arbitrators, they, also, do not appear legally objectionable under the circumstances here involved. See also, B-139496, June 26, 1959; B-184526 August 11, 1975. i In view of the fact that the sole function to be performed by the arbitrator in the instant case would be to render a determination as to the reasonable value of work performed by the defaulted contractor, we think that such an appraisal would be proper so long as the prescribed Disputed procedure and the provisions for judicial review incorporated therein are not displaced.

We trust that this information is responsive to your request.

Sincerely yours,

Paul G. Dembling General Counsel