B-125096, SEP. 9, 1963, 43 COMP. GEN. 231

B-125096, SEP. 9, 1963, 43 COMP. GEN. 231

CONTRACTS - DISPUTES - FINALITY OF ADMINISTRATIVE FINDINGS - RELEASES THE DIRECTIVE THAT RELEASES, OR OTHER SIMILAR CONTRACTUAL INSTRUMENTS, ISSUED TO CONTRACTORS SUBSEQUENT TO DECISIONS UNDER A CONTRACT DISPUTES CLAUSE, SHALL PROVIDE THAT THE INSTRUMENT IS NOT BINDING ON THE GOVERNMENT IF THE DECISION UNDER THE DISPUTES CLAUSE WAS ADVERSE TO THE GOVERNMENT AND IS LATER FOUND TO BE IN VIOLATION OF WUNDERLICH ACT, 41 U.S.C. 321, WILL NOT BE ABROGATED, THE STANDARDS OF THE ACT THAT UNDER A DISPUTES CLAUSE DECISIONS ARE NOT FINAL AND CONCLUSIVE IF FRAUDULENT, CAPRICIOUS, ARBITRARY, SO GROSSLY ERRONEOUS AS TO IMPLY BAD FAITH, OR ARE NOT SUPPORTED BY SUBSTANTIAL EVIDENCE NOT APPLYING TO RELEASE OR SETTLEMENTS, AND ALTHOUGH THE DIRECTIVE ISSUED INDER THE AUTHORITY OF THE BUDGET AND ACCOUNTING ACT, 1921, AND THE BUDGET AND ACCOUNTING PROCEDURES ACT OF 1950, WILL INSURE THAT RELEASES DO NOT FORECLOSE REVIEW AND FINALIZE DECISIONS NOT ENTITLED TO THAT STATUS, IT WILL NOT AFFECT CONTRACT MODIFICATIONS, SUPPLEMENTAL AGREEMENTS, ETC., OVER WHICH THE GENERAL ACCOUNTING OFFICE HAS EXERCISED REVIEW AUTHORITY BOTH PRIOR AND SUBSEQUENT TO THE WUNDERLICH ACT.

TO THE SECRETARY OF DEFENSE, SEPTEMBER 9, 1963:

REFERENCE IS MADE TO A LETTER DATED JUNE 27, 1963, FROM MR. JOHN T. MCNAUGHTON, GENERAL COUNSEL, CONCERNING OUR LETTER OF APRIL 30, 1963, WHICH FORWARDED A COPY OF OUR REPORT (B-125096) OF THE SAME DATE TO THE CONGRESS RELATING TO PAYMENT OF RENTAL BY THE CURTISS-WRIGHT CORPORATION TO THE AIR FORCE FOR COMMERCIAL USE OF GOVERNMENT-OWNED FACILITIES.

IN OUR LETTER OF APRIL 30, 1963, WE STATED THAT:

TO PREVENT RECURRENCE OF THIS SITUATION, WHEREBY THE GOVERNMENT IS PRECLUDED FROM TAKING ACTION ON DECISIONS ADVERSE TO ITSELF, WE ARE TODAY DIRECTING ALL EXECUTIVE AGENCIES OF THE GOVERNMENT TO INCLUDE, IN ANY RELEASE OR OTHER CONTRACTUAL INSTRUMENTS ENTERED INTO AS A RESULT OF A DECISION UNDER A CONTRACT DISPUTES CLAUSE, A PROVISION TO THE EFFECT THAT THE INSTRUMENT IS NOT BINDING ON THE GOVERNMENT IF THE DECISION UNDER THE DISPUTES CLAUSE IS LATER FOUND TO BE IN VIOLATION OF THE STANDARDS SET FORTH IN THE WUNDERLICH ACT.

SINCE THERE SEEMS TO BE SOME CONFUSION AS TO THE CONTRACTUAL INSTRUMENTS AFFECTED BY OUR DIRECTIVE, PLEASE BE INFORMED THAT THE DIRECTIVE IS DESIGNED TO PREVENT RECURRENCES OF THE SITUATION DESCRIBED IN OUR CURTISS- WRIGHT REPORT. IN OTHER WORDS, THE DIRECTIVE IS MEANT TO APPLY ONLY TO RELEASES, AND CONTRACTUAL INSTRUMENTS OF LIKE NATURE, GIVEN BY THE GOVERNMENT TO CONTRACTORS SUBSEQUENT TO DECISIONS RENDERED UNDER A DISPUTES CLAUSE, WHICH ARE ADVERSE TO THE GOVERNMENT'S INTEREST.

MR. MCNAUGHTON'S LETTER MAKES THE FOLLOWING STATEMENTS:

IF THE WUNDERLICH ACT MAY BE CONSTRUED TO APPLY TO SETTLEMENT AGREEMENTS, AS DISTINCT FROM FINDINGS OF BOARDS OF CONTRACT APPEALS, ANY SUCH AGREEMENT WOULD BE SUBJECT TO THE STANDARDS OF THE STATUTE WITHOUT ANY NECESSITY FOR RECITATION OF THE STATUTORY PROVISION WITHIN THE BODY OF THE AGREEMENT. THE WUNDERLICH ACT BY ITS VERY TERMS IS SELF EXECUTING. ACCORDINGLY, IT WOULD NOT BE NECESSARY TO AMEND EITHER THE FORM OF FINDING OF THE ARMED SERVICES BOARD OF CONTRACT APPEALS OR THE FORM OF SETTLEMENT AGREEMENT IN ORDER TO GIVE EFFECT TO THE LAW.

IF THESE STATEMENTS ARE MEANT TO INDICATE THAT THE PROVISIONS OF THE WUNDERLICH ACT, 41 U.S.C. 321, ARE APPLICABLE TO SETTLEMENT AGREEMENTS AS WELL AS TO DECISIONS BY BOARDS OF CONTRACT APPEALS AND, THEREFORE, THAT THE RELEASE EXECUTED BY THE GOVERNMENT AND CURTISS-WRIGHT WAS NOT FINAL AND CONCLUSIVE, WE CANNOT AGREE WITH SUCH A CONCLUSION. THE WUNDERLICH ACT ITSELF SPEAKS ONLY IN TERMS OF A DECISION BY THE HEAD OF ANY DEPARTMENT OR AGENCY OR HIS DULY AUTHORIZED REPRESENTATIVE OR BOARD IN A DISPUTE INVOLVING A QUESTION ARISING UNDER A CONTRACT. NOWHERE DOES THE ACT PURPORT TO MAKE THE STANDARDS PRESCRIBED THEREIN APPLICABLE TO RELEASES OR SETTLEMENT AGREEMENTS AND WE NOTE THAT THE GENERAL COUNSEL'S LETTER CONTAINS NO CITATIONS OF LEGAL AUTHORITIES OR REFERENCE TO LEGISLATIVE HISTORY IN SUPPORT OF SUCH CONTENTION. WE CANNOT, THEREFORE, AGREE WITH THE STATEMENT THAT IT WOULD NOT BE NECESSARY TO AMEND EITHER THE FORM OF FINDING OF THE ARMED SERVICES BOARD OF CONTRACT APPEALS (WHICH, INCIDENTLY, WE HAVE NOT RECOMMENDED), OR THE FORM OF SETTLEMENT AGREEMENT IN ORDER TO GIVE EFFECT TO THE LAW. HAD WE FELT THAT THE RELEASE DID NOT PRECLUDE OUR OFFICE FROM QUESTIONING THE BOARD'S DECISIONS IN THE CURTISS-WRIGHT CASE, WE WOULD, AS OUR REPORT TO THE CONGRESS INDICATES, HAVE QUESTIONED THOSE DECISIONS.

MR. MCNAUGHTON'S LETTER FURTHER STATES THAT THE GENERAL ACCOUNTING OFFICE HAS THE TRADITIONAL AND UNQUESTIONED AUTHORITY TO AUDIT AND EXAMINE THE FINANCIAL TRANSACTIONS OF THE GOVERNMENT AND, IN PURSUANCE THEREOF, TO QUESTION THE LEGAL PROPRIETY OF PAYMENTS UNDER CONTRACT MODIFICATION AGREEMENTS. HOWEVER, HE STATES, AN EXAMINATION OF THE WUNDERLICH ACT AND OF ITS LEGISLATIVE HISTORY DOES NOT SUPPORT THE CONCLUSION THAT IT WAS INTENDED TO CHANGE OR EXPAND IN ANY WAY THIS TRADITIONAL AUTHORITY OF OUR OFFICE TO AUDIT THE FINANCIAL TRANSACTIONS OF THE GOVERNMENT, NOR TO RESTRICT IN ANY WAY THE AUTHORITY OF CONTRACTING AGENCIES TO ENTER INTO THESE AGREEMENTS. HE CONCLUDES THAT THE "FREQUENT" REFERENCES TO THE WUNDERLICH ACT IN OUR REPORT, AND IN THE RESULTING DIRECTIVE, WOULD NOT, THEREFORE, APPEAR TO BE APPROPRIATE.

IT SHOULD BE POINTED OUT THAT OUR DIRECTIVE, AS PREVIOUSLY INDICATED, IS APPLICABLE ONLY TO RELEASES GIVEN BY THE GOVERNMENT RESULTING FROM DECISIONS BY CONTRACT APPEAL BOARDS WHICH ARE ADVERSE TO THE GOVERNMENT'S INTERESTS AND NOT TO ORDINARY CONTRACT MODIFICATIONS, SUPPLEMENTAL AGREEMENTS AND THE LIKE. OUR OFFICE HAS TRADITIONALLY EXERCISED REVIEW AUTHORITY OVER DECISIONS BY CONTRACT APPEAL BOARDS. THIS REVIEW AUTHORITY HAS BEEN EXERCISED BOTH PRIOR AND SUBSEQUENT TO THE PASSAGE OF THE WUNDERLICH ACT. MOREOVER, THE LEGISLATIVE HISTORY OF THE WUNDERLICH ACT CLEARLY INDICATES THAT THE CONGRESS, IN PASSING THE ACT, DID NOT INTEND TO LIMIT THE JURISDICTION OR AFFECT THE AUTHORITY OF OUR OFFICE TO REVIEW SUCH DECISIONS. SEE PAGES 6 AND 7 OF H.REPT. NO. 1380, 83D CONGRESS, 2D SESSION, TO ACCOMPANY S. 24 (THE BILL WHICH ULTIMATELY BECAME LAW) WHERE IT IS STATED, IN PERTINENT PART, THAT:

THE PROPOSED LEGISLATION, AS AMENDED, WILL NOT ADD TO, NARROW, RESTRICT, OR CHANGE IN ANY WAY THE PRESENT JURISDICTION OF THE GENERAL ACCOUNTING OFFICE EITHER IN THE COURSE OF A SETTLEMENT OR UPON AUDIT, AND THE LANGUAGE USED IS NOT INTENDED EITHER TO CHANGE THE JURISDICTION OF THE GENERAL ACCOUNTING OFFICE OR TO GRANT ANY NEW JURISDICTION, BUT SIMPLY TO RECOGNIZE THE JURISDICTION WHICH THE GENERAL ACCOUNTING OFFICE ALREADY HAS.

THE ELIMINATION OF THE SPECIFIC MENTION OF THE GENERAL ACCOUNTING OFFICE FROM THE PROVISIONS OF THE BILL AS AMENDED (WITH RESPECT TO REVIEW OF ADMINISTRATIVE DECISIONS) SHOULD NOT BE CONSTRUED AS TAKING AWAY ANY OF THE JURISDICTION OF THAT OFFICE. IT IS INTENDED THAT THE GENERAL ACCOUNTING OFFICE, AS WAS ITS PRACTICE, IN REVIEWING A CONTRACT AND CHANGE ORDERS FOR THE PURPOSE OF PAYMENT, SHALL APPLY THE STANDARDS OF REVIEW THAT ARE GRANTED TO THE COURTS UNDER THIS BILL. * * *

THE BUDGET AND ACCOUNTING ACT, 1921, 42 STAT. 20, 31 U.S.C. 1, AND THE BUDGET AND ACCOUNTING PROCEDURES ACT OF 1950, 64 STAT. 832, 31 U.S.C. 2 NOTE, VEST AUTHORITY IN THE COMPTROLLER GENERAL OF THE UNITED STATES TO EXAMINE AND AUDIT THE FINANCIAL TRANSACTIONS OF THE GOVERNMENT. SECTION 305 OF THE EARLIER ACT, 31 U.S.C. 71, THE CONGRESS PROVIDED THAT ALL CLAIMS BY AND AGAINST THE UNITED STATES AND ALL ACCOUNTS WHATEVER IN WHICH THE GOVERNMENT OF THE UNITED STATES IS CONCERNED SHALL BE SETTLED AND ADJUSTED IN THE GENERAL ACCOUNTING OFFICE. IT HAS GENERALLY BEEN REGARDED, BY FORCE OF THE TERMS OF THESE STATUTES, THAT PAYMENTS MADE BY PUBLIC OFFICERS IN TRANSACTING THE GOVERNMENT'S BUSINESS WERE SUBJECT TO DETERMINATIONS BY OUR OFFICE AS TO THEIR LEGAL PROPRIETY. ACCORDINGLY, IN TRANSACTIONS INVOLVING EXPENDITURES OF PUBLIC FUNDS OUR OFFICE HAS DETERMINED THE ACTUAL CONDITIONS UNDERLYING THE TERMS OF ANY CONTRACTUAL AGREEMENT AND IF, UPON THE FACTS DEVELOPED, IT APPEARED THAT A CONTRACTOR WAS ABOUT TO BE, OR HAD BEEN, UNJUSTLY ENRICHED AT THE PUBLIC EXPENSE WE TOOK THE NECESSARY ACTION TO PREVENT SUCH UNJUST ENRICHMENT OR TO RECOVER ANY AMOUNT OVERPAID. IN THAT CONNECTION, OUR OFFICE HAS IN THE PAST (AND WILL CONTINUE TO DO SO IN THE FUTURE) RULED ON THE LEGAL PROPRIETY OF PARTICULAR CONTRACTUAL AGREEMENTS AND ON THE PROPRIETY OF PARTICULAR CLAUSES AND CONDITIONS CONTAINED IN THOSE AGREEMENTS. THE ,FREQUENT" REFERENCES IN OUR REPORT AND DIRECTIVE TO THE WUNDERLICH ACT WERE NOT MEANT, AS MR. MCNAUGHTON IMPLIES, TO INDICATE THAT THE AUTHORITY OF OUR OFFICE TO ISSUE THE DIRECTIVE WAS BASED UPON THAT ACT--- OUR AUTHORITY FOR SUCH ISSUANCE RESTS UPON THE PROVISIONS OF THE BUDGET AND ACCOUNTING ACT, 1921, AND THE BUDGET AND ACCOUNTING PROCEDURES ACT OF 1950 WHICH PLACE UPON THIS OFFICE THE DUTY TO INSURE THAT THE LAWS GOVERNING PUBLIC EXPENDITURES ARE PROPERLY EXECUTED BY THE GOVERNMENTAL AGENCIES CHARGED WITH THE RESPONSIBILITY OF IMPLEMENTING THE FEDERAL PROGRAMS AND PROJECTS ASSIGNED TO THEM.

AFTER EXTENSIVE HEARING THE CONGRESS CONCLUDED THAT IT WAS NEITHER IN THE GOVERNMENT'S INTEREST NOR IN THE INTEREST OF CONTRACTORS TO REPOSE IN GOVERNMENT OFFICIALS THE POWER TO CONCLUSIVELY DETERMINE EITHER DISPUTED QUESTIONS OF LAW OR DISPUTED QUESTIONS OF FACT ARISING UNDER GOVERNMENT CONTRACTS. THE CONGRESS THEREFORE ENACTED THE WUNDERLICH ACT TO INSURE THAT DECISIONS UNDER A DISPUTES CLAUSE THAT ARE FRAUDULENT OR CAPRICIOUS OR ARBITRARY OR SO GROSSLY ERRONEOUS AS NECESSARILY TO IMPLY BAD FAITH, OR ARE NOT SUPPORTED BY SUBSTANTIAL EVIDENCE, SHALL NOT BE FINAL AND CONCLUSIVE. AS NOTED PREVIOUSLY, WE ARE NOT AWARE OF ANY LEGAL AUTHORITY WHICH WOULD SUPPORT A CONCLUSION THAT THE WUNDERLICH ACT IS APPLICABLE TO ANYTHING OTHER THAN A DECISION UNDER A CONTRACT DISPUTES CLAUSE. WE THINK THAT THERE IS CONSIDERABLE DOUBT AS TO THE ABILITY OF THE DECISIONS RENDERED BY THE ARMED SERVICES BOARD OF CONTRACT APPEALS IN THE CURTISS- WRIGHT CASE TO MEET THE STANDARDS SPECIFIED IN THE WUNDERLICH ACT. EXECUTING THE RELEASE WITH CURTISS-WRIGHT THE AIR FORCE, IN OUR OPINION, EFFECTIVELY FORECLOSED REVIEW AND FINALIZED DECISIONS WHICH, IN ALL PROBABILITY, WERE NOT ENTITLED TO THE STATUS OF FINALITY AND CONCLUSIVENESS. FOR THIS REASON, WE THINK THAT THE STANDARDS OF WUNDERLICH WERE CIRCUMVENTED AND IT WAS INCUMBENT UPON THIS OFFICE TO PROVIDE AN EFFECTIVE SAFEGUARD AGAINST RECURRENCES OF THE CURTISS-WRIGHT SITUATION--- THE RESULT WAS OUR DIRECTIVE OF APRIL 30, 1963.

WE HAVE NOTED MR. MCNAUGHTON'S COMMENTS CAREFULLY BUT ARE NOT IN AGREEMENT WITH THEM. WE MUST ADVISE, THEREFORE, THAT THE DIRECTIVE WILL NOT BE ABROGATED AND ANY FAILURE ON THE PART OF EXECUTIVE AGENCIES TO CONFORM TO ITS PROVISIONS WILL REQUIRE SUCH ACTION ON OUR PART AS MAY BE DEEMED APPROPRIATE IN THE CIRCUMSTANCES.