B-125096, APR. 30, 1963
Highlights
OR A CONTRACTING OFFICER UNDER A CONTRACT DISPUTES CLAUSE SHALL INCLUDE A PROVISION TO THE EFFECT THAT THE INSTRUMENT IS NOT BINDING IF THE DECISION IS LATER FOUND TO BE IN VIOLATION OF THE STANDARDS SET FORTH IN THE WUNDERLICH ACT (41 U.S.C. 321). FOR A NUMBER OF YEARS STANDARD FORMS OF GOVERNMENT CONTRACTS HAVE CONTAINED A DISPUTES CLAUSE WHICH USUALLY PROVIDES. THE CONGRESS CONCLUDED THAT IT WAS NEITHER IN THE GOVERNMENT'S INTEREST NOR IN THE INTEREST OF CONTRACTORS TO REPOSE IN EXECUTIVE BRANCH GOVERNMENT OFFICIALS THE POWER TO CONCLUSIVELY DETERMINE EITHER DISPUTED QUESTIONS OF LAW OR DISPUTED QUESTIONS OF FACT ARISING UNDER GOVERNMENT CONTRACTS. ENACTED WHAT IS COMMONLY REFERRED TO AS THE WUNDERLICH ACT.
B-125096, APR. 30, 1963
TO THE HEADS OF DEPARTMENTS, AGENCIES, AND OTHERS CONCERNED:
EFFECTIVE IMMEDIATELY, ANY RELEASE OR OTHER CONTRACTUAL INSTRUMENTS ENTERED INTO AS A RESULT OF A DECISION BY A BOARD OF CONTRACT APPEALS, THE HEAD OF AN AGENCY, OR A CONTRACTING OFFICER UNDER A CONTRACT DISPUTES CLAUSE SHALL INCLUDE A PROVISION TO THE EFFECT THAT THE INSTRUMENT IS NOT BINDING IF THE DECISION IS LATER FOUND TO BE IN VIOLATION OF THE STANDARDS SET FORTH IN THE WUNDERLICH ACT (41 U.S.C. 321). THE REASONS FOR THE FOREGOING ACTION FOLLOW.
FOR A NUMBER OF YEARS STANDARD FORMS OF GOVERNMENT CONTRACTS HAVE CONTAINED A DISPUTES CLAUSE WHICH USUALLY PROVIDES, IN SUBSTANCE, THAT ALL DISPUTES CONCERNING QUESTIONS OF FACT ARISING UNDER THE CONTRACT SHALL BE DECIDED BY THE CONTRACTING OFFICER SUBJECT TO APPEAL BY THE CONTRACTOR WITHIN 30 DAYS TO THE HEAD OF THE DEPARTMENT CONCERNED WHOSE DECISION SHALL BE FINAL AND CONCLUSIVE UPON THE PARTIES THERETO.
IN UNITED STATES VS. WUNDERLICH, 342 U.S. 98 (1951), THE UNITED STATES SUPREME COURT LIMITED JUDICIAL REVIEW OF SUCH DECISIONS TO THE SOLE GROUND OF FRAUD. THEREAFTER, FOLLOWING EXTENSIVE HEARINGS, THE CONGRESS CONCLUDED THAT IT WAS NEITHER IN THE GOVERNMENT'S INTEREST NOR IN THE INTEREST OF CONTRACTORS TO REPOSE IN EXECUTIVE BRANCH 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 WHAT IS COMMONLY REFERRED TO AS THE WUNDERLICH ACT.
THIS ACT PROVIDES ADDITIONAL STANDARDS THAT DECISIONS ON QUESTIONS OF FACT UNDER DISPUTES CLAUSES MUST MEET IF THEY ARE TO BE FINAL AND CONCLUSIVE; THAT IS, SUCH DECISIONS MUST NOT BE CAPRICIOUS OR ARBITRARY OR SO GROSSLY ERRONEOUS AS NECESSARILY TO IMPLY BAD FAITH AND MUST BE SUPPORTED BY SUBSTANTIAL EVIDENCE. THE WUNDERLICH REMEDIAL LEGISLATION, THEREFORE, INTENDED THAT RELIEF COULD BE PROVIDED IF DECISIONS OF THE AGENCY OR ITS BOARD, INVOLVING SUCH DISPUTED QUESTIONS OF FACT, FAILED TO MEET THE FOREGOING STANDARDS. IN ADDITION, THE WUNDERLICH ACT PROVIDES THAT NO GOVERNMENT CONTRACT SHALL CONTAIN A PROVISION MAKING A DECISION BY AN AGENCY OR ITS BOARD, ON A QUESTION OF LAW, FINAL. AS A RESULT OF THIS LEGISLATION, DISPUTES CLAUSES NOW INCLUDE THE STANDARDS CITED IN THE WUNDERLICH ACT AS CONTROLLING THE FINALITY OF DECISIONS PURSUANT TO SUCH CLAUSES.
AS A MATTER OF STANDARD PROCEDURE, CONTRACTING PARTIES EXECUTE FINAL RELEASES, UPON THE CONCLUSION OF CONTRACTS, WHICH RELEASE THE PARTIES FROM ANY FURTHER CLAIMS. IN THE CASE OF SUCH A RELEASE AFTER AN AGENCY DECISION UNDER A DISPUTES CLAUSE, THE EFFECT OF THE RELEASE IS TO FORECLOSE FURTHER ADMINISTRATIVE OR JUDICIAL REVIEW UNLESS FRAUD OR GROSS MISTAKE CAN BE ESTABLISHED. CONSEQUENTLY, THE EXECUTION OF A FINAL RELEASE IN THESE CIRCUMSTANCES DEFEATS RELIEF UNDER THE WUNDERLICH ACT, EVEN THOUGH THE AGENCY'S DECISION MAY HAVE BEEN CAPRICIOUS OR ARBITRARY OR NOT SUPPORTED BY SUBSTANTIAL EVIDENCE.
AN ACTUAL CASE IN WHICH THIS OCCURRED IS DISCLOSED IN A RECENT REPORT ISSUED BY THIS OFFICE TO THE CONGRESS. THIS REPORT SHOWS THAT FURTHER ACTION ON AN UNREASONABLE DECISION BY A BOARD OF CONTRACT APPEALS IS BARRED BY SUCH AN UNCONDITIONAL RELEASE GRANTED TO THE CONTRACTOR BY THE AGENCY THAT RENDERED THE DECISION (B-125096, APRIL 30, 1963).
SINCE THE CONGRESS CLEARLY INTENDED THAT RELIEF WOULD BE PROVIDED IN ANY CASE WHERE A DISPUTES DECISION DID NOT CONFORM WITH THE STANDARDS OF THE WUNDERLICH ACT, IT IS CLEARLY INAPPROPRIATE TO PERMIT A RELEASE OR OTHER CONTRACTUAL INSTRUMENT TO CREATE FINALITY IN SUCH A DECISION AND THUS, AS A PRACTICAL MATTER, TO CIRCUMVENT THE INTENT OF THE CONGRESS IN THE WUNDERLICH ACT.
THEREFORE, IN ORDER THAT THE CONTRACTING PARTIES MAY BE AFFORDED THE RELIEF PROVIDED BY THE WUNDERLICH ACT WHERE APPROPRIATE, ANY FUTURE RELEASES ENTERED INTO BY YOUR AGENCY INVOLVING DECISIONS UNDER DISPUTES CLAUSES SHOULD BE MADE SUBJECT TO THE STANDARDS PRESCRIBED IN THE ACT, THUS RESERVING THE RIGHT OF FURTHER ADMINISTRATIVE AND JUDICIAL REVIEW IF THE DECISIONS ARE LATER FOUND NOT TO MEET THESE STANDARDS.