S&E Contractors, Inc. v. United States/Opinion of the Court

[p2] MR. JUSTICE DOUGLAS delivered the opinion of the Court.

The question presented in this case is whether the Department of Justice may challenge the finality of a contract disputes decision made by the Atomic Energy Commission (AEC) in favor of its contractor, where the contract provides that the decision of AEC shall be "final [p3] and conclusive." Section 1 of the Wunderlich Act leaves open for contest a claim that "is fraudulent or capricious or arbitrary or so grossly erroneous as necessarily to imply bad faith, or is not supported by substantial evidence."

Moreover, 41 U.S.C. § 322, provides that "[n]o government contract shall contain a provision making final on a question of law the decision of any administrative official, representative, or board."

The Department of Justice challenged the settlement made by the AEC on two grounds, (1) that the decision was "not supported by substantial evidence" and (2) that it was "erroneous as a matter of law."

But the disputes clause in the contract says that the decision of the AEC is "final and conclusive," unless [p4] a court determines that the award is vulnerable under §§ 1 and 2 of the Act. There is no federal statute which submits disputes of this character to review by one or more administrative agencies, where as here there is no charge of fraud or bad faith. Nor is there a statute which enables another federal agency to contest in court the validity of the decision of the AEC, absent fraud or bad faith.

In plain lay language the question then is whether, absent fraud or bad faith, the contractor can rely on the ruling of the federal agency with which it made the contract or can be forced to go through still another tier of federal review. We hold that absent fraud or bad faith the federal agency's settlement under the disputes clause is binding on the Government; that there is not another tier of administrative review; and that, save for fraud or bad faith, the decision of AEC is "final and conclusive," it being for these purposes the Federal Government. We reverse the judgment of the Court of Claims.

I
[p5] On August 4, 1961, petitioner contracted with the AEC to build a testing facility at the National Reactor Test Station in Idaho. The work was completed and accepted by the AEC on June 29, 1962. Because of various changes in contract specifications and difficulties in meeting performance schedules, petitioner submitted a series of claims to the contracting officer for resolution under the standard disputes clause contained in the contract, asking for equitable modifications of the contract and additional compensation. On August 8 and November 8, 1962, the contracting officer approved some of the claims and disapproved others, and the petitioner sought review of the adverse decisions with the AEC.

Since it did not then have a contract appeals board, the Commission referred petitioner's appeal to a hearing examiner, before whom an adversary hearing was held. On June 26, 1963, the examiner decided in favor of eight of petitioner's claims and remanded the dispute to the contracting officer for negotiations to determine the exact amount due petitioner. 2 A.E.C. 631. The contracting officer then sought review of this decision by the Commission. See 10 CFR § 2.760 (Jan. 1, 1963).

The Commission declined to review four of the claims, 2 A.E.C. 738, which had the effect of sustaining the examiner's decision on them. 10 CFR § 2.762 (a) (Jan. 1, 1963). Included within this group was the examiner's determination that amounts due petitioner could not be retained to offset claims allegedly owed by petitioner to other contractors and other agencies of government. The [p6] Commission modified the examiner's decision on three of the remaining claims and reversed him on the last, which petitioner has since abandoned. It "remanded to the contracting officer with instructions to proceed to final settlement or decision in accordance with the decision of the hearing examiner dated June 26, 1963, as modified by [its] order of November 14, 1963, and by [that] decision." 2 A.E.C. 850, 856.

On March 6, 1964, prior to the AEC's final ruling but after it had upheld the examiner's decision on the "retainage" claim, a certifying officer of the Commission requested the opinion of the General Accounting Office on whether a voucher for the retainage claim could be certified for payment. Jurisdiction for the Comptroller General's review was purportedly founded upon 31 U.S.C. § 82d. After some 33 months of what amounted to a plenary review of the proceedings before the examiner, the Comptroller General concluded that the voucher could not be certified for payment. 46 Comp. Gen. 441. On March 27, 1967, the AEC wrote petitioner, saying "The Atomic Energy Commission's view is that S&E Contractors, Inc. has exhausted its administrative recourse to the Commission. The Commission will take no action, in connection with the claims, inconsistent with the views expressed by the Comptroller General...." The petitioner then brought this action in the Court of Claims seeking a judgment of $1.95 million and an order remanding the case for negotiations on the time extension [p7] to which it claimed it was entitled under the AEC's original decision.

The defenses tendered raised no issue of any fraud or bad faith of the contractor against the United States.

On cross-motions for summary judgment, a commissioner of the Court of Claims ruled in favor of petitioner, holding that the General Accounting Office lacked authority to review the decision of the AEC and that the AEC's refusal to follow its own decisions favorable to petitioner was a breach of the disputes clause of the contract. On review by the Court of Claims, however, that decision was reversed by a four-to-three vote. While the majority acknowledged "that the Comptroller General effectively stopped payment of the claims," it did not pass upon the legality of that action. 193 Ct. Cl. 335, 340, 433 F. 2d 1373, 1375. Reasoning, instead that the Wunderlich Act allowed both the Department of Justice and contractors an equal right to judicial review of administrative decisions and that the AEC's refusal to abide by its earlier decision was a permissible means of obtaining this review, it remanded petitioner's claims "to the commissioner for his consideration and report on the various claims under Wunderlich Act standards." Id., at 351, 433 F. 2d, at 1381.

The Commissioner did not base his opinion on any issue of fraud or bad faith of the contractor against the United States, nor did the Court of Claims. The case is now here on a petition for writ of certiorari which we granted. 402 U.S. 971.

Petitioner argues that neither the text nor the legislative history of the Wunderlich Act supports the right of the United States to seek judicial review of an administrative decision on a contractual dispute, that the General Accounting Office was without statutory or contractual authority to overturn the AEC's decision, and that the [p8] AEC should not be allowed to abandon after some 33 months its own decision that had been made in petitioner's favor. In response, the Solicitor General contends that the Wunderlich Act does give the Department of Justice the right of judicial review of contract decisions made by federal administrative agencies and that the Department of Justice is free to assert whatever defenses it desires in the Court of Claims without regard to the earlier actions of the federal contracting agency.

II
The disputes clause included in Government contracts is intended, absent fraud or bad faith, to provide a quick and efficient administrative remedy and to avoid "vexatious and expensive and, to the contractor oftentimes, ruinous litigation." Kihlberg v. United States, 97 U.S. 398, 401 (1878). The contractor has ceded his right to seek immediate judicial redress for his grievances and has contractually bound himself to "proceed diligently with the performance of the contract" during the disputes process. The purpose of avoiding "vexatious litigation" would not be served, however, by substituting the action of officials acting in derogation of the contract.

The result in some cases might be sheer disaster. In the present case nearly a decade has passed since petitioner completed the performance of a contract under which the only agency empowered to act determined that it was entitled to payment. To postpone payment for such a period is to sanction precisely the sort of "vexatious litigation" which the disputes process was designed to avoid.

[p9] Here, petitioner contracted with the United States acting through the AEC and it was exclusively with this Commission that the administrative resolution of disputes rested. Disputes initially were to be resolved between the contractor and the contracting officer and, if a settlement satisfactory to the contractor could be reached at that level, no review would lie. See United States v. Mason & Hanger Co., 260 U.S. 323, United States v. Corliss Steam-Engine Co., 91 U.S. 321.

By the disputes clause the decision of the AEC is "final and conclusive" unless "a court of competent jurisdiction" decides otherwise for the enumerated reasons. Neither the Wunderlich Act nor the disputes clause empowers any other administrative agency to have a veto of the AEC's "final" decision or authority to review it. Nor does any other Act of Congress, except where fraud or bad faith is involved, give any other part of the Executive Branch authority to submit the matter to any court for determination. In other words, we cannot infer that by some legerdemain the disputes clause submitted the dispute to further administrative challenge or approval, and did not mean what it says when it made [p10] the AEC's decision "final and conclusive." See United States v. Mason & Hangar Co., supra, at 326. Kipps, The Right of the Government to Have Judicial Review of a Board of Contract Appeals Decision Made under the Disputes Clause, 2 Pub. Contract L.J. 286 (1969); Schultz, Wunderlich Revisited: New Limits on Judicial Review of Administrative Determination of Government Contract Disputes, 29 Law & Contemp. Prob. 115, 132-133 (1964).

A citizen has the right to expect fair dealing from his government, see Vitarelli v. Seaton, 359 U.S. 535, and this entails in the present context treating the government as a unit rather than as an amalgam of separate entities. Here, the AEC spoke for the United States and its decision, absent fraud or bad faith, should be honored. Cf. NLRB v. Nash-Finch Co., 404 U.S. 138.

Since the AEC withheld payment solely because of the views of the Comptroller General and since he had been given no authority to function as another tier of administrative review, there was no valid reason for the AEC not to settle with petitioner according to its earlier decision. For that purpose the AEC was the United States. Cf. Small Business Administration v. McClellan, 364 U.S. 446, 449.

The cases deny review by the Comptroller General of administrative dispute clause decisions as "without legal authority" absent fraud or overreaching. E.g., McShain Co. v. United States, 83 Ct. Cl. 405, 409 (1936). In [p11] ''James Graham Mfg. Co. v. United States'', 91 F. Supp. 715 (ND Cal. 1950), for example, the contracting agency had determined that the contractor was entitled to reimbursement for certain expenditures under two cost-plus-fee contracts, but the Comptroller General refused payment. While the court noted the "extensive and broad" powers of the Comptroller General, it held that, absent instances of "fraud or overreaching," where the Comptroller General's power was founded upon specific statutory provisions such as 41 U.S.C. § 52, he had no "authority to determine the propriety of contract payments" approved by the contracting agency. 91 F. Supp., at 716. Accordingly, summary judgment was entered by the court, which said, "Since the Navy Department has determined that plaintiff contractor is entitled to the payment sought, this Court must adjudge accordingly." Id., at 717.

Congress contemplated giving the General Accounting Office such powers and, indeed, the Senate twice passed—in the form of the McCarran bill—a provision which would have allowed the Comptroller to review disputes decisions to determine if they were fraudulent, grossly erroneous, so mistaken as necessarily to imply bad faith, or not supported by reliable, probative, and substantial evidence." S. 24, 83d Cong., 1st Sess. (1953). "If enacted, it would [have] invest[ed] the GAO with the power—which it has never had—to upset an administrative decision which it [found] 'grossly erroneous' or 'not supported by reliable, probative, and substantial evidence.'" Schultz, Proposed Changes in Government Contract Disputes Settlement: The Legislative Battle over the Wunderlich Case, 67 Harv. L. Rev. 217, 243 (1953). The House of Representatives rejected his provision, however, and the Wunderlich Act was ultimately passed in its present form. We cannot, therefore, construe [p12] it to give the Comptroller General powers which Congress has plainly denied.

It is suggested, however, that the Comptroller General's power is not one of review over the AEC decision but is merely the power "to force the contractor to bring suit and thus to obtain judicial review for the Government." The disputes clause, however, sets forth the administrative means for resolving contractual disputes. Under the present contract the AEC is the final administrative arbiter of such claims and nowhere is there a provision for oversight by the Comptroller General. The Comptroller General, however, conducted a 33-month de novo review of the AEC proceedings; he blocked the payment to which the AEC determined petitioner was entitled; and he placed upon petitioner the burden of going to the Court of Claims to receive that payment. That action by the Comptroller General was a form of additional administrative oversight foreclosed by the disputes clause.

III
A majority of the Court of Claims held "that the Government has the right to the same extent as the contractor to seek judicial review of an unfavorable administrative decision on a contract claim." 193 Ct. Cl., at 346, 433 F. 2d, at 1378. The Solicitor General adopts this view and sees in the Attorney General's obligation to conduct litigation on behalf of the United States, 28 U.S.C. §§ 516, 519, the power to overturn decisions of coordinate offices of the Executive Department.

The Attorney General has the duty to "conduct... litigation in which the United States, an agency, or officer thereof is a party," 28 U.S.C. § 516, and to "supervise all [such] litigation," 28 U.S.C. § 519. That power is pervasive but it does not appear how under the Wunderlich Act it gives the Department of Justice the right to appeal from a decision of the Atomic [p13] Energy Commission. Normally, where the responsibility for rendering a decision is vested in a coordinate branch of Government, the duty of the Department of Justice is to implement that decision and not to replicate it. See 39 Op. Atty. Gen. 67, 68 (1937); 38 Op. Atty. Gen. 149, 150 (1934); 25 Op. Atty. Gen. 524, 529 (1905); 25 Op. Atty. Gen. 93, 96 (1903); 20 Op. Atty. Gen. 711, 713 (1894); 20 Op. Atty. Gen. 270, 272 (1891); 17 Op. Atty. Gen. 332, 333 (1882). Indeed, this view of the role of the Department of Justice may be traced back to William Wirt, the first of our Attorneys General to keep detailed records of his tenure in office. "Wirt it was who first recorded the propositions that the Attorney General does not decide questions of fact, that the Attorney General does not sit as an arbitrator in disputes between the government departments and private individuals nor as a reviewing officer to hear appeals from the decisions of public officers...." H. Cummings & C. McFarland, Federal Justice 84 (1937) (footnotes omitted).

The power to appeal to the Court of Claims a decision of the federal agency under a disputes clause in a contract which the agency is authorized to make is not to be found in the Wunderlich Act and its underlying legislative history. That Act was designed to overturn our [p14] decision in United States v. Wunderlich, 342 U.S. 98 (1951), which had closed the courthouse doors to certain citizens aggrieved by administrative action amounting to something less than fraud. See S. Rep. No. 32, 83d Cong., 1st Sess.; H.R. Rep. No. 1380, 83d Cong., 2d Sess. It should not be construed to require a citizen to perform the Herculean task of beheading the Hydra in order to obtain justice from his Government.

We are reluctant to construe a statute enacted to free citizens from a form of administrative tyranny so as to subject them to additional bureaucratic oversight, where there is no evidence of fraud or overreaching. In this connection, it should be noted that committee reports accompanying the Wunderlich Act indicate that judicial review was provided so that contractors would not inflate their bids to take into account the uncertainties of administrative action. This objective would be ill served [p15] if Government contractors—having won a favorable decision before the agencies with whom they contracted—had also to run the gantlet of the General Accounting Office and the Department of Justice.

IV
A contractor's fraud is of course a wholly different genus than the case now before us. Even where the contractor has obtained a judgment and the time for review of it has expired, fraud on an administrative agency or on the court enforcing the agency action is ground for setting aside the judgment. "[S]etting aside the judgment to permit a new trial, altering the terms of the judgment, or restraining the beneficiaries of the judgment from taking any benefit whatever from it," Hazel-Atlas Co. v. Hartford Co., 322 U.S. 238, 245, are the usual forms of relief which have been granted. Patents obtained with unclean hands and contracts that are based on those patents are similarly tainted and will not be enforced. Precision Co. v. Automotive Co., 324 U.S. 806. Contracts with the United States—like patents—are matters concerning far more than the interest of the adverse parties; they entail the public interest: "'[W]here a suit in equity concerns the public interest as well as the private interests of the litigants this doctrine assumes even wider and more significant proportions. For if an equity court properly uses the maxim to withhold its assistance in such a case it not only prevents a wrongdoer from enjoying the fruits of his transgression but averts an injury to the public.' Id., at 815."

[p16] Congress has made elaborate provisions for dealing with fraudulent claims of contractors. Where the Comptroller General is convinced "that any settlement was induced by fraud," he is directed to "certify... all the facts... to the Department of Justice, to the Administrator of General Services, and to the contracting agency concerned." 58 Stat. 664, as amended, 41 U.S.C. § 116 (b). The Administrator of General Services is also given broad powers of investigation and he is directed to give the Department of Justice "any information received by him indicating any fraudulent practices, for appropriate action." 41 U.S.C. § 118 (d). Moreover, whenever "any contracting agency or the Administrator of General Services believes that any settlement was induced by fraud," the facts shall be reported to the Department of Justice. 41 U.S.C. § 118 (e). And the Department of Justice is given broad powers to act. Ibid. In addition, Congress has imposed severe penalties on contractors who commit fraudulent acts and it has given the federal courts power to hear and determine such cases. 41 U.S.C. § 119.

Broad, flexible civil remedies are also provided against those who "use or engage in... an agreement, combination, or conspiracy to use or engage in or to cause to be used or engaged in, any fraudulent trick, scheme, or device, for the purpose of securing or obtaining, or aiding to secure or obtain, for any person any payment, property, or other benefits from the United States or any Federal agency in connection with the procurement, transfer, or disposition of property...." 63 Stat. 392, 40 U.S.C. § 489 (b).

As to the Court of Claims, 28 U.S.C. § 2514 provides that: "A claim against the United States shall be forfeited to the United States by any person who corruptly practices or attempts to practice any fraud against the United States in the proof, statement, establishment, or allowance thereof.

[p17] "In such cases the Court of Claims will specifically find such fraud or attempt and render judgment of forfeiture."

These statutory provisions show that, apart from the inherent power of courts to deal with fraud, the Department of Justice indubitably has standing to appear or intervene at any time in any appropriate court to restrain enforcement of contracts with the United States based on fraud. See, e.g., United States v. Hougham, 364 U.S. 310 (1960); Rex Trailer Co. v. United States, 350 U.S. 148 (1956); United States v. Dinerstein, 362 F. 2d 852 (CA2 1966).

So far as the Wunderlich Act is concerned, it is irrelevant whether the administrative agency deciding this dispute is the AEC or the AEC's board of contract appeals. It was common in the beginning to give final authority over the resolution of disputes under a Government contract to the designated contracting officer, save for "fraud or such gross mistake as would necessarily imply bad faith, or a failure to exercise an honest judgment." Kihlberg v. United States, 97 U.S., at 401. Later came the present boards of contract appeals.

Boards of contract appeals within the respective agencies today are common. They are not statutory creations but are established by administrative regulations S. Doc. No. 99, 89th Cong., 2d Sess., Operation and Effectiveness of Government Boards of Contract Appeals 20-21. Their decisions "constitute administrative [p18] adjudication in its purest sense." Id., at 21. As noted, the AEC has had a board of contract appeals since 1964. Boards of contract appeals were in effect long before the Wunderlich Act and that explains why the Act provides for review "of any decision of the head of any department or agency or his duly authorized representative or board." 41 U.S.C. § 321 (emphasis added).

We held in United States v. Bianchi & Co., 373 U.S. 709, that even where the decision on review in the Court of Claims is that of a board of contract appeals, the review must be on the administrative record and that no trial de novo may be held. That decision led to proposals in Congress that, in effect, rulings of contract appeals boards be denied finality. S. Doc. No. 99, supra, at 25-26 and n. 70. But Congress has not taken that step. Some have urged that where a decision of a board of contract appeals is involved, the United States should have standing to appeal to the Court of Claims. Id., at 159. But our leading authority on these problems, Professor Harold C. Petrowitz, who wrote S. Doc. No. 99, supra, observed, "This has never been done, and the procedure may appear anomalous in view of the relatively close relationship between boards and the agencies they serve." Ibid. However serious the problem may be and whatever its dimensions, it is obviously one for the Congress to resolve, not for us to resolve within the limits of the Wunderlich Act.

This case does not involve the situation where an administrative agency, upon timely petition for rehearing or prompt sua sponte reconsideration, determines that its earlier decision was wrong and, for that reason, refuses [p19] to abide by it. The AEC has not, to this day, repudiated the merits of its decisions in favor of petitioner. Nor, to repeat, is this a case of fraud of a contractor against the United States. This is simply an instance where a contractor successfully resolved its disputes with the agency with which it had contracted and to whom that power had been delegated. The fruits of petitioner's labors were frustrated, however, by the intermeddling of another agency without power to act and, when petitioner sought enforcement of its rights in court, still another agency of the Government entered and sought to disavow the decision made here by the AEC.

If the General Accounting Office or the Department of Justice is to be an ombudsman reviewing each and every decision rendered by the coordinate branches of the Government, that mandate should come from Congress, not from this Court.

The judgment of the Court of Claims is

Reversed.

MR. JUSTICE REHNQUIST took no part in the consideration or decision of this case.