by Robert Antonio

July 31, 2000

Readers of Where in Federal Contracting? will recognize the developing problem.  Since 1997, there have been two court decisions discarding Federal Acquisition Regulation (FAR) provisions that claimed contractors could not dispute government decisions under to the Contract Disputes Act.  The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (Councils) responded to the Courts' rulings and changed the FAR to eliminate these provisions.  So, would you be surprised to see a new FAR proposal to deny contractors their rights under the Contract Disputes Act?  Well, get ready.

THE PROPOSED FAR AMENDMENT

The Councils adopted the CCWIPT's recommendation, and on July 27, 2000, published a proposed change to the FAR that would: 

"explicitly state the right of the contracting officer to unilaterally determine the final contract payment amount when the contractor does not submit the final invoice or voucher within the time specified in the contract.  This contracting officer decision is final and binding upon the contractor and will not be subject to the right of appeal under the Contract Disputes Act."

Under FAR 42.705, the proposed change would allow the contracting officer to determine the amounts due to the contractor on a unilateral basis and this determination would be  

"(i) Final and binding upon the contractor in discharge of all obligations to the contractor arising under the contract; and (ii) Not subject to the right of appeal under the Disputes clause."

A proposed clause at FAR 52-216-7 would include similar language.  

COURT DECISIONS

In 1997, the United States Court of Appeals for the Federal Circuit issued its "Burnside-Ott" decision, that dealt with the cost-plus-award-fee provision at FAR 16.404-2(a).¹  The decision focused on a contract clause H-21 that stated the award fee decision was a unilateral determination of the government's Fee Determining Official that was not subject to the Contract Disputes Act (CDA).  The precise language of FAR 16.404-2(a) was 

"This determination is made unilaterally by the Government and is not subject to the Disputes clause."

In its decision, the Court said 

“Generally, a provision in a government contract that violates or conflicts with a federal statute is invalid or void.” American Airlines, Inc. v. Austin, 75 F.3d 1535, 1538 (Fed. Cir. 1996).  Under the CDA, an agency’s final determination as to facts “shall not be binding in any subsequent proceeding” before the Board [of Contract Appeals] or Court of Federal Claims, 41 U.S.C. § 605(a) (1994)."

The Court further explained 

"In government contract disputes, unlike contract disputes between two private parties, the initial determination in each dispute is made by one of the parties, i.e., the CO. Congress commanded that the CO’s decision on any matter cannot be denied Board review. To the extent that the Government attempts to use the contract provision to defeat jurisdiction, Clause H-21 cannot stand."²

In 1998, The United States Court of Federal Claims rendered a similar decision that dealt with the Value Engineering Change Proposal (VECP) provisions at FAR 52.248-1.  Under the value engineering program, contractors are encouraged to propose changes that result in savings to the agency without impairing performance.  The contractor benefits by sharing in the savings.   In its Rig Masters decision the Court noted that the FAR clause stated ³

"[t]he Contracting Officer's decision to accept or reject all or part of any VECP and the decision as to which of the sharing rates applies shall be final and not subject to the Disputes clause or otherwise subject to litigation under the Contract Disputes Act of 1978 (41 U.S.C. 601-613)."

In its decision, the Court stated

"The primary issue . . . is whether the contract provision exempting disputes over the VECP is enforceable.  In deciding this initial question, we begin with the premise that the rule-making power of an agency 'is not the power to make law . . . but the power to adopt regulations to carry into effect the will of Congress as expressed by the statute.' Dixon v. United States, 381 U.S. 68, 74 (1965) (quoting Manhattan Gen. Equip. Co. v. Commissioner, 297 U.S. 129, 134 (1936)). The statute in this case is the CDA." 

"The presumption, therefore, must be that all disputes arising out of the contract . . . are subject to the administrative dispute resolution mechanisms of the CDA."

The Court further stated that 

"In this context FAR 52.248-1(e)(3) obviously is discordant because it states that '[t]he Contracting Officer's decision to accept or reject all or part of any VECP and the decision as to which of the sharing rates applies shall be final and not subject to the Disputes clause or otherwise subject to litigation under the Contract Disputes Act of 1978 (41 U.S.C. 601-613).'

In comparing its decision to that in Burnside-Ott, the Court stated that

"Similarly, FAR 52.248-1(e)(3) purports to preclude board or court review of disputes over VECP's. The regulation is thus in direct conflict with the CDA and cannot stand."

FAR WAS CHANGED TO COMPLY WITH COURT DECISIONS

As a result of the two decisions, the Councils amended the FAR on December 27, 1999, to implement the rulings of the two courts.  Accordingly, the provisions stating that government determinations are not subject to the Contract Disputes Act were eliminated.

CONCLUSIONS

The decisions of the courts appear to be quite clear.  Additionally, the Councils already changed the FAR during the past year to eliminate two provisions that denied contractors their rights under the Contract Disputes Act.  Now, we have a proposed change to deny contractors' rights.  Regardless of any conclusions we draw at this point, one thing is clear.  If the current FAR proposal becomes regulation, it is sure to be challenged in the courts.  Those two courts each have their own precedent on which to rely.