District of Columbia v. Savoy Construction Co.

MACK, Associate Judge,

dissenting:

This is not a breach of contract case. This is a dispute arising under a contract — a dispute which, by agreement of the parties, is subject to resolution by an administrative agency in the first instance. I would have thought the governing principles of administrative exhaustion, under these circumstances, to be so well established by case law as to admit of little contest. See United States v. Utah Construction & Mining Co., 384 U.S. 394 , 86 S.Ct. 1545 , 16 L.Ed.2d 642 (1966); Bethlehem Steel Corp. v. Grace Line, Inc., 135 U.S.App.D.C. 81 , 416 F.2d 1096 (1969); see also Jefferson Construction Co. v. United States, 183 Ct.Cl. 720 , 392 F.2d 1006 , cert. denied, 393 U.S. 842 , 89 S.Ct. 122 , 21 L.Ed.2d 113 (1968). The majority pays lip service to these principles before proceeding, tortuously, to explain why the cases do not apply. The truth is that the rationale of these cases cannot be distinguished.

Here, Savoy Construction Company and the District of Columbia, by virtue of Article 3 of a contract, have agreed that all claims of deficient plans or specifications are subject to equitable adjustment under the contract. 1 Yet this court, by characterizing Savoy’s claim against the District as one for “consequential damages for delay incident to the [District’s] changes [of specifications],” seeks to justify the contractor’s unilateral recasting of an administrative dispute into a breach of contract mold cognizable de novo in the judicial system. *710 This exercise in semantics should not be countenanced; even if the contract provisions do permit a claim for consequential damages, see United States v. Rice, 317 U.S. 61 , 63 S.Ct. 120 , 87 L.Ed. 53 (1942), it is one which Savoy has agreed to put before the Contract Appeals Board and not before a jury, see supra note 1. The matter is all the more disturbing since the majority, in prematurely permitting Savoy to recover damages “over and above any equitable adjustment it had received” admits to not knowing the precise nature of the administrative claims submitted for equitable adjustment.

It is interesting to note how the majority distinguishes the Supreme Court decision in United States v. Utah Construction & Mining Co., supra — a decision which, although arising in the context of finality of determination, holds that by virtue of the disputes clause of a contract (and the Wun-derlich Act), administrative findings are appropriately made on all factual issues relevant to questions arising under the contract, including those for breach of contract. 2 See 384 U.S. 419 -20, 86 S.Ct. at 1558-59 . The majority says Utah is not controlling here because in Utah the contractor (in accord with his agreement) had fully exhausted all administrative procedures before coming to court. But that is precisely why Utah does control! Is the majority saying that Savoy, having violated its agreement to exhaust administrative procedures before coming to court, was not bound to submit all factual issues relevant to questions arising under the contract to the administrative agency? Is it saying that Savoy’s breach of contract relieved it from compliance with the contract? Is the majority saying that damages for delay incident to changes of specifications are not relevant to changes of specifications?

It is likewise interesting to note the treatment afforded by the majority to the 1969 federal circuit court decision in Bethlehem Steel Corp. v. Grace Lines, Inc., supra, decided some four years before the 1973 award of the Savoy contract in this traditionally federal city. The circuit court in Bethlehem directed a district court to stay proceedings in a contract dispute and refer the matter to the administrative agency for an initial inquiry. Bethlehem, says the majority here (with more aplomb than that displayed by the federal court), is distinguishable because there is no dispute whatever that Savoy could not get redress under the administrative procedures of the agreement. One need only read Article 3 of the contract to dispel this notion. The majority’s assertion that neither the Contracting Officer nor the Board has “jurisdiction” to compensate Savoy for increased costs from delays caused by faulty specifications does violence to the plain language of the contract. Article 3 specifically provides for the resolution of disputes concerning “the cost of performing the work” or “the time required for its performance” because of changes in drawings or specifications; it unambiguously requires that any such dispute be determined by the Contracting Officer, subject to appeal to the Contract Appeals Board; under the all- *711 inclusive language of Article 15. See supra note 1.

I am at a total loss, therefore, to understand how Savoy, or this court, could conclude that the contractor had the option of by-passing the Board and placing this dispute before a jury. Actually, what the majority has done today is to sanction a race to the courthouse by a disgruntled contractor who has refused to wait for the contractually-agreed upon process for the resolution of disputes. The majority seeks to minimize the effect of its holding by noting that because of administrative and statutory provisions coming into existence subsequent to the award of this contract, it anticipates little, if any, repetition before this court of the issue we address here. 3 Even if this were a relevant consideration, it is of no moment in construing the intent of the parties in signing this contract, an intent which is plain from the language they used. Moreover even if we had any reason to look outside the four corners of the contract, I read the administrative regulations 4 and the recently enacted legislation 5 as merely confirming what was settled policy at the time the contract was awarded. In any event, the majority’s dubious prediction is of little or no solace. If a decision is wrong, the error is hardly diminished by speculating upon a low prob *712 ability of its recurrence. The decision here is wrong. It has placed an opinion of this court on a collision course with settled principles of administrative and contract law. Moreover, it has sanctioned the action of Savoy in defeating the contractual arrangement (to which it had unequivocally agreed) of having the merits of this dispute dealt with by factfinders versed in complex and technical procurement issues. 6 It has condoned a tactic whereby Savoy, after the initial rejection of its claim by the Contracting Officer, and for reasons we can only surmise, has filed this suit while the matter was still pending before the Contract Appeals Board, Thus, having reneged upon the dispute resolution agreement, Savoy has drawn an award of almost a million dollars from the public purse by putting its grievance before a jury which had no similar specialized exposure. This is the award that the majority affirms.

I respectfully dissent.

. Article 3 provides, in relevant part:

Changes. — The Contracting Officer may at any time ... make changes in the drawings and/or specifications of this contract and within the general scope thereof. If such changes cause an increase or decrease in the cost of performing the work under this contract, or in the time required for its performance, an equitable adjustment shall be made and the contract shall be modified in writing accordingly.... If the parties fail to agree upon the adjustment to be made the dispute shall be determined as provided in Article 15 hereof. [Emphasis added.]

Article 15 provides:

Disputes. — Except as otherwise specifically provided in this contract, all disputes concerning questions arising under this contract shall be decided by the Contracting Officer subject to written appeal by the contractor within thirty (30) days to the Contract Appeals Board, whose decision shall be final subject to such limitations and review as may be provided by law. [Emphasis added.]

. The court, in reversing a Court of Claims holding that factual issues of delay on a claim of breach of contract could be resolved de novo in a judicial trial, noted at 384 U.S. 419 , 86 S.Ct. at 1558 .

Both the disputes clause and the Wunder-lich Act categorically state that administrative findings on factual issues relevant to questions arising under the contract shall be final and conclusive on the parties. There is no room in the language of [the disputes clause] or of the Act to consider factual findings final for some purposes but not for others. It would disregard the parties’ agreement to conclude, as the Court of Claims did, that because the court suit was one for breach of contract which the administrative agency had no authority to decide, the court need not accept administrative findings which were appropriately made and obviously relevant to another claim within the jurisdiction of the board.

The position of the Court of Claims would permit erosion of the policies behind both the Wunderlich Act and the disputes clause. Any claim, whether within or without the disputes clause can be couched in breach of contract language....

. For whatever reason, the majority also suggests that trial judges should be disposed favorably toward requests for stays pending administrative resolutions, in the interests of both prudence and judicial economy. I can only read this as a tacit recognition that such tedious factfinding chores on highly technical (and here, in my view, unsupported) claims should not have been placed before a jury in the first instance.

. In 1974 the District of Columbia published its policy on the proper mode of resolving disputes arising under government contracts. Bureau of Materiel Management, D.C. Gov’t Dep't of Gen. Servs., Materiel Management Manual (1974). The provisions of the Materiel Management Manual were adopted as final administrative rules by the appropriate agency on June 15, 1974. See 31 D.C.Reg. 2714 (1984) (Notice of Final Rulemaking); see also 33 D.C.Reg. 2698, 2699-2702 (1986) (Notice of Emergency and Proposed Rulemaking). Section 2642.11 of the manual (or rules), setting forth standard contract clauses, explicitly provides in Articles 3 (changes in specifications) and 7 (disputes) that all disputes under government contracts are to be resolved in the first instance by the Contracting Officer, with a right of appeal to the Contract Appeals Board, and, only then, with the ultimate right of judicial review on questions of law.

At the time of its adoption, the Manual was described as a "comprehensive compilation of the principles, rules, and directions to ensure the judicious use of public funds designated to procure, maintain and dispose of equipment, supplies and services used by the Government of the District of Columbia to carry out its functions.” 20 D.C.Reg. 1095 (1974) (Notice of Proposed Rulemaking) (emphasis added); see also Materiel Management Manual, supra, at Foreword.

.Recently, the legislature put on a statutory footing what had previously been unambiguously expressed both in its administrative rules and in the contract before us here. On February 21, 1986, the District of Columbia Procurement Practices Act of 1985 came into effect as D.C.Law 6-85, 33 D.C.Reg. 1291 (1986) (codified at D.C.Code §§ 1-1181.1 to -1191.2 (1986 Supp.)). The statute requires all claims by aggrieved contractors to be decided first by the equivalent of the Contracting Officer here, with a right of appeal to the Contract Appeals Board, and with recourse to this court from the Board's decision on the same limited basis as that governing our review of the final decision of any other administrative agency. D.C.Code § 1-1188.5, -1189.4, -1189.5, -1189.7 (1986 Supp.).

The legislative history confirms that the Procurement Practices Act of 1985 had no effect on preexisting dispute resolution requirements other than to place them on a statutory footing. As William R. Spaulding, Chairman of the Committee on Government Operations, explained when presenting the bill to his fellow councilmem-bers:

Title IX of the bill creates a Contract Appeals Board to hear and decide on decisions rendered by the Director [of the Department of Administrative Services] concerning contract disputes.... Both the contractor and the District government can seek judicial review of Board decisions. The District’s present Contract Appeals Board was established by executive order, and the functions for the Board as provided in the bill are similar to the current functions and authority of the Board.... The current Board is allowed to hear disputes between contractors and the independent agencies, and the intent is to continue this arrangement.

Council of the District of Columbia, Report on Bill 6-191, District of Columbia Procurement Practices Act of 1985, at 5 (Oct. 10, 1985) (available in the District Building).

. Under the new legislation, members of the Contract Appeals Board, "shall have experience in the areas of procurement and contract law.” D.C.Code § 1-1189.2(b) (1986 Supp.); see also 33 D.C.Reg. 3006-07 (1986) (Mayor’s Order 86-65); 33 D.C.Reg. 1940, 1945 (1986) (Mayor’s Order 86-44); see generally Note, Selection and Qualifications of Members of Contract Appeals Boards: A Comment on Alternative Procedures, 42 Geo.WashJLRev. 383 (1973-74). Contracting Officers are similarly qualified. 33 D.C.Reg. 1940-45 (1986) (Mayor’s Order 86-44).