Claims of Subcontractors Before the Armed Services Board of Contract Appeals

• Author: By Major Leonard G. Crowley
• Pages: 04

This article is a studg of the methods amilable to a sab-contractor in prosecuting before the Armed Services Board of Contract Appeals a claim based upon direct governmental action. The author discusses the roles of both the subeon-tractor and the prime contracts? in these appeals and the judicial decisions pertinent thereto. He concludes that the appeal procedure presently available to the subcontractor isadequate.

I. IKTRODCCTION

During recent Senate hearings on the operation of federal agency boards of contract appeals, representatives of industry and civilian coun8el who considered the subject were unanimous in urging the adoption of procedures by the boards u,hich would allow direct appeals by subcontractors under government prime contracts for claims generated by governmental action.' The representatives af federal agencies Were just as adamant that nosuch right of direct appeal should be given.' The problems of sub-contractors-who are vers often small businesses, though not necessarily so -received considerable attention from the wit- * This article was adapted from a them8 presented to The Judge Adrocate General's School, U.S. Army, Chsrlottewille Vnginla while the author was B member of the Fifteenth Advanced Cou& The m k i m ~ and rnnrlll-inne

** JAGC, C.S. Army: Judge Advocate, Headquarters, Fourth C.S.

Army,

Fort Sam Houston, Texan; B.LL., 1851, Boatan Umuermty School of Law:admitted to praebce before the bars of the State of Massachusetts and the United Staten Court af Military Appeals.

'See Xrorings on Oprratian and Egectzusneas of Gommment Boards 01

Contract Apprela Ware a Subcommittee 01 ths Seriufe Sslaet Commstire onSmall Bwszness, 89th Gong... Zd Sess. at 85. 100. 108. 126. 141-42 119661

'See id. at 12, 41, 77.

'It ia assumed by many people vnfamlllar with government pmeurement that %vbeantiactors are necessarily mall busnesaes Two af the eases diamaned rvbsewently concern such industrial giant8 as Chrysler Corporatm and General Motors Corporation 8% subeantraetara. A small huemeis coneern is defined m Armed Services Procurement Reg. 8 1-701.1 (Rev. No. 23, 1 June 19611 [hereafter cited as ASPR].

A00 T-068 121

nesses during the hearings. The reason for this attention 1sreadily seen when it is realized what tremendous sums of money are invalved today in government procurement. During the fiscal year ending 30 June 1966, the Department of Deiense obligated over 27 billion contract dollars.* A great deal of this sum was distributed by prime contractors to subcontractors

The purpo~e of this paper is to analyze what relief is presently available before the Armed Services Board of Contract Appeals [hereafter referred to as the "ASBCA" or "the Board"] to sub-contractors under government prime contracts for claims arising from acts of the Government and. in conjunction therewith, to examine the necessity for further relief, particularly in regard to granting subcontractors a right of direct appeal to the ASBCA.

The Armed Services Procurement Regulation (ASPR), which i$ promulgated under the authority of the Armed Services Procurement Act, as amended s -the basic statutory law coL-ering defense procurement-cantains numerous provisions on subcontracis. ASPR contains over 75 paragraphs, including one entire section,' which apply to subcontracting transactions by name and many others which may hare application. In eonnection with the Federal Government's interest in small business and labor s~~rplusarea concerns. ASPR reqiiires the inclusion in all prime contracts in excess af $15,000 a clause which requires the prime contractor to subcontract to the fullest possible extent.' Prime contracts in excess of $500,000 require the prime cantracior to undertake a number of specific responsibilities, includ-ing the establishment of a subcontracting propam, and the inclusion of similar requirements in all subcontracts in excess of $600.000.6 Cost-reimbursement type contracts, which account for a large share of the procurement dollars spent, contain a number of requirements placed on prime contractors in relation to subcontracting.' Depending upon the amount or type of subcon-tract contemplated, the approval of the government contracting officer may be required.'" The insertion in the subcontract of

Heurmgs on Gperai,on and Effrctwmess of Goierinent Eoovds oi Confraet Appemls, expro note 1, at 4.

'10 U.S C SS 2202. 2301-14 (1964)'ASPR 8 XXIII.-ASPR 8 1-707 3(s) (Rev No. 12. 1 Aug. 19651, ASPR S 1-805.3(aJ No 23, 1 June 1967)

'ASPR S 1-701.3fhl (Rev Ea. 12, 1 Aug. 19651, ASPR I1-805.3(b) Ea 23, 1 June 1967).

'See generally ASPR p VII, pis. 2. 4

Sre ASPR S 23-201 (Rev. 60.

20, 1 Dee. 1966)

A'O i-OaB

certain conditions may also be required." Subcontractors are also subject to control by government agents in the form of audits, inspections, instructions, superintendence, and termination settlements."

It is appropriate at this point to define what is meant by a "subcontract" and a "subcontractor" in this article. Xeither the Armed Services Procurement Act nor ASPR contain meaningful general definitions of the terms.13 A "subcontract" may be defined as "any contract, agreement, or purchase order . . . entered into to perform any work, or to make or furnish any material to the extent that such work or material is required far the performance of any one or more prime contracts or of any one or more other subcontracts. . . ."I4 A "subcontractor" is "any holder of one or more subcontracts [under a prime contract or other subcontract] ." Therefore, as the term "subcontractor" is used in this article, it encompasses what i8 generally known as a subcontractor in the building trades as well as a materialman. The term also includes a party providing an integral unit for the prime contract, as well as suppliers of raw materials and other items.

It would be appropriate here to mention a few examples of the types of governmental action which give rise to subcontract problems. Some of the more common examples are changes in the specifications ordered by the Government which may add, delete, or ehanse the work required, delays in making the site available, delays in furnishing government owned property or models for use in the work, and suspensions of work for various reasons, including time to decide on what changes to make. Also, conditions at the site may differ from what the Government has led the contractor to believe, &a B result of core barings and other tests furnished to the contractor by the Government. Today a

Sse ASPR I 7-602 37 (Rev. KO.

5, 25 Jan. 1965). for B listing of some of the eiauaeP which a prime eontractor of a fixed-price construetion contract must include in his eubcantraets.

"See, B.Q., ASPR $5 7-103.6 (Rev. No. 10, 1 Apr. 1965). 7-104.41 (Rei, No.14, 1 Dee. 1565). 7-104.42 (Rev. No. 17, 1 June 1966). 7-206.5 (Rev. No 17, 1June 1966). 7-203.8 (Rev. No. 20, 1 Dee. 15661, 7402.6 (Rev. No. 6, 1 July 19641, 7402.8 (Rev. lo. 20. 1 Dee. 1966). 7-602.37 (Rev. No. 9, 25 Jan. 19651,8-2084 (Rev. So. 16, 1 Apr. 1966).

"ASPR 6 8-10124 (Rev. So. 8, 1 Xou. 1964). eantsina a definition of ''subcontract'' for use in connection vith ASPR 5 VIII, Termination of Contraetr. ASPR 5 '1-1031 (Rev. Pia 10. 1 Apr. 1566) SIJO cantainn B

riLii".+.nn "+ ',s,.hmntr.*t ,, ._

... ... . .. . ___...

.. _. ..

"Contract Settlement Act of 1944 S 3(b), 41 U.S.C. 5 10S(b) (1564)-'Id.

*GO li0BB 12s

great many of the governmental acts which affect the subcan-tractor am covered by specific clauses in the prime contract which authorize the Government to do such acts and provide far an equitable adjustment in the prime contract an account of such acts.1e

All prime contracts are required by ASPR to contain what is commonly called a "Disputes" clause.1r This clause is the vehicle by which the prime contractor may appeal a decision of the government contracting officer, who is responsible for the administration of the contract, to the head of the government agency or his representative, the agency board of contract appeals.13 The clause provides that disputes concerning questions of fact that arise under the contract and which are not disposed of by aereement are to be decided by the contracting officer in writing. This may be appealed to the head of the agency by the contractor within 30 days of receipt of the decision far determination by the head of the agency or his representative far the determination of such appeals.1g The contract clauses dealing with changes, changed conditions, suspension of work and delays, and gorernment furnished property provide that inability of the parties ta reach an equitable adjustment because of such actions shall be considered a dispute concerning a question of fact within the meaning of the "Disputes" clause of the contract?O

A subcontractor does not have the right to obtain a decision of the contracting officer or the right of direct appeal to the agency board of contract appeals. In fact, ASPR prohibits a gov. ernment contracting officer from apprwing B subcontract which contains such a A subcontract ahich purported to give such a right and which was not approved or otherwise authorized by the contracting officer would not, of course, give such a right w,ithout some affirmative action on the part of the Government.?' ASPR does provide, however, that a subcontract

'See ymeraliy ASPR 8 VII.

" ASPR 8 23-203(a) (Re\. KO.

20, 1 Dee. 1966).

-Dorm & Xlargolin, he., ASBCA NO. 8777, 10 Aug. 1864, 1864 B.C.A. '4372; Xemler Co, ASBCA KO. 295, 4 Sept. lX9; 58-2 B.C.A. '2336 (19iB). irconazdera!ion denied, 13 Apr. 1960, 60-1 B.C.A. n2612 (1860).

CLAIMS OF SUBCONTRACTORS

should not be disapproved solely because it provides for the subcontractor to appeal in the name of the prime contractor under the prime contract's "Disputes" clause, if the subcontractor is affected by a dispute arising under the prime contract.za

This article is primarily concerned with the right of a subcon-tractor under a government prime...