Federal Claims Court Holds Contractor Required to Proceed with Disputed Corrective Work under Disputes Clause; Contractor Not Entitled to Advance Judicial Determination of Propriety of Directive under Federal Courts Administration Act of 1992

Valley View Enterprises, Inc. v. United States,
35 Fed. Cl. 378 (1996).

On September 22,1992, the Department of the Army awarded plaintiff Valley View Enterprises, Inc. (“Valley View”) a contract to replace seventeen steam lines located at the United States Military Academy in West Point, New York in connection with the installation of an underground, insulated heat distribution system. As of October 1993, Valley View had completed 95% of its work and the system was in use. By letter dated November 29, 1993, the contracting officer advised Valley View that an inspection revealed numerous deficiencies in welds as well as the existence of materials not in compliance with contract specifications. On April 12, 1994, the contracting officer advised Valley View that two independent inspections revealed that all twenty-three randomly selected welds failed to meet contract specifications. The letter further required Valley View to submit, within twenty days, a plan concerning how it intended to correct the deficiencies in its contract work.

In response, Valley View stated that it considered the contracting officer’s letter to be a directive to “perform work clearly beyond the scope of [its] contract,” and that such work would be encompassed by the Changes Clause of the contract. The letter also included a schedule with procedures for additional testing and replacement of the work in question. Lastly, the letter included a request for a contracting officer’s final decision.

On July 12, 1994, Valley View filed a Complaint, citing the Contract Disputes Act for the Court’s jurisdiction. After Valley View was suspended by the Government for “suspected fraud in the performance of [its] contract,” it filed a claim with the ASBCA on January 30, 1995.

Valley View moved for summary judgment, seeking to have the Court determine that: 1) the contracting officer’s failure to issue a decision constituted a deemed denial of Valley View’s claim, 2) the contracting officer’s direction to the Valley View on April 12, 1994 was a directive to perform out of scope work, 3) Valley View was not obligated to perform such work at no cost to the government, 4) Valley View was not obligated to perform the work except by a modification issued under the contract’s Changes clause, and 5) that Valley View had complied with the contract.

In its opinion, the Court focused on a contractor’s duty to proceed in government contracts. The Disputes Clause provided, “the Contractor shall proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under the contract, and comply with any decision of the contracting officer.” FAR 52-233-1(h). In explaining this duty, the Court cited the CDA’s legislative history:

“the rights of Government contractors . . . are unique since they have been required by the language of the contract, for example, . . . the disputes article, to perform the work as directed by the Government without stopping to litigate. Thus, Government contractors must perform and then argue about the amount of the equitable adjustment at some later time.”

The Court further noted that the duty to proceed exists regardless of whose interpretation of the contract is deemed to be ultimately correct, and the purpose of this covenant is to prevent an interruption of the work. Hence, the changes doctrine is fundamentally linked to the contractor’s continued performance while the dispute is pending.

Applying these principles to the facts, the Court held that Valley View’s attempt to link its obligation to perform to a change order to be fatal to its claim. The Court explained: “the Disputes clause requires that work be done despite a disagreement as to liability, leaving the determination of liability for a later date.” Thus, allowing a plaintiff to demand a judicial determination prior to the work being performed would result in precisely the harm the duty to proceed is designed to prevent — delay.

The Court also rejected Valley View’s argument the Federal Courts Administration Act of 1992 (the “1992 Act) conferred jurisdiction over the dispute. Although the 1992 Act expanded the Court’s jurisdiction to include nonmonetary claims, the Court found that Congress gave no intention of a desire to relinquish the Government’s contractual right to have the contractor perform pending resolution of a dispute.

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