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GCN Home > April 15, 2002 issue

FEDERAL CONTRACT LAW

Why contractors must work during disputes

By Joseph J. Petrillo

“But in all contracts, if one party fails to perform his share of the compact, is not the other virtually absolved from his liability? Who is there who will not answer in the affirmative?” —Herman Melville in Typee, 1846

Who? The short answer to Melville’s question is the U.S. government. Federal contracts have long required contractors to continue performing in spite of disputes, even a breach of contract by the government itself.

This duty is imposed by the venerable disputes clause. This ancient provision is a bit broader than that, and covers any “request for relief, claim, appeal or action.” And the contractor can’t drag its feet; the clause says it must perform diligently.

The current version of this clause, in Federal Acquisition Regulation section 52.233-1, covers all disputes “arising under the contract.” This is a term of art, meaning it applies to all matters for which a contract clause provides relief.

For instance, the changes clause permits the government to make certain contract changes unilaterally, and the contractor gets in return an “equitable adjustment” in price and/or schedule. The availability of a remedy, namely the equitable adjustment, means that any disagreement about the change, such as the amount of the price adjustment, is a dispute arising under the contract, and so covered by the basic clause.

But the clause has an option, called Alternate I, which the government often uses. It covers disagreements that arise from or relate to the contract. “Relating to” includes matters for which contract clauses provide no relief, matters that would constitute a breach of contract. One example might be the government’s failure to order the minimum quantity under an indefinite-quantity contract.

The distinction between disputes and breaches has a long history. Before the Contract Disputes Act of 1978, the boards of contract appeals had jurisdiction only over disputes. After the act, they could rule on matters involving breaches—that is, disputes relating to but not arising under the contract.

But, you might ask, is this scheme legal? Doesn’t the 13th Amendment to the Constitution prohibit slavery and involuntary servitude? How can the government compel a contractor to continue to work?

Well, it can, in spite of the 13th Amendment—the Supreme Court says so. In an 1897 case, the Supreme Court held that an officer of the law could return a seaman to his vessel if the sailor had signed on for the duration of a voyage. The Supreme Court ruling would have chilled the bones of Melville, who wrote Typee about his experiences after jumping ship for a stay in a South Sea paradise.

The Supreme Court later ruled that the same amendment didn’t prohibit service on a jury, in the military or even labor on public roads as required by one state law. The amendment didn’t shield unions from injunctions in labor disputes.

Exceptions to the duty to continue work are few and far between. Just know that the disputes clause grants the government an extraordinary degree of power over contractors. Because continued performance might be critical to vital public functions, this power is sometimes justified. But the government should have a corresponding duty not to abuse this unusual power.

Joseph J. Petrillo is an attorney with the Washington law firm of Petrillo & Powell. E-mail him at jp@petrillopowell.com.