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decided: April 10, 1967.



Warren, Black, Douglas, Clark, Harlan, Brennan, Stewart, White, Fortas

Author: White

[ 386 U.S. Page 505]

 MR. JUSTICE WHITE delivered the opinion of the Court.

The standard disputes clause in government contracts requires that "any dispute concerning a question of fact arising under this contract," not disposed of by agreement, shall be decided by the contracting officer, with the right of appeal within 30 days to the department head or his representative (normally a board of contract appeals) whose decision shall be final "unless determined by a court of competent jurisdiction to have been fraudulent, arbitrary, capricious, or so grossly erroneous as necessarily to imply bad faith."*fn1 The "arising under" claims

[ 386 U.S. Page 506]

     subject to final administrative determination are those claims asserted under other clauses of the contract calling for equitable adjustment of the purchase price or extensions of time upon the occurrence of certain events.*fn2 One of these clauses is the so-called "changes" clause which permits the contracting officer to make changes within the scope of the contract, provides that if any change causes an increase or decrease in the cost of, or the time required for the performance of, the work, "an equitable adjustment shall be made in the contract price or delivery schedule," and states that failure to agree upon an adjustment shall be a question of fact within the meaning of the disputes clause.*fn3

[ 386 U.S. Page 507]

     This case involves a claim for an equitable adjustment, asserted under the changes clause and rejected by the contracting officer and the Armed Services Board of Contract Appeals. The contractor brought suit in the District Court under 28 U. S. C. § 1346*fn4 alleging that the decision of the Board was arbitrary, capricious and not supported by substantial evidence. The District Court dismissed the case as barred by 28 U. S. C. § 2401 (a) which provides that "Every civil action commenced against the United States shall be barred unless the complaint is filed within six years after the right of action first accrues . . . ." The principal question here is whether the "right of action" with respect to a claim within the disputes clause first accrues at the time of the final administrative action or at an earlier date.

The facts are quite simple. On May 14, 1956, petitioner contracted with the United States to furnish a specified number of canteen covers which were to be

[ 386 U.S. Page 508]

     lined with mildew-resistant felt of certain specifications. The Government, which was authorized to inspect materials to be used under the contract, tested and rejected certain samples of felt purchased by petitioner because they allegedly did not contain the contract quantities of mildew inhibitors. Petitioner agreed to a price reduction, however, and was permitted to complete the contract. Final delivery, originally scheduled for October 11, 1956, was made on December 14, 1956. Allegedly, in March 1959, petitioner first discovered the nature of the tests which the United States had performed on the felt. Claiming that the use of such tests was not within the contemplation of the contract and constituted a change in contract specifications, petitioner filed a claim with the contracting officer in October 1961, demanding an equitable adjustment in the contract price in the form of a refund of the price reduction and compensation for increased costs occasioned by substantial delay resulting from the Government's rejection of the felt samples. The contracting officer denied the claim. On February 28, 1963, the Board of Contract Appeals affirmed the contracting officer's decision. On July 31, 1963, more than six years after petitioner had completed performance of the contract, petitioner brought suit in the District Court alleging that the Board's decision was capricious, arbitrary and not supported by substantial evidence and that it was entitled to an equitable adjustment as provided in the contract. The United States, among other things, denied that the claim was within the disputes clause and asserted that the suit was time-barred by § 2401 (a). Without deciding whether the claim arose under the contract within the meaning of the disputes clause, the District Court dismissed the suit as barred by the statute of limitations. The Court of Appeals, sitting en banc, affirmed in a five-to-four decision. 363 F.2d 407. Relying on McMahon v. United States, 342 U.S. 25, and its own

[ 386 U.S. Page 509]

     decision in States Marine Corp. of Delaware v. United States, 283 F.2d 776, which arose under the Suits in Admiralty Act, the majority below concluded that the right of action first accrued no later than December 14, 1956, the date of the final delivery of the disputed canteen covers, and was therefore time-barred by § 2401 (a). The court disagreed with the decision of the Court of Appeals for the Third Circuit in Northern Metal Co. v. United States, 350 F.2d 833, which, like States Marine, supra, involved the Suits in Admiralty Act. 41 Stat. 525, as amended. The Court of Appeals for the Third Circuit had agreed with States Marine as to when the time bar begins to run but had held that the statute was tolled during the pendency of the administrative proceedings. Because of this apparent conflict, we granted certiorari, 385 U.S. 811. We reverse.

Since the decision below, the Court of Claims has decided Nager Electric Co., Inc. v. United States, 177 Ct. Cl. 234, 368 F.2d 847, a unanimous decision by that court supported by an exhaustive opinion by Judge Davis dealing with the application of the "first accrual" language of 28 U. S. C. § 2501*fn5 to both breach and disputes clause claims under the typical government contract. The conclusion of the Court of Claims was that it would adhere to what it considered to be its long-standing rule: (1) when administrative proceedings with respect to a contractor's claim subject to the disputes clause extend beyond the completion of the contract, his right of action first accrues when the administrative action is final,*fn6 and not before,

[ 386 U.S. Page 510]

     and (2) when the contractor has breach claims as well as disputes clause claims the statute begins to run on breach claims as well only at the conclusion of administrative action on the claims arising under the contract.*fn7 As will be evident below, we do not reach the question of breach claims in this case. But with respect to claims arising under the contract, such as one asserted under the ...

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