Exhaustion of administrative remedies serves two main purposes. First, it protects administrative agency authority. On this point, the Supreme Court has explained that the exhaustion doctrine recognizes the notion, grounded in deference to Congress' delegation of authority to coordinate branches of Government, that agencies, not the courts, ought to have primary responsibility for the programs that Congress has charged them to administer. Exhaustion gives an agency an opportunity to correct its own mistakes before it is haled into federal court.
Secondly, exhaustion promotes judicial efficiency. Claims generally can be resolved much more quickly and economically in proceedings before an agency than in litigation in federal court. In come cases, claims are settled at the administrative level, and in others, the proceedings before the agency convince the losing party not to pursue the matter in federal court. Even if litigation ensues, however, exhaustion of the administrative procedure may narrow the issues and produce a useful record for subsequent judicial consideration.
Exhaustion may be required by statute, regulation, or judicially-created common law. It is common for an agency's regulations to require issue exhaustion in administrative appeals. The fact that the administrative remedy was provided by a regulation rather than by a statute does not make the exhaustion doctrine inapplicable or inappropriate. Where a regulation requires exhaustion, a party's failure to exhaust administrative remedies precludes judicial review of its claim. When a regulation provides for exhaustion, courts reviewing agency action regularly ensure against the bypassing of that requirement by refusing to consider issues that have not been exhausted.
Under this doctrine, contractors (or prospective contractors) cannot appeal an Agency's actions or inaction until all administrative actions have been exhausted.