A-38333, APRIL 8, 1932, 11 COMP. GEN. 384

A-38333: Apr 8, 1932

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

WHERE MATERIAL IS NOT DELIVERED AFTER A REASONABLE PERIOD OF DELAY. IN THIS CONNECTION ATTENTION IS INVITED TO LETTER FROM CHIEF OF FINANCE. IN WHICH IT WAS ADVISED THAT THE LIQUIDATED DAMAGES WITHHELD FROM THE BEARING SERVICE COMPANY HAS BEEN REFUNDED TO THEM. THE BEARING SERVICE COMPANY'S ORDER WAS PLACED UNDER EXACTLY THE SAME CONDITIONS AS THE ORDER WITH THE CUNNINGHAM COMPANY. THE MATERIAL COVERED BY THEIR CONTRACT WAS REQUIRED FOR THE REPAIR OF THE SAME VEHICLE. AS WERE ALL ITEMS APPEARING ON CA-31-30. IN VIEW OF THE ACTION TAKEN IN THEIR CASE IT SEEMS USELESS FOR THIS OFFICE TO ATTEMPT ANY ACTION WHICH WILL INSURE PROMPT DELIVERY. IF THE AMOUNT WITHHELD ON ACCOUNT OF DEFAULT IN CONTRACT ARE PROMPTLY REFUNDED BY THE GENERAL ACCOUNTING OFFICE.

A-38333, APRIL 8, 1932, 11 COMP. GEN. 384

CONTRACTS - LIQUIDATED DAMAGES LIQUIDATED DAMAGES SHOULD NOT BE PERMITTED TO RUN ON INDEFINITELY UNDER SUPPLY CONTRACTS UNTIL THE AMOUNT THEREOF EXCEEDS THE CONTRACT PRICE FOR THE MATERIAL. WHERE MATERIAL IS NOT DELIVERED AFTER A REASONABLE PERIOD OF DELAY, THE CONTRACT SHOULD BE TERMINATED AFTER NOTICE TO THE CONTRACTOR, AND THE SUPPLIES PURCHASED IN THE OPEN MARKET AN ANY EXCESS COST CHARGED TO THE CONTRACTOR. (SEE 11 COMP. GEN. 386.)

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF WAR, APRIL 8, 1932:

MY ATTENTION HAS BEEN BROUGHT TO A THIRD INDORSEMENT DATED JULY 10, 1931, FROM E. M. SHINKLE, LIEUTENANT COLONEL, ORDNANCE DEPARTMENT,

IN THIS CONNECTION ATTENTION IS INVITED TO LETTER FROM CHIEF OF FINANCE, DATED MAY 28TH, FAC 167/146738, BEARING SERVICE COMPANY, IN WHICH IT WAS ADVISED THAT THE LIQUIDATED DAMAGES WITHHELD FROM THE BEARING SERVICE COMPANY HAS BEEN REFUNDED TO THEM. THE BEARING SERVICE COMPANY'S ORDER WAS PLACED UNDER EXACTLY THE SAME CONDITIONS AS THE ORDER WITH THE CUNNINGHAM COMPANY, AND THE MATERIAL COVERED BY THEIR CONTRACT WAS REQUIRED FOR THE REPAIR OF THE SAME VEHICLE, AS WERE ALL ITEMS APPEARING ON CA-31-30. IN VIEW OF THE ACTION TAKEN IN THEIR CASE IT SEEMS USELESS FOR THIS OFFICE TO ATTEMPT ANY ACTION WHICH WILL INSURE PROMPT DELIVERY, IF THE AMOUNT WITHHELD ON ACCOUNT OF DEFAULT IN CONTRACT ARE PROMPTLY REFUNDED BY THE GENERAL ACCOUNTING OFFICE. SUCH ACTION LEAVES THE CONTRACTING OFFICER ENTIRELY AT THE MERCY OF THE CONTRACTOR. THEY MAY BID, MAKE ANY PROMISE THEY CHOOSE REGARDING DELIVERY, AND ACTUALLY COMPLETE THE CONTRACT OR DELIVERY OF MATERIAL AT THEIR CONVENIENCE, AND THE ONLY PENALTY SUFFERED IS THE SLIGHT INCONVENIENCE OF FILING A CLAIM WITH THE GENERAL ACCOUNTING OFFICE.

THE FACTS IN THE MATTER OF THE BEARING SERVICE CO. ARE THAT ON NOVEMBER 3, 1930, THERE WAS AN ADVERTISEMENT FOR PROPOSALS TO BE OPENED NOVEMBER 11, 1930, FOR FURNISHING CERTAIN MATERIAL, INCLUDING BEARINGS, TO THE ABERDEEN PROVING GROUND. PROSPECTIVE BIDDERS WERE NOTIFIED THAT PRICES WERE TO BE F.O.B. ABERDEEN, MD., AND THAT:

ALL MATERIAL IS URGENTLY NEEDED; THEREFORE, TIME OF DELIVERY AS WELL AS PRICE WILL BE CONSIDERED IN MAKING AWARD. LIQUIDATED DAMAGES WILL BE ASSESSED AT 2 PERCENT PER DAY IN CASE OF DEFAULT IN DELIVERY.

THE PROPOSAL APPEARS TO HAVE BEEN ON STANDARD FORM NO. 31, STANDARD GOVERNMENT FORM OF BID, AND ACCORDING TO THE PRINTED TERMS THEREOF THE CONTRACTOR AGREED "UPON RECEIPT OF WRITTEN NOTICE OF THE ACCEPTANCE OF THIS BID," TO MAKE DELIVERY WITHIN 10 DAYS. THE ORDER WAS DATED NOVEMBER 19, 1930, AND THE CONTRACTOR ACKNOWLEDGED RECEIPT THEREOF ON NOVEMBER 22, 1930. DELIVERY OF THE MATERIAL IS REPORTED IN THIRD INDORSEMENT, DATED FEBRUARY 12, 1931, FROM THE FINANCE OFFICE AT THE ABERDEEN PROVING GROUND TO HAVE BEEN MADE AT THE POST ON DECEMBER 2, 1930. THEREFORE, IN SETTLEMENT NO. 0252965, DATED MAY 14, 1931, THE DEDUCTION OF $21.60 LIQUIDATED DAMAGES WAS CERTIFIED FOR PAYMENT TO THE CONTRACTOR--- IT BEING EVIDENT THAT DELIVERY ON DECEMBER 2, 1930, AT THE POST WAS IN ACCORDANCE WITH THE TERMS OF THE ACCEPTED PROPOSAL THAT DELIVERY BE MADE WITHIN 10 DAYS FROM THE RECEIPT OF THE ORDER. THERE THUS APPEARS TO BE NO BASIS OF FACT FOR THE STATEMENTS MADE IN THE AFORESAID THIRD INDORSEMENT OF JULY 10, 1931, FROM LIEUT. COL. E.M. SHINKLE. THE OFFICER FURTHER COMMENTS THAT CONTRACTORS "MAY BID, MAKE ANY PROMISE THEY CHOOSE REGARDING DELIVERY, AND ACTUALLY COMPLETE THE CONTRACT OR DELIVERY OF MATERIAL AT THEIR CONVENIENCE, AND THE ONLY PENALTY SUFFERED IS THE SLIGHT INCONVENIENCE OF FILING A CLAIM WITH THE GENERAL ACCOUNTING OFFICE.'

THE TRUE OFFICE OF A PROVISION FOR LIQUIDATED DAMAGES IS TO AGREE UPON--- THAT IS, LIQUIDATE--- THE AMOUNT OF THE DAMAGES WHICH THE DEFAULTING PARTY MUST PAY IN THE EVENT THE PERFORMANCE OF THE AGREEMENT IS NOT ACCOMPLISHED WITHIN THE TIME STIPULATED BY ITS TERMS. THE LIQUIDATION OF THE DAMAGES IS AGREED UPON BEFOREHAND, BECAUSE THERE IS NO OTHER MEASURE OF DAMAGE TO BE APPLIED TO THE DEFAULT BECAUSE OF THE NATURE OF THE SUBJECT MATTER. WHERE THE SUBJECT MATTER IS SUCH THAT IT CAN READILY BE PERFORMED THROUGH OTHER SOURCES, THEN A LIQUIDATED DAMAGE PROVISION FOR DEFAULT SHOULD NOT APPEAR IN THE AGREEMENT BETWEEN THE PARTIES, BECAUSE THE ACTUAL DAMAGES CAN BE ASCERTAINED THROUGH PROCUREMENT OF THE SUBJECT MATTER FROM OTHERS; THAT IS TO SAY, THE SUBJECT MATTER IS SUCH THAT IT MAY BE PROCURED IN THE OPEN MARKET, ALTHOUGH PERHAPS AT A HIGHER PRICE THAN UNDER THE AGREEMENT. ORDINARY SUPPLIES ARE GENERALLY PROCURABLE IN THE OPEN MARKET, AND IF A SELLER FAILS TO DELIVER AS AGREED WITHIN A STIPULATED TIME, THEN THE ADMINISTRATIVE COURSE CAN NOT REASONABLY PERMIT THE RUNNING ON OF TIME INDEFINITELY, BUT THE SUPPLIES SHOULD BE PROCURED IN THE OPEN MARKET AND THE DEFAULTING PARTY CHARGED WITH THE DIFFERENCE IN COST. SUCH IS THE RULE TO BE OBSERVED RATHER THAN A STIPULATION FOR LIQUIDATED DAMAGES. IF, NEVERTHELESS, THERE BE A LIQUIDATED DAMAGE PROVISION IN SUCH AN AGREEMENT FOR THE PURCHASE OF ORDINARY SUPPLIES AND DEFAULT SHOULD OCCUR, THERE SHOULD NOT BE PERMITTED THE RUNNING OF TIME INDEFINITELY, THE RESULT OF WHICH WOULD MAKE THE LIQUIDATED DAMAGES CHARGEABLE EXCEED THE CONTRACT PRICE OF THE SUPPLIES TO BE DELIVERED. THEN, IN SUCH CASE, IF PROCUREMENT HAS NOT BEEN IN THE OPEN MARKET, IT IS NOT BELIEVED ORDINARILY THERE CAN BE A CHARGING OF LIQUIDATED DAMAGES BEYOND THE VALUE OF THE THING, AS IT WOULD RESULT IN TAKING THE THING AND DEMANDING FROM THE DEFAULTING PARTY A FURTHER SUM. THE LAW IMPOSES THE DUTY UPON A PARTY SUBJECTED TO INJURY BY THE ACTION OF ANOTHER TO CONSERVE THE DAMAGES WHICH RESULT FROM SUCH WRONGFUL ACTION, AND THAT MUST BE AS TRUE WHERE LIQUIDATED DAMAGES RUN AS IN THE ORDINARY CASE OF ACTUAL DAMAGES. EFFORTS MUST BE MADE TO PROCURE THE THING ELSEWHERE IF DELIVERY IS NOT FORTHCOMING WITHIN A REASONABLE TIME AFTER THE DEFAULT OCCURS. WHILE THE COURSE TO BE FOLLOWED MUST DEPEND UPON THE FACTS IN EACH CASE, YET THE RULE MAY BE STATED THAT DAMAGES BEGINNING TO RUN MUST BE CONSERVED AND AS PROMPTLY AS POSSIBLE, ACCORDING TO WHAT MAY BE THE ATTITUDE OF THE OTHER PARTY RESPECTING DELIVERY, ADMINISTRATIVE ACTION SHOULD BE TAKEN TO PROCURE THE SUPPLIES ELSEWHERE.