A-4013, SEPTEMBER 18, 1924, 4 COMP. GEN. 306

A-4013: Sep 18, 1924

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WHEREIN WAS DISALLOWED CREDIT FOR $1. CREDIT FOR THE AMOUNT OF THE LIQUIDATED DAMAGES NOT DEDUCTED WAS DISALLOWED ON THE GROUND THAT THE DELAY IN COMPLETION OF THE WORK DID NOT RESULT FROM CAUSES ENTITLING THE CONTRACTORS TO AN EXTENSION OF TIME WITH REMISSION OF LIQUIDATED DAMAGES. THE SECRETARY OF THE TREASURY WAS THEREBY "AUTHORIZED AND EMPOWERED TO REMIT THE WHOLE OR ANY PART OF SUCH DAMAGES AS IN HIS DISCRETION MAY BE JUST AND EQUITABLE. WAS UNDER THE CONTROL OF THE TREASURY DEPARTMENT. CONTAINED A STIPULATION THAT: IT IS EXPRESSLY COVENANTED AND AGREED BY AND BETWEEN THE PARTIES HERETO THAT TIME IS AND SHALL BE CONSIDERED AS OF THE ESSENCE OF THE CONTRACT ON THE PART OF THE PARTY OF THE SECOND PART.

A-4013, SEPTEMBER 18, 1924, 4 COMP. GEN. 306

PUBLIC BUILDING CONTRACTS--- LIQUIDATED DAMAGE CLAUSE THE ACT OF JUNE 6, 1902, 32 STAT. 326, REQUIRING THE INSERTION OF A LIQUIDATED DAMAGE STIPULATION IN PUBLIC BUILDING CONTRACTS UNDER THE CONTROL OF THE TREASURY DEPARTMENT DECLARES GENERAL PRINCIPLES OF LAW IN MAKING SUCH STIPULATION BINDING ON BOTH PARTIES AND THE AUTHORITY THEREIN GIVEN TO THE SECRETARY OF THE TREASURY TO REMIT LIQUIDATED DAMAGES "AS IN HIS DISCRETION MAY BE JUST AND EQUITABLE" CONTEMPLATES THE EXERCISE OF LEGAL DISCRETION AND AUTHORIZES THE REMISSION OF LIQUIDATED DAMAGES ONLY FOR CAUSES SPECIFIED IN THE CONTRACT, OR FOR DELAYS WHICH UNDER GENERAL PRINCIPLES OF CONTRACT LAW AUTHORIZE REMISSION OF LIQUIDATED DAMAGES, OR FOR DELAYS FOR WHICH IT WOULD BE INEQUITABLE AND UNJUST TO HOLD THE CONTRACTOR RESPONSIBLE.

DECISION BY COMPTROLLER GENERAL MCCARL, SEPTEMBER 18, 1924:

THE SECRETARY OF THE TREASURY REQUESTED, JULY 12, 1924, REVIEW OF SETTLEMENT NO. C-11467-T, DATED JUNE 10, 1924, OF THE ACCOUNTS OF J. L. SUMMERS, DISBURSING CLERK, TREASURY DEPARTMENT, WHEREIN WAS DISALLOWED CREDIT FOR $1,050 AS LIQUIDATED DAMAGES NOT DEDUCTED FROM $6,165.35 PAID ON VOUCHER NO. 1, DECEMBER, 1923, ACCOUNTS UNDER CONTRACT DATED JULY 17, 1922, WITH DEVAULT AND DEITRICK FOR THE CONSTRUCTION OF A POST OFFICE AND CUSTOMHOUSE BUILDING AT APALACHICOLA, FLA. CREDIT FOR THE AMOUNT OF THE LIQUIDATED DAMAGES NOT DEDUCTED WAS DISALLOWED ON THE GROUND THAT THE DELAY IN COMPLETION OF THE WORK DID NOT RESULT FROM CAUSES ENTITLING THE CONTRACTORS TO AN EXTENSION OF TIME WITH REMISSION OF LIQUIDATED DAMAGES.

THE ACT OF JUNE 6, 1902, 32 STAT. 326, PROVIDED THAT THEREAFTER IN ALL CONTRACTS FOR THE CONSTRUCTION AND REPAIR OF ANY PUBLIC BUILDING OR PUBLIC WORKS UNDER THE CONTROL OF THE TREASURY DEPARTMENT A STIPULATION SHOULD BE INSERTED FOR LIQUIDATED DAMAGES FOR DELAY, AND THE SECRETARY OF THE TREASURY WAS THEREBY "AUTHORIZED AND EMPOWERED TO REMIT THE WHOLE OR ANY PART OF SUCH DAMAGES AS IN HIS DISCRETION MAY BE JUST AND EQUITABLE," WITH THE FURTHER PROVISION THAT IN ALL SUITS UNDER SUCH CONTRACTS "IT SHALL NOT BE NECESSARY FOR THE UNITED STATES, WHETHER PLAINTIFF OR DEFENDANT, TO PROVE ACTUAL OR SPECIFIC DAMAGES SUSTAINED BY THE GOVERNMENT BY REASON OF DELAYS.' THE CONSTRUCTION OF THE POST OFFICE AND CUSTOMHOUSE BUILDING AT APALACHICOLA, FLA., WAS UNDER THE CONTROL OF THE TREASURY DEPARTMENT, AND THE CONTRACT OF JULY 17, 1922, REQUIRED COMPLETION OF THE BUILDING AND OF ALL ITS PARTS WITHIN 12 MONTHS OF THE DATE OF THE CONTRACT AND, CONFORMABLY TO THE ACT OF JUNE 6, 1902, SUPRA, CONTAINED A STIPULATION THAT:

IT IS EXPRESSLY COVENANTED AND AGREED BY AND BETWEEN THE PARTIES HERETO THAT TIME IS AND SHALL BE CONSIDERED AS OF THE ESSENCE OF THE CONTRACT ON THE PART OF THE PARTY OF THE SECOND PART, AND IN THE EVENT THAT THE SAID PARTY OF THE SECOND PART SHALL FAIL IN THE DUE PERFORMANCE OF THE ENTIRE WORK TO BE PERFORMED UNDER THIS CONTRACT, BY AND AT THE TIME HEREIN MENTIONED OR REFERRED TO, THE SAID PARTY OF THE SECOND PART SHALL PAY UNTO THE PARTY OF THE FIRST PART, AS AND FOR LIQUIDATED DAMAGES, AND NOT AS A PENALTY, THE SUM OF TEN DOLLARS FOR EACH AND EVERY DAY THE SAID PARTY OF THE SECOND PART SHALL BE IN DEFAULT, WHICH SAID LAST-NAMED SUM PER DAY, IN VIEW OF THE DIFFICULTY OF ESTIMATING SUCH DAMAGES WITH EXACTNESS, IS HEREBY EXPRESSLY FIXED, ESTIMATED, COMPUTED, DETERMINED, AND AGREED UPON AS THE DAMAGES WHICH WILL BE SUFFERED BY THE PARTY OF THE FIRST PART BY REASON OF SUCH DEFAULT, AND IT IS UNDERSTOOD AND AGREED BY THE PARTIES TO THIS CONTRACT THAT THE LIQUIDATED DAMAGES HEREINBEFORE MENTIONED ARE IN LIEU OF THE ACTUAL DAMAGES ARISING FROM SUCH BREACH OF THIS CONTRACT; WHICH SAID SUM THE SAID PARTY OF THE FIRST PART SHALL HAVE THE RIGHT TO DEDUCT FROM ANY MONEYS IN ITS HANDS OTHERWISE DUE, OR TO BECOME DUE, TO THE SAID PARTY OF THE SECOND PART, OR TO SUE FOR AND RECOVER COMPENSATION OR DAMAGES FOR THE NONPERFORMANCE OF THIS CONTRACT AT THE TIME OR TIMES HEREIN STIPULATED OR PROVIDED FOR.

THE CONTRACT FURTHER PROVIDED THAT THE CONTRACTORS SHOULD HAVE AN EXTENSION OF TIME EQUAL TO ANY DELAYS CAUSED BY THE UNITED STATES IS SUSPENDING THE WHOLE OR ANY PART OF THE WORK AND THAT---

* * * A SIMILAR ALLOWANCE OF EXTRA TIME WILL BE MADE FOR SUCH OTHER DELAYS AS THE SUPERVISING ARCHITECT MAY FIND TO HAVE BEEN CAUSED BY THE UNITED STATES, PROVIDED THAT A WRITTEN CLAIM THEREFOR IS PRESENTED BY THE CONTRACTOR WITHIN TEN DAYS OF THE OCCURRENCE OF SUCH DELAYS; PROVIDED FURTHER, THAT NO CLAIM SHALL BE MADE OR ALLOWED TO THE CONTRACTOR FOR ANY DAMAGES WHICH MAY ARISE OUT OF ANY DELAY CAUSED BY THE UNITED STATES.

THE "WORK WAS PRACTICALLY COMPLETED ON OCTOBER 31, 1923," OR AFTER A DELAY OF 2 MONTHS AND 14 DAYS. ON SEPTEMBER 15, 1922, THE CONTRACTORS REPORTED THAT THEY WERE BEING DELAYED ON ACCOUNT OF INABILITY TO SECURE CEMENT, WHICH DELAY THEY ATTRIBUTED TO COAL AND RAILROAD STRIKES, AND ON NOVEMBER 1, 1922, THEY REQUESTED THE SUPERVISING ARCHITECT TO FORWARD FULL -SIZE DETAILS IN CONNECTION WITH THE INTERIOR FINISH OF THE BUILDINGS, WHICH SHOULD HAVE BEEN THERETOFORE FURNISHED, BUT WERE NOT FURNISHED UNTIL DECEMBER 30, 1922. SEE PLUMLEY V UNITED STATES, 226 U.S. 545. THE SUPERVISING ARCHITECT, IN LETTER DATED DECEMBER 8, 1923, TO THE SECRETARY OF THE TREASURY, REFERRED TO A REPORT OF THE SUPERVISING SUPERINTENDENT AS FOLLOWS:

* * * HE * * * STATED THAT THERE HAD BEEN NO DELAYS OF CONSEQUENCE IN CONNECTION WITH THE CONTRACT, EXCEPT FOR A PERIOD OF 30 DAYS ON ACCOUNT OF FAILURE TO RECEIVE MATERIAL AND A SIMILAR PERIOD ON ACCOUNT OF INCLEMENT WEATHER. NONE OF THE DELAYS WERE DUE TO NEGLIGENCE ON THE PART OF THE CONTRACTOR AND HE RECOMMENDED THAT ALL PENALTY BE WAIVED AND FULL PAYMENT MADE. HE SUBMITTED A LETTER FROM THE CONTRACTOR IN REGARD TO THE DELAYS IN WHICH THEY ATTRIBUTED THE SAME TO FAILURE TO PROVIDE SUFFICIENT PLASTER AND STUCCO MATERIAL ON TIME, DUE TO OVERESTIMATES MADE IN THEIR OFFICE AND IN THE OFFICE OF THE SUBCONTRACTOR, AND THAT THIS DELAY WAS AGGRAVATED BY THE LACK OF PROPER MATERIAL IN NEAR-BY CITIES, NECESSITATING SHIPMENT OF CONSIDERABLE QUANTITIES BY EXPRESS; THAT NEITHER TROUBLE NOR EXPENSE WAS SPARED IN RECTIFYING THE ERROR WITH THE LEAST POSSIBLE DELAY. AND RECOMMENDED THAT THE LIQUIDATED DAMAGES STIPULATED IN THE CONTRACT BE WAIVED. THE RECOMMENDATION WAS APPROVED AS MADE AND AS HERETOFORE STATED, THE FINAL PAYMENT UNDER THE CONTRACT WAS MADE BY THE DISBURSING CLERK OF THE TREASURY DEPARTMENT WITHOUT DEDUCTION OF LIQUIDATED DAMAGES FOR ALL OR ANY PART OF THE 2 MONTHS AND 14 DAYS' DELAY IN COMPLETION OF THE BUILDING.

THE ACT OF JUNE 6, 1902, REQUIRING THE INSERTION OF A STIPULATION FOR LIQUIDATED DAMAGES IN ALL CONTRACTS THEREAFTER ENTERED INTO FOR THE CONSTRUCTION OF PUBLIC BUILDINGS OR PUBLIC WORKS UNDER THE CONTROL OF THE TREASURY DEPARTMENT, PROVIDING THAT THE STIPULATION SHOULD BE BINDING ON BOTH PARTIES, AND AUTHORIZING AND EMPOWERING THE SECRETARY OF THE TREASURY TO REMIT THE WHOLE OR ANY PART OF SUCH DAMAGES AS IN HIS DISCRETION MIGHT BE JUST AND EQUITABLE, WAS ENACTED BY THE CONGRESS AT A TIME WHEN THE DECISIONS OF BOTH THE ACCOUNTING OFFICERS AND THE COURTS WERE INCLINED TO PLACE A STRICT CONSTRUCTION ON LIQUIDATED DAMAGE PROVISIONS IN CONTRACTS AND TO HOLD, ON SLIGHT PRETEXT, THAT THEIR ENFORCEMENT WOULD RESULT IN THE EXACTION OF A PENALTY. SHORTLY THEREAFTER AND ON DECEMBER 13, 1902, THE UNITED STATES SUPREME COURT IN SUN PRINTING AND PUBLISHING CO. V MOORE, 183 U.S. 642, EXHAUSTIVELY CONSIDERED THE QUESTION OF LIQUIDATED DAMAGES AND HELD THAT PARTIES MAY, IN A CASE WHERE THE DAMAGES ARE OF AN UNCERTAIN NATURE, ESTIMATE AND AGREE UPON THE MEASURE OF DAMAGES WHICH MAY BE SUSTAINED FROM THE BREACH OF AN AGREEMENT AND THAT THE NAMING OF A STIPULATED SUM TO BE PAID FOR NONPERFORMANCE OF A CONTRACT IS CONCLUSIVE UPON THE PARTIES IN THE ABSENCE OF FRAUD OR MUTUAL MISTAKE. THE HOLDING HAS BEEN SUBSEQUENTLY AFFIRMED IN MANY CASES, INCLUDING WISE V UNITED STATES, 249 U.S. 361, AND ROBINSON V UNITED STATES, 261 U.S. 486. THE ACT OF JUNE 6, 1902, WHICH MUST BE READ INTO AND AS A PART OF EACH PUBLIC BUILDING CONTRACT UNDER THE CONTROL OF THE TREASURY DEPARTMENT, MERELY EXPRESSES THE GENERAL PRINCIPLES OF LAW ON THE BINDING EFFECT OF A LIQUIDATED DAMAGE PROVISION IN A CONTRACT, WITH THE ADDITIONAL AUTHORITY IN THE SECRETARY OF THE TREASURY TO REMIT THE WHOLE OR ANY PART OF SUCH DAMAGES "AS IN HIS DISCRETION MAY BE JUST AND EQUITABLE.'

BY ITS CONTRACT THE GOVERNMENT ACQUIRED A RIGHT TO COMPLETION OF THE WORK AT THE TIME SPECIFIED THEREIN, AND ANY DELAY BEYOND SUCH DATE NECESSARILY OPERATED TO ITS DAMAGE. FOR EXCUSABLE DELAYS AS DEFINED BY THE CONTRACT NO COMPENSATION FOR THE DAMAGE WAS CHARGEABLE, BUT FOR DELAYS RESULTING FROM OTHER CAUSES DAMAGES ACCRUED, AND TO AVOID THE NECESSITY OF ESTABLISHING BY PROOF THE AMOUNT OF SUCH DAMAGE, THE ACT OF JUNE 6, 1902, SUPRA, PROVIDED THAT THE AMOUNT OF SUCH DAMAGE SHOULD BE AGREED UPON IN ADVANCE AND STIPULATED IN THE CONTRACT, AS WAS DONE.

THE ACT OF 1902 IS NOT, OF COURSE, AUTHORITY FOR SIMPLY WAIVING DAMAGES THAT HAVE ACCRUED IN FAVOR OF THE UNITED STATES UNDER A BUILDING CONTRACT AND WHICH IN EQUITY AND GOOD CONSCIENCE THE UNITED STATES IS ENTITLED TO DEDUCT FROM FUNDS DUE FROM IT TO THE CONTRACTOR OR TO OTHERWISE RECOVER FROM THE CONTRACTOR. ANY REMISSION OF SUCH DAMAGE BY THE SECRETARY MUST NOT ONLY BE JUST AND EQUITABLE TO THE CONTRACTOR BUT JUST AND EQUITABLE TO THE UNITED STATES, WHICH HAS NECESSARILY SUSTAINED DAMAGE BY REASON OF THE DELAY--- THE MEASURE OF WHICH DAMAGE WAS KNOWN TO THE CONTRACTOR PRIOR TO MAKING BID AND WAS SUBSEQUENTLY AGREED TO IN THE CONTRACT--- AND BY REASON OF WHICH THE UNITED STATES WAS DOUBTLESS REQUIRED TO PAY AN INCREASED CONTRACT PRICE. IN OTHER WORDS, THE DISCRETION WHICH THE SECRETARY OF THE TREASURY MAY EXERCISE IN THE REMISSION OF LIQUIDATED DAMAGES, EITHER IN WHOLE OR IN PART, IS A LEGAL DISCRETION, AND, AS STATED IN PACIFIC HARDWARE CO. V UNITED STATES, 49 CT. CLS. 327, 335: "IT IS UNQUESTIONABLY TRUE THAT AN OFFICIAL OF THE GOVERNMENT IS NOT AUTHORIZED TO GIVE AWAY OR REMIT A CLAIM DUE THE GOVERNMENT. THIS RULE IS GROUNDED IN A SOUND PUBLIC POLICY AND IS NOT TO BE WEAKENED," ALSO, THAT WHERE DAMAGES ARE AUTHORIZED TO BE REMITTED IN THE DISCRETION OF AN OFFICIAL OF THE UNITED STATES (P. 337),"IF THERE WERE FRAUD OR SUCH GROSS ERROR AS IMPLIES BAD FAITH OR A FAILURE TO EXERCISE AN HONEST JUDGMENT IN DECIDING THAT THE DEDUCTIONS BE NOT MADE, THE GOVERNMENT WOULD NOT BE BOUND AND THE CONTRACTOR WOULD REMAIN LIABLE.'

THE CONTRACT AUTHORIZED AN EXTENSION OF TIME FOR DELAYS CAUSED BY THE UNITED STATES. IT APPEARS THAT THE UNITED STATES DID DELAY THE CONTRACTORS FROM ABOUT NOVEMBER 21 TO DECEMBER 30, 1922, OR FOR A PERIOD OF 1 MONTH AND 10 DAYS, IN FAILING TO FURNISH THE FULL-SIZE DETAILS IN CONNECTION WITH THE INTERIOR FINISH OF THE BUILDING. IT ALSO APPEARS THAT THE CONTRACTORS WERE DELAYED 30 DAYS ON ACCOUNT OF FAILURE TO RECEIVE MATERIAL, DUE, IT IS ALLEGED, TO RAILROAD AND COAL STRIKES. IT APPEARS THE COAL STRIKE COMMENCED APRIL 21, 1922, AND THE RAILROAD STRIKE JULY 1, 1922, AND THAT BOTH WERE IN EXISTENCE BEFORE THE CONTRACTOR ASSUMED THE OBLIGATIONS IMPOSED BY THE CONTRACT ON JULY 17, 1922, THE DATE OF ITS EXECUTION. THE FACTS APPEARING DISCLOSING NO APPARENT BASIS FOR THE EXERCISE OF THE DISCRETION AUTHORIZED BY THE ACT OF 1902--- I.E., A CONDITION IN WHICH, THE ACQUIRED RIGHTS OF THE UNITED STATES CONSIDERED, AN EXTENSION OF TIME TO CONTRACTOR WITH REMISSION OF LIQUIDATED DAMAGES FOR DELAYS ATTRIBUTABLE TO SUCH STRIKES, COULD BE JUSTIFIED--- THE ACTION WAS PROPERLY QUESTIONED IN THE AUDIT. SEE LINK BELT ENGINEERING CO. V UNITED STATES, 142 FED. REP. 243; SIMPSON V UNITED STATES, 172 U.S. 217; PHOENIX BRIDGE CO. V UNITED STATES, 38 CT. CLS. 492. HOWEVER, THE ACTION OF THE SECRETARY IN RESOLVING ALL DOUBT IN FAVOR OF CONTRACTOR AND AGAINST THE UNITED STATES WILL NOT IN THIS CASE BE FURTHER QUESTIONED, AND THE DISALLOWANCE OF CREDIT FOR $1,050 IN THE ACCOUNTS OF THE DISBURSING OFFICER WILL BE CREDITED.