A-6441, JANUARY 3, 1925, 4 COMP. GEN. 578

A-6441: Jan 3, 1925

Additional Materials:

Contact:

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

 

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

SUCH PROVISION SHOULD BE OMITTED FROM ALL FUTURE CONTRACTS IN WHICH ITS INSERTION IS NOT AUTHORIZED BY STATUTE. 1925: I HAVE YOUR LETTER OF NOVEMBER 18. IT IS STATED THAT. - THE DISBURSING CLERK OF THE TREASURY DEPARTMENT HAS NOW REQUESTED THAT NO MORE VOUCHERS SIMILAR TO THOSE THAT HAVE BEEN SUSPENDED BE SENT TO HIM FOR PAYMENT UNTIL THERE HAS BEEN SECURED FROM THE COMPTROLLER GENERAL AN EXPRESSION SETTING FORTH THE PROCEDURE THAT SHOULD BE FOLLOWED IN HANDLING SUCH PAYMENTS. THE DEPARTMENT WILL THEREFORE APPRECIATE ADVICE FROM YOU AS TO WHETHER ITS PRACTICE AS OUTLINED ABOVE MEETS WITH THE REQUIREMENTS OF THE GENERAL ACCOUNTING OFFICE. WHETHER ITS INTERPRETATION OF THE CONTRACTS REFERRED TO IS IN HARMONY WITH YOUR VIEWS.

A-6441, JANUARY 3, 1925, 4 COMP. GEN. 578

CONTRACTS - WAIVER OF LIQUIDATED DAMAGES THE INSERTION IN A CONTRACT, PROVIDING FOR LIQUIDATED DAMAGES FOR DELAYS NOT DUE TO CERTAIN SPECIFIED CAUSES, OF AN ADDITIONAL PROVISION THAT THE LIQUIDATED DAMAGES MAY BE WAIVED IN WHOLE OR IN PART BY THE HEAD OF THE DEPARTMENT, DOES NOT CONVERT THE LIQUIDATED DAMAGE CLAUSE INTO ONE FOR A PENALTY, AND LIQUIDATED DAMAGES MUST BE EXACTED FOR ALL DELAYS UNLESS RESULTING FROM CAUSES SPECIFIED. IN VIEW OF THE DOUBTFUL LEGALITY OF A PROVISION IN A CONTRACT (OTHER THAN PUBLIC BUILDING CONTRACTS) FOR THE WAIVER OF LIQUIDATED DAMAGES BY THE HEAD OF THE DEPARTMENT OR BY THE CONTRACTING OFFICER AND IN THE INTEREST OF GOOD ADMINISTRATION, SUCH PROVISION SHOULD BE OMITTED FROM ALL FUTURE CONTRACTS IN WHICH ITS INSERTION IS NOT AUTHORIZED BY STATUTE.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF THE TREASURY, JANUARY 3, 1925:

I HAVE YOUR LETTER OF NOVEMBER 18, 1924, RELATIVE TO THE PURCHASE OF FURNITURE AND OTHER SUPPLIES AND EQUIPMENT FOR FEDERAL BUILDINGS UNDER THE CONTROL OF THE TREASURY DEPARTMENT AND PRESENTING CERTAIN MATTERS AND QUESTION AS TO SUSPENSIONS AND DISALLOWANCES IN THE ACCOUNTS OF J. L. SUMMERS, DISBURSING CLERK TREASURY DEPARTMENT, FOR FAILURE TO DEDUCT LIQUIDATED DAMAGES FOR DELAYS IN DELIVERIES OF ARTICLES CONTRACTED TO BE DELIVERED WITHIN A SPECIFIED TIME.

IT IS STATED THAT---

THE DISBURSING CLERK OF THE TREASURY DEPARTMENT HAS NOW REQUESTED THAT NO MORE VOUCHERS SIMILAR TO THOSE THAT HAVE BEEN SUSPENDED BE SENT TO HIM FOR PAYMENT UNTIL THERE HAS BEEN SECURED FROM THE COMPTROLLER GENERAL AN EXPRESSION SETTING FORTH THE PROCEDURE THAT SHOULD BE FOLLOWED IN HANDLING SUCH PAYMENTS.

THE DEPARTMENT WILL THEREFORE APPRECIATE ADVICE FROM YOU AS TO WHETHER ITS PRACTICE AS OUTLINED ABOVE MEETS WITH THE REQUIREMENTS OF THE GENERAL ACCOUNTING OFFICE; WHETHER ITS INTERPRETATION OF THE CONTRACTS REFERRED TO IS IN HARMONY WITH YOUR VIEWS; AND WHETHER, IN VIEW OF THE EXPLANATION SUBMITTED, THE GENERAL ACCOUNTING OFFICE WILL LIFT THE SUSPENSIONS OUTSTANDING AGAINST THE VOUCHERS DESCRIBED HEREIN.

IT IS STATED THAT THE GREATER PORTION OF THE FURNITURE AND EQUIPMENT IS PURCHASED UNDER ANNUAL CONTRACTS ENTERED INTO BY THE SECRETARY OF THE TREASURY AND THAT SAID CONTRACTS CONTAIN THE FOLLOWING PROVISIONS:

IF A TIME FOR COMPLETION IS STIPULATED, SUCH TIME SHALL BE THE ESSENCE OF THIS CONTRACT ON THE PART OF THE CONTRACTOR. FOR THE COST OF ALL EXTRA INSPECTIONS AND OTHER EXPENSES CAUSED THE GOVERNMENT BY DELAY IN COMPLETING EACH ORDER UNDER THIS CONTRACT, THIS CONTRACTOR SHALL PAY TO THE UNITED STATES, AS LIQUIDATED DAMAGES, AND NOT AS A PENALTY, FIVE DOLLARS ($5), FOR EACH DAY OF SUCH DELAY NOT CAUSED BY THE UNITED STATES. THE SECRETARY OF THE TREASURY MAY WAIVE SUCH DAMAGES WHOLLY OR PARTLY.

AND THAT OTHER PURCHASES ARE MADE UNDER THE GENERAL SUPPLY COMMITTEE CONTRACTS (SEE GENERAL SCHEDULE OF SUPPLIES, FISCAL YEAR 1925, PP. 14 AND 15), WHICH PROVIDE:

* * * UPON THE FAILURE OF A BIDDER, WHOSE PROPOSAL HAS BEEN ACCEPTED, TO MAKE DELIVERY OF ARTICLES OR MATERIALS WITHIN THE TIME STATED IN THE PROPOSAL OR, WHERE NO TIME IS STATED, WITHIN 10 DAYS, UPON ORDERS REGULARLY ISSUED, THE RIGHT IS RESERVED TO THE UNITED STATES, IF, IN THE JUDGMENT OF THE ORDERING OFFICER, THE NEEDS OF THE SERVICE SO REQUIRE, TO PURCHASE IN THE OPEN MARKET THE QUANTITY OF MATERIAL OR NUMBER OF ARTICLES COVERED BY SUCH ORDERS, OR, IN THE JUDGMENT OF THE ORDERING OFFICER, THEIR EQUIVALENT AND ANSWERING THE SAME PURPOSE, AND, IF A GREATER PRICE THAN THAT NAMED IN THE PROPOSAL IS PAID THEREFOR, THE AMOUNT OF SUCH EXCESS SHALL BE CHARGED TO SAID CONTRACTOR AND HIS SURETIES. IN CASE THE DELIVERY OF ANY ARTICLE, THE SALE OF WHICH IS CONTROLLED EXCLUSIVELY BY THE CONTRACTOR AND WHICH CAN NOT, THEREFORE, BE PURCHASED IN THE OPEN MARKET, IS DELAYED BEYOND THE PERIOD STATED THEREFOR IN THE CONTRACT,IT IS UNDERSTOOD AND AGREED THAT TWO-TENTHS OF 1 PERCENT OF THE CONTRACT PRICE SHALL BE DEDUCTED AS LIQUIDATED DAMAGES, IN LIEU OF ACTUAL DAMAGES, FOR EACH AND EVERY DAY'S DELAY IN THE DELIVERY THEREOF, SHOULD THE INTEREST OF THE GOVERNMENT, IN THE OPINION OF THE HEAD OF THE ORDERING OFFICE, SUSTAIN ANY DAMAGE BY REASON OF SUCH DELAY. PROVIDED, THAT NO LIQUIDATED DAMAGES IN ANY CASE SHALL BE DEDUCTED FOR SUCH PERIOD, AFTER THE EXPIRATION OF THE TIME OR TIMES PRESCRIBED FOR DELIVERY OR PERFORMANCE, AS, IN THE JUDGMENT OF THE ORDERING OFFICER, SHALL EQUAL THE TIME THAT, EITHER IN THE BEGINNING OR IN THE PROSECUTION OF THE DELIVERIES OR SERVICES CONTRACTED FOR, SHALL HAVE BEEN LOST ON ACCOUNT OF ANY CAUSE FOR WHICH THE UNITED STATES IS RESPONSIBLE, OR DELAYS IN TRANSIT, OR DELIVERY ON THE PART OF TRANSPORTATION COMPANIES.

IN THE SUBMISSION IT IS STATED:

WHILE THESE * * * LIQUIDATED DAMAGE CLAUSES WERE INCORPORATED IN THE ANNUAL FURNITURE CONTRACTS OF THE TREASURY DEPARTMENT AND THE GENERAL SUPPLY COMMITTEE CONTRACTS DURING FORMER YEARS, APPARENTLY NO SUSPENSIONS WERE MADE BY THE AUDITING OFFICES FOR FAILURE TO DELIVER THE FURNITURE IN THE CONTRACT PERIOD UNTIL ABOUT APRIL, 1923.

THE LIQUIDATED DAMAGE CLAUSE IN THE CONTRACTS MADE BY THE GENERAL SUPPLY COMMITTEE APPLIES ONLY TO ITEMS THE SALE OF WHICH IS CONTROLLED BY THE CONTRACTOR. IF ARTICLES ORDERED OR PRACTICALLY THEIR EQUIVALENT AND ANSWERING THE SAME PURPOSE, CAN BE PURCHASED IN THE OPEN MARKET, THE ONLY PENALTY PROVIDED, IS, IF IN THE OPINION OF THE ORDERING OFFICE, THE EXIGENCIES OF THE SERVICE SO REQUIRE, TO PURCHASE IN THE OPEN MARKET AGAINST THE CONTRACTOR AND CHARGE THE EXCESS COST, IF THERE BE ANY, TO THE CONTRACTOR AND HIS SURETIES.

SINCE APRIL, 1923, SUSPENSIONS AND DISALLOWANCES HAVE BEEN MADE IN THE ACCOUNTS OF DISBURSING CLERK J. L. SUMMERS FOR PRACTICALLY ALL PURCHASES MADE BY THE BUREAU OF SUPPLY OF THIS DEPARTMENT UNDER GENERAL SUPPLY COMMITTEE CONTRACTS WHERE THERE HAVE BEEN DELAYS IN DELIVERY AND THE LIQUIDATED DAMAGE CLAUSE IN THE CONTRACTS HAS BEEN APPLIED THOUGH IT WOULD APPEAR THAT, WITH VERY FEW EXCEPTIONS, THE ONLY LEGAL AND PROPER RECOURSE FOR THE GOVERNMENT, WHEN IN THE OPINION OF THE HEAD OF THE ORDERING OFFICE THE EXIGENCIES OF THE SERVICE SO REQUIRE, IS TO BUY THE ARTICLES ORDERED OR THEIR EQUIVALENT, AND ANSWERING THE SAME PURPOSE, IN THE OPEN MARKET AND CHARGE THE EXCESS COST TO THE CONTRACTORS AND THEIR SURETIES.

THE DEPARTMENT IS IN ENTIRE AGREEMENT WITH THE VIEW OF THE GENERAL ACCOUNTING OFFICE THAT BETTER SERVICE ON THE PART OF CONTRACTORS IN MAKING SHIPMENTS OF SUPPLIES SHOULD BE INSISTED UPON AND TO THAT END, WHERE DELAYS IN DELIVERY DO OCCUR, THE MATTER IS NOW TAKEN UP WITH THE CONTRACTORS, THEIR ATTENTION CALLED TO THE DELAYS, AND INFORMATION REQUESTED AS TO THE CAUSES THEREFOR AND WHAT STEPS THEY WILL TAKE TO PREVENT FUTURE TROUBLES OF THE KIND. EACH CONTRACTOR USUALLY REPLIES PROMPTLY (HIS REPLY OR A COPY THEREOF BEING SENT TO THE CIVIL DIVISION OF YOUR OFFICE), GIVING REASONS FOR OCCASIONAL DELAYS AND ASSURING THE DEPARTMENT THAT EVERY EFFORT IS AND WILL BE MADE TO KEEP SUCH DELAYS TO A MINIMUM.

WHILE IT IS THE OPINION OF THIS DEPARTMENT THAT NO LIQUIDATED DAMAGES MAY BE DEDUCTED FOR THE SUSPENSIONS MADE BY THE CIVIL DIVISION OF YOUR OFFICE FOR DELAYS IN DELIVERY OF PURCHASES UNDER THE ABOVE DESCRIBED CONTRACTS, EVERY EFFORT IS BEING MADE TO SECURE PROMPT DELIVERIES. VOUCHERS FOR ARTICLES DELAYED IN DELIVERY ARE HELD BY THE BUREAU OF SUPPLY UNTIL THE CONTRACTORS FURNISH SATISFACTORY EXPLANATION FOR FAILURE TO MAKE SHIPMENTS IN ACCORDANCE WITH TIME LIMITS SPECIFIED IN THEIR CONTRACTS. WHERE A REASONABLE EXPLANATION IS SUBMITTED, IT IS ATTACHED TO THE CONTRACTOR'S VOUCHER AND THE VOUCHER FORWARDED TO THE DISBURSING CLERK FOR PAYMENT.

IN DECISION OF MARCH 18, 1924, 3 COMP. GEN. 656, IT WAS SAID:

THE CHARGING OF THE APPROPRIATION FOR "FURNITURE AND REPAIRS FOR PUBLIC BUILDINGS, 1923," FOR MATERIAL ORDERED ON AUGUST 18, 1922, UNDER THE CONTRACT FOR THE FISCAL YEAR 1923, APPEARS PROPER. SEE 27 COMP. DEC. 640, AND DECISIONS THERE CITED ON THE QUESTION OF AVAILABILITY OF APPROPRIATIONS.

THE FAILURE TO DEDUCT LIQUIDATED DAMAGES PRESENTS A DIFFERENT QUESTION. THE CONTRACT REQUIRED DELIVERY OF EACH ORDER WITHIN 60 CALENDAR DAYS AFTER THE DATE OF THE ORDER, WITH THE PROVISION THAT TIME WOULD BE OF THE ESSENCE AND WITH THE FURTHER PROVISION THAT FOR THE COST OF ALL EXTRA INSPECTIONS AND OTHER EXPENSES CAUSED THE GOVERNMENT BY DELAY IN COMPLETING EACH ORDER, LIQUIDATED DAMAGES AT THE RATE OF $5 A DAY WOULD BE DEDUCTED FROM EACH ORDER FOR EACH DAY'S DELAY NOT DUE TO THE UNITED STATES OR TO UNUSUAL TRANSPORTATION DIFFICULTIES.

THIS IS NOT A CONTRACT FOR THE CONSTRUCTION OR REPAIR OF PUBLIC BUILDINGS WITHIN THE MEANING OF THE ACT OF JUNE 6, 1902, 32 STAT. 326, AUTHORIZING AND EMPOWERING THE SECRETARY OF THE TREASURY TO REMIT IN WHOLE OR IN PART LIQUIDATED DAMAGES FOR DELAYS IN CONSTRUCTION.

IT IS A CONTRACT FOR SUPPLIES FOR PUBLIC BUILDINGS, AND SAID STATUTE HAS NO APPLICATION. THE FACT THAT THE LIQUIDATED DAMAGE CLAUSE HERE CONTAINS A PROVISION TO THE EFFECT THAT THE SECRETARY OF THE TREASURY MAY WAIVE LIQUIDATED DAMAGES, DOES NOT OPERATE TO CONVERT THE CLAUSE INTO ONE FOR A PENALTY. SEE PACIFIC RAILWAY COMPANY V. UNITED STATES, 49 CT.CLS. 327.

* * * LIQUIDATED DAMAGES SHOULD, AND MUST, BE EXACTED UNLESS THE DELAYS RESULTED FROM ACTS OF THE UNITED STATES OR TRANSPORTATION DIFFICULTIES OR HAVE BEEN WAIVED BY THE SECRETARY OF THE TREASURY FOR GOOD CAUSE SHOWN. THE QUESTION WHETHER THERE HAS BEEN AN EXERCISE OF "AN HONEST JUDGMENT IN DECIDING THAT THE DEDUCTIONS BE NOT MADE" WILL BE FOR CONSIDERATION BY THIS OFFICE WHEN THERE HAVE BEEN SHOWN THE CAUSES OF DELAY, IF IT BE FOUND THERE HAS BEEN A WAIVER OF LIQUIDATED DAMAGES.

CREDIT FOR THE PAYMENTS WILL BE SUSPENDED FOR A STATEMENT OF THE CAUSES OF DELAY IN EACH OF THESE INSTANCES, AND WHETHER THE SECRETARY OF THE TREASURY HAS WAIVED LIQUIDATED DAMAGES FOR ALL OR ANY PART OF THE DELAYS. IF THERE WERE NO DELAYS RESULTING FROM ACTS OF THE UNITED STATES OR TRANSPORTATION DIFFICULTIES, OR IF THE SECRETARY OF THE TREASURY HAS NOT WAIVED DELAYS OR PARTS THEREOF FOR GOOD CAUSE SHOWN, LIQUIDATED DAMAGES SHOULD BE COMPUTED FOR THE DELAYS IN DELIVERY AND CREDIT THEREFOR DISALLOWED IN THE ACCOUNTS OF THE DISBURSING OFFICER.

IN DECISION OF SEPTEMBER 18, 1924, 4 COMP. GEN. 306, IT WAS HELD, QUOTING THE SYLLABUS:

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.

THE LIQUIDATED DAMAGE PROVISION CONTAINED IN GENERAL SUPPLY COMMITTEE CONTRACTS COVERS ONLY DELAYS IN "DELIVERY OF ANY ARTICLE THE SALE OF WHICH IS CONTROLLED EXCLUSIVELY BY THE CONTRACTOR AND WHICH CAN NOT, THEREFORE, BE PURCHASED IN THE OPEN MARKET.' AS TO DELAY OF OTHER SUPPLIES ACTUAL DAMAGES ARE CHARGEABLE.

ALL VOUCHERS COVERING PAYMENTS MADE TO CONTRACTORS SHOULD SHOW THE DATES OF THE DELIVERIES AS WELL AS THE DATES OF THE ORDERS, AND IF THAT INFORMATION DISCLOSES THAT DELIVERIES WERE NOT MADE WITHIN THE CONTRACT TIME SUCH DELAYS AS THERE MAY HAVE BEEN SHOULD BE EXPLAINED AND THE EXPLANATION SHOULD INCLUDE A STATEMENT OF THE ACTUAL OR LIQUIDATED DAMAGES SUFFERED OR ACCRUING TO THE UNITED STATES, IF ANY. THIS APPLIES TO THE CONTRACTS REFERRED TO AS "ANNUAL CONTRACTS" AS WELL AS THE GENERAL SUPPLY COMMITTEE CONTRACTS. THE EXPLANATIONS SHOULD INDICATE WHETHER OR NOT THE DELAYS RESULTED FROM ACTS OF THE UNITED STATES, ETC., WITH A SHOWING AS TO THE ACTS OF THE UNITED STATES, ETC., WHICH CAUSED THE DELAYS IF THEY WERE SO CAUSED. IF THE DELAYS WERE CAUSED OTHERWISE THAN BY THE UNITED STATES, ETC., OR IF THE PURCHASES UNDER THE GENERAL SUPPLY COMMITTEE CONTRACTS WERE OF ARTICLES OTHER THAN THOSE "CONTROLLED EXCLUSIVELY BY THE CONTRACTOR AND WHICH CAN NOT THEREFORE BE PURCHASED IN THE OPEN MARKET," THAT SHOULD BE EXPLAINED AS WELL AS THE REASONS FOR THE WAIVER OF ANY DELAYS.

ITEMS NOW SUSPENDED IN THE ACCOUNTS OF J. L. SUMMERS, IF ANY, SHOULD BE EXPLAINED AND IF SUCH EXPLANATIONS ARE DEEMED SATISFACTORY, IN ACCORDANCE WITH THE FOREGOING, THE SUSPENSIONS WILL BE REMOVED.

THE PROVISION IN THE ANNUAL CONTRACTS THAT "THE SECRETARY OF THE TREASURY MAY WAIVE SUCH DAMAGES WHOLLY OR PARTLY" REQUIRES OF THE SECRETARY THE EXERCISE OF A LEGAL DISCRETION DIFFICULT, IF NOT IMPOSSIBLE, OF JUST AND EQUITABLE DETERMINATION AS TO BOTH THE CONTRACTOR AND THE UNITED STATES, THE UNITED STATES NECESSARILY HAVING SUSTAINED DAMAGE BY REASON OF ANY DELAY. WITHOUT DISCUSSING OR DETERMINING THE DEGREE OF CERTAINTY NECESSARY TO SUPPORT THE EXERCISE OF THE LEGAL DISCRETION CONTEMPLATED SO THAT THE ACT MAY ITSELF BE LAWFUL IT WOULD SEEM THAT SUCH A PROVISION IS NOT IN THE INTEREST OF GOOD ADMINISTRATION AND CERTAINLY NOT SUPPORTED BY A VALUABLE CONSIDERATION, THE GOVERNMENT HAVING PURCHASED THE RIGHT TO CONTRACT THE MEASURE OF DAMAGES, ANY REMISSION OF WHICH SAVORS OF A DOUBLE GRATUITY. IN ANTICIPATION OF THE DIFFICULT QUESTIONS THAT WILL DOUBTLESS ARISE THEREUNDER, IT IS RECOMMENDED THAT PROVISIONS IN SUCH CONTRACTS FOR THE WAIVER OF DAMAGES BE OMITTED THEREFROM.