A-65659, APRIL 14, 1936, 15 COMP. GEN. 903

A-65659: Apr 14, 1936

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A PROPOSAL AND ACCEPTANCE CONSTITUTE A BINDING CONTRACT REGARDLESS OF WHETHER PURCHASE ORDER ISSUED THEREUNDER WAS SIGNED. LIQUIDATED DAMAGES ARE NOT EXCUSABLE BECAUSE MATERIALS WERE SHIPPED IF SAID MATERIALS PROVED ON INSPECTION TO BE UNACCEPTABLE. WHERE CONTRACTOR'S RIGHT TO PROCEED IS TERMINATED. THE ADDITIONAL DELAY BECAUSE OF SUCH METHOD OF PROCUREMENT HAVING BEEN REASONABLE UNDER THE CIRCUMSTANCES AND HAVING OPERATED TO SAVE THE CONTRACTOR ADDITIONAL CHARGES WHICH WOULD HAVE OTHERWISE ACCRUED. THE UNITED STATES IS NOT REQUIRED TO SHOW ANY ACTUAL DAMAGES UNDER A CONTRACT CONTAINING A VALID PROVISION FOR LIQUIDATION OF DAMAGES FOR DELAY OR DEFAULT IN PERFORMANCE. A CONTRACTOR WHOSE RIGHT TO PROCEED HAS BEEN TERMINATED IS NOT ENTITLED TO A CREDIT FOR.

A-65659, APRIL 14, 1936, 15 COMP. GEN. 903

CONTRACTS - TERMINATION OF CONTRACTOR'S RIGHT TO PROCEED - PURCHASE OF SUPPLIES ELSEWHERE - LIQUIDATED DAMAGES, ETC. A PROPOSAL AND ACCEPTANCE CONSTITUTE A BINDING CONTRACT REGARDLESS OF WHETHER PURCHASE ORDER ISSUED THEREUNDER WAS SIGNED. A CONTRACT PROVISION FOR LIQUIDATED DAMAGES FOR REFUSAL OR FAILURE TO MAKE SHIPMENT WITHIN THE SPECIFIED TIME OBVIOUSLY CONTEMPLATES SHIPMENTS MEETING THE SPECIFICATIONS, AND LIQUIDATED DAMAGES ARE NOT EXCUSABLE BECAUSE MATERIALS WERE SHIPPED IF SAID MATERIALS PROVED ON INSPECTION TO BE UNACCEPTABLE. WHERE CONTRACTOR'S RIGHT TO PROCEED IS TERMINATED, LIQUIDATED DAMAGES ACCRUE FOR THE ADDITIONAL DELAY IN THE PROCUREMENT OF THE SUPPLIES BY COMPETITIVE BIDDING RATHER THAN BY OPEN MARKET PURCHASE, THE ADDITIONAL DELAY BECAUSE OF SUCH METHOD OF PROCUREMENT HAVING BEEN REASONABLE UNDER THE CIRCUMSTANCES AND HAVING OPERATED TO SAVE THE CONTRACTOR ADDITIONAL CHARGES WHICH WOULD HAVE OTHERWISE ACCRUED. THE UNITED STATES IS NOT REQUIRED TO SHOW ANY ACTUAL DAMAGES UNDER A CONTRACT CONTAINING A VALID PROVISION FOR LIQUIDATION OF DAMAGES FOR DELAY OR DEFAULT IN PERFORMANCE. A CONTRACTOR WHOSE RIGHT TO PROCEED HAS BEEN TERMINATED IS NOT ENTITLED TO A CREDIT FOR, OR A DIRECT PAYMENT OF, A SAVING TO THE GOVERNMENT BECAUSE OF RELETTING THE CONTRACT AT A LOWER PRICE. CONTRACTING OFFICER'S DECISION THAT SUPPLIES DELIVERED DID NOT CONFORM TO THE SPECIFICATIONS IS BINDING UPON THE CONTRACTOR WHERE NO APPEAL WAS TAKEN TO THE HEAD OF THE DEPARTMENT THEREFROM AS PROVIDED BY THE CONTRACT. DEDUCTION FROM AN AMOUNT OTHERWISE DUE A CONTRACTOR REPRESENTING DISCOUNT FOR PAYMENT WITHIN THE CONTRACT PERIOD ON AN AMOUNT OF LIQUIDATED DAMAGES ASSESSED UNDER THE CONTRACT, IS UNAUTHORIZED WHERE THE DISCOUNT PERIOD HAD EXPIRED PREVIOUS TO THE TIME THE CONTRACTING DEPARTMENT WAS DIRECT SETTLEMENT.

COMPTROLLER GENERAL MCCARL TO THE MARYLAND WIPING CLOTH CO., APRIL 14, 1936:

THERE HAS BEEN CONSIDERED YOUR LETTER OF NOVEMBER 4, 1935, REQUESTING REVIEW OF THE ACTION OF THIS OFFICE IN SETTING OFF AGAINST THE AMOUNT OTHERWISE FOUND DUE YOU IN SETTLEMENT NO. 0377731, DATED OCTOBER 21, 1935, AN AMOUNT OF $840, REPRESENTING LIQUIDATED DAMAGES DUE THE UNITED STATES ON ACCOUNT OF YOUR FAILURE TO DELIVER WIPING RAGS MEETING THE SPECIFICATIONS UNDER CONTRACT NO. W-1092-ENG-4311, DATED SEPTEMBER 29, 1934, AND IN DEDUCTING $16.80, REPRESENTING DISCOUNT ON THE AMOUNT SET OFF.

UNDER THE CONTRACT IN QUESTION, CONSISTING OF YOUR PROPOSAL DATED CONSTITUTED AN AGREEMENT BINDING ON YOU REGARDLESS OF WHETHER THE ORDER ISSUED THEREUNDER WAS SIGNED (UNITED STATES V. NEW YORK AND PORTO RICO STEAMSHIP CO., 239 U.S. 88; PURCELL ENVELOPE CO. V. UNITED STATES, 249 U.S. 313/--- YOU AGREED TO DELIVER F.O.B. ANY RAILROAD OR PIER IN BALTIMORE, MD., WITHIN 25 DAYS FROM DATE OF RECEIPT OF AWARD, FOR SHIPMENT ON GOVERNMENT BILL OF LADING TO THE UNITED STATES ENGINEER DEPOT OPPOSITE MEMPHIS, TENN., 25,000 POUNDS OF WIPING RAGS FOR A TOTAL PRICE OF $1,905.75. YOU ACKNOWLEDGED RECEIPT OF AWARD OCTOBER 1, 1934, THEREBY ESTABLISHING OCTOBER 26, 1934, AS THE DATE DELIVERY WAS DUE.

A SHIPMENT OF RAGS UNDER THE CONTRACT WAS RECEIVED AT THE UNITED STATES MEETING THE REQUIREMENTS OF THE SPECIFICATIONS. YOU WERE IMMEDIATELY WHICH THE SHIPMENT HAD MOVED HAD BEEN CANCELED AND ANOTHER WAS BEING FORWARDED FOR YOUR USE IN MAKING AN ACCEPTABLE SHIPMENT. AFTER REPEATED ATTEMPTS BY THE GOVERNMENT TO ASCERTAIN WHEN SUCH A SHIPMENT WOULD BE MADE, YOU WERE ADVISED BY TELEGRAM OF NOVEMBER 28, 1934, THAT THE CONTRACT WAS BEING TAKEN OUT OF YOUR HANDS AND THAT THE RAGS WOULD BE PROCURED ELSEWHERE, ANY EXCESS COST TO BE CHARGED TO YOU. ON THE SAME DAY, NEW INVITATIONS WERE ISSUED FOR BIDS FOR SUPPLYING THE NEEDED RAGS, AND ON DECEMBER 7, 1934, H. BLOCKMAN AND CO. OF MEMPHIS, TENN., WAS AWARDED A CONTRACT FOR DELIVERY OF THE RAGS WITHIN 25 DAYS OF RECEIPT OF AWARD. SAID AWARD WAS RECEIVED DECEMBER 10, 1934, AND DELIVERY UNDER THIS SUBSTITUTED CONTRACT WAS THUS DUE BY JANUARY 4, 1935.

YOUR CONTRACT PROVIDED IN SECTION G OF THE GENERAL SPECIFICATIONS, IN PART, AS FOLLOWS:

DELAYS--- LIQUIDATED DAMAGES.--- IF THE CONTRACTOR REFUSES OR FAILS TO MAKE SHIPMENT OF THE MATERIALS OR SUPPLIES AND/OR TO PROSECUTE THE WORK OR ANY SEPARABLE PART THEREOF WITHIN THE TIME SPECIFIED IN HIS BID, OR ANY EXTENSION THEREOF, THE ACTUAL DAMAGE TO THE GOVERNMENT FOR THE DELAY WILL BE IMPOSSIBLE TO DETERMINE AND IN LIEU THEREOF THE CONTRACTOR SHALL PAY TO THE GOVERNMENT, AS FIXED, AGREED, AND LIQUIDATED DAMAGES FOR EACH CALENDAR DAY OF DELAY IN MAKING SHIPMENT, THE AMOUNT AS SET FORTH IN THE SPECIFICATIONS OR ACCOMPANYING PAPERS, AND THE CONTRACTOR AND HIS SURETIES SHALL BE LIABLE FOR THE AMOUNT THEREOF: PROVIDED, HOWEVER, THAT THE GOVERNMENT RESERVES THE RIGHT TO TERMINATE THE RIGHT OF THE CONTRACTOR TO PROCEED AND TO PURCHASE SIMILAR MATERIAL OR SUPPLIES IN THE OPEN MARKET OR SECURE THE MANUFACTURE AND DELIVERY THEREO* BY CONTRACT OR OTHERWISE, CHARGING AGAINST THE CONTRACTOR AND HIS SURETIES ANY EXCESS COST OCCASIONED THE GOVERNMENT THEREBY, TOGETHER WITH LIQUIDATED DAMAGES ACCRUING UNTIL SUCH TIME AS THE GOVERNMENT MAY REASONABLY PROCURE SIMILAR MATERIAL OR SUPPLIES ELSEWHERE: * * *

THE ABOVE PROVISION OBVIOUSLY CONTEMPLATES SHIPMENT OF MATERIALS OR SUPPLIES MEETING THE SPECIFICATIONS. ACCORDINGLY, THERE IS NO MERIT IN YOUR CONTENTIONS AS TO SUSPENSION OF LIQUIDATED DAMAGES ON ACCOUNT OF SHIPMENT OF MATERIALS ON WHICH INSPECTION PROVED UNACCEPTABLE.

IT IS TO BE NOTED, ALSO, THAT UNDER THE ABOVE-QUOTED PROVISION IN THE EVENT OF YOUR FAILURE TO MAKE SHIPMENT WITHIN THE AGREED TIME--- AND CONSEQUENT EXERCISE BY THE GOVERNMENT OF THE RIGHT RESERVED TO TERMINATE YOUR RIGHT TO PROCEED AND PURCHASE SIMILAR MATERIAL OR SUPPLIES ELSEWHERE- -- LIQUIDATED DAMAGES DO NOT CEASE ACCRUING AT THE TIME OF SUCH TERMINATION, BUT YOU ARE CHARGEABLE WITH LIQUIDATED DAMAGES ACCRUING UNTIL SUCH TIME AS THE GOVERNMENT REASONABLY MAY PROCURE SIMILAR MATERIAL OR SUPPLIES ELSEWHERE. CONSIDERING THE QUANTITY OF MATERIALS REQUIRED, IT MUST BE HELD THAT THERE WAS NO UNREASONABLE DELAY IN THE ACTION OF THE GOVERNMENT IN ADVERTISING FOR BIDS ON NOVEMBER 28, 1934, THE VERY DAY YOUR ADVERTISEMENT DECEMBER 7, 1934, CALLING FOR DELIVERY WITHIN 25 DAYS AFTER RECEIPT OF AWARD, THE IDENTICAL PERIOD ALLOWED IN YOUR CONTRACT. IN SO SUBMITTING ITS NEEDS FOR COMPETITIVE BIDDING, THE GOVERNMENT OBTAINED THE MATERIAL AS CHEAPLY AS POSSIBLE, THEREBY SAVING YOU ADDITIONAL CHARGES WHICH WOULD HAVE ACCRUED AGAINST YOU HAD PURCHASE BEEN MADE IN THE OPEN DAMAGES ACCRUED FROM OCTOBER 26, 1934, THE DATE DELIVERY WAS DUE UNDER YOUR CONTRACT, TO JANUARY 4, 1935, THE DATE FOR DELIVERY UNDER THE SUBSTITUTED CONTRACT, AT THE RATE OF $12 PER DAY AS PROVIDED IN YOUR CONTRACT, OR A TOTAL OF $840 AS CHARGED IN THE SETTLEMENT.

WITH REFERENCE TO YOUR CONTENTION THAT YOU SHOULD BE RELIEVED OF LIQUIDATED DAMAGES INASMUCH AS THE UNITED STATES SUFFERED NO ACTUAL DAMAGE, IT IS WELL SETTLED THAT WHERE A CONTRACT CONTAINS A VALID PROVISION FOR LIQUIDATION OF DAMAGES FOR DELAY OR DEFAULT IN PERFORMANCE, THE UNITED STATES IS NOT REQUIRED TO SHOW ANY ACTUAL DAMAGES. (SEE 10 COMP. DEC. 605; 13 ID. 853; 16 ID. 618; 26 ID. 424; 2 COMP. GEN. 322; 3 ID. 643; AND 3 ID. 696.)

CONSIDERATION HAS BEEN GIVEN YOUR CLAIM THAT YOU ARE ENTITLED TO THE O*TAINING THE RAGS FROM H. BLOCKMAN AND CO. AFTER YOUR DEFAULT. IN THIS CONNECTION, IT APPEARS THAT THE PRICE NAMED IN THE BLOCKMAN CONTRACT WAS $1921.25, AS AGAINST YOUR CONTRACT PRICE OF $1,905.75, BUT THE GOVERNMENT BY OBTAINING DELIVERY FROM BLOCKMAN DIRECT TO ITS WAREHOUSE SAVED A FREIGHT CHARGE OF $195.37 WHICH WOULD HAVE BEEN INCURRED HAD YOUR SHIPMENT PROVED ACCEPTABLE, AND THERE WAS THUS A SLIGHT SAVING IN THE TOTAL EXPENSE OF OBTAINING THE MATERIALS. HOWEVER, THE GOVERNMENT DID NOT READVERTISE THE CONTRACT FOR YOUR BENEFIT, BUT FOR ITS OWN, AND YOU ARE NOT ENTITLED TO ANY SAVING THE GOVERNMENT MAY HAVE MADE BY RELETTING THE CONTRACT, EITHER AS A DIRECT PAYMENT OR AS A CREDIT AGAINST THE LIQUIDATED DAMAGES PROPERLY CHARGED TO YOU. THE PROVISION FOR LIQUIDATED DAMAGES WAS FOR THE PURPOSE OF MAKING THE GOVERNMENT WHOLE FOR ANY DAMAGES SUFFERED BY REASON OF THE DELAY IN SECURING DELIVERY OF THE REQUIRED MATERIALS AND IS ENTIRELY SEPARATE FROM THAT FOR CHARGING EXCESS COSTS, THE PURPOSE OF WHICH WAS TO PROTECT THE GOVERNMENT FROM ANY ADDED COST OF MATERIALS WHICH IT MIGHT BE REQUIRED TO OBTAIN ELSEWHERE, OVER AND ABOVE THE COST UNDER YOUR CONTRACT. THERE IS NO PROVISION IN YOUR CONTRACT WHEREBY YOU ARE TO BE CREDITED WITH ANY SAVINGS THE GOVERNMENT MIGHT MAKE BY REASON OF BEING COMPELLED TO TAKE THE CONTRACT OUT OF YOUR HANDS, AND THE FACT THAT A SAVING WAS MADE DOES NOT ABROGATE OR IN ANY WAY AFFECT THE PLAIN PROVISIONS OF THE CONTRACT WITH REFERENCE TO THE DEDUCTION OF LIQUIDATED DAMAGES.

RELATIVE TO YOUR CONTENTIONS AS TO THE ADEQUACY OF THE INSPECTION GIVEN THE SHIPMENT WHICH YOU MADE AND YOUR CLAIM FOR EXPENSES INCIDENT TO SUCH SHIPMENT, YOU ARE ADVISED THAT THE CONTRACT PROVIDES, IN PARAGRAPH C OF THE GENERAL SPECIFICATIONS, THAT FINAL INSPECTION SHALL BE MADE AFTER DELIVERY AND THAT REJECTED ARTICLES SHALL BE REMOVED BY AND AT THE EXPENSE OF THE CONTRACTOR. IT IS PROVIDED, ALSO, IN PARAGRAPH D, THAT ALL DISPUTES CONCERNING QUESTIONS OF FACT SHALL BE DECIDED BY THE CONTRACTING OFFICER OR HIS DULY AUTHORIZED REPRESENTATIVE, SUBJECT TO WRITTEN APPEAL BY THE CONTRACTOR WITHIN 30 DAYS TO THE HEAD OF THE DEPARTMENT, OR HIS ASSISTANT, WHOSE DECISION SHALL BE FINAL AND CONCLUSIVE. SINCE YOU DID NOT APPEAL FROM THE CONTRACTING OFFICER'S DECISION THAT THE MATERIALS OFFERED DID NOT COMPLY WITH THE SPECIFICATIONS, THAT DECISION IS BINDING UPON YOU UNDER THE TERMS OF YOUR CONTRACT. (SEE PENN BRIDGE CO. V. UNITED STATES, 59 CT.CLS. 892.)

ACCORDINGLY, UPON REVIEW THE DEDUCTION OF $840 AS LIQUIDATED DAMAGES IN SETTLEMENT OF OCTOBER 21, 1935, APPEARS CORRECT. HOWEVER, IT APPEARS THAT THE ITEM OF $16.80, REPRESENTING DISCOUNT FOR PAYMENT IN 10 DAYS UNDER CONTRACT NO. TPS-6525, DATED JUNE 27, 1935, UNDER WHICH ACCRUED THE AMOUNT SET OFF IN SAID SETTLEMENT, SHOULD NOT HAVE BEEN DEDUCTED. SINCE THE 10- DAY DISCOUNT PERIOD EXPIRED PRIOR TO AUGUST 14, 1935, THE DATE OF THE TREASURY DEPARTMENT WAS NOTIFIED OF YOUR INDEBTEDNESS AND REQUESTED TO FORWARD TO THIS OFFICE UNPAID VOUCHERS TO COVER SUCH INDEBTEDNESS, THE DELAY IN PAYMENT IS NOT ATTRIBUTABLE TO THE INDEBTEDNESS.

SETTLEMENT WILL ISSUE IN DUE COURSE FOR THE ADDITIONAL AMOUNT OF $16.80 HEREIN FOUND DUE.