A-9260, JULY 23, 1925, 5 COMP. GEN. 46

A-9260: Jul 23, 1925

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ARE APPLICABLE TO DELAYS IN DELIVERY OF THE ARTICLES THAT ARE NEEDED FOR PRESENT REQUIREMENTS AND ALSO TO DELAYS IN DELIVERY OF THE SPARE PARTS. EVEN THOUGH IT BE SHOWN THAT THE SPARE PARTS WERE INTENDED MERELY FOR REPLACEMENT PURPOSES. THE CLAIM WAS DISALLOWED FOR THE REASON THAT THE DELAY CLAIMED. - WAS NOT SUCH AS COULD BE EXCUSED UNDER THE TERMS OF THE CONTRACT AND THAT THE SPARE PARTS WERE AN INTEGRAL PART OF THE CONTRACT FOR WHICH LIQUIDATED DAMAGES WERE ASSESSABLE. A PROVISION WAS INCORPORATED THEREIN FOR THE DEDUCTION OF LIQUIDATED DAMAGES AT THE RATE OF ONE-TENTH OF 1 PERCENT OF THE CONTRACT PRICE FOR EACH DAY'S DELAY IN DELIVERY. NOT DUE TO ANY CAUSE FOR WHICH THE UNITED STATES WAS RESPONSIBLE OR ON ACCOUNT OF STRIKES.

A-9260, JULY 23, 1925, 5 COMP. GEN. 46

CONTRACTS - LIQUIDATED DAMAGES - SPARE PARTS PROVISIONS FOR THE DEDUCTION OF LIQUIDATED DAMAGES FOR DELAYS IN CONTRACTS CALLING FOR DELIVERY OF CERTAIN SPECIFIED ARTICLES FOR IMMEDIATE USE AND FOR SPARE PARTS THEREFOR, ARE APPLICABLE TO DELAYS IN DELIVERY OF THE ARTICLES THAT ARE NEEDED FOR PRESENT REQUIREMENTS AND ALSO TO DELAYS IN DELIVERY OF THE SPARE PARTS, EVEN THOUGH IT BE SHOWN THAT THE SPARE PARTS WERE INTENDED MERELY FOR REPLACEMENT PURPOSES.

DECISION BY COMPTROLLER GENERAL MCCARL, JULY 23, 1925:

THE DIEHL MANUFACTURING CO. REQUESTED APRIL 9, 1925, REVIEW OF SETTLEMENT NO. 03387, DATED NOVEMBER 7, 1924, DISALLOWING ITS CLAIM FOR REFUND OF LIQUIDATED DAMAGES DEDUCTED FROM PAYMENTS MADE UNDER CONTRACT NO. 58315, DATED AUGUST 4, 1923, FOR FURNISHING THE SUPPLY OFFICER, NAVY YARD, PORTSMOUTH, N.H., THREE MOTOR GENERATORS, AT A PRICE OF $650 EACH, AND THREE SETS OF SPARE PARTS THEREFOR, AT $306 PER SET. THE CLAIM WAS DISALLOWED FOR THE REASON THAT THE DELAY CLAIMED-- TIME TAKEN BY NAVY DEPARTMENT IN ACTING UPON PLANS AND SPECIFICATIONS SUBMITTED BY CONTRACTOR --- WAS NOT SUCH AS COULD BE EXCUSED UNDER THE TERMS OF THE CONTRACT AND THAT THE SPARE PARTS WERE AN INTEGRAL PART OF THE CONTRACT FOR WHICH LIQUIDATED DAMAGES WERE ASSESSABLE.

THE CONTRACTOR AGREED IN SAID CONTRACT TO MAKE SHIPMENT OF THE ARTICLES CONTRACTED FOR WITHIN 12 WEEKS FROM DATE OF CONTRACT, AND A PROVISION WAS INCORPORATED THEREIN FOR THE DEDUCTION OF LIQUIDATED DAMAGES AT THE RATE OF ONE-TENTH OF 1 PERCENT OF THE CONTRACT PRICE FOR EACH DAY'S DELAY IN DELIVERY, SUNDAYS AND HOLIDAYS EXCEPTED, NOT DUE TO ANY CAUSE FOR WHICH THE UNITED STATES WAS RESPONSIBLE OR ON ACCOUNT OF STRIKES, RIOTS, FIRE OR OTHER DISASTERS, DELAYS IN TRANSIT OR DELIVERY ON THE PART OF TRANSPORTATION COMPANIES, OR OTHER CIRCUMSTANCES BEYOND THE CONTROL OF THE CONTRACTOR.

UNDER THE TERMS OF THE AGREEMENT SHIPMENT WAS DUE ON OR BEFORE OCTOBER 27, 1923, BUT WAS NOT MADE WITHIN THE TIME SPECIFIED, TWO MOTOR GENERATORS BEING SHIPPED FEBRUARY 15, 1924, 3 SETS OF SPARE PARTS MARCH 5, 1924, AND THE ONE REMAINING MOTOR GENERATOR ON APRIL 17, 1924, THUS COMPLETING THE CONTRACT, AND LIQUIDATED DAMAGES WERE DEDUCTED, WHEN PAYMENTS FOR THE SUPPLIES WERE MADE BY THE NAVY SUPPLY OFFICER, FOR EACH DAY'S DELAY IN SHIPMENT, SUNDAYS AND HOLIDAYS EXCEPTED, SUBSEQUENT TO OCTOBER 27, 1923.

THE CONTRACTOR CITES A RULING BY THE COMPTROLLER OF THE TREASURY OF JUNE 29, 1914, 69 MS. COMP. DEC. 1853, AND CONTENDS THAT NO LIQUIDATED DAMAGES SHOULD HAVE BEEN DEDUCTED FOR DELAYS OCCURRING IN SHIPPING THE SPARE PARTS; THAT SINCE THE SPECIFICATIONS CONTAINED A STATEMENT TO THE EFFECT THE CONTRACTOR SHALL NOT BE AT LIBERTY TO PROCEED WITH THE WORK UNTIL AFTER APPROVAL OF PLANS AND SPECIFICATIONS, WHICH WERE NOT APPROVED UNTIL NOVEMBER 19, 1923, THE 12 WEEKS' PERIOD WITHIN WHICH IT AGREED TO MAKE SHIPMENT SHOULD NOT BEGIN TO RUN UNTIL AFTER THAT DATE, MAKING FEBRUARY 11, 1924, THE DUE DATE FOR SHIPMENT; AND THAT LIQUIDATED DAMAGES SHOULD ONLY BE ASSESSED ON THE MOTOR GENERATORS FOR THE DAYS OF DELAY OCCURRING AFTER THAT DATE AND ALSO AFTER SAID DATE ON THE SPARE PARTS, IF LIQUIDATED DAMAGES ARE HELD TO BE ASSESSABLE THEREON.

RELATIVE TO THE FIRST CONTENTION ADVANCED BY THE CONTRACTOR, THE DECISION OF JUNE 29, 1914, CITED, WAS RENDERED IN CONNECTION WITH A MATTER WHERE THE CLAIMANT COMPANY CONTRACTED TO MAKE AND DELIVER CERTAIN EQUIPMENT FOR IMMEDIATE INSTALLATION ON BATTLESHIPS AND FOR SPARE PARTS FOR THE EQUIPMENT TO BE INSTALLED. IN CONSIDERING THE RIGHT UNDER THE CONTRACT TO ASSESS LIQUIDATED DAMAGES FOR DELAY OCCURRING IN DELIVERY OF THE SPARE PARTS, THE THEN COMPTROLLER OF THE TREASURY SAID: FOR PURPOSES OF PAYMENT, IT MUST BE CONCEDED THAT THE AGREEMENT AS TO DELIVERY OF COMPLETE EQUIPMENTS WAS CONTROLLING ABSOLUTELY. THAT IS TO SAY, NO PAYMENT, PARTIAL OR COMPLETE, FOR AN EQUIPMENT COULD BE MADE UNTIL THE COMPLETE EQUIPMENT, INCLUDING SPARE PARTS, WAS DELIVERED TO THE GOVERNMENT AND ACCEPTED BY IT.

BUT THE CONTRACT, READ IN THE LIGHT OF REASON, AND ESPECIALLY THE DAMAGE PROVISION READ IN CONNECTION WITH THE AGREEMENT AS TO DELIVERIES, MAY NOT MEAN WHAT AT FIRST BLUSH IT WOULD SEEM TO MEAN. THE GOVERNMENT NEEDED THE MOTORS AND CONTROLLERS; IT NEEDED THEM, IT MAY BE INFERRED, BY THE DATES WHEN THE CONTRACTOR AGREED TO DELIVER THEM, AND ANY DELAY ON THE PART OF THE CONTRACTOR IN DELIVERING THEM WOULD IN FACT BE DAMAGING TO THE GOVERNMENT. AS TO THEM TIME TRULY WAS OF THE ESSENCE OF THE CONTRACT. WITHOUT THEM, SPARE PARTS OR OTHER EQUIPMENT WERE OF NO SERVICE OR USE OR ANY EQUIPMENT A "COMPLETE EQUIPMENT.' THE SPARE PARTS, ON THE OTHER HAND, IT DID NOT IMMEDIATELY NEED AND WOULD IN NO EVENT IMMEDIATELY USE. THEY WERE NOT NECESSARY PARTS OF A COMPLETE EQUIPMENT BUT WERE SURPLUS PARTS OF SUCH EQUIPMENT FOR USE WHEN NECESSARY PARTS WERE WORN OUT BY ACTUAL USE. AS TO THEIR DELIVERY, TIME WAS NOT OF THE ESSENCE OF THE CONTRACT, I.E., THEIR NONDELIVERY WITHIN THE TIME AGREED WOULD NOT EFFECT THE USE OF THE NECESSARY PARTS OR OTHERWISE DAMAGE THE GOVERNMENT.

AND SUCH BEING THE FACTS, I THINK THE DAMAGE PROVISION IS TO BE INTERPRETED AS APPLYING TO THE NONDELIVERY OF THE ESSENTIAL PARTS OF THE EQUIPMENTS AND NOT TO THE SPARE PARTS OR NONESSENTIAL PARTS OF SUCH EQUIPMENTS. SO FAR AS THE DAMAGE PROVISION IS CONCERNED, I THINK THE DELIVERY OF A MOTOR AND CONTROLLER, WITH NECESSARY WORKING PARTS, WAS THE DELIVERY OF A "COMPLETE EQUIPMENT" AND THAT UPON SUCH DELIVERY, DAMAGES CEASED TO RUN AGAINST THE CONTRACTOR AS FOR DELAY IN THE DELIVERY OF A COMPLETE EQUIPMENT. OR, IN OTHER WORDS, I THINK THE DELIVERY TO AND ACCEPTANCE BY THE GOVERNMENT OF THE NECESSARY AND ESSENTIAL PARTS OF AN EQUIPMENT WAS AND IS TO BE REGARDED, SO FAR AS ANY QUESTION OF DAMAGES FOR DELAY IS CONCERNED, AS A SUBSTANTIAL COMPLETION OF THE CONTRACT AS TO SUCH EQUIPMENT, AND THAT NO DAMAGES AS FOR DELAY WOULD ACCRUE AFTER SUCH DELIVERY AND ACCEPTANCE. I FIND NO AUTHORITY, UNDER THE CIRCUMSTANCES, FOR THE ASSESSMENT OF DAMAGES ON 10 PERCENT OF THE VALUE FOR FAILURE TO DELIVER THE SPARE PARTS WITHIN PRESCRIBED TIME.

THE CASE CONSIDERED BY THE COMPTROLLER OF THE TREASURY IS TO BE DISTINGUISHED FROM THE INSTANT MATTER IN THAT THE UNIT PRICES THERE INVOLVED INCLUDED THE PRICE FOR THE SPARE PARTS, WHEREAS THE PRICES OF THE SPARE PARTS TO BE DELIVERED UNDER CONTRACT NO. 58315 ARE SEPARATE AND APART FROM THE PRINCIPAL UNITS CALLED FOR BY THE CONTRACT, AND FURTHERMORE, THE DIFFICULTY PRESENTED IN THAT CASE WAS THE ESTABLISHMENT OF A PROPER BASIS ON WHICH TO DEFINITELY DETERMINE THE AMOUNT OF LIQUIDATED DAMAGES DUE THE UNITED STATES BY REASON OF DELAY IN DELIVERY WHICH CONDITION DOES NOT MAINTAIN IN THE INSTANT CASE.

SINCE THE DATE OF THE RENDITION OF THE DECISION REFERRED TO AND RELIED UPON BY THE CLAIMANT, THE COURTS IN THE INTERPRETATION OF PROVISIONS FOR LIQUIDATED DAMAGES IN CONTRACTS, HAVE ADOPTED A STRICTER VIEW THAN PREVIOUSLY MAINTAINED. IN THE CASE OF WISE V. UNITED STATES, 249 U.S. 361, DECIDED MARCH 31, 1919, THE SUPREME COURT OF THE UNITED STATES HELD, IN EFFECT, THAT UNDER THE PROVISIONS OF THE CONTRACT THEREUNDER CONSIDERATION THE FACT THAT THE AMOUNT SPECIFIED AS LIQUIDATED DAMAGES WAS TO BE THE SAME WHETHER BOTH BUILDINGS BEING CONSTRUCTED WERE DELAYED OR ONLY ONE, WAS NOT A SUFFICIENT REASON FOR CONSIDERING IT A PENALTY NOR WAS THERE ANY OTHER GROUND FOR NOT GIVING EFFECT TO THE AGREEMENT AS A PREESTIMATE OF THE LOSS BY REASON OF THE DELAY IN COMPLETING THE WORK WITHIN THE SPECIFIED TIME. SEE IN THIS CONNECTION SUN PRINTING AND PUBLISHING ASSOCIATION V. MOORE, 183 U.S. 642; UNITED STATES V. BETHLEHEM STEEL COMPANY, 205 U.S. 105. THE DECISION OF JUNE 29, 1914, THEREFORE, DOES NOT REFLECT THE PRINCIPLES OF THE LAW AS NOW APPLIED TO THE CONSTRUCTION OF LIQUIDATED DAMAGE PROVISIONS OF CONTRACTS AND WILL NOT BE FOLLOWED BY THE ACCOUNTING OFFICERS.

PROVISION HAVING BEEN MADE IN THE CONTRACT IN QUESTION FOR THE DEDUCTION OF LIQUIDATED DAMAGES FOR EACH AND EVERY DAY'S DELAY IN DELIVERY BEYOND THE SPECIFIED DATE, AND THERE HAVING BEEN NO PROVISION INCORPORATED IN SAID CONTRACT EXEMPTING THE SPARE PARTS FROM THE OPERATION OF THE LIQUIDATED DAMAGE CLAUSE, IT MUST BE HELD THAT PROVISION IS AS APPLICABLE TO DELAYS IN DELIVERY OF SPARE PARTS AS IT IS TO DELAYS IN DELIVERY OF THE MOTOR GENERATORS.

WITH RESPECT TO THE CONTENTION THAT DELAY ON THE PART OF THE NAVY DEPARTMENT IN APPROVING PLANS AND SPECIFICATIONS CAUSED DELAY IN DELIVERY OF THE MOTOR GENERATORS, IT DOES NOT APPEAR UNDER THE CIRCUMSTANCES, AND THE BUREAU OF ENGINEERING SO STATES, THAT THE TIME REQUIRED BY THE NAVY YARD AND THE BUREAU (OCTOBER 17, 1923, TO NOVEMBER 19, 1923) FOR EXAMINATION AND ACTION ON THE PLANS AND SPECIFICATIONS WAS UNREASONABLE OR EXCESSIVE.

THE ASSERTION IS ALSO MADE BY THE CONTRACTOR THAT OWING TO THE VERY SPECIAL NATURE OF THE APPARATUS REQUIRING COMPLETE NEW DESIGNS, NEW DRAWING WORK, ENGINEERING WORK, AND PATTERNS IT TOOK CONSIDERABLE TIME TO COMPLETE THE PRELIMINARY DESIGN AND OBTAIN APPROVAL OF THE SPECIFICATIONS. THE CONTRACT WAS ENTERED INTO UNDER DATE OF AUGUST 4, 1923, AND PLANS FOR THE WORK WERE NOT SUBMITTED TO THE NAVY DEPARTMENT UNTIL OCTOBER 17, 1923, OR JUST 10 DAYS PRIOR TO THE DATE SHIPMENT OF ALL OF THE ARTICLES UNDER THE CONTRACT WAS DUE. THE DELAY THAT WAS THUS CAUSED WAS NOT CHARGEABLE TO THE UNITED STATES, BUT APPEARS TO BE SUCH A DELAY AS WAS ENTIRELY DUE TO CAUSES WITHIN THE CONTROL OF THE CONTRACTOR; CONSEQUENTLY THE CONTRACTOR IS NOT UNDER THE TERMS OF THE AGREEMENT ENTITLED TO AN EXTENSION OF TIME BY REASON THEREOF.

IN VIEW OF THE FACTS, IT APPEARING THAT NO PART OF THE DELAY IN THE SHIPMENT OF MOTOR GENERATORS OR OF THE SPARE PARTS THEREFOR WAS CHARGEABLE TO THE UNITED STATES, THE SETTLEMENT OF NOVEMBER 7, 1924, DISALLOWING THE CLAIM IS UPON REVIEW AFFIRMED.