A-93931, FEBRUARY 2, 1939, 18 COMP. GEN. 633

A-93931: Feb 2, 1939

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DELAYS CAUSED BY STRIKES IN THE PLANT OF ANOTHER THAN THE GOVERNMENT-CONTRACTOR CORPORATION MAY NOT BE EXCUSED ON THE CONTENTION THAT THE SAID OTHER CORPORATION WAS NOT A SUBCONTRACTOR. THE CIRCUMSTANCES AND ARRANGEMENTS UNDER WHICH THE MATERIAL WAS TO BE FURNISHED BY THE OTHER CORPORATION NEGATIVING ANY SUCH CONTENTION. THE MERE FACT THAT THE GOVERNMENT CONTRACTOR WAS WHOLLY OWNED BY THE OTHER CORPORATION NOT ALONE BEING CONCLUSIVE AS TO THEIR NONEXISTENCE AS TWO SEPARATE AND DISTINCT CORPORATE ENTITIES AND THE NONAPPLICABILITY OF THE TERM "SUBCONTRACTOR" TO THE ALLEGED PARENT CORPORATION. - WHICH WAS EXECUTED ON STANDARD GOVERNMENT FORM OF SUPPLY CONTRACT. " WHICH PROVISION IS AS FOLLOWS: IF THE CONTRACTOR REFUSES OR FAILS TO MAKE DELIVERY OF THE MATERIAL OR SUPPLIES WITHIN THE TIME SPECIFIED IN ARTICLE 1.

A-93931, FEBRUARY 2, 1939, 18 COMP. GEN. 633

CONTRACTS - DAMAGES - LIQUIDATED - DELAYS BY SUBCONTRACTOR WHOLLY OWNING GOVERNMENT-CONTRACTOR CORPORATION WHERE A CONTRACT LIQUIDATED DAMAGE PROVISION SPECIFICALLY EXCLUDES "DELAYS CAUSED BY SUBCONTRACTORS" FROM THE UNFORSEEABLE DELAYS FOR WHICH THE CONTRACTOR MAY BE EXCUSED, DELAYS CAUSED BY STRIKES IN THE PLANT OF ANOTHER THAN THE GOVERNMENT-CONTRACTOR CORPORATION MAY NOT BE EXCUSED ON THE CONTENTION THAT THE SAID OTHER CORPORATION WAS NOT A SUBCONTRACTOR, THE CIRCUMSTANCES AND ARRANGEMENTS UNDER WHICH THE MATERIAL WAS TO BE FURNISHED BY THE OTHER CORPORATION NEGATIVING ANY SUCH CONTENTION, AND THE MERE FACT THAT THE GOVERNMENT CONTRACTOR WAS WHOLLY OWNED BY THE OTHER CORPORATION NOT ALONE BEING CONCLUSIVE AS TO THEIR NONEXISTENCE AS TWO SEPARATE AND DISTINCT CORPORATE ENTITIES AND THE NONAPPLICABILITY OF THE TERM "SUBCONTRACTOR" TO THE ALLEGED PARENT CORPORATION.

DECISION BY ACTING COMPTROLLER GENERAL ELLIOTT, FEBRUARY 2, 1939:

BY LETTER DATED FEBRUARY 19, 1938, JOSEPH T. RYERSON AND SON, INC., REQUESTED REVIEW OF SETTLEMENT OF FEBRUARY 12, 1938, WHICH DISALLOWED ITS CLAIM FOR $223.77 DEDUCTED AS LIQUIDATED DAMAGES FOR PAYMENTS MADE UNDER CONTRACT NO. N-140S-70991, DATED MAY 14, 1937, FOR SHEET STEEL FURNISHED THE NAVY YARDS AT BROOKLYN, N.Y., AND PHILADELPHIA, PA.

THE CONTRACT--- WHICH WAS EXECUTED ON STANDARD GOVERNMENT FORM OF SUPPLY CONTRACT, STANDARD FORM NO. 32, AS MODIFIED FOR USE BY THE NAVY DEPARTMENT --- PROVIDED FOR DELIVERY "WITHIN 45 DAYS FROM DATE OF CONTRACT," AND THAT LIQUIDATED DAMAGES WOULD BE ASSESSED UNDER THE TERM SET OUT UNDER "LIQUIDATED DAMAGES," WHICH PROVISION IS AS FOLLOWS:

IF THE CONTRACTOR REFUSES OR FAILS TO MAKE DELIVERY OF THE MATERIAL OR SUPPLIES WITHIN THE TIME SPECIFIED IN ARTICLE 1, 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 DELIVERY, 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 THEREOF 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: PROVIDED FURTHER,THAT THE CONTRACTOR SHALL NOT BE CHARGED WITH LIQUIDATED DAMAGES OR ANY EXCESS COST WHEN THE DELAY IN DELIVERY IS DUE TO UNFORSEEABLE CAUSES BEYOND THE CONTROL AND WITHOUT THE FAULT OR NEGLIGENCE OF THE CONTRACTOR, INCLUDING BUT NOT RESTRICTED TO, ACTS OF GOD OR THE PUBLIC ENEMY, ACTS OF THE GOVERNMENT, FIRES, FLOODS, EPIDEMICS, QUARANTINE RESTRICTIONS, STRIKES, FREIGHT EMBARGOES, AND UNUSUALLY SEVERE WEATHER, BUT NOT INCLUDING DELAYS CAUSED BY SUBCONTRACTORS: PROVIDED FURTHER, THAT THE CONTRACTOR SHALL WITHIN TEN DAYS FROM THE BEGINNING OF ANY SUCH DELAY NOTIFY THE CONTRACTING OFFICER IN WRITING OF THE CAUSES OF DELAY, WHO SHALL ASCERTAIN THE FACTS AND EXTENT OF THE DELAY, AND HIS FINDINGS OF FACTS THEREON SHALL BE FINAL AND CONCLUSIVE ON THE PARTIES HERETO, SUBJECT ONLY TO APPEAL, WITHIN THIRTY DAYS, BY THE CONTRACTOR TO THE HEAD OF THE DEPARTMENT CONCERNED, WHOSE DECISION ON SUCH APPEAL AS TO THE FACTS OF DELAY SHALL BE FINAL AND CONCLUSIVE ON THE PARTIES HERETO.

OTHER PROVISIONS OF THE CONTRACT MATERIAL TO THE QUESTION HERE INVOLVED ARE AS FOLLOWS:

INSPECTION.--- (A) PLACE INLAND STEEL COMPANY, INDIANA HARBOR, INDIANA.

SPECIFICATIONS.--- * * *.

THE SHEETS, ITEMS 1 AND 2, SHALL BE TYPE II, CLASS D IN STRICT ACCORDANCE WITH NAVY DEPARTMENT SPECIFICATION 47 S 10D ISSUED FEB. 1, 1935, FOR STEEL, SHEET, BLACK, AND ZINC-COATED (GALVANIZED).

PAYMENTS.--- THE CONTRACT PRICE OF EACH ITEM WILL BE PAID UPON DELIVERY AND ACCEPTANCE OF THE ARTICLES CALLED FOR, PROVIDED THAT LIQUIDATED DAMAGES SHALL BE DEDUCTED FROM THE CONTRACT PRICE.

LIQUIDATED DAMAGES.--- LIQUIDATED DAMAGES WILL BE ASSESSED AT THE RATE OF ONE-TENTH OF ONE PERCENT PER DIEM OF THE CONTRACT PRICE, BUT NOT TO EXCEED TEN PERCENT OF THE STIPULATED VALUE OF THE ARTICLES OR MATERIALS NOT DELIVERED.

NOTE.--- STANDARD LIQUIDATED DAMAGE CLAUSE TO APPLY.

CORRESPONDENCE.--- AFTER AWARD OF CONTRACT, CORRESPONDENCE IN CONNECTION WITH REQUEST FOR INFORMATION SHOULD BE ADDRESSED TO THE INSPECTOR OF NAVAL MATERIAL IN THE DISTRICT OF THE MANUFACTURER AND TWO COPIES SENT TO THE OFFICER-IN-CHARGE, CENTRAL DRAFTING OFFICE (ENG), NAVY YARD, N.Y.

THE CONTRACT FOR EIGHT ITEMS OF STEEL PLATES, DIVIDED INTO FOUR UNITS OF TWO ITEMS EACH, WAS AWARDED THE CONTRACTOR BY THE NAVY PURCHASING OFFICE, NEW YORK CITY, MAY 14, 1937. COMPUTING THE 45 DAYS ALLOWED FOR DELIVERY FROM THAT DATE FIXES THE CONTRACT-DUE DATE AS JUNE 28, 1937.

DELIVERIES UNDER THE CONTRACT OF ITEMS 1C, 2C, 1D, AND 2D WERE EFFECTED AUGUST 26, 1937, AND OF ITEMS 1A, 2A, 1B, AND 2B ON AUGUST 16, 1937. MAKING PAYMENT THEREFOR LIQUIDATED DAMAGES WERE WITHHELD IN THE AMOUNT OF $223.77, COVERING A DELAY OF 59 DAYS ON THE DELIVERY OF AUGUST 26 AND A DELAY OF 49 DAYS ON THE DELIVERY OF AUGUST 16.

WITH RESPECT TO THE DELAY IN DELIVERIES, THE EVIDENCE OF RECORD ESTABLISHES THAT BY LETTER OF JUNE 3, 1937, THE CONTRACTOR NOTIFIED THE NAVY PURCHASING OFFICE IN NEW YORK THAT A STRIKE WAS IN EFFECT AT THE PLANT OF THE INLAND STEEL CO. WHICH WOULD DELAY DELIVERY OF THE MATERIAL. BY A SUBSEQUENT LETTER OF JUNE 11, 1937, THE CONTRACTOR REPORTED THAT THE STRIKE IN QUESTION WAS CALLED AT MIDNIGHT MAY 26, 1937, AND IT REQUESTED PERMISSION TO PROCURE THE MATERIAL FROM SOURCES NOT AFFECTED BY STRIKE CONDITIONS. SUCH PERMISSION WAS GIVEN BY LETTER OF JUNE 14, 1937, FROM THE NAVY PURCHASING OFFICE, NEW YORK CITY, WHICH LETTER SHOULD HAVE BEEN RECEIVED BY THE CONTRACTOR JUNE 15, 1937. THE CONTRACTOR THEREUPON MADE ARRANGEMENTS TO OBTAIN THE MATERIAL FROM THE APOLLO STEEL CO., APOLLO, PA., WHICH POINT IS LOCATED IN THE PITTSBURGH INSPECTION DISTRICT. UNDER DATE OF JUNE 18, 1937, THE INSPECTOR OF NAVAL MATERIAL, CHICAGO, ILL., FORWARDED THE INSPECTION COPIES OF THE CONTRACT TO THE INSPECTOR OF NAVAL MATERIAL, PITTSBURGH DISTRICT.

THE CONTRACTING OFFICER HAS FOUND, AS A MATTER OF FACT, WITH RESPECT TO THE DELAY INVOLVED THAT---

ALTHOUGH THE STRIKE AT THE WORKS OF THE ORIGINAL SUBCONTRACTOR WAS NOT CALLED UNTIL MAY 26, 1937, AFTER THE DATE OF THE CONTRACT, IT IS BELIEVED UNDER THE CIRCUMSTANCES ALREADY MENTIONED THAT THE ENTIRE TIME THAT ELAPSED FROM THE DATE OF THE CONTRACT (MAY 14, 1937) UNTIL THE TIME THE CONTRACTOR RECEIVED AUTHORIZATION TO PROCURE THE MATERIAL FROM ANOTHER SOURCE (JUNE 15, 1937), NAMELY, 32 DAYS, SHOULD BE TREATED AS A DELAY FOR WHICH THE CONTRACTOR WAS NOT RESPONSIBLE, IN VIEW OF THE PROVISIONS OF ARTICLE 5 OF THE PRINTED CONDITIONS OF THE CONTRACT RELATIVE TO STRIKES.

IN SUPPORT OF ITS CLAIM FOR REMISSION OF DAMAGES, THE CONTRACTOR STATES, IN PART, AS FOLLOWS:

JOSEPH T. RYERSON AND SON, INC., IS A WHOLLY OWNED SUBSIDIARY OF THE INLAND STEEL COMPANY OF CHICAGO. WE RECEIVED CONTRACT NO. 70991, DATED MAY 14, 1937, FOR STEEL SHEETS, AND THIS CONTRACT WAS ENTERED FOR DELIVERY BY THE INLAND STEEL COMPANY, OUR PARENT COMPANY, FOR EXECUTION, AND WE, THEREFORE, BELIEVE THAT ANY REFERENCE TO THE TERM "SUBCONTRACTOR" DOES NOT APPLY IN THIS CASE.

THE LAW REGARDS THE SANCTITY OF CONTRACTS. IT REQUIRES THE PARTIES THERETO TO DO WHAT THEY HAVE AGREED TO DO. IF UNEXPECTED IMPEDIMENTS BE IN THE WAY, AND A LOSS MUST ENSUE, IT LEAVES THE LOSS WHERE THE CONTRACT PLACES IT. IT DOES NOT ALLOW A CONTRACT FAIRLY MADE TO BE ANNULLED, AND IT DOES NOT PERMIT TO BE INTERPOLATED WHAT THE PARTIES THEMSELVES HAVE NOT STIPULATED. DERMOTT V. JONES, 2 WALL. 1, 8.

UNDER THE LIQUIDATED DAMAGE CLAUSE OF THE CONTRACT, AS SET FORTH ABOVE, THE QUESTION WHETHER A CONTRACTOR IS CHARGEABLE WITH LIQUIDATED DAMAGES DEPENDS UPON THE TERMS OF THE CONTRACT AND THE FACTS AS FOUND BY THE CONTRACTING OFFICER IN WHOM IS VESTED EXCLUSIVE AUTHORITY TO ASCERTAIN THE FACTS, SUBJECT ONLY TO APPEAL WITHIN 30 DAYS BY THE CONTRACTOR TO THE HEAD OF THE DEPARTMENT CONCERNED. INSOFAR, THEREFORE, AS THE FOREGOING RECOMMENDATIONS OR FINDINGS OF THE CONTRACTING OFFICER RELATE TO THE ESTABLISHMENT OF THE FACTS AND THE EXTENT OF THE DELAY THEREUNDER, IT IS BINDING UPON ALL PARTIES CONCERNED. PENN BRIDGE CO. V. UNITED STATES, 59 CT.CLS. 892, AND AUTHORITIES THEREIN CITED. HOWEVER, UPON THE ESTABLISHMENT OF SUCH FACTS, AS CONTEMPLATED BY THE LIQUIDATED DAMAGE CLAUSE, SUPRA, IT IS STRICTLY WITHIN THE PROVINCE OF THIS OFFICE, OR THE COURTS, TO DETERMINE THE QUESTION OF LAW WHETHER, UNDER THE FACTS THUS ESTABLISHED, AND THE TERMS OF THE CONTRACT, THE CONTRACTOR IS TO BE HELD LIABLE FOR LIQUIDATED DAMAGES. SEE DAVIS ET AL., TRUSTEES V. UNITED STATES, 82 CT.CLS. 334, 347. COMPARE SAMUEL PLATO V. UNITED STATES, DECIDED BY THE COURT OF CLAIMS APRIL 4, 1938. SEE, ALSO, 6 COMP. GEN. 650; 7 ID. 505, 534; 8 ID. 13; 9 ID. 164; 10 ID. 252, 257; 13 ID. 325; 14 ID. 431; AND 16 ID. 936.

UNDER THE TERMS OF THE LIQUIDATED DAMAGE CLAUSE, SUPRA,"DELAYS CAUSED BY SUBCONTRACTORS" ARE SPECIFICALLY EXCLUDED FROM THE UNFORSEEABLE DELAYS FOR WHICH THE CONTRACTOR MAY BE EXCUSED. THE FINDING OF FACT BY THE CONTRACTING OFFICER ESTABLISHES THAT AT LEAST A PORTION OF THE DELAY IN QUESTION OCCURRED AS RESULT OF A STRIKE IN THE PLANT OF THE INLAND STEEL CO., WHERE THE CONTRACTOR HAS "MADE ARRANGEMENTS FOR THE MANUFACTURE OF THIS MATERIAL.'

THE QUESTION FOR DETERMINATION, THEREFORE, IS WHETHER THE INLAND STEEL CO. IN MANUFACTURING THE STEEL PLATES, AS SPECIFIED UNDER THE CONTRACT ENTERED INTO WITH THE CONTRACTOR, WAS A SUBCONTRACTOR. IF ITS STATUS WAS THAT OF A SUBCONTRACTOR, THE DELAY WHICH OCCURRED IN ITS PLANTS AS A RESULT OF THE STRIKE WOULD NOT BE EXCUSABLE UNDER THE SPECIFIC TERMS OF THE CONTRACT. A SUBCONTRACTOR HAS BEEN DEFINED BY THE COURTS AS ONE WHO ENTERS INTO A CONTRACT, EXPRESS OR IMPLIED, WITH A CONTRACTOR TO PERFORM PART OR ALL OF THE LATTER'S CONTRACT, LESTER V. HOUSTON, 101 N.C. 611; REPUBLIC SUPPLY CO. V. ALLEN, 262 S.W. 113; HIHN-HAMMOND LUMBER CO. V. ELSOM, 171 CAL. 570; AS ONE WHO TAKES UNDER THE ORIGINAL CONTRACT AND IS REQUIRED TO PERFORM IN ACCORDANCE THEREWITH, PEOPLE V. VALLEY MANTEL AND TILE CO., 166 N.W. 839. THE PRINCIPAL DISTINCTION BETWEEN A SUBCONTRACTOR AND A MATERIALMAN APPEARS TO BE WHETHER OR NOT THE WORK IS PERFORMED IN ACCORDANCE WITH THE SPECIFICATIONS OF THE ORIGINAL CONTRACT. IF ONE PERFORMS IN ACCORDANCE WITH THE SPECIFICATIONS GOVERNING THE ORIGINAL CONTRACT, HE IS A SUBCONTRACTOR; IF NOT, HE IS MERELY A MATERIALMAN. SEE NEARY V. PUGET SOUND ENGINEERING CO., 194 P. 830; BAKER V. YAKIMA VALLEY CANAL CO., 137 P. 342.

IN THE INSTANT CASE THE STEEL PLATES FURNISHED BY THE CONTRACTOR WERE TO BE MANUFACTURED BY THE INLAND STEEL CO. IN STRICT ACCORDANCE WITH THE SPECIFICATIONS OF THE ORIGINAL CONTRACT, AND WERE TO BE DULY INSPECTED AND PASSED AT THE PLANT OF SAID COMPANY AS COMPLYING THEREWITH. IT MUST BE CONCLUDED, THEREFORE, THAT SAID COMPANY WAS A SUBCONTRACTOR WITHIN THE MEANING OF THE LIQUIDATED DAMAGE CLAUSE, SUPRA, AND THAT DELAYS CAUSED BY SAID COMPANY ARE SPECIFICALLY EXCLUDED FROM THE UNFORSEEABLE DELAYS WHICH ARE EXCUSABLE UNDER THE CONTRACT.

THERE HAS BEEN NOTED THE CONTRACTOR'S CONTENTION THAT SINCE IT IS A WHOLLY OWNED SUBSIDIARY OF THE INLAND STEEL CO., THE REFERENCE IN THE LIQUIDATED DAMAGE CLAUSE OF THE CONTRACT TO THE TERM ,SUBCONTRACTOR" SHOULD NOT BE APPLICABLE. THERE IS INVOLVED IN THIS CONTENTION THE PROPRIETY OF DISREGARDING THE LEGAL FICTION OF A DISTINCT CORPORATE ENTITY. THERE EXISTS NO BASIS IN LAW FOR SUCH ACTION IN THIS INSTANCE UNLESS IT BE ESTABLISHED THAT THE JOSEPH T. RYERSON AND SON, INC., IS SO ORGANIZED AND CONTROLLED AND ITS AFFAIRS ARE SO CONDUCTED AS TO MAKE IT MERELY AN INSTRUMENTALITY OR ADJUNCT OF THE INLAND STEEL CO. HUNTER V. AKER MOTOR VEHICLE CO., 225 FED. 1006, 1015. THIS IS NOT ACCOMPLISHED BY MERELY SHOWING THAT IT IS WHOLLY OWNED BY THE INLAND STEEL CO. INTERSTATE COMMERCE COMMISSION V. STICKNEY, 215 U.S. 98, 108; PULLMAN PALACE CAR CO. V. MISSOURI PAC.RY., 115 U.S. 587, 597. NO SHOWING HAS BEEN MADE THAT IT WAS ACTING MERELY AS AN AGENT FOR THE INLAND STEEL CO. OR THAT THE AFFAIRS, BOOKS, AND ACCOUNTS OF THE TWO CORPORATIONS WERE NOT KEPT SEPARATE AND DISTINCT; THAT EACH DID NOT HAVE ITS OWN BOOK ACCOUNT AND DID NOT PAY ITS OWN BILLS; THAT THE CREDITORS OF EACH ARE NOT DIFFERENT; AND THAT THE BUSINESS OF EACH WAS NOT GENERALLY CONDUCTED AS THOUGH THEY WERE ENTIRELY SEPARATE CONCERNS WITH CLOSE BUSINESS OR FINANCIAL RELATIONS. PECKETT ET AL. V. WOOD, ET AL., 234 FED. 833; CENTMONT CORP. V. MARSCH, 68 F. (2) 460. SEE ALSO MARTIN V. DEVELOPMENT CO. OF AMERICA, 240 FED. 42, WHEREIN THE COURT SAID:

THE FACT THAT THE DEVELOPMENT COMPANY EXERCISED A CONTROL OVER THE COPPER COMPANY, THROUGH ITS STOCK OWNERSHIP OR IDENTITY OF DIRECTORATE, IS TO BE CONSIDERED, BUT BY ITSELF IS NOT ENOUGH TO ESTABLISH A MERGER, OR TO MAKE THE COPPER COMPANY IN ITS CONTRACTS THE AGENT OF THE DEVELOPMENT COMPANY. IN CLERE CLOTHING COMPANY V. UNION TRUST AND SAVINGS BANK, 224 FED. 363, 140 C.C.A. 49, THIS COURT APPLIED THE RULE THAT THERE MAY BE A VIRTUAL RELATIONSHIP OF PRINCIPAL AND AGENT BETWEEN TWO CORPORATIONS; BUT THE FACTS OF THAT CASE SHOWED A SYSTEMATIC PURPOSE AND SCHEME WHEREBY, FROM THE ORGANIZATION OF ONE CORPORATION DOWN TO THE TIME OF ITS BANKRUPTCY, IT WAS ACTING SOLELY IN THE CAPACITY OF AGENT OF ANOTHER COMPANY, * * * IS APPARENT FROM THE FOREGOING THAT ON THE BASIS OF THE PRESENT RECORD THERE EXISTS NO AUTHORITY FOR REGARDING THE TWO CORPORATIONS AS OTHER THAN TWO SEPARATE AND DISTINCT CORPORATE ENTITIES AND AS SUCH WITHIN THE MEANING OF THE LANGUAGE OF THE LIQUIDATED DAMAGE CLAUSE OF THE CONTRACT.

ACCORDINGLY, UPON THE PRESENT RECORD, THE SETTLEMENT OF FEBRUARY 12, 1938, IS AFFIRMED.