A-99562, DECEMBER 5, 1938, 18 COMP. GEN. 503

A-99562: Dec 5, 1938

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ALLEGED TO HAVE BEEN BROUGHT ABOUT BY TRUCK LOAD REDUCTION REQUIREMENTS AND CONSEQUENT SCARCITY OF TRUCKS. WILL NOT EXCUSE PERFORMANCE AS REQUIRED BY THE CONTRACT. THERE IS NO AUTHORITY OF LAW FOR REMISSION OF ANY PART OF THE AMOUNT DEDUCTED AS LIQUIDATED DAMAGES FOR DELAYS IN DELIVERY. THE USE OF THE WORD "PENALTY" IN A CONTRACT PROVISION FOR LIQUIDATED DAMAGE ASSESSMENT IN THE EVENT OF DELAY IN DELIVERY IS NOT CONCLUSIVE AS TO WHETHER THE PROVISION IS ONE FOR LIQUIDATED DAMAGES OR AS ONE FOR A PENALTY. WHERE TIME IS OF THE ESSENCE OF THE CONTRACT. - AND THE PRIME REASON FOR AWARD TO A PARTICULAR CONTRACTOR WAS HIS AGREEMENT TO MAKE DELIVERY OF THE LUMBER WHEN REQUIRED. INSERTED BY THE CONTRACTING OFFICER WHO WAS AWARE OF THE DAMAGES WHICH PROBABLY WOULD RESULT FROM DELAYS IN DELIVERY.

A-99562, DECEMBER 5, 1938, 18 COMP. GEN. 503

CONTRACTS - DAMAGES - LIQUIDATED - UNFORESEEABLE DELIVERY DELAYS AND CONSTRUCTION OF "PENALTY" STIPULATIONS WHERE CONTRACT CONTAINED NO PROVISION FOR EXCUSING COMPLIANCE WITH THE DELIVERY REQUIREMENTS FOR ANY CAUSE, UNFORESEEN DIFFICULTIES IN DELIVERY, ALLEGED TO HAVE BEEN BROUGHT ABOUT BY TRUCK LOAD REDUCTION REQUIREMENTS AND CONSEQUENT SCARCITY OF TRUCKS, WILL NOT EXCUSE PERFORMANCE AS REQUIRED BY THE CONTRACT, AND THERE IS NO AUTHORITY OF LAW FOR REMISSION OF ANY PART OF THE AMOUNT DEDUCTED AS LIQUIDATED DAMAGES FOR DELAYS IN DELIVERY. THE USE OF THE WORD "PENALTY" IN A CONTRACT PROVISION FOR LIQUIDATED DAMAGE ASSESSMENT IN THE EVENT OF DELAY IN DELIVERY IS NOT CONCLUSIVE AS TO WHETHER THE PROVISION IS ONE FOR LIQUIDATED DAMAGES OR AS ONE FOR A PENALTY, SUCH PROVISIONS, OR THOSE OF SIMILAR IMPORT, BEING NO LONGER FOR CONSTRUCTION AS PENALTIES IN CASES OF DOUBT, BUT FOR CONSTRUCTION WITHOUT BIAS AND IN A MANNER TO GIVE EFFECT TO THE INTENTION OF THE PARTIES. WHERE TIME IS OF THE ESSENCE OF THE CONTRACT--- PROMPT DELIVERY BEING URGENTLY REQUIRED--- AND THE PRIME REASON FOR AWARD TO A PARTICULAR CONTRACTOR WAS HIS AGREEMENT TO MAKE DELIVERY OF THE LUMBER WHEN REQUIRED, A CONTRACT PROVISION, INSERTED BY THE CONTRACTING OFFICER WHO WAS AWARE OF THE DAMAGES WHICH PROBABLY WOULD RESULT FROM DELAYS IN DELIVERY, FOR DEDUCTION FROM THE CONTRACT PRICE FOR SUCH DELAYS "IN AN AMOUNT EQUAL TO 2 PERCENT OF THE TOTAL ORDER PER DAY OR PART THEREOF FOR EACH DAY OR PART THEREOF IN EXCESS OF THE TIME LIMIT SET FORTH BY THE BIDDER TO COMPLETE HIS CONTRACT IN FULL," THE "PENALTY ASSESSED," HOWEVER, IN NO CASE TO "BE MORE THAN 10 PERCENT OF THE TOTAL ORDER," IS FOR CONSTRUCTION AS A LIQUIDATION OF THE PROBABLE DAMAGES AND NOT AS A PROVISION FOR A PENALTY. NEITHER ORDINARY COMMERCIAL PRACTICES NOR THE SETTLED RULES FOR DETERMINING ACTUAL DAMAGES FLOWING FROM BREACH OF CONTRACTS BETWEEN PRIVATE INDIVIDUALS PROVIDE A SUFFICIENT BASIS FOR ESTABLISHING THE GOVERNMENT'S LOSS IN THE EVENT OF DELAYS WHERE THE ELEMENT OF TIME IS OF THE ESSENCE OF THE CONTRACT AND SO STATED AND CONSIDERED IN MAKING AWARD BECAUSE OF THE URGENT GOVERNMENT NEED, AS THE ACTUAL MONETARY LOSSES WHICH MAY BE SUFFERED ARE NOT ALWAYS AN ACCURATE MEASURE IN CASES INVOLVING PUBLIC CONVENIENCE AND NECESSITY. WHERE TIME IS OF THE ESSENCE OF THE CONTRACT--- PROMPT DELIVERY BEING URGENTLY REQUIRED--- AND THE PRIME REASON FOR AWARD TO A PARTICULAR CONTRACTOR WAS HIS AGREEMENT TO MAKE DELIVERY OF THE LUMBER WHEN REQUIRED, THE PROPRIETY OF THE INCLUSION IN THE CONTRACT BY THE CONTRACTING OFFICER OF A PROVISION TO LIQUIDATE THE PROBABLE DAMAGES WHICH MIGHT ARISE FROM DELAYS IN DELIVERY IS APPARENT, AND THE PROVISION IS FOR ENFORCEMENT ACCORDING TO ITS TERMS WITHOUT INQUIRING INTO THE QUESTION OF ACTUAL DAMAGES.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE ANGELINA COUNTY LUMBER COMPANY, DECEMBER 5, 1938:

BY YOUR LETTER OF OCTOBER 5, 1938, YOU REQUEST REVIEW OF SETTLEMENT DATED MAY 24, 1938, WHICH DISALLOWED YOUR CLAIM FOR REMISSION OF $564.67 WITHHELD AS LIQUIDATED DAMAGES FOR DELAY IN DELIVERY OF CERTAIN LUMBER TO THE PUERTO RICO RECONSTRUCTION ADMINISTRATION UNDER CONTRACT NO. ER-TPS-36 -2484, DATED SEPTEMBER 16, 1937.

UNDER THE TERMS OF SAID CONTRACT YOU WERE REQUIRED TO DELIVER 31 ITEMS OF SHORT LEAF YELLOW PINE LUMBER, COMMON NO. 1, S.P.A. GRADE MARKED, TO THE PROJECT SITE AT DOS BOCAS KM. 63.5, ARECIBO-UTUADO ROAD, ARECIBO, PUERTO RICO, WITHIN 28 DAYS AFTER RECEIPT BY YOU OF THE ORDER THEREFOR, AT A PRICE OF $54.80 PER THOUSAND BOARD FEET FOR 102,000 BOARD FEET COVERED BY THE CONTRACT, LESS DISCOUNT OF 1 PERCENT FOR PAYMENT WITHIN 20 DAYS AFTER DELIVERY.

PURCHASE ORDER NO. 43051 WAS ISSUED UNDER THE AFORESAID CONTRACT ON SEPTEMBER 17, 1937, AND APPEARS TO HAVE BEEN RECEIVED BY YOU ON SEPTEMBER 18, 1937, THUS ESTABLISHING OCTOBER 16, 1937, AS THE DATE ON WHICH DELIVERIES WERE REQUIRED TO BE COMPLETED IN ACCORDANCE WITH THE TERMS OF THE CONTRACT. THERE WERE RECEIVED 103,023 BOARD FEET OF LUMBER, OF THE VALUE OF $5,645.66, AT THE CONTRACT UNIT PRICE OF $54.80 PER THOUSAND BOARD FEET, BUT DELIVERIES OF THE QUANTITY REQUIRED BY THE CONTRACT WERE NOT COMPLETED UNTIL OCTOBER 21, 1937, 5 DAYS AFTER THE DATE SPECIFIED FOR COMPLETION. IN MAKING PAYMENT TO YOU, THE SUM OF $564.67 WAS DEDUCTED FROM THE AMOUNT OTHERWISE DUE, IN ACCORDANCE WITH THE FOLLOWING PROVISIONS OF THE CONTRACT:

DATE DELIVERY REQUIRED.--- WITHIN 28 DAYS AFTER RECEIPT OF ORDER.

TIME IS AN IMPORTANT FACTOR AND THOSE BIDDERS WHO DO NOT AGREE TO DELIVER WITHIN THE TIME SPECIFIED WILL NOT HAVE THEIR BIDS CONSIDERED IN MAKING THE AWARD. IN ADDITION TO THIS THOSE BIDDERS WHO AGREE TO DELIVER WITHIN THE TIME SET FORTH AND ARE AWARDED THE CONTRACT AND THEN FAIL TO DELIVER WITHIN THAT PERIOD WILL BE PENALIZED IN AN AMOUNT EQUAL TO 2 PERCENT OF THE TOTAL ORDER PER DAY OR PART THEREOF FOR EACH DAY OR PART THEREOF IN EXCESS OF THE TIME LIMIT SET FORTH BY THE BIDDER TO COMPLETE HIS CONTRACT IN FULL. THE PENALTY ASSESSED SHALL, HOWEVER, IN NO CASE BE MORE THAN 10 PERCENT OF THE TOTAL ORDER.

YOUR CLAIM FOR REMISSION OF THE SUM OF $564.67 SO DEDUCTED WAS BASED, IN SUBSTANCE, ON THE SUGGESTION THAT DELAY OF 5 DAYS IN DELIVERY OF THE LUMBER WAS DUE TO AN UNFORESEEABLE CAUSE OVER WHICH YOU HAD NO CONTROL. THE ALLEGED CAUSE OF THE DELAY IS DESCRIBED IN LETTER OF OCTOBER 22, 1937, FROM YOUR AGENT, C. E. ROSELLO CO., TO THE PUERTO RICO RECONSTRUCTION ADMINISTRATION, IN THE FOLLOWING WORDS:

THIS LOT ARRIVED TO SAN JUAN ON BOARD S.S. TILLIE LYKES AND WAS UNLOADED AND READY FOR DELIVERY ON THE 13TH INST. EXACTLY THE DAY BEFORE ALL TRUCKS OWNERS MADE ARRANGEMENT TO RAISE THE FREIGHT RATES FOR ALL ROUTES OVER THE ISLAND, AS A CONSEQUENCE OF NEW REGULATIONS FOR THE HIGHWAYS PUT IN FORCE BY THE POLICE. THIS MEANT THAT THEY COULDN-T CARRY LOADS HEAVIER THAN 6000 LBS., EXACTLY ABOUT HALF THE LOAD THEY WERE ACCUSTOMED TO MOVE IN EACH TRIP. AND FURTHERMORE TO MAKE THINGS WORSE FOR US AS ALL MERCHANTS WERE AFFECTED BY THIS NEW DISPOSITION, NEARLY ALL TRUCKS AVAILABLE WERE REQUISITIONED, AS PRACTICALLY ALL THE TRUCKS HAD TO MAKE TWO TRIPS FOR WHAT WAS NEEDED PREVIOUSLY ONLY ONE.

WITH RESPECT TO THESE ALLEGATIONS, THE PUERTO RICO RECONSTRUCTION ADMINISTRATION, IN REPORTING ON YOUR CLAIM, MADE THE FOLLOWING STATEMENT:

THE CONTRACTOR DOES NOT AGREE WITH THIS DEDUCTION AND HAS SUBMITTED CORRESPONDENCE INDICATING THAT HE CONTRACTED FIVE TRUCK OWNERS FOR THE TRANSPORTATION OF THE LUMBER FROM SAN JUAN TO THE PROJECT SITE, WHO INFORMED HIM THAT THEY HAD NOT SUFFICIENT TRUCKS TO DELIVER THE LUMBER WITHIN THE TIME LIMIT OF THE CONTRACT. THEY INFORMED HIM THAT THE IMPOSSIBILITY ON THEIR PART TO DELIVER THE MATERIAL WAS CALLED FOR BY THE CONTRACT WAS DUE TO THE FACT THAT AN INSULAR LAW HAD BEEN PLACED IN FORCE AS OF THAT TIME WHICH DID NOT PERMIT THEIR TRUCKS TO CARRY LOADS IN EXCESS OF 6,000 LBS. AND THAT THIS QUANTITY WAS ALMOST HALF OF WHAT THEIR TRUCKS PREVIOUSLY CARRIED.

THEY FURTHER INFORMED HIM THAT THIS LAW WAS THE CAUSE OF A STRIKE AMONG THEIR TRUCK DRIVERS WHO ARE PAID ON A PERCENTAGE BASIS OF THE PROCEEDS OF EACH TRIP AS THEY WERE FINED $50.00 EACH TIME THEY WERE CAUGHT CARRYING LOADS IN EXCESS OF THE QUANTITY STIPULATED BY THE LAW.

IT HAS BEEN FOUND BY THIS OFFICE THAT ALTHOUGH SUCH A LAW EXISTED THE SAME WAS IN EFFECT PRIOR TO THE PERIOD WHEN THE MATERIAL COVERED BY THIS CONTRACT HAD TO BE TRANSPORTED. FURTHERMORE, THIS OFFICE HAS NO KNOWLEDGE OF A FORMAL STRIKE AMONG TRUCK DRIVERS AND BELIEVES THAT THE 28 DAYS ALLOWED THE CONTRACTOR WAS ENOUGH TIME FOR COMPLETION OF DELIVERY EVEN WHEN MATERIAL HAD TO BE ORDERED FROM THE STATES.

THESE FINDINGS ARE CONFIRMED BY THE REPORT OF THE PROCUREMENT OFFICE OF THE TREASURY DEPARTMENT AT SAN JUAN, PUERTO RICO, THE CONTRACTING OFFICE, AND BOTH OF THE DEPARTMENTS INVOLVED HAVE RECOMMENDED DISALLOWANCE OF THE CLAIM.

MOREOVER, NO AUTHORITY OF LAW EXISTS FOR REMISSION OF ANY PART OF THE AMOUNT DEDUCTED, INASMUCH AS THE CONTRACT CONTAINED NO PROVISION FOR EXCUSING COMPLIANCE WITH THE DELIVERY REQUIREMENTS FOR ANY CAUSE. IT HAS LONG BEEN ESTABLISHED THAT UNFORESEEN DIFFICULTIES WILL NOT EXCUSE PERFORMANCE OF A CONTRACT UNLESS PROVIDED FOR THEREIN, BERG V. ERICKSON, 234 FED. 817, AND THAT THE TERMS OF THE CONTRACT MUST PREVAIL WHERE THE PARTIES MAKE NO PROVISION FOR A DISPENSATION. COLUMBUS RY. POWER AND LIGHT CO. V. COLUMBUS, 249 U.S. 399. AND SEE UNITED STATES V. GLEASON, 175 U.S. 588.

IN YOUR REQUEST FOR REVIEW YOU URGE THAT BECAUSE THE STIPULATION WITH RESPECT TO DEDUCTIONS FOR DELAYS IN DELIVERY IS DENOMINATED IN THE CONTRACT AS A "PENALTY," THE PROVISION SHOULD BE CONSTRUED AS ONE FOR A PENALTY, RATHER THAN AS ONE FOR LIQUIDATED DAMAGES. YOU ALLEGE THAT THE UNITED STATES SUFFERED NO ACTUAL DAMAGES, AND THAT, THEREFORE, A "PENALTY" SHOULD NOT BE ASSESSED. IN SUPPORT THEREOF YOU CITE TAYLOE V. SANDIFORD, 7 WHEAT. (20 U.S.) 13.

WITH RESPECT TO WHETHER A CLAUSE, SUCH AS THE ONE HERE CONSIDERED, SHOULD BE CONSTRUED AS A PROVISION FOR A PENALTY OR AS ONE FOR LIQUIDATED DAMAGES, IT WAS SAID IN THE CASE OF NORTHWESTERN TERRA COTTA CO. V. CALDWELL, 234 FED. 491, CERTIORARI DENIED, 242 U.S. 643, THAT (P. 496) "IT IS SETTLED BY ABUNDANT AUTHORITIES THAT THE MERE USE OF THE TERMS "PENALTY," "FORFEITURE," ,LIQUIDATED DAMAGES," OR "STIPULATED DAMAGES," IS NOT CONCLUSIVE AS TO THE TRUE CONSTRUCTION.' AND IT WAS STATED BY JUDGE LEARNED HAND, IN IN RE OUTFITTERS' OPERATING REALTY CO., 69 F/2D) 90, THAT (P. 92):

* * * WE DISREGARD THE EARLIER CANON BY WHICH ALL PROVISIONS FIXING DAMAGES WERE CONSTRUED AS PENALTIES IN CASES OF DOUBT; THE DECISIONS OF THE SUPREME COURT NO LONGER GIVE COUNTENANCE TO THAT NOTION; SUCH CLAUSES ARE CONSTRUED WITHOUT BIAS. U.S. V. BETHLEHEM STEEL CO., 205 U.S. 105, 119, 27 S.CT. 450, 51 L.ED. 731; U.S. V. UNITED ENGINEERING AND CONST. CO., 234 U.S. 236, 241, 34 S.CT. 843, 58 L.ED. 1294; WISE V. U.S., 249 U.S. 361, 365, 366, 39 S.CT. 303, 63 L.ED. 647; HATHAWAY AND CO. V. U.S., 249 U.S. 460, 464, 39 S.CT. 346, 63 L.ED. 707. * * *

THEREFORE THE PROVISION IN THE INSTANT CONTRACT FOR DEDUCTIONS IN THE EVENT OF DELAYS IN DELIVERY IS TO BE INTERPRETED, LIKE ANY OTHER CONTRACT PROVISION, IN SUCH A MANNER AS TO GIVE EFFECT TO THE INTENTION OF THE PARTIES. THE CIRCUMSTANCES ARE SUCH AS TO LEAVE NO ROOM FOR DOUBT THAT THE PROVISION IN QUESTION WAS INSERTED TO COMPENSATE THE UNITED STATES FOR SUCH DAMAGES AS WERE LIKELY TO BE CAUSED BY FAILURE TO RECEIVE THE DESIGNATED QUANTITY OF LUMBER WITHIN THE TIME SPECIFIED. IN CONSIDERING THIS POINT, IT SHOULD BE NOTED AT THE OUTSET THAT, IN RESPONSE TO THE GOVERNMENT'S INVITATION, SIX BIDS WERE RECEIVED OFFERING TO FURNISH THE LUMBER AT PRICES LOWER THAN THAT QUOTED BY YOU. THE PRIME REASON FOR AWARD OF THE CONTRACT TO YOU WAS YOUR AGREEMENT TO MAKE DELIVERY OF THE LUMBER AT THE PROJECT SITE WITHIN 28 DAYS AFTER RECEIPT BY YOU OF THE ORDER.

OBVIOUSLY, THE ELEMENT OF TIME WAS OF THE ESSENCE OF THE CONTRACT, AND PROMPT DELIVERY OF THE LUMBER IN ACCORDANCE WITH YOU AGREEMENT WAS URGENTLY REQUIRED. IN THESE CIRCUMSTANCES, IT IS THE GENERAL PRACTICE OF GOVERNMENT CONTRACTING OFFICERS TO INCLUDE PROVISIONS FOR LIQUIDATED DAMAGES IN CONTRACTS MADE BY THEM. THIS PRACTICE HAS BEEN SANCTIONED FREQUENTLY AND CONSISTENTLY BY THE DECISIONS OF THE COURTS AND THE ACCOUNTING OFFICERS OF THE UNITED STATES, AND IS NOW ALMOST UNIVERSALLY FOLLOWED IN THE GOVERNMENT SERVICE IN CONTRACTS FOR PURCHASE OF MATERIALS WHICH ARE URGENTLY REQUIRED. SEE 11 COMP. GEN. 386, AND CASES THERE CITED. IN VIEW OF THIS WELL ESTABLISHED PROCEDURE FOR LIQUIDATION OF SUCH DAMAGES BY THE INSERTION IN GOVERNMENT CONTRACTS OF CLAUSES SIMILAR TO THE ONE HERE UNDER CONSIDERATION, IT IS ONLY NATURAL TO ASSUME THAT THE CONTRACTING OFFICER DRAFTED THE PROVISION FOR DEDUCTIONS WITH THE INTENTION OF LIQUIDATING THE DAMAGES WHICH MIGHT RESULT FROM DELAYS IN DELIVERY.

NEITHER ORDINARY COMMERCIAL PRACTICES NOR THE SETTLED RULES FOR DETERMINING ACTUAL DAMAGES FLOWING FROM BREACH OF CONTRACTS BETWEEN PRIVATE INDIVIDUALS PROVIDE A SUFFICIENT BASIS FOR ESTABLISHING THE GOVERNMENT'S LOSS IN THE EVENT OF SUCH DELAYS BECAUSE THE ACTUAL MONETARY LOSSES WHICH MAY BE SUFFERED ARE NOT ALWAYS AN ACCURATE MEASURE OF DAMAGES IN CASES INVOLVING PUBLIC CONVENIENCE AND NECESSITY.

HENCE, THE PROPRIETY OF THE INSERTION BY THE CONTRACTING OFFICER OF A PROVISION TO LIQUIDATE THE PROBABLE DAMAGES WHICH MIGHT ARISE FROM DELAYS IN DELIVERY OF LUMBER UNDER THE CONTRACT IS READILY APPARENT. THEREFORE, IN INTERPRETING THE INSTANT CONTRACT, IT IS PROPER TO ASSUME THAT THE CONTRACTING OFFICER--- HAVING AWARDED THE CONTRACT TO ONE OTHER THAN THE LOW BIDDER ON THE STRENGTH OF A PROMISE FOR EARLIER DELIVERY THAN WAS OFFERED BY THE SIX LOWER BIDDERS--- WAS AWARE OF THE DAMAGES WHICH PROBABLY WOULD RESULT FROM DELAYS IN DELIVERY AND SOUGHT TO PROVIDE AGAINST THEM.

INTERPRETED IN THE LIGHT OF THE CIRCUMSTANCES SET FORTH ABOVE, THE PROVISION OF THE INSTANT CONTRACT RELATIVE TO DEDUCTIONS FOR DELAYS IN DELIVERY CLEARLY APPEARS TO HAVE BEEN A PROVISION FOR LIQUIDATED DAMAGES. AS SUCH, THE PROVISION IS FOR ENFORCEMENT ACCORDING TO ITS TERMS, WITHOUT THE NECESSITY OF EXAMINING INTO THE QUESTION OF ACTUAL DAMAGES. SEE CASES CITED IN THE QUOTATION FROM THE OPINION OF THE COURT IN THE CASE OF IN RE OUTFITTERS' OPERATING REALTY COMPANY, SUPRA. SEE ALSO FRICK CO. V. RUBEL CORPORATION, 62 F/2D) 765 (C.A.A.2D), HOLDING THAT WHERE A CONTRACT FIXED LIQUIDATED DAMAGES FOR BREACH, THE DISTRICT COURT PROPERLY EXCLUDED AS IMMATERIAL CERTAIN EVIDENCE WHICH HAD BEEN OFFERED TO PROVE THAT THE ACTUAL LOSS CAUSED BY THE BREACH WAS INFINITESIMALLY SMALL AS COMPARED WITH THE STIPULATED LIQUIDATED DAMAGES, AND PROPERLY DIRECTED A VERDICT FOR THE AMOUNT OF LIQUIDATED DAMAGES AGREED UPON IN THE CONTRACT, IRRESPECTIVE OF THE AMOUNT OF ACTUAL DAMAGES.

ACCORDINGLY, THE SETTLEMENT DISALLOWING YOUR CLAIM MUST BE, AND IS, SUSTAINED.