B-126434, FEBRUARY 27, 1956, 35 COMP. GEN. 484

B-126434, FEBRUARY 27, 1956, 35 COMP. GEN. 484

CONTRACTS - DAMAGES - LIQUIDATED A PROVISION IN A SUPPLY CONTRACT FOR THE ASSESSMENT OF LIQUIDATED DAMAGES AT A SPECIFIED RATE FOR EACH DAY DELIVERY IS DELAYED IS NOT IMPROPER, NOR IS IT TO BE REGARDED AS A PENALTY MERELY BECAUSE A LIMIT WAS NOT FIXED ON THE TOTAL AMOUNT CHARGEABLE AS DAMAGES.

TO THE INGERSOLL-RAND COMPANY, FEBRUARY 27, 1956:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF DECEMBER 27, 1955, ENCLOSING A COPY OF YOUR LETTER OF THE SAME DATE TO THE COMMANDANT, UNITED STATES COAST GUARD, IN WHICH YOU PROTESTED A PROPOSED AWARD OF A CONTRACT TO THE WORTHINGTON CORPORATION PURSUANT TO INVITATION FOR BIDS NO. CG-36,503-A, ISSUED ON NOVEMBER 28, 1955.

THE RECORD NOW SHOWS THAT BIDS WERE REQUESTED ON SIX ITEMS OF AIR COMPRESSOR UNITS TO BE DELIVERED WITHIN 135 DAYS AFTER RECEIPT BY THE SUCCESSFUL BIDDER OF NOTICE TO PROCEED. IT WAS STIPULATED THAT LIQUIDATED DAMAGES WOULD BE ASSESSED AT THE RATE OF $20 PER DAY FOR EACH CALENDAR DAY OF DELAY IN DELIVERY. ONLY TWO BIDS WERE RECEIVED, ONE FROM YOUR COMPANY IN THE AMOUNT OF $22,950 AND ANOTHER FROM THE WORTHINGTON CORPORATION IN THE AMOUNT OF $24,510. YOUR BID WAS CONSIDERED AS NOT HAVING BEEN RESPONSIVE TO THE INVITATION SINCE EXCEPTION WAS TAKEN IN THE BID TO THE LIQUIDATED DAMAGE STIPULATION. THE AWARD WAS THEREFORE MADE TO THE HIGHER BIDDER.

IN YOUR LETTER OF PROTEST, IT WAS CONTENDED, FIRST, THAT THE ASSESSMENT OF LIQUIDATED DAMAGES AT THE RATE OF $20 PER DAY WITHOUT LIMITATION WOULD CONSTITUTE A PENALTY; AND, SECOND, THAT THERE WAS NOTHING IN THE INVITATION FOR BIDS TO SUGGEST THAT LIQUIDATED DAMAGES WOULD NOT BE CHARGEABLE FOR DELAYS DUE TO CAUSES BEYOND THE CONTROL AND WITHOUT THE FAULT OR NEGLIGENCE OF THE CONTRACTOR. THESE CONTENTIONS WERE CONSIDERED IN A LETTER DATED FEBRUARY 1, 1956, ADDRESSED TO YOU BY THE COMMANDANT, UNITED STATES COAST GUARD, DENYING YOUR PROTEST.

WITH RESPECT TO YOUR FIRST CONTENTION, IT IS WELL ESTABLISHED THAT A CONTRACT PROVISION FOR THE ASSESSMENT OF LIQUIDATED DAMAGES AT A GIVEN RATE FOR EACH DAY OF DELAY IN PERFORMANCE SHOULD NOT BE REGARDED AS A PENALTY MERELY BECAUSE NO LIMIT IS FIXED AS TO THE TOTAL AMOUNT CHARGEABLE FOR FAILURE OF PERFORMANCE WITHIN THE SPECIFIED CONTRACT PERIOD. SEE IN THIS CONNECTION 3 COMP. GEN. 67, 70; AND THE RECENT CASE OF HUGHES BROS., INC. V. UNITED STATES, NO. 249-52, DECIDED BY THE COURT OF CLAIMS ON OCTOBER 4, 1955.

IN REGARD TO YOUR SECOND CONTENTION, SECTION 11, PARAGRAPH (B) OF THE GENERAL PROVISIONS ( STANDARD FORM 32) OF THE CONTRACT, PROVIDES AGAINST THE ASSESSMENT OF EXCESS COSTS IF ANY FAILURE TO PERFORM THE CONTRACT SHOULD ARISE OUT OF CAUSES BEYOND THE CONTROL AND WITHOUT THE FAULT OR NEGLIGENCE OF THE CONTRACTOR; AND IT IS STATED THAT SUCH CAUSES INCLUDE BUT ARE NOT RESTRICTED TO ACTS OF GOD OR OF THE PUBLIC ENEMY, ACTS OF THE GOVERNMENT, FIRES, FLOODS, ETC., OR DELAYS OF A SUBCONTRACTOR DUE TO ANY SUCH CAUSES UNLESS DETERMINED BY THE CONTRACTING OFFICER THAT THE SUPPLIES OR SERVICES WERE OBTAINABLE FROM OTHER SOURCES IN SUFFICIENT TIME TO PERMIT THE CONTRACTOR TO MEET THE REQUIRED DELIVERY SCHEDULE.

WE AGREE WITH YOUR SUGGESTION THAT SECTION 11, PARAGRAPH (B), STANDING ALONE WOULD APPLY ONLY TO TERMINATION FOR DEFAULT. HENCE, UNLESS OTHERWISE PROVIDED IN THE PROPOSED CONTRACT, A LIQUIDATED DAMAGE PROVISION SUCH AS HERE IN QUESTION WOULD BE ENFORCEABLE ON THE BASIS OF THE COMMON LAW RULE THAT, IF A PARTY CHARGES HIMSELF WITH AN OBLIGATION WHICH AT THE TIME IS POSSIBLE OF PERFORMANCE, HE MUST ABIDE BY IT UNLESS PERFORMANCE IS RENDERED IMPOSSIBLE BY AN ACT OF GOD, BY THE LAW, OR BY THE OTHER PARTY. COLUMBUS RAILWAY, POWER AND L. CO. V. COLUMBUS, 249 U.S. 399.

HOWEVER, IN THIS INSTANCE, PARAGRAPH (B) OF SECTION 11 OF THE GENERAL PROVISIONS WAS EXPRESSLY MADE APPLICABLE TO THE MATTER OF AFFORDING RELIEF FROM THE ASSESSMENT OF LIQUIDATED DAMAGES BY SECTION 26 OF THE ADDITIONAL GENERAL PROVISIONS, WHICH IS, IN PERTINENT PART, AS FOLLOWS:

IF THIS CONTRACT PROVIDES FOR THE ASSESSMENT OF LIQUIDATED DAMAGES FOR DELAY IN DELIVERY, PARAGRAPH (F) OF SECTION 11 OF THESE GENERAL PROVISIONS * * * IS AUTOMATICALLY DELETED AND THE FOLLOWING TWO PARAGRAPHS, (F) AND (G), ARE EFFECTIVE AND GOVERN THE CONDITIONS UNDER WHICH THE LIQUIDATED DAMAGES WILL BE ASSESSED:

(B) SUBJECT TO THE PROVISIONS OF PARAGRAPH (B) ABOVE, IF THE CONTRACTOR FAILS TO DELIVER THE SUPPLIES OR PERFORM THE SERVICES WITHIN THE TIME SPECIFIED IN THIS CONTRACT, OR ANY EXTENSION THEREOF, THE ACTUAL DAMAGE TO THE GOVERNMENT FOR THE DELAY WILL BE IMPOSSIBLE TO DETERMINE, AND THEREFORE IN LIEU THEREOF THE CONTRACTOR SHALL PAY TO THE GOVERNMENT AS FIXED, AGREED, AND LIQUIDATED DAMAGES FOR EACH CALENDAR DAY OF DELAY THE AMOUNT SET FORTH ELSEWHERE IN THIS CONTRACT, * * * ( ITALICS SUPPLIED.)

THUS, IT SEEMS CLEARLY EVIDENT THAT THE GOVERNMENT'S INVITATION FOR BIDS SHOULD BE CONSTRUED AS HAVING BEEN INTENDED TO PERMIT REMISSION OF LIQUIDATED DAMAGES ON THE BASIS OF THE SAME EXCUSABLE CAUSES AS WERE INTENDED TO BE APPLICABLE TO THE ASSESSMENT OF EXCESS COSTS RESULTING FROM TERMINATION OF THE CONTRACT.

IN AN INFORMAL DISCUSSION OF THE CASE BEFORE RECEIPT OF A REPORT FROM THE UNITED STATES COAST GUARD, THE QUESTION WAS RAISED BY YOUR REPRESENTATIVE AS TO WHETHER ONE OF THE ATTACHMENTS TO THE INVITATION FOR BIDS WAS PROPERLY INCORPORATED BY REFERENCE. APPARENTLY, THIS QUESTION RELATES TO THE FACT THAT ON PAGE 1 OF THE INVITATION NO SPECIFIC REFERENCE WAS MADE TO FORM CG-2557A, ENTITLED " ADDITIONAL GENERAL PROVISIONS," WHICH, UPON REVISION OF ONE SECTION OF THE PRINTED FORM AND THE ADDITION OF ANOTHER SECTION, CONSISTS OF 11 SECTIONS NUMBERED 21 THROUGH 31.

ON THE FIRST PAGE OF THE INVITATION, IT IS STATED THAT " SEALED BIDS IN QUADRUPLICATE, SUBJECT TO THE TERMS AND CONDITIONS OF THIS INVITATION, ITS SCHEDULE AND THE ATTACHED GENERAL PROVISIONS, WILL BE RECEIVED" UNTIL 2:00 O-CLOCK P.M., EST, DECEMBER 22, 1955, AND AT THAT TIME PUBLICLY OPENED. WE ARE OF THE OPINION THAT THE USE OF THE TERM " ATTACHED GENERAL PROVISIONS" WOULD BE AN ESSENTIAL PART OF THE CONTRACT AWARDED TO THE SUCCESSFUL BIDDER.

YOU HAVE RAISED THE QUESTION AS TO THE ADVISABILITY OF PROVIDING FOR ASSESSMENT OF LIQUIDATED DAMAGES FOR ANY DELAY IN DELIVERY. WE REALIZE THAT THE LOWER PRICES MIGHT BE OBTAINED IF PROSPECTIVE BIDDERS ARE NOT REQUIRED TO AGREE TO PAY STIPULATED AMOUNTS FOR DELAYS IN PERFORMANCE, BUT FIND NO REASON FOR QUESTIONING THE USE OF AN APPROPRIATE LIQUIDATED DAMAGE PROVISION IN A GOVERNMENT SUPPLY CONTRACT TO SECURE PERFORMANCE OF THE CONTRACT WITHIN THE STATED CONTRACT PERIOD, PARTICULARLY WHERE THE SUPPLIES ARE URGENTLY NEEDED AND ARE NOT READILY PROCURABLE IN THE OPEN MARKET.

ACCORDINGLY, YOU ARE ADVISED THAT THERE APPEARS TO EXIST NO LEGAL BASIS UPON WHICH WE WOULD BE WARRANTED IN TAKING EXCEPTION TO THE AWARD MADE TO THE WORTHINGTON CORPORATION.