B-140012, JUL. 20, 1959

B-140012: Jul 20, 1959

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PUBLIC PRINTER: REFERENCE IS MADE TO YOUR LETTER OF JUNE 23. WAS ACCEPTED ON APRIL 30. 000 COPIES OF THE REPAIR PARTS STOCK RECORD FORMS WAS ISSUED AND FORWARDED TO THE CONTRACTOR. 000 UNITS WAS $54. VOUCHERS WERE SUBMITTED ON WHICH CLAIMS WERE MADE FOR PAYMENT OF A TOTAL AMOUNT OF $55. 462.71 WAS DEDUCTED AS LIQUIDATED DAMAGES FOR DELAYS IN DELIVERY. THE CONTRACTOR WAS PAID THE NET AMOUNT OF $33. THE LIQUIDATED DAMAGES WERE COMPUTED AT THE CONTRACT RATE OF ONE PERCENT OF THE CONTRACT PRICE FOR QUANTITIES NOT DELIVERED IN ACCORDANCE WITH SPECIFICATIONS FOR EACH WORKING DAY THAT THE CONTRACTOR WAS IN DEFAULT OF THE SHIPPING SCHEDULE. ALTHOUGH SHIPMENTS WERE REQUIRED BY THE TERMS OF THE CONTRACT TO BE MADE ON OR BEFORE JUNE 27.

B-140012, JUL. 20, 1959

TO THE HONORABLE RAYMOND BLATTENBERGER, PUBLIC PRINTER:

REFERENCE IS MADE TO YOUR LETTER OF JUNE 23, 1959, REQUESTING A DECISION AS TO WHETHER OR NOT YOU MAY BE AUTHORIZED TO APPLY THE SUM OF $21,462.71, WITHHELD AS LIQUIDATED DAMAGES FOR DELAYS IN DELIVERY UNDER A CONTRACT WITH ARTHUR J. GARVIN PRESS, INC., DENISON, TEXAS, AGAINST A PENALTY OF 50 PERCENT OF THE CONTRACT PRICE AS RECOMMENDED BY THE REQUISITIONING AGENCY, THE DEPARTMENT OF THE NAVY, ON ACCOUNT OF DEFECTIVE WORK FURNISHED UNDER THE CONTRACT.

THE RECORD SHOWS THAT ON APRIL 16, 1958, THE GOVERNMENT PRINTING OFFICE ADVERTISED FOR BIDS ON THE PRODUCTION OF 8,500,000 (PLUS OR MINUS ONE PERCENT) ONE PART CONTINUOUS MARGINALLY PUNCHED FORMS FOR SHIPMENT ON OR BEFORE JUNE 27, 1958. THE BID OF ARTHUR J. GAVRIN PRESS, INC., WAS ACCEPTED ON APRIL 30, 1958, AND ON MAY 1, 1958, PURCHASE ORDER NO. 14763 FOR 8,500,000 COPIES OF THE REPAIR PARTS STOCK RECORD FORMS WAS ISSUED AND FORWARDED TO THE CONTRACTOR. THE TOTAL CONTRACT PRICE FOR THE 8,500,000 UNITS WAS $54,995, COMPUTED AT THE BID PRICE OF $6.47 PER THOUSAND FORMS. THE CONTRACTOR MADE SHIPMENTS TO THE NAVY INSTALLATIONS AS REQUIRED, BUT NOT WITHIN THE SPECIFIED TIME. ON SEPTEMBER 30, 1958, VOUCHERS WERE SUBMITTED ON WHICH CLAIMS WERE MADE FOR PAYMENT OF A TOTAL AMOUNT OF $55,448.77, INCLUDING THE CONTRACT PRICE OF $55,292.62 FOR 8,546,000 FORMS DELIVERED, AND AMOUNTS TOTALING $156.15 TO COVER AUTHORIZED AIR FREIGHT CHARGES ON THREE OF THE NINE SHIPMENTS. ON A PAYMENT VOUCHER DATED OCTOBER 15, 1958, THE SUM OF $21,462.71 WAS DEDUCTED AS LIQUIDATED DAMAGES FOR DELAYS IN DELIVERY, AND THE CONTRACTOR WAS PAID THE NET AMOUNT OF $33,986.06 ON THE CLAIMS FOR $55,448.77. THE LIQUIDATED DAMAGES WERE COMPUTED AT THE CONTRACT RATE OF ONE PERCENT OF THE CONTRACT PRICE FOR QUANTITIES NOT DELIVERED IN ACCORDANCE WITH SPECIFICATIONS FOR EACH WORKING DAY THAT THE CONTRACTOR WAS IN DEFAULT OF THE SHIPPING SCHEDULE. ALTHOUGH SHIPMENTS WERE REQUIRED BY THE TERMS OF THE CONTRACT TO BE MADE ON OR BEFORE JUNE 27, 1958, A SCHEDULE OF SHIPMENTS ATTACHED TO THE PAYMENT VOUCHER INDICATES THAT THE FIRST SHIPMENT WAS MADE ON JULY 9, 1958, AND THAT THE LAST SHIPMENT WAS ACCOMPLISHED ON SEPTEMBER 15, 1958.

IT IS REPORTED THAT ON NOVEMBER 20, 1958, MR. J. A. RICHEY OF THE EDITORIAL AND PRINTING BRANCH, PUBLICATION DIVISION, DEPARTMENT OF THE NAVY, TELEPHONED YOUR DIRECTOR OF PLANNING SERVICE AND ADVISED HIM THAT THEIR GREAT LAKES INSTALLATIONS WAS HAVING DIFFICULTY WITH THE FORMS BECAUSE THE MARGINALLY PUNCHED HOLES WERE NOT PLACED IN PROPER RELATION TO THE PRINTED MATTER AND, AS A RESULT, THE PRINTING PERFORMED BY IBM MACHINE 402 DID NOT APPEAR IN ITS PROPER LOCATION. THIS MATTER WAS LATER MADE THE SUBJECT OF LETTERS DATED DECEMBER 5, 1958, AND FEBRUARY 18, 1959, FROM MR. RICHEY TO THE GOVERNMENT PRINTING OFFICE. MR. RICHEY STATED THAT, AS OF THE LATTER DATE, THERE WERE APPROXIMATELY 4,500,000 CARDS FROM CONTRACTOR'S SHIPMENTS ON HAND AT STOCK POINTS, WHICH REPRESENTED PRACTICALLY ALL OF THE MATERIAL AVAILABLE FOR ISSUE AND USE. IT WAS INDICATED THAT IT WOULD NOT BE FEASIBLE TO FREEZE THIS QUANTITY FROM ISSUE AND IT WAS STATED THAT A SUBSTANTIAL LOSS OF TIME AND MATERIALS RESULTED FROM THE CONTINUED USE OF THE DEFECTIVE PRODUCT. IT WAS CONTEMPLATED THAT ISSUANCE OF THE DEFECTIVE FORMS WOULD BE SUSPENDED AT SUCH TIME AS STOCKS OF FORMS MEETING SPECIFICATIONS WERE AT AN ADEQUATE LEVEL, AND IT WAS RECOMMENDED THAT THE GOVERNMENT PRINTING OFFICE TAKE ACTION TO RECOVER A PART OF THE COST OF THE DEFECTIVE FORMS DELIVERED TO THE DEPARTMENT OF THE NAVY, OR TO SECURE FROM THE CONTRACTOR A REPRINT OF A SATISFACTORY AMOUNT OF PERFECT MATERIAL. MR. RICHEY SUGGESTED THAT 50 PERCENT OF THE CONTRACT PRICE WOULD BE A REASONABLE BASIS FOR RECOVERY IN VIEW OF THE DIFFICULTIES EXPERIENCED IN THE USE OF THE MATERIAL, ITS INFERIOR PERFORMANCE IN MACHINE RUNS, AND THE LESS THAN DESIRABLE END PRODUCT WHICH RESULTED.

THE CONTRACTOR WAS ADVISED BY LETTER DATED MARCH 12, 1959, OF THE COMPLAINT MADE BY THE DEPARTMENT OF THE NAVY, AND WAS REQUESTED TO REVIEW THE MATTER IMMEDIATELY AND INFORM THE GOVERNMENT PRINTING OFFICE AS TO THE MANNER IN WHICH THE CONTRACTOR WISHED TO PROCEED WITH RESPECT TO THE ALTERNATIVE METHODS OF MAKING AN ADJUSTMENT AS RECOMMENDED BY THE DEPARTMENT OF THE NAVY. IN THE CONTRACTOR'S REPLY OF MARCH 20, 1959, IT WAS NOT CONTENDED THAT THE FORMS WERE NOT DEFECTIVE BUT IT WAS EXPLAINED THAT A CONSIDERABLE AMOUNT OF DIFFICULTY WAS EXPERIENCED IN PERFORMING THE CONTRACT, WHICH RESULTED PRIMARILY FROM A BREAKDOWN OF EQUIPMENT AT THE COMMENCEMENT OF THE JOB. IT WAS ALLEGED THAT THERE WAS NOT ENOUGH TIME TO BUILD NEW DIE CUTTING RINGS AND A SHAFT FOR THE PRESS; THAT A CONTRAPTION WAS IMPROVISED AT CONSIDERABLE EXPENSE TO DO THE DIE CUTTING ON SEMI MANUAL OPERATION AFTER THE FORMS WERE PRINTED AND FOLDED; THAT THE CONTRIVANCE OPERATED VERY SLOWLY AND BROKE DOWN ALMOST DAILY; AND THAT EXPENDITURES, PLUS THE LIQUIDATED DAMAGE ASSESSMENTS OF $21,462.71, TOTALED $79,462.71. THE CONTRACTOR EVIDENCED A DESIRE TO MAINTAIN A GOOD RECORD OF PERFORMANCE UNDER GOVERNMENT PRINTING CONTRACTS, BUT STATED THAT "IN OUR PRESENT FINANCIAL CONDITION, GAVRIN PRESS IS IN NO POSITION TO ABSORB ADDITIONAL PENALTIES.' ALSO, ON THE BASIS THAT THE GOVERNMENT PRINTING OFFICE CONSIDERED SETTLEMENT ON ACCOUNT OF A DEFECTIVE PERFORMANCE OF THE CONTRACT OF APRIL 30, 1958, TO BE ABSOLUTELY NECESSARY, THE CONTRACTOR REQUESTED THAT SETTLEMENT ACTION BE HELD IN ABEYANCE FOR AT LEAST ANOTHER YEAR OR TWO UNTIL THE CONTRACTOR'S FINANCIAL CONDITIONS IMPROVED.

IT IS STATED IN YOUR LETTER THAT YOUR CONTRACTING OFFICER HAS BEEN ADVISED VERBALLY BY THE DEPARTMENT OF THE NAVY THAT AN OVERALL REDUCTION OF 50 PERCENT WILL SATISFY ALL CLAIMS OF THE DEPARTMENT IN CONNECTION WITH THIS JOB, INCLUDING THE DELAY IN RECEIVING THE FORMS. THE 50 PERCENT WOULD AMOUNT TO $27,646.31, AND, IF THE SUM OF $21,462.71 WITHHELD AS LIQUIDATED DAMAGES WERE APPLIED AGAINST THE PENALTY OF $27,646.31, THERE WOULD BE A BALANCE OF $6,183.60 DUE THE GOVERNMENT FROM THE CONTRACTOR. OTHERWISE, IF A DEDUCTION OF 50 PERCENT WERE MADE IN ADDITION TO THE DELAY DAMAGES, THE TOTAL CHARGE AGAINST THE CONTRACTOR WILL AMOUNT TO $49,109.02 WHICH WOULD MEAN THAT THE CONTRACTOR, INSTEAD OF OBTAINING AT LEAST $27,646.31 AS PAYMENT FOR THE FORMS DELIVERED, WILL EVENTUALLY RECEIVE ONLY $6,183.60 FOR 8,546,000 FORMS. YOU EXPRESS THE VIEW THAT SUCH AMOUNT WOULD NOT REPRESENT A FAIR AND REASONABLE PAYMENT FOR THE FORMS RECEIVED BY THE GOVERNMENT, BUT INDICATE THAT THE BALANCE OF $6,183.60 DUE THE GOVERNMENT ON THE BASIS OF APPLYING THE AMOUNT ALREADY COLLECTED AS LIQUIDATED DAMAGES AGAINST A 50 PERCENT REDUCTION CAN BE RECOVERED BY YOUR OFFICE.

IT IS, OF COURSE, WELL SETTLED THAT THE VALIDITY OF A LIQUIDATED DAMAGE STIPULATION IN A CONTRACT IS UNAFFECTED BY THE FACT THAT NO ACTUAL DAMAGE CAN BE SHOWN TO HAVE RESULTED FROM THE BREACH OF THE PERFORMANCE REQUIREMENTS COVERED THEREBY, OR THE FACT THAT THE ACCRUAL OF LIQUIDATED DAMAGES IN THE PARTICULAR CASE MAY EQUAL OR EVEN EXCEED THE AGREED CONTRACT PRICE. SEE 36 COMP. GEN. 143, 145. APPARENTLY, THERE EXISTS NO LEGAL BASIS UPON WHICH THE FULL AMOUNT CHARGED TO ARTHUR J. GAVRIN PRESS, INC., AS LIQUIDATED DAMAGES FOR DELAYS IN PERFORMANCE OF THE CONTRACT OF APRIL 30, 1958, MAY BE APPLIED AGAINST SUCH AMOUNT AS MAY BE DUE THE GOVERNMENT AS A REDUCTION IN THE CONTRACT PRICE BECAUSE THE FORMS DELIVERED UNDER THE CONTRACT DID NOT MEET SPECIFICATION REQUIREMENTS.

HOWEVER, IF THE TOTAL CONTRACT PRICE SHOULD BE ADJUSTED IN ACCORDANCE WITH THE CONTRACT PROVISION THAT "IN THE EVENT PUBLIC NECESSITY REQUIRES THE USE OF MATERIALS OR SUPPLIES NOT CONFORMING TO THE SPECIFICATIONS, PAYMENT THEREFOR SHALL BE MADE AT A PROPER REDUCTION IN PRICE," IT WOULD APPEAR THAT LIQUIDATED DAMAGES SHOULD BE ASSESSED ON THE BASIS OF THE REDUCED PRICE, AND WOULD THUS BE PROPORTIONATELY LESS THAN THE AMOUNT PREVIOUSLY ASSESSED.

YOU ARE THEREFORE ADVISED THAT, IN OUR OPINION, YOU ARE NOT AUTHORIZED ON THE PRESENT RECORD TO APPLY THE FULL AMOUNT OF $21,462.71 AGAINST A 50 PERCENT PENALTY OR REDUCTION ON ACCOUNT OF DEFECTIVE WORK FURNISHED UNDER THE CONTRACT, BUT THAT LIQUIDATED DAMAGES FOR DELAYED DELIVERIES SHOULD BE CHARGED ON THE BASIS OF SUCH REDUCED PRICE FOR THE SUPPLIES FURNISHED AS YOU MAY DETERMINE TO BE PROPER.

IT APPEARS THAT A REDUCTION OF THE CONTRACT UNIT PRICE FROM $6.47 PER THOUSAND TO $5.305 PER THOUSAND, AND ASSESSMENT OF LIQUIDATED DAMAGES AT ONE PERCENT PER DAY ON THE REDUCED PRICE, WOULD SUBSTANTIALLY ACHIEVE THE ADJUSTMENT RECOMMENDED BY THE NAVY.

AS REQUESTED, THE CORRESPONDENCE AND DOCUMENTS FORWARDED WITH YOUR LETTER ARE RETURNED ..END :