B-144665, APR. 25, 1961

B-144665: Apr 25, 1961

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INC.: REFERENCE IS MADE TO A LETTER DATED DECEMBER 14. IN THE EVENT OF DELAY IN DELIVERY YOU WERE TO BE CHARGED WITH LIQUIDATED DAMAGES AT A STIPULATED RATE FOR THE QUANTITY NOT DELIVERED IN ACCORDANCE WITH THE DELIVERY SCHEDULE IN EACH CASE. EACH OF THE CONTRACTS PROVIDED THAT IN THE EVENT YOU FAILED TO PERFORM ANY OF THE PROVISIONS THEREOF OR FAILED TO MAKE PROGRESS AS TO ENDANGER PERFORMANCE IN ACCORDANCE WITH THE CONTRACT TERMS THE CONTRACTING OFFICER WAS AUTHORIZED TO TERMINATE THE WHOLE OR ANY PART OF THE CONTRACT AND YOU WERE TO BE LIABLE TO THE GOVERNMENT FOR ANY EXCESS COSTS THE GOVERNMENT INCURRED IN PROCURING THE EQUIPMENT ELSEWHERE. IN THE LATTER EVENT YOU WERE ALSO TO BE LIABLE FOR LIQUIDATED DAMAGES ACCRUING UNTIL SUCH TIME AS THE GOVERNMENT MIGHT REASONABLY PROVIDE FOR THE PROCUREMENT OF SIMILAR SUPPLIES.

B-144665, APR. 25, 1961

TO EL-TRONICS, INC.:

REFERENCE IS MADE TO A LETTER DATED DECEMBER 14, 1960, FROM YOUR ATTORNEYS, PRESENTING A CLAIM FOR REMISSION OF LIQUIDATED DAMAGES ASSESSED UNDER CONTRACTS NOS. DA 36-039-SC-76403, DA 36-309-SC-76578 AND DA 36-039- SC-75766, DATED JUNE 18, 1958, JANUARY 3, 1958, AND OCTOBER 8, 1957, RESPECTIVELY.

THE CONTRACTS REQUIRED THE DELIVERY OF CERTAIN EQUIPMENT FOR THE USE OF THE SIGNAL CORPS IN ACCORDANCE WITH THE DELIVERY SCHEDULES SET OUT IN THE CONTRACTS AND FOR THE STIPULATED UNIT PRICES. IN THE EVENT OF DELAY IN DELIVERY YOU WERE TO BE CHARGED WITH LIQUIDATED DAMAGES AT A STIPULATED RATE FOR THE QUANTITY NOT DELIVERED IN ACCORDANCE WITH THE DELIVERY SCHEDULE IN EACH CASE. ALSO, EACH OF THE CONTRACTS PROVIDED THAT IN THE EVENT YOU FAILED TO PERFORM ANY OF THE PROVISIONS THEREOF OR FAILED TO MAKE PROGRESS AS TO ENDANGER PERFORMANCE IN ACCORDANCE WITH THE CONTRACT TERMS THE CONTRACTING OFFICER WAS AUTHORIZED TO TERMINATE THE WHOLE OR ANY PART OF THE CONTRACT AND YOU WERE TO BE LIABLE TO THE GOVERNMENT FOR ANY EXCESS COSTS THE GOVERNMENT INCURRED IN PROCURING THE EQUIPMENT ELSEWHERE. IN THE LATTER EVENT YOU WERE ALSO TO BE LIABLE FOR LIQUIDATED DAMAGES ACCRUING UNTIL SUCH TIME AS THE GOVERNMENT MIGHT REASONABLY PROVIDE FOR THE PROCUREMENT OF SIMILAR SUPPLIES. HOWEVER, YOU WERE NOT TO BE LIABLE FOR LIQUIDATED DAMAGES OR EXCESS COSTS IF YOUR FAILURE TO PERFORM AROSE OUT OF CAUSES BEYOND YOUR CONTROL AND WITHOUT YOUR FAULT OR NEGLIGENCE. THE DETERMINATION AS TO THE CAUSES OF DELAY WAS TO BE MADE IN WRITING BY THE CONTRACTING OFFICER AND IN THE EVENT OF AN ADVERSE DETERMINATION YOU HAD THE RIGHT TO APPEAL WITHIN 30 DAYS TO THE HEAD OF THE DEPARTMENT CONCERNED. IN THE ABSENCE OF AN APPEAL TO THE HEAD OF THE DEPARTMENT THE FINDING OF THE CONTRACTING OFFICER ON A DISPUTED QUESTION OF FACT WAS TO BE FINAL AND CONCLUSIVE. IF YOU EXERCISED YOUR RIGHT TO APPEAL FROM AN ADVERSE DECISION OF THE CONTRACTING OFFICER, THE FINDING OF THE HEAD OF THE DEPARTMENT, OR HIS AUTHORIZED REPRESENTATIVE, WAS TO BE FINAL AND CONCLUSIVE.

IT IS REPORTED THAT ON NOVEMBER 25, 1958, YOU PETITIONED THE APPROPRIATE UNITED STATES DISTRICT COURT FOR REORGANIZATION UNDER CHAPTER X OF THE BANKRUPTCY ACT. AT THAT TIME YOU HAD FAILED TO MAKE DELIVERIES IN ACCORDANCE WITH THE DELIVERY SCHEDULES IN THE CONTRACTS AND THE GOVERNMENT WAS CONSIDERING THE TERMINATION OF THE CONTRACTS FOR DEFAULT. AGREEMENT WAS REACHED WITH THE TRUSTEES FOR YOUR COMPANY WITH REGARD TO COMPLETION OF THE CONTRACTS. THEREAFTER BY NOTICES OF TERMINATION DATED JANUARY 6, 1959, THE CONTRACTING OFFICER TERMINATED THE CONTRACTS FOR DEFAULT AND IN THESE NOTICES HE FOUND THAT YOUR FAILURE TO DELIVER THE EQUIPMENT AS REQUIRED BY THE CONTRACTS COULD NOT BE CONSIDERED AS BEYOND YOUR CONTROL AND WITHOUT YOUR FAULT OR NEGLIGENCE. ALSO, YOU WERE ADVISED AS TO YOUR RIGHT TO APPEAL TO THE HEAD OF THE DEPARTMENT CONCERNED. THERE IS NO INDICATION IN THE RECORD THAT PRIOR TO THIS TIME THERE EXISTED ANY UNRESOLVED DISPUTES CONCERNING QUESTIONS OF FACT. TIMELY NOTICES OF APPEAL WERE TAKEN BY YOU ON FEBRUARY 4, 1959. THE ARMED SERVICES BOARD OF CONTRACT APPEALS IN ITS DECISION OF AUGUST 18, 1960, ASBCA NOS. 5501, 5511 AND 5512, FOUND THAT YOU HAD FAILED TO DELIVER THE EQUIPMENT WITHIN THE TIME SPECIFIED, THAT THE FAILURE WAS NOT DUE TO CAUSES BEYOND YOUR CONTROL AND WITHOUT YOUR FAULT OR NEGLIGENCE AND THAT THE GOVERNMENT PROPERLY EXERCISED ITS RIGHTS ON JANUARY 6, 1959, TO TERMINATE THE CONTRACTS FOR DEFAULT.

IN THE LETTER OF DECEMBER 14, 1960, FROM YOUR ATTORNEYS ATTENTION HAS BEEN INVITED TO CERTAIN MODIFICATIONS UNDER CONTRACT NO. DA 36-039-SC 75766 ALLEGED TO HAVE BEEN RESPONSIBLE FOR DELAY IN PERFORMANCE. THESE MODIFICATIONS WERE CONSIDERED IN MODIFICATION NO. 4 TO THE CONTRACT AND YOUR SUGGESTED REVISED DELIVERY SCHEDULE WAS ACCEPTED BY THE CONTRACTING OFFICER. ALSO, IN THE LETTER OF DECEMBER 14, 1960, IT IS ALLEGED THAT CONTRACT NO. DA 36-039-SC-76403 WAS AWARDED JUST FOUR DAYS BEFORE THE FIRST SAMPLE UNDER CONTRACT NO. DA 36-039-SC-75766 WAS DUE FOR DELIVERY AND THAT SINCE THE LATTER CONTRACT WAS DEPENDENT ENTIRELY ON THE FORMER CONTRACT THE CONTRACTING OFFICER SHOULD HAVE KNOWN THAT THERE WOULD BE A DELAY WITH RESPECT TO THE SECOND CONTRACT. WITH REGARD TO THIS MATTER THE CONTRACTING OFFICER IN HIS REPORT OF JANUARY 19, 1961, STATES THAT:

"WHILE IT IS TRUE THE AWARD OF THIS CONTRACT WAS MADE 18 JUNE 1958, THE CONTRACTOR'S REFERENCE TO "FIRST SAMPLE DELIVERY DUE 16 JUNE 1958" WAS THE PREPRODUCTION SAMPLE CONTRACTUALLY SCHEDULED FOR DELIVERY FOR 16 JUNE 1958, AND ACTUALLY SUBMITTED TO THE GOVERNMENT FOR APPROVAL 22 AUGUST 1958. DELIVERY OF PRODUCTION QUANTITIES WERE SCHEDULED TO START SEPTEMBER 1958 ON CONTRACT NO. 75766 AND OCTOBER 1958 ON CONTRACT NO. 76403. THE CONTRACTOR INTENDED TO DOUBLE THE PRODUCTION QUANTITY AFTER DELIVERY OF THE INITIAL 500 ON CONTRACT NO. 75766 BY MAKING DELIVERY ON BOTH ORDERS SIMULTANEOUSLY. THE CONTRACTOR HAD PRESENTED A REVISED DELIVERY SCHEDULE PENDING APPROVAL OF PREPRODUCTION SAMPLE. EVALUATION OF THIS PROPOSED SCHEDULE WAS BEING HELD IN ABEYANCE UNTIL PREPRODUCTION SAMPLE WAS APPROVED. THE PREPRODUCTION SAMPLE WAS APPROVED BY THE GOVERNMENT 28 NOVEMBER 1958, WHILE THE PETITION FOR BANKRUPTCY WAS FILED 25 NOVEMBER 1958. WHILE IT IS TRUE THAT HAD A REORGANIZATION PLAN BEEN ACCEPTED BY THE GOVERNMENT, A REVISED DELIVERY SCHEDULE FOR BOTH CONTRACTS WOULD HAVE BEEN APPROVED BASED UPON PROPER AND ADEQUATE CONSIDERATION. ALTHOUGH THE CHANGE IN THE MATERIAL AND MATERIAL THICKNESS OF THE CASE AND PANEL APPROVED BY ACTION II TO TECHNICAL ACTION 3 DID NOT AFFECT THE CONTRACT PRICE OF CONTRACT NO. 75766, AN INCREASE IN UNIT COST WAS TAKEN INTO CONSIDERATION IN NEGOTIATING CONTRACT NO. 76403 FOR THE USE OF ALUMINUM, THE MORE EXPENSIVE MATERIAL. IT IS TO BE NOTED AT THE TIME OF NEGOTIATION OF THE SECOND CONTRACT, THE PREPRODUCTION SAMPLE HAD NOT BEEN SUBMITTED OR TESTED. BASED ON THE FACT THAT THE PREPRODUCTION SAMPLE COULD NOT MEET THE REQUIRED TESTS WITH THE ALUMINUM CASE AND PANEL, IT WAS NECESSARY TO RETURN TO THE USE OF STEEL CASE AND PANEL. THIS WOULD HAVE ENTAILED THE MODIFICATION DECREASING THE TOTAL CONTRACT PRICE ON CONTRACT NO. 76403 FOR THE USE OF LOWER COST OF MATERIAL.'

THE MATTER OF WHETHER THE GOVERNMENT SHOULD HAVE DELAYED THE TERMINATION OF THE CONTRACTS WHEN THERE HAD BEEN DELAYS IN DELIVERY WAS CONSIDERED ON APPEAL. WHETHER A CONTRACT SHOULD BE TERMINATED BECAUSE OF THE CONTRACTOR'S DEFAULT IN PERFORMANCE IS A QUESTION TO BE DECIDED IN THE DISCRETION OF THOSE CHARGED WITH THE ADMINISTRATION OF THE CONTRACT AND IT IS APPARENT THAT IN THESE CASES THE CONTRACTING OFFICER DECIDED IT WOULD BE IN THE BEST INTEREST OF THE GOVERNMENT TO TERMINATE THE CONTRACTS.

THE CONTRACTING OFFICER IN HIS REPORT OF JANUARY 23, 1961, CALLS ATTENTION TO THE FACT THAT THE GOVERNMENT HAS FAILED TO GIVE EFFECT--- BY WAY OF MODIFICATION OF CONTRACT NO. DA 36-039-SC-76578--- TO THE SUGGESTED REVISION OF THE DELIVERY SCHEDULE SET OUT IN YOUR LETTER OF OCTOBER 29, 1958, AND TO THE REPLY OF THE CONTRACTING OFFICER THERETO DATED NOVEMBER 19, 1958, IN WHICH HE STATED THAT A MODIFICATION REFLECTING THIS REVISION OF THE DELIVERY SCHEDULE WOULD BE PROCESSED. IT IS INDICATED THAT NO FORMAL MODIFICATION WAS EVER MADE AND THEREFORE YOU DID NOT RECEIVE CREDIT FOR $2,435.68 FOR THIS PROPOSED MODIFICATION. SINCE THE LIQUIDATED DAMAGES STILL DUE FROM YOU AMOUNT TO $38,984.47, THAT AMOUNT WILL BE REDUCED BY THE AMOUNT OF $2,435.68.

THE COURTS HAVE UNIFORMLY HELD THAT THE PARTIES TO A CONTRACT PROPERLY MAY STIPULATE IN ADVANCE THE AMOUNT OF DAMAGES RECOVERABLE IN THE EVENT OF A BREACH OF THE PERFORMANCE CONDITIONS THEREOF AND SUCH REASONABLE AGREEMENTS WILL BE ENFORCED. SEE SUN PRINTING AND PUBLISHING ASSOCIATION V. MOORE, 183 U.S. 642; KOTHE V. R. C. TAYLOR TRUST, 280 ID. 224; WISE V. UNITED STATES, 249 ID. 361. THE FACT THAT NO ACTUAL DAMAGE CAN BE SHOWN TO HAVE RESULTED FROM THE BREACH IS IMMATERIAL. SEE 36 COMP. GEN. 143, 145 AND CASES THERE CITED.

YOUR COMPANY FOLLOWED THE PROCEDURE AGREED UPON IN THE CONTRACT WITH REGARD TO THE DETERMINATION AS TO WHETHER THE INVOLVED DELAYS WERE EXCUSABLE AND THE ARMED SERVICES BOARD OF CONTRACT APPEALS DENIED THAT THEY WERE NOT EXCUSABLE. UNDER THE TERMS OF THE CONTRACT AND SINCE THE DISPUTES INVOLVED QUESTIONS OF FACT, THAT DECISION IS FINAL AND CONCLUSIVE. CONSEQUENTLY THERE IS NO LEGAL BASIS FOR THE REMISSION OF ANY PART OF THE LIQUIDATED DAMAGES ASSESSED UNDER THE CONTRACTS.

THE LETTER OF DECEMBER 14, 1960, FROM YOUR ATTORNEYS STRESSES THE ALLEGED INEQUITIES OF THIS CASE AND REQUESTS THAT THE GOVERNMENT WAIVE ITS CLAIM FOR LIQUIDATED DAMAGES. WITH REGARD TO THE REMISSION OF LIQUIDATED DAMAGES ON AN EQUITABLE BASIS, 10 U.S.C. 2312 PROVIDES THAT UPON THE RECOMMENDATION OF THE HEAD OF AN AGENCY, THE COMPTROLLER GENERAL MAY REMIT ALL OR PART, AS HE CONSIDERS JUST AND EQUITABLE, OF ANY LIQUIDATED DAMAGES ASSESSED FOR DELAY IN PERFORMING A CONTRACT MADE BY THAT AGENCY THAT PROVIDES FOR SUCH DAMAGES. IT WILL BE NOTED THAT BEFORE OUR OFFICE CAN GIVE FAVORABLE CONSIDERATION TO A CLAIM FOR REMISSION OF LIQUIDATED DAMAGES ON AN EQUITABLE BASIS, THE HEAD OF THE AGENCY CONCERNED MUST RECOMMEND REMISSION. THE UNDER SECRETARY OF THE ARMY IN HIS REPORT OF MARCH 17, 1961, STATED THAT THERE WERE NO SUBSTANTIAL ELEMENTS OF EQUITY WHICH WOULD WARRANT REMISSION OF THE LIQUIDATED DAMAGES WHICH HAVE ACCRUED UNDER THESE CONTRACTS. ACCORDINGLY, WE ARE UNABLE TO GIVE FAVORABLE CONSIDERATION TO REMISSION OF ANY PORTION OF THE LIQUIDATED DAMAGES ON AN EQUITABLE BASIS.

THE ACTION TAKEN IN ASSESSING LIQUIDATED DAMAGES UNDER THE CONTRACTS HERE INVOLVED WAS PROPER.