B-153513, MAR. 17, 1964

B-153513: Mar 17, 1964

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THE QUESTION PRESENTED IS WHETHER LIQUIDATED DAMAGES ARE PROPERLY ASSESSABLE UNDER DEFAULTED COAST AND GEODETIC SURVEY CONTRACT NO. WHICH WAS AWARDED JANUARY 10. IT IS REPORTED THAT AFTER DELIVERY OF ONE LOT. AT THE DATE OF DEFAULT NO DELIVERIES WERE DUE NOR WERE LIQUIDATED DAMAGES ASSESSED. IS FURTHER REPORTED THAT NEGOTIATIONS WITH A SUCCESSOR CONTRACTOR RESULTED IN A LETTER CONTRACT BEING AWARDED ON DECEMBER 5. THE MEMORANDUM STATES THAT THERE IS A GOOD POSSIBILITY THAT THE HOLDING OF THE AMERICAN SURETY CASE. IS CITED. IT IS FURTHER STATED. THERE ARE INVOLVED VARIOUS CONFLICTING RIGHTS OF THE GOVERNMENT AND THE DEFAULTED CONTRACTOR. OUR VIEWS ARE REQUESTED FOR THE PROTECTION OF ALL PARTIES CONCERNED.

B-153513, MAR. 17, 1964

TO THE SECRETARY OF COMMERCE:

YOUR LETTER OF FEBRUARY 13, 1964, REQUESTED OUR DECISION REGARDING THE EFFECT OF CERTAIN CONTRACT CLAUSES, SET FORTH IN AN ATTACHED MEMORANDUM FROM THE ACTING GENERAL COUNSEL OF YOUR DEPARTMENT. THE QUESTION PRESENTED IS WHETHER LIQUIDATED DAMAGES ARE PROPERLY ASSESSABLE UNDER DEFAULTED COAST AND GEODETIC SURVEY CONTRACT NO. CGS 1075, WHICH WAS AWARDED JANUARY 10, 1963, FOR FOUR LOTS OF ELECTRONIC HYDROGRAPHIC SURVEY SYSTEM EQUIPMENT AND INCLUDED A PROVISION FOR ASSESSMENT OF LIQUIDATED DAMAGES IN THE EVENT OF LATE DELIVERIES.

IT IS REPORTED THAT AFTER DELIVERY OF ONE LOT, THE CONTRACTOR REQUESTED CANCELLATION OF THE CONTRACT BECAUSE OF PRODUCTION AND FINANCIAL DIFFICULTIES. THE CONTRACTING OFFICER TERMINATED THE CONTRACT AS TO THE UNDELIVERED LOTS, BY LETTER DATED SEPTEMBER 25, 1963. AT THE DATE OF DEFAULT NO DELIVERIES WERE DUE NOR WERE LIQUIDATED DAMAGES ASSESSED. IS FURTHER REPORTED THAT NEGOTIATIONS WITH A SUCCESSOR CONTRACTOR RESULTED IN A LETTER CONTRACT BEING AWARDED ON DECEMBER 5, 1963, WITH THE PROSPECTS OF INCREASED COSTS AND LONGER DELIVERIES THAN THOSE ORIGINALLY CONTEMPLATED IN THE DEFAULTED CONTRACT. THE MEMORANDUM STATES THAT THERE IS A GOOD POSSIBILITY THAT THE HOLDING OF THE AMERICAN SURETY CASE, UNITED STATES V. AMERICAN SURETY CO., 322 U.S. 96, WHICH HELD THAT TERMINATION OF THE CONTRACT IN THAT CASE ALSO TERMINATED THE GOVERNMENT'S RIGHT TO LIQUIDATED DAMAGES, WOULD APPLY. OUR DECISION IN 31 COMP. GEN. 428, IS CITED, HOWEVER, AS DISTINGUISHING THE AMERICAN SURETY CASE. IT IS FURTHER STATED, IN EFFECT, THAT IN VIEW OF THE FACT THAT THE LANGUAGE OF THE LIQUIDATED DAMAGES OR TERMINATION CLAUSES DID NOT EXPRESSLY PROVIDE THAT LIQUIDATED DAMAGES SHALL CONTINUE AFTER TERMINATION OF THE CONTRACT, THERE ARE INVOLVED VARIOUS CONFLICTING RIGHTS OF THE GOVERNMENT AND THE DEFAULTED CONTRACTOR, AND, WITH THE DOLLAR LIABILITY OF THE SURETY DEPENDENT UPON A DECISION ON THE POINT, OUR VIEWS ARE REQUESTED FOR THE PROTECTION OF ALL PARTIES CONCERNED.

IN THE CITED CASE OF UNITED STATES V. AMERICAN SURETY CO., 322 U.S. 96, SUIT WAS BROUGHT BY THE GOVERNMENT FOR EXCESS COSTS AND LIQUIDATED DAMAGES AGAINST A DEFAULTED CONTRACTOR ON A GOVERNMENT CONSTRUCTION CONTRACT WHICH THE GOVERNMENT HAD TERMINATED AFTER THE DATE SPECIFIED FOR COMPLETION. ARTICLE 9 OF THE CONTRACT PROVIDED IN CLAUSE 1, IN PERTINENT PART, THAT IF THE CONTRACTOR REFUSED OR FAILED TO PROSECUTE THE WORK WITH PROPER DILIGENCE OR TO COMPLETE HIS WORK WITHIN THE SPECIFIED TIME, THE GOVERNMENT MIGHT AT ANY TIME TERMINATE HIS RIGHT TO PROCEED. CLAUSE 2 PROVIDED THAT IF THE GOVERNMENT DID NOT TERMINATE THE RIGHT OF THE CONTRACTOR TO PROCEED THE CONTRACTOR SHOULD CONTINUE IN WHICH EVENT IN LIEU OF ACTUAL DAMAGES FOR THE DELAY, LIQUIDATED DAMAGES SHOULD BE PAID. THE COURT HELD THAT THESE PROVISIONS WERE IN THE ALTERNATIVE AND THAT THE RIGHT TO LIQUIDATED DAMAGES WAS CONDITIONED AND LIMITED TO THE SITUATION WHEREIN THE CONTRACT WAS NOT TERMINATED; THAT IF THERE WAS SUCH A TERMINATION, EVEN THOUGH IT BE SUBSEQUENT TO THE STIPULATED COMPLETION DATE, THE RIGHT TO LIQUIDATED DAMAGES DISAPPEARED, THE GOVERNMENT HAVING WAIVED ITS RIGHT THERETO UNDER THE APPLICATION OF THE FIRST CLAUSE OF ARTICLE 9.

IN THE DECISION REPORTED AT 31 COMP. GEN. 428, ALSO CITED IN THE ACTING GENERAL COUNSEL'S MEMORANDUM, THE CONTRACTOR'S RIGHT TO PROCEED WAS TERMINATED 282 DAYS AFTER THE SPECIFIED COMPLETION TIME. THE INVOLVED CONTRACT ALSO HAD A STANDARD DELAYS-DAMAGES CLAUSE GIVING THE GOVERNMENT THE RIGHT TO TERMINATE THE CONTRACT FOR DELAY IN COMPLETION BY THE CONTRACTOR; TO HAVE THE WORK COMPLETED BY OTHERS AND TO CHARGE THE CONTRACTOR AND HIS SURETY FOR ANY EXCESS COSTS OCCASIONED THEREBY. THE DISTINGUISHING CHARACTERISTIC OF THIS CONTRACT INVOLVED A PROVISION IN PLAIN AND UNAMBIGUOUS TERMS FOR THE ASSESSMENT OF LIQUIDATED DAMAGES AT $50 PER DAY AND WHICH PROVIDED:

"* * * FOR EACH CALENDAR DAY'S DELAY UNTIL THE WORK IS SATISFACTORILY COMPLETED OR UNTIL SUCH TIME AS THE GOVERNMENT MAY REASONABLY PROCURE THE COMPLETION OF THE WORK BY ANOTHER CONTRACTOR OR COMPLETE THE WORK ITSELF. * * * THE PROVISION FOR LIQUIDATED DAMAGES SHALL NOT PREVENT THE GOVERNMENT FROM TERMINATING THE RIGHT OF THE CONTRACTOR TO PROCEED IN CASE OF DEFAULT, AS PROVIDED IN ARTICLE 9 OF THE CONTRACT.'

FROM THE HOLDINGS OF THE ABOVE TWO CASES IT IS SEEN THAT THE LANGUAGE OF THE LIQUIDATED DAMAGES AND TERMINATION CLAUSES OF THE INVOLVED CONTRACTS CONSTITUTED A STIPULATION BETWEEN THE GOVERNMENT AND THE CONTRACTOR FOR LIQUIDATED DAMAGES AND SET FORTH THE RIGHTS AND OBLIGATIONS ARISING FROM TERMINATION, AND IT IS SEEN FURTHER THAT SUCH PROVISIONS MAY VALIDLY BE APPLIED CONDITIONALLY IN LIMITED SITUATIONS OR MORE BROADLY AS THE PARTIES MAY AGREE.

IN THE PRESENT CONTRACT WITH ASTRONICS CORPORATION TERMINATION WAS MADE UNDER ARTICLE 11 OF THE GENERAL PROVISIONS AFTER NOTICE BY THE CONTRACTOR TO THE GOVERNMENT OF INABILITY TO PROCEED BECAUSE OF PRODUCTION AND FINANCIAL DIFFICULTIES AND REQUESTING CANCELLATION OF THE CONTRACT. THE GOVERNMENT BY LETTER DATED SEPTEMBER 25, 1963, NOTIFIED THE CORPORATION OF THE TERMINATION OF ITS RIGHT TO PROCEED BY REASON OF ITS DEFAULT AND THAT IT WOULD BE CHARGED WITH EXCESS COSTS TO THE GOVERNMENT, IF ANY, FOR PROCUREMENT OF SIMILAR EQUIPMENT FROM ANOTHER SOURCE. ALL PROVISIONS FOR TERMINATION FOR DEFAULT AND THE RESULTING RIGHTS OF THE PARTIES ARE CONTAINED IN ARTICLE 11 AND NO REFERENCE IS MADE TO LIQUIDATED DAMAGES EXPRESSLY OR BY IMPLICATION THEREIN. THE ONLY REFERENCE TO LIQUIDATED DAMAGES SHOWN IN THE SUBMITTED CONTRACT RECORD IS THAT PARAGRAPH CONTAINED ON PAGE 6 OF THE INVITATION, BID, AND AWARD (SUPPLY CONTRACT), STANDARD FORM 33, OF CONTRACT CGS-1075. THIS PROVIDES AS FOLLOWS:

"LIQUIDATED DAMAGES: LIQUIDATED DAMAGES WILL BE ASSESSED THE CONTRACTOR AT THE RATE LISTED BELOW FOR EACH LOT FOR EACH CALENDAR DAY'S DELAY IF DELIVERY IS NOT MADE WITHIN THE NUMBER OF CALENDAR DAYS SPECIFIED UNDER THE PARAGRAPH "DELIVERY AND ACCEPTANCE" ABOVE, AFTER RECEIPT OF ORDER OR NOTICE TO PROCEED. IF DELIVERY TIME OFFERED BY THE CONTRACTOR IS LESS THAN THE TIME SPECIFIED UNDER AFORESAID PARAGRAPH AND DELIVERY IS NOT MADE WITHIN THE TIME OFFERED, LIQUIDATED DAMAGES WILL NOT BE ASSESSED UNTIL AFTER THE EXPIRATION OF THE TIME SPECIFIED UNDER THE SAID PARAGRAPH.

TABLE

LOT I - $125 PER CALENDAR DAY DELAY

LOT II - 125 DO. DO. DO. DO.

LOT III - 115 DO. DO. DO. DO.

LOT IV - 55 DO. DO. DO. DO.

"WHERE A LOT IS REJECTED AFTER ACCEPTANCE TESTS CONDUCTED BY THE COAST AND GEODETIC SURVEY, THE ASSESSMENT OF LIQUIDATED DAMAGES WILL BE REINSTATED AT THE RATES SPECIFIED HEREIN FOR EACH CALENDAR DAY'S DELAY AFTER NOTICE OF REJECTION IS FURNISHED UNTIL THE CONTRACTOR SHALL AGAIN DELIVER THE SYSTEM FOR REINSPECTION BY THE GOVERNMENT. SUCH PERIODS FOR ASSESSMENT OF LIQUIDATED DAMAGES SHALL BE REPEATEDLY REINSTATED AFTER EACH REJECTION AS MAY BE NECESSARY UNTIL FINAL ACCEPTANCE BY THE GOVERNMENT.

"FURTHER, DELIVERY OF A LOT LESS ONE OR MORE ITEMS, REGARDLESS THE COST OF SUCH UNDELIVERED ITEMS, SHALL NOT STAY THE ASSESSMENT OF LIQUIDATED DAMAGES AT THE FULL RATE SPECIFIED.'

IT HAS BEEN HELD THAT WHERE A CONTRACTOR HAS ABANDONED THE WORK A LIQUIDATED DAMAGES CLAUSE IS WHOLLY INAPPLICABLE. SEE SINNOTT V. SHUMACHER, 187 PAC. 105. THE EFFECT OF THIS HOLDING WAS TO MAKE THE CONTRACTOR LIABLE FOR THE COST OF COMPLETING THE WORK, RATHER THAN FOR A LESSER AMOUNT CALCULABLE BY APPLICATION OF THE LIQUIDATED DAMAGES PROVISION. THE CASE OF CLARK V. FLEISCHMANN VEHICLE CO., 187 N.Y.S. 807, HELD THAT BY THE LIQUIDATED DAMAGES PROVISION THE PARTIES CLEARLY INTENDED ONLY TO PROVIDE FOR THE PAYMENT THEREOF WHERE THERE WAS A DELAY IN THE COMPLETION OF THE CONTRACT BY THE CONTRACTOR AND NOT WHERE, AS IN THE INSTANT CASE, THE CONTRACTORS ABANDONED THE COMPLETION OF THE SAME. HOWEVER, WHERE THE CONTRACTOR ABANDONS THE WORK AFTER THE TIME FIXED FOR COMPLETION, IT HAS BEEN HELD THAT THE CLAUSE PROVIDING FOR LIQUIDATED DAMAGES APPLIES FROM THE TIME FIXED FOR COMPLETION UNTIL THE WORK IS ABANDONED, AND FOR A FURTHER PERIOD OF TIME REASONABLY NECESSARY TO COMPLETE THE JOB. SEE NATIONAL LOAN AND EXCHANGE BANK OF GREENWOOD V. GUSTAFSON, 154 S.E. 167, 171.

CASE LAW IS COMPARATIVELY MEAGER ON THE QUESTION PRESENTED AND THE FORMULATION OF A GENERAL RULE RESPECTING THE ISSUE PRESENTED IS CONSIDERED IMPRACTICABLE. COMPARE GENERALLY, 42 A.L.R. 2D 1134, ANNOTATION. HOWEVER, FROM THE LANGUAGE EMPLOYED IN THE TERMINATION AND LIQUIDATED DAMAGES CLAUSES OF THE INSTANT CONTRACT AND THEIR LACK OF REFERENCE TO EACH OTHER IN TERMS, IT MUST BE CONCLUDED THAT THESE CLAUSES ARE ANALOGOUS, IN THEIR EFFECT, WITH THOSE FOUND IN THE AMERICAN SURETY CASE. SEE, ALSO, NATIONAL SURETY CORPORATION V. UNITED STATES, 102 CT.CL. 671 AND MANART TEXTILE COMPANY V. UNITED STATES, 111 CT.CL 540. COMPARE HARTFORD ACCIDENT AND INDEMNITY CO. V. UNITED STATES, 127 F.SUPP. 565; DINEEN, SUPERINTENDENT OF INSURANCE V. UNITED STATES, 71 F.SUPP. 742; H. HERFURTH, JR. V. ACKER, 177 F.2D 38.

IT IS CONCLUDED, THEREFORE, THAT THE LIQUIDATED DAMAGES CLAUSE WOULD BE INAPPLICABLE IN THE CIRCUMSTANCES OF THE PRESENT CASE AND THAT THE RIGHT OF THE GOVERNMENT AGAINST THE CONTRACTOR AND SURETY WOULD BE LIMITED TO EXCESS COSTS OF COMPLETION. IN THIS CONNECTION, COMPARE FIREMAN'S FUND INDEMNITY COMPANY, A CORPORATION V. UNITED STATES, 104 CT.CL. 648. COMPARE, ALSO, NOTES OF DECISIONS FOLLOWING 41 U.S.C. 256A.