B-155194, OCT. 14, 1964

B-155194, OCT. 14, 1964

TO THE HONORABLE SECRETARY OF THE INTERIOR:

BY LETTER DATED SEPTEMBER 16, 1964, ASSISTANT SECRETARY D. OTIS BEASLEY REQUESTED OUR DECISION AS TO THE ACTIONS WHICH HAD BEEN TAKEN UNDER CONTRACT NO. 14-20-0600-7569 WHICH HAD BEEN TERMINATED FOR DEFAULT AND THEREAFTER COMPLETED BY THE TRAVELERS INDEMNITY COMPANY, THE SURETY UNDER THE CONTRACT PERFORMANCE BOND. THE CONTRACT IN THE AMOUNT OF $29,457.50 WAS AWARDED ON FEBRUARY 25, 1963, BY THE BUREAU OF INDIAN AFFAIRS TO THE MCNEELY CONSTRUCTION COMPANY FOR CLEARING AND LEVELING WORK ON THE COCHITI INDIAN PUEBLO.

IT IS REPORTED THAT THE CONTRACTOR COMMENCED WORK ON MARCH 19, 1963, BUT DEFAULTED AFTER IT HAD COMPLETED ONLY 10 PERCENT OF THE CONSTRUCTION WORK WHICH WAS SCHEDULED FOR COMPLETION BY JUNE 16, 1963. THE GOVERNMENT TERMINATED THE CONTRACTOR'S RIGHT TO PROCEED BY LETTER DATED JUNE 28, 1963, WITH NOTICE THEREOF TO THE SURETY UNDER THE PERFORMANCE BOND, REQUESTING ADVICE AS TO THE STEPS IT PROPOSED TO TAKE TO COMPLETE THE CONTRACT WORK. AT THE DATE OF TERMINATION, THE CONTRACTING OFFICER WAS FACED WITH CONSIDERATION OF THE FOLLOWING REPORTED FACTS:

"1. THE AMOUNT OF CONTRACT FUNDS ALLOCATED TO THIS PROJECT WAS $29,457.50.

"2. THE NEXT LOWEST BID FIGURE WAS $42,970.00, SOME $13,512.50 MORE THAN THE AVAILABLE FUNDS.

"3. THE SURETY EXPRESSED INITIAL INTENTIONS NOT TO TAKE OVER THE WORK.

"4. IT WOULD NOT BE FEASIBLE TO DEVELOP A SUBSTITUTE CONTRACT THAT LATE IN THE FISCAL YEAR, AS AVAILABILITY OF SUPPLEMENTAL FUNDS AT SUCH TIME WAS NOT LIKELY.

"5. IT IS BUREAU POLICY NOT TO POSTPONE PROGRAMS BENEFICIAL TO THE INDIANS.

"6. THE BUREAU WOULD NOT HAVE ADEQUATE PERSONNEL TO COMPLETE THE CONTRACT WORK BY FORCE ACCOUNT.'

AFTER CONSIDERATION OF THE ABOVE FACTS AND CIRCUMSTANCES, THE CONTRACTING OFFICER DETERMINED THAT IT WOULD BE MOST ADVANTAGEOUS IF THE SURETY COULD BE PERSUADED TO TAKE OVER THE CONTRACT WORK. THE ORIGINAL PROPOSED TAKEOVER AGREEMENT WITH THE SURETY INCLUDED A PROVISION WHEREBY THE SURETY EXPRESSLY ACKNOWLEDGED LIABILITY FOR LIQUIDATED DAMAGES; HOWEVER, THE SURETY REFUSED TO TAKE OVER THE CONTRACT WORK UNLESS SUCH LIQUIDATED DAMAGES LIABILITY WERE ELIMINATED. THEREAFTER, THE LIQUIDATED DAMAGES PROVISION WAS ELIMINATED FROM THE EXECUTED TAKEOVER AGREEMENT. THE AGREEMENT DID, HOWEVER, RESERVE ALL RIGHTS IN THE GOVERNMENT AGAINST THE DEFAULTED CONTRACTOR AND THE SURETY INSOFAR AS THE SURETY "DOES NOT CURE DEFAULTS OF THE CONTRACTOR.' IT FURTHER PROVIDED THAT IT WAS SUBJECT TO ALL THE TERMS AND CONDITIONS OF THE ORIGINAL CONTRACT.

THE SURETY COMMENCED PERFORMANCE OF THE CONTRACT WORK ON AUGUST 9, 1963, AND THE WORK WAS COMPLETED ON DECEMBER 6, 1963. THEREAFTER, ON FEBRUARY 18, 1964, CHANGE ORDER NO. 1 (FINAL) WAS ISSUED TO THE SURETY WHICH PROVIDED IN PART:

"IT HAS BEEN FURTHER DETERMINED, UNDER THE PROVISIONS OF CLAUSE 5, TERMINATION FOR DEFAULT-DAMAGES FOR DELAY-TIME EXTENSIONS, OF STANDARD FORM 23A OF THE CONTRACT, THAT LIQUIDATED DAMAGES WILL NOT BE ASSESSED IN THIS CASE, IN THE BEST INTEREST OF THE GOVERNMENT.'

SPECIAL PROVISION NO. 4 OF THE ORIGINAL CONTRACT PROVIDED:

"LIQUIDATED DAMAGES: LIQUIDATED DAMAGES WILL BE ASSESSED IN THE AMOUNT OF THIRTY DOLLARS ($30.00) PER DAY FOR EACH CALENDAR DAY OF DELAY BEYOND THE TIME FOR COMPLETION STATED IN THE CONTRACT, OR ANY EXTENSIONS THEREOF THAT MAY BE GRANTED PURSUANT TO THE TERMS OF THE GENERAL PROVISIONS, STANDARD FORM 23A, UNTIL THE WORK IS DETERMINED BY THE CONTRACTING OFFICER TO BE SUBSTANTIALLY COMPLETED.'

CLAUSE 5 OF THE GENERAL PROVISIONS PROVIDED IN PERTINENT PART:

"/A) IF THE CONTRACTOR REFUSES OR FAILS TO PROSECUTE THE WORK, OR ANY SEPARABLE PART THEREOF, WITH SUCH DILIGENCE AS WILL INSURE ITS COMPLETION WITHIN THE TIME SPECIFIED IN THIS CONTRACT, OR ANY EXTENSION THEREOF, OR FAILS TO COMPLETE SAID WORK WITHIN SUCH TIME, THE GOVERNMENT MAY, BY WRITTEN NOTICE TO THE CONTRACTOR, TERMINATE HIS RIGHT TO PROCEED WITH THE WORK OR SUCH PART OF THE WORK AS TO WHICH THERE HAS BEEN DELAY. IN SUCH EVENT THE GOVERNMENT MAY TAKE OVER THE WORK AND PROSECUTE THE SAME TO COMPLETION, BY CONTRACT OR OTHERWISE, AND MAY TAKE POSSESSION OF AND UTILIZE IN COMPLETING THE WORK SUCH MATERIALS, APPLIANCES, AND PLANT AS MAY BE ON THE SITE OF THE WORK AND NECESSARY THEREFOR. WHETHER OR NOT THE CONTRACTOR'S RIGHT TO PROCEED WITH THE WORK IS TERMINATED, HE AND HIS SURETIES SHALL BE LIABLE FOR ANY DAMAGE TO THE GOVERNMENT RESULTING FROM HIS REFUSAL OR FAILURE TO COMPLETE THE WORK WITHIN THE SPECIFIED TIME.

"/B) IF FIXED AND AGREED LIQUIDATED DAMAGES ARE PROVIDED IN THE CONTRACT AND IF THE GOVERNMENT SO TERMINATES THE CONTRACTOR'S RIGHT TO PROCEED, THE RESULTING DAMAGE WILL CONSIST OF SUCH LIQUIDATED DAMAGES UNTIL SUCH REASONABLE TIME AS MAY BE REQUIRED FOR FINAL COMPLETION OF THE WORK TOGETHER WITH ANY INCREASED COSTS OCCASIONED THE GOVERNMENT IN COMPLETING THE WORK.'

SPECIFICALLY, OUR DECISION IS REQUESTED WHETHER: (1) THE CHANGE ORDER PROVISION QUOTED ABOVE CONSTITUTED A REMISSION OF LIQUIDATED DAMAGES; (2) IF SUCH PROVISION CONSTITUTED A REMISSION, WHETHER THE CONTRACTING OFFICER MIGHT HAVE AUTHORITY TO MODIFY THE CONTRACT BY ELIMINATING THE LIQUIDATED DAMAGES PROVISION; AND (3) IF THE ABOVE ACTION WAS IMPROPER YOU RECOMMEND THAT THE LIQUIDATED DAMAGES BE REMITTED UNDER THE PROVISIONS OF 41 U.S.C. 256A. IT IS REPORTED THAT THE GOVERNMENT DID NOT SUFFER ANY ACTUAL DAMAGES UNDER THE TAKEOVER AGREEMENT AND THAT COMPLETION OF THE CONTRACT WORK BY THE SURETY WAS PERFORMED IN A SATISFACTORY MANNER WITHOUT ANY ADDITIONAL COSTS TO THE GOVERNMENT.

WHILE THE TAKEOVER AGREEMENT DID NOT CONTAIN AN ACKNOWLEDGMENT BY THE SURETY OF LIABILITY FOR LIQUIDATED DAMAGES ACCRUED BY REASON OF THE CONTRACTOR'S DEFAULT, THE AGREEMENT RESERVED TO THE GOVERNMENT ALL RIGHTS IT HAD AGAINST THE DEFAULTING CONTRACTOR WHICH WERE NOT CURED BY THE SURETY. UNDER CLAUSE 5, QUOTED ABOVE, THE GOVERNMENT'S RIGHT TO LIQUIDATED DAMAGES WAS NOT AFFECTED BY TERMINATION OF THE CONTRACTOR'S RIGHT TO PROCEED. SEE 31 COMP. GEN. 428.

ALTHOUGH THE SURETY WAS NOT OBLIGATED TO TAKE OVER THE CONTRACT WORK, IN VIEW OF ITS LIABILITY UNDER THE PERFORMANCE BOND IT APPEARS DOUBTFUL THAT ITS AGREEMENT TO PERFORM THE WORK CONSTITUTED ADEQUATE CONSIDERATION FOR RELIEVING IT FROM THE ASSESSMENT OF LIQUIDATED DAMAGES WHICH ACCRUED TO THE GOVERNMENT BOTH PRIOR TO AND SUBSEQUENT TO THE TERMINATION OF THE CONTRACT FOR DEFAULT. HOWEVER, IN VIEW OF THE PARTICULAR CIRCUMSTANCES HERE INVOLVED, WE WILL EQUITABLY REMIT THE LIQUIDATED DAMAGES WHICH ACCRUED UNDER CONTRACT NO. 14-20-0600 7569.

ACCORDINGLY, BY VIRTUE OF THE AUTHORITY VESTED IN ME BY THE PROVISIONS OF 41 U.S.C. 256A, I HEREBY APPROVE REMISSION OF LIQUIDATED DAMAGES, AS RECOMMENDED.