B-156874, AUG. 27, 1965

B-156874: Aug 27, 1965

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TO OHIO CASUALTY INSURANCE CO.: FURTHER REFERENCE IS MADE TO YOUR LETTER OF FEBRUARY 5. WITH SUCH DILIGENCE AS WILL INSURE ITS COMPLETION WITHIN THE TIME SPECIFIED IN THIS CONTRACT. 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.'.

B-156874, AUG. 27, 1965

TO OHIO CASUALTY INSURANCE CO.:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF FEBRUARY 5, 1965, TO THE UNITED STATES DEPARTMENT OF AGRICULTURE, FOREST SERVICE, DENVER, COLORADO, REGARDING YOUR CLAIM FOR REMISSION OF A PORTION OF THE LIQUIDATED DAMAGES ASSESSED UNDER CONTRACT NO. 12-11-332-737 ENTERED INTO WITH COLORADO LAND CLEARING, INC.

UNDER THE REFERRED-TO CONTRACT COLORADO LAND CLEARING, INC., AGREED TO FURNISH ALL LABOR AND MATERIALS AND TO PERFORM ALL WORK NECESSARY FOR THE CLEARING, GRADING AND DRAINAGE OF APPROXIMATELY 6.308 MILES OFLAND IN THE BLUE LAKES RECREATION AREA, SAN ISABEL NATIONAL FOREST, HUERFANO COUNTY, COLORADO. THE CONTRACT PROVIDED THAT THE WORK SHALL BE COMPLETED WITHIN 150 CALENDAR DAYS AFTER RECEIPT OF NOTICE TO PROCEED SUBJECT TO SUCH EXTENSION AS MAY BE AUTHORIZED. PARAGRAPH 5 (A) AND (B) OF THE GENERAL PROVISIONS PROVIDES AS FOLLOWS:

"/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 THEREFORE. 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.'

PARAGRAPH 6.8 OF THE GENERAL REQUIREMENTS PROVIDES FOR THE ASSESSMENT OF LIQUIDATED DAMAGES AT THE RATE OF $50 PER DAY FOR EACH DAY'S DELAY BEYOND THE COMPLETION DATE OR AUTHORIZED EXTENSION THEREOF.

THE RECORD INDICATES THAT THE NOTICE TO PROCEED WAS EFFECTIVE OCTOBER 16, 1962; THAT THE WORK WAS SUSPENDED ON DECEMBER 6, 1962, FOR THE WINTER SEASON BECAUSE OF INCLEMENT WEATHER; AND THAT THE WORK WAS RESUMED BY COLORADO LAND CLEARING, INC., ON APRIL 29, 1963.

BECAUSE OF THE CONTRACTOR'S FAILURE TO PERFORM IN ACCORDANCE WITH THE CONTRACT TERMS, ITS RIGHT TO PROCEED WAS TERMINATED BY LETTER OF JUNE 20, 1963. AT THAT TIME YOU, AS SURETY, WERE REQUESTED TO TAKE OVER AND COMPLETE THE CONTRACT, BUT DECLINED TO DO SO BY LETTER OF JUNE 19, 1963. ACCORDINGLY, AFTER SOLICITING COMPETITIVE BIDS, A CONTRACT IN THE AMOUNT OF $41,242.37 WAS PLACED WITH THE FIRM OF DILLON AND HAYS ON SEPTEMBER 9, 1963, COVERING THE COMPLETION OF THE COLORADO CONTRACT. IT IS REPORTED THAT THE CONTRACT WITH DILLON AND HAYS CONTAINED THE IDENTICAL TERMS AND CONDITIONS AS TO THE COLORADO CONTRACT, INCLUDING THE SAME AMOUNT OF CONTRACT TIME, 150 CALENDAR DAYS. THE RECORD SHOWS THAT DILLON AND HAYS COMPLETED THE JOB ON SEPTEMBER 12, 1964, AND THAT IT USED 148 OF THE 150 CALENDAR DAYS ALLOWED.

BY LETTER DATED DECEMBER 2, 1964, THE CONTRACTING OFFICER ADVISED YOU AS FOLLOWS:

"ENCLOSED IS THE BILL FOR $4,916.80 ON CONTRACT NO. 12-11-332-737, BLUE LAKES RECREATION AREA, AWARDED TO COLORADO LAND CLEARING, INC., ON WHICH YOU WERE SURETY.

"A TABULATION OF THE TOTAL AMOUNT IS AS FOLLOWS:

CHART

ORIGINAL CONTRACT AMOUNT --------------------------------- $46,717.59

AMOUNT PAID TO COLORADO LAND CLEARING, INC. -------------- 5,242.02

FUNDS AVAILABLE TO COMPLETE THE PROJECT ------------------ $41,475.57

READVERTISED CONTRACT AMOUNT ----------------------------- 41,242.37

BALANCE ----------------------------- $ 233.20

"THE CONTRACT ALLOWED 150 CALENDAR DAYS TO COMPLETE THE PROJECT. LIQUIDATED DAMAGES ARE $50.00 PER CALENDAR DAY.

TIME TABULATION

COLORADO LAND CLEARING, INC.

OCTOBER, 1962 16 DAYS USED

NOVEMBER, 1962 30 DAYS USED

DECEMBER, 1962 6 DAYS USED

APRIL, 1963 2 DAYS USED

MAY, 1963 31 DAYS USED

JUNE, 1963 20 DAYS USED

SUCCESSOR CONTRACTOR

SEPTEMBER, 1963 4 DAYS USED

OCTOBER, 1963 31 DAYS USED

NOVEMBER, 1963 16 DAYS USED

JUNE, 1964 23 DAYS USED

JULY, 1964 31 DAYS USED

AUGUST, 1964 31 DAYS USED

SEPTEMBER, 1964 12 DAYS USED

TOTAL DAYS USED ------------ 253

LESS DAYS ALLOWED ---------- 150

103 DAYS LIQUIDATED

DAMAGES

103 DAYS AT $50.00 PER DAY EQUALS $5,150.00

LESS ORIGINAL CONTRACT BALANCE 233.20

BALANCE DUE --------- $4,916.80"

IN YOUR LETTER OF FEBRUARY 5, 1965, TO THE CONTRACTING OFFICER, YOU STATE THAT SINCE COLORADO LAND CLEARING, INC., EARNED APPROXIMATELY 24.80 PERCENT OF THE ORIGINAL CONTRACT AMOUNT BEFORE DEFAULTING, THE CONTRACT TO FINISH THE PROJECT SHOULD HAVE ALLOWED 24.80 PERCENT LESS CONTRACT TIME OR 113 DAYS AND THAT, THEREFORE, AS TO THE ASSESSMENT OF LIQUIDATED DAMAGES, YOU, AS SURETY, SHOULD ONLY BE CHARGED WITH 113 DAYS PLUS 105 DAYS USED BY COLORADO LAND CLEARING, INC., MINUS 150 DAYS ALLOTTED OR 68 DAYS. YOU CONTEND THAT YOU SHOULD BE CHARGED FOR 68 DAYS LIQUIDATED DAMAGES AT $50 PER DAY OR $3,400 LESS BALANCE OF $233.20 DUE COLORADO OR A TOTAL OF $3,166.80. YOU INVITE OUR ATTENTION TO THE CASE OF UNITED STATES V. CONTINENTAL CASUALTY COMPANY, 210 F.SUPP. 433, IN WHICH YOU STATE THE COURT HELD THAT THE UNITED STATES GOVERNMENT MUST EXERCISE DUE DILIGENCE IN COMPLETING CONTRACTS AFTER TERMINATION.

IN THE REFERRED-TO CASE THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK HELD THAT WHERE A GOVERNMENT CONTRACT WAS "TERMINATED" BY THE GOVERNMENT WHEN THE CONTRACTOR FELL BEHIND SCHEDULE AND WHERE THE GOVERNMENT SOUGHT RECOVERY UNDER THE CONTRACT'S LIQUIDATED DAMAGES PROVISIONS, CONTRACTOR WAS ENTITLED TO LITIGATE ITS DEFENSE THAT THE GOVERNMENT HAD NOT EXERCISED DUE DILIGENCE IN COMPLETING THE PROJECT AFTER TERMINATION.

IN HIS FINDINGS OF FACT THE CONTRACTING OFFICER STATES AS FOLLOWS:

"ANALYSIS OF CLAIM. THE SURETY COMPANY CONTENDS THEY SHOULD BE CHARGED FOR 68 DAYS OF LIQUIDATED DAMAGES AT 550.00 PER DAY OR $3,400.00 LESS BALANCE DUE CONTRACTOR OF $233.20 OR A TOTAL OF $3,166.80.

"THE SURETY COMPANY HAS BEEN BILLED FOR 103 DAYS OF LIQUIDATED DAMAGES AT $50.00 PER DAY FOR A TOTAL OF $5,150.00 OR LESS ORIGINAL CONTRACT BALANCE OF $233.20 FOR THE NET AMOUNT OF $4,916.80.

"THERE IS NO CORRELATION BETWEEN AMOUNTS EARNED AND CONTRACT TIME REQUIRED. THREE HUNDRED THIRTY-TWO LINEAR FEET OF 15 INCHES DIAMETER CULVERT PIPE AND 30 LINEAR FEET OF 18 INCHES DIAMETER CULVERT PIPE WERE DELIVERED TO THE JOB SITE, NOT INSTALLED, BUT CONVERTED TO EQUIVALENT UNITS IN PLACE AND THE VALUE INCLUDED IN THE AMOUNT THE SURETY STATES WAS EARNED BY COLORADO LAND CLEARING, INC. NO CONTRACT TIME WAS REQUIRED TO COMPLETE THAT PORTION OF THE CONTRACT.

"MOST OF THE AMOUNT EARNED BY THE ORIGINAL CONTRACTOR WAS FOR ROADWAY AND DRAINAGE EXCAVATION. THE BEGINNING EXCAVATION REQUIRES MUCH LESS TIME THAN THE FINISH WORK. THE DEFAULTING CONTRACTOR LEFT HIS WORK IN A DISORGANIZED MANNER WHICH REQUIRED ADDITIONAL TIME TO FINISH.

"THE CONTRACT FOR COMPLETING THE PROJECT AFTER THE DEFAULT CONTAINED THE IDENTICAL TERMS AND CONDITIONS AS THE ORIGINAL CONTRACT, INCLUDING THE SAME AMOUNT OF CONTRACT TIME. THE SUCCESSOR CONTRACTOR USED 148 OF THE 150 CALENDAR DAYS ALLOWED. THE SUCCESSOR CONTRACTOR ACCOMPLISHED THE PROJECT IN A REASONABLE AND PRUDENT MANNER. IN MY OPINION ACCELERATING THE PROJECT WOULD HAVE INCREASED THE COST.

$5,150.00 FOR ADMINISTERING A ROAD PROJECT FAR FROM ANY TOWN FOR 103 DAYS IS VERY REASONABLE.

"THE SURETY COMPANY WAS GIVEN THE OPPORTUNITY TO COMPLETE THE PROJECT AND THEY DECLINED AND REQUESTED THE CONTRACTING OFFICER TO "RE ADVERTISE AND RE-LET THE UNFINISHED WORK TO THE LOW BIDDER.' TIME CHARGED WAS ONLY FOR TIME CHARGED AGAINST THE CONSTRUCTION CONTRACTORS, AND DID NOT INCLUDE ANY DAYS THAT THE GOVERNMENT CAUSED ANY DELAY. THE CONTRACTORS WERE ORDERED TO PERFORM ON EVERY DAY CHARGED.

"IT IS THE RECOMMENDATION OF THE CONTRACTING OFFICER THAT NO LIQUIDATED DAMAGES SHOULD BE REMITTED TO THE SURETY. AN EFFICIENT AND REASONABLE CONTRACTOR USED 148 CALENDAR DAYS TO COMPLETE THE PROJECT.'

IN VIEW OF THE FACTS REPORTED ABOVE BY THE CONTRACTING OFFICER, THE ACTION OF THE PROCUREMENT AGENCY APPEARS TO HAVE BEEN PROPER AND REASONABLE. IN THE CASE OF IN RE KELLETT AIRCRAFT CORP., 186 F.2D 197, THE UNITED STATES COURT OF APPEALS, THIRD CIRCUIT, SAID:

"WHETHER OR NOT THE BUYER'S OBLIGATION TO MITIGATE DAMAGES HAS BEEN DISCHARGED DEPENDS ON THE REASONABLENESS OF ITS CONDUCT. IN THIS CONNECTION, REASONABLE CONDUCT IS TO BE DETERMINED FROM ALL THE FACTS AND CIRCUMSTANCES OF EACH CASE, AND MUST BE JUDGED IN THE LIGHT OF ONE VIEWING THE SITUATION AT THE TIME THE PROBLEM WAS PRESENTED. WHERE A CHOICE HAS BEEN REQUIRED BETWEEN TWO REASONABLE COURSES, THE PERSON WHOSE WRONG FORCED THE CHOICE CAN NOT COMPLAIN THAT ONE RATHER THAN THE OTHER WAS CHOSEN. THE RULE OF MITIGATION OF DAMAGES MAY NOT BE INVOKED BY A CONTRACT BREAKER AS A BASIS FOR HYPERCRITICAL EXAMINATION OF THE CONDUCT OF THE INJURED PARTY, OR MERELY FOR THE PURPOSE OF SHOWING THAT THE INJURED PERSON MIGHT HAVE TAKEN STEPS WHICH SEEMED WISER OR WOULD HAVE BEEN MORE ADVANTAGEOUS TO THE DEFAULTER. ONE IS NOT OBLIGATED TO EXALT THE INTERESTS OF THE DEFAULTER TO HIS OWN PROBABLE DETRIMENT. * * *"

SINCE THERE APPEARS TO BE MERIT TO THE CONTRACTING OFFICER'S CONTENTION THAT ACCELERATING THE COMPLETION OF THE PROJECT WOULD HAVE INCREASED THE COST AND RESULTED IN THE CHARGING OF EXCESS COSTS TO YOUR FIRM, IT APPEARS THAT THE CONDUCT OF THE CONTRACTING OFFICER UNDER THE CIRCUMSTANCES INVOLVED WAS REASONABLE. ACCORDINGLY, THERE APPEARS NO LEGAL BASIS FOR REDUCING THE NUMBER OF DAYS FOR WHICH LIQUIDATED DAMAGES ARE CHARGEABLE TO YOU, AS SURETY. ACCORDINGLY, YOU, AS SURETY, ARE LIABLE FOR THE FULL AMOUNT OF THE LIQUIDATED DAMAGES ASSESSED BY THE PROCUREMENT AGENCY UNDER THE CONTRACT INVOLVED. SEE 31 COMP. GEN. 428.

WITH REGARD TO THE EQUITABLE REMISSION OF SUCH DAMAGES, 41 U.S.C. 256A 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. IN THIS REGARD, IT SHOULD 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. IN A REPORT DATED JULY 19, 1965, THE ASSISTANT SECRETARY FOR ADMINISTRATION, DEPARTMENT OF AGRICULTURE, SPECIFICALLY RECOMMENDED THAT NO LIQUIDATED DAMAGES BE REMITTED.

ACCORDINGLY, WE ARE UNABLE TO GIVE FAVORABLE CONSIDERATION TO THE REMISSION OF ANY PORTION OF THE LIQUIDATED DAMAGES THAT WERE ASSESSED AGAINST COLORADO LAND CLEARING, INC. ..END :