B-156946, SEP. 14, 1966

B-156946: Sep 14, 1966

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

TO LEE ENGINEERING AND CONSTRUCTION COMPANY: REFERENCE IS MADE TO YOUR LETTER OF JUNE 9. 400 THAT WERE ASSESSED AGAINST YOUR FIRM FOR DELAY IN THE COMPLETION OF CONTRACT NO. $100 A DAY FOR PHASE II) ARE UNREASONABLE AND THEREFORE CONSTITUTE A PENALTY AND ARE UNENFORCEABLE. OUR DECISIONS HAVE CONSISTENTLY HELD THAT IN THE DETERMINATION OF WHETHER A CONTRACT STIPULATION FOR LIQUIDATED DAMAGES IS VALID. THE ONLY MATTER TO BE CONSIDERED IS THE RELATION BETWEEN THE AMOUNT STIPULATED AS LIQUIDATED DAMAGES AND THE LOSSES WHICH WERE IN CONTEMPLATION BETWEEN THE PARTIES WHEN THE AGREEMENT WAS MADE. IT MUST BE CONCLUSIVELY SHOWN THAT THERE WAS NO POSSIBLE RELATION BETWEEN THE AMOUNT STIPULATED FOR LIQUIDATED DAMAGES AND THE CONTEMPLATED LOSSES.

B-156946, SEP. 14, 1966

TO LEE ENGINEERING AND CONSTRUCTION COMPANY:

REFERENCE IS MADE TO YOUR LETTER OF JUNE 9, 1966, ADDRESSED TO THE COMPTROLLER GENERAL OF THE UNITED STATES (THROUGH THE ARMY DISTRICT ENGINEER AT MERRITT ISLAND, FLORIDA) IN WHICH YOU REQUEST REMISSION OF LIQUIDATED DAMAGES IN THE AMOUNT OF $24,400 THAT WERE ASSESSED AGAINST YOUR FIRM FOR DELAY IN THE COMPLETION OF CONTRACT NO. DA-08-176 ENG/NASA/- 136, DATED OCTOBER 1, 1964. YOU BASE YOUR REQUEST ON THE CONTENTION THAT THE GOVERNMENT SUFFERED NO DAMAGE BY REASON OF YOUR FAILURE TO COMPLETE THE CONTRACT ON TIME, AND YOU ALSO ASSERT THAT THE RATES OF DAMAGES PRESCRIBED BY THE CONTRACT UNDER PARAGRAPH SC-1 (B) ($400 A DAY FOR PHASE I, AND $100 A DAY FOR PHASE II) ARE UNREASONABLE AND THEREFORE CONSTITUTE A PENALTY AND ARE UNENFORCEABLE.

WITH RESPECT TO THE LATTER CONTENTION, OUR DECISIONS HAVE CONSISTENTLY HELD THAT IN THE DETERMINATION OF WHETHER A CONTRACT STIPULATION FOR LIQUIDATED DAMAGES IS VALID, OR WHETHER IT CONSTITUTES A PENALTY, THE ONLY MATTER TO BE CONSIDERED IS THE RELATION BETWEEN THE AMOUNT STIPULATED AS LIQUIDATED DAMAGES AND THE LOSSES WHICH WERE IN CONTEMPLATION BETWEEN THE PARTIES WHEN THE AGREEMENT WAS MADE. IN ORDER FOR A LIQUIDATED DAMAGE PROVISION TO BE ADJUDGED AS A PENALTY, AND THEREFORE INVALID, IT MUST BE CONCLUSIVELY SHOWN THAT THERE WAS NO POSSIBLE RELATION BETWEEN THE AMOUNT STIPULATED FOR LIQUIDATED DAMAGES AND THE CONTEMPLATED LOSSES. WHERE TIME IS A MATERIAL FACTOR AND IT IS DIFFICULT OR IMPRACTICABLE, AT THE TIME A CONTRACT IS EXECUTED, TO CALCULATE THE DAMAGE WHICH MIGHT RESULT FROM A DELAY IN PERFORMANCE BEYOND THE DATE AGREED UPON, REASONABLE AGREEMENTS FOR LIQUIDATED DAMAGES ARE UNIFORMLY UPHELD, AND THE AMOUNT OF THE ACTUAL LOSS, IF ANY, CAUSED BY THE DELAY IS NOT MATERIAL, SINCE THE VALIDITY OF THE LIQUIDATED DAMAGE PROVISION IS FOR DETERMINATION AS OF THE TIME THE AGREEMENT WAS ENTERED INTO. SEE 18 COMP. GEN. 503; 21 ID. 529; 28 ID. 435, AND CASES CITED THEREIN.

A SUMMARY OF THE DAMAGE CONTEMPLATED BY THE CONTRACTING OFFICER AT THE TIME OF THE CONTRACT AWARD (AND OF THE ACTUAL DAMAGE INCURRED BY THE GOVERNMENT AS A RESULT OF THE PERFORMANCE DELAY) IS ADMINISTRATIVELY REPORTED AS FOLLOWS:

"AS A MEANS OF FORECASTING POTENTIAL DAMAGE AS A BASIS FOR ESTABLISHING LIQUIDATED DAMAGES, CONSIDERATION WAS GIVEN TO THE COST OF CONTINUED LEASING OF COMMERCIAL CIRCUITS IN CASE OF DELAYS IN CONTRACT PERFORMANCE. THE ENSUING DELAYS IN SUPPLYING CABLE CONNECTIONS FROM WILSON INTERSECTION TO INTERFACE D NECESSITATED THE CONTINUED USE OF THE LEASED CABLES EXTENDING BETWEEN THESE POINTS. IT HAD BEEN PLANNED TO CONNECT THE CABLE AT INTERFACE D WITH A CABLE LINE EXTENDING FROM THE SITE OF THE DOD WEAPONS EVALUATION SYSTEM TO THE NORTH INSTALLED UNDER ANOTHER CONTRACT. DUE TO THE LATENESS OF CABLE WORK UNDER THE INSTANT CONTRACT THE PLANNED CONNECTION WAS MADE IMPOSSIBLE AND IT WAS NECESSARY TO BRIDGE INTO THE CABLE RUNNING FROM THE NORTH INTO THE COMMERCIAL CIRCUIT AT INTERFACE D RESULTING IN ADDED EXPENSE TO THE GOVERNMENT AND DETRIMENTAL IMPACT UPON THE CONSTRUCTION PROGRAM.

"THE CONSTRUCTION AND UTILIZATION OF WEATHER TOWERS 11 AND 12 WERE DELAYED DUE TO CONTRACTOR'S FAILURE TO ESTABLISH CABLE CONNECTIONS TO THESE DESIGNATED SITES. THE CONSEQUENCES OF SUCH DELAYS WERE TO DEPRIVE THE GOVERNMENT OF THE USE OF THE FACILITIES AND TO DISRUPT THE ORDERLY AND INTERDEPENDENT SCHEDULING AND PLANNING OF THE PROGRAM. LOSS AND DAMAGE WERE CAUSED TO THE USING SERVICE BY PREVENTING IT FROM USING THE FACILITIES ACCORDING TO ANTICIPATED SEQUENCE THEREBY CAUSING DISRUPTION OF PLANS AND ADDED COSTS AND DAMAGES.

"DUE TO DELAYS OF CABLE INSTALLATION BETWEEN INTERFACE B AND WILSON INTERSECTION THE HIGH RESOLUTION TRACKING RADAR HAD ONLY LIMITED SERVICE. THE LACK OF VIDEO CABLE ADVERSELY AFFECTED THE PERFORMANCE OF RADAR BY RESTRICTING THE FULL CAPACITY OF THE FACILITY THEREBY OBSTRUCTING AND LIMITING ITS OPERATION. THE RESULT OF THIS INTERFERENCE WAS TO IMPAIR THE FULL USE OF THE INSTALLATION THEREBY CAUSING LOSS AND DAMAGE TO THE GOVERNMENT.

"THE CONTRACTOR'S ALLEGATION THAT INTERFACE B HAS REMAINED UNUSED SINCE COMPLETION DOES NOT CONFORM TO THE FACTS. SINCE JANUARY 1965, 400 PAIR AUDIO-CABLE TO THE NORTH TERMINAL BUILDING HAVE BEEN IN ACTUAL USE. THIS WORK WAS DONE PURSUANT TO A CHANGE ORDER TO CONTRACT NASA-84 ISSUED THE CONTRACTOR ON 1 NOVEMBER 1964 ACCELERATING INSTALLATION OF SUCH CABLE AT A COST OF $50,381 TO THE GOVERNMENT.'

IT IS FURTHER REPORTED:

"THE AMOUNTS FIXED FOR LIQUIDATED DAMAGES ARE CONSIDERED REASONABLE BY THE CONTRACTING OFFICER. THE FACILITIES CONSTRUCTED UNDER THE CONTRACT FOR THE NATIONAL AERONAUTICS AND SPACE ADMINISTRATION ARE PART OF A SYSTEM TO BE USED FOR THE TESTING AND LAUNCHING OF VEHICLES CAPABLE OF PLACING LARGE SCIENTIFIC SPACECRAFT IN EARTH ORBITS AND EXPLORATORY MISSIONS TO THE MOON AND NEARBY PLANETS. SPECIFICALLY, THE MERRITT ISLAND LAUNCH AREA FACILITIES AND LAUNCH COMPLEX 39 LOCATED THEREON, ARE BEING CONSTRUCTED FOR THE ADVANCED SATURN V LAUNCH VEHICLES. EFFECTUATION OF THE PROGRAM AT THE EARLIEST POSSIBLE DATE IS A BASIC NATIONAL OBJECTIVE ESTABLISHED BY THE PRESIDENT OF THE UNITED STATES.'

IN VIEW OF THE URGENT NATURE OF THE PROJECT INVOLVED, THE CONTEMPLATED AND GREAT POTENTIAL DAMAGES TO THE GOVERNMENT OF A DELAY IN THE CONTRACT COMPLETION (AS WELL AS, CONTRARY TO YOUR CONTENTION, THE CONSIDERABLE ACTUAL DAMAGES INCURRED), WE BELIEVE THAT THERE CAN BE NO SERIOUS QUESTION AS TO THE REASONABLENESS OF THE AMOUNT OF THE LIQUIDATED DAMAGES PRESCRIBED IN THE CONTRACT, AND THAT SUCH LIQUIDATED DAMAGES PROVISION THEREFORE MAY NOT LOGICALLY BE REGARDED AS A PENALTY.

WITH REGARD TO THE REMISSION OF THOSE LIQUIDATED DAMAGES ASSESSED AGAINST YOUR FIRM, 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 SHOULD BE NOTED THEREFORE THAT BEFORE THIS OFFICE CAN GIVE FAVORABLE CONSIDERATION TO A CLAIM FOR REMISSION OF LIQUIDATED DAMAGES ON AN EQUITABLE BASIS, THE HEAD OF THE AGENCY CONCERNED (WHICH IS DEFINED IN 10 U.S.C. 2302 TO INCLUDE ANY ASSISTANT SECRETARY OF THE ARMY) MUST RECOMMEND REMISSION. IN A REPORT TO OUR OFFICE DATED AUGUST 25, 1966, THE ACTING ASSISTANT SECRETARY OF THE ARMY (INSTALLATIONS AND LOGISTICS) DECLINED TO MAKE SUCH A RECOMMENDATION ON THE BASIS THAT HIS REVIEW OF THE CASE FAILED TO DEVELOP EQUITIES IN YOUR BEHALF WHICH WOULD WARRANT REMISSION OF THE LIQUIDATED DAMAGES ASSESSED AGAINST YOU.

ACCORDINGLY, WE ARE NOT AUTHORIZED UNDER SUCH CIRCUMSTANCES TO GIVE FAVORABLE CONSIDERATION TO ..END :