B-160944, SEP. 14, 1967

B-160944: Sep 14, 1967

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WHO REQUESTS REMISSION OF DAMAGES FOR DELAYED DELIVERIES MAY NOT COMPLAIN THAT CONTRACTING OFFICER SHOULD NOT HAVE ACCEPTED CONTRACTOR'S REPRESENTATIONS AS TO TIMELY PERFORMANCE. ALSO INCLUSION OF LIQUIDATED DAMAGE PROVISION WAS PROPER IN CIRCUMSTANCES. FISCHMAN: REFERENCE IS MADE TO YOUR LETTERS OF FEBRUARY 17 AND JULY 31. 699.60 IN RESPONSE TO THE INVITATION UPON WHICH THE CONTRACT IS BASED WAS THE LOWEST BID RECEIVED. A PREAWARD SURVEY OF THE COMPANY WAS MADE. THE SURVEY REPORT RECOMMENDED AGAINST AN AWARD TO SCOTT BECAUSE IT WAS DELINQUENT ON OTHER CONTRACTS AND DID NOT HAVE ADEQUATE FACILITIES TO ENABLE IT TO MEET THE DELIVERY SCHEDULES IN THE INVITATION AND IN THE EXISTING CONTRACTS.

B-160944, SEP. 14, 1967

CONTRACTS - DAMAGES - LIQUIDATED - REMISSION DECISION RE REMISSION OF LIQUIDATED DAMAGES ASSESSED AGAINST GEORGE S. SCOTT AND SONS MFG. CO., INC., FOR DELAY IN PERFORMANCE OF DEFENSE SUPPLY AGENCY. CONTRACTOR WHO, TO OVERCOME DOUBTS AS TO ABILITY TO MEET DELIVERY REQUIREMENTS, OFFERS TO PAY LIQUIDATED DAMAGES AT 1 PERCENT PER DAY SUBJECT TO MAXIMUM ASSESSMENT OF 25 PERCENT OF CONTRACT PRICE, AND WHO REQUESTS REMISSION OF DAMAGES FOR DELAYED DELIVERIES MAY NOT COMPLAIN THAT CONTRACTING OFFICER SHOULD NOT HAVE ACCEPTED CONTRACTOR'S REPRESENTATIONS AS TO TIMELY PERFORMANCE; ALSO INCLUSION OF LIQUIDATED DAMAGE PROVISION WAS PROPER IN CIRCUMSTANCES; IN ABSENCE OF RECOMMENDATION FROM HEAD OF AGENCY REMISSION OF DAMAGES MAY NOT BE AUTHORIZED.

TO MR. JACOB H. FISCHMAN:

REFERENCE IS MADE TO YOUR LETTERS OF FEBRUARY 17 AND JULY 31, 1967, REQUESTING REMISSION OF LIQUIDATED DAMAGES IN THE AMOUNT OF $44,510.55 ASSESSED AGAINST GEORGE S. SCOTT AND SONS MFG. CO., INC., FOR DELAY IN PERFORMANCE OF DEFENSE SUPPLY AGENCY (DSA) CONTRACT NO. DSA-4-075171 EW227.

SCOTT'S TOTAL BID IN THE AMOUNT OF $163,699.60 IN RESPONSE TO THE INVITATION UPON WHICH THE CONTRACT IS BASED WAS THE LOWEST BID RECEIVED. A PREAWARD SURVEY OF THE COMPANY WAS MADE. THE SURVEY REPORT RECOMMENDED AGAINST AN AWARD TO SCOTT BECAUSE IT WAS DELINQUENT ON OTHER CONTRACTS AND DID NOT HAVE ADEQUATE FACILITIES TO ENABLE IT TO MEET THE DELIVERY SCHEDULES IN THE INVITATION AND IN THE EXISTING CONTRACTS. IN AN ATTEMPT TO OVERCOME THE NEGATIVE FINDING, SCOTT PRESENTED TO THE CONTRACTING OFFICER NEW EVIDENCE SHOWING THAT ENGINEERING, MANAGEMENT AND QUALITY CONTROL STAFFS HAD BEEN AUGMENTED, CREDIT WITH A BANK HAD BEEN ESTABLISHED, AND PROVISIONS HAD BEEN MADE TO DOUBLE PLANT CAPACITY ON THE MAJOR ITEM. SUBSEQUENTLY, "AS FURTHER ASSURANCE TO THE GOVERNMENT AND AS PROOF OF THIS FIRM'S CONFIDENCE IN ITS ABILITY TO MEET THE DELIVERY REQUIREMENTS" OF THE INVITATION, SCOTT OFFERED TO PAY LIQUIDATED DAMAGES AT THE RATE OF 1 PERCENT PER CALENDAR DAY OF THE TOTAL CONTRACT PRICE OF DELINQUENT QUANTITIES, SUBJECT TO A MAXIMUM ASSESSMENT OF 25 PERCENT OF THE TOTAL CONTRACT PRICE FOR ANY SUCH DELINQUENT QUANTITIES. IN VIEW OF THE ADDITIONAL EVIDENCE PRESENTED AND THE OFFER OF LIQUIDATED DAMAGES, THE CONTRACTING OFFICER DECIDED THAT SCOTT WAS A RESPONSIBLE BIDDER AND MADE AN AWARD TO THE COMPANY WHICH INCLUDED THE LIQUIDATED DAMAGES PROVISION. BY SUBSEQUENT CHANGE ORDERS OPTIONS IN THE CONTRACT WERE EXERCISED BY THE CONTRACTING OFFICER FOR ADDITIONAL QUANTITIES OF THE ITEMS SO THAT THE TOTAL CONTRACT PRICE WAS INCREASED TO $245,549.40.

SCOTT WAS DELINQUENT IN PERFORMANCE OF THE CONTRACT. LIQUIDATED DAMAGES IN THE AMOUNT OF $44,510.55 WERE ASSESSED AS A RESULT. IN EVERY INSTANCE, BUT ONE, THE LIQUIDATED DAMAGES EXCEEDED THE 25 PERCENT LIMITATION. THEREFORE, THE ASSESSMENT, WITH THAT ONE EXCEPTION, WAS BASED UPON THE 25 PERCENT LIMITATION.

YOU CONTEND THAT THE LIQUIDATED DAMAGES ARE NOT LEGALLY ENFORCEABLE AGAINST SCOTT ON SIX DIFFERENT BASES. EACH OF THE CONTENTIONS IS CONSIDERED BELOW.

FIRST, YOU STATE THAT THE LIQUIDATED DAMAGES CLAUSE WAS NOT PROPERLY INCLUDED IN THE CONTRACT BECAUSE (1) ITS USE VIOLATED THE PROVISIONS OF ARMED SERVICES PROCUREMENT REGULATION (ASPR) 1-310, AND (2) IT WAS ADDED TO CURE SCOTT'S APPARENT LACK OF CAPACITY AND CREDIT. IN SUPPORT OF THE CONTENTION THAT ASPR 1-310 WAS VIOLATED, YOU CITE COAST GUARD PROCUREMENT REGULATIONS (CGPR) 1.315 (D) (2) WHICH YOU STATE ARE PERSUASIVE OF THE MATTER ALTHOUGH NOT BINDING UPON DSA.

ASPR 1-310 PROVIDES THAT A LIQUIDATED DAMAGES PROVISION MAY BE USED:

"/A) * * * WHERE BOTH (I) THE TIME OF DELIVERY OR PERFORMANCE IS SUCH AN IMPORTANT FACTOR IN THE AWARD OF THE CONTRACT THAT THE GOVERNMENT MAY REASONABLY EXPECT TO SUFFER DAMAGES IF THE DELIVERY OR PERFORMANCE IS DELINQUENT, AND (II) THE EXTENT OR AMOUNT OF SUCH DAMAGES WOULD BE DIFFICULT OR IMPOSSIBLE OF ASCERTAINMENT OR PROOF. * * *" CGPR 1.315 (D) (2) PROVIDES:

"IF THE SUPPLIES OR SERVICES CAN BE REPROCURED READILY FROM OTHER SOURCES IN CASE OF DEFAULT AND THE DIFFERENCE IN PRICE WOULD REPRESENT THE FULL MEASURE OF DAMAGES TO THE GOVERNMENT, LIQUIDATED DAMAGES PROVISIONS WILL NOT BE USED.'

AS OBSERVED ABOVE, THE LIQUIDATED DAMAGES CLAUSE WAS NOT INCLUDED IN THE CONTRACT AT THE BEHEST OF DSA, BUT RATHER AS A RESULT OF A VOLUNTARY OFFER MADE BY SCOTT. FURTHER, THE CONTRACTING OFFICER HAS ADVISED THAT THE TIME OF DELIVERY WAS AN IMPORTANT FACTOR IN THE AWARD OF THE CONTRACT, THE GOVERNMENT COULD REASONABLY EXPECT TO SUFFER DAMAGES IF DELIVERY WAS DELINQUENT, AND THE EXTENT OF DAMAGE WOULD BE DIFFICULT TO ASCERTAIN. THUS, THE INCLUSION OF THE LIQUIDATED DAMAGES PROVISION IN THE CONTRACT DOES NOT APPEAR TO BE IN VIOLATION OF ASPR 1 310. MOREOVER, EVEN UNDER THE CGPR CITED ABOVE, THE CONTRACTING OFFICER IS ENTITLED TO CONSIDER WHETHER THE SUPPLIES CAN BE PROCURED READILY FROM ANOTHER SOURCE AND WHETHER THE DIFFERENCE IN PRICE IN PROCURING FROM ANOTHER SOURCE WOULD REPRESENT THE FULL MEASURE OF DAMAGE. SO, WHERE THERE IS A POSSIBILITY THAT DAMAGES MAY BE GREATER THAN THE PRICE OF REPROCUREMENT, LIQUIDATED DAMAGES ARE NOT RULED OUT. ADDITIONALLY, IT IS OBSERVED THAT WHEN SCOTT WAS TERMINATED FOR DEFAULT ON AN EARLIER CONTRACT ON SEPTEMBER 16, 1966, THE REPLACING CONTRACTOR DID NOT MAKE FINAL DELIVERY UNTIL 3 MONTHS LATER, WHICH SUGGESTS THAT THE ARTICLES MAY NOT HAVE BEEN "READILY" AVAILABLE FROM OTHER SOURCES.

WHILE THE LIQUIDATED DAMAGES PROVISION WAS ADDED BY SCOTT TO CURE ITS APPARENT LACK OF CAPACITY AND CREDIT, THE CONDITIONS PERMITTING THE UTILIZATION OF A LIQUIDATED DAMAGES CLAUSE APPEAR TO HAVE BEEN PRESENT,SO THAT WHATEVER SCOTT'S PURPOSE IN MAKING THE OFFER, THE ACCEPTANCE OF IT DOES NOT APPEAR TO HAVE BEEN IMPROPER.

YOUR SECOND CONTENTION IS THAT THE GOVERNMENT FAILED TO MITIGATE SCOTT'S LOSS FROM ASSESSMENT OF LIQUIDATED DAMAGES BY TERMINATING THE CONTRACT FOR DEFAULT. ASPR 1-310 (C) PROVIDES THAT WHERE LIQUIDATED DAMAGES PROVISION IS INCLUDED IN A CONTRACT AND A BASIS FOR TERMINATION FOR DEFAULT EXISTS, APPROPRIATE ACTION SHOULD BE TAKEN EXPEDITIOUSLY BY THE GOVERNMENT TO OBTAIN PERFORMANCE BY THE CONTRACTOR OR TO TERMINATE THE CONTRACT. ALSO STATES THAT CLOSE ADMINISTRATION OF CONTRACTS CONTAINING LIQUIDATED DAMAGES PROVISIONS IS IMPERATIVE. IT IS REPORTED THAT THE CONTRACT IN QUESTION WAS MONITORED CLOSELY BY THE ADMINISTRATIVE CONTRACTING OFFICER AND THE ASSIGNED INDUSTRIAL SPECIALISTS. THE ADMINISTRATIVE MEMORANDA OF CONTACT WITH SCOTT DO NOT REVEAL ANY ACTION OR FAILURE TO ACT ON THE PART OF THE GOVERNMENT THAT CAN REASONABLY BE INTERPRETED AS A FAILURE TO MINIMIZE OR MITIGATE DAMAGES. THE RECORD SHOWS THAT ON SEPTEMBER 8, 1966, THE CONTRACTING OFFICER CONSIDERED WHETHER THE CONTRACT IN QUESTION SHOULD BE TERMINATED FOR DEFAULT AND DETERMINED IT TO BE IN THE BEST INTERESTS OF THE GOVERNMENT NOT TO TERMINATE FOR DEFAULT. THE CONTRACTING OFFICER STATES THAT THE ITEMS WERE CRITICAL AND IN SHORT SUPPLY; THAT AT THE TIME IT WAS ANTICIPATED THAT DELIVERY OF THE SUPPLIES WOULD BE COMPLETED BY SCOTT BY NOVEMBER 30, 1966; AND THAT IT WAS NOT ANTICIPATED THAT THE SUPPLIES COULD BE OBTAINED BEFORE NOVEMBER 30, 1966, FROM ANY OTHER SOURCE. MOREOVER, IT SHOULD BE POINTED OUT THAT HAD THE CONTRACTING OFFICER TERMINATED THE CONTRACT AND REPURCHASED THE UNDELIVERED ITEMS FROM ANOTHER SOURCE, SCOTT WOULD HAVE BEEN CHARGEABLE NOT ONLY WITH EXCESS COSTS, BUT ALSO WITH LIQUIDATED DAMAGES THAT WOULD ACCRUE UNTIL SUCH TIME AS THESE ITEMS WERE DELIVERED BY ANOTHER CONTRACTOR. IT IS NOTED THAT BY SEPTEMBER 8, 1966, A SUBSTANTIAL PORTION OF THE LIQUIDATED DAMAGES WHICH WERE ASSESSED AGAINST SCOTT HAD ALREADY ACCRUED. IN VIEW OF THE FACTS REPORTED 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, IT WAS 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. * * *" ATTENTION ALSO IS INVITED TO UNITED STATES V. RUSSELL ELECTRIC CO., 250 F.SUPP. 2, 20, WHEREIN IT WAS STATED THAT THE DUTY TO MITIGATE DAMAGES ARISES WHEN A CONTRACT IS BREACHED AND IT APPEARS THAT THE BREACHING PARTY HAS ABANDONED OR REPUDIATED ITS OBLIGATIONS UNDER THE CONTRACT, AND THAT IF NEGOTIATIONS BETWEEN THE PARTIES ARE PENDING, IF ASSURANCES ARE MADE THAT PERFORMANCE WILL BE FORTHCOMING, OR IF OTHER CIRCUMSTANCES INDICATE THAT THE BREACHING PARTY INTENDS TO PERFORM, THEN, EVEN THOUGH THE CONTRACT HAS BEEN BREACHED, NO DUTY TO MITIGATE ARISES. THERE IS NOTHING IN THE RECORD TO INDICATE THAT SCOTT EFFECTIVELY COMMUNICATED TO THE PROCURING ACTIVITY AN INTENT TO REPUDIATE THE CONTRACT IN QUESTION.

YOUR THIRD CONTENTION IS THAT THE ASSESSMENT OF LIQUIDATED DAMAGES AGAINST SCOTT UNDER THE CIRCUMSTANCES OF THIS CASE IS AN UNENFORCEABLE PENALTY. IN SUPPORT OF THAT CONTENTION, YOU CITE SOUTHWEST ENGINEERING COMPANY V. UNITED STATES, 341 F.2D 998, CERTIORARI DENIED, 382 U.S. 819, WHICH UPHELD THE ASSESSMENT BY THE GOVERNMENT OF LIQUIDATED DAMAGES AGAINST A CONTRACTOR. YOU REFER PARTICULARLY TO THE STATEMENT ON PAGE 1001 AS FOLLOWS:

"TWO REQUIREMENTS MUST BE CONSIDERED TO DETERMINE WHETHER THE PROVISION INCLUDED IN THE CONTRACT FIXING THE AMOUNT OF DAMAGES PAYABLE ON BREACH WILL BE INTERPRETED AS AN ENFORCEABLE LIQUIDATED DAMAGE CLAUSE RATHER THAN AN UNFORCEABLE PENALTY CLAUSE: FIRST, THE AMOUNT SO FIXED MUST BE A REASONABLE FORECAST OF JUST COMPENSATION FOR THE HARM THAT IS CAUSED BY THE BREACH, AND SECOND, THE HARM THAT IS CAUSED BY THE BREACH MUST BE ONE THAT IS INCAPABLE OR VERY DIFFICULT OF ACCURATE ESTIMATION. SEE J.D. STREET AND CO. V. UNITED STATES, 8 CIR., 256 F.2D 557, 559; UNITED STATES V. LE ROY RYAL CO., SUPRA; RESTATEMENT, CONTRACTS SEC. 339.' YOU STATE THAT ON BOTH OF THE TESTS PRESCRIBED BY THE COURT THE RECORD SUPPORTS THE CONCLUSION THAT THE LIQUIDATED DAMAGES CLAUSE IN THE CONTRACT IN QUESTION IS AN UNENFORCEABLE PENALTY CLAUSE. YOU STATE THAT SINCE THE GOVERNMENT WAS AWARE AT THE TIME OF THE AWARD THAT SCOTT WAS ALREADY DELINQUENT ON SIX OF NINE CONTRACTS IT WAS ON NOTICE THAT SCOTT WAS IN NO POSITION TO DELIVER IN ACCORDANCE WITH THE DELIVERY SCHEDULE. THEREFORE, YOU CONTEND THAT THE SOLE PURPOSE OF THE GOVERNMENT IN INCLUDING A LIQUIDATED DAMAGES CLAUSE IN THE CONTRACT WAS TO EXACT A PENALTY FROM SCOTT.

ALTHOUGH THE GOVERNMENT MAY HAVE BEEN AWARE OF EXISTING DELINQUENCIES UNDER OTHER CONTRACTS AT THE TIME OF AWARD OF THE CONTRACT, IT IS IMPERATIVE TO NOTE THAT SCOTT WAS MAINTAINING THAT IT COULD COMPLETE THE CONTRACT ON TIME AND FURNISHED EVIDENCE TO SUPPORT ITS CONTENTION. YOU APPEAR TO SUGGEST THAT THE GOVERNMENT WAS REQUIRING SCOTT TO TAKE THE AWARD WHERE, AS A MATTER OF FACT, IT WAS SCOTT WHO WAS INSISTING THAT IT WAS CAPABLE OF PERFORMANCE WHEN THE CONTRACTING AGENCY INDICATED THAT DOUBT EXISTED AS TO ITS CAPACITY. FURTHER, AS NOTED ABOVE, THE LIQUIDATED DAMAGES CLAUSE WAS INCLUDED IN THE CONTRACT NOT BECAUSE THE GOVERNMENT DEMANDED IT, BUT BECAUSE SCOTT SUGGESTED ITS INCLUSION, APPARENTLY BELIEVING IT A REASONABLE ASSESSMENT IN THE EVENT OF DELAY IN PERFORMANCE. IT WOULD SEEM TOO THAT TO PRECLUDE THE LIQUIDATED DAMAGES FROM BEING CONSIDERED AS A PENALTY SCOTT IMPOSED A 25-PERCENT CEILING. NOTED IN RESPONSE TO THE FIRST CONTENTION, THE REQUIREMENTS SET OUT IN THE CITED CASE, WHICH ARE SUBSTANTIALLY SIMILAR TO THOSE IN ASPR 1-310, WERE PRESENT IN THIS CASE.

ADDITIONALLY, 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 DAMAGES 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 DAMAGES PROVISION IS FOR DETERMINATION AS OF THE TIME OF THE AGREEMENT WAS ENTERED INTO. SEE 18 COMP. GEN. 503; 21 ID. 29; 28 ID. 435, AND CASES CITED THEREIN. SEE ALSO IN RE LION OVERALL CO., 55 F.SUPP. 789, AFFIRMED 144 F.2D 75, WHEREIN THERE WAS UPHELD LIQUIDATED DAMAGES IN THE AMOUNT OF $20,000, COMPUTED AT ONE-HALF OF 1 PERCENT OF THE PRICE FOR EACH UNIT FOR EACH DAY NOT DELIVERED, WHEN THE CONTRACT PRICE WAS $53,000 AND THE ACTUAL DAMAGES WERE ONLY $3.56. THE FOURTH CONTENTION IS THAT THE PROCURING ACTIVITY FAILED TO SEND THE QUESTION OF SCOTT'S CAPACITY AND CREDIT TO THE SMALL BUSINESS ADMINISTRATION (SBA) FOR DETERMINATION AND POSSIBLE ISSUANCE OF A CERTIFICATE OF COMPETENCY. IT IS REPORTED THAT THE SBA WAS NOTIFIED ON SEPTEMBER 22, 1965, THAT THE CONTRACTING OFFICER INTENDED TO REJECT SCOTT'S BID BECAUSE THE FIRM WAS NONRESPONSIBLE AS TO CAPACITY AND CREDIT, BUT THAT THE DETERMINATION AS TO THE REJECTION OF THE COMPANY'S BID WAS REVERSED AS A RESULT OF INFORMATION SUBSEQUENTLY FURNISHED BY SCOTT. ASPR 1-705.4 (C) REQUIRES THAT THERE BE REFERRED TO SBA THOSE MATTERS OF BIDS OF SMALL BUSINESS CONCERNS WHICH ARE TO BE REJECTED BECAUSE THE CONCERN HAS BEEN DETERMINED BY THE CONTRACTING OFFICER TO BE NONRESPONSIBLE AS TO CAPACITY OR CREDIT. IN VIEW OF THE DETERMINATION OF RESPONSIBILITY, FURTHER ACTION BY THE SBA OBVIOUSLY WAS NEITHER APPROPRIATE NOR NECESSARY.

THE FIFTH CONTENTION IS THAT THE GOVERNMENT'S SLOW PAYMENT OF INVOICES CONTRIBUTED TO SCOTT'S DELINQUENCIES. IT IS REPORTED THAT STARTING IN MID -SEPTEMBER 1966, PAYMENT OF INVOICES WAS WITHHELD TO COVER THE ASSESSMENT FOR LIQUIDATED DAMAGES; THAT THERE WERE SEVEN PAYMENTS MADE FROM 33 TO 36 DAYS AFTER RECEIPT OF SHIPMENTS; AND THAT ALL OTHER PAYMENTS WERE MADE WITHIN 30 DAYS AFTER RECEIPT OF SHIPMENTS. THE CONTRACTING OFFICER HAS STATED THAT THE DELAYS IN PERFORMANCE ARE NOT ATTRIBUTABLE TO LATE PAYMENT, BUT RATHER TO SCOTT'S LACK OF PRODUCTION PLANNING, PRODUCTION FACILITIES AND PERSONNEL. IF YOU DO NOT AGREE WITH THE CONTRACTING OFFICER ON THIS POINT, THEN IT IS FOR RESOLUTION UNDER THE DISPUTES CLAUSE IN THE CONTRACT. IF THE CONTRACTOR WAS DELAYED BY THE GOVERNMENT IT WOULD, OF COURSE, BE ENTITLED TO ADDITIONAL TIME FOR PERFORMANCE FOR ANY TIME WHICH IT CAN BE ESTABLISHED THE GOVERNMENT DELAYED IT.

THE SIXTH CONTENTION IS THAT THE GOVERNMENT WAS OTHERWISE RESPONSIBLE FOR SCOTT'S PREDICAMENT BECAUSE IT AWARDED QUANTITIES IN EXCESS OF SCOTT'S KNOWN CAPACITY AND BECAUSE THE AWARD WAS MADE WHEN SCOTT WAS APPARENTLY DELINQUENT ON CONTRACT NO. DSA-4-060027-EW227, RESULTING IN DELIVERY SCHEDULES KNOWN TO BE UNREALISTIC. YOU MAKE PARTICULAR REFERENCE TO THE ACTION OF THE CONTRACTING OFFICER IN EXERCISING THE OPTION QUANTITY CLAUSE AT A TIME WHEN IT WAS DELINQUENT AND UNABLE TO MEET THE DELIVERY SCHEDULE UNDER THIS CONTRACT AND ANOTHER CONTRACT.

AS INDICATED ABOVE, SCOTT WAS WELL AWARE OF ITS DELINQUENCY ON OTHER CONTRACTS AT THE TIME IT WAS BEING CONSIDERED FOR AWARD OF THE CONTRACT, BUT IT INSISTED THAT IT WOULD BE ABLE TO COMPLETE THE CONTRACT ON TIME. CERTAINLY, IF THE CONTRACTOR BELIEVED IT COULD COMPLETE ON TIME AND CONVINCED THE CONTRACTING OFFICER AS TO ITS ABILITY TO DO SO, DESPITE THE OFFICER'S DOUBTS, THE CONTRACTOR CANNOT NOW REASONABLY COMPLAIN THAT THE CONTRACTING OFFICER SHOULD HAVE KNOWN BETTER THAN TO ACCEPT ITS REPRESENTATIONS AS TO TIMELY PERFORMANCE. ALTHOUGH THE CONTRACTOR MAY HAVE BEEN DELINQUENT AT THE TIME SOME OF THE OPTIONS FOR ADDITIONAL QUANTITIES WERE BEING EXERCISED, IT APPEARS THAT THE CONTRACTOR WAS CONTINUING TO PERFORM AND HAD NOT ABANDONED THE CONTRACT. HENCE, THERE WAS NO DUTY ON THE PART OF THE GOVERNMENT TO MITIGATE THE DAMAGES. SEE UNITED STATES V. RUSSELL ELECTRIC CO., SUPRA.

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 MAY 1, 1967, THE COUNSEL FOR THE DEFENSE SUPPLY AGENCY, ACTING FOR THE HEAD OF THE AGENCY UNDER DELEGATED AUTHORITY, 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 GEORGE S. SCOTT AND SONS MFG. CO., INC. ..END :