B-162057, NOVEMBER 13, 1967, 47 COMP. GEN. 263

B-162057: Nov 13, 1967

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CONTRACTS - DAMAGES - LIQUIDATED - SHIPMENT V PERFORMANCE FAILURE UNDER A CONTRACT FOR POWER CIRCUIT BREAKERS THAT PROVIDED FOR DELIVERY OF ONE UNIT FOR GOVERNMENT TESTING AND ACCEPTANCE BEFORE THE REMAINING UNITS WERE SHIPPED. NOTWITHSTANDING THE LONG DELAY IN GETTING ACCEPTABLE POWER CIRCUIT BREAKERS INTO OPERATION IS ENTITLED TO LIQUIDATED DAMAGES FOR THE PERIOD OF THE DELAY. 1967: REFERENCE IS MADE TO YOUR REQUEST BY LETTER DATED JULY 14. THE BASIS OF YOUR CLAIM IS THAT THE LIQUIDATED DAMAGES PROVISION IN THE CONTRACT WAS EITHER MISINTERPRETED BY THE GOVERNMENT OR WAS SUBJECT TO TWO INTERPRETATIONS AND IS THEREFORE AMBIGUOUS. WHICH WAS AWARDED TO YOU ON OCTOBER 12. SHIPMENT OF ONE UNIT (ITEM 1) WAS REQUIRED WITHIN 360 CALENDAR DAYS AFTER THE DATE OF RECEIPT OF NOTICE OF AWARD.

B-162057, NOVEMBER 13, 1967, 47 COMP. GEN. 263

CONTRACTS - DAMAGES - LIQUIDATED - SHIPMENT V PERFORMANCE FAILURE UNDER A CONTRACT FOR POWER CIRCUIT BREAKERS THAT PROVIDED FOR DELIVERY OF ONE UNIT FOR GOVERNMENT TESTING AND ACCEPTANCE BEFORE THE REMAINING UNITS WERE SHIPPED, AND WHICH INCLUDED A PROVISION TO CHARGE LIQUIDATED DAMAGES FOR FAILURE OF THE CONTRACTOR TO PERFORM OR TO SHIP WITHIN THE TIME SPECIFIED, THE MERE SHIPMENT OF DEFECTIVE BREAKERS AFTER NOTICE THE INITIAL UNIT HAD FAILED ACCEPTANCE TESTING DID NOT STOP THE ACCRUAL OF LIQUIDATED DAMAGES, THE REFERENCE IN THE LIQUIDATED DAMAGES CLAUSE OF THE CONTRACT TO THE "FAILURE TO PERFORM" RELATING TO THE BASIC CONTRACT OBLIGATION TO PRODUCE UNITS CAPABLE OF MEETING PERFORMANCE REQUIREMENTS. THEREFORE, THE SHIPMENT OF THE UNITS NOT BEING THE DECISIVE EVENT ON WHICH THE APPLICATION OF THE LIQUIDATED DAMAGE CLAUSE DEPENDS, THE GOVERNMENT, NOTWITHSTANDING THE LONG DELAY IN GETTING ACCEPTABLE POWER CIRCUIT BREAKERS INTO OPERATION IS ENTITLED TO LIQUIDATED DAMAGES FOR THE PERIOD OF THE DELAY.

TO THE ALLIS-CHALMERS MANUFACTURING COMPANY, NOVEMBER 13, 1967:

REFERENCE IS MADE TO YOUR REQUEST BY LETTER DATED JULY 14, 1967, FOR REFUND OF THE NET AMOUNT OF $152,400 ASSESSED AGAINST YOU BY THE DEPARTMENT OF THE INTERIOR AS LIQUIDATED DAMAGES UNDER CONTRACT NO. 14 06- D-4202 WITH THE BUREAU OF RECLAMATION (THE BUREAU). THE BASIS OF YOUR CLAIM IS THAT THE LIQUIDATED DAMAGES PROVISION IN THE CONTRACT WAS EITHER MISINTERPRETED BY THE GOVERNMENT OR WAS SUBJECT TO TWO INTERPRETATIONS AND IS THEREFORE AMBIGUOUS.

THE CONTRACT, WHICH WAS AWARDED TO YOU ON OCTOBER 12, 1961, OBLIGATED YOU TO FURNISH NINE 230 KILOVOLT POWER CIRCUIT BREAKERS FOR THE BUREAU'S CENTRAL VALLEY PROJECT, BETHANY, CALIFORNIA. SHIPMENT OF ONE UNIT (ITEM 1) WAS REQUIRED WITHIN 360 CALENDAR DAYS AFTER THE DATE OF RECEIPT OF NOTICE OF AWARD, AND OF THE REMAINING EIGHT UNITS (ITEM 2) WITHIN 420 CALENDAR DAYS AFTER THE DATE OF RECEIPT OF THE NOTICE OF AWARD. NOTATION AT THE END OF THE PURCHASE DESCRIPTION OF ITEM 1 CITED, AS THE REASON FOR THE EARLIER DELIVERY REQUIREMENT THEREFOR, PARAGRAPH C-14 OF THE SPECIAL CONDITIONS OF THE CONTRACT, WHICH PROVIDED THAT THE GOVERNMENT COULD PERFORM CERTAIN TESTS, INCLUDING INTERRUPTING PERFORMANCE TESTS, ON THE ITEM 1 UNIT AS A CONDITION TO ACCEPTANCE OF ALL OF THE CIRCUIT BREAKERS, AND WHICH CONTAINS THE FOLLOWING PERTINENT LANGUAGE: "* * * IN THE EVENT THAT THE BREAKER TESTED DOES NOT DEMONSTRATE SPECIFICATION COMPLIANCE, IT SHALL BE THE CONTRACTOR'S RESPONSIBILITY TO REDESIGN AND REBUILD NOT ONLY THE SAMPLE BREAKER BUT ALL OTHER BREAKERS OF THE SAME IDENTICAL GROUP AND TO DEMONSTRATE THAT THE REDESIGN MEETS SPECIFICATIONS UNDER A FURTHER GOVERNMENT FIELD TESTING PROGRAM AND AT NO ADDITIONAL EXPENSE TO THE GOVERNMENT. THE COST OF THESE RETESTS AND ANY SUBSEQUENT RETESTS WILL BE CHARGED TO THE CONTRACTOR * * *.'

SPECIAL CONDITIONS OF THE CONTRACT INCLUDED A NOTICE OF DELAY PROVISION, PARAGRAPH A-9, WHICH REQUIRED THE CONTRACTOR TO GIVE WRITTEN NOTICE TO THE CONTRACTING OFFICER OF ANY PERFORMANCE DELAY, EITHER BY THE CONTRACTOR OR HIS SUBCONTRACTOR, WHICH MIGHT BE EXCUSABLE UNDER THE DEFAULT CLAUSE, WITHIN 30 DAYS FROM THE BEGINNING OF THE DELAY OR SUCH ADDITIONAL PERIOD AS ALLOWED BY THE CONTRACTING OFFICER PRIOR TO FINAL SETTLEMENT OF THE CONTRACT. THE CONTRACTING OFFICER, IN TURN, WAS REQUIRED TO MAKE A FINDINGS OF FACT AS SOON AS PRACTICABLE AFTER RECEIPT OF THE CONTRACTOR'S NOTICE OF DELAY, WHICH FINDINGS WOULD BECOME FINAL AND CONCLUSIVE ON THE PARTIES SUBJECT ONLY TO APPEAL UNDER THE DISPUTES CLAUSE.

PARAGRAPH B-6 OF THE SPECIAL CONDITIONS STRESSED THE IMPORTANCE OF TIMELY DELIVERY, AND PARAGRAPH B-7 ADDED TO THE STANDARD DEFAULT CLAUSE THE FOLLOWING LIQUIDATED DAMAGES PROVISIONS: ,PARAGRAPH 11 (F) OF STANDARD FORM 32, GENERAL PROVISIONS (SUPPLY CONTRACT), IS REDESIGNATED AS PARAGRAPH 11 (G) AND THE FOLLOWING IS INSERTED AS PARAGRAPH 11 (F): "/F) (I) IN THE EVENT THE GOVERNMENT EXERCISES ITS RIGHT OF TERMINATION AS PROVIDED IN PARAGRAPH (A) ABOVE, THE CONTRACTOR SHALL BE LIABLE TO THE GOVERNMENT FOR EXCESS COSTS AS PROVIDED IN PARAGRAPH (B) ABOVE AND, IN ADDITION, FOR LIQUIDATED DAMAGES, IN THE AMOUNT SET FORTH ELSEWHERE IN THIS CONTRACT, AS FIXED, AGREED, AND LIQUIDATED DAMAGES FOR EACH CALENDAR DAY OF DELAY, UNTIL SUCH TIME AS THE GOVERNMENT MAY REASONABLY OBTAIN DELIVERY OR PERFORMANCE OF SIMILAR SUPPLIES OR SERVICES. "/II) IF THE CONTRACT IS NOT SO TERMINATED, NOTWITHSTANDING DELAY AS PROVIDED IN PARAGRAPH (A) ABOVE, THE CONTRACTOR SHALL CONTINUE PERFORMANCE AND BE LIABLE TO THE GOVERNMENT FOR SUCH LIQUIDATED DAMAGES FOR EACH CALENDAR DAY OF DELAY UNTIL THE SUPPLIES ARE DELIVERED OR SERVICES PERFORMED. "/III) THE CONTRACTOR SHALL NOT BE LIABLE FOR LIQUIDATED DAMAGES FOR DELAYS DUE TO CAUSES WHICH WOULD RELIEVE HIM FROM LIABILITY FOR EXCESS COSTS AS PROVIDED IN PARAGRAPH (C) OF THIS CLAUSE. "IF THE CONTRACTOR REFUSES OR FAILS TO PERFORM OR MAKE SHIPMENT OF THE POWER CIRCUIT BREAKERS WITHIN THE DESIRED TIMES SPECIFIED IN THE SCHEDULE OR WITHIN THE PERIOD STATED BY THE CONTRACTOR IN HIS BID, IF SUCH PERIOD IS GREATER THAN THE DESIRED TIME, OR SHOULD THE CONTRACT BE TERMINATED AS PROVIDED ABOVE, THE AMOUNT OF LIQUIDATED DAMAGES TO BE CHARGED FOR FAILURE TO PERFORM OR FOR FAILURE TO SHIP EACH COMPLETE POWER CIRCUIT BREAKER, OR ANY PART THEREOF UNDER AN ITEM OF THE SCHEDULE, WITHIN THE DESIRED TIME SPECIFIED IN THE SCHEDULE, OR WITHIN THE PERIOD STATED BY THE CONTRACTOR IN HIS BID, IF SUCH PERIOD IS GREATER THAN THE DESIRED TIME, WILL BE AS FOLLOWS FOR EACH CALENDAR DAY OF DELAY: FIFTY DOLLARS ($50) FOR THE CIRCUIT BREAKER UNDER ITEM 1; AND FIFTY DOLLARS ($50) FOR EACH CIRCUIT BREAKER UNDER ITEM 2: PROVIDED, THAT THE TOTAL AMOUNT OF LIQUIDATED DAMAGES THAT WILL BE CHARGED UNDER ITEM 2 WILL NOT EXCEED ONE HUNDRED AND FIFTY DOLLARS ($150) PER DAY.'

NOTICE OF AWARD OF THE CONTRACT IS REPORTED TO HAVE BEEN RECEIVED BY YOU ON OCTOBER 16, 1961, THEREBY ESTABLISHING OCTOBER 11, 1962, AND DECEMBER 10, 1962, AS THE DATES FOR SHIPMENT OF ITEMS 1 AND 2, RESPECTIVELY.

IN A LETTER DATED APRIL 24, 1962, THE BUREAU INQUIRED OF YOU WHETHER SHIPMENT OF THE ITEM 1 CIRCUIT BREAKER COULD BE EXPEDITED INASMUCH AS THE GOVERNMENT WOULD PERFORM ACCEPTANCE TESTS ON THE UNIT (AUTHORIZED BY SECTION C-14 OF THE TECHNICAL REQUIREMENTS OF THE CONTRACT) AT GRAND COULEE SWITCHYARD (WASHINGTON) AND WAS ATTEMPTING TO ESTABLISH A DEFINITE DATE FOR THE TESTS. THE LETTER ADVISED YOU THAT THE TESTS WOLD CONSIST OF LINE SWITCHING, SHORT LINE FAULTS, AND BUS FAULTS, WITH THE INTERRUPTING DUTY AT THE SWITCHYARD BUS AS NEAR AS POSSIBLE TO THE NAMEPLATE RATING; THAT THE SERVICES OF YOUR ERECTING ENGINEER WOULD BE UTILIZED IN ERECTING AND IN OBTAINING THE OPTIMUM ADJUSTMENT OF THE BREAKER; AND THAT IT WAS ASSUMED THAT YOU WOULD DESIRE TO BE REPRESENTED DURING THE TESTS. FURTHER, THE BUREAU SOLICITED YOUR COMMENTS ON THE TEST PROGRAM.

THE FIRST ARTICLE, ITEM 1, WAS SHIPPED ON NOVEMBER 13, 1962, TO THE TESTING SITE, COULEE CITY, WASHINGTON, AND ACCEPTANCE TESTS WERE CONDUCTED DURING THE NIGHT OF DECEMBER 11. BY LETTER DATED DECEMBER 20, 1962, THE BUREAU ADVISED YOU THAT THE BREAKER HAD FAILED TO PERFORM IN ACCORDANCE WITH THE SPECIFICATION REQUIREMENTS DURING THE TESTS AND THEREFORE ALL OF THE CIRCUIT BREAKERS OF THE SAME DESIGN WHICH YOU INTENDED TO SUPPLY UNDER THE CONTRACT WERE UNACCEPTABLE. THE LETTER ALSO INCLUDED THE FOLLOWING PERTINENT LANGUAGE:

"* * * UNTIL MODIFICATIONS ARE MADE AND THE MODIFIED BREAKER IS READY FOR TESTING, IT WOULD APPEAR FUTILE TO SHIP THE REMAINING BREAKERS TO THE PROJECT.

"THE DELAY IN SHIPMENT WHICH HAS ALREADY BEEN ENCOUNTERED AND THE INEVITABLE FURTHER DELAY WHICH WILL RESULT FROM REDESIGN AND RETESTING IS OF UTMOST CONCERN TO ME. EXISTING CIRCUIT BREAKERS, TO BE RELEASED UPON ARRIVAL OF THE NEW BREAKERS, ARE SCHEDULED FOR INSTALLATION IN OTHER LOCATIONS. THREE SEPARATE CONSTRUCTION CONTRACTS ARE INVOLVED, AND DELAYS WILL BE COSTLY TO THE GOVERNMENT. IT IS IMPERATIVE THAT YOU EXERT EVERY EFFORT TO EFFECT EARLY DELIVERY OF SATISFACTORY EQUIPMENT.'

THE RECORD INDICATES THAT DESPITE THE CONTRARY SUGGESTION IN THE FIRST QUOTED SENTENCE YOU SHIPPED THE EIGHT ADDITIONAL CIRCUIT BREAKERS TO THE PROJECT SITE ON VARIOUS DATES DURING THE PERIOD DECEMBER 14, 1962 THROUGH JANUARY 4, 1963, WITHOUT ANY REDESIGN OR MODIFICATION TO CURE THE DEFECTS FOUND IN THE TESTS OF THE FIRST ITEM. IN A LETTER DATED JANUARY 10 TO THE BUREAU, IN WHICH YOU REFERRED TO ITS LETTER OF DECEMBER 20, YOU OFFERED AS EXPLANATION FOR YOUR ACTION THE LACK OF STORAGE SPACE AT YOUR FACTORY. FURTHER, YOU STATED THAT YOU PLANNED TO MAKE NECESSARY MODIFICATIONS AT THE PROJECT SITE AND WERE GIVING THE MODIFICATION PROGRAM TOP PRIORITY.

IT IS REPORTED THAT THE UNIT FURNISHED UNDER ITEM 1 WAS SUBSEQUENTLY MODIFIED SEVERAL TIMES AFTER FAILING TO PASS THE INITIAL ACCEPTANCE TESTS AND THAT A TOTAL OF EIGHT ACCEPTANCE TESTS ON THE UNIT WERE CONDUCTED DURING THE PERIOD DECEMBER 11, 1962, TO JUNE 22, 1964, ON WHICH DATE THE UNIT (WHICH HAD BEEN COMPLETED FOR SHIPMENT ON MAY 25) FINALLY MET SPECIFICATION REQUIREMENTS. THE REMAINING EIGHT BREAKERS WERE THEREAFTER REBUILT BY YOU TO CONFORM TO THE DESIGN OF THE ACCEPTED UNIT, SHIPMENT OF THE NECESSARY REPLACEMENT PARTS HAVING BEEN COMPLETED ON VARIOUS DATES FROM FEBRUARY 4 TO MARCH 23, 1965.

IN COMPUTING THE LIQUIDATED DAMAGES FOR LATE DELIVERY OF THE CIRCUIT BREAKERS, THE BUREAU HAS DETERMINED THAT THERE WAS A DELAY IN SHIPMENT OF ITEM 1 OF 591 DAYS COVERING THE PERIOD, OCTOBER 11, 1962, THE DATE REQUIRED BY THE CONTRACT FOR SHIPMENT OF SUCH ITEM, TO MAY 25, 1964, THE APPROXIMATE DATE OF COMPLETION OF THE MODIFICATIONS WHICH RESULTED IN SUCCESSFUL PERFORMANCE OF THE ACCEPTANCE TEST OF JUNE 22, 1964, AND THAT THERE SHOULD BE DEDUCTED FROM SUCH PERIOD 20 DAYS TO COVER THE TIME (DECEMBER 1 TO 21, 1962) DURING WHICH THE ITEM WAS IN CONTROL OF THE BUREAU FOR ACCEPTANCE TESTING. ACCORDINGLY, THE BUREAU HAS DETERMINED THAT DAMAGES FOR 571 DAYS AT $50 PER DAY, TOTAL $28,550, ARE ASSESSABLE FOR ITEM 1. FOR ITEM 2, THE BUREAU COMPUTES THE PERIOD OF DELAY FROM THE REQUIRED SHIPPING DATE OF DECEMBER 10, 1962, AND DAMAGES AS FOLLOWS: "SHIPMENT OF REPLACEMENT PARTS COMPLETED AS FOLLOWS:

ONE BREAKER--2-4-65--787 DAYS DELAY

ONE BREAKER--2-12-65--795 DAYS DELAY

TWO BREAKERS--2-19-65--802 DAYS DELAY

TWO BREAKERS--3-11-65--822 DAYS DELAY

TWO BREAKERS--3-23-65--834 DAYS DELAY LIQUIDATED DAMAGES EQUALS 822 DAYS AT $150 PER DAY PLUS

12 DAYS AT $100 PER DAY EQUALS $124,500"

THE TOTAL LIQUIDATED DAMAGES AS SO COMPUTED ARE $153,050, OR $1,000 LESS THAN THE AMOUNT OF $154,050 WHICH THE GOVERNMENT HAS WITHHELD FROM THE CONTRACT PRICE. YOU CONCEDE THAT ASSESSMENT OF THE AMOUNT OF $1,650 TO COVER THE DELAY OF 33 DAYS FROM OCTOBER 11, 1962, TO NOVEMBER 13, 1962, IN SHIPPING ITEM 1 IS AUTHORIZED.

YOU CONTEND THAT THE ASSESSMENT OF LIQUIDATED DAMAGES AFTER NOVEMBER 13, 1962, IS BASED ON THE GOVERNMENT'S INTERPRETATION OF THE WORDS "FAILURE TO SHIP" IN PARAGRAPH B-7 OF THE SPECIAL CONDITIONS AS MEANING THAT IF ITEM 1 WAS SHIPPED WITHIN THE CONTRACT SCHEDULE, BUT SUBSEQUENTLY FAILED THE PARAGRAPH C-14 GOVERNMENT ACCEPTANCE TESTS AND IN THE INTERIM THE DELIVERY DATE FOR THE EIGHT ADDITIONAL BREAKERS HAD PASSED, LIQUIDATED DAMAGES WOULD BE CHARGED. SUCH INTERPRETATION, YOU CLAIM, IS UNREASONABLE; I.E., THE TOTAL LIQUIDATED DAMAGES ARE ATTRIBUTABLE TO THE FAILURE OF ONLY ONE CIRCUIT BREAKER (ITEM 1) TO PASS TESTS AND THE DAMAGES WOULD AMOUNT TO MORE THAN THREE TIMES THE VALUE OF THE ONE UNIT, AND NEITHER PARTY WOULD HAVE KNOWN, WHEN THE CONTRACT WAS AWARDED, AT WHAT DATE LIQUIDATED DAMAGES WOULD BEGIN TO RUN BECAUSE THE GOVERNMENT NEED NOT HAVE PERFORMED THE LINE DROPPING AND FIELD FAULT TESTS UNDER THE TERMS OF THE CONTRACT. YOU CONTEND, IN SUBSTANCE, THAT THE PHRASE "FAILURE TO SHIP" IN THE LIQUIDATED DAMAGES CLAUSE WOULD APPLY ONLY IF NO CIRCUIT BREAKERS IDENTIFIABLE AS SUCH HAD BEEN SHIPPED BY THE REQUIRED DATE, AND THAT DEFECTS DISCLOSED ONLY UPON ACCEPTANCE TESTING BY THE GOVERNMENT WOULD NOT JUSTIFY THE ASSESSMENT OF LIQUIDATED DAMAGES. ONLY IN THIS WAY, YOU CONTEND, WOULD THE LIQUIDATED DAMAGES BEAR A REASONABLE RELATIONSHIP TO THE POTENTIAL DAMAGE FOR LATE DELIVERY. YOU POINT OUT THAT BOTH THE CONTRACT SCHEDULE AND THE LIQUIDATED DAMAGES PROVISION IN PARAGRAPH B 7 REFER ONLY TO SHIPMENT OF CIRCUIT BREAKERS AND ARE SILENT ON THE MATTER OF ACCEPTANCE TESTING, THE FACTOR WHICH YOU CLAIM THE GOVERNMENT MAINTAINS AS THE BASIS FOR DETERMINING WHETHER LIQUIDATED DAMAGES ARE CHARGEABLE.

WITH RESPECT TO OUR DECISION B-157319, JUNE 22, 1966, 45 COMP. GEN. 823, CITED BY THE GOVERNMENT FOR THE PRINCIPLE THAT A CONTRACTOR'S OBLIGATION IS NOT ONLY TO DELIVER ON TIME BUT ALSO TO DELIVER PRECISELY WHAT IS ORDERED, YOU STATE THAT WHILE YOU ARE IN COMPLETE ACCORD WITH THAT CONCLUSION, IT DOES NOT FOLLOW THAT LIQUIDATED DAMAGES SHOULD RUN AGAINST YOU IN THIS CASE UNTIL DELIVERY BY YOU OF PRECISELY WHAT WAS ORDERED. SUCH AN INTERPRETATION, YOU CONTEND, WOULD PERMIT CHARGING OF LIQUIDATED DAMAGES AFTER SHIPMENT UPON DISCOVERY OF A LATENT DEFECT AFTER AS MUCH AS FIVE YEARS OF CONTINUOUS USE AND WOULD RESULT IN LIQUIDATED DAMAGES OF OVER $90,000 FOR A DEFECT WHICH MIGHT BE CORRECTED AT A COST OF ONLY $50.

FINALLY, YOU URGE THAT THE BREAKERS NEED ONLY HAVE PASSED THE PRODUCTION TESTS REQUIRED BY PARAGRAPH C-12 TO BE PERFORMED BY YOU AT YOUR PLANT, AND YOU STATE THAT SUCH TESTS WERE PASSED AND THAT THE NECESSARY TEST DATA WERE MADE AVAILABLE TO THE GOVERNMENT.

THE DEPARTMENT OF THE INTERIOR POINTS OUT THAT THE REASON FOR AN EARLIER SHIPPING DATE FOR THE SINGLE BREAKER TO BE FURNISHED UNDER ITEM 1 WAS TO ENABLE THE BUREAU TO TEST THAT UNIT AND TO DETERMINE ITS COMPLIANCE WITH THE CONTRACT BEFORE THE OTHER BREAKERS WERE SHIPPED, THE INTENT BEING THAT IF SUCH UNIT WERE DEFECTIVE, THE TIME REQUIRED FOR TRANSPORTING THE OTHER EIGHT BREAKERS BACK TO THE FACTORY FOR NECESSARY MODIFICATION COULD BE AVOIDED. CONCERNING THE PRODUCTION TESTS WHICH YOU WERE REQUIRED TO PERFORM UNDER PARAGRAPH C-12, THE DEPARTMENT STATES THAT SUCH TESTS WERE PRELIMINARY AND WERE REQUIRED ONLY TO ASSURE COMPLIANCE WITH MINIMUM STANDARDS OF PRODUCTION AND FREEDOM FROM CONSTRUCTION OR ASSEMBLY DEFECTS. ON THE OTHER HAND, THE LINE DROPPING AND FIELD FAULT INTERRUPTING TESTS ON THE ITEM 1 BREAKER WHICH WERE PROVIDED FOR BY PARAGRAPH C-14 AS A CONDITION OF ACCEPTANCE OF ALL NINE BREAKERS COVERED BY THE CONTRACT WERE TO BE "SUFFICIENTLY COMPLETE TO VERIFY THE OVERALL SPECIFIED PERFORMANCE OF THE BREAKERS AT THEIR MAXIMUM RATING TO THE EXTENT POSSIBLE UNDER FIELD TEST CONDITIONS AND PACITY.' CONCERNING THE RESULTS OF THE TESTS, THE DEPARTMENT STATES THAT DURING THE FIRST TEST ON DECEMBER 11, 1962, THE BREAKER FAILED TO SWITCH LINE CHARGING CURRENT OF 55 AMPERES, OR LESS THAN ONE-FOURTH THE MAXIMUM OF 250 AMPERES SPECIFIED IN PARAGRAPH C-2B, WITHOUT MULTIPLE RESTRIKE; THAT WHEN AN ATTEMPT WAS MADE TO SWITCHLINE CHARGING CURRENT OF ONLY 140 AMPERES, SEVERE MULTIPLE RESTRIKES AND AN INTERNAL FLASHOVER OCCURRED CAUSING INTERNAL DAMAGE TO THE CIRCUIT BREAKER AND NOCESSITATING DISCONTINUANCE OF THE TEST; AND THAT IT WAS NOT UNTIL 11 MONTHS LATER, AFTER MODIFICATION OF THE INTERRUPTER UNITS AND EXTENSIVE TESTING OF THE BREAKER BY YOU, THAT THE BREAKER WAS ABLE TO SWITCH THE SPECIFIED MAXIMUM LINE CHARGING CURRENT OF 250 AMPERES. THE SECOND PHASE OF THE BUREAU'S ACCEPTANCE TESTING, WHICH INVOLVED TESTING OF THE CIRCUIT BREAKERS SPECIFIED INTERRUPTING RATING OF 20 MILLION KVA, COMMENCED ON NOVEMBER 22, 1963, IMMEDIATELY AFTER COMPLETION OF THE SUCCESSFUL LINE CHARGING CURRENT TEST. AFTER FOUR UNSUCCESSFUL TESTS OF THE BREAKER'S INTERRUPTING RATING, DURING WHICH CERTAIN INTERNAL COMPONENTS OF THE BREAKER WERE DAMAGED, YOU AGAIN MODIFIED THE BREAKER BY INCREASING THE HEIGHT OF THE EXTERNAL TANK 14 INCHES AND MAKING REVISIONS TO CERTAIN INTERNAL COMPONENTS, THE MODIFICATIONS BEING COMPLETED ON MAY 25, 1964, AND FOLLOWED ON JUNE 22, 1964, BY A SUCCESSFUL INTERRUPTING RATING TEST.

WE CANNOT ACCEPT THE VIEW THAT "SHIPMENT" IS THE DECISIVE EVENT ON WHICH APPLICATION OF THE LIQUIDATED DAMAGE CLAUSE DEPENDS. THE CLAUSE INCLUDES THE LANGUAGE: "* * * THE AMOUNT OF LIQUIDATED DAMAGES TO BE CHARGED FOR FAILURE TO PERFORM OR FOR FAILURE TO SHIP EACH COMPLETE POWER CIRCUIT BREAKER, * * * WITHIN THE DESIRED TIME SPECIFIED IN THE SCHEDULE, * * * WILL BE AS FOLLOWS * * *.'

THE WORD "PERFORM" IN THIS PROVISION MUST OBVIOUSLY REFER TO YOUR PRIMARY CONTRACT OBLIGATION, WHICH WAS TO MANUFACTURE CIRCUIT BREAKERS CAPABLE OF MEETING THE STATED PERFORMANCE REQUIREMENTS OF THE GOVERNMENT. AMONG THESE REQUIREMENTS WERE THAT THE BREAKERS WOULD SWITCH LINE CHARGING CURRENTS UP TO 250 AMPERES WITHOUT MULTIPLE RESTRIKES, AND HAVE AN INTERRUPTING RATING OF 20 MILLION KVA. MANUFACTURE OF BREAKERS WITH A SWITCHING CAPACITY LESS THAN 55 AMPERES, AND WHICH SUFFERED DAMAGE TO COMPONENTS UPON ATTEMPTED OPERATION AT THE 20 MILLION KVA INTERRUPTING RATING, COULD UNDER NO CONCEIVABLE THEORY BE ACCEPTED AS PERFORMANCE OF YOUR OBLIGATION, AND WE SEE NO JUSTIFICATION FOR CONSIDERING THE SHIPMENT OF SUCH DEFECTIVE ARTICLES AS STOPPING THE ACCRUAL OF LIQUIDATED DAMAGES.

THE PURPOSE OF THE STIPULATION FOR LIQUIDATED DAMAGES WAS TO COMPENSATE THE GOVERNMENT FOR DELAY IN GETTING ACCEPTABLE CIRCUIT BREAKERS INTO OPERATION WHERE THEY WERE INTENDED TO BE USED AND THE CONCOMITANT DELAY IN MOVING EXISTING CIRCUIT BREAKERS TO ANOTHER POINT WHERE THEY WERE NEEDED. THE MERE SHIPMENT OR DELIVERY OF CIRCUIT BREAKERS WHICH WERE SO DEFECTIVE IN BASIC DESIGN AS TO PRECLUDE ANY POSSIBILITY OF THEIR ACCEPTANCE COULD HAVE NO EFFECT UPON THE DAMAGES ACCRUING TO THE GOVERNMENT AND TO ADOPT SUCH AN INTERPRETATION AS YOU PROPOSE WOULD VIRTUALLY NULLIFY THE LIQUIDATED DAMAGE PROVISION.

A VALID CONTRACTUAL STIPULATION FOR LIQUIDATED DAMAGES WILL BE ENFORCED ACCORDING TO ITS TERMS, AND, THE PARTIES HAVING AGREED IN ADVANCE ON THE AMOUNT OF SUCH DAMAGES, THE QUESTION OF ACTUAL DAMAGES, OR THE AMOUNT THEREOF RESULTING FROM A BREACH OF THE CONTRACT, IS NOT FOR CONSIDERATION. SUN PRINTING AND PUBLISHING ASSOCIATION V. MOORE, 183 U.S. 642; UNITED STATES V. BETHLEHEM STEEL CO., 205 U.S. 105; WISE V. UNITED STATES, 249 U.S. 361. A CONTRACT PROVISION FOR LIQUIDATED DAMAGES FOR REFUSAL OR FAILURE TO MAKE SHIPMENT WITHIN THE SPECIFIED TIME OBVIOUSLY CONTEMPLATES SHIPMENTS MEETING THE SPECIFICATIONS, AND LIQUIDATED DAMAGES ARE NOT EXCUSABLE BECAUSE MATERIALS WERE SHIPPED IF SAID MATERIALS PROVE ON INSPECTION TO BE UNACCEPTABLE. 15 COMP. GEN. 903; 17 ID. 354. UNDER A CONTRACT FOR THE PURCHASE OF CRANES BY THE GOVERNMENT PROVIDING FOR TESTING OF A COMPLETED CRANE BEFORE ACCEPTANCE, THE GOVERNMENT WAS NOT OBLIGATED TO ACCEPT DELIVERY OF PARTS FOR CRANES UNTIL ONE CRANE HAD BEEN ASSEMBLED AND SATISFACTORILY PASSED THE TESTS PROVIDED FOR. ANTHONY M. MEYERSTEIN, INC. V. UNITED STATES, 153 F.SUPP. 433 (1957). THE ESSENCE OF THE PROMISE OF A CONTRACT TO DELIVER ARTICLES IS THE ABILITY TO PROCURE OR MAKE THEM, AND A DELAY RESULTING FROM INABILITY TO MAKE THEM, HOWEVER DIFFICULT, IS NOT A CAUSE EXCUSING THE IMPOSITION OF LIQUIDATED DAMAGES STIPULATED FOR FAILURE. CARNEGIE STEEL CO. V. UNITED STATES, 240 U.S. 156.

WITH RESPECT TO YOUR ARGUMENT THAT A DECISION UPHOLDING THE ASSESSMENT OF LIQUIDATED DAMAGES IN THE CIRCUMSTANCES OF YOUR CASE COULD LOGICALLY RESULT IN THE IMPOSITION OF LIQUIDATED DAMAGES IN THE EVENT OF A DISCLOSURE FIVE YEARS AFTER DELIVERY OF A LATENT DEFECT IN THE DELIVERED ITEMS, WE DIRECT YOUR ATTENTION TO THE STATEMENT OF THE SUPREME COURT IN WISE V. UNITED STATES, SUPRA, TO THE EFFECT THAT WHETHER A PARTY SHOULD BE RELIEVED FROM A PLAIN STIPULATION FOR LIQUIDATED DAMAGES UPON THE GROUND THAT A PENALTY WAS REALLY INTENDED WILL DEPEND UPON THE FACTS OF THE CASE AND NOT UPON A CONJECTURAL SITUATION THAT MIGHT HAVE ARISEN UNDER THE CONTRACT. WE BELIEVE THE SAME REASONING WOULD BE APPLICABLE HERE, EVEN IF WE WERE TO AGREE WITH YOUR LOGIC, WHICH APPEARS TO IGNORE THE EFFECT OF ACCEPTANCE AND OTHER PERTINENT CONSIDERATIONS IN YOUR HYPOTHETICAL CASE.

FOR THE REASONS STATED, YOUR CLAIM IS DENIED EXCEPT TO THE EXTENT THAT AN ADJUSTMENT OF $1,000 APPEARS TO BE DUE YOU BY REASON OF THE RECOMPUTATION OF THE LIQUIDATED DAMAGES ON ITEM 1 TO EXCLUDE THE PERIOD SUBSEQUENT TO MAY 25, 1964, THE DATE OF COMPLETION OF THE MODIFICATIONS WHICH LED TO THE SUCCESSFUL TESTING OF THE ITEM. PAYMENT OF THAT AMOUNT BY THE ADMINISTRATIVE OFFICE IS BEING AUTHORIZED.