B-168142, AUG. 4, 1970

B-168142: Aug 4, 1970

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A LIQUIDATED DAMAGE PROVISION IN A CONTRACT FOR INSTALLATION OF POWER WINCHES IN VESSELS UNDER CONSTRUCTION AND FOR FURNISHING INSTRUCTION MANUALS WHICH PROVIDE FOR ASSESSMENT OF DAMAGES AT A DAILY RATE IN EVENT OF DELIVERY DELAY MUST BE REGARDED AS A VALID PROVISION AND WAS NOT AN UNREASONABLE PROGNOSTICATION OF DAMAGES AT TIME OF AWARD SINCE THERE WAS A NEED TO COORDINATE THE SHIPBUILDING WITH THE INSTALLATION OF EQUIPMENT THEREBY JUSTIFYING IMPOSITION OF LIQUIDATED DAMAGES. REQUESTED CHANGE IN EQUIPMENT AND REQUEST FOR EXTENSION TO MODIFY MANUALS WAS NOT ANSWERED. LIQUIDATED DAMAGES ASSESSED FOR DELAY IN DELIVERY OF MANUALS IS AUTHORIZED TO BE REMITTED. TO NORTHERN LINE MACHINE & ENGINEERING COMPANY: THIS IS IN REPLY TO LETTERS DATED OCTOBER 15.

B-168142, AUG. 4, 1970

CONTRACTS -- REMISSION OF LIQUIDATED DAMAGES DECISION ON BEHALF OF NORTHERN LINE MACHINE & ENGINEERING CO., AUTHORIZING REMISSION OF LIQUIDATED DAMAGES IN THE AMOUNT OF $606, ASSESSED AGAINST COMPANY FOR LATE DELIVERY OF TECHNICAL MANUALS FURNISHED UNDER CONTRACT WITH COAST & GEODETIC SURVEY, DEPT. OF COMMERCE. A LIQUIDATED DAMAGE PROVISION IN A CONTRACT FOR INSTALLATION OF POWER WINCHES IN VESSELS UNDER CONSTRUCTION AND FOR FURNISHING INSTRUCTION MANUALS WHICH PROVIDE FOR ASSESSMENT OF DAMAGES AT A DAILY RATE IN EVENT OF DELIVERY DELAY MUST BE REGARDED AS A VALID PROVISION AND WAS NOT AN UNREASONABLE PROGNOSTICATION OF DAMAGES AT TIME OF AWARD SINCE THERE WAS A NEED TO COORDINATE THE SHIPBUILDING WITH THE INSTALLATION OF EQUIPMENT THEREBY JUSTIFYING IMPOSITION OF LIQUIDATED DAMAGES. SINCE GOVT. REQUESTED CHANGE IN EQUIPMENT AND REQUEST FOR EXTENSION TO MODIFY MANUALS WAS NOT ANSWERED, LIQUIDATED DAMAGES ASSESSED FOR DELAY IN DELIVERY OF MANUALS IS AUTHORIZED TO BE REMITTED.

TO NORTHERN LINE MACHINE & ENGINEERING COMPANY:

THIS IS IN REPLY TO LETTERS DATED OCTOBER 15, 1969 AND MARCH 18, 1970, FROM COUNSEL REQUESTING ON BOTH LEGAL AND EQUITABLE BASES, THE REMISSION OF LIQUIDATED DAMAGES ASSESSED AGAINST YOUR COMPANY FOR LATE DELIVERY OF CERTAIN TECHNICAL MANUALS FURNISHED UNDER CONTRACT NO. CGS 1142 WITH THE DEPARTMENT OF COMMERCE, COAST AND GEODETIC SURVEY (CGS).

THE RECORD SHOWS THAT ON JUNE 7, 1963, CGS CONTRACTED WITH THE PREDECESSOR ORGANIZATION OF YOUR COMPANY, TACOMA BOAT BUILDING COMPANY, INC., FOR CERTAIN EQUIPMENT (PRIMARILY, WINCHES AND POWER SUPPLIES) FOR SHIPBOARD INSTALLATION AND FOR RELATED TECHNICAL MANUALS. THE CONTRACT PROVISION FOR ASSESSING LIQUIDATED DAMAGES READS AS FOLLOWS:

"LIQUIDATED DAMAGES WILL BE ASSESSED AT THE FOLLOWING RATES FOR EACH CALENDAR DAY'S DELAY BEYOND THE LAST DAY OF THE MONTH SPECIFIED, FOR EACH WINCH, ASSOCIATED POWER SUPPLY AND APPLICABLE MANUALS.

A. $6.00 FOR EACH BATHYTHERMOGRAPH WINCH, INCLUDING POWER SUPPLIES AND TECHNICAL MANUALS.

B. $19.00 FOR EACH DOUBLE DRUM WINCH, INCLUDING POWER SUPPLY AND TECHNICAL MANUALS.

C. $11.00 FOR EACH DREDGE AND TRAWL WINCH, INCLUDING POWER SUPPLY AND TECHNICAL MANUALS.

D. $3.00 FOR EACH REMOTE CONTROL UNIT."

THE CONTRACT PROVIDED FOR SUBMISSION OF TWO PRELIMINARY COPIES OF EACH MANUAL TO THE CHIEF, NEW SHIPS STAFF, CGS, FOR REVIEW PRIOR TO FINAL PRINTING. FINAL SUBMISSION OF THE APPROVED PRINTED MANUALS WAS TO BE MADE TO THE CHIEF OF NEW SHIPS STAFF NOT LATER THAN TEN DAYS AFTER DELIVERY OF THE CORRESPONDING WINCH AND POWER EQUIPMENT WHICH WERE REQUIRED TO BE DELIVERED TO CERTAIN NON-GOVERNMENT LOCATIONS FOR INSTALLATION ABOARD VESSELS UNDER CONSTRUCTION. WHILE THE EQUIPMENTS WERE DELIVERED ON SCHEDULE, DELIVERY OF THE TECHNICAL MANUALS WAS NOT TIMELY, AND PURSUANT TO THE LIQUIDATED DAMAGES CLAUSE QUOTED ABOVE DAMAGES HAVE BEEN ASSESSED AT $6,798.

IT IS YOUR POSITION THAT, AS A LEGAL MATTER, THE LIQUIDATED DAMAGES PROVISION IN THE SUBJECT CONTRACT IS UNENFORCEABLE SINCE THE RATE OF LIQUIDATED DAMAGES BEARS NO REASONABLE RELATIONSHIP TO THE DAMAGES WHICH COULD REASONABLY HAVE BEEN CONTEMPLATED AT THE TIME THE CONTRACT WAS EXECUTED. IN SUPPORT OF THIS CONCLUSION YOU SUBMIT THAT SINCE THE TECHNICAL MANUALS WERE NOT REQUIRED TO BE SENT TO THE SHIPYARDS, AS WERE THE EQUIPMENTS, THE INSTRUCTIONS CONTAINED IN THE MANUALS FOR INSTALLING THE WINCHES ON THE VESSELS WERE NOT NEEDED AT THE SHIPYARDS. IT IS ALSO YOUR POSITION THAT ITEMS SUCH AS WINCHES ARE NORMALLY INSTALLED ON VESSELS WELL BEFORE COMPLETION AND, THUS, IT IS PROBABLE THAT THE WINCHES AND MANUALS WOULD NOT BE USED OPERATIONALLY FOR SOME TIME AFTER THEIR DELIVERY. ACCORDINGLY, YOU HAVE CONCLUDED THAT THE GOVERNMENT'S NEED FOR THE MANUALS WAS NOT FORSEEABLY COEXTENSIVE WITH THE NEED FOR WINCHES AND, THEREFORE, THE PROVISION IN THE CONTRACT IMPOSING THE SAME AMOUNT OF LIQUIDATED DAMAGES FOR DELAY IN DELIVERY OF EITHER THE MANUALS OR THE WINCHES, OR BOTH, IS NOT A REASONABLE ANTICIPATION.

IN THIS REGARD A REPORT FROM THE DEPARTMENT OF COMMERCE DATED JULY 8, 1970, STATES THAT THE WINCHES IN QUESTION WERE TO BE INSTALLED ON TWO CGS SHIPS TO BE CONSTRUCTED UNDER CONTRACTS AWARDED BY THE MARITIME ADMINISTRATION. THE CONTRACTS FOR CONSTRUCTION OF THE SHIPS CONTAINED LIQUIDATED DAMAGE PROVISIONS FOR LATE DELIVERY; PROVIDED CERTAIN TIME LIMITS FOR DELIVERY TO THE SHIPBUILDER OF BOTH THE GOVERNMENT FURNISHED EQUIPMENT AND THE INSTALLATION INSTRUCTIONS (WHICH WERE TO BE INCLUDED IN THE MANUAL); AND PROVIDED THAT LATE DELIVERY OF THE VESSELS SHOULD BE EXCUSED IF IT RESULTED FROM DELAYS IN RECEIVING GOVERNMENT - FURNISHED PROPERTY. THE DEPARTMENT'S REPORT ALSO ADVISES THAT AT THE TIME THE SUBJECT CONTRACT FOR WINCHES WAS AWARDED, THE GOVERNMENT WAS ALREADY BEHIND SCHEDULE IN FURNISHING THE SHIPBUILDERS WITH THE INSTALLATION INSTRUCTIONS. IT IS THEREFORE THE DEPARTMENT'S POSITION THAT A REAL AND URGENT NEED FOR BOTH WINCHES AND TECHNICAL MANUALS EXISTED AT THE TIME OF CONTRACT AWARD. MOREOVER, THE REPORT POINTS OUT THAT AT THE TIME THE CONTRACT FOR WINCHES AND MANUALS WAS AWARDED CGS NEITHER KNEW OF NOR ANTICIPATED LATE DELIVERY OF THE SHIPS, WHICH EVENTUALLY OCCURRED. HAVE ALSO BEEN ADVISED BY THE DEPARTMENT THAT THE MANUALS WERE REQUIRED TO BE SENT TO WASHINGTON RATHER THAN DIRECTLY TO THE SHIPYARDS TO PERMIT A TECHNICAL REVIEW AND APPROVAL BY THE SHIPS FACILITY BRANCH OF CGS. IT IS STATED THAT WITHIN A MATTER OF SEVERAL DAYS AFTER APPROVAL, THE MANUALS WERE FORWARDED TO THE PROPER CONTRACT ADMINISTRATIVE PERSONNEL AT THE SHIPYARDS TO ASSURE PROPER RECEIPT BY THE SHIPBUILDERS.

WE HAVE TAKEN NOTE OF THE DECISION OF THE ARMED SERVICES BOARD OF CONTRACT APPEALS, ASBCA NO. 4878, CITED BY YOUR COUNSEL. IN THAT CASE THE BOARD DECIDED THAT A CONTRACT PROVISION FOR LIQUIDATED DAMAGES IN AN AMOUNT EQUAL TO 1/4 OF ONE PERCENT OF THE VALUE OF SUPPLIES REMAINING TO BE DELIVERED WAS VALID, BUT THAT AN ADDITIONAL MINIMUM DAILY ASSESSMENT OF $20 WAS AN INVALID PENALTY SINCE IT APPEARED THE LATTER PROVISION WAS INTENDED TO COVER ONLY INCREASED COSTS OF ADMINISTRATION WHICH DID NOT INCREASE IN DIRECT PROPORTION WITH THE NUMBER OF DAYS OF DELAY. WE FIND THE PRESENT CASE TO BE DISTINGUISHABLE SINCE IT IS APPARENT THAT THE FIXED DAILY ASSESSMENT IN THE PRESENT CASE WAS NOT INTENDED TO COVER ONLY INCREASED COSTS OF ADMINISTRATION.

IN OUR OPINION THE SUBJECT LIQUIDATED DAMAGES PROVISION MUST BE VIEWED IN THE SAME LIGHT AS ONE CONSIDERED BY THE COURT OF CLAIMS IN UNION PAVING COMPANY V UNITED STATES, 115 F. SUPP. 179, 126 CT. CL. 478 (1953). THAT CASE THE COURT UPHELD THE VALIDITY OF A MINIMUM DAILY LIQUIDATED DAMAGES PROVISION WHERE A CONTRACT FOR CONSTRUCTION OF PIERS AND ABUTMENTS FOR A BRIDGE WAS ONLY ONE OF SEVERAL CONTRACTS EXECUTED FOR THE PURPOSE OF CARRYING OUT THE PROJECT, AND THE PLANNED COORDINATION OF ALL WORK UNDER THE VARIOUS CONTRACTS MADE IT DIFFICULT, IF NOT IMPOSSIBLE, TO DETERMINE WHAT ACTUAL DAMAGE MIGHT RESULT IF DELAYS WERE ENCOUNTERED IN THE CONSTRUCTION OF PIERS AND ABUTMENTS. WE BELIEVE THE FACTS IN THE PRESENT CASE SHOW A SIMILAR NEED TO COORDINATE THE SHIP BUILDING AND INSTALLATION OF SHIPBOARD EQUIPMENT, THEREBY JUSTIFYING THE IMPOSITION OF LIQUIDATED DAMAGES. WE ALSO NOTE THAT EVEN THOUGH IN THE FINAL ANALYSIS THE GOVERNMENT MAY NOT HAVE SUFFERED ACTUAL DAMAGES FROM DELAY IN PERFORMANCE, THIS FACT ALONE DOES NOT PRECLUDE RECOVERY OF LIQUIDATED DAMAGES. SEE SOUTHWEST ENGINEERING COMPANY V UNITED STATES, 341 F. 2D 998 (1965), CERTIORARI DENIED 382 U.S. 819.

FOR THE REASONS STATED ABOVE WE CONCLUDE THAT THE CONTRACT PROVISION FOR ASSESSMENT OF LIQUIDATED DAMAGES FOR LATE DELIVERY OF MANUALS WAS NOT AN UNREASONABLE PROGNOSTICATION OF DAMAGES AT THE TIME OF CONTRACT AWARD, AND IS THEREFORE VALID.

YOU ALSO REQUEST REMISSION OF LIQUIDATED DAMAGES BECAUSE YOU FEEL THAT UNDER THE CIRCUMSTANCES OF THIS CASE THE IMPOSITION OF SUCH DAMAGES IS UNNECESSARILY HARSH AND INEQUITABLE.

IN ITS REPORT OF JULY 8 THE DEPARTMENT OF COMMERCE RECOMMENDS EQUITABLE REMISSION OF $606, REPRESENTING LIQUIDATED DAMAGES ASSESSED FOR LATE DELIVERY OF THE MANUALS REQUIRED UNDER LOT I, ITEM 2B, OF THE CONTRACT. IT APPEARS FROM THE RECORD THAT THE GOVERNMENT ADVISED YOU ON JUNE 16, 1964, OF THE DESIRABILITY OF A CHANGE IN ONE OF THE WINCHES REQUIRED UNDER THE CONTRACT, AND THEREAFTER YOU REQUESTED AN EXTENSION OF THE DELIVERY DATE FOR THE PURPOSE OF DESCRIBING THE MODIFICATION IN THE MANUALS AFFECTED BY THE MODIFICATION. SINCE THE GOVERNMENT NEVER REPLIED IN WRITING TO YOUR REQUEST, AND SINCE THE RECORD SHOWS THAT RESPONSIBLE CGS PERSONNEL HAD RECOMMENDED EXTENDING THE DELIVERY TIME FOR THE MANUALS DESCRIBED ABOVE, THE DEPARTMENT NOW RECOMMENDS EQUITABLE REMISSION OF THE TOTAL AMOUNT ASSESSED FOR LATE DELIVERY OF THE MANUALS.

OUR AUTHORITY TO REMIT FOR EQUITABLE REASONS IS SET OUT IN 41 U.S.C. 256A, WHICH 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. SINCE THE DEPARTMENT HAS RECOMMENDED REMISSION OF THE DAMAGES ASSESSED FOR LATE DELIVERY OF THE LOT I, ITEM 2B, MANUALS, AND SINCE WE AGREE THAT, ON THE BASIS OF THE FACTS OUTLINED BY THE DEPARTMENT, SUCH REMISSION WOULD BE EQUITABLE, WE HAVE BY LETTER OF TODAY ADVISED THE SECRETARY OF COMMERCE THAT PURSUANT TO THIS AUTHORITY AND IN ACCORDANCE WITH THE ADMINISTRATIVE RECOMMENDATION, REMISSION OF LIQUIDATED DAMAGES IS APPROVED IN THE AMOUNT OF $606, AS RECOMMENDED.