B-170219, MAR 19, 1971

B-170219: Mar 19, 1971

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ALTHOUGH THE QUESTION WHETHER A CONTRACT STIPULATION FOR LIQUIDATED DAMAGES IS VALID OR WHETHER IT IS A PENALTY. DEPENDS UPON THE RELATION BETWEEN THE AMOUNT STIPULATED AND THE LOSSES IN CONTEMPLATION BETWEEN THE PARTIES WHEN THE AGREEMENT WAS MADE. 000 IS MORE THAN 3 TIMES THE CONTRACT PRICE ($2. EQUITABLE RELIEF UNDER 41 U.S.C. 256A IS APPROVED IF THE CONTRACTOR AGREES TO ACCEPT $5. SECRETARY: REFERENCE IS MADE TO LETTER DATED FEBRUARY 4. THE THREE UNITS OF ITEM NO. 16 WERE DELIVERED 65 DAYS LATE AND THE THREE UNITS OF ITEM NO. 17 WERE DELIVERED 30 DAYS LATE. 000 WAS ASSESSED AGAINST THE CONTRACTOR. 562 WAS WITHHELD FROM PAYMENT. 438 WAS WITHHELD FROM PAYMENT UNDER ANOTHER DEPARTMENT OF THE INTERIOR CONTRACT WITH THE ALLIS-CHALMERS MANUFACTURING COMPANY.

B-170219, MAR 19, 1971

LATE DELIVERIES - LIQUIDATED DAMAGES - REMISSION DECISION APPROVING THE REMISSION OF LIQUIDATED DAMAGES IN THE AMOUNT OF $5,438 WITHHELD FROM ALLIS-CHALMERS MANUFACTURING COMPANY INCIDENT TO DELAYS IN MAKING DELIVERIES OF SIX CURRENT TRANSFORMERS TO THE BONNEVILLE POWER ADMINISTRATION ACTING ON BEHALF OF THE UNITED STATES. ALTHOUGH THE QUESTION WHETHER A CONTRACT STIPULATION FOR LIQUIDATED DAMAGES IS VALID OR WHETHER IT IS A PENALTY, DEPENDS UPON THE RELATION BETWEEN THE AMOUNT STIPULATED AND THE LOSSES IN CONTEMPLATION BETWEEN THE PARTIES WHEN THE AGREEMENT WAS MADE, THE TOTAL DAMAGES ASSESSED $8,000 IS MORE THAN 3 TIMES THE CONTRACT PRICE ($2,562) AND THE GOVERNMENT SUFFERED NO DAMAGES AT ALL DUE TO THE LATE DELIVERIES. THEREFORE, EQUITABLE RELIEF UNDER 41 U.S.C. 256A IS APPROVED IF THE CONTRACTOR AGREES TO ACCEPT $5,438 IN FULL AND FINAL SETTLEMENT OF ITS CLAIM FOR $8,000.

TO MR. SECRETARY:

REFERENCE IS MADE TO LETTER DATED FEBRUARY 4, 1971, FROM THE DEPUTY SOLICITOR, RELATIVE TO THE REQUEST OF THE ALLIS-CHALMERS MANUFACTURING COMPANY, SAN FRANCISCO, CALIFORNIA, FOR REFUND OF THE AMOUNT ASSESSED AS LIQUIDATED DAMAGES FOR DELAYS IN MAKING DELIVERIES OF SIX CURRENT TRANSFORMERS UNDER CONTRACT NO. 14-03-79196, ENTERED INTO WITH THAT COMPANY BY THE BONNEVILLE POWER ADMINISTRATION ON BEHALF OF THE UNITED STATES.

THE CONTRACT PROVIDED FOR THE ASSESSMENT OF LIQUIDATED DAMAGES AT THE RATE OF $50 PER DAY ON EACH OF TWO BID SCHEDULE ITEMS (NOS. 16 AND 17), FOR THE FIRST 15 DAYS OF DELAY IN DELIVERY, AND AT THE RATE OF $100 PER DAY THEREAFTER. THE THREE UNITS OF ITEM NO. 16 WERE DELIVERED 65 DAYS LATE AND THE THREE UNITS OF ITEM NO. 17 WERE DELIVERED 30 DAYS LATE. LIQUIDATED DAMAGES ACCRUED IN THE AMOUNTS OF $5,750 AND $2,250, AND THE TOTAL SUM OF $8,000 WAS ASSESSED AGAINST THE CONTRACTOR. AS A MEANS OF COLLECTING THE ASSESSMENT, THE CONTRACT PRICE OF $2,562 WAS WITHHELD FROM PAYMENT, AND THE SUM OF $5,438 WAS WITHHELD FROM PAYMENT UNDER ANOTHER DEPARTMENT OF THE INTERIOR CONTRACT WITH THE ALLIS-CHALMERS MANUFACTURING COMPANY. THE GOVERNMENT REPORTEDLY SUFFERED NO ACTUAL DAMAGES BECAUSE OF LATE DELIVERIES UNDER THE CONTRACT. THE CONTRACTOR APPARENTLY DID NOT SERIOUSLY CONTEND THAT THE DELAYS IN DELIVERIES WERE BEYOND ITS CONTROL AND WITHOUT THE FAULT OR NEGLIGENCE OF ITSELF OR OF ITS SUPPLIER. HOWEVER, THE CONTRACTOR REQUESTED REMISSION OF THE $5,438 PORTION OF LIQUIDATED DAMAGES WHICH EXCEEDED THE CONTRACT PRICE, AND IT SUBSEQUENTLY FILED AN APPEAL WITH THE INTERIOR BOARD OF CONTRACT APPEALS.

THE CASE WAS REFERRED TO OUR OFFICE BY LETTER FROM AN AUTHORIZED CERTIFYING OFFICER OF THE BONNEVILLE POWER ADMINISTRATION, REQUESTING A DECISION ON WHETHER A VOUCHER IN THE AMOUNT OF $8,000, STATED IN FAVOR OF ALLIS-CHALMERS, MAY BE CERTIFIED FOR PAYMENT. THE INTERIOR BOARD OF CONTRACT APPEALS HAD STATED IN A DECISION OF MAY 13, 1970, IBCA 798-8 69, THAT THE LIQUIDATED DAMAGES ASSESSMENT UNDER THE ALLIS-CHALMERS CONTRACT APPEARED TO BE GROSSLY EXCESSIVE. THE BOARD CONCLUDED THAT THE PROVISION FOR LIQUIDATED DAMAGES SHOULD BE REGARDED AS A PENALTY AND THAT THE ASSESSMENT OF $8,000 WAS THEREFORE UNAUTHORIZED.

SINCE THE BOARD'S DECISION INVOLVED A QUESTION OF LAW, IT COULD NOT BE ACCORDED FINALITY UNDER THE DISPUTES CLAUSE OF THE CONTRACT OR UNDER THE PROVISIONS OF THE WUNDERLICH ACT, 41 U.S.C. 321, 322. WITHOUT EXPRESSING AN OPINION ON THE MERITS OF THE BOARD'S DECISION, WE SUGGESTED THAT THE CASE MIGHT MORE PROPERLY BE CONSIDERED BY YOUR DEPARTMENT UNDER 41 U.S.C. 256A, WHICH AUTHORIZES OUR OFFICE TO REMIT THE WHOLE OR ANY PART OF LIQUIDATED DAMAGES FOR DELAYS IN PERFORMING A GOVERNMENT CONTRACT UPON THE RECOMMENDATION OF THE GOVERNMENT AGENCY CONCERNED, IF DETERMINED THAT REMISSION OF SUCH DAMAGES WOULD BE JUST AND EQUITABLE.

THE DEPUTY SOLICITOR STATES THAT THE EVIDENCE BEFORE THE BOARD PLACED THE ESTIMATED POTENTIAL DAMAGES TO THE GOVERNMENT AT THE RATE OF $375 PER DAY OF DELAY IN DELIVERY OF ITEM NO. 16 AND AT THE RATE OF $3,750 PER DAY OF DELAY IN DELIVERY OF ITEM NO. 17. THE CONTRACT LIQUIDATED DAMAGE RATES ARE CONSIDERABLY LESS THAN SUCH AMOUNTS AND IT WOULD NOT APPEAR THAT THE PROVISION FOR LIQUIDATED DAMAGES SHOULD HAVE BEEN REGARDED AS A PENALTY ALTHOUGH THE TOTAL ASSESSMENT FOR LIQUIDATED DAMAGES IS MORE THAN THREE TIMES THE CONTRACT PRICE FOR THE SIX TRANSFORMERS, AND IT IS REPORTED THAT THE GOVERNMENT DID NOT SUFFER ANY ACTUAL DAMAGES AS THE RESULT OF THE DELAYS IN DELIVERY.

AS INDICATED IN 46 COMP. GEN. 252, 258 (1966), THE QUESTION WHETHER A CONTRACT STIPULATION FOR LIQUIDATED DAMAGES IS VALID, OR WHETHER IT CONSTITUTES A PENALTY, DEPENDS UPON THE RELATION BETWEEN THE AMOUNT STIPULATED AS LIQUIDATED DAMAGES AND LOSSES WHICH WERE IN CONTEMPLATION BETWEEN THE PARTIES WHEN THE AGREEMENT WAS MADE. REASONABLE AGREEMENTS FOR LIQUIDATED DAMAGES ARE UNIFORMLY UPHELD, AND IT IS NOT MATERIAL THAT THE ACTUAL LOSS CAUSED BY A DELAY IN CONTRACT PERFORMANCE MAY BE SMALL AS COMPARED WITH THE AMOUNT OF LIQUIDATED DAMAGES AGREED UPON, OR THAT THE AMOUNT ASSESSED FOR LIQUIDATED DAMAGES MIGHT EVEN EXCEED THE CONTRACT PRICE.

FOR THE PURPOSE OF GRANTING EQUITABLE RELIEF UNDER 41 U.S.C. 256A, THE DEPUTY SOLICITOR RECOMMENDS THAT THE CONTRACT PRICE OF $2,562 BE CONSIDERED A CEILING FOR THE ASSESSMENT OF LIQUIDATED DAMAGES AND THAT THE SUM OF $5,438, COLLECTED IN EXCESS OF THE CONTRACT PRICE BE REMITTED. IS REPORTED THAT THE TRANSFORMERS WERE NOT NEEDED AT THE SCHEDULED DELIVERY TIMES BECAUSE MANPOWER DIFFICULTIES FORCED POSTPONEMENT OF THE SCHEDULED ENERGIZATION. THERE WAS A LOSS OF REVENUE BUT THE RESPONSIBILITY THEREFOR WAS CONSIDERED AS ONE WHICH MUST BE SHARED BY BOTH THE GOVERNMENT AND THE CONTRACTOR.

THE RECOMMENDED ALLOWANCE OF THE AMOUNT OF $5,438 IS STATED TO BE IN AGREEMENT WITH THE REQUEST MADE IN A LETTER DATED DECEMBER 2, 1969, FROM THE ATTORNEY FOR THE CONTRACTOR, REFERRED TO AS THE ONLY OFFICIAL REQUEST FOR REMISSION IN THE RECORD. HOWEVER, THE DECISION OF THE INTERIOR BOARD OF CONTRACT APPEALS WAS ISSUED SUBSEQUENT TO DECEMBER 2, 1969, AND WE WERE ADVISED IN THE LETTER FROM THE AUTHORIZED CERTIFYING OFFICER THAT THE CONTRACTOR INFORMALLY DEMANDED PAYMENT OF THE AMOUNT OF $8,000 AFTER THE BOARD RENDERED ITS DECISION.

IN THE CIRCUMSTANCES, WE HEREBY APPROVE REMISSION OF LIQUIDATED DAMAGES IN THE AMOUNT OF $5,438, AS RECOMMENDED BY YOUR DEPARTMENT, PROVIDED THAT THE CONTRACTOR AGREES TO ACCEPT THAT AMOUNT AS IN FULL AND FINAL SETTLEMENT OF ITS CLAIM FOR REFUND OF THE AMOUNT OF $8,000, ASSESSED AS LIQUIDATED DAMAGES UNDER CONTRACT NO. 14-03-79196.

THE VOUCHER FOR $8,000 WHICH WAS FORWARDED TO OUR OFFICE IS BEING RETAINED IN OUR FILES. HOWEVER, AS REQUESTED, WE ARE RETURNING THE DOCUMENTS AND CORRESPONDENCE FORWARDED TO OUR OFFICE BY LETTER DATED JULY 24, 1970, FROM THE CHAIRMAN OF THE INTERIOR BOARD OF CONTRACT APPEALS.