B-180426, SEP 4, 1974

B-180426: Sep 4, 1974

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CLAIM FOR REFUND OF FORFEITED BID GUARANTEE DENIED WHERE CLAIMANT FAILED TO SHOW CONCLUSIVELY THAT AT TIME OF AGREEMENT THERE WAS NO POSSIBLE RELATION BETWEEN AMOUNT STIPULATED AS LIQUIDATED DAMAGES AND CONTEMPLATED DAMAGES. 2. BID DEPOSIT FORFEITURE PROVISION IS IN THE NATURE OF A LIQUIDATED DAMAGES PROVISION AND. WHERE IT IS DIFFICULT OR IMPRACTICABLE AT TIME OF CONTRACT AWARD TO CALCULATE DAMAGE WHICH MIGHT RESULT FROM BIDDER'S FAILURE TO COMPLY WITH SUCH PROVISION. REASONABLE AGREEMENT FOR LIQUIDATED DAMAGES UPHELD AS NOT BEING A PENALTY EVEN THOUGH FAR IN EXCESS OF ACTUAL DAMAGES AS AMOUNT OF ACTUAL LOSS NOT MATERIAL SINCE VALIDITY OF LIQUIDATED DAMAGES PROVISION IS FOR DETERMINATION AS OF TIME OF AGREEMENT EXECUTION.

B-180426, SEP 4, 1974

1. CLAIM FOR REFUND OF FORFEITED BID GUARANTEE DENIED WHERE CLAIMANT FAILED TO SHOW CONCLUSIVELY THAT AT TIME OF AGREEMENT THERE WAS NO POSSIBLE RELATION BETWEEN AMOUNT STIPULATED AS LIQUIDATED DAMAGES AND CONTEMPLATED DAMAGES. 2. BID DEPOSIT FORFEITURE PROVISION IS IN THE NATURE OF A LIQUIDATED DAMAGES PROVISION AND, THEREFORE, WHERE IT IS DIFFICULT OR IMPRACTICABLE AT TIME OF CONTRACT AWARD TO CALCULATE DAMAGE WHICH MIGHT RESULT FROM BIDDER'S FAILURE TO COMPLY WITH SUCH PROVISION, REASONABLE AGREEMENT FOR LIQUIDATED DAMAGES UPHELD AS NOT BEING A PENALTY EVEN THOUGH FAR IN EXCESS OF ACTUAL DAMAGES AS AMOUNT OF ACTUAL LOSS NOT MATERIAL SINCE VALIDITY OF LIQUIDATED DAMAGES PROVISION IS FOR DETERMINATION AS OF TIME OF AGREEMENT EXECUTION.

DIAMOND INTERNATIONAL CORPORATION:

THE DIAMOND INTERNATIONAL CORPORATION SEEKS REFUND OF $20,000 WHICH WAS WITHHELD AS LIQUIDATED DAMAGES ASSESSED AGAINST IT FOR FAILURE TO QUALIFY FOR FINAL AWARD OF A TIMBER SALE CONTRACT ON THE SHASTA-TRINITY NATIONAL FOREST, CALIFORNIA. THE TIMBER WAS ADVERTISED FOR SALE ON FEBRUARY 10, 1973, WITH MARCH 29, 1973, AS THE DATE FOR OPENING OF BIDS. THE INVITATION FOR BIDS (IFB) PROVIDED THAT EACH BID WAS TO BE ACCOMPANIED BY A BID GUARANTEE IN THE FORM OF A BANK DRAFT OR CERTIFIED CHECK IN THE AMOUNT OF $20,000. PRELIMINARY AWARD WAS TO BE MADE TO THE HIGHEST BIDDER, AND TO QUALIFY FOR FINAL AWARD THE SUCCESSFUL BIDDER WAS REQUIRED TO SUBMIT, PRIOR TO APRIL 30, 1973, FINANCIAL INFORMATION AND DOCUMENTATION OF THE AVAILABILITY OF A HELICOPTER HAVING THE REQUIRED LIFTING CHARACTERISTICS TO EFFECT PROPER LOGGING. THE IFB FURTHER PROVIDED THAT SHOULD THE OTHERWISE SUCCESSFUL BIDDER FAIL TO QUALIFY FOR FINAL AWARD, THEN, IN VIEW OF THE DIFFICULTY OF ESTIMATING THE ACTUAL DAMAGES WHICH WOULD BE SUSTAINED THEREBY, THE BID GUARANTEE WOULD BE RETAINED BY THE FOREST SERVICE AS LIQUIDATED DAMAGES AND NOT AS A PENALTY.

ON MARCH 29, 1973, THE ONLY TWO BIDS RECEIVED WERE OPENED. DIAMOND WAS DECLARED THE HIGH BIDDER WITH A BID OF $224,900, WITH COLUMBIA CONSTRUCTION HELICOPTERS, INCORPORATED (COLUMBIA), SUBMITTING A BID OF $138,140. AT THE CONCLUSION OF THE 30-DAY PRE-AWARD QUALIFYING PERIOD, DIAMOND FAILED TO SUBMIT THE REQUIRED FINANCIAL INFORMATION OR HELICOPTER AVAILABILITY CERTIFICATE NEEDED TO QUALIFY FOR FINAL AWARD. ACCORDINGLY, THE FOREST SERVICE NOTIFIED DIAMOND ON MAY 1, 1973, THAT SINCE IT HAD FAILED TO QUALIFY FOR FINAL AWARD ITS BID GUARANTEE OF $20,000 WAS BEING RETAINED PURSUANT TO THE IFB'S LIQUIDATED DAMAGES PROVISION. THEREFORE, IN ORDER TO SECURE A CONTRACTOR FOR THE TIMBER SALE THE FOREST SERVICE OFFERED THE CONTRACT PURSUANT TO APPLICABLE REGULATION TO COLUMBIA FOR PURCHASE AT THE HIGH BID PRICE OFFERED BY DIAMOND. COLUBIA ACCEPTED THE SALE AT THE HIGH BID PRICE ON MAY 11, 1973, AND AWARD WAS MADE ON MAY 22, 1973.

ON NOVEMBER 14, 1973, DIAMOND SUBMITTED A CLAIM TO THE FOREST SERVICE FOR REFUND OF ITS $20,000 BID GUARANTEE, CLAIMING THAT THE GOVERNMENT DID NOT SUFFER DAMAGES BY REASON OF ITS FAILURE TO QUALIFY FOR FINAL AWARD. THE FOREST SERVICE ACKNOWLEDGES THAT THIS STATEMENT IS ESSENTIALLY CORRECT, AS IT INCURRED ONLY NOMINAL ADMINISTRATIVE COSTS ASSOCIATED WITH THE CONTRACT AWARD TO COLUMBIA. THE BASIS OF DIAMOND'S REQUEST FOR A REFUND IS THAT, AS THE GOVERNMENT DID NOT SUFFER ANY DAMAGES, RETENTION OF ITS BID DEPOSIT WOULD CONSTITUTE A PENALTY AND WOULD NOT BE SANCTIONED BY LAW.

THE PURPOSE OF A BID DEPOSIT IS TO INSURE GOOD FAITH IN BIDDING. COMP. GEN. 436 (1948). THE COURT IN UNITED STATES V. CONTI, 119 F.2D 652, 655 (1941), DEFINED THE TERM "BID SECURITY" AS A DEPOSIT "REQUIRED OF THE BIDDER IN ORDER TO ASSURE THE GOVERNMENT OF THE SERIOUSNESS OF THE BID, THE DEPOSIT TO BE FORFEITED IF THE BIDDER SHOULD WITHDRAW HIS BID BEFORE THE GOVERNMENT HAD ACCEPTED IT." IT IS WELL ESTABLISHED THAT IN THE EVENT OF A DEFAULT BY A BIDDER THE UNITED STATES MAY RETAIN THE BID DEPOSIT AS LIQUIDATED DAMAGES UNLESS THE AMOUNT IS SO LARGE OR DISPROPORTIONATE AS TO CONSTITUTE A PENALTY. ANTHONY P. MILLER, INC. V. UNITED STATES, 161 CT. CL. 455, 468 (1963).

THUS, A BID DEPOSIT FORFEITURE PROVISION IS IN THE NATURE OF A LIQUIDATED DAMAGES PROVISION. THE VALIDITY OF A LIQUDIATED DAMAGES PROVISION DEPENDS UPON THE CIRCUMSTANCES AT THE TIME OF ENTERING INTO THE CONTRACT AND WHETHER THE AMOUNT STIPULATED REPRESENTED A REASONABLE ANTICIPATION OF POTENTIAL LOSSES AT THAT TIME. A LIQUIDATED DAMAGES PROVISION IN A GOVERNMENT CONTRACT WILL BE UPHELD WHEN ACTUAL DAMAGES ARE DIFFICULT TO PREDICT OR DETERMINE AND THE AMOUNT AGREED UPON BEARS A REASONABLE RELATIONSHIP TO PROBABLE DAMAGES. REX TRAILER CO. V. UNITED STATES, 350 U.S. 148 (1956); PRIEBE & SONS V. UNITED STATES, 332 U.S. 407 (1947). THE FACT THAT DAMAGES SUFFERED ARE SHOWN TO BE LESS THAN THE DAMAGES CONTRACTED FOR IS NOT FATAL, AS A LIQUIDATED DAMAGES PROVISION IS TO BE ADJUDGED AS OF THE TIME OF MAKING THE CONTRACT. SOUTHWEST ENGINEERING COMPANY V. UNITED STATES, 341 F.2D 998 (8TH CIR.), CERT. DENIED, 382 U.S. 819 (1965). SEE ALSO 46 COMP. GEN. 252, 258 (1966); 36 COMP. GEN. 143, 145 (1956). IN ORDER FOR A LIQUIDATED DAMAGES PROVISION TO BE ADJUDGED AS A PENALTY AND THEREFORE UNENFORCEABLE, IT MUST BE CONCLUSIVELY SHOWN THAT THERE WAS NO POSSIBLE RELATION BETWEEN THE AMOUNT STIPULATED AND THE CONTEMPLATED LOSSES. 46 COMP. GEN. AT 258.

SINCE DIAMOND ORIGINALLY ASSENTED TO THE VALIDITY OF THE LIQUIDATED DAMAGES PROVISION BY SUBMITTED ITS BID AND BID GUARANTEE, IT IS DIAMOND'S RESPONSIBILITY TO CONCLUSIVELY ESTABLISH BY SUFFICIENT EVIDENCE THAT THERE WAS NO POSSIBLE RELATION BETWEEN THE $20,000 AND CONTEMPLATED LOSSES. 164003, SEPTEMBER 16, 1968. DIAMOND HAS FAILED TO PRESENT ANY EVIDENCE TO SUPPORT THIS PROPOSITION, AND IT RELIES ENTIRELY ON THE PROPOSTITION THAT BECAUSE COLUMBIA ACCEPTED THE AWARD AT THE HIGN ON THE PROPOSTITION THAT BECAUSE COLUMBIA ACCEPTED THE AWARD AT THE HIGH BID PRICE THE GOVERNMENT SUFFERED NO ACTUAL DAMAGES. HOWEVER, AS POINTED OUT ABOVE, THE AMOUNT OF ACTUAL DAMAGES, IF ANY, IS NOT MATERIAL SINCE THE VALIDITY OF THE LIQUIDATED DAMAGES PROVISION IS FOR DETERMINATION AS OF THE TIME THE AGREEMENT WAS ENTERED INTO.

ON THE OTHER HAND, THE FOREST SERVICE HAS PROVIDED OUR OFFICE WITH COPIES OF MEMORANDA BEARING ON THE ESTABLISHMENT OF THE $20,000 FIGURE. THESE MEMOS SHOW THAT FOR VARIOUS REASONS THERE HAD BEEN PREVIOUS DELAYS IN MAKING AWARDS INVOLVING HELICOPTER LOGGING. FURTHERMORE, IT WAS ANTICIPATED ON THE BASIS OF THE PRIOR EXPERIENCE THAT THE SAME DIFFICULTIES WOULD RESULT IN FURTHER DELAYS IN A HIGH PROPORTION OF FUTURE SALES. SINCE REPEATED DELAYS WERE CONSIDERED AS JEOPARDIZING THE ENTIRE HELICOPTER LOGGING PROGRAM, THE LIQUIDATED DAMAGES APPROACH WAS ADOPTED AND $20,000 WAS DETERMINED AS THE AMOUNT BECAUSE THE "POTENTIAL DAMAGE TO THE HELICOPTER PROGRAM, WHILE LIKELY TO BE SUBSTANTIAL, CANNOT BE CALCULATED."

IN THESE CIRCUMSTANCES, WE ARE UNABLE TO CONCLUDE THAT THE LIQUIDATED DAMAGES PROVISION IS UNENFORCEABLE AS A PENALTY AND, THEREFORE, THE CLAIM FOR REFUND IS DENIED.