B-21561, DECEMBER 6, 1941, 21 COMP. GEN. 529

B-21561: Dec 6, 1941

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CONTRACTS - LIQUIDATED DAMAGE PROVISIONS - ENFORCIBILITY WHERE IT WAS CONTEMPLATED AT THE TIME A CONTRACT WAS MADE THAT THE ACTUAL DAMAGES WHICH WOULD RESULT FROM DELAY IN DELIVERY OF A PORTION OF THE CONTRACT MATERIAL WOULD APPROXIMATE THOSE RESULTING FROM DELAY IN COMPLETE DELIVERY. A STIPULATION FOR LIQUIDATED DAMAGES IS NOT UNENFORCEABLE MERELY BECAUSE THE CONTRACT DID NOT PROVIDE FOR APPORTIONMENT OF THE LIQUIDATED DAMAGES IN THE EVENT OF DELAY IN DELIVERY OF ONLY A PART OF THE MATERIAL. THE FACT THAT IT MAY APPEAR UPON FINAL COMPLETION OF THE CONTRACT THAT THE ACTUAL DAMAGES SUFFERED BECAUSE OF A PARTIAL DELAY WERE LESS THAN CONTEMPLATED IS IMMATERIAL. 16 COMP. 1941: REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 30.

B-21561, DECEMBER 6, 1941, 21 COMP. GEN. 529

CONTRACTS - LIQUIDATED DAMAGE PROVISIONS - ENFORCIBILITY WHERE IT WAS CONTEMPLATED AT THE TIME A CONTRACT WAS MADE THAT THE ACTUAL DAMAGES WHICH WOULD RESULT FROM DELAY IN DELIVERY OF A PORTION OF THE CONTRACT MATERIAL WOULD APPROXIMATE THOSE RESULTING FROM DELAY IN COMPLETE DELIVERY, A STIPULATION FOR LIQUIDATED DAMAGES IS NOT UNENFORCEABLE MERELY BECAUSE THE CONTRACT DID NOT PROVIDE FOR APPORTIONMENT OF THE LIQUIDATED DAMAGES IN THE EVENT OF DELAY IN DELIVERY OF ONLY A PART OF THE MATERIAL, AND THE FACT THAT IT MAY APPEAR UPON FINAL COMPLETION OF THE CONTRACT THAT THE ACTUAL DAMAGES SUFFERED BECAUSE OF A PARTIAL DELAY WERE LESS THAN CONTEMPLATED IS IMMATERIAL. 16 COMP. GEN. 344, DISTINGUISHED.

COMPTROLLER GENERAL WARREN TO THE TRUSCON STEEL CO., DECEMBER 6, 1941:

REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 30, 1941, REQUESTING REVIEW OF SETTLEMENT DATED OCTOBER 28, WHICH DISALLOWED YOUR CLAIM FOR REMISSION OF THE SUM OF $1,875, DEDUCTED AS LIQUIDATED DAMAGES IN MAKING PAYMENT TO YOU FOR GALVANIZED WELDED WIRE FABRIC FURNISHED TO THE WAR DEPARTMENT, CORPS OF ENGINEERS, UNDER CONTRACT NO. W-1096-ENG 4384, DATED JANUARY 27, 1936.

UNDER THE TERMS OF THE CONTRACT YOU AGREED TO FURNISH AND DELIVER F.O.B. CARS YOUNGSTOWN, OHIO, FOR SHIPMENT ON GOVERNMENT BILLS OF LADING TO THE UNITED STATES ENGINEER DEPOT, NEW ORLEANS, LA., 384,000 SQUARE FEET OF GALVANIZED WELDED WIRE FABRIC, APPROXIMATELY 6 FEET WIDE, IN ROLLS OF 6,000 SQUARE FEET EACH, IN ACCORDANCE WITH CONTRACT SPECIFICATIONS, AT A PRICE OF $2.57 PER 100 SQUARE FEET, LESS DISCOUNT OF ONE-HALF OF 1 PERCENT FOR PAYMENT WITHIN 30 DAYS, AND LESS FREIGHT EQUALIZATION AS SPECIFIED IN YOUR BID. DELIVERIES WERE TO BE MADE AS STATED IN PARAGRAPH 2 OF THE CONTRACT SPECIFICATIONS, WHICH PARAGRAPH PROVIDED THAT WORK WAS TO BE COMMENCED AT SUCH TIME AS WOULD ENABLE YOU TO MAKE COMPLETE DELIVERY WITHIN 8 DAYS AFTER RECEIPT OF NOTICE TO PROCEED, AND THAT IN THE EVENT OF FAILURE TO MAKE DELIVERY AS REQUIRED LIQUIDATED DAMAGES WOULD BE CHARGED IN THE SUM OF $75 FOR EACH DAY OF DELAY UNTIL THE SHIPMENT WAS DELIVERED. ALSO, WITH RESPECT TO LIQUIDATED DAMAGES ARTICLE 5 OF THE CONTRACT PROVIDED, IN PERTINENT PART, AS FOLLOWS:

IF THE CONTRACTOR REFUSES OR FAILS TO MAKE DELIVERY OF THE MATERIALS OR SUPPLIES WITHIN THE TIME SPECIFIED IN ARTICLE 1, OR ANY EXTENSION THEREOF, THE ACTUAL DAMAGE TO THE GOVERNMENT FOR THE DELAY WILL BE IMPOSSIBLE TO DETERMINE AND IN LIEU THEREOF THE CONTRACTOR SHALL PAY TO THE GOVERNMENT, AS FIXED, AGREED, AND LIQUIDATED DAMAGES FOR EACH CALENDAR DAY OF DELAY IN MAKING DELIVERY, THE AMOUNT AS SET FORTH IN THE SPECIFICATIONS OR ACCOMPANYING PAPERS, AND THE CONTRACTOR AND HIS SURETIES SHALL BE LIABLE FOR THE AMOUNT THEREOF: * * * PROVIDED FURTHER, THAT THE CONTRACTOR SHALL NOT BE CHARGED WITH LIQUIDATED DAMAGES OR ANY EXCESS COST WHEN THE DELAY IN DELIVERY IS DUE TO UNFORESEEABLE CAUSES BEYOND THE CONTROL AND WITHOUT THE FAULT OR NEGLIGENCE OF THE CONTRACTOR, INCLUDING, BUT NOT RESTRICTED TO, ACTS OF GOD OR THE PUBLIC ENEMY, ACTS OF THE GOVERNMENT, FIRES, FLOODS, EPIDEMICS, QUARANTINE RESTRICTIONS, STRIKES, FREIGHT EMBARGOES, AND UNUSUALLY SEVERE WEATHER BUT NOT INCLUDING DELAYS CAUSED BY SUBCONTRACTORS: PROVIDED FURTHER, THAT THE CONTRACTOR SHALL, WITHIN 10 DAYS FROM THE BEGINNING OF ANY SUCH DELAY, NOTIFY THE CONTRACTING OFFICER IN WRITING OF THE CAUSES OF DELAY, WHO SHALL ASCERTAIN THE FACTS AND EXTENT OF THE DELAY AND HIS FINDINGS OF FACTS THEREON SHALL BE FINAL AND CONCLUSIVE ON THE PARTIES HERETO, SUBJECT ONLY TO APPEAL, WITHIN 30 DAYS, BY THE CONTRACTOR TO THE HEAD OF THE DEPARTMENT CONCERNED, WHOSE DECISION ON SUCH APPEAL AS TO THE FACTS OF DELAY SHALL BE FINAL AND CONCLUSIVE ON THE PARTIES HERETO.

IT WAS PROVIDED IN PARAGRAPH 10 OF THE SPECIFICATIONS THAT THE WIRE FABRIC WAS TO BE USED FOR REINFORCING IN ASPHALT MATTRESSES FOR RIVER BANK PROTECTION, AND PARAGRAPH 5 THEREOF STATED THAT THE CONTRACTOR SHALL MAKE OR HAVE MADE AT THE FACTORY THE VARIOUS TESTS ON MATERIALS AS CALLED FOR IN THE SPECIFICATIONS. HOWEVER, PARAGRAPH 15 PROVIDED THAT THE FABRIC WOULD BE FINALLY INSPECTED AND ACCEPTED UPON DELIVERY TO THE CONTRACTING OFFICER AND THAT THE CONTRACTOR, IN MAKING HIS FACTORY TESTS, MUST BE GOVERNED BY THE FACT THAT IT WAS THE INTENT OF THE SPECIFICATIONS TO PROCURE A WIRE FABRIC CAPABLE OF BEING SHIPPED AND HANDLED PRIOR TO PLACEMENT IN THE MATTRESS WITHOUT DAMAGE TO WELDS OR FABRIC.

THE RECORD SHOWS THAT NOTICE TO PROCEED WAS RECEIVED BY YOU ON FEBRUARY 6, 1936, THEREBY FIXING FEBRUARY 14, 1936, AS THE FINAL DATE FOR COMPLETE DELIVERY OF THE WIRE FABRIC. IT IS SHOWN FURTHER THAT SHIPMENTS OF THE 64 ROLLS OF WIRE FABRIC WERE MADE FROM YOUR PLANT, YOUNGSTOWN, OHIO, ON FEBRUARY 8 AND 12, 1936, OR WITHIN THE CONTRACT PERIOD, BUT THAT UPON FINAL INSPECTION OF THE MATERIAL AT DESTINATION IT WAS FOUND THAT 1 ROLL OF FABRIC DID NOT COMPLY WITH THE SPECIFICATIONS AND THE SAME WAS REJECTED ON FEBRUARY 14, 1936, AND YOU WERE ADVISED THEREOF BY WIRE ON FEBRUARY 15, 1936. HOWEVER, IT APPEARS THAT DUE TO THE FACT THAT THE MESH MACHINERY IN YOUR FACTORY WAS BEING OVERHAULED, SHIPMENT OF A ROLL OF FABRIC TO REPLACE THE ONE WHICH HAD BEEN REJECTED WAS NOT MADE FROM YOUR FACTORY UNTIL MARCH 10, 1936, OR 25 DAYS AFTER THE EXPIRATION OF THE TIME FIXED IN THE CONTRACT FOR COMPLETE DELIVERY. ACCORDINGLY, IN MAKING PARTIAL PAYMENT FOR THE MATERIAL ON VOUCHER NO. 8010 OF THE DECEMBER 1936, ACCOUNTS OF W. A. CARTER, FIRST LIEUTENANT, CORPS OF ENGINEERS, THERE WAS DEDUCTED, IN ACCORDANCE WITH THE LIQUIDATED DAMAGE PROVISION OF THE CONTRACT, THE SUM OF $1,875, REPRESENTING LIQUIDATED DAMAGES FOR 25 DAYS' DELAY AT THE RATE OF $75 PER DAY.

YOU CLAIMED REFUND OF THIS AMOUNT BY LETTER OF JUNE 22, 1941, ON THE GROUND THAT THE LIQUIDATED DAMAGE PROVISION OF THE CONTRACT CONSTITUTED A PENALTY, AND WAS NOT ENFORCIBLE, FOR THE REASON THAT SAID PROVISION DID NOT PROVIDE FOR THE APPORTIONMENT OF THE AMOUNT TO BE ASSESSED AS LIQUIDATED DAMAGES IN THE EVENT THERE WAS A DELAY IN DELIVERY OF ONLY A PART OF THE MATERIAL, BUT PROVIDED FOR CHARGING THE SAME AMOUNT AS LIQUIDATED DAMAGES FOR DELAY IN DELIVERY OF A PART OF THE MATERIAL AS IT DID FOR DELAY IN DELIVERY OF THE ENTIRE CONTRACT QUANTITY. THE PERTINENT PART OF YOUR LETTER SETTING FORTH SUCH CONTENTION IS AS FOLLOWS:

THERE WAS NO PROVISION IN THE CONTRACT FOR APPORTIONING THE LIQUIDATED DAMAGES FOR DELAYS IN DELIVERY OF A PART OF THE CONTRACT QUANTITY OF 64 ROLLS OF WIRE AND OBVIOUSLY THE UNITED STATES WAS NOT DAMAGED AS MUCH BY THE DELAY IN THE DELIVERY OF THIS ONE ROLL OF WIRE AS IT WOULD HAVE BEEN FOR SIMILAR DELAY IN DELIVERY OF THE OTHER 63 ROLLS OF WIRE. FOR THE PERIOD OF TWENTY-FIVE DAYS WHEN THE GOVERNMENT HAD THE OTHER 63 ROLLS IN ITS POSSESSION IT WAS CHARGING THE CONTRACTOR WITH $75 A DAY FOR DELAY IN DELIVERY OF THIS ONE ROLL--- THE AMOUNT OF LIQUIDATED DAMAGES STIPULATED IN THE CONTRACT FOR DELAY IN DELIVERY OF ALL OF THE ROLLS. THE OTHER 63 ROLLS OF WIRE WERE AVAILABLE DURING THESE TWENTY-FIVE DAYS FOR SUCH AS USE AS THE GOVERNMENT MAY HAVE WANTED TO MAKE OF THEM.

THAT THE DEDUCTION OF LIQUIDATED DAMAGES WHEN THE CONTRACT WAS SUBSTANTIALLY COMPLETED AND THE DELAY WAS WITH RESPECT TO THE DELIVERY OF A SMALL FRACTION THEREOF CONSTITUTES A PENALTY AND MAY NOT BE MADE AT THE RATE STIPULATED FOR TOTAL DEFAULT WITH NO PROVISION FOR APPORTIONMENT OF THE LIQUIDATED DAMAGES WAS CONSIDERED AT SOME LENGTH IN 16 COMP. GEN., 344 -348, CITING NORTHWESTERN TERRA COTTA V. CALDWELL, 234 FED. 491, CERTIORARI DENIED 242 U.S. 643. IT WAS HELD IN THIS DECISION THAT THE AMOUNT STIPULATED FOR LIQUIDATED DAMAGES WAS A PENALTY AND NOT ENFORCEABLE.

HOWEVER, YOUR CLAIM WAS DISALLOWED BY SETTLEMENT OF OCTOBER 28, 1941, FOR THE REASON THAT THE CONTRACT PROVIDED FOR THE ASSESSMENT OF LIQUIDATED DAMAGES AT THE RATE OF $75 PER DAY FOR EACH DAY OF DELAY UNTIL SHIPMENT OF THE FABRIC WAS COMPLETED; AND FOR THE FURTHER REASON THAT THE CONTRACTING OFFICER HAD FOUND THAT THE DELAY IN SHIPMENT OF THE REPLACEMENT ROLL WAS NOT DUE TO ANY OF THE EXCUSABLE CAUSES OF DELAY SET FORTH IN ARTICLE 5 OF THE CONTRACT, SUPRA.

YOUR LETTER OF OCTOBER 30, 1941, REQUESTING REVIEW OF SAID SETTLEMENT, IS AS FOLLOWS:

THE ABOVE REQUEST IS MADE FOR YOUR REVIEW OF THE SETTLEMENT IN THIS CASE. THERE APPEAR TO BE NO PARTICULAR DIFFERENCES OF OPINION AS TO THE FACTS IN THIS CASE AS STATED IN MY LETTER OF JUNE 22ND, 1941, TO THE CLAIMS DIVISION AND AS STATED BY THAT DIVISION IN THE DISALLOWANCE CERTIFICATE OF OCTOBER 28TH, 1941, EXCEPT THAT THE CLAIMS DIVISION IN SAID SETTLEMENT HAS MISQUOTED THE TERMS OF THE CONTRACT TO THE EXTENT THAT THE CLAIMS DIVISION HAS STATED IN ITS SETTLEMENT THAT LIQUIDATED DAMAGES WERE TO BE DEDUCTED FOR EACH DAY OF DELAY UNTIL SHIPMENT IS "COMPLETED.' THE CONTRACT MAKES NO SUCH STATEMENT. THIS CONTRACT WAS ON STANDARD FORM 32 AND THERE WAS SUBSTITUTED FOR ARTICLE V, THE ACTUAL DAMAGES PROVISION, THE LIQUIDATED DAMAGE PROVISION, WHICH IS FOUND IN PARAGRAPH 5 OF THE DIRECTIONS FOR PREPARATION OF THE CONTRACT. THAT PARAGRAPH VERY CLEARLY STATES THAT LIQUIDATED DAMAGES WERE TO BE CHARGED FOR ANY DELAY, NOT DUE TO CERTAIN SPECIFIED CAUSES IN MAKING "DELIVERY" AND NOTHING IS SAID IN THE CONTRACT ABOUT "COMPLETED" DELIVERY.

SHEET ONE (1) OF THE SPECIFICATIONS ATTACHED TO THE CONTRACT PROVIDES IN PARAGRAPH 2 THAT LIQUIDATED DAMAGES ARE TO BE CHARGED "UNTIL SHIPMENT IS DELIVERED.' VERY SIMPLY THE CONTRACT REQUIRED THE DELIVERY OF 384,000 SQUARE FEET OF WELDED WIRE FABRIC, EACH ROLL TO CONTAIN 6,000 SQUARE FEET, WHICH WOULD MAKE 64 ROLLS. THE CONTRACT PRICE WAS $9,868.80 FOR DELIVERY OF ALL OF THE WIRE FABRIC F.O.B. CARS AT POINT OF SHIPMENT, OR $154.20 A ROLL.

ALL OF THE ROLLS WERE SHIPPED WITHIN THE CONTRACT PERIOD, BUT ONE OF THE ROLLS WHEN RECEIVED AT DESTINATION WAS DAMAGED TO THE EXTENT THAT SOME OF THE WELDING HAD BECOME LOOSE. THIS ROLL WAS REJECTED AND THERE MAY BE A QUESTION AS TO THE RESPONSIBILITY FOR THE DAMAGE IN SHIPMENT. IF THE ROLL WAS DAMAGED IN SHIPMENT, THE CONTRACTOR IS NOT RESPONSIBLE, AS THE ROLLS BECAME THE PROPERTY OF THE GOVERNMENT WHEN THEY WERE DELIVERED TO THE CARRIER.

BUT, ASIDE FROM THIS FACT, THE CONTRACT DELIVERY WAS SUBSTANTIALLY COMPLETED AT THE TIME OF SHIPMENT AND THE RECEIPT OF THE SHIPMENT AT DESTINATION, AND IT IS HIGHLY INEQUITABLE AND UNJUST TO CHARGE THIS CONTRACTOR WITH $1,875.00 LIQUIDATED DAMAGES FOR DELAY IN DELIVERY OF ONE ROLL OF WIRE WHOSE CONTRACT PRICE WAS ONLY $154.20.

IN THIS LETTER OF JUNE 22, 1941, TO THE CLAIMS DIVISION, WE POINT OUT THAT, SINCE THE CONTRACT MADE NO PROVISION FOR PROPORTIONATE LIQUIDATED DAMAGES AND SINCE THE DELIVERY WAS SUBSTANTIALLY COMPLETED WITHIN THE CONTRACT PERIOD, THERE SHOULD BE FOLLOWED THE DECISION IN 16 COMP. GEN. 344-348 AND THE CASES THERE CITED, IN HOLDING THAT SUCH A STIPULATION, WHEN SO APPLIED, CONSTITUTES A PENALTY AND THE ENTIRE AMOUNT SHOULD BE CERTIFIED FOR PAYMENT TO THE CONTRACTOR.

IN REQUESTING THIS REVIEW OF THE SETTLEMENT, IT IS HOPED THAT YOU WILL FOLLOW THE DECISIONS OF PRIOR COMPTROLLERS GENERAL, THE ABOVE CITED ONE BEING ONE DECISION AMONG MANY OF SIMILAR IMPORT, AND CERTIFY THE DEDUCTION OF $1,875.00 FOR PAYMENT TO THE CONTRACTOR.

ARTICLE 5 OF THE CONTRACT, QUOTED ABOVE, PROVIDED THAT, IN THE EVENT OF YOUR FAILURE TO MAKE DELIVERY OF THE SUPPLIES WITHIN THE TIME SPECIFIED, YOU WOULD PAY TO THE GOVERNMENT AS LIQUIDATED DAMAGES FOR EACH CALENDAR DAY OF DELAY IN MAKING DELIVERY "* * * THE AMOUNT AS SET FORTH IN THE SPECIFICATIONS OR ACCOMPANYING PAPERS * * *.' PARAGRAPH 2 OF THE SPECIFICATIONS PROVIDED, IN PERTINENT PART, THAT:

COMMENCEMENT, PROSECUTION, DELIVERY, AND COMPLETION.--- THE WORK SHALL BE COMMENCED AT SUCH TIME AS WILL ENABLE THE CONTRACTOR TO MAKE COMPLETE DELIVERY WITHIN EIGHT DAYS AFTER RECEIPT OF NOTICE TO PROCEED.

IN CASE OF FAILURE ON THE PART OF THE CONTRACTOR TO MAKE DELIVERY AS CALLED FOR AND AS AGREED UPON AS A PART OF THIS CONTRACT, THE CONTRACTOR SHALL PAY TO THE UNITED STATES AS LIQUIDATED DAMAGES THE SUM OF $75.00 FOR EACH DAY OF DELAY UNTIL SHIPMENT IS DELIVERED. ( ITALICS SUPPLIED.)

HENCE, IT IS EVIDENT THAT THE CONTRACT CONTEMPLATED THAT COMPLETE DELIVERY OF THE FABRIC WAS TO BE MADE WITHIN 8 DAYS AFTER RECEIPT OF NOTICE TO PROCEED, AND THAT IN THE EVENT OF YOUR FAILURE TO MAKE COMPLETE DELIVERY AS PROVIDED IN THE SPECIFICATIONS, LIQUIDATED DAMAGES WOULD BE CHARGED AT THE RATE OF $75 PER DAY UNTIL DELIVERY WAS MADE AS REQUIRED; THAT IS, UNTIL COMPLETE SHIPMENT WAS MADE OF ALL OF THE MATERIAL.

WITH RESPECT TO THE STATEMENT IN YOUR LETTER THAT THE REJECTED ROLL MAY HAVE BEEN DAMAGED IN SHIPMENT, AND IF SUCH WERE SO, YOU WOULD NOT BE RESPONSIBLE FOR THE DAMAGE, THE ADMINISTRATIVE OFFICE HAS REPORTED THAT UPON FINAL INSPECTION OF THE MATERIAL AT DESTINATION IT WAS FOUND THAT THE ROLL OF FABRIC INVOLVED DID NOT COMPLY WITH THE SPECIFICATIONS AND, ACCORDINGLY, SAID ROLL WAS REJECTED. NO EVIDENCE HAS BEEN FURNISHED IN SUPPORT OF YOUR STATEMENT THAT THE REJECTED ROLL MAY HAVE BEEN DAMAGED IN SHIPMENT, AND THERE IS NO OTHER EVIDENCE OF RECORD TO SUCH EFFECT. THEREFORE, IT MUST BE CONCLUDED THAT THE REASON FOR THE FAILURE OF THE REJECTED ROLL TO MEET THE SPECIFICATION REQUIREMENTS WAS NOT THE RESULT OF ANY DAMAGE IN SHIPMENT. MOREOVER, IT WAS PROVIDED IN PARAGRAPH 15 OF THE SPECIFICATIONS THAT IN MAKING FACTORY TESTS YOU MUST BE GOVERNED BY THE FACT THAT IT WAS THE INTENT OF THE SPECIFICATIONS TO PROCURE A WIRE FABRIC CAPABLE OF BEING SHIPPED AND HANDLED PRIOR TO PLACEMENT IN THE MATTRESS WITHOUT DAMAGE TO WELDS OR FABRIC. CONSEQUENTLY, EVEN IF IT APPEARED THAT THE REJECTED ROLL HAD BEEN DAMAGED IN SHIPMENT, IN VIEW OF SAID PROVISION IN THE SPECIFICATIONS IT IS NOT CLEAR THAT SUCH FACT WOULD RELIEVE YOU FROM RESPONSIBILITY FOR LIQUIDATED DAMAGES UNTIL THE DAMAGED ROLL OF FABRIC WAS REPLACED. FURTHERMORE, IT APPEARS THAT NO LEGAL BASIS FOR REMISSION OF THE LIQUIDATED DAMAGES IS CONTAINED IN YOUR CONTENTIONS TO THE EFFECT THAT SINCE SUBSTANTIAL DELIVERY OF THE FABRIC WAS MADE WITHIN THE CONTRACT PERIOD, IT WOULD BE INEQUITABLE AND UNJUST TO CHARGE YOU WITH THE SUM OF $1,875 AS LIQUIDATED DAMAGES FOR DELAY IN DELIVERY OF ONE ROLL OF FABRIC, THE CONTRACT PRICE OF WHICH WAS ONLY $154.20; AND SINCE, AS CONTENDED IN YOUR LETTER OF JUNE 22, 1941, THE CONTRACT MADE NO PROVISION FOR APPORTIONMENT OF THE LIQUIDATED DAMAGES FOR PARTIAL DELIVERIES, IT CONSTITUTES A PENALTY UNDER THE DECISION OF THIS OFFICE PUBLISHED IN 16 COMP. GEN. 344, AND THE CASES CITED THEREIN.

WITH RESPECT TO SUCH CONTENTIONS, IT APPEARS THAT IN THE PUBLISHED DECISION REFERRED TO, IT WAS HELD, IN PERTINENT PART, QUOTING FROM THE SYLLABUS, AS FOLLOWS:

LIQUIDATED DAMAGES FOR DELAYS IN DELIVERY SHOULD BE PROVIDED FOR IN LARGE QUANTITY STOCK ITEM CONTRACTS FOR SUPPLIES NOT READILY PROCURABLE IN THE OPEN MARKET BUT, IN SUCH CASES, AS THE DAMAGES DUE TO DELIVERY DELAYS ARE REDUCED IN PROPORTION TO PARTIAL DELIVERIES, THE STIPULATION SHOULD BE ON THE BASIS OF AN APPROPRIATE PERCENTAGE OF THE CONTRACT PRICE OF ANY UNDELIVERED SUPPLIES FOR EACH DAY OF DELAY AFTER THE DELIVERY DATE FIXED IN THE CONTRACT. IN OTHER WORDS, IT WAS STATED IN SAID DECISION, IN PART, THAT WHERE A CONTRACT PROVIDES FOR THE FURNISHING OF LARGE QUANTITIES OF STOCK ITEMS, I.E., ITEMS WHICH ARE NOT TO BE PLACED IN IMMEDIATE USE BY THE GOVERNMENT, BUT WHICH ARE TO BE USED LARGELY FOR SUPPLY PURPOSES, THE PROBABLE ACTUAL DAMAGES TO THE GOVERNMENT FOR DELAY IN DELIVERY OF SAID ITEMS WOULD AT LEAST BE REDUCED IN PROPORTION AS PARTIAL DELIVERIES OF THE ITEMS WERE MADE. ACCORDINGLY, THE ADMINISTRATIVE AGENCY INVOLVED WAS ADVISED THAT IN ORDER TO AVOID ANY QUESTION AS TO THE VALIDITY OF THE ASSESSMENT OF LIQUIDATED DAMAGES IN SUCH CASES, THE STIPULATION FOR LIQUIDATED DAMAGES IN SUPPLY CONTRACTS SHOULD NOT PROVIDE FOR A FLAT CHARGE FOR EACH DAY OF DELAY, BUT SHOULD MAKE SOME ALLOWANCE FOR PARTIAL DELIVERIES, AND THAT THE AMOUNT OF LIQUIDATED DAMAGES SHOULD BE FIXED AS AN APPROPRIATE PERCENTAGE OF THE CONTRACT PRICE OF ANY UNDELIVERED SUPPLIES. IN SUPPORT OF SUCH VIEW, THERE WAS CITED A STATEMENT FROM THE OPINION OF THE COURT IN THE CASE OF NORTHWESTERN TERRA COTTA CO. V. CALDWELL ( C.C.A. 8TH), 234 FED. 491, 505, CERTIORARI DENIED, 242 U.S. 643, IN WHICH IT WAS STATED BY THE COURT THAT:

* * * WHEN THE CONTRACT WAS TO FURNISH ALMOST INNUMERABLE ARTICLES, AND NOT TO BUILD A BUILDING, IT CANNOT BE ASSUMED THAT THE PARTIES MEANT TO STIPULATE FOR THE SAME DAMAGES FOR TOTAL FAILURE TO DELIVER ANY PART OF THE GOODS AND FOR A FAILURE TO DELIVER A SINGLE ONE OF THE INNUMERABLE ARTICLES TO BE DELIVERED. * * *

HOWEVER, IT WAS NOT INTENDED TO HOLD IN SAID DECISION THAT A STIPULATION FOR LIQUIDATED DAMAGES AT A FLAT RATE PER DAY IN ALL CONTRACTS WHICH COVER THE FURNISHING OF SUPPLIES OR MATERIALS, AS DISTINGUISHED FROM CONSTRUCTION CONTRACTS, CAN HAVE NO RELATION TO THE ACTUAL DAMAGES WHICH MIGHT BE SUSTAINED BY THE GOVERNMENT, AND, THAT AS A MATTER OF LAW, SAID STIPULATIONS ARE PENALTIES AND ARE UNENFORCEABLE. IN SUCH CASES, WHERE IT IS STIPULATED THAT LIQUIDATED DAMAGES ARE TO BE ASSESSED ON THE BASIS OF A FLAT CHARGE PER DAY, THERE MUST BE CONSIDERED ALL OF THE FACTS AND CIRCUMSTANCES UNDER WHICH THE SUPPLIES OR MATERIALS WERE PURCHASED, INCLUDING THE PURPOSE FOR WHICH THEY WERE TO BE USED, IN ORDER TO DETERMINE WHETHER IT MAY BE SAID THAT THE STIPULATION FOR LIQUIDATED DAMAGES HAD ANY REASONABLE RELATION TO THE ACTUAL DAMAGES WHICH THE PARTIES CONTEMPLATED AT THE TIME THE CONTRACT WAS MADE MIGHT BE SUSTAINED BY THE GOVERNMENT AS A RESULT OF ANY DELAY IN DELIVERY. SEE UNITED STATES V. BETHLEHEM STEEL CO., 205 U.S. 105; WISE V. UNITED STATES, 249 U.S. 361; FRICK CO. V. RUBEL CORP., 62 F./2D) 765 ( C.C.A. 2D); 18 COMP. GEN. 503, AND CASES CITED THEREIN.

IN THE CASE OF FRICK CO. V. RUBEL CORP., SUPRA, THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT HELD THAT WHERE A CONTRACT FIXED LIQUIDATED DAMAGES FOR A BREACH, THE DISTRICT COURT PROPERLY EXCLUDED, AS IMMATERIAL, CERTAIN EVIDENCE WHICH HAD BEEN OFFERED TO PROVE THAT THE ACTUAL LOSS CAUSED BY THE BREACH WAS INFINITESIMALLY SMALL AS COMPARED WITH THE STIPULATED LIQUIDATED DAMAGES, AND PROPERLY DIRECTED A VERDICT FOR THE AMOUNT OF LIQUIDATED DAMAGES AGREED UPON IN THE CONTRACT, IRRESPECTIVE OF THE AMOUNT OF ACTUAL DAMAGES. WITH RESPECT TO THE MATTER, THE COURT STATED ITS CONCLUSION, AT PAGE 767, AS FOLLOWS:

THERE REMAINS, HOWEVER, THE FURTHER QUESTION WHETHER THE JUDGE WAS IN ERROR IN REFUSING TO ALLOW THE DEFENDANT TO PROVE THAT THE LIQUIDATED DAMAGES WERE WHOLLY DISPROPORTIONATE TO THE ACTUAL LOSSES SUFFERED BY THE PLAINTIFF BECAUSE OF THE DELAY. THE DEFENDANT HAD GONE ONLY A SHORT WAY ON THIS POINT IN ITS CROSS-EXAMINATION OF THE PLAINTIFF'S SUPERINTENDENT, WHEN IT WAS STOPPED. IT THEN OFFERED TO PROVE THAT "THE ACTUAL LOSS WHICH WAS MADE NECESSARY," "THE COST ENTAILED BY THIS ALLEGED DELAY," WAS "INFINITESIMALLY SMALL AS COMPARED WITH THIS PENALTY.' THE JUDGE REFUSED TO ALLOW SUCH PROOF, AND THE DEFENDANT EXCEPTED. IT WILL BE OBSERVED THAT THE DEFENDANT DID NOT OFFER TO PROVE DISPARITY BETWEEN THE AMOUNT FIXED AS LIQUIDATED DAMAGES AND THE LOSSES WHICH WERE IN CONTEMPLATION WHEN THE CONTRACT WAS SIGNED. UNLESS PROOF OF THE ACTUAL LOSSES WAS MATERIAL TO THAT ISSUE, THE OFFER WAS OF IRRELEVANT EVIDENCE, AND NO QUESTION AROSE WHETHER GROSS DISPROPORTION BETWEEN LIQUIDATED DAMAGES AND LOSSES IN CONTEMPLATION WOULD BE EVIDENCE THAT THE CLAUSE WAS PENAL. THAT QUESTION ITSELF TURNS ON HOW FAR SOME OF THE LANGUAGE IN SUN P. AND P. ASSOCIATION V. MOORE, 183 U.S. 642, 672-674, 22 S.1CT. 240, 46 L.1ED. 366, IS TO BE READ LITERALLY, AND HOW FAR IT HAS BEEN MODIFIED BY U.S. V. BETHLEHEM STEEL CO., 205 U.S. 105, 121, 27 S.1CT. 450, 51 L.1ED. 731, U.S. V. UNITED ENGINEERING AND CONST. CO., 234 U.S. 236, 246, 34 S.1CT. 843, 58 L.1ED. 1294 AND WISE V. U.S. 249 U.S. 361, 365, 39 S.1CT. 303, 63 L.1ED. 647, AND BY THE DECISION IN KOTHE V. R. C. TAYLOR TRUST CO., 280 U.S. 224, 50 S.1CT. 142, 74 L.1ED. 382.

MY BROTHERS THINK, THOUGH I DO NOT, THAT EVIDENCE AS TO THE ACTUAL LOSS WAS NOT MATERIAL TO THE ISSUE OF THE LOSSES IN CONTEMPLATION, THOUGH WE ALL AGREE THAT IT IS THE COMPARISON OF THE LIQUIDATED DAMAGES WITH THE LAST, NOT THE FIRST, WHICH CAN RAISE THE POINT AT ALL. ON THEIR VIEW, THE OFFER DID NOT THEREFORE RAISE THE QUESTION, AND IT FOLLOWS THAT THE JUDGE WAS RIGHT, AND THAT THE JUDGMENT ON THE SECOND AND THIRD CAUSES OF ACTION MUST ALSO BE AFFIRMED.

IT IS CLEAR FROM THIS STATEMENT FROM THE OPINION OF THE COURT IN THE CASE OF FRICK CO. V. RUBEL CORP. THAT THE MATTER OF RELATIONSHIP OR DISPARITY BETWEEN THE AMOUNT ASSESSED AS LIQUIDATED DAMAGES BECAUSE OF DELAY IN THE PERFORMANCE OF A CONTRACT AND THE AMOUNT OF ACTUAL DAMAGES SUSTAINED BY THE GOVERNMENT AS A RESULT OF SAID DELAY IS OF NO CONSEQUENCE, AND IS NOT PROPER FOR CONSIDERATION, IN DETERMINING THE QUESTION AS TO WHETHER A STIPULATION FOR LIQUIDATED DAMAGES IS VALID OR WHETHER THE STIPULATION CONSTITUTES A PENALTY, AND IS UNENFORCEABLE. IN THE DETERMINATION OF SUCH QUESTION, THE ONLY MATTER OPEN FOR CONSIDERATION IS THE RELATION BETWEEN THE AMOUNT STIPULATED AS LIQUIDATED DAMAGES, AND THE LOSSES WHICH WERE IN CONTEMPLATION BETWEEN THE PARTIES WHEN THE CONTRACT WAS MADE; AND IN ORDER FOR A PROVISION FOR LIQUIDATED DAMAGES TO BE OVERTURNED ON THE GROUND THAT IT CONSTITUTES A PENALTY, THE RECORD MUST SHOW CONCLUSIVELY THAT THERE WAS NO POSSIBLE RELATION BETWEEN THE AMOUNT STIPULATED FOR LIQUIDATED DAMAGES AND THE LOSSES WHICH WERE CONTEMPLATED BY THE PARTIES AT THE TIME THE CONTRACT WAS MADE. SEE, ALSO, UNITED STATES V. BETHLEHEM STEEL CO., SUPRA, AND WISE V. UNITED STATES, SUPRA.

IN THIS LATTER CONNECTION, THE CONTENTION MADE IN YOUR LETTER OF JUNE 22, 1941, AND REASSERTED IN YOUR LETTER OF OCTOBER 30, 1941, TO THE EFFECT THAT THE LIQUIDATED DAMAGE PROVISION CONSTITUTED A PENALTY BECAUSE IT DID NOT PROVIDE FOR THE APPORTIONMENT OF THE DAMAGES IN THE EVENT OF PARTIAL DELIVERIES, AND THAT THE GOVERNMENT COULD NOT HAVE SUFFERED THE SAME DAMAGE BECAUSE OF THE DELAY IN FURNISHING ONE ROLL OF FABRIC AS IT WOULD HAVE IF THE ENTIRE 64 ROLLS COVERED BY THE CONTRACT WERE DELAYED, WAS REFERRED TO THE WAR DEPARTMENT FOR A REPORT, AND WITH RESPECT TO SUCH CONTENTION THE CONTRACTING OFFICER HAS STATED AS FOLLOWS:

* * * IN THE PRESENT CASE, THE GOVERNMENT ADVERTISED FOR 384,000 SQUARE FEET OF GALVANIZED WELDED WIRE FABRIC (64 ROLLS) AND SPECIFIED LIQUIDATED DAMAGES OF $75.00 PER DAY. THIS FIGURE IS NOT AN ESTIMATE OF THE DAMAGE WHICH WOULD BE INCURRED BY A SHUTDOWN OF THE PLANT FOR WHICH THE MATERIAL WAS PURCHASED, AS THIS WOULD RUN INTO THOUSANDS OF DOLLARS PER DAY, BUT IS THE ESTIMATED EXPENSE INVOLVED IN ADDITIONAL TOWING, HANDLING OF MATERIAL FOR THE PLANT, RESCHEDULING OF OPERATIONS, ETC., AND, THEREFORE, IS NOT IN ANY SENSE A PENALTY.

B. THE AMOUNT OF LIQUIDATED DAMAGES, NAMELY, $1,875.00, WHICH ACCRUED BECAUSE OF THE 25 DAYS' DELAY IN DELIVERY OF ONE ROLL OF WIRE, THE CONTRACT PRICE FOR WHICH WAS $154.20, HAS NO RELATIONSHIP TO THE VALUE OF ONE ROLL OF WIRE BUT IS A MEASURE OF THE EXPENSE INVOLVED IN ADDITIONAL TOWING, HANDLING, ADMINISTRATION, ETC.

C. THIS IS NOT A LARGE QUANTITY STOCK ITEM CONTRACT AND IT WAS NOT INTENDED THAT A PARTIAL DELIVERY OF THE MATERIAL WITHIN THE SPECIFIED TIME SHOULD RELIEVE THE CONTRACTOR FROM PAYMENT OF A PORTION OF THE LIQUIDATED DAMAGES, AS DELIVERY OF A QUANTITY SHORT OF THE ESTIMATED REQUIREMENT FOR A PROJECT COULD AFFECT OPERATING SCHEDULES OF THE PLANT, THE MATTER OF WHETHER NONDELIVERY OF 1/64 OF THE ORDER (6,000 SQUARE FEET) WOULD HAVE DAMAGED THE UNITED STATES AS MUCH AS DELAY IN DELIVERY OF THE WHOLE ORDER DEPENDING UPON CIRCUMSTANCES.

IT APPEARS THEREFROM--- AND ALSO IS STATED IN PARAGRAPH 10 OF THE SPECIFICATION--- THAT THE WIRE FABRIC PURCHASED UNDER THE CONTRACT WAS NOT TO BE STOCKED BY THE GOVERNMENT FOR SUPPLY PURPOSES, BUT THAT IT WAS TO BE USED BY THE GOVERNMENT IMMEDIATELY AS A PART OF THE MATERIAL FOR ASPHALT MATTRESSES WHICH THE GOVERNMENT WAS IN THE PROCESS OF MANUFACTURING AT THE TIME. IT APPEARS FURTHER FROM SAID REPORT THAT AT THE TIME THE CONTRACT WAS MADE THE STIPULATION FOR LIQUIDATED DAMAGES WAS INCLUDED THEREIN TO PROTECT THE GOVERNMENT AGAINST INCREASED COSTS IN THE NATURE OF ADDITIONAL TOWING, HANDLING OF MATERIAL FOR THE PLANT IN WHICH THE ASPHALT MATTRESSES WERE BEING MANUFACTURED, RESCHEDULING OF OPERATIONS, ETC. ALSO, IT APPEARS FROM SAID REPORT THAT AT THE TIME THE CONTRACT WAS MADE IT WAS CONTEMPLATED THAT THE DELIVERY OF ANY QUANTITY OF WIRE FABRIC SHORT OF THE ESTIMATED REQUIREMENT FOR THE PROJECT COULD AFFECT THE OPERATING SCHEDULE OF THE PLANT, AND THAT IT WAS POSSIBLE FOR THE NONDELIVERY OF ONE ROLL OF WIRE FABRIC TO HAVE DAMAGED THE UNITED STATES AS MUCH AS DELAY IN DELIVERY OF THE WHOLE ORDER WOULD HAVE, DEPENDING UPON EXISTING CIRCUMSTANCES.

THEREFORE, SINCE THE RECORD SHOWS THAT THE STIPULATION IN THE CONTRACT PROVIDING FOR THE ASSESSMENT OF LIQUIDATED DAMAGES AT THE RATE OF $75 PER DAY UNTIL COMPLETE DELIVERY OF THE WIRE FABRIC WAS MADE, CONSTITUTED A REASONABLE AND BONA FIDE ESTIMATION AT THE TIME THE CONTRACT WAS EXECUTED OF THE AMOUNT OF THE LOSS PER DAY, WHICH WOULD HAVE BEEN SUSTAINED BY THE UNITED STATES IF COMPLETE DELIVERY OF THE FABRIC WAS NOT MADE WITHIN THE TIME SPECIFIED, IT MUST BE HELD THAT SAID LIQUIDATED DAMAGE PROVISION IS NOT A PENALTY BUT IS VALID AND ENFORCIBLE, AND THE FACT THAT IT MAY NOW APPEAR THAT THE AMOUNT OF LIQUIDATED DAMAGES EXCEEDED THE ACTUAL DAMAGES SUSTAINED BY THE UNITED STATES IS IMMATERIAL.

ACCORDINGLY, THE SETTLEMENT OF OCTOBER 28, 1941, MUST BE, AND IS, SUSTAINED.