B-36446, SEPTEMBER 27, 1943, 23 COMP. GEN. 234

B-36446, SEPTEMBER 27, 1943, 23 COMP. GEN. 234

CONTRACTS - DEFAULT - RELETTING ON BASIS DIFFERENT THAN SPECIFIED IN ORIGINAL CONTRACT DUE TO EXCESSIVE REPLACEMENT BID WHERE, UPON A CONTRACTOR'S DEFAULT AND AFTER READVERTISEMENT FOR BIDS, THE GOVERNMENT ELECTED TO HAVE THE WORK PERFORMED ON A BASIS ENTIRELY DIFFERENT THAN THAT CONTEMPLATED UNDER THE ORIGINAL CONTRACT BECAUSE THE ONLY BID RECEIVED UPON READVERTISEMENT WAS CONSIDERED EXCESSIVE, THE DEFAULTED CONTRACTOR IS LIABLE TO THE GOVERNMENT FOR ANY DAMAGE ARISING OUT OF THE BREACH, REPRESENTING THE DIFFERENCE BETWEEN THE ORIGINAL CONTRACT PRICE AND THE REASONABLE COST OF COMPLETING THE WORK AS ORIGINALLY SPECIFIED, TOGETHER WITH THE COST INCURRED BY THE READVERTISEMENT FOR BIDS AND SUCH OTHER ADMINISTRATIVE EXPENSES AS MAY BE DIRECTLY ATTRIBUTABLE TO THE DEFAULT. IN THE ABSENCE OF EXPRESS OR CLEARLY IMPLIED STIPULATIONS TO THE CONTRARY, A DEPOSIT TO SECURE FAITHFUL PERFORMANCE OF A GOVERNMENT CONTRACT IS REGARDED MERELY AS A GUARANTEE AGAINST SUCH LOSS OR DAMAGE AS IS ACTUALLY OCCASIONED THE GOVERNMENT BY BREACH OF THE CONTRACT, RATHER THAN AS A LIQUIDATION IN ADVANCE OF THE DAMAGES WHICH MIGHT RESULT FROM THE CONTRACTOR'S DEFAULT, SO THAT A BREACH OF THE CONTRACT DOES NOT OF ITSELF GIVE THE GOVERNMENT AN ABSOLUTE RIGHT TO THE AMOUNT DEPOSITED; BUT THE GOVERNMENT MAY EXERCISE ITS COMMON-LAW RIGHT TO RETAIN AND RESORT TO SUCH DEPOSIT FOR APPLICATION OR SET-OFF AGAINST DAMAGES RESULTING FROM DEFAULT. AN ELECTION BY THE GOVERNMENT, UPON A CONTRACTOR'S DEFAULT, TO HAVE THE WORK PERFORMED ON AN ENTIRELY DIFFERENT BASIS THAN THAT CONTEMPLATED UNDER THE DEFAULTED CONTRACT--- DUE TO THE FACT THAT THE ONLY REPLACEMENT BID RECEIVED APPEARED EXCESSIVE--- DOES NOT RELIEVE THE CONTRACTOR FROM LIABILITY FOR DAMAGES RESULTING FROM THE BREACH, AND, WHILE THE REPLACEMENT BID IS NOT COMPETENT AS A MEASURE OF ACTUAL DAMAGES, IT MAY BE TAKEN AS AN INDICATION THAT THE REASONABLE COST OF COMPLETING THE WORK AS ORIGINALLY SPECIFIED WOULD HAVE BEEN IN EXCESS OF THE CONTRACT PRICE AT LEAST TO THE EXTENT OF THE DEFAULTING CONTRACTOR'S DEPOSIT TO SECURE FAITHFUL PERFORMANCE, AND, THEREFORE, REFUND OF THE DEPOSIT IS NOT AUTHORIZED.

ACTING COMPTROLLER GENERAL YATES TO THE ADMINISTRATOR OF VETERANS' AFFAIRS, SEPTEMBER 27, 1943:

REFERENCE IS MADE TO YOUR LETTER OF AUGUST 18, 1943, CONCERNING THE DEFAULT OF THE COAL CITY TILE COMPANY, COAL CITY, ILLINOIS, UNDER ITS UNNUMBERED CONTRACT, CONSISTING OF ITS BID DATED NOVEMBER 12, 1942, AND ACCEPTANCE THEREOF DATED NOVEMBER 25, 1942, FOR THE INSTALLATION OF CERTAIN SCAGLIOLA MARBLE AT THE VETERANS' ADMINISTRATION FACILITY, DWIGHT, ILLINOIS, AT A LUMP-SUM PRICE OF $790, LESS A DISCOUNT OF TWO PERCENT FOR PAYMENT WITHIN 30 CALENDAR DAYS.

IN YOUR LETTER YOU STATE THAT AFTER REPEATED REQUESTS TO PROCEED WITH THE WORK TO BE PERFORMED UNDER THE CONTRACT, THE CONTRACTOR ON MAY 17, 1943, ADDRESSED A LETTER TO YOUR ADMINISTRATION STATING THAT IT WAS UNABLE TO SECURE THE NECESSARY MATERIAL AND WORKMEN FOR THE JOB AND REQUESTING REFUND OF THE AMOUNT OF $197.50, SUBMITTED AS A GUARANTY OR SECURITY DEPOSIT PURSUANT TO THE PERTINENT REQUIREMENTS OF ITS ACCEPTED PROPOSAL, AS FOLLOWS:

BID BOND: BIDS WILL NOT BE CONSIDERED UNLESS ACCOMPANIED BY A BID BOND OF NOT LESS THAN 25 PERCENT OF THE AMOUNT OF THE BID. THE DEPOSIT MAY BE IN THE FORM OF CERTIFIED CHECK, CASH, UNITED STATES GOVERNMENT BOND OR SURETY BOND. ALL CHECKS SHOULD BE MADE PAYABLE TO THE TREASURER OF THE UNITED STATES.

PERFORMANCE BOND: THE DEPOSIT OF THE SUCCESSFUL BIDDER SUBMITTED AS BID BOND WILL BE RETAINED AS PERFORMANCE BOND AS A GUARANTEE OF FAITHFUL AND DILIGENT PERFORMANCE OF THE SERVICES CONTEMPLATED BY THE SPECIFICATIONS. DEPOSITS OF UNSUCCESSFUL BIDDERS WILL BE RETURNED AS SOON AS POSSIBLE AFTER AWARD OF CONTRACT HAS BEEN DETERMINED.

THEREAFTER, UNDER DATE OF MAY 22, 1943, IT APPEARS THAT THE CONTRACTOR WAS ADVISED THAT AN ATTEMPT WOULD BE MADE TO OBTAIN THE SERVICES ELSEWHERE AND THAT IT WOULD BE HELD RESPONSIBLE FOR ANY EXCESS COST OCCASIONED THEREBY, IN ACCORDANCE WITH THE PROVISIONS OF PARAGRAPH 4 OF THE " CONDITIONS" FORMING A PART OF THE CONTRACT, IN PERTINENT PART, AS FOLLOWS:

IF THE CONTRACTOR REFUSES OR FAILS TO MAKE DELIVERIES OF THE MATERIALS OR SUPPLIES WITHIN THE TIME SPECIFIED, OR ANY EXTENSION THEREOF, THE GOVERNMENT MAY BY WRITTEN NOTICE TERMINATE THE RIGHT OF THE CONTRACTOR TO PROCEED WITH DELIVERIES OR SUCH PART OR PARTS THEREOF AS TO WHICH THERE HAS BEEN DELAY. IN SUCH EVENT, THE GOVERNMENT MAY PURCHASE SIMILAR MATERIALS OR SUPPLIES IN THE OPEN MARKET OR SECURE THE MANUFACTURE AND DELIVERY OF THE MATERIALS AND SUPPLIES BY CONTRACT OR OTHERWISE, AND THE CONTRACTOR AND HIS SURETIES (IF ANY) SHALL BE LIABLE TO THE GOVERNMENT FOR ANY EXCESS COST OCCASIONED THE GOVERNMENT THEREBY: * * *

HOWEVER, IT APPEARS FURTHER THAT, UPON RESOLICITATION OF BIDS IT WAS POSSIBLE TO SECURE BUT ONE BID FOR THE WORK; THAT SUCH BID, BEING IN THE AMOUNT OF $1,350, WAS CONSIDERED EXCESSIVE AND WAS NOT ACCEPTED; AND THAT, CONSEQUENTLY, IT WAS DEEMED ADVISABLE "TO HAVE THE SCAGLIOLA REPLACED WITH PLASTER," THE COST OF WHICH IT IS UNDERSTOOD WAS NOT COMMENSURATE WITH THE PRICE STIPULATED IN THE DEFAULTED CONTRACT.

IN VIEW OF THE FACTS AND CIRCUMSTANCES THUS PRESENTED, YOU REQUEST A DECISION AS TO WHETHER THIS OFFICE WOULD BE REQUIRED TO OBJECT TO YOUR REFUNDING TO THE CONTRACTOR THE AMOUNT OF THE DEPOSIT.

PRELIMINARY TO REACHING A CONCLUSION IN THE MATTER, THERE ARISES THE QUESTION AS TO WHETHER THE SAID DEPOSIT PROPERLY SHOULD BE REGARDED AS A LIQUIDATION IN ADVANCE OF ALL THE DAMAGES WHICH MIGHT RESULT FROM THE CONTRACTOR'S DEFAULT. IT APPARENTLY IS WELL SETTLED THAT, IN THE ABSENCE OF AN EXPRESS OR CLEARLY IMPLIED STIPULATION TO THE CONTRARY CONTAINED IN THE APPLICABLE CONTRACT, A DEPOSIT OF THIS NATURE IS REGARDED MERELY AS A GUARANTEE AGAINST SUCH LOSS OR DAMAGE AS IS ACTUALLY OCCASIONED THE SECURED PARTY BY BREACH OF THE CONTRACT. SEE WILSON V. MAYOR, ETC., OF BALTIMORE, 83 MD. 203, 34 ATL. 774; BARBER ASPHALT PAVING CO. V. CITY OF ST. PAUL, 136 MINN. 396, 162 N.W. 70; CF. LAMPORT MANUFACTURING SUPPLY CO. V. UNITED STATES, 65 C.1CLS. 579; JOHN T. HICKEY V. UNITED STATES, 65 ID. 729.

THERE IS NOTHING IN THE ABOVE-QUOTED LANGUAGE OF THE CONTRACTOR'S ACCEPTED PROPOSAL SPECIFICALLY DESIGNATING THE SECURITY DEPOSITED AS LIQUIDATED DAMAGES. NEITHER IS THERE ANYTHING CONTAINED THEREIN FROM WHICH IT REASONABLY COULD BE INFERRED THAT THE PARTIES INTENDED THE AMOUNT OF SUCH SECURITY AS LIQUIDATED DAMAGES. UNDER THE CIRCUMSTANCES THE DEPOSIT MAY NOT BE REGARDED AS HAVING BEEN GIVEN FOR THE PURPOSE OF LIQUIDATING IN ADVANCE THE DAMAGES WHICH MIGHT BE OCCASIONED BY THE CONTRACTOR'S DEFAULT AND THE BREACH OF THE CONTRACT DOES NOT OF ITSELF GIVE THE GOVERNMENT AN ABSOLUTE RIGHT TO THE AMOUNT DEPOSITED. HOWEVER, IT DOES NOT NECESSARILY FOLLOW THAT THE CONTRACTOR IS ENTITLED TO REFUND OF THE DEPOSIT. ON THE CONTRARY, IF THE CONTRACTOR BECAME LIABLE TO THE GOVERNMENT IN DAMAGES UPON THE DEFAULT, THE GOVERNMENT LEGALLY MAY EXERCISE ITS COMMON-LAW RIGHT TO RETAIN AND RESORT TO THE DEPOSIT FOR APPLICATION OR SET-OFF AGAINST SUCH DAMAGES. SEE MCKNIGHT V. UNITED STATES, 98 U.S. 179, 186; BARRY V. UNITED STATES, 229, U.S. 47; TAGGART V. UNITED STATES, 17 C.1CLS. 322, 327.

THE DECISION IN UNITED STATES V. AXMAN, 234 U.S. 36, MAY NOT BE ACCEPTED AS CONTROLLING IN THIS CASE. THERE, UPON THE GOVERNMENT'S RELETTING THE DEFAULTED CONTRACT AND PROCEEDING UNDER THE STANDARD PROVISIONS OF PARAGRAPH 4 THEREOF TO BRING SUIT TO RECOVER THE EXCESS COST INCURRED IN COMPLETING THE SAME, IT WAS HELD THAT, SINCE THE REQUIREMENTS OF THE NEW CONTRACT WERE MATERIALLY DIFFERENT FROM THOSE OF THE ORIGINAL, THE NEW CONTRACT WAS NOT ONE FOR WORK WHICH THE DEFENDANT WAS OBLIGATED TO CARRY OUT AND, THEREFORE, COULD NOT BE USED FOR THE MEASURE OF RECOVERY FOR THE DEFENDANT'S BREACH.

WHETHER IN THE INSTANT CASE THE RELETTING OF THE ORIGINAL CONTRACT ON A DIFFERENT BASIS OPERATED TO WHOLLY DISCHARGE THE CONTRACTOR IS A QUESTION CLEARLY DISTINGUISHABLE FROM THE QUESTION DETERMINED IN THE AXMAN CASE, SUPRA. AS STATED BY THE SUPREME COURT OF THE UNITED STATES IN UNITED STATES V. UNITED STATES FIDELITY CO., 236 U.S. 512, 523:

* * * THERE THE GOVERNMENT, UPON AXMAN'S DEFAULT,"ANNULLED" HIS CONTRACT PURSUANT TO ITS FOURTH PARAGRAPH; THAT IS, UNDERTOOK TO COMPLETE IT IN HIS STEAD AND CHARGE HIM WITH THE EXCESS COST. AS APPEARS FROM THE REPORTS OF THE CASE (167 FED. REP. 915; 234 U.S. 42, 43), IT WAS "NOT A SUIT TO RECOVER GENERALLY WHATEVER DAMAGES THE UNITED STATES WOULD HAVE SUSTAINED HAD AXMAN ABANDONED HIS CONTRACT, BUT A SUIT FOR DAMAGES UNDER THE EXPRESS STIPULATIONS OF THE CONTRACT; " THAT IS TO SAY, UNDER ITS FOURTH PARAGRAPH. NO OTHER QUESTION WAS CONSIDERED OR DECIDED.

SINCE HERE THE CONTRACTOR'S FAILURE TO PERFORM ITS OBLIGATIONS UNDER THE CONTRACT WAS NOT DUE TO SOME INTERVENING EXCUSABLE CAUSE, AND OPERATED WRONGFULLY TO DEPRIVE THE GOVERNMENT OF THAT FOR WHICH IT HAD BARGAINED AND HAD A LEGAL RIGHT TO RECEIVE, THE CONTRACTOR IS NOT RELEASED FROM ITS LIABILITY TO THE GOVERNMENT MERELY BY REASON OF THE FACT THAT THE GOVERNMENT, IN WHAT APPEARS TO HAVE BEEN A PROPER EXERCISE OF ITS DUTY TO MAKE ALL REASONABLE EFFORTS TO AVOID EXCESSIVE DAMAGES, MAY NOT HAVE ELECTED TO HAVE THE SAME WORK COMPLETED AS PROVIDED BY PARAGRAPH 4. THIS CONNECTION, THE COURT FURTHER STATED IN THE UNITED STATES FIDELITY CO. CASE, SUPRA:

WE DO NOT THINK ARTICLE 4 CAN PROPERLY BE SO CONSTRUED AS TO RESTRICT THE GOVERNMENT TO THE REMEDY THERE INDICATED IN THE EVENT OF DEFAULT BY THE CONTRACTOR, OR TO EXCLUDE RECOVERY OF THE ACTUAL DAMAGES DIRECTLY ATTRIBUTABLE TO SUCH DEFAULT, IF, IN THE REASONABLE EXERCISE OF ITS RIGHTS, THE GOVERNMENT DETERMINES NOT TO COMPLETE THE BUILDING. * * *

WITH RESPECT TO THE QUESTION AS TO THE EXACT EXTENT OF THE DAMAGES ARISING OUT OF THE BREACH, IT MAY BE PRESUMED THAT, IN ADDITION TO ITS IMMEDIATE LOSS, CONSISTING OF THE COST INCURRED BY THE READVERTISEMENT FOR BIDS AND SUCH OTHER ADMINISTRATIVE EXPENSES AS MAY BE DIRECTLY ATTRIBUTABLE TO THE DEFAULT, THE GOVERNMENT WAS DAMAGED TO THE EXTENT OF THE DIFFERENCE BETWEEN THE ORIGINAL CONTRACT PRICE AND WHAT THE REASONABLE COST OF COMPLETING THE JOB AS SPECIFIED WOULD HAVE BEEN. RESTATEMENT, CONTRACTS, SECTION 346. WHILE IT IS REPORTED THAT THE ONLY BID RECEIVED IN RESPONSE TO THE READVERTISEMENT IN THE AMOUNT OF $1,350, WAS CONSIDERED EXCESSIVE, THE BASIS ON WHICH IT WAS DETERMINED THE AMOUNT WAS EXCESSIVE IS NOT SHOWN. HAD SUCH BID BEEN ACCEPTED THE DIFFERENCE BETWEEN THE AMOUNT THEREOF AND THE ORIGINAL CONTRACT PRICE MIGHT WELL HAVE MEASURED THE ACTUAL DAMAGE WHICH COULD HAVE BEEN RECOVERED BY THE GOVERNMENT. BOARD OF EDUCATION V. MARYLAND CASUALTY CO., 27 F./2D) 20; CITY OF GOLDSBORO V. MOFFETT, 48 F. 213. ALTHOUGH IT MAY BE THAT FURTHER EFFORTS TO OBTAIN BIDS, AT THE TIME, MIGHT HAVE RESULTED IN RECEIPT OF A LOWER BID, NEVERTHELESS THE SOLE BID RECEIVED ON THE ONLY READVERTISEMENT CLEARLY INDICATES THAT THE REASONABLE COST OF COMPLETING THE JOB SPECIFIED WOULD HAVE BEEN IN EXCESS OF THE ORIGINAL CONTRACT PRICE AT LEAST TO THE EXTENT OF THE CONTRACTOR'S DEPOSIT. UNDER THE CIRCUMSTANCES THE CONTRACTOR'S RIGHT TO ANY PART OF THE AMOUNT OF THE DEPOSIT IS ENTIRELY TOO DOUBTFUL TO JUSTIFY THIS OFFICE IN AUTHORIZING REFUND THEREOF.

THE COPY OF THE CONTRACT, FORWARDED WITH YOUR LETTER OF AUGUST 21, 1943, IS RETURNED HEREWITH AS REQUESTED.