B-86513, MAY 29, 1951

B-86513: May 29, 1951

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THE SECRETARY OF THE ARMY: REFERENCE IS MADE TO ARMY'S FILE FINEY 167/645967. LIQUIDATED DAMAGES WERE ASSESSED AGAINST THE M.M.&W GARMENT COMPANY UNDER CONTRACT NO. W-30-280-QM-9385 FOR ALL DELIVERIES WHICH WERE NOT MADE WITHIN THE TIME STIPULATED. OR ONLY WITH RESPECT TO THOSE WHICH WERE DUE AT THE TIME SAID CONTRACT WAS TERMINATED. SINCE THE LEGAL QUESTION INVOLVED IS AN IMPORTANT ONE AND APPEARS TO HAVE BEEN A SUBJECT OF CONTROVERSY BETWEEN THE ARMED SERVICES BOARD OF CONTRACT APPEALS AND THE QUARTERMASTER CORPS. IT IS DEEMED APPROPRIATE TO ADVISE YOU DIRECTLY IN THE MATTER. LIQUIDATED DAMAGES WERE ASSESSED AGAINST THE CONTRACTOR FOR ALL DELIVERIES WHICH WERE NOT MADE WITHIN THE TIME STIPULATED.

B-86513, MAY 29, 1951

PRECIS-UNAVAILABLE

THE HONORABLE, THE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO ARMY'S FILE FINEY 167/645967, AND TO THIRD INDORSEMENT OF JANUARY 9, 1951, FROM THE CHIEF OF FINANCE TO THE CLAIMS DIVISION OF THIS OFFICE, REQUESTING ADVICE, ON BEHALF OF THE NEW YORK QUARTERMASTER PROCUREMENT AGENCY, AS TO WHETHER, IN SETTLEMENT NO. U.S. 53325, DATED OCTOBER 4, 1950, LIQUIDATED DAMAGES WERE ASSESSED AGAINST THE M.M.&W GARMENT COMPANY UNDER CONTRACT NO. W-30-280-QM-9385 FOR ALL DELIVERIES WHICH WERE NOT MADE WITHIN THE TIME STIPULATED, OR ONLY WITH RESPECT TO THOSE WHICH WERE DUE AT THE TIME SAID CONTRACT WAS TERMINATED. SINCE THE LEGAL QUESTION INVOLVED IS AN IMPORTANT ONE AND APPEARS TO HAVE BEEN A SUBJECT OF CONTROVERSY BETWEEN THE ARMED SERVICES BOARD OF CONTRACT APPEALS AND THE QUARTERMASTER CORPS, IT IS DEEMED APPROPRIATE TO ADVISE YOU DIRECTLY IN THE MATTER.

IN THE REFERRED-TO SETTLEMENT, LIQUIDATED DAMAGES WERE ASSESSED AGAINST THE CONTRACTOR FOR ALL DELIVERIES WHICH WERE NOT MADE WITHIN THE TIME STIPULATED, WHETHER THEY WERE DUE AT THE TIME THE CONTRACT WAS TERMINATED, OR NOT. THIS IS BELIEVED TO BE IN ACCORDANCE WITH THE PROVISIONS OF THE DELAYS-LIQUIDATED DAMAGES CLAUSE OF THE CONTRACT, WHICH READS, IN PERTINENT PART, AS FOLLOWS:

"DELAYS-LIQUIDATED DAMAGES-- IF THE CONTRACTOR REFUSES OR FAILS TO MAKE DELIVERY OF THE MATERIALS OR SUPPLIES WITHIN THE TIME SPECIFIED, *** THE CONTRACTOR SHALL PAY TO THE GOVERNMENT, AS FIXED, AGREED, AND LIQUIDATED DAMAGES FOR EACH CALENDAR DAY OF DELAY IN MAKING DELIVERY, THE AMOUNT SET FORTH IN THE SPECIFICATIONS OR ACCOMPANYING PAPERS, *** PROVIDED, HOWEVER, THAT THE GOVERNMENT RESERVES THE RIGHT TO TERMINATE THE RIGHT OF THE CONTRACTOR TO PROCEED WITH DELIVERIES OR SUCH PART OR PARTS THEREOF AS TO WHICH THERE HAS BEEN DELAY, AND TO PURCHASE SIMILAR MATERIAL OR SUPPLIES IN THE OPEN MARKET OR SECURE THE MANUFACTURE AND DELIVERY THEREOF BY CONTRACT OR OTHERWISE, CHARGING AGAINST THE CONTRACTOR AND HIS SURETIES ANY EXCESS COST OCCASIONED THE GOVERNMENT THEREBY, TOGETHER WITH LIQUIDATED DAMAGES ACCRUING UNTIL SUCH TIME AS THE GOVERNMENT MAY REASONABLY PROCURE SIMILAR MATERIAL OR SUPPLIES ELSEWHERE: ***"

IN CONNECTION WITH THE APPEAL OF THE CONTRACTOR FROM THE ASSESSMENT OF LIQUIDATED DAMAGES INVOLVED, THE ARMED SERVICES BOARD OF CONTRACT APPEALS HELD IN ITS DECISION OF MAY 8, 1950, ASBCA NO. 370, THAT NO LIQUIDATED DAMAGES SHOULD HAVE BEEN ASSESSED WITH RESPECT TO THOSE DELIVERIES WHICH WERE NOT DUE AT THE TIME THE CONTRACT WAS TERMINATED.

THE BOARD RECOGNIZES IN ITS OPINION THAT THE PROVISION IN THE CLAUSE GRANTING THE GOVERNMENT THE RIGHT TO TERMINATE THE RIGHT OF THE CONTRACTOR TO PROCEED WITH DELIVERIES AUTHORIZED THE GOVERNMENT, UPON THE CONTRACTOR'S DEFAULT, TO TERMINATE THE BALANCE OF THE SHIRTS REMAINING TO BE DELIVERED UNDER THE CONTRACT, BUT IT CONTENDS THAT THE RIGHT WAS GRANTED TO ASSESS LIQUIDATED DAMAGES ONLY FOR "EACH CALENDAR DAY OF DELAY," AND THAT THERE HAD BEEN NO DELAY IN DELIVERY AS TO THOSE ITEMS NOT DUE AT THE TIME OF TERMINATION. HOWEVER, IT SEEMS OBVIOUS THAT THERE WAS DELAY WITH RESPECT TO ANY DELIVERIES WHICH WERE NOT MADE WITHIN THE TIME STIPULATED IN THE CONTRACT INSOFAR AS THE GOVERNMENT IS CONCERNED, AND THAT THE QUESTION POSED BY THE BOARD IS WHETHER THE DELAY, OR SOME PART OF THE DELAY, APPLICABLE TO THE DELIVERIES WHICH WERE NOT TIMELY MUST, IN EACH CASE, HAVE ACCRUED PRIOR TO THE TERMINATION IN ORDER TO GIVE RISE TO THE RIGHT TO LIQUIDATED DAMAGES IN THE GOVERNMENT.

IT IS TRUE, AS APPARENTLY CONCLUDED BY THE BOARD OF CONTRACT APPEALS, THAT THE WORDS "EACH CALENDAR DAY OF DELAY" APPEARING IN THE MAIN SENTENCE OF THE CLAUSE REFER TO SUCH DELAY AS MAY BE OCCASIONED BY THE CONTRACTOR, AND NO ONE ELSE. CONSEQUENTLY, THE SENTENCE, IF CONSIDERED ALONE, COULD BE CONSTRUED AS FURNISHING NO AUTHORITY FOR ASSESSING THE CONTRACTOR WITH LIQUIDATED DAMAGES FOR ANY DELAY INCIDENT TO DELIVERIES MADE UNDER A REPLACEMENT CONTRACT. HOWEVER, THE SENTENCE OBVIOUSLY MAY NOT BE CONSIDERED ALONE IN DECIDING THE PRESENT QUESTION FOR THE REASON THAT IT IS IMMEDIATELY FOLLOWED BY THE PROVISO WHICH GIVES THE GOVERNMENT THE ADDITIONAL RIGHT TO TERMINATE THE CONTRACT AND STIPULATES WHAT RIGHTS THE GOVERNMENT SHALL HAVE UPON TAKING SUCH ACTION. THESE RIGHTS ARE TO PURCHASE SIMILAR MATERIAL OR SUPPLIES FROM ANOTHER SOURCE AND TO CHARGE AGAINST THE CONTRACTOR ANY EXCESS COST OCCASIONED THE GOVERNMENT THEREBY, TOGETHER WITH LIQUIDATED DAMAGES ACCRUING UNTIL SUCH TIME AS THE GOVERNMENT MAY REASONABLY PROCURE SIMILAR MATERIAL OR SUPPLIES ELSEWHERE. SUCH RIGHTS DERIVE FROM THE SAME LANGUAGE THAT GIVES THE GOVERNMENT THE RIGHT OF TERMINATION. THUS IT WOULD BE ENTIRELY INCONSISTENT TO CONSTRUE THE LANGUAGE IN QUESTION AS RESTRICTING THE GOVERNMENT'S RIGHT TO CHARGE LIQUIDATED DAMAGES AND EXCESS COSTS ONLY TO SUPPLIES DUE FOR DELIVERY AT THE TIME OF TERMINATION WHILE HOLDING THAT THE GOVERNMENT HAD THE RIGHT TO TERMINATE THE ENTIRE CONTRACT QUANTITY INCLUDING ANY DELIVERIES NOT DUE AT SUCH TIME. APART FROM THAT, THE ONLY REASONABLE CONSTRUCTION TO PLACE UPON THE WORDS "SIMILAR MATERIAL OR SUPPLIES," AS USED IN THE PROVISO, IS THAT THEY MEAN MATERIAL OR SUPPLIES WHICH ARE "SIMILAR" AS TO QUANTITY AS WELL AS TYPE, WITH THOSE AS TO WHICH THE CONTRACTOR'S RIGHT TO PROCEED HAS BEEN TERMINATED, AND THAT THEY DO NOT REFER ONLY TO A PART OF SUCH MATERIAL OR SUPPLIES, I.E., THAT PART WITH RESPECT TO WHICH A CONTRACTOR IS IN DEFAULT AT THE TIME OF TERMINATION, BUT TO ALL OF THE MATERIAL OR SUPPLIES WHICH THE GOVERNMENT IS REQUIRED TO PROCURE ELSEWHERE AS A RESULT OF THE CONTRACTOR'S DEFAULT. AS POINTED OUT IN THE CONTRACTING OFFICER'S REPORT AND RECOMMENDATION OF AUGUST 24, 1950, WHEREIN THE DECISION OF THE BOARD OF CONTRACT APPEALS IS DISCUSSED, THE LIQUIDATED DAMAGES CLAUSE, IN PROVIDING FOR THE ASSESSMENT OF LIQUIDATED DAMAGES IN THE CASE OF DEFAULT AND REPURCHASE, MAKES NO DISTINCTION BETWEEN DELIVERIES WHICH ARE DUE AT THE TIME OF TERMINATION AND THOSE WHICH ARE NOT.

IN THE INSTANT CASE THE GOVERNMENT, BY TERMINATING THE CONTRACT, DID PLACE IT BEYOND THE POWER OF THE CONTRACTOR TO COMPLY WITH THE DELIVERY SCHEDULE INSOFAR AS CONCERNED THOSE SUPPLIES THE DELIVERY OF WHICH WAS NOT DUE AT THE TIME OF TERMINATION. HOWEVER, SUCH ACTION ON THE PART OF THE GOVERNMENT WAS AUTHORIZED BY THE CONTRACT AND WAS DUE TO THE CONTRACTOR'S OWN PREVIOUS DEFAULT. HENCE, IT CONSTITUTES NO REASON FOR RELIEVING THE CONTRACTOR FROM THE OBLIGATION OF PAYING LIQUIDATED DAMAGES FOR THE DELAYS INCURRED BY THE GOVERNMENT IN PROCURING SUCH SUPPLIES. SEE RESTATEMENT, CONTRACTS, SECS. 295, 315. ALSO, SEE SOUTHERN SURETY COMPANY V. AMERICAN CONSTRUCTION COMPANY, 36 S.W. 2D 212.

THE GOVERNMENT SUFFERS DAMAGES FOR ANY DELAY BEYOND THE SPECIFIED DELIVERY DATES WHETHER THE SUPPLIES ARE FURNISHED BY THE ORIGINAL CONTRACTOR OR BY SOMEONE ELSE, AND IT WAS UNDOUBTEDLY THE PURPOSE OF THE CLAUSE UNDER CONSIDERATION TO PROVIDE COMPENSATION TO THE GOVERNMENT FOR ALL SUCH DELAY AS WAS ATTRIBUTABLE TO THE WRONGFUL CONDUCT OF THE ORIGINAL CONTRACTOR. ACCORDINGLY, IT IS THE VIEW OF THIS OFFICE THAT A CONTRACTOR'S LIABILITY FOR LIQUIDATED DAMAGES FOR DELAY INCURRED WITH RESPECT TO DELIVERIES DUE TO BE MADE UNDER THE CONTRACT SUBSEQUENT TO THE DATE OF TERMINATION THEREOF COMES FAIRLY WITHIN THE PURVIEW OF THE LIQUIDATED-DAMAGES PROVISION INVOLVED.