B-131986, JUL. 23, 1957

B-131986, JUL. 23, 1957

TO HONORABLE FRANKLIN G. FLOETE, ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION:

REFERENCE IS MADE TO YOUR LETTERS DATED MAY 23 AND JUNE 27, 1957, REQUESTING OUR OPINION ON THE ACTION TAKEN BY YOUR AGENCY IN WITHHOLDING $14,483 FROM PAYMENTS OTHERWISE DUE STAUFFER CHEMICAL COMPANY FOR INSECTICIDES FURNISHED UNDER CONTRACTS GS-OOS-2336-ICA AND GS-OOS-2244- ICA.

THE RECORD BEFORE US INDICATES THAT THE MATERIAL IN QUESTION WAS PROCURED BY YOUR AGENCY AT THE REQUEST OF THE INTERNATIONAL COOPERATION ADMINISTRATION FOR DELIVERY IN INDIA AND THAILAND UPON EXTREMELY SHORT DELIVERY TERMS. INVITATION FOR BIDS NO. FNW-4Q-66247 WAS ISSUED ON JANUARY 10, 1956, AND CONTAINED THE FOLLOWING PROVISIONS:

"DELIVERED POINT: F.A.S. VESSEL, LOS ANGELES, CALIFORNIA. F.A.S. VESSEL, U.S. PORT -

"DELIVERY DATE: TIME OF DELIVERY IS OF THE ESSENCE IN EVALUATING BIDS AND MAKING AWARDS FOR THIS REQUIREMENTS (SIC). MATERIAL IS REQUIRED AVAILABLE AT CONTRACTOR'S PLANT FOR INSPECTION NOT LATER THAN FEBRUARY 3, 1956, AND FOR STEAMSHIP SAILING AT U.S. PORTS, APPROXIMATELY FEBRUARY 9, 1956.

"IN THE EVENT IT IS FOUND NECESSARY TO AWARD PARTIAL QUANTITIES TO FILL THE ENTIRE QUANTITY REQUIREMENTS OF THIS INVITATION FOR BIDS, AWARD WILL BE MADE FIRST TO THE LOWEST ACCEPTABLE BIDDER IN THE QUANTITIES OFFERED WITHIN THE REQUIRED DELIVERY DATES, AND THEN PROGRESSIVELY TO THE NEXT HIGHER ACCEPTABLE BIDDER (UNTIL) THE ENTIRE QUANTITY REQUIREMENTS (SIC) HAS BEEN AWARDED.

"EXCEPT AS OTHERWISE STATED IN THE BID, IT SHALL BE UNDERSTOOD THAT THE BIDDER OFFERS TO DELIVER FROM STOCKS ON HAND OR AVAILABLE TO THE BIDDER IN TIME TO PERMIT DELIVERY WITHIN THE SPECIFIED TIME. FOR ANY SUPPLIES DELIVERED AFTER THE SPECIFIED TIME AND ACCEPTED, THE PRICE PAYABLE TO THE CONTRACTOR, IF HIGHER THAN THAT AT WHICH AWARD WOULD HAVE BEEN MADE IF TIME OF DELIVERY HAD NOT BEEN A FACTOR, SHALL BE SUCH LOWER PRICE IRRESPECTIVE OF WHETHER OR NOT THE DELAY IS EXCUSABLE UNDER ARTICLE 11 OF THE GENERAL PROVISIONS (STANDARD FORM 32).'

CONTRACT NO. GS-OOS-2244-ICA, CONTAINING THE PROVISIONS QUOTED ABOVE, WAS AWARDED TO STAUFFER CHEMICAL COMPANY ON JANUARY 31, 1956. HOWEVER, THE CONTRACTOR FAILED TO HAVE THE MATERIAL AVAILABLE FOR INSPECTION UNTIL FEBRUARY 16, 1956. SUCH MATERIAL WAS DELIVERED SHIPSIDE AT LOS ANGELES ON FEBRUARY 23, 1956, WHICH, ACCORDING TO YOUR LETTER OF MAY 23, 1957, WAS THE FIRST SCHEDULED VESSEL CONSISTENT WITH THE APPROXIMATE DELIVERY DATE OF FEBRUARY 9, 1956.

ON FEBRUARY 2, 1956, YOUR AGENCY ISSUED INVITATION FOR BIDS NO. FNW 4Q- 66247 (1) ASKING FOR ADDITIONAL MATERIALS SUBJECT TO THE FOLLOWING DELIVERY PROVISIONS:

"DELIVERED POINT: F.A.S. VESSEL, LOS ANGELES, CALIFORNIA.

"DELIVERY DATE: TIME OF DELIVERY IS OF THE ESSENCE IN EVALUATING BIDS AND MAKING AWARDS FOR THIS REQUIREMENT. MATERIAL IS REQUIRED AVAILABLE AT CONTRACTOR'S PLANT FOR INSPECTION NOT LATER THAN FEBRUARY 29, 1956.

"EXCEPT AS OTHERWISE STATED IN IN THE BID, IT SHALL BE UNDERSTOOD THAT THE CONTRACTOR OFFERS TO DELIVER FROM STOCKS ON HAND OR AVAILABLE TO THE CONTRACTOR IN TIME TO PERMIT DELIVERY WITHIN THE SPECIFIED TIME. FOR ANY SUPPLIES DELIVERED AFTER THE SPECIFIED TIME AND ACCEPTED, THE PRICE PAYABLE TO THE CONTRACTOR, IF HIGHER THAN THAT WHICH AWARD WOULD HAVE BEEN MADE IF TIME OF DELIVERY HAD NOT BEEN A FACTOR, SHALL BE SUCH LOWER PRICE IRRESPECTIVE OF WHETHER OR NOT THE DELAY IS EXCUSABLE UNDER ARTICLE II OF THE GENERAL PROVISIONS (STANDARD FORM 32).'

CONTRACT NO. GS-OOS-2336-ICA, CONTAINING SUCH PROVISIONS, WAS AWARDED TO STAUFFER CHEMICAL COMPANY ON FEBRUARY 14, 1956. MATERIAL UNDER ITEM NO. 1 OF THIS CONTRACT WAS NOT MADE AVAILABLE FOR INSPECTION UNTIL MARCH 6, 1956, AND WAS DELIVERED AT LOS ANGELES ON MARCH 22 AND APRIL 6, 1956. MATERIAL UNDER ITEM NUMBER 2 WAS NOT MADE AVAILABLE FOR INSPECTION UNTIL MARCH 21, 1956, AND WAS DELIVERED AT LOS ANGELES ON MAY 10 AND MAY 11, 1956. YOUR LETTER OF JUNE 27, 1957, ADVISES THAT THE RECORDS OF YOUR AGENCY DO NOT REFLECT THE EARLIEST DATE, ON OR AFTER THE DATE SPECIFIED UNDER THE CONTRACT, ON WHICH THE MATERIALS COULD HAVE BEEN DELIVERED TO A VESSEL AT LOS ANGELES IF THE CONTRACTOR HAD MET THE INSPECTION DATES SPECIFIED BY THE CONTRACT.

BASED UPON THE ABOVE FACTS, YOUR AGENCY HAS FOUND THAT THE CONTRACTOR'S FAILURES TO MEET THE SPECIFIED INSPECTION DATES CONSTITUTED BREACHES OF THE CONTRACTS, AND THAT THE MEASURE OF DAMAGES FOR SUCH BREACHES IS THE DIFFERENCE BETWEEN THE CONTRACT PRICES AND THE LOW BID PRICES AT WHICH AN AWARD WOULD HAVE BEEN MADE IF TIME OF DELIVERY HAD NOT BEEN A FACTOR, AS PROVIDED BY THE ABOVE-QUOTED LIQUIDATED DAMAGE PROVISIONS. IN VIEW OF THE CONTRACTOR'S PROTEST AGAINST THE WITHHOLDING OF $14,483, AS LIQUIDATED DAMAGES, FROM PAYMENTS DUE UNDER THE CONTRACTS, YOU REQUEST OUR OPINION AS TO THE VALIDITY OF SUCH WITHHOLDING.

UNDER THE SPECIFIC LANGUAGE USED IN THE LIQUIDATED DAMAGE CLAUSES SUCH DAMAGES WERE TO BE ASSESSED ONLY FOR FAILURE TO DELIVER THE CONTRACT MATERIALS WITHIN THE TIMES SPECIFIED, AND UNDER THE TERMS OF THE CONTRACT DELIVERIES WERE TO BE MADE TO THE GOVERNMENT AT SHIPSIDE. NEITHER CONTRACT SPECIFICALLY PROVIDES FOR LIQUIDATION OF DAMAGES ARISING OUT OF THE CONTRACTOR'S FAILURE TO MAKE THE MATERIALS AVAILABLE FOR INSPECTION ON OR BEFORE THE STATED INSPECTION DATES. IN THIS CONNECTION IT IS STATED AT PAGE 3 OF YOUR LETTER OF APRIL 23, 1957, THAT THE FUNDAMENTAL INTENT OF THE CONTRACTS WAS TO ATTAIN FULLEST COMPLIANCE BY THE CONTRACTOR AT THE EARLIEST POSSIBLE DATE; THAT, SINCE THE GOVERNMENT WAS RESPONSIBLE FOR ISSUANCE OF SHIPPING INSTRUCTIONS, THE LATEST ACTIONS FOR WHICH THE CONTRACTOR COULD BE HELD RESPONSIBLE WOULD BE NOTIFICATION TO YOUR AGENCY, ON OR BEFORE THE DATES SPECIFIED IN THE CONTRACTS, THAT THE MATERIALS WERE AVAILABLE FOR INSPECTION; AND THAT THE CONTRACTOR'S FAILURE TO PERFORM SUCH DUTIES AFFECTED THE TIME FACTOR IN THE CONTRACTS AND INVOKES THE LIQUIDATED DAMAGE PROVISIONS.

WHILE IT IS EVIDENT THAT A FAILURE TO MEET THE INSPECTION DATES PROVIDED BY THE CONTRACTS COULD WELL HAVE RESULTED IN SHIPMENT AT A LATER DATE THAN WOULD HAVE BEEN POSSIBLE IF THE MATERIAL HAD BEEN INSPECTED ON THE DESIGNATED DATES, THE CONTRACTOR HAD A CONTINUING RESPONSIBILITY, AFTER INSPECTION, TO DELIVER THE MATERIAL AT SHIPSIDE. PRESUMABLY, IN THE EVENT OF TIMELY INSPECTIONS AND THE ISSUANCE OF SHIPPING INSTRUCTIONS ESTABLISHING SPECIFIC DELIVERY DATES, THE LIQUIDATED DAMAGE PROVISIONS WOULD HAVE BEEN INVOKED AND OPERATIVE UPON FAILURE TO MEET SUCH DELIVERY DATES. IT WAS THEREFORE INCUMBENT UPON THE CONTRACTING OFFICER TO ESTABLISH SPECIFIC DELIVERY DATES AS EARLY AS POSSIBLE IN ORDER THAT THE RIGHTS OF BOTH THE GOVERNMENT AND THE CONTRACTOR WITH RESPECT TO DAMAGES FOR LATE DELIVERIES WOULD BECOME FIXED. IN THIS CONNECTION, YOUR ATTENTION IS INVITED TO THE CASE OF PRIEBE AND SONS V. UNITED STATES, 332 U.S. 407, WHERE THE COURT, IN CONSTRUING A CONTRACT WHICH CONTAINED LIQUIDATED DAMAGE CLAUSES COVERING BOTH LATE INSPECTION AND LATE DELIVERY, HELD THAT LIQUIDATED DAMAGES COULD NOT BE ASSESSED FOR FAILURE TO MEET AN INSPECTION DATE IF ACTUAL DELIVERY WAS TIMELY. THE COURT ALSO INDICATED THAT THE LATE INSPECTION CLAUSE MAY HAVE BEEN ENFORCEABLE IF THE CONTRACT HAD CONTAINED A PROVISION FROM WHICH IT MIGHT BE INFERRED THAT TIMELY COMPLIANCE SERVED AN IMPORTANT FUNCTION IN THE PREPARATION OF TIMETABLES FOR OVERSEAS SHIPMENTS, HOWEVER, IN THE ABSENCE OF SUCH PROVISION, DAMAGES FOR LATE INSPECTION CONSTITUTED A PENALTY INTENDED TO SPUR PERFORMANCE OF THE CONTRACT RATHER THAN A FAIR ESTIMATE OF THE DAMAGES ARISING OUT OF FAILURE TO MEET SUCH INSPECTION DATES.

THE CONTRACTS IN THE INSTANT CASE CONTAIN NEITHER A CLAUSE SPECIFICALLY PROVIDING FOR THE ASSESSMENT OF DAMAGES FOR LATE INSPECTION NOR A PROVISION WHICH WOULD GIVE ANY DEFINITE INDICATION THAT SCHEDULING FOR OCEAN SHIPMENT WAS DEPENDENT UPON COMPLIANCE WITH THE INSPECTION DATES. UNDER THE CIRCUMSTANCES, WE ARE OF THE OPINION THAT NO LEGAL LIABILITY FOR THE PAYMENT OF LIQUIDATED DAMAGES FOR FAILURE TO MEET THE CONTRACT INSPECTION DATES IS IMPOSED UPON THE CONTRACTOR UNDER THE TERMS OF EITHER CONTRACT NO. GS-00S-2336-ICA OR GS-OOS-2244-ICA AND, IN THE ABSENCE OF EVIDENCE THAT LATE INSPECTION CAUSED DELAYS IN SHIPMENTS AND RESULTED IN ACTUAL DAMAGES TO THE GOVERNMENT CHARGEABLE TO THE CONTRACTOR, THE TOTAL SUM WITHHELD FROM PAYMENT UNDER THE CONTRACTS SHOULD BE PAID. IT MAY BE ADDED THAT THE CONCLUSION IN THIS CASE WOULD NOT BE ALTERED BY THE FACT THAT THE PROVISION IN QUESTION AS TO THE PAYMENT OF A LOWER PRICE FOR LATE DELIVERY MIGHT BE REGARDED MERELY AS THE WITHHOLDING OF A PREMIUM THAT THE CONTRACTOR HAD NOT EARNED (COMPARE HALLETT MANUFACTURING COMPANY V. UNITED STATES, 124 C.CLS. 684) RATHER THAN ASSESSMENT OF LIQUIDATED DAMAGES, SINCE THE INSPECTION DUE DATE CANNOT BE REGARDED AS THE DELIVERY DATE WHERE THE CONTRACTS REQUIRED THE CONTRACTOR THEREAFTER TO DELIVER F.A.S. VESSEL AT A CERTAIN PORT. THIS LATTER DATE WAS STATED AS "APPROXIMATELY FEBRUARY 9, 1956," UNDER ONE CONTRACT HERE INVOLVED AND UNDER THE OTHER CONTRACT, NO DEFINITE OR APPROXIMATE DATE FOR DELIVERY F.A.S. VESSEL WAS SPECIFIED.