B-169362, APR. 27, 1970

B-169362, APR. 27, 1970

CONTRACTS--DAMAGES LIQUIDATED--LIABILITY LIMITATION RECORD HAVING ESTABLISHED PARTIES INTENDED $30/DAY LIQUIDATED DAMAGES PROVISION TO COMPENSATE GOVT. FOR DIFFERENCE BETWEEN CONTRACTOR'S BID AND BID OFFERING 250-DAY DELIVERY, PLUS ADMINISTRATIVE EXPENSE, AND IT NOT BEING ANTICIPATED DELIVERY WOULD BE DELAYED OVER 70 DAYS BEYOND REQUIRED 180-DAY PERIOD, UPON WHICH BASIS CONTRACTOR CONSENTED TO MODIFICATION INSERTING SAID PROVISION, IT WOULD APPEAR PARTIES IMPLICITLY AGREED TO $2,100 LIABILITY CEILING THEREUNDER. THEREFORE, CONTRACT MAY BE REFORMED TO LIMIT CONTRACTOR'S LIQUIDATED DAMAGES LIABILITY TO $2,100 UNDER RULE THAT WRITTEN AGREEMENT NOT CONFORMING TO PARTIES' ACTUAL INTENT MAY BE REFORMED TO EFFECTUATE SUCH INTENT. SEE COMP. GEN. DECS. CITED.

TO MR. SECRETARY:

REFERENCE IS MADE TO A LETTER DATED APRIL 2, 1970, FROM THE DEPUTY FOR PROCUREMENT, OFFICE OF THE ASSISTANT SECRETARY, INSTALLATIONS AND LOGISTICS, FORWARDING AN ADMINISTRATIVE REPORT CONCERNING THE REQUEST OF CASTLE COMPANY FOR RELIEF FROM ITS LIQUIDATED DAMAGES LIABILITY UNDER CONTRACT NO. DAAA13-68-C-0196 AWARDED BY THE PROCUREMENT DIVISION, FORT DETRICK, FREDERICK, MARYLAND.

SINCE EQUITABLE REMISSION OF LIQUIDATED DAMAGES HAS NOT BEEN RECOMMENDED BY THE HEAD OF THE AGENCY AS REQUIRED BY 10 U.S.C. 2312, OUR OFFICE IS PRECLUDED BY THE TERMS OF THE STATUTE FROM AUTHORIZING SUCH REMISSION. HOWEVER, WE ARE OF THE OPINION THAT THE CONTRACT, INSOFAR AS IT PROVIDES FOR THE ASSESSMENT OF LIQUIDATED DAMAGES, MAY BE REFORMED TO LIMIT THE ASSESSMENT THEREOF TO $2,100.

THE CONTRACT WAS AWARDED ON JUNE 28, 1968, PURSUANT TO AN INVITATION FOR BIDS ISSUED ON JUNE 7, 1968. ON THE EXTENDED OPENING DATE OF JUNE 26, 1968, TWO BIDS WERE RECEIVED ON THE ITEMS FOR PROCUREMENT, TWO LABORATORY- TYPE STERILIZERS. THE CASTLE BID WAS IN THE TOTAL AMOUNT OF $36,720; THE ONLY OTHER BID, THAT OF AMERICAN STERILIZER CO; WAS FOR $34,800. HOWEVER, AWARD COULD NOT BE MADE TO THE LOW BIDDER BECAUSE ITS OFFERED DELIVERY PERIOD (250 DAYS) WAS NONRESPONSIVE TO THE 180-DAY DELIVERY SCHEDULE REQUIRED BY THE INVITATION. CASTLE OFFERED DELIVERY IN 120 DAYS. ON JULY 30, 1968, ABOUT 1 MONTH AFTER AWARD, CASTLE WROTE TO THE CONTRACTING OFFICER TO ADVISE OF AN ERROR IN THE DELIVERY PERIOD STATED IN ITS BID. THE COMPANY ASSERTED THAT THE DELIVERY PERIOD SHOULD HAVE BEEN 180 DAYS, AND IT WAS REQUESTED THAT THE CONTRACT BE APPROPRIATELY MODIFIED. LETTER DATED AUGUST 5, 1968, CASTLE WAS INFORMED THAT THE DESIRED CHANGE COULD NOT BE AUTHORIZED.

CASTLE EXPERIENCED GREAT DIFFICULTY IN SECURING THE NECESSARY APPROVAL OF ITS SHOP DRAWINGS. AS A RESULT, THE CONTRACTOR WAS UNABLE TO MEET THE OFFERED 120-DAY DELIVERY.

ON NOVEMBER 19, 1968, THE CONTRACTING OFFICER WROTE TO CASTLE, GRANTING (INTER ALIA) AN EXTENSION OF THE DELIVERY SCHEDULE TO 180 DAYS IN RETURN FOR ITS CONSENT TO THE INSERTION IN THE CONTRACT OF THE FOLLOWING LIQUIDATED DAMAGES PROVISION:

"38. LIQUIDATED DAMAGES

"IN CASE OF FAILURE ON THE PART OF THE CONTRACTOR TO DELIVER THE SUPPLIES WITHIN THE TIME FIXED IN THE CONTRACT OR ANY EXTENSIONS THEREOF, THE CONTRACTOR SHALL PAY TO THE GOVERNMENT AS LIQUIDATED DAMAGES, PURSUANT TO THE CLAUSE OF THIS CONTRACT ENTITLED 'DEFAULT', THE SUM OF $30.00 FOR EACH DAY OF DELAY."

THE CONTRACTING OFFICER'S LETTER OF NOVEMBER 19 EXPLAINED THE BASIS OF THE PROPOSED ACTION:

"AT THE TIME BIDS WERE SOLICITED, IT WAS STATED IN THE INVITATION FOR BIDS THAT THE GOVERNMENT'S REQUIRED DELIVERY WAS 180 DAYS AFTER DATE OF AWARD AND THAT BIDS OFFERING A LONGER DELIVERY WOULD BE CONSIDERED NONRESPONSIVE AND WOULD BE REJECTED. IN ADDITION TO YOUR BID, ONE OTHER BID WAS RECEIVED IN RESPONSE TO OUR SOLICITATION, OFFERING A PRICE OF $17,400 PER STERILIZER WHICH WAS $960.00 LESS THAN YOUR BID, HOWEVER, THE BIDDER ALSO SPECIFIED A DELIVERY TIME OF 250 DAYS WHICH MADE THE BID NONRESPONSIVE AND CAUSED ITS REJECTION. IN ESSENCE, $1,920.00 IN EXCESS OF THE NONRESPONSIVE LOW BID WAS PAID TO YOUR COMPANY TO OBTAIN DELIVERY WITHIN THE REQUIRED DELIVERY TIME OF 180 DAYS.

"NO EXTENSION OF THE 180 DAYS DELIVERY CAN BE ALLOWED WITHOUT REASONABLE CONSIDERATION FROM YOUR COMPANY. ACCORDINGLY ARTICLES 3 AND 4 OF THE ABOVE REFERENCED MODIFICATION MUST BE MADE A PART OF THE CONTRACT. IF THE TERMS OF THE ABOVE REFERENCED MODIFICATION ARE NOT ACCEPTABLE TO YOU, THE UNDERSIGNED WILL HAVE NO ALTERNATIVE BUT TO REQUIRE THAT DELIVERY BE MADE NO LATER THAN 7 JANUARY 1969 AND IN THE EVENT DELIVERY IS NOT MADE BY THAT DATE, YOUR RIGHT TO DELIVER WILL BE TERMINATED FOR DEFAULT IN ACCORDANCE WITH GENERAL PROVISION NO. 11 OF THE CONTRACT."

THE CONTRACTING OFFICER'S STATEMENT OF JANUARY 20, 1970, RELATES THE FOLLOWING:

"P. HARRY GUNNISON, CONTRACTOR REPRESENTATIVE, SUITE 512, PERPETUAL BUILDING, 7401 WISCONSIN AVENUE, BETHESDA, MARYLAND, CALLED ON THE CONTRACTING OFFICER PRIOR TO SIGNING THE SUPPLEMENTAL AGREEMENT AND QUESTIONED WHY THE CONTRACTOR SHOULD AGREE TO THE LIQUIDATED DAMAGES OF $30.00/DAY. IT WAS EXPLAINED THAT OPERATIONS IN THE BUILDING IN WHICH THE STERILIZERS WERE TO BE INSTALLED WERE SCHEDULED TO BE CLOSED DOWN DURING JANUARY 1969 AND THAT LATER DELIVERY WOULD CREATE COSTS TO THE GOVERNMENT. IN ADDITION, HE WAS ALSO REMINDED THAT AWARD WAS MADE TO THE CASTLE COMPANY ON THE BASIS OF BEING THE ONLY RESPONSIVE BIDDER MEETING DELIVERY REQUIREMENTS, AND THAT ANOTHER BIDDER HAD OFFERED $1,920 LESS FOR THE TWO STERILIZERS WITH A 250-DAY DELIVERY REQUIREMENT. WHILE IT WAS RECOGNIZED THAT AWARD COULD NOT BE MADE TO THE LOWER BIDDER ON HIS NONRESPONSIVE BID, IT WAS THE CONTRACTING OFFICER'S OPINION THAT CONSIDERATION FOR TIME IN EXCESS OF THE 180 DAYS REQUIRED DELIVERY IN THE IFB, SHOULD BE AT A RATE TO OFFSET THE DIFFERENCE BETWEEN THE CASTLE COMPANY PRICE AND THE AMOUNT THAT THE PURCHASE MIGHT HAVE BEEN MADE FROM ANOTHER CONCERN. THIS, IN ADDITION TO BUILDING RESCHEDULING AND ADMINISTRATIVE COSTS, APPEARED TO SUBSTANTIATE $30.00/DAY AS A REASONABLE AMOUNT TO SET AS LIQUIDATED DAMAGES FOR TIME IN EXCESS OF 180 DAYS TO 250 DAYS. IT WAS NOT CONTEMPLATED THAT DELIVERY MIGHT BE IN EXCESS OF 250 DAYS. IT WAS THIS REASONING THAT THE CONTRACTOR REPRESENTATIVE USED TO CONVINCE HIS MANAGEMENT TO SIGN THE SUPPLEMENTAL AGREEMENT." (UNDERSCORING ADDED.)

AMENDMENT NO. 2 TO THE CONTRACT WAS EXECUTED BY THE CONTRACTING OFFICER ON JANUARY 8, 1969, SUBSEQUENT TO CASTLE'S LETTER OF DECEMBER 31, 1968, WITH WHICH CASTLE RETURNED FOUR COPIES OF THE PROPOSED MODIFICATION, SIGNED AND ACCEPTED.

DELIVERY OF ONE STERILIZER WAS FINALLY MADE ON JULY 30, 1969; THE SECOND WAS DELIVERED ON AUGUST 22, 1969. THE LIQUIDATED DAMAGES WERE ASSESSED THROUGH THE DATE OF FINAL DELIVERY. WE ARE ADVISED THAT NO ACTUAL DAMAGES WERE SUFFERED BY THE GOVERNMENT BY REASON OF THE DELAYED DELIVERY.

IT IS AN ESTABLISHED PRINCIPLE THAT A WRITTEN AGREEMENT NOT CONFORMING TO THE ACTUAL INTENTION OF THE PARTIES MAY BE REFORMED TO ACCORD WITH SUCH INTENTION. B-157875, NOVEMBER 16, 1965. SEE, ALSO, B 166235, MARCH 25, 1969.

IN OUR OPINION, THE PRESENT RECORD ESTABLISHES WITH SUFFICIENT CLARITY THAT THE PARTIES UNDERSTOOD THAT THE $30 PER DAY LIQUIDATED DAMAGES PROVISION WAS INTENDED TO COMPENSATE THE GOVERNMENT FOR THE DIFFERENCE BETWEEN THE CASTLE BID AND AMERICAN STERILIZER'S BID, TOGETHER WITH CERTAIN ADMINISTRATIVE COSTS TO THE GOVERNMENT ASSOCIATED WITH LATE DELIVERY. IT WAS NOT ANTICIPATED THAT DELIVERY WOULD BE DELAYED MORE THAN 70 DAYS BEYOND THE 180 DAYS ORIGINALLY STATED AS REQUIRED. THE IMPLICIT AGREEMENT SEEMS TO HAVE BEEN THAT THE LIQUIDATED DAMAGES LIABILITY WOULD BE SUBJECT TO A CEILING OF $2,100. THE EVIDENCE SHOWS THAT CASTLE COMPANY WAS PERSUADED TO CONSENT TO THE CONTRACT MODIFICATION ON THE BASIS OF THIS UNDERSTANDING. CONSEQUENTLY, WE HAVE NO OBJECTION TO A REFORMATION OF THE CONTRACT TO INCORPORATE IN THE LIQUIDATED DAMAGES PROVISION A SPECIFIC LIMITATION OF THE CONTRACTOR'S LIABILITY THEREUNDER TO $2,100.