Skip to Highlights
Highlights

CONTRACTS - DAMAGES - DELAYS - CONTRACTOR'S SUPPLIER - RELIEF UNDER DEFENSE PRODUCTION ACT THE RELIEF FROM DAMAGES OR PENALTIES FOR ANY ACT OR FAILURE TO ACT ACCORDED BY SECTION 707 OF THE DEFENSE PRODUCTION ACT OF 1950 IS AVAILABLE ONLY TO THE PERSON WHOSE ALLEGED LIABILITY IS THE DIRECT OR INDIRECT RESULT OF HIS OWN COMPLIANCE WITH A RULE. SO THAT A GOVERNMENT CONTRACTOR WHOSE DELAY OR OTHER DEFAULT IN THE PERFORMANCE OF A CONTRACT WAS CAUSED BY THE DELAYS OF A SUPPLIER OR SUBCONTRACTOR. WHO WAS UNABLE TO MAKE TIMELY DELIVERY OF MATERIAL DUE TO OTHER ORDERS WITH A PREFERENTIAL PRIORITY. IS NOT ENTITLED TO AN EXTENSION OF TIME UNDER SAID SECTION. 1952: REFERENCE IS MADE TO LETTER DATED SEPTEMBER 13.

View Decision

B-105631, FEBRUARY 19, 1952, 31 COMP. GEN. 408

CONTRACTS - DAMAGES - DELAYS - CONTRACTOR'S SUPPLIER - RELIEF UNDER DEFENSE PRODUCTION ACT THE RELIEF FROM DAMAGES OR PENALTIES FOR ANY ACT OR FAILURE TO ACT ACCORDED BY SECTION 707 OF THE DEFENSE PRODUCTION ACT OF 1950 IS AVAILABLE ONLY TO THE PERSON WHOSE ALLEGED LIABILITY IS THE DIRECT OR INDIRECT RESULT OF HIS OWN COMPLIANCE WITH A RULE, REGULATION, OR ORDER ISSUED PURSUANT TO THE ACT, SO THAT A GOVERNMENT CONTRACTOR WHOSE DELAY OR OTHER DEFAULT IN THE PERFORMANCE OF A CONTRACT WAS CAUSED BY THE DELAYS OF A SUPPLIER OR SUBCONTRACTOR, WHO WAS UNABLE TO MAKE TIMELY DELIVERY OF MATERIAL DUE TO OTHER ORDERS WITH A PREFERENTIAL PRIORITY, IS NOT ENTITLED TO AN EXTENSION OF TIME UNDER SAID SECTION.

COMPTROLLER GENERAL WARREN TO THE ADMINISTRATOR, CIVIL AERONAUTICS ADMINISTRATION, FEBRUARY 19, 1952:

REFERENCE IS MADE TO LETTER DATED SEPTEMBER 13, 1951, FROM THE DEPUTY ADMINISTRATOR OF CIVIL AERONAUTICS, REQUESTING A DECISION ON CERTAIN QUESTIONS INVOLVING THE INTERPRETATION AND APPLICATION OF SECTION 707 OF THE DEFENSE PRODUCTION ACT OF 1950, 64 STAT. 798, 818. SAID SECTION 707 PROVIDES, IN PART, AS FOLLOWS:

NO PERSON SHALL BE HELD LIABLE FOR DAMAGES OR PENALTIES FOR ANY ACT OR FAILURE TO ACT RESULTING DIRECTLY OR INDIRECTLY FROM HIS COMPLIANCE WITH A RULE, REGULATION, OR ORDER ISSUED PURSUANT TO THIS ACT, NOTWITHSTANDING THAT ANY SUCH RULE, REGULATION, OR ORDER SHALL THEREAFTER BE DECLARED BY JUDICIAL OR OTHER COMPETENT AUTHORITY TO BE INVALID. * * *

THE FACTS IN THE PARTICULAR CASE PRESENTED AS AN EXAMPLE ARE BRIEFLY THESE: CONTRACT NO. CLCA-10145, COVERING THE CONSTRUCTION OF FAN MARKERS AND OTHER FACILITIES AT TWO LOCATIONS IN MARYLAND, WAS ENTERED INTO BETWEEN THE CIVIL AERONAUTICS ADMINISTRATION AND THE DORALD ENGINEERING COMPANY ON DECEMBER 28, 1950. THE CONTRACT REQUIRED THE COMPLETION OF WORK AT THE TWO LOCATIONS WITHIN 30 DAYS AFTER RECEIPT OF NOTICE TO PROCEED, AND PROVIDED FOR THE ASSESSMENT OF LIQUIDATED DAMAGES OF $30 FOR EACH DAY'S DELAY IN COMPLETION AT EACH SITE. THERE WAS A TOTAL DELAY OF 65 DAYS IN COMPLETING THE WORK, WITH CONSEQUENT ACCRUED LIQUIDATED DAMAGES OF $1,950, APPROXIMATELY 21 PERCENT OF THE TOTAL AMOUNT OF $9,190 EARNED UNDER THE CONTRACT.

THE CONTRACTOR'S DELAY WAS DUE TO HIS SUPPLIER'S FAILURE TO MAKE TIMELY DELIVERY OF TWO AUTOMATIC TRANSFER SWITCHES VALUED AT $763 EACH. THE FIRST SUPPLIER WAS IN TURN DELAYED BY LATE RECEIPT FROM HIS SUPPLIER OF CERTAIN TIMER COMPONENTS FOR THE SWITCHES. BY LETTERS DATED JANUARY 3 AND 25, 1951, THE CONTRACTOR STATED THAT HIS SUPPLIER AND SUBSUPPLIER REQUIRED DEFENSE ORDER PRIORITIES IN ORDER TO MAKE DELIVERY OF THE SWITCHES WITHIN A REASONABLE PERIOD OF TIME, AND REQUESTED THE ISSUANCE OF SUCH PRIORITIES. AUTHORITY TO ISSUE DEFENSE ORDER RATINGS WAS NOT DELEGATED TO THE CIVIL AERONAUTICS ADMINISTRATION UNTIL JANUARY 4, 1951, AND IT WAS NOT UNTIL JANUARY 30, 1951, THAT RATING DO-45 WAS ISSUED TO THE CONTRACTOR. EVEN WITH THIS RATING THE SWITCHES WERE NOT DELIVERED TO THE CONTRACTOR UNTIL MARCH 19, 1951. PRACTICALLY ALL THE OTHER CONTRACT WORK HAD BEEN COMPLETED THERETOFORE, AND THE FINAL COMPLETION OF THE CONTRACT WAS ACCOMPLISHED TWO DAYS AFTER RECEIPT OF THE SWITCHES. BY LETTER OF APRIL 17, 1951, THE CONTRACTOR REQUESTED AN EXTENSION OF TIME UNDER THE CONTRACT SUFFICIENT TO COVER ALL DELAY IN COMPLETION, WHICH REQUEST WAS DENIED BY THE CONTRACTING OFFICER ON JULY 13, 1951.

DECISION IS REQUESTED ON THE FOLLOWING QUESTIONS:

1. IS A CONTRACTOR ENTITLED TO AN EXTENSION OF TIME FOR DELAYS CAUSED BY THE FACT THAT HIS SUPPLIER OR SUBSUPPLIER WAS UNABLE TO MAKE TIMELY DELIVERY OF CONTRACT MATERIAL DUE TO THE FULFILLING OF OTHER ORDERS WITH PREFERENTIAL PRIORITY?

2. IF THE FOREGOING QUESTION IS ANSWERED AFFIRMATIVELY, IS IT NECESSARY TO DETERMINE FACTUALLY THAT THE DELAYS RESULTED FROM THE SUBCONTRACTOR'S OR SUPPLIER'S HAVING OTHER DEFENSE ORDERS WHICH HAD TO BE GIVEN PREFERENCE, OR WOULD A SHOWING OF GENERAL MARKET SCARCITY BE SUFFICIENT?

3. IS THE CONTRACTOR IN THE PRESENT CASE ENTITLED TO AN EXTENSION OF TIME FOR THE PERIOD TAKEN BY THE NATIONAL PRODUCTION AUTHORITY TO AUTHORIZE THE APPLICATION OF DO RATINGS BY THE CIVIL AERONAUTICS ADMINISTRATION?

4. IF THE ANSWER TO QUESTION 1 IS IN THE NEGATIVE, WOULD THE CASE BE GIVEN FAVORABLE CONSIDERATION IF A RECOMMENDATION FOR REMISSION OF LIQUIDATED DAMAGES ON AN EQUITABLE BASIS WERE MADE UNDER SECTION 10 OF PUBLIC LAW 754, APPROVED SEPTEMBER 5, 1950, 64 STAT. 591?

THE PROVISIONS OF SECTION 707 OF THE DEFENSE PRODUCTION ACT OF 1950 ARE SOMEWHAT SIMILAR TO A PROVISION INSERTED IN SECTION 2 OF THE ACT OF JUNE 28, 1940, 54 STAT. 676, BY THE ACT OF MAY 31, 1941, 55 STAT. 236, AND AMENDED BY SECTION 301 OF THE SECOND WAR POWERS ACT, 56 STAT. 177, 180, TO READ AS FOLLOWS:

SEC. 2 (A) (7). NO PERSON SHALL BE HELD LIABLE FOR DAMAGES OR PENALTIES FOR ANY DEFAULT UNDER ANY CONTRACT OR ORDER WHICH SHALL RESULT DIRECTLY OR INDIRECTLY FROM COMPLIANCE WITH THIS SUBSECTION (A) OR ANY RULE, REGULATION, OR ORDER ISSUED THEREUNDER, NOTWITHSTANDING THAT ANY SUCH RULE, REGULATION, OR ORDER SHALL THEREAFTER BE DECLARED BY JUDICIAL OR OTHER COMPETENT AUTHORITY TO BE INVALID.

HOWEVER, SECTION 707 DIFFERS FROM THE ABOVE-QUOTED PROVISION IN TWO IMPORTANT PARTICULARS. THE RELIEF GRANTED BY THE EARLIER PROVISION WAS LIMITED TO CASES OF DEFAULT "UNDER ANY CONTRACT OR ORDER," WHILE THE BROADER LANGUAGE OF SECTION 707 GIVES RELIEF FROM DAMAGES OR PENALTIES "FOR ANY ACT OR FAILURE TO ACT.' THE SECOND AND MATERIAL DIFFERENCE IN THE PRESENT CASE IS THE INCLUSION OF THE WORD "HIS" PRECEDING THE WORD "COMPLIANCE" IN SECTION 707. THE ACT OF MAY 31, 1941, SUPRA, USED THE SAME LANGUAGE, BUT THE WORD "HIS" WAS DELETED FROM THE PROVISION BY THE SECOND WAR POWERS ACT. THE PERTINENT COMMITTEE AND REFERENCE REPORTS STATE THAT THE DELETION HAD THE EFFECT OF:

* * * ELIMINATING THE RESTRICTION WHICH LIMITED THE BENEFITS OF THE PROVISION TO PERSONS WHO HAD RECEIVED PRIORITY OR ALLOCATIONS ORDERS, AND (EXTENDING) SUCH BENEFITS TO ANY PERSON WHO DEFAULTS ON A CONTRACT CAUSED BY COMPLIANCE WITH SUCH ORDER.

H.R. REP. N. 1765, 77TH CONG., 2D SESS., P. 7; H.R. REP. NO. 1896, 77TH CONG., 2D SESS., P. 6.

IN VIEW OF THE FOREGOING, IT WOULD APPEAR THAT THE RELIEF ACCORDED BY SECTION 707 OF THE DEFENSE PRODUCTION ACT IS AVAILABLE ONLY TO THE PERSON WHOSE ALLEGED LIABILITY IS THE DIRECT OR INDIRECT RESULT OF HIS OWN COMPLIANCE WITH SOME RULE, REGULATION, OR ORDER ISSUED PURSUANT TO THE ACT. EVEN THE BROADER PROVISION IN THE SECOND WAR POWERS ACT WAS SO INTERPRETED IN THE CASE OF VERNON LUMBER CORP. V. HARCEN CONSTRUCTION CO., 60 F.1SUPP. 555, AFFIRMED 155 F. 2D 348. THUS, IF A CONTRACTOR'S REGULAR SUPPLIER FAILED TO MAKE TIMELY SHIPMENT OF CERTAIN ESSENTIAL CONTRACT MATERIAL SOLELY BECAUSE OF HIS COMPLIANCE WITH A REGULATION REQUIRING HIM TO GIVE PREFERENCE TO ORDERS CARRYING A DO RATING, AND IF THE CONTRACTOR COULD NOT SECURE THE MATERIAL ELSEWHERE IN TIME, AS A RESULT OF WHICH HE WAS UNABLE TO COMPLETE HIS CONTRACT ON TIME, THE CONTRACT DEFAULT WOULD RESULT FROM COMPLIANCE WITH THE REGULATION, BUT NOT FROM THE CONTRACTOR'S OWN COMPLIANCE. THE LANGUAGE OF SECTION 707 APPEARS TO MAKE IT IMMATERIAL WHETHER COMPLIANCE IS THE DIRECT CAUSE OR MERELY AN INDIRECT CAUSE OF A CONTRACTOR'S DEFAULT, SINCE HIS DEFAULT MUST IN EITHER CASE RESULT FROM HIS OWN COMPLIANCE TO BE EXCUSABLE. THIS CONSTRUCTION OF THE SECTION ALSO AVOIDS MUCH UNCERTAINTY WHICH OTHERWISE WOULD ARISE IN ATTEMPTING TO DETERMINE THE DEGREE OF CAUSAL RELATIONSHIP NECESSARY TO EXCUSE DEFAULTS RESULTING ONLY INDIRECTLY FROM COMPLIANCE.

AS INDICATED IN THE LETTER OF SEPTEMBER 13, 1951, SECTION 22 OF NATIONAL PRODUCTION AUTHORITY REGULATION 2, AS AMENDED JULY 17, 1951, 16 F. R. 6944, PROVIDES AS FOLLOWS:

SEC. 22. DEFENSE AGAINST CLAIMS FOR DAMAGES.--- NO PERSON SHALL BE HELD LIABLE FOR DAMAGES OR PENALTIES FOR ANY DEFAULT UNDER ANY CONTRACT OR ORDER WHICH SHALL RESULT DIRECTLY OR INDIRECTLY FROM COMPLIANCE WITH ANY REGULATION OR ORDER OF NPA (INCLUDING ANY DIRECTION, DIRECTIVE, OR OTHER INSTRUCTION), NOTWITHSTANDING THAT ANY SUCH REGULATION OR ORDER SHALL THEREAFTER BE DECLARED BY JUDICIAL OR OTHER COMPETENT AUTHORITY TO BE INVALID.

THE ABOVE-QUOTED SECTION OF THE REGULATION APPEARS TO HAVE BEEN PATTERNED AFTER AND IS PRACTICALLY IDENTICAL WITH THE EXCULPATORY PROVISION OF THE SECOND WAR POWERS ACT, SUPRA. AS HEREINBEFORE DISCUSSED, THERE ARE MATERIAL DIFFERENCES IN THE LANGUAGE OF SECTION 707 OF THE DEFENSE PRODUCTION ACT OF 1950 AND THE COMPARABLE SECTION OF THE SECOND WAR POWERS ACT. WHETHER THE DEVIATION IN SECTION 22 OF NPA REGULATION 2 FROM THE LANGUAGE OF SECTION 707 WAS INADVERTENT OR OTHERWISE, IT IS MANIFEST THAT THE REGULATION CANNOT CONFER A BROADER DEFENSE THAN DOES THE STATUTE.

CONSEQUENTLY, I AM COMPELLED TO THE CONCLUSION THAT DELAY OR OTHER DEFAULT IN THE PERFORMANCE OF A CONTRACT CAUSED BY THE DELAYS OF A SUPPLIER OR SUBCONTRACTOR IS NOT EXCUSED BY SECTION 707 OF THE DEFENSE PRODUCTION ACT OF 1950 OR BY SECTION 22 OF NPA REGULATION 2. THE FIRST QUESTION PRESENTED IS THEREFORE ANSWERED IN THE NEGATIVE.

NO ANSWER TO THE SECOND QUESTION IS NECESSARY IN VIEW OF THE NEGATIVE ANSWER TO THE FIRST QUESTION, BUT IT MAY BE STATED THAT A SHOWING OF GENERAL MARKET SCARCITY WOULD NOT BE SUFFICIENT TO ESTABLISH THAT A CONTRACTOR'S DELAY WAS CAUSED BY COMPLIANCE WITH THE PRESENT PRIORITIES PROGRAM.

THE THIRD QUESTION, AS TO WHETHER THE CONTRACTOR IN THE INSTANT CASE IS ENTITLED TO AN EXTENSION OF TIME FOR THE PERIOD REQUIRED BY THE CIVIL AERONAUTICS ADMINISTRATION AND THE NATIONAL PRODUCTION AUTHORITY TO DETERMINE THAT DO RATINGS COULD BE APPLIED BY THE FORMER, IS ALSO ANSWERED IN THE NEGATIVE. CONTRACT NO. CLCA-10145 WAS ENTERED INTO PRIOR TO THE TIME THAT THE CAA WAS AUTHORIZED TO APPLY DO RATINGS AND DID NOT CONTEMPLATE OR REQUIRE THE FURNISHING OF SUCH A RATING TO THE CONTRACTOR BY THE GOVERNMENT. CONSEQUENTLY, THERE BEING NO OBLIGATION ON THE GOVERNMENT'S PART TO FURNISH THE CONTRACTOR A DO RATING, ITS DELAY IN DOING SO, OR EVEN ITS FAILURE TO HAVE DONE SO AT ALL, WOULD NOT CONSTITUTE AN EXCUSABLE CAUSE OF DELAY UNDER ARTICLE 9 OF THE CONTRACT.

THE FOURTH AND FINAL QUESTION PRESENTED IS WHETHER FAVORABLE CONSIDERATION WOULD BE GIVEN TO A RECOMMENDATION FOR THE REMISSION OF LIQUIDATED DAMAGES IN THE INSTANT CASE PURSUANT TO SECTION 10 OF PUBLIC LAW 754, APPROVED SEPTEMBER 5, 1950, 64 STAT. 591. INASMUCH AS THE SAID STATUTE PERMITS REMISSION OR WAIVER OF LIQUIDATED DAMAGES BY THE COMPTROLLER GENERAL ONLY UPON RECOMMENDATION OF THE HEAD OF THE AGENCY INVOLVED, IN THE ABSENCE OF SUCH A RECOMMENDATION SUPPORTED BY A COMPLETE STATEMENT SETTING FORTH THE BASIS THEREOF, I WOULD NOT DEEM IT PROPER TO PASS UPON THIS QUESTION AT THIS TIME.

AS REQUESTED, THE FILE FORWARDED WITH THE LETTER OF SEPTEMBER 13, 1951, IS RETURNED HEREWITH.

GAO Contacts