B-119063, MARCH 22, 1954, 33 COMP. GEN. 395

B-119063, MARCH 22, 1954, 33 COMP. GEN. 395

CONTRACTS - DAMAGES - AWARD TO OTHER THAN LOW BIDDER ON BASIS OF EARLIER DELIVERY - DELAY - LIQUIDATED DAMAGES BASED ON DIFFERENCE BETWEEN CONTRACT PRICE AND LOW BID A FIRM AWARDED A CONTRACT BY A PURCHASE ORDER WHICH CONTAINED STATEMENT THAT AWARD WAS MADE TO THAT FIRM AS OTHER THAN LOW BIDDER ON BASIS OF EARLY DELIVERY DATE AND WHICH MADE REFERENCE TO PENALTIES AS SET FORTH IN CLAUSE 7 OF SUPPLEMENTAL PROVISIONS ( G.S.A. FORM 75) FOR FAILURE TO MEET DELIVERY SCHEDULE MAY BE ASSESSED LIQUIDATED DAMAGES FOR FAILURE TO MEET DELIVERY SCHEDULE ON BASIS OF DIFFERENCE BETWEEN CONTRACT PRICE AND LOW BID AS PROVIDED IN CLAUSE 7, EVEN THOUGH INVITATION TO BID DID NOT SPECIFICALLY PROVIDE THAT TIME OF DELIVERY WAS OF THE ESSENCE.

COMPTROLLER GENERAL WARREN TO TUMULTY AND TUMULTY, MARCH 22, 1954:

REFERENCE IS MADE TO YOUR LETTER OF FEBRUARY 15, 1954, IN WHICH YOU REQUEST RECONSIDERATION OF GENERAL ACCOUNTING OFFICE SETTLEMENT DATED OCTOBER 19, 1953, BY WHICH THE CLAIM OF YOUR CLIENT, ARMCO DRAINAGE AND METAL PRODUCTS COMPANY, INC., FOR $1,174.21, WAS DISALLOWED. THE AMOUNT OF THIS CLAIM WAS DEDUCTED BY THE GENERAL SERVICES ADMINISTRATION IN EFFECTING PAYMENT TO YOUR CLIENT UNDER CONTRACT NO. GS-08S-2346, AND REPRESENTS THE DIFFERENCE BETWEEN THE PRICE AT WHICH THE CONTRACT WAS AWARDED TO THE ARMCO COMPANY AND THE AMOUNT OF THE LOW BID RECEIVED PURSUANT TO THE INVITATION INVOLVED.

YOUR GROUNDS FOR OBJECTING TO THE ACTION TAKEN ARE: FIRST, ADMITTING THAT YOUR CLIENT BREACHED THE PROVISIONS OF THE CONTRACT AS TO DELIVERY TIME, THE DIFFERENCE BETWEEN THE CONTRACT PRICE AND THE AMOUNT OF THE LOW BID IS NOT THE PROPER MEASURE OF DAMAGES FOR SUCH BREACH; AND SECOND, THAT THE DEDUCTION IN QUESTION WAS THE RESULT OF READING INTO THE CONTRACT WORDS AND PROVISIONS WHICH ARE NO PART THEREOF.

BOTH OF THESE ARGUMENTS STEM FROM AN UNDERSTANDABLE DESIRE ON YOUR PART TO ESTABLISH THAT THE CONTRACT UNDER CONSIDERATION HERE IS IDENTICAL FOR ALL PRACTICAL PURPOSES WITH THOSE INVOLVED IN KOLKER V. UNITED STATES, 40 F.1SUPP. 972, AND IN B-86076, 28 COMP. GEN. 717, AND IT MAY BE CONCEDED THAT IF SUCH IDENTITY EXISTS YOUR CLIENT'S CLAIM SHOULD BE ALLOWED.

THERE APPEARS TO BE, HOWEVER, A CLEAR-CUT AND DECISIVE DISTINCTION BETWEEN THE TERMS AND CONDITIONS OF THE CONTRACT INVOLVED HERE AND THOSE UNDER CONSIDERATION THE KOLKER CASE AND IN B-86076, SUPRA. THIS DISTINCTION IS FOUND IN THE FOLLOWING LANGUAGE OF THE PURCHASE ORDER:

NOTE TO VENDOR: AWARD OF THE ABOVE ITEM WAS MADE TO YOUR FIRM AS OTHER THAN LOW BIDDER ON BASIS OF DELIVERY. IN THIS CONNECTION YOUR ATTENTION IS DIRECTED TO POSSIBLE PENALTIES AS SET FORTH IN CLAUSE 7 OF SUPPLEMENTAL PROVISIONS ( GSA FORM 75, DATED 7/18/50) FOR FAILURE TO MEET DELIVERY SCHEDULE.

AND IN CONNECTION WITH THE FOREGOING QUOTATION, IT SHOULD BE POINTED OUT THAT IT IS THE POSITION OF THIS OFFICE THAT THE PURCHASE ORDER IS NOT ONLY A PART OF THE CONTRACT AS FINALLY CONSUMMATED BUT PERHAPS THE MOST IMPORTANT DOCUMENT OF THOSE MAKING UP THE FORMAL AGREEMENT.

ONE OF THE BASIC GROUNDS FOR THE DECISIONS IN THE KOLKER CASE AND IN B- 86076, WAS THAT THERE WERE NO PROVISIONS IN THE CONTRACTS INVOLVED IN THOS CASES FOR THE IMPOSITION OF LIQUIDATED DAMAGES IN THE EVENT OF DEFAULT AS TO DELIVERY.

IN THE KOLKER CASE, THE COURT IN COMMENTING ON WISCONSIN BRIDGE AND IRON CO. V. CITY OF ALPENA, 238 MICH. 164, 213 N.W. 93, CITED IN YOUR LETTER, SAID, P.974:

* * * IN CONNECTION WITH THE CONSTRUCTION OF A BRIDGE IN THAT CASE, THE CONTRACT, AS HERE, MADE NO PROVISION FOR REMEDY FOR DELAY BY WAY OF LIQUIDATED DAMAGES. IN REVERSING THE LOWER COURT, WHICH HAD PERMITTED THE JURY TO ADOPT THE THEORY ADVANCED HERE BY THE GOVERNMENT, THE COURT SAID (238 MICH. AT PAGES 167-170, 213 N.W. AT PAGE 95): "WHILE THE CITY AUTHORITIES WANTED THE BRIDGE QUICKLY AND FOR THAT REASON ACCEPTED THE HIGHER BID WITH SPEEDY DELIVERY, NO PROVISION FOR LIQUIDATED DAMAGES FOR DELAY WAS INCORPORATED IN THE CONTRACT.'

IN B-86076, 28 COMP. GEN. 717, THE FOLLOWING STATEMENT WAS MADE, P. 720:

IN THE PRESENT CASE, IT IS SHOWN THAT WHILE THE CONTRACTOR HAD ACTUAL NOTICE THAT AWARD WAS MADE TO IT AT A HIGHER PRICE BECAUSE IT PROMISED EARLIER DELIVERY THAN THE LOW BIDDER, NEITHER THE SPECIFICATIONS ACCOMPANYING THE INVITATION FOR BIDS NOR THE CONTRACT PROVIDED FOR THE DEDUCTION OF ANY AMOUNT IN THE EVENT OF A LATE DELIVERY. HAD THE PARTIES INTENDED THE CONTRACT TO PROVIDE FOR ANY SUCH ASSESSMENT IN THE EVENT OF DELAY, A SPECIFIC PROVISION TO THAT EFFECT SHOULD HAVE BEEN MADE. * * *

IN THE INSTANT MATTER, THE CONTRACT BY VIRTUE OF THE PROVISION IN THE PURCHASE ORDER QUOTED HEREINBEFORE DID PROVIDE FOR THE DEDUCTION OF A SPECIFIC AMOUNT IN THE EVENT OF A LATE DELIVERY AND DID BY REFERENCE TO THE TERMS OF CLAUSE 7 OF THE SUPPLEMENTAL PROVISIONS ( G.S.A. FORM 75) MAKE PROVISION FOR REMEDY FOR DELAY BY WAY OF LIQUIDATED DAMAGES, THE FAILURE TO DO WHICH WAS CONSIDERED FATAL TO THE GOVERNMENT'S POSITION IN THE KOLKER CASE.

IN OTHER WORDS, THE FAILURE TO SPECIFY A MEASURE OF DAMAGES WHICH GAVE RISE TO THE KOLKER DECISION AND TO THAT IN 28 COMP. GEN. 717, AND WHICH CONSTITUTES YOUR FIRST GROUND OF OBJECTION HERE IS NON-EXISTENT. THE ATTENTION OF YOUR CLIENT WAS DRAWN SPECIFICALLY TO CLAUSE 7 OF THE SUPPLEMENTAL PROVISIONS WHICH READS AS FOLLOWS:

WHERE THE INVITATION PROVIDES THAT TIME OF DELIVERY SHALL BE OF THE ESSENCE IN MAKING AWARDS, THE FOLLOWING SHALL APPLY: 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).

IN THE KOLKER CASE AND IN B-86076, IT WAS THE FAILURE TO SPECIFY A MEASURE OF DAMAGES IN THE CONTRACTS THEMSELVES THAT RESULTED IN THE APPLICATION OF THE RULE OF ACTUAL DAMAGES. IN THE PRESENT CASE, THE ACCEPTANCE WITHOUT PROTEST BY THE ARMCO COMPANY OF THE PURCHASE ORDER RESULTS IN AT LEAST A TACIT AGREEMENT ON ITS PART THAT IN THE EVENT OF DELAY THE MEASURE OF DAMAGES WOULD BE AS SPECIFIED IN CLAUSE 7, SUPRA.

THE FACT THAT THE INVITATION DID NOT CONTAIN THE IDENTICAL PHRASE "TIME OF DELIVERY SHALL BE OF THE ESSENCE" IS DEEMED UNIMPORTANT IN VIEW OF THE REPEATED STATEMENTS AS TO THE IMPORTANCE OF DELIVERY DATE FOUND IN THE INVITATION AND THROUGHOUT THE CONTRACT WHICH CULMINATED IN THE WARNING OF THE SPECIFIC CONSEQUENCES WHICH WOULD FOLLOW A DEFAULT AS TO DELIVERY CONTAINED IN THE PURCHASE ORDER. THE EARLIER DELIVERY DATE WAS THE SOLE CONSIDERATION FOR THE AWARD OF THE CONTRACT TO YOUR CLIENT AT A PRICE $1,192.25, HIGHER THAN THAT AT WHICH THE STRUCTURE COULD HAVE BEEN OBTAINED FROM ANOTHER SOURCE. THE ACCEPTANCE OF THE PURCHASE ORDER BY THE ARMCO COMPANY WITHOUT PROTEST OR QUESTION AND PERFORMANCE THEREUNDER CONSTITUTED A COVENANT THAT, IF DELIVERY WAS NOT MADE AS AGREED "THE PRICE PAYABLE TO THE CONTRACT, 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.'

YOUR SECOND OBJECTION TO THE ACTION HERETOFORE TAKEN APPEARS TO BE BASED ON THE NARROW AND TECHNICAL GROUND THAT THE INVITATION DID NOT SPELL OUT IN SO MANY WORDS THE FACT THAT TIME WAS OF THE ESSENCE. IT IS BELIEVED THAT SUCH CONSTRUCTION IS TOO NARROW AND THAT VIEWED AS A WHOLE THE CONTRACT SHOWS CLEARLY THAT TIME OF DELIVERY WAS DEEMED TO BE OF PARAMOUNT IMPORTANCE. HAVING ACCEPTED THE PURCHASE ORDER WITHOUT PROTEST YOUR CLIENT CANNOT NOW BE EXCUSED FROM THE CONSEQUENCES OF ITS BREACH, ABOUT WHICH IT WAS PARTICULARLY WARNED, ON THE TECHNICALITY THAT THE INVITATION DID NOT CONTAIN CERTAIN SPECIFIC WORDS, THE MEANING OF WHICH IS EXPRESSED REPEATEDLY IN OTHER PORTIONS OF THE CONTRACT.

FROM WHAT HAS BEEN SAID HEREINBEFORE, IT FOLLOWS THAT THIS CASE IS DISTINGUISHABLE FROM THE KOLKER CASE AND B-86076, AND THAT THE DECISION HERE MUST BE REACHED BY GIVING EFFECT TO THE INTENTION OF THE PARTIES WHICH, AFTER ALL, IS THE CARDINAL RULE OF CONTRACT CONSTRUCTION. UPON THE RECORD, IT SEEMS CLEAR THAT IT WAS THE INTENTION OF THE PARTIES TO THE INSTANT CONTRACT THAT FAILURE TO MEET THE DELIVERY TIME THEREIN PROVIDED WOULD RESULT IN THE IMPOSITION OF THE LIQUIDATED DAMAGES PROVIDED IN CLAUSE 7 OF THE SPECIAL PROVISIONS.