Source: https://www.gao.gov/products/453808
Timestamp: 2019-04-21 00:13:50+00:00

Document:
TO THE SECRETARY OF THE ARMY: REFERENCE IS MADE TO LETTER DATED NOVEMBER 18. IS COMPLETED AND ACCEPTED. AWARD UNDER SCHEDULES A AND D WAS MADE TO THE CASCADE CONSTRUCTORS OF SACRAMENTO. THE CITED CONTRACT WAS ENTERED INTO ON NOVEMBER 17. IT WAS NOT UNTIL THE MIDDLE OF 1956 THAT THE INSTALLATION WORK HAD PROGRESSED TO A POINT WHERE NOTICE WAS GIVEN TO THE CONTRACTOR TO PREPARE FOR INSTALLATION OF THE TILE. THE TIME FOR COMPLETION OF THE TILE WORK WAS EXTENDED FROM FEBRUARY 1. ITS RIGHT TO PROCEED FURTHER UNDER THE CONTRACT WAS TERMINATED BY THE GOVERNMENT ON JUNE 20. WAS TENDERED THE RIGHT TO COMPLETE THE WORK. THE SURETY HAS ADVISED THAT IT IS WILLING TO DO SO AND HAS TENDERED A PROPOSED AGREEMENT (PROPOSED MODIFICATION NO. 5) TO THAT EFFECT.
TO THE SECRETARY OF THE ARMY: REFERENCE IS MADE TO LETTER DATED NOVEMBER 18, 1957, FROM THE ASSISTANT SECRETARY (LOGISTICS) WHICH TRANSMITTED THE REQUEST OF J. F. SEALY, DISBURSING OFFICER, U.S. ARMY ENGINEER DISTRICT, WALLA WALLA, WASHINGTON, FOR AN ADVANCE DECISION AS TO WHETHER LIQUIDATED DAMAGES SHOULD BE ASSESSED AT THE RATE OF $1,000 PER DAY FOR EACH DAY OF DELAY UNTIL THE WORK COVERED BY CONTRACT NO. DA-45-164-ENG-2255, AS AMENDED, IS COMPLETED AND ACCEPTED.
THE PERTINENT INVITATION TO BID CALLED FOR THE INSTALLATION OF MAJOR MECHANICAL AND ELECTRICAL EQUIPMENT AND CONTROLS, AND CERTAIN ARCHITECTURAL SERVICES, UNDER SCHEDULES A AND D, AND FOR THE FURNISHING AND INSTALLING OF QUARRY AND CERAMIC TILE UNDER SCHEDULE C AT THE MCNARY DAM, OREGON. AWARD UNDER SCHEDULES A AND D WAS MADE TO THE CASCADE CONSTRUCTORS OF SACRAMENTO, CALIFORNIA, IN THE AMOUNT OF $3,270,975.73, AND TO THE UNIVERSITY BRICK AND TILE COMPANY OF SEATTLE UNDER SCHEDULE C IN THE ESTIMATED AMOUNT OF $200,158. THE CITED CONTRACT WAS ENTERED INTO ON NOVEMBER 17, 1952, BUT IT WAS NOT UNTIL THE MIDDLE OF 1956 THAT THE INSTALLATION WORK HAD PROGRESSED TO A POINT WHERE NOTICE WAS GIVEN TO THE CONTRACTOR TO PREPARE FOR INSTALLATION OF THE TILE. BY MODIFICATION NO. 3 TO THE SUBJECT CONTRACT, THE TIME FOR COMPLETION OF THE TILE WORK WAS EXTENDED FROM FEBRUARY 1, 1957, TO MAY 31, 1957. IN VIEW OF THE UNSATISFACTORY BONDING OF THE LAID TILE AND DUE TO THE FAILURE OF THE CONTRACTOR TO CORRECT THE DEFICIENCY, ITS RIGHT TO PROCEED FURTHER UNDER THE CONTRACT WAS TERMINATED BY THE GOVERNMENT ON JUNE 20, 1957. CONCURRENTLY WITH THE TERMINATION OF THE TILE CONTRACTOR'S RIGHT TO PROCEED, THE GENERAL INSURANCE COMPANY OF AMERICA, SURETY ON THE PERFORMANCE BOND, WAS TENDERED THE RIGHT TO COMPLETE THE WORK. THE SURETY HAS ADVISED THAT IT IS WILLING TO DO SO AND HAS TENDERED A PROPOSED AGREEMENT (PROPOSED MODIFICATION NO. 5) TO THAT EFFECT. HOWEVER, THE DELIVERY OF THE MODIFICATION IS CONDITIONED UPON THE RECOGNITION BY THE GOVERNMENT THAT THE SURETY SHALL NOT BE LIABLE FOR LIQUIDATED DAMAGES AT THE RATE OF $1,000 PER DAY; INSTEAD, THE SURETY HAS AGREED TO RECOGNIZE THE RIGHT OF THE GOVERNMENT TO CLAIM FROM IT SUCH ACTUAL DAMAGES AS MAY HAVE BEEN SUSTAINED BY REASON OF THE CONTRACTOR'S DEFAULT.
" "/13) TILE WALLS AND WALL FINISHES SHALL BE INSTALLED AS SOON AS SPACE IS AVAILABLE AND ACCESSIBLE IN ORDER THAT ROOMS MAY BE COMPLETED READY FOR USE.
"7. PARAGRAPH SC-2, OF THE SPECIAL CONDITIONS SET FORTH LIQUIDATED DAMAGES TO BE ASSESSED IN THE CASE OF FAILURE TO COMPLETE THE VARIOUS FEATURES OF THE WORK WITHIN THE TIME LIMITS SPECIFIED IN PARAGRAPH SC-1 AND INCLUDING A SUBSECTION (9) AS FOLLOWS: "THE SUM OF $1,000.00 FOR EACH CALENDAR DAY OF DELAY IN COMPLETING THE WORK DESCRIBED IN PARAGRAPH SC- 1H., ABOVE.' NEITHER PARAGRAPH SC-1 NOR PARAGRAPH SC-2 OF THE SPECIAL CONDITIONS MAKES ANY SPECIFIC REFERENCE TO COMPLETION OF THE CERAMIC TILE OR QUARRY TILE ITEMS.
"12. THE REASON FOR OMISSION OF SPECIFIC COMPLETION DATES AND ANY PARTICULAR LIQUIDATED DAMAGE PROVISIONS ON SCHEDULE C AROSE FROM THE VIEWPOINT TAKEN AND SHARED BY THE SPECIFICATION WRITERS AND REVIEWERS THAT ALL REMAINING WORK, OTHER THAN THAT PARTICULARLY EMPHASIZED, WAS TO BE CORRELATED AND COMPLETED BY THE CONTEMPLATED FINAL COMPLETION DATE OF 1 FEBRUARY 1957. THE POSSIBILITY OF SEPARATE AWARDS IS STATED TO HAVE BEEN CONSIDERED BUT THE EXACT EFFECT OF THE LIABILITY OF A SEPARATE CONTRACTOR OR CONTRACTORS PERFORMING UNDER SCHEDULES B, C, OR D IN THE EVENT OF A DELAY OR DEFAULT WAS NOT CONSIDERED. THE SPECIFICATIONS FOR COMPLETION AND FOR LIQUIDATED DAMAGES WERE DRAWN WITH THE CONCEPT OF THE ENTIRE WORK OPERATION CLOSING OUT AS IF A SINGLE CONTRACTOR WERE INVOLVED.
"13. THE ITEMS FOR CERAMIC AND QUARRY TILE, ALTHOUGH CONSTITUTING AN ESTIMATED $200,000.00 IN COST, WERE ONLY A SMALL PORTION OF THE WORK FOR WHICH NO SPECIAL COMPLETION DATE OR LIQUIDATED DAMAGES WERE ESTABLISHED EXCEPT BY INCLUSION UNDER PARAGRAPH SC-1H. THE INSTALLATION OF TILE ON THE FLOOR AND ON THE WAINSCOT PORTION OF THE WALLS IS FOR THE PURPOSE OF REDUCING THE COST OF MAINTENANCE IN THE POWERHOUSE BY REDUCING THE AIR BORNE DUST IN THE BUILDING AS WELL AS TO GIVE A SUITABLE ARCHITECTURAL FINISH TO THE INTERIOR. THE DUST FACTOR WOULD INCREASE THE COST OF CLEANING THE INTERIOR OF THE POWERHOUSE AND MAINTAINING THE EQUIPMENT, PARTICULARLY THE GOVERNORS, AND OVER A PERIOD OF YEARS WOULD HAVE A DETRIMENTAL EFFECT UPON THE GENERATORS AND AUXILIARY EQUIPMENT. THE COST OF THE ADDED CLEANING AND MAINTENANCE IN THE POWERHOUSE, WHICH IS BEING DONE AS A RESULT OF THE TILE FLOOR NOT BEING IN PLACE, IS FOUND AND COULD HAVE BEEN ANTICIPATED TO BE AN AVERAGE OF $12.50 PER CALENDAR DAY.
"14. THE CONTRACTOR HAS AVERRED THAT NO CONSIDERATION WAS GIVEN IN ITS BID TO THE POSSIBLE ASSESSMENT OF LIQUIDATED DAMAGES. I BELIEVE AND FIND THIS TO BE CORRECT. IT IS EVIDENT THAT, AS THE INVITATION WAS ISSUED IN THE LATTER PART OF 1952 WITH THE TILE WORK TO BE STARTED UPON COMPLETION OF THE FIRST GROUP OF FOUR GENERATORS ABOUT 1 JUNE 1954 AND WITH FINAL COMPLETION TO BE ACCOMPLISHED BY FEBRUARY 1957, CONSIDERABLY MORE THAN AMPLE TIME WAS AVAILABLE FOR THE INSTALLATION OF THE TILE WORK WHICH, IF DONE IN A CONTINUOUS OPERATION, COULD BE EASILY ACCOMPLISHED IN SIX MONTHS. ALTHOUGH UNDER THE PART OF PARAGRAPH SW-3 HEREINABOVE QUOTED, THE CERAMIC TILE ON THE WALLS AND QUARRY TILE WERE TO BE INSTALLED AS SOON AS SPACE WAS AVAILABLE, THE QUARRY TILE INSTALLATION WAS TO BE DELAYED UNTIL WORK WAS COMPLETED ON THE GENERATOR INSTALLATIONS OR GROUPS OF GENERATORS. IN OTHER WORDS, THE TILE WORK WAS TO BE PERFORMED IN INCREMENTS AS SPACE WAS MADE AVAILABLE FOR ITS PERFORMANCE AFTER AND WITHOUT INTERFERENCE TO THE WORK OF EQUIPMENT INSTALLATION ON THE MAIN FLOOR OF THE POWERHOUSE. IN THE EVENT THAT THE TILE CONTRACTOR WAS DELAYED BY INSTALLATION OPERATIONS, HE WOULD BE ENTITLED TO EXTENSIONS OF TIME BEYOND FEBRUARY 1957. IT WOULD BE REASONABLE TO HAVE ASSUMED THAT IN THE PERIOD IN EXCESS OF 4 YEARS THERE WOULD BE MORE THAN AMPLE TIME AVAILABLE TO INSTALL THE TITLE AND THE ELIMINATION OF ANY CONTINGENCY FACTOR IN THE BID IN RECOGNITION OF LIQUIDATED DAMAGES WOULD BE APPROPRIATE.
"AS A GENERAL RULE, WHETHER THE STIPULATED SUM IS LIQUIDATED DAMAGES OR A PENALTY DEPENDS UPON THE INTENTION OF THE PARTIES, TO BE DETERMINED BY A CONSIDERATION OF THE ENTIRE CONTRACT AND THE CIRCUMSTANCES UNDER WHICH IT WAS EXECUTED. KOTHE V. R. C. TAYLOR TRUST, 280 U.S. 224, 226, 50 S.CT. 142, 74 L.ED. 382. AN AGREEMENT TO PAY A FIXED SUM REGARDLESS OF THE NATURE OF THE BREACH OR THE EXTENT OF THE DAMAGE, OR WHICH HAS NO REASONABLE RELATION TO THE PROBABLE DAMAGE WHICH MAY FOLLOW A BREACH, WILL BE TREATED AS A PENALTY AND WILL NOT BE ENFORCED. IF THE ACTUAL DAMAGE SUSTAINED WOULD BE WHOLLY UNCERTAIN AND INCAPABLE OR VERY DIFFICULT OF BEING ASCERTAINED, EXCEPT BY CONJECTURE, THE COURTS ARE INCLINED TO LOOK TO THE MEASURE OF DAMAGES FIXED BY THE CONTRACT. BUT WHERE THE ACTUAL DAMAGE CAN BE CORRECTLY ASCERTAINED BY THE APPLICATION OF A PROPER MEASURE OF DAMAGES TO THE ACTUAL FACTS, THE COURTS ARE INCLINED TO TREAT THE PROVISION AS A PENALTY AND LEAVE THE PARTIES TO THEIR PROOF OF ACTUAL DAMAGES SUFFERED. * * *"
SEE, ALSO, IN THIS CONNECTION RESTATEMENT, CONTRACTS, SECTION 339; LANGOMA LUMBER CORP. V. UNITED STATES, 140 F.SUPP. 460; FUTRALL V. TRIPLETT, 84 F.2D 861; FIDELITY AND DEPOSIT COMPANY OF MARYLAND V. JONES, 75 S.W.2D 1057; KENNEDY V. UNITED STATES, 24 C.CLS. 123; PRIEBE AND SONS V. UNITED STATES, 332 U.S. 407, 413; 16 COMP. GEN. 344 AND 17 ID. 827.
ACCORDINGLY, IT IS THE OPINION OF OUR OFFICE, ON THE BASIS OF THE FACTS PRESENTED, THAT NO LEGAL REQUIREMENT EXISTS FOR THE ASSESSMENT OF LIQUIDATED DAMAGES UNDER THE CONTRACT ON ACCOUNT OF THE DEFAULT OF THE UNIVERSITY BRICK AND TILE COMPANY, SINCE TO DO SO WOULD CONSTITUTE THE CHARGING OF A PENALTY FOR DEFAULT WITHIN THE RULE OF LAW ABOVE STATED. HOWEVER, SUCH ACTUAL DAMAGES AS MAY ACCRUE FROM THE CONTRACTOR'S DEFAULT SHOULD BE CHARGED AGAINST THE SURETY AS PART OF ITS UNDERTAKING UNDER PROPOSED MODIFICATION NO. 5 TO THE CONTRACT.
THE VOUCHER TRANSMITTED WITH THE LETTER OF NOVEMBER 18, 1957, IS RETURNED HEREWITH.

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