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AMERICAN ENGG. CO. v. UNITED STATES

May 20, 1938

AMERICAN ENGINEERING CO.
v.
UNITED STATES


The plaintiff, after nearly a year's delay, finally completed its contract with the government to furnish equipment and machinery for handling boats and seaplanes, for four cruisers. The price was $104,593. From its payments, the government withheld 10% or $10,459.30, as damages for delay in delivery, under a clause of the contract which liquidated the damages at 1/10 of one per cent. of the price for each day's delay, with a limit of 100 days. The plaintiff waived $459.30 of its claim and brought this suit under the Tucker Act, 28 U.S.C.A. § 41(20), to recover $10,000.

The undisputed dates bearing upon the question of delay are as follows: The plaintiff, on July 1, 1932, was notified of the award of the contract, and on July 6 executed it. It provided for delivery on September 1, 1932, of the greater part of the equipment intended for the two cruisers under construction in the east coast navy yards, and the balance on September 15; for the two on the west coast on October 1 and October 15. The plaintiff did not begin to manufacture any of the equipment until after September 20, and final delivery of equipment was not made until July 31, 1933, on the east coast, and August 2, 1933, on the west coast.

The proper apportionment between the plaintiff and the government of the responsibility for this long delay was (and still is) the only matter of fact in dispute between the parties. Whether or not the issue has been foreclosed by a decision by the Secretary of the Navy, to whom it was submitted, is the principal question of law in the case.

 The general provisions contract contained the following clause: "Article 12. Disputes. -- Except as otherwise specifically provided in this contract, all disputes concerning questions of fact arising under this contract shall be decided by the contracting officer or his duly authorized representative, subject to written appeal by the contractor within thirty days to the head of the department concerned, whose decision shall be final and conclusive upon the parties hereto as to such questions of fact. In the meantime the contractor shall diligently proceed with performance."

 This provision was valid and binding upon the parties. United States v. Gleason, 175 U.S. 588, 20 S. Ct. 228, 44 L. Ed. 284. The liquidated damage clause of the specifications also contains a provision for submission of disputes to the head of the department concerned. It is not essentially different from the clause quoted, but requires notice by the contractor within ten days from the beginning of any delay from which he claims relief. This notice was never given and, it may be assumed (though it really makes no great difference) that whatever was done in respect of a submission of disputes, was under Article 12.

  In May, 1933, the government made its first deduction for liquidated damages, and the plaintiff protested, stating that the delays had been entirely due to failure of the Bureau of Construction and Repairs to act with reasonable promptness in approving plans submitted, and referring to "our claim of error for this deduction." Correspondence ensued and on January 13, 1934, the plaintiff was advised by the Paymaster General that the Bureau of Construction and Repairs had recommended a credit of 184 days against the delay in delivery of the complete equipment because of failure on the part of the government to act upon the plans submitted within the time limited by the contract, but that the Bureau of Supplies and Accounts held that the plaintiff was entitled to a credit of only 37 days. This divergence, however, is unimportant, because by either finding the plaintiff was held solely responsible for more than 100 days of delay, enough to charge it with the maximum amount of liquidated damages allowable. On December 4 the plaintiff, after some intermediate steps, requested action by the Secretary of the Navy upon its claim for remission of liquidated damages, presenting the argument that delays on the part of the government before the completion date of the contract prevented final delivery on that date, and that, therefore, the government had entirely waived the delivery date and consequently the provision for liquidated damages. The Secretary of the Navy, on July 2, 1935, found, "as a matter of fact, that the American Engineering Company was responsible for delays in the delivery of the material for a period in excess of 100 days, the minimum delay requiring the assessment of the maximum amount of liquidated damages."

 The plaintiff now seeks to escape the binding effect of its appeal and the decision upon it by the head of the department concerned by contending that, inasmuch as the work was delayed solely because of the government's fault beyond the completion dates, the provision for liquidated damages was waived, and that the question of law thus involved was outside the scope of the authority of the department head to determine.

 If it were the fact that the government, by its default or failure to act, did make it impossible for the plaintiff to meet its obligation to deliver in accordance with the contract, then the plaintiff's position would be correct, and the case would be ruled by United States v. United Engineering & Construction Company, 234 U.S. 236, 34 S. Ct. 843, 845, 58 L. Ed. 1294, in which it was said: "We think the better rule is that when the contractor has agreed to do a piece of work within a given time, and the parties have stipulated a fixed sum as liquidated damages, not wholly disproportionate to the loss for each day's delay, in order to enforce such payment the other party must not prevent the performance of the contract within the stipulated time; and that where such is the case, and thereafter the work is completed, though delayed by the fault of the contractor, the rule of the original contract cannot be insisted upon, and liquidated damages measured thereby are waived." It is important to note that the fact finding by the Court of Claims, upon which the decision of the Supreme Court was based was that, "No delays were chargeable to the claimant up to October 15, 1901, the time fixed for the completion of the work," although there were plenty of delays caused by it later on.

 On the other hand, as pointed out in Robinson v. United States, 261 U.S. 486, 43 S. Ct. 420, 67 L. Ed. 760, this rule only applies to cases in which, but for the government's defaults, the work would have been completed within the contract period, and the mere fact that the total amount of delay occasioned by the government, might have been enough to have prevented performance had it all occurred before the completion date, does not affect the liquidated damage provision.

 In the first case ( United States v. United Engineering Company, supra) what was really involved was a question of construing the contract -- whether the liquidated damage provision applied to the situation there presented. In the second case ( Robinson v. United States, supra) there was nothing involved but a question of fact -- who was responsible for how much delay -- clearly within the submission provision. Moreover, in the Robinson Case, the contract provided for an extension of the completion date of one day for each day of delay caused by the government, thus excluding the idea that such delay might be a waiver of the completion date, since default by the government would, under the contract, simply result in an automatic extension pro tanto. In this respect the contract in the case now before the Court is substantially the same.

 In passing upon the question thus presented it may be said at the outset that the plaintiff is correct in pointing out that the work which it undertook to perform was new and was not of a design standard in the navy at the time the contract was made. The plaintiff wishes me to find, in addition, that the design of the equipment "had to be developed by the plaintiff in collaboration with the defendant." That is true only in the sense that the plaintiff no doubt realized that it would need more than the ordinary amount of collaboration from the government and took the contract with the hope that the government would not insist upon strict performance on time.

 The situation seems to be pretty well summed up in the plaintiff's letter of appeal to the Secretary of the Navy. It said: "The answer of the Department to the American Engineering Company's request that no liquidated damages be assessed pointed out that in its bid it took no exception to the delivery date. That is true, but in the first place the date for filing bids was made so late it was impossible to meet the delivery date, and the American Engineering Company (and it is believed all other bidders) considered it as taken for granted that the dates would not apply, and in the second place it was assumed that the Department would be reasonable and if no actual damage was sustained would not seek to enforce the liquidated damage clause as a penalty."

 There was, however, no such understanding on the part of the government and nothing which it said or did could have misled the plaintiff in that regard. One of the government's engineers testified, "we were somewhat astounded * * * to find the short delivery time in this contract * * * and we agreed that since it was a reputable firm and had undertaken to build this equipment in so short a time, they must ...


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