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II. LIQUIDATED DAMAGES
Section 7 of the bill gives rise to the second point of difference between the administrative officers of the Government, on the one hand, and the Comptroller General, the aforesaid report of the American Bar Association, and the Associated General Contractors on the other hand.
The only similar statute now on the books is one applicable to the Treasury Department and to one class of contracts for that Department, namely, contracts for the construction or repair of any public building. This is section 21 of the act of June 6, 1902 (32 Stat. 326), which provides:
That in all contracts entered into with the United States, after the date of the approval of this Act, for the construction or repair of any public building or public work under the control of the Treasury Department, a stipulation shall be inserted for liquidated damages for delay; and the Secretary of the Treasury is hereby authorized and empowered to remit the whole or any part of such damages as in his discretion may be just and equitable; and in all suits hereafter commenced on any such contracts or on any bond given in connection therewith it shall not be necessary for the United States, whether plaintiff or defendant, to prove actual or specific damages, sustained by the Government by reason of delays, but such stipulation for liquidated damages shall be conclusive and binding upon all parties.
The practice has been for many years to include liquidated damage stipulations in contracts with the United States for all construction work, whether under the Treasury Department, War Department, Navy Department, Interior Department, or other departments and establishments of the Government and in the contracts of the Architect of the Capitol for construction work under his supervision or the supervision of a congressional committee. Also, the practice is to include such a liquidated damage stipulation in many of the supply contracts for the several departments and establishments of the Government.
However, when liquidated damages have accrued to the United States under these contracts, whether for construction work or for supplies, the damages cannot be remitted to the contractor even when it is clear that the Government has sustained no actual damages except in the construction contracts of the Treasury Department. Section 9 of the bill will extend such authority to the contracts all of the departments and establishments of the Government, whether for construction work or for supplies, but in order to secure uniformity of action as well as an unprejudiced consideration of the claims for such remission the section provides that the Comptroller General may make such remission on the written recommendation of the head of the Government department concerned.
Those representing the various departments and establishments at prior hearings before the Committee on the Judiciary of the House of Representatives on similar bills, have insisted that the head of the department or establishment concerned, rather than the Comptroller General should make such remission of liquidated damages.
The terms of section 21 of the act of June 6, 1902, above quoted, cannot be understood without reference to the court decisions prior thereto. The Court of Claims in considering suits for the recovery of liquidated damages deducted by the Government because of delay in the completion of a contract held for many years that “Even
though it appear that the intent of the parties was that the sum named should be taken as liquidated damages, or as a penalty, that intent will not be enforced unless right and reasonable.” (See Haliday v. United States, 33 Ct. Cls. 453; Edgar & Thompson Works v. United States, 34 id. 205; and Lester v. United States, 1 Ct. Cls. 52.) Said court held in Kennedy v. United States (24 Ct. Cls. 122) that where a contract provides for retention of 10 percent of the contract price until completion of the work, though declared forfeited by agreement in case of annulment for the fault of the contractor, the court would treat it as a penalty and not as liquidated damages and give judgment for the contractor in the absence of a showing of actual damages on account of the delay and annulment of the contract. This court went so far as to hold in L. P. and J. A. Smith v. United States (34 Ct. Cls. 472) that where a contract provides that the contractor shall forfeit a fixed sum for each day's delay after time for completion, the court will not be controlled by the form of the agreement, nor the terms used, nor the intent of the parties, but will look to the reasonableness of the transaction, and if unreasonable according to the view of the court it will not enforce the agreement.
A different rule is now followed as the result of the opinion in the case of Sun Printing and Publishing Association v. Moore (183 U. S. 642, 674), decided on January 13, 1902, where the Supreme Court of the United States examined in that case many of the decisions of the State courts and the conditions existing both at equity and at law in England and reached the conclusion that it would enforce the terms of the contracts as the parties had written them with respect to liquidated damages.
However, there appears to have been some uncertainty whether the decision of the Supreme Court of the United States in the Sun Printing and Publishing Association case would be sufficient to overcome the prior contrary decisions of the Court of Claims and so there was placed in the law the above-cited section 21 of the act of June 6, 1902, requiring the placing of a liquidated damage stipulation in all construction contracts of the Treasury Department and providing that the United States should not be required to prove actual damages under such a contract, whether the Government was plaintiff or defendant. In other words, the decision in the Sun Printing and Publishing Association case was made a matter of statutory law but only as to construction contracts of the Treasury Department.
The other departments and establishments of the Government continued or adopted the procedure of placing in their construction contracts stipulations for the deduction of liquidated damages on account of delay in the completion of the work and even extended the practice to include most—and in some cases all—of their supply contracts. The doctrine is now perfectly well settled that the courts will enforce such liquidated damage stipulations as the parties have agreed upon in their contracts and it has been held that under such stipulations the Government is not only not required but will not be permitted to show actual damages. (Well Bros. v. United States, 254 U. S. 83.)
In other words, the judicial rule established subsequent to the act of June 6, 1902, is directly contrary to that existing prior to the date of said act and for all practical purposes this statute is a dead letter except as to the provision thereof that the Secretary of the Treasury
is authorized, in his discretion, when it is just and equitable, to remit the whole or any part of liquidated damages which have accrued to the United States under construction contracts with the Treasury Department. He has no jurisdiction under said statute with respect to his own supply contracts nor with respect to any of the contracts, whether for construction work or supplies, in any of the other departments and establishments of the Government, and what is more, no other official of the Government has such authority. The result is that "what is stipulated in the bond" must be exacted even though it may be clearly shown that the bidder added no additional amount to his bid by reason of the liquidated-damage stipulation-as a sort of insurance against delay in the completion of the contract-and that the Government has not been damaged on account of the delay.
Instances are on record where administrative officers of the Government have included liquidated-damage stipulations in a contract for the erection of a chimney; the contractor was delayed in completion of the work for causes which did not excuse him, and liquidated damages were deducted from his contract price even though the United States was not ready to commence building around the chimney at the time the work was completed and was not ready for 6 months or more thereafter. Also, where the Navy Department included such a stipulation in contracts for the furnishing of generators or other equipment for vessels under construction, the contractor was delayed for causes which did not excuse him, but the equipment was delivered before it was needed for installation on the vessels and the contractor was nevertheless charged with liquidated damages on account of such delay.
Liquidated-damage stipulations have been, and are being included in contracts for the delivery of flour, etc., and the contractor charged with liquidated damages for delays when there should have been an actual damage stipulation in the contract which would have authorized the United States to have terminated the contract and purchase the supplies in the open market in event of delay and a need of the Government for the supplies. Liquidated damages will not supply the need of the Government in such cases, yet administrative officers of the Government continue to use such stipulations.
The standard form of construction contract prescribed by the President for uniform use through the Government service contains a liquidated-damage stipulation, in article 9, that if the contractor fails to complete the work within the agreed period of time he shall not be:
charged with liquidated damages because of any delays in completion of the work duc to unforeseeable causes beyond the control and without the fault or negligence of the contractor, including, but not restricted to, acts of God, or of the public enemy, acts of the Government, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, and unusually severe weather or delays of subcontractors due to such causes: Provided further, That the contractor shall within 10 days from the beginning of any such delay notify the contracting officer in writing of the causes of delay, who shall ascertain the facts and the extent of the delay, and his findings of facts thereon shall be final and conclusive on the parties hereto, subject only to appeal, within 30 days, by the contractor to the head of the department concerned, whose decision on such appeal as to the facts of delay shall be final and conclusive on the parties hereto.
The Standard Form of Supply Contract, likewise prescribed by the President for uniform use throughout the Government service, also contains a liquidated-damage stipulation in article 5 thereof in lan
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guage substantially that just quoted and is that if the contractor fails to complete deliveries within the agreed period he shall not be charged with liquidated damages where the delay in delivery:
* * is due to unforeseeable causes beyond the control and without the fault or negligence of the contractor, including, but not restricted to, acts of God, or the public enemy, acts of the Government, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, and unusually severe weather but not including delays caused by subcontractors: Provided further, That the contractor shall, within 10 days from the beginning of any such delay, notify the contracting officer in writing of the causes of delay, who shall ascertain the facts and the extent of delay and his findings of fact thereon shall be final and conclusive on the parties hereto, subject only to appeal, within 30 days, by the contractor to the head of the department concerned, whose decision on such appeal as to the facts of delay shall be final and conclusive on the parties here to.
The only difference between the two stipulations is that under the construction contract the contractor may escape charges for liquidated damages by reason of delays caused by his subcontractors if the delay of such subcontractors resulted from the same causes which would have excused the contractor, while under the supply contract the contractor cannot be excused for delays caused by his subcontractors. Apparently, the reason for this difference is that the causes of delays of subcontractors in connection with construction work are more readily ascertainable and for the further reason that the needs of the Government for supplies will not always permit of delays on the part of subcontractors—it generally being possible for the contractor to buy the supplies elsewhere and adjust the difference in cost with his subcontractor.
It will be noted that these liquidated damage stipulations are very broad—the contractor not being chargeable with liquidated damages “due to unforeseeable causes beyond the control and without the fault or negligence of the contractor.' There is no need to invoke the terms of the act of June 6, 1902, in connection with construction contracts for the Treasury Department except in those cases where the contractor could have foreseen the delay or the delay resulted from his fault or negligence, or where the delay resulted from the named causes and the contractor overlooked notifying the contracting office with respect thereto within 10 days from the date the cause of delay arose-such notification being a condition precedent to consideration of the alleged causes of delay. (See Plumley v. United States, 226 U. S. 545.)
There occasionally arise cases under both construction and supply contracts where the delay was not unforeseeable nor resulted from the fault or negligence of the contractor, or where the contractor failed to notify the contracting officer of the cause of delay within 10 days from the date it arose and where it may be a decided hardship on the contractor to charge liquidated damages on account of the delay-it being shown that the United States did not in fact sustain any actual damage on account of the delay and was not required to pay a higher price because of the inclusion of a liquidated damage stipulation in the contract. In such cases there ought to exist authority somewhere to remit the liquidated damages, but no such authority now exists except as to the Treasury Department.
The administrative officers of the Government have recommended the inclusion of section 9 in the contract bill except that they would have the authority conferred on the head of the department con
cerned. The objection to this recommendation is that it makes the department concerned the judge and jury in its own case and the contractor as well as the Government would not secure an unprejudiced view of the case. Also, under such procedure there will be as many different rules as there are different heads of departments and establishments. Uniformity of action requires that the authority be lodged in some one official, and the Comptroller General is the only official of the Government through whose office pass the claims, accounts, and contracts of all of the departments of the Government. Also, he is an unprejudiced official as he has nothing to do with the performance of the contracts. Moreover, Congress has seen fit in the act of April 10, 1928 (45 Stat. 413), to impose equitable jurisdiction on him, the only official of the Government who has been intrusted with such jurisdiction.
The jurisdiction to remit liquidated damages after accrual to the United States under the above-quoted terms of article 9 of the construction contract or article 5 of the supply contract is certainly an equitable jurisdiction and should be exercised on equitable grounds, having regard for the interests of both the Government and contractors.
III. DETERMINATION OF FACT CONTROVERSIES
Section 10 of the bill gives rise to the third point of difference. The issue as to this section is simply whether fact controversies shall be conclusively determined by one party to the contract, i. e., the contracting officer, or whether the contractor may have the facts arbitrated when he and the contracting officer are unable to agree on the facts.
There arise under contracts three classes of questions: (1) Questions of law as to correct interpretation of the contract rights and liabilities; (2) questions of mixed law and fact; and (3) questions of fact. The line of distinction between questions of mixed law and fact and questions of fact is not always clear.
The General Accounting Office, in the first instance, and the courts in event of suit against the United States, have been established for the purpose of settling and adjusting claims against the Government on the basis of the law and the facts. As a matter of first impression it would seem to be too clear for serious argument that in order to settle and adjust claims these tribunals are authorized by law to examine every question of law and fact arising under the contract with the Government; but due to certain rules of interpretation adopted by the courts both the courts and the accounting officers have been practically excluded from considering disputed questions of fact under Government contract.
This situation came about through the practice of the Federal officers to include in Government contracts a stipulation which makes final and conclusive on both the contractor and the United States the determination of facts made by the contracting officer representating the Government. Some of the decisions supporting such stipulations were collected in Penn Bridge Co. v. United States, (59 Ct. Cls. 892, at p. 897), as follows:
It has repeatedly been held by highest authority that "it is competent for parties to a contract, of the nature of the present one, to make it a term of the contract that the decision of an engineer or other officer of all or specified matters