Young Associates, Inc. v. United States

Davis, Judge,

delivered the opinion of the court:

Plaintiff Young Associates, Inc. contracted in June 1964 with the National Park Service of ¡the Department of the Interior to do some construction work, including lighting and tile-lining, in a new road tunnel built in Rook Creek Park in Washington, near the National Zoological Park. The work was accepted as completed in November 198b, but the Government thereaf ter assessed liquidated damages at $100 per day for 144 days of unexcusable delay in completion, a total of $14,400. This sum was deducted from the amount due the contractor.

Young Associates appealed the imposition of liquidated damages to the Department of the Interior Board of Contract Appeals, which affirmed the contracting officer’s determination. I'BCA No. 557-4-66,67-2 BOA ¶ >6676; 69-1 BCA f 7419 (Dec. 1968). This action to review the administrative holding raises purely legal issues; the facts are not now disputed ¹ and both sides have moved for summary judgment.

Plaintiff’s major challenge is that the board erred in ruling that the contract should be construed as containing a liquidated-damages provision (under which the contracting officer thought he was acting). It is agreed that liquidated damages could not be imposed unless authorized by the contract, and it is also common ground that a liquidated-damage provision was not mandatory for this type of contract but was optional at the election of the contracting officer. The basic question is whether such a requirement became part of this undertaking.

The default-termination clause of the contract (article 5 of the 1961 edition of Standard Form 2S-A) provides that the Government can terminate the contractor’s right to proceed if he delays in performance, and also that “[w]hether or not the Contractor’s right to proceed with the work is terminated, he and his sureties shall be liable for any damages to the Government resulting from his refusal or failure to complete the work within the specified time.” This standard-form article then goes on to say:

(b) If fixed and agreed liquidated damages are provided in the contract and if the Government so terminates the Contractor’s right to proceed, the resulting damage will consist of such liquidated damages until such reasonable time as may be required for final completion of the work, together with any increased costs occasioned the Government in completing the work.

(c) If fixed and agreed liquidated damages are provided in the contract and if the Government does not so terminate the Contractor’s right to proceed, the resulting damage will consist of such liquidated damages untü the work is completed or accepted.

Invoking subparagraph (c), defendant points to section 8.8 of Standard Specification FP-61² (FP-61 was expressly incorporated as a whole and without limitation into the contract) :

FAILURE TO COMPLETE WORK WITHIN CONTRACT TIME. Pursuant to the general provisions of the contract providing for liquidated damages for each calendar day of delay until the work is completed, the total amount of liquidated damages shall be as calculated from the daily charge given in table 8-1.

In turn, table 8-1 sets forth a graduated scale of “daily charge [s] for liquidated damages for each calendar day of delay”, rising from $30 to $300, depending on the original contract amount. For an agreement of the initial size of plaintiff’s ($312,712.40), the charge was $100 a day. This, says defendant, squarely authorizes the assessment made here.

Plaintiff’s point is that this ehain-of-contract-authority which the Government threads from article 5 (c) to section 8.8 to table 8-1 falls apart when examined closely. Article 5 (c), it is argued, does not itself authorize liquidated damages but is phrased hypothetically — “[¿]/ fixed and agreed liquidated damages are provided in the contract” (emphasis added). The next step in the challenge is that section 8.8 of FP-61 cannot be the contract provision providing for liquidated damages to which article 5(c) refers because, when 8.8 says “pursuant to the general provisions of the contract providing for liquidated damages”, it must be referring to some other part of the agreement, not to itself— and there is no other such provision. The last link in the contractor’s reasoning is that table 8.1 is merely a bare schedule, not at all a provision itself imposing damages or authorizing them to be assessed. The conclusion, according to plaintiff, must be that this contract, as written and signed, did not contemplate or authorize any award of liquidated damages to the Government.

This is far from a frivolous argument. In tying the standard construction form with FP-61, the contracting officer failed to bind up the loose ends of language. On one reading, article 6 (c) seems to refer to something in FP-61, and then FP-61 appears to hark back to the standard form — in a sort of contractual renvoi. It would have been much better practice to insert a clause affirmatively and unequivocally declaring that liquidated damages would be imposed for unexcused delay.³

Nonetheless we are not persuaded to accept the contractor’s argument. Though they are not as clear as they should have been, the terms of this contract can be reasonably understood as granting authority for the assessment of liquidated damages. As the board observed, article 5(c) does not say, “If a clause directing that liquidated damages shall be imposed is provided in the contract”, but merely, “If fixed and agreed liquidated damages are provided in the contract.” Literally, section 8.8 and table 8-1 of FP-61 do in fact “provide” such “fixed and agreed liquidated damages”, and accordingly the single stated condition to the operability of article 5(c) is precisely fulfilled. The latter provision being thus triggered, under its terms “the resulting damage [from the contractor’s delay] will consist of such liquidated damages until the work is completed or .accepted.” This reading is certainly rational, fitting as it does with the literal language of article '5 (c) and the presence in the contract of both section 8.8 and table 8-1.

'If the contractor had shown that from the 'beginning it understood the agreement otherwise — not to provide at all for liquidated damages — we might well have upheld its position on the ground that such a reading, opposite to the Government’s, would likewise be reasonable, and that the risk of the ambiguity should lie with the drafter. But the record is quite to the contrary. During performance and before this controversy arose, plaintiff clearly and affirmatively indicated that it considered the contract to authorize the imposition of liquidated damages. In a letter of February 5, 1965, reserving its right to claim an additional extension of time, Young Associates wrote: “In view of the liquidated damages clause of our contract, it is necessary that our reservation be made.” Another letter on October 14,1965, is to the same effect: “In view of the liquidated damage clause on [sic] this contract and because the delivery of this material is beyond the control of this contractor, we request an extension of the contract time of sufficient length of time to set this coping after delivery.” There is nothing to suggest that plaintiff ever held a different view at any time before the defendant revealed that it would impose the liquidated damages now at issue. We must take it, then, that until that moment both parties understood the contract to authorize a grant of such damages. Unlike those cases in which we have applied the ambiguity principle in the contractor’s favor, this contractor did not actually rely during performance on the construction it now advances as reasonable. Cf. Astro-Space Laboratories, Inc. v. United States, ante at 282, 470 F. 2d 1003, 1010; WPO Enterprises, Inc. v. United States, 163 Ct. Cl. 1, 6, 323 F. 2d 874, 876 (1963).

This being so, we have no choice but to reject plaintiff’s argument. The parties’ joint intent is, of course, dominant if it can be gathered (J. W. Bateson Co. v. United States, 196 Ct. Cl. 531, 542, 450 F. 2d 896, 902 (1971)), and here we have very strong evidence that during performance both sides concurred that the contract incorporated a liquidated-damages clause. See S. S. Silberblatt, Inc. v. United States, 193 Ct. Cl. 269, 278, 433 F. 2d 1314, 1318 (1970); Max Drill, Inc. v. United States, 192 Ct. Cl. 608, 620, 427 F. 2d 1233, 1240 (1970). Nor is it impossible to attach that common intent to the cloudy English of the contract. Though the language by itself is needlessly equivocal, the interpretation made and shared by the parties is reasonable and in literal harmony with the wording. That joint reading may not be the only permissible one, but it is certainly an acceptable meaning.

Plaintiff’s secondary contention is that, in any event, this hquidated-damages clause is unenforceable as a penalty.⁴ The instructions for making that test have been set down by the Supreme Court (Priebe & Sons, Inc. v. United States, 332 U.S. 407, 411-12 (1947)) : “When they [liquidated-damages provisions] are fair and reasonable attempts to fix just compensation for anticipated loss caused by breach of contract, they are enforced. * * * They serve a particularly useful function when damages are uncertain in nature or amount or are unmeasurable, as is the case in many government contracts. * * * And the fact that the damages suffered are shown to be less than the damages contracted for is not fatal. These provisions are to be judged as of the time of making the contract. * * * We have no doubt of the validity of the provision for ‘liquidated damages’ when applied under those circumstances [i.e. “failure to get prompt performance when delivery was due”].” See Southwest Eng'r Co. v. United States, 341 F. 2d 998, 1001-1003 (C.A. 8), cert. denied, 382 U.S. 819 (1965).

Plaintiff gives us nothing to show that these principles require the clause to be set aside in this instance. The Government’s damages stemming from delayed receipt of the supplies or construction it ordered are normally hard to measure, and it is usually reasonable to establish some fixed monetary substitute for calculation by trial. As the Department of Agriculture Board of Contract Appeals recently put it in Ford Constr. Co., AGBCA No. 241, 72-1 BCA ¶ 9275 at 42,980, liquidated-damages clauses in favor of the Government in road construction cases are ordinarily “intended to cover additional administrative and engineering expenses incurred by the Government when performance of the contract extended over a greater time than was originally contemplated, the loss to the Government of the use of the completed road, and the inconvenience to the general public in not having the road open on schedule.” These are all factors which can properly be considered, and which are also likely to be difficult to gauge with any precision.

Citing the liquidated damages policy section of the Federal Procurement Regulations, 41 C.F.R. § 1-1.315-2 (c) (1912),⁵ plaintiff says that the incorporation of FP-61 (promulgated in 1961 by the Commerce Department) into this Interior Department 1964 contract shows that no “case-by-case” consideration was given to the rate of liquidated damages. The answer is, we think, that the regulation does not require a liquidated-damage schedule to be tailor-made for each individual contract. It is enough if the amount stipulated is reasonable for the particular agreement at the time it is made. We have no reason to doubt that that was so here, and plaintiff suggests none. The court can take judicial notice that costs did not generally decrease from 1961 to 1964, and the defendant points out that other procuring agencies were using the same charge of $100 per day for a contract of this magnitude. We cannot say, therefore, that in June 1964 it was unreasonable to adopt that amount as daily liquidated damages for delay on this road-building project.

The plaintiff is not entitled to recover. Its motion for summary judgment is denied, the defendant’s motion is granted, and the petition is dismissed.

1 In particular, there is no claim before the court th.at the unexcused delay was less than 144 days.

2 “The Standard Specifications for Construction of Roads and Bridges in Federal Highway Projects,” promulgated by the Commerce Department in 1961.

3 Plaintiff gives as an example this provision of a District of Columbia Government form contract:

“Liquidated damages will be imposed for each calendar day or major portion thereof that any wort shall remain uncompleted after time specified for completion and in the amount as set forth in the table below.”

4 We by-pass, without deciding, defendant’s point that plaintiff may not challenge the validity and enforceability of the liquidated-damages provisions for the first time in this court. (Plaintiff did not present this issue to the board.) It is not clear to what extent the boards of contract appeals are empowered to hold contract clauses invalid, and since we need not reach that somewhat difficult issue we let it rest where it is.

5 “Tie rate of liquidated damages stipulated must be reasonable in relation to anticipated damages, considered on a case-ly-case Itasis^ since liquidated damages fixed -without any reasonable reference to- probable damages may be held to be not compensation for anticipated damages caused by delay, but a penalty and therefore unenforceable” (emphasis added).