Link: GAO Opinion
Agency: U.S. Maritime Administration
Disposition: Protest denied.
Protest that liquidated damages provision in solicitation for ship sale/dismantlement is improper because agency profits from sales program, and thus suffers no loss from breach, is denied where agency reasonably determined that it will suffer damages as a result of delayed performance; fact that program under which contract is issued generates revenue is irrelevant to propriety of provision.
General Counsel P.C. Highlight:
Southern principally maintains that liquidated damages are inappropriate where, as here, a sales contract is to be awarded. According to Southern, since the agency is paid for the vessel under the sales contract, and the sales program as a whole generates revenue for the government; there is no basis for the agency to be compensated for increases in program costs that result from performance delays by the contractor. GAO states that liquidated damages are fixed amounts set forth in a contract at the time it is executed that one party to the contract can recover from another upon proof of violation of the contract terms, without the need for proof of actual damages sustained. Under Federal Acquisition Regulation (FAR) sect. 11.501(a), liquidated damages provisions are authorized where timely performance is so important that the government reasonably expects to suffer damages if there is a delay, and the extent of such damages is difficult to ascertain.
GAO finds nothing in the FAR standard or elsewhere–and the protester has cited no authority–that precludes an agency from including a liquidated damages provision in a contract simply because the program under which the contract is issued generates revenue from sales proceeds or otherwise. To the contrary, since a liquidated damages provision is part of a particular contract, the propriety of such a provision necessarily must turn on the circumstances surrounding that contract. Under the current solicitation, the contractor will be required to purchase the vessel, remediate hazardous wastes, and dismantle the vessel, in accordance with a schedule that the contractor proposes and to which the agency agrees. GAO finds nothing inherent in the contract to be awarded–and, again, the protester cites nothing–that would make it legally impermissible for the agency to provide for recovery of liquidated damages reflecting the monetary harm to the agency that will result if the contractor breaches the contract terms by delaying performance.
The record shows that the agency has determined that it will be harmed monetarily if the purchased vessel is not dismantled in accordance with the schedule under the contract. It has determined that $600 per day reasonably reflects the measurable portion of that monetary harm. GAO finds nothing objectionable in this provision addressing the eventuality of the contractor’s delaying the dismantling of the vessels in violation of the terms of the contract. Again, the fact that the agency will receive proceeds from the sale of the vessel, or that the vessel sale/dismantlement program generates revenue for the government, has no bearing on the propriety of this liquidated damages provision. The protest is denied.