Contractor Entitled to Recoup Liquidated Damages When Project Substantially Complete Before Official Acceptance Date; ASBCA No. 61802, Appeal of Maruf Sharif Construction Company

Appeal of the agency’s assessment of liquidated damages is denied in part, where the appellant failed to provide evidence of government-caused delays to performance, and sustained in part, where the government failed to rebut the appellant’s assertion that the project was substantially compete several weeks before the agency officially accepted the work.

Maruf Sharif Construction Company appealed the agency’s assessment of liquidated damages related to its untimely completion of a contract to renovate an entry control point and quarter deck of a building on a naval facility in Bahrain.

The Naval Facilities Engineering Command, Europe, Africa, Southwest Asia awarded MACEC the task order in September 2016. As awarded, the anticipated contract completion date fell on June 10, 2017. On August 9, 2017, the government issued a letter of concern stating appellant had only completed 45 percent of the project by the scheduled completion date, and that the government would begin assessing liquidated damages dating from June 11, 2017, and would begin withholding 10 percent on progress payment invoices.

In response, MACEC submitted a project narrative report and detailed schedule dated August 18, 2017. The narrative asserted five instances of government-caused delays and stated the project was 87.76 percent complete as of the date of the schedule. After the project was completed and inspected, the agency accepted the facility for us as of October 18, 2017.

On January 5, 2018, the agency issued a notice of assessment of liquidated damages for 131 calendar days in the amount of $200 per day in the amount of $26,200.00. In response, MACAC stated the government failed to account for 168 days of government delay and asserted that the damages were a penalty because the government did not incur any damages due to the delay. MACAC submitted a claim to the CO requesting a final decision on the government’s claim. In response, the CO reduced the number of assessed days to 85 in the amount of $17,000, as a result of miscalculation and recognizing 44 days of government-caused delay associated with design review that delayed the notice to proceed, establishing a new completion date of July 25, 2017.

MACEC submitted two affidavits. The first asserted the government delayed issuing the notice to proceed by 44 days, and that the agency was responsible for an additional 12 days of delay because it did not timely provide signage for the facility that MACEC was required to install. Further, MACEC argued the project was substantially complete on August 30, 2017. According to MACEC, the objective of the project was to ensure that non-authorized personnel were unable to access the building without a badge or proper authorization. The appellant argued this portion of the project was completed on August 30, and the facility was in use, notwithstanding some minor punch list items that had to be completed.

The board noted that MACEC generally argued that the assessment of liquidated damages is invalid because the government suffered no real loss due to the delay in completing the project. However, the board reached the opposite conclusion. The fact that actual damages are lower than the liquidated damages—or even non-existent—does not invalidate the liquidated damages provision in the contract, as long as the damages were reasonable when estimated. According to the board, the purpose of the clause is to relieve the government of the burden of proving it suffered damages from a breach.

MACEC also alleged the damages were punitive, because the agency suffered no actual harm. The appellant argued the Navy conducted no assessment to determine the actual amount of damages and failed to provide any written evidence the CO considered all the relevant factors before assessing the damages. The board also rejected these arguments, explaining that there is no requirement that the amount of liquidated damages be tailored to the specific contract. Further, the CO’s process for arriving at the amount was irrelevant, as the clause is valid if the stipulated amount is reasonable as of the time the agreement is made.

Next, MACEC argued that it was entitled to time extensions due to government-caused or excusable delays. However, while the appellant asserted numerous excusable delays, the only evidence related to the delay in issuing the notice to proceed and the government’s delay in supplying government-furnished equipment related to signage requirements.

The board noted the CO granted the 44-day time extension based on the delay in issuing the notice to proceed. Regarding the signage issue, MACEC asserted 90 days of excusable delay associated with this issue. MACEC submitted an RFI for signage for government review on September 7, 2017. The government was required to respond in 3 days but did not respond until after 81 days, November 27, 2017, and when they did respond, changed the contract by stating the government would provide new signage as GFE for MACEC to install. Even then the government did not deliver the GFE until December 8, 2017, another 12-day delay.

However, the board noted that the government accepted the facility on October 19, 2017, and calculated liquidated damages to that date. Therefore, it appeared that the agency did not consider the lack of signage as preventing beneficial occupancy. Because MACEC failed to demonstrate entitlement to time extensions, the board held it had not shown its untimely completion was excusable.

Finally, MACEC argued that the project was substantially completed on August 31, 2017, and ready to be occupied for its intended purposes, and that damages may not be assessed past substantial completion.

To determine whether the project was substantially complete, the board reviewed the contract’s statement of work and project objectives. The board agreed that the project was intended to prevent access to the facility by unauthorized personnel and that MACEC had demonstrated that portion of the project was substantially complete by August 31, 2017. The board also noted the government provided no evidence to rebut this assertion. While the government accepted the facility on October 19, the board found this acceptance insufficient to rebut the appellant’s testimony.

Based upon the revised completion date of July 25, 2017, the board calculated liquidated damages from July 26 to August 31, 2017, and concluded that MACEC was entitled to recover $9,800.

Maruf Sharif Construction Company is represented by Mr. Mohammad Asif Stanekzai, President. The government is represented by Ronald J. Borro, Navy Chief Trial Attorney, and Rawn M. James, Jr., Senior Trial Attorney.