The agency deducted amounts from the contractor’s invoices for late deliveries. The contractor argued the deductions were unenforceable penalties. The government argued the deductions were permissible negative incentives. The ASBCA found the contractor had the better argument.
Appeal of Red Bobtail Transportation, ASBCA No. 63771
- Invoice Deductions – The contractor provided trucking services in Afghanistan. The government paid the contractor for each trucking mission. The government deducted amounts from two missions because the deliveries were one day late.
- Claim – The contractor submitted a claim contesting the deductions. The contractor argued the deductions were an unenforceable penalty. The contractor reasoned that while the FAR permits liquidated damages for deficient performance, liquidated damages must compensate the government. Here, while the deliveries were one day late, the government had not explained how the deductions were compensatory. Indeed, the amount deducted appeared arbitrary.
- Negative Incentive – The government argued the deductions were not liquidated damages. Rather, the government maintained the deductions were negative performance incentives permitted by FAR 37.102
- Penalty – ASBCA sided with the contractor. Performance incentives must be tied to performance standards. Here, the government had not explained how the negative incentives were tied to any performance standards. Moreover, the government had not identified any clauses in the contract identifying it as an incentive contract. The board found the deductions were a penalty. The board noted the government would have been better off arguing the deductions were liquidated damages.
The contractor is represented by Michael D. Maloney of Williams Mullen PC. The government is represented by Caryl A. Potter, III, Geoffrey R. Townsend, and Patricia W. Walter of the Air Force.
–Case summary by Craig LaChance, Editor in Chief
