United States v. American Surety Co.

Background

A private contractor, John V. Grogan, agreed in 1931 to build federal inspection buildings in Montana. His work fell behind after a completion date was extended. The Government allowed him to keep working but later terminated his right to proceed and hired another firm, paying $2,044.04 more to finish. The Government sued to recover that excess cost and also sought $9,875 in agreed daily liquidated damages for delay.

Reasoning

The Court considered whether the Government could collect both the actual excess cost of completion and the agreed daily liquidated damages after it had terminated the contractor’s right to proceed. The construction contract’s Article 9 said the Government could either terminate and recover excess costs or, if it did not terminate, collect fixed daily liquidated damages. The Court relied on that clear contract language and the 1902 statute requiring a liquidated-damages clause, concluding the Government’s termination invoked the first option and thereby waived the per-day liquidated-damages remedy.

Real world impact

The decision means that when the Government ends a contractor’s right to continue and hires others to finish work, it cannot also claim the contract’s daily liquidated damages for the same delay. The United States keeps the right to recover actual excess completion costs. The Court affirmed the lower court’s result applying the contract as written.