1. Liquidated Damages for subcontracting plans
Don Mansfield
Professor of Contract Management
Defense Acquisition University
Liquidated Damages for subcontracting plans

2. agenda What are “liquidated damages”?
Why liquidated damages for subcontracting?
Determining liability for liquidated damages
Procedure for assessing liquidated damages
Calculation of liquidated damages
Agency practice pertaining to LD assessment
Discussion questions

3. What are liquidated damages?
A punitive measure?
A negative performance incentive?
Both?
Neither?

4. What are liquidated damages?
A variety of actual damages
Agreed to by the parties during contract formation
Used when actual damages, though real, would be difficult or impossible to prove

5. liquidated damages in the far
Late delivery/performance (FAR subpart 11.5)
Failure to make a good faith effort to comply with small business subcontracting plan (FAR )
Underpayment of overtime pay to employees in contracts subject to Contract Work Hours and Safety Standards Act (FAR )

6. liquidated damages in the far
FAR (a)
Small business subcontracting policy “a matter of national interest with both social and economic benefits”
Objectives not achieved when contractor fails to make good faith effort to comply with plan
15 U.S.C. 637(d)(4)(F) directs assessment of liquidated damages

7. Determining liability
Does failure to meet subcontracting goals make a contractor liable for LDs?
No. Legitimate excuses include—
Unavailability of anticipated sources
Unreasonable prices

8. Determining liability
Standard for determining liability — “failure to make a good faith effort to comply with the subcontracting plan”
Defined as “willful or intentional failure to perform in accordance with the requirements of the subcontracting plan, or willful or intentional action to frustrate the plan.” FAR

9. Determining liability
Indicators of failure to make a good faith effort
failure to attempt to identify, contact, solicit, or consider small business for contract award
failure to designate and maintain a company official to administer the subcontracting program and monitor and enforce compliance with the plan
failure to report subcontracting performance
failure to maintain records
failure to adopt procedures to comply with plan

10. calculating damages
Step 1: Performance measured by applying percentage goals to total actual subcontract dollars (FAR (b))
Damages are difference between dollar values calculated in Step 1 and actual subcontract dollars for each subcontract goal

11. Assessment procedure
ACO notifies contracting officer any indication of failure to make good faith effort (FAR )
Contracting officer decides whether such failure occurred (FAR (d))
Contractor notified, given 15 days to respond with explanation
Contracting officer makes final decision

12. calculating damages Planned Subcontracting % Goal $ Goal All 100%
$1,000,000
Small Business
25%
$250,000
Small Disadvantaged Business 5%
$50,000
Women-owned small business
HUBZone small business 3%
$30,000
Veteran-owned small business
Service-disabled veteran-owned small business

13. calculating damages
Assume $800,000 total actual subcontract dollars and failure to make a good faith effort
% Goal
%Goal x $800k
Actual Sub $
Damages
Small Business
25%
$200,000
$40,125
$159,875
SDB 5%
$40,000
$34,530
$5,470
WOSB
$13,477
$26,523
HUBZone SB 3%
$24,000
$19,954
$4,046
VOSB
$18,136
$5,864
SDVOSB
$13,200
$10,800
Total Damages
$212,578

14. calculating damages
Assume $1.2M total actual subcontract dollars and failure to make a good faith effort
% Goal
%Goal x $1.2M
Actual Sub $
Damages
Small Business
25%
$300,000
$250,000
$50,000
SDB 5%
$60,000
$10,000
WOSB
HUBZone SB 3%
$36,000
$30,000
$6,000
VOSB
SDVOSB
Total Damages
$88,000

15. Agency practice
Assessment of liquidated damages pertaining to subcontracting plans extremely rare
According to one source, Army assessed liquidated damages ~4 years ago
No decisions by agency boards of contract appeals or Court of Federal Claims having to do with liquidated damages under subcontracting plans

16. discussion
To what extent does the inclusion of the liquidated damages clause affect contractor compliance with its subcontracting plan?
To what extent do contracting officers rely on the inclusion of the liquidated damages clause to motivate contractor performance?
What excuses are typically given and accepted for a failure to meet subcontracting goals?