## Facts

- During Operation Desert Storm, the Army solicited DJ Manufacturing Corporation to supply 283,695 combat field packs under an accelerated delivery schedule with liquidated damages for late delivery.
- The parties entered a contract effective February 14, 1991, containing a liquidated-damages clause assessing 1/15 of 1% of the contract price for each day an item was delivered late.
- DJ missed multiple delivery deadlines.
- The government withheld $663,266.92 as liquidated damages, about 8% of the $8,493,828 contract price.
- The government supported enforcement with declarations stating the field packs were essential to combat readiness and that Desert Storm procurements commonly used liquidated damages due to urgent delivery needs.
- DJ relied primarily on an affidavit from its president asserting the rate appeared “standard” and not tied to the specific item or timeframe.

## Issues

1. Whether the contract’s liquidated-damages clause was unenforceable as a penalty because the per-day rate was not a reasonable forecast of anticipated harm from late delivery.

## Decision

- The Federal Circuit affirmed summary judgment for the United States.
- The court held the liquidated-damages clause was valid and enforceable, and DJ did not carry its burden to show the rate was excessive or unreasonable.
- The court concluded that, given the wartime context, actual damages from delayed delivery were difficult to quantify and the stipulated rate was not extravagant or disproportionate to probable loss.

## Legal Principles

- A party challenging a liquidated-damages clause bears the burden of proving the clause is an unenforceable penalty.
- A liquidated-damages provision is generally enforceable when, at the time of contracting, actual damages are difficult to estimate and the stipulated amount is a reasonable forecast of anticipated harm.
- A clause is not invalid merely because it encourages timely performance; invalidity turns on whether the amount is extravagant or disproportionate to anticipated loss.
- Generalized assertions that a liquidated-damages rate is “standard” or not contract-specific, without concrete proof of disproportionality, are insufficient to establish a penalty.

## Conclusion

The Federal Circuit upheld the government’s assessment of liquidated damages for late delivery of combat field packs, finding the wartime procurement setting made damages hard to estimate and the contractor failed to show the stipulated per-day rate was punitive rather than a reasonable forecast of probable harm.


DJ Manufacturing Corp. v. United States, 86 F.3d 1130 (Fed. Cir. 1996)