B-174058, NOV 19, 1971

B-174058, NOV 19, 1971

CONTRACTS - REFORMATION - PERMIT FEES DECISION CONCERNING REFORMATION OF A PERMIT GRANTED WOLF RUN MARINA, INC. BY THE ALLEGHENY NATIONAL FOREST, WARREN, PA. INCLUDING A FEE SCHEDULE BASED ON A MINIMUM FEE PLUS A PERCENTAGE OF NET SALES AND OTHER INCOME OF THE PERMITTEE. WHERE THE BID PROPOSAL FORM PROVIDED FOR A READJUSTMENT OF CHARGES EVERY 5 YEARS BUT THIS CLAUSE WAS INADVERTENTLY OMITTED FROM THE PERMIT AS GRANTED, IT WAS IMPROPER TO ARBITRARILY ADD THE CLAUSE 2-1/2 YEARS LATER WHEN THE PARTIES COULD HAVE EXERCISED THEIR LEGAL RIGHTS TO REFORM THE CONTRACT WHICH DID NOT REFLECT THEIR INTENT AT THE TIME IT WAS SIGNED. THUS, THE CLAUSE INSERTED IN JUNE 1968 DOES NOT PRECLUDE REFORMATION OF THE PERMIT TO PROVIDE FOR READJUSTMENT OF THE PERMIT FEE EVERY FIVE YEARS MEASURING FROM 1966, AS ORIGINALLY INTENDED.

TO MR. SECRETARY:

REFERENCE IS MADE TO A LETTER DATED SEPTEMBER 7, 1971, FROM FRANK B. ELLIOTT, ASSISTANT SECRETARY FOR ADMINISTRATION, REQUESTING OUR ADVICE AS TO WHETHER THE RETROACTIVE REVISION OF THE BASIS FOR FEE CALCULATION, AS SET OUT IN THE SPECIAL USE PERMIT ISSUED BY THE ALLEGHENY NATIONAL FOREST, WARREN, PENNSYLVANIA, TO WOLF RUN MARINA, INC. (WOLF RUN), WARREN, PENNSYLVANIA, WOULD BE LEGALLY PROPER.

THE RECORD EVIDENCES THAT THE ALLEGHENY NATIONAL FOREST ISSUED A SOLICITATION IN 1965 FOR THE CONSTRUCTION AND OPERATION OF MARINA SERVICES AT THE ALLEGHENY RESERVOIR. THE SOLICITATION ADVISED THAT THE ALLEGHENY NATIONAL FOREST WOULD ISSUE A 30 YEAR SPECIAL USE PERMIT FOR OCCUPANCY OF THE SITE WHERE THE CONSTRUCTION AND SERVICES WERE TO BE PERFORMED. THE FEE SCHEDULE FOR THE PERMIT WAS ESTABLISHED UNDER THE THEN EXISTING SYSTEM INVOLVING A MINIMUM FEE PLUS A PERCENTAGE OF NET SALES AND OTHER INCOME OF THE PERMITTEE. ON NOVEMBER 12, 1965, RITA AND CYRUS J. DENMARK, DOING BUSINESS AS ANIMAL VILLAGE COMPANY (THIS NAME WAS CHANGED IN 1967 TO WOLF RUN MARINA, INC.) SUBMITTED THE ONLY BID. AS REQUIRED BY THE SOLICITATION, THE BIDDER RETURNED THE "BID PROPOSAL" FORM ATTACHED TO THE SOLICITATION AND OFFERED THEREIN TO PAY, FOR AND IN CONSIDERATION OF THE PERMIT, THE SPECIFIED MINIMUM FEE PLUS FIVE PERCENT OF ANNUAL NET SALES AND OTHER INCOME. THE "BID PROPOSAL" FORM PROVIDED, IN PERTINENT PART, AS FOLLOWS:

"*** THAT THE CHARGES FOR THIS USE SHALL BE READJUSTED AS OF AND EFFECTIVE ON THE BEGINNING OF EACH 5 YEAR PERIOD FROM THE DUE DATE OF THE FIRST ANNUAL PAYMENT IN ORDER TO PLACE THE CHARGES ON A BASIS COMMENSURATE WITH THE VALUE OF THE USE AUTHORIZED BY THIS PERMIT."

ON MARCH 10, 1966, ALLEGHENY NATIONAL FOREST ISSUED SPECIAL USE PERMIT #1188 IN RESPONSE TO THE BID OF WOLF RUN, BUT INADVERTENTLY OMITTED THE PROVISION CONCERNING FEE READJUSTMENT SET OUT ABOVE. THEREAFTER, ON JUNE 14, 1968, THE PERMIT WAS REVISED TO PROVIDE FOR FEE READJUSTMENT ON JANUARY 1, 1973, AND AT THE BEGINNING OF EACH FIVE YEAR PERIOD THEREAFTER. MR. RALPH H. FREEMAN, FOREST SUPERVISOR, ALLEGHENY NATIONAL FOREST, EXPLAINED THE REASON FOR THIS REVISION AS FOLLOWS:

"IN 1968 THE ALLEGHENY NATIONAL FOREST ENGAGED IN A PROJECT OF REVISING AND UPDATING ALL SPECIAL USE PERMITS. ONE OF THOSE PERMITS WAS THAT OF WOLF RUN MARINA, INC. DURING THIS REVISION, WE RECOGNIZED THAT THE ORIGINAL PERMIT DID NOT PROVIDE FOR FEE READJUSTMENT AS SPECIFIED IN THE BID FORM. WE RATHER ARBITRARILY CORRECTED THAT BY INSERTING A CLAUSE ESTABLISHING SUCH READJUSTMENT DATE AS JANUARY 1, 1973 - A PERIOD APPROXIMATELY FIVE YEARS FROM THE REVISION DATE. THE PERMITTEE ACCEPTED THE TERMS OF THE REVISED PERMIT BY SIGNING IT."

IN JULY 1968, THE ASSISTANT REGIONAL FORESTER FOR RECREATION, REGION 9, ADVISED ALL OF HIS FOREST SUPERVISORS THAT THE FOREST SERVICE WAS PUTTING INTO EFFECT A NEW FEE SYSTEM FOR SPECIAL USE PERMITS. THIS SYSTEM WAS KNOWN AS THE "GRADUATED RATE FEE SYSTEM" (GRFS) AND IT WAS TO BE APPLIED TO ALL NEW COMMERCIAL PERMITS AND ALL EXISTING PERMITS, WHERE POSSIBLE, EXCEPT FOR EXISTING WINTER SPORTS PERMITS.

THE FORMULATION AND IMPLEMENTATION OF A SYSTEM BY WHICH TO DETERMINE FEES FOR SPECIAL USE PERMITS IS A MATTER SOLELY WITHIN THE PURVIEW OF THE FOREST SERVICE. CONGRESS HAS LIMITED ITS DIRECTION CONCERNING FRANCHISE FEES TO BROAD POLICY OBJECTIVES. SEE PUBLIC LAW 89-249, SECTION 3(D). THE IMPLEMENTATION OF A SYSTEM FOR DETERMINING SUCH FEES IS SET FORTH IN FSM 2715.21F-2B, WHEREIN IT INSTRUCTS THAT:

" *** THE GRADUATED RATE SYSTEM CANNOT BE APPLIED TO CONCESSIONS WHERE FEE ADJUSTMENT IS PRECLUDED OR LIMITED BY THE TERMS OF THE EXISTING PERMIT OR BY POLICY. WHEN THESE LIMITATIONS DO NOT EXIST AND IT IS MUTUALLY AGREED TO DO SO, THE PERMITS WILL BE MODIFIED AT THE FIRST REGULARLY SCHEDULED PERIODIC REVIEW AND ADJUSTMENT OF FEE RATES TO PROVIDE FOR USE OF THE SYSTEM. WHERE THE PERMITTEE SEES NO ADVANTAGE IN THE NEW SYSTEM AND WILL NOT AGREE TO THE MODIFICATION TO PROVIDE FOR THE FULL USE OF IT, ITS PRINCIPLES WILL STILL BE USED AT THE TIME OF PERIODIC REVIEW TO DEVELOP THE FEE RATE TO BE USED UNTIL THE NEXT REVIEW."

THE EFFECT OF GRFS ON WOLF RUN IS INDICATED BY COMPARING THE 1970 FEE OF ABOUT $17,000 DUE UNDER THE EXISTING SYSTEM, WITH THE FEE OF ABOUT $6,000 UNDER GRFS.

IN SEPTEMBER 1968, AND AGAIN IN JULY 1969, THE REGIONAL OFFICE ADVISED THE FOREST SUPERVISOR, ALLEGHENY NATIONAL FOREST, THAT THE WOLF RUN PERMIT WAS A TERM PERMIT AND, THEREFORE, THE FEE COULD NOT BE ADJUSTED TO GRFS UNTIL JANUARY 1, 1973, THE FIRST RATE REDETERMINATION DATE UNDER THE CURRENT PERMIT. BY LETTERS DATED APRIL 24 AND JUNE 25, 1970, THE REGIONAL OFFICE, IN RESPONSE TO QUESTIONS BY THE FOREST SUPERVISOR, ALLEGHENY NATIONAL FOREST, CONCERNING THE LEGALITY OF CONVERTING TO GRFS PRIOR TO JANUARY 1, 1973, STATED THAT NOTWITHSTANDING THE REQUIREMENT FOR THE REDETERMINATION OF THE PERMIT FEE IN 1973, THE PERMIT MAY BE PLACED UNDER GRFS AT ANY TIME, PROVIDED IT IS AGREEABLE TO BOTH THE FOREST SERVICE AND THE PERMITTEE. ALTHOUGH THE CHANGE TO THE NEW FEE SYSTEM WAS MUTUALLY AGREEABLE, THE CONVERSION WAS NOT MADE BECAUSE OF STAFF CHANGES AT ALLEGHENY NATIONAL FOREST AND BECAUSE THE PERMITTEE WAS IN THE MIDST OF ITS SUMMER OPERATING SEASON.

THE ISSUE AS TO THE LEGAL PROPRIETY OF CONVERTING TO GRFS PRIOR TO JANUARY 1973 WAS AGAIN RAISED BY THE FOREST SUPERVISOR, ALLEGHENY NATIONAL FOREST, IN DECEMBER 1970. THE REGIONAL OFFICE, BASED ON ADVICE FROM THE DIRECTOR OF BUDGET AND FINANCE, FOREST SERVICE, WASHINGTON, D.C., INDICATED THAT MODIFICATION OF THE PERMIT TO GRFS COULD ONLY BE MADE ON JANUARY 1, 1973, THE FIRST RATE REDETERMINATION DATE FOLLOWING IMPLEMENTATION OF THE SYSTEM. IN THIS CONNECTION, IT WAS NOTED THAT NO OFFICER OF THE GOVERNMENT HAS AUTHORITY TO WAIVE CONTRACTUAL RIGHTS WHICH HAVE ACCRUED TO THE UNITED STATES OR TO MODIFY EXISTING CONTRACTS WITHOUT A COMPENSATING BENEFIT TO THE UNITED STATES. IT WAS CONCLUDED THAT ANY REDUCTION OF THE FEES PRIOR TO THE REDETERMINATION DATE STATED IN THE PERMIT WOULD BE A DETRIMENT TO THE UNITED STATES, RATHER THAN TO ITS BENEFIT.

BY LETTER DATED MARCH 29, 1971, WOLF RUN APPEALED THIS DECISION AND REQUESTED TO BE RELEASED FROM ITS CURRENT USE PERMIT RATE FOR 1970 AND FUTURE YEARS. YOUR REQUEST OF SEPTEMBER 7 FOR OUR ADVICE APPEARS TO HAVE RESULTED FROM SUCH APPEAL.

WE HAVE HELD THAT WHERE, BY REASON OF A MUTUAL MISTAKE IN OMITTING FROM A CONTRACT A MATERIAL PROVISION ON WHICH THE PARTIES PREVIOUSLY HAD AGREED, THE CONTRACT, AS REDUCED TO WRITING, DOES NOT REFLECT THE ACTUAL AGREEMENT OF THE PARTIES, SUCH MISTAKE IS GROUND FOR REFORMING THE WRITTEN INSTRUMENT IF IT CAN BE ESTABLISHED WHAT THE CONTRACT SHOULD HAVE PROVIDED BUT FOR THE MISTAKE. SEE B-158801 DATED MAY 9, 1966, AND CASES CITED THEREIN. IN OUR OPINION THE RECORD IN THE INSTANT CASE ESTABLISHES THAT IT WAS THE INTENTION OF THE PERMITTEE AND THE FOREST SERVICE TO PROVIDE FOR READJUSTMENT OF THE FEE AT THE BEGINNING OF EACH FIVE YEAR PERIOD FROM THE DUE DATE OF THE FIRST ANNUAL PAYMENT, AS INDICATED BY THE PORTION OF THE BID PROPOSAL FORM QUOTED ABOVE. IT IS OUR FURTHER OPINION THAT THE CONTRACT SHOULD HAVE BEEN REFORMED TO EXPRESS THE INTENTION OF THE PARTIES AS SOON AS ITS OMISSION WAS NOTED.

WITH RESPECT TO THE SUBSEQUENT AGREEMENT OF THE PARTIES TO INSERT A PROVISION ESTABLISHING THE REDETERMINATION DATE OF THE USE FEE AT FIVE YEARS FROM THE DATE OF THAT INSERTION, THE RECORD EVIDENCES THAT THE PERMITTEE AND THE FOREST SERVICE BOTH KNEW AT THE TIME OF THE AGREEMENT THAT THE INTENDED CLAUSE WAS INADVERTENTLY OMITTED FROM THE ORIGINAL PERMIT. HOWEVER, THE PARTIES WERE NOT AWARE OF THEIR LEGAL RIGHT TO HAVE THE PERMIT REFORMED TO REFLECT THEIR ORIGINAL AGREEMENT.

IN AN ATTEMPT TO CORRECT THE OMISSION, THE PARTIES AGREED TO THE INSERTION OF A CLAUSE WHICH DIFFERED MATERIALLY FROM WHAT THEY ORIGINALLY INTENDED. THE FOREST SUPERVISOR HAVING COGNIZANCE OVER THIS PERMIT ADMITS THAT THE ESTABLISHMENT OF THE READJUSTMENT FIVE YEARS FROM THE REVISION DATE WAS "RATHER ARBITRARY." CLEARLY, HAD THE PARTIES BEEN KNOWLEDGEABLE OF THEIR RIGHT TO REFORM THE PERMIT TO READ AS HAD BEEN INTENDED BY THEM IN 1965, THEY WOULD HAVE DONE SO AT THIS TIME.

WHERE PARTIES HAVE A CHOICE BETWEEN ACTING IN ACCORDANCE WITH THEIR LEGAL RIGHTS OR ACTING IN AN ARBITRARY MANNER, WE PRESUME THAT THE FORMER WILL BE CHOSEN, PROVIDED THAT NO COUNTER INFLUENCES EXIST. THE INCLUSION OF THE ORIGINALLY AGREED TO READJUSTMENT PROVISION ALLOWING FOR THE READJUSTMENT FIVE YEARS FROM THE FIRST DUE DATE FOR PAYMENT OF THE PERMIT FEE WAS ADVANTAGEOUS TO BOTH THE FOREST SERVICE AND THE PERMITTEE. THIS CONCLUSION IS SUPPORTED BY THE FOREST SERVICE MANUAL WHEREIN AT FSM 2715.45 IT IS STATED THAT:

"THE FOREST SERVICE RECOGNIZES THE NEED FOR GRANTING REASONABLE SECURITY TO ITS PERMITTEES. IT ALSO RECOGNIZES THE NEED OF PROTECTING THE PUBLIC'S INTEREST BY PROVIDING FOR THE ADJUSTMENT OF FEES WHEN THE VALUE OF THE USE OR THE OPERATIONS OF THE PERMITTEE CLEARLY INDICATE THAT AN INCREASE IN FEES IS JUSTIFIED. TO AFFORD THIS MUTUAL PROTECTION, TERM SPECIAL-USE PERMITS INCLUDE A CLAUSE WHICH PROVIDES FOR REVIEW AND ADJUSTMENT AT 5- YEAR INTERVALS OR AS SPECIFIED IN THE PERMIT."

THUS, THE CLAUSE INSERTED INTO THE PERMIT IN JUNE 1968 DOES NOT PRECLUDE REFORMATION OF THE PERMIT TO PROVIDE FOR READJUSTMENT OF THE PERMIT FEE AS ORIGINALLY INTENDED.

THE RECORD IN THIS CASE EVIDENCES THAT FOUR DATES HAVE BEEN SUGGESTED AS THE DATE WHEN GRFS CAN BE MADE EFFECTIVE IN THE SPECIAL USE PERMIT HELD BY WOLF RUN. FIRST IS DECEMBER 1, 1969, THE BEGINNING OF WOLF RUN'S FIRST FISCAL YEAR AFTER GRFS WENT INTO EFFECT THROUGHOUT THE FOREST SERVICE. SECOND, IS JANUARY 1, 1973, WHICH IS THE REDETERMINATION DATE OF THE FEE INCLUDED IN THE PERMIT BY THE MODIFICATION THERETO ON JUNE 14, 1968. THIRD, IS DECEMBER 1, 1970, THE BEGINNING OF THE PERMITTEE'S FISCAL YEAR 1971 AND FIVE OPERATING YEARS FROM THE DATE OF ISSUANCE OF THE ORIGINAL PERMIT. THE FINAL DATE OFFERED FOR THE CONVERSION TO GRFS IS APRIL 5, 1971, WHICH IS FIVE YEARS FROM THE DATE THE FIRST FEE PAYMENT UNDER THIS PERMIT WAS MADE BY WOLF RUN.

IT IS OUR OPINION THAT, UNDER THE CIRCUMSTANCES INVOLVED IN THIS CASE, THE PERMIT SHOULD BE REFORMED TO EXPRESS THE PROVISION ALLOWING FOR READJUSTMENT OF THE PERMIT FEE FIVE YEARS FROM THE DUE DATE OF THE FIRST ANNUAL PAYMENT. THIS RESULT RECOGNIZES BOTH THE ORIGINAL AGREEMENT OF THE PERMITTEE AND THE FOREST SERVICE AS WELL AS THE REGULATIONS OF THE FOREST SERVICE THAT CONVERSION TO GRFS SHOULD OCCUR ONLY AT THE FIRST RATE REDETERMINATION DATE FOLLOWING IMPLEMENTATION OF THE NEW FEE SYSTEM.

BY LETTER DATED APRIL 13, 1970, THE FOREST SUPERVISOR NOTED THAT ACCORDING TO THE RECORDS CONCERNING THE PERMIT OF WOLF RUN, THE DUE DATE OF THE FIRST ANNUAL PAYMENT WAS MAY 5, 1966, BUT PAYMENT WAS MADE ON APRIL 5, 1966, THE SAME DAY THE PERMITTEE WAS BILLED. WE CANNOT AGREE WITH THE CONCLUSION STATED THEREIN THAT THE FEE SCHEDULE CAN BE REVISED AS OF APRIL 1971. THE DUE DATE OF A PAYMENT AND THE DATE OF PAYMENT ARE NOT SYNONYMOUS. THE DATE THAT A PAYMENT IS DUE IS A FIXED DATE WHEREAS THE DATE PAYMENT MAY BE MADE IS DEPENDENT UPON THE INDEPENDENT ACTION OF THE PARTY REQUIRED TO MAKE THE PAYMENT. WE ARE THEREFORE OF THE OPINION THAT AS OF MAY 5, 1971, THE FOREST SERVICE AND THE PERMITTEE MAY ADJUST THE PERMIT FEE PURSUANT TO GRFS.

FINALLY, IT IS OUR OPINION THAT THE CONTENTION OF THE FOREST SUPERVISOR THAT WOLF RUN MARINA'S FAILURE TO MAKE A PROFIT FOR ITS STOCKHOLDERS IS A BASIS FOR RETROACTIVELY APPLYING GRFS AT AN EARLIER DATE THAN WE HAVE ALREADY INDICATED, IS NOT SUPPORTED BY THE PROVISION OF P. L. 89-249. SECTION 3(B) OF THIS ACT RECOGNIZES THAT A CONCESSIONER SHOULD HAVE A REASONABLE OPPORTUNITY TO REALIZE A PROFIT FROM HIS OPERATION, WHILE SECTION 3(D) OF THE ACT REQUIRES RECONSIDERATION OF FRANCHISE FEES AT LEAST EVERY FIVE YEARS TO ASSURE THAT A REASONABLE OPPORTUNITY TO REALIZE A PROFIT WAS NOT HINDERED BY EXCESSIVE FRANCHISE FEES. WHILE THESE PROVISIONS DO CONTEMPLATE REVISIONS BASED IN PART UPON WHETHER THE CONCESSIONER IS REALIZING A PROFIT, IT IS OUR OPINION SUCH REVISIONS MAY BE MADE ONLY AT THE TIME PROVIDED IN THE PERMIT, UNLESS IT CAN BE SHOWN THAT A COMPENSATING BENEFIT WILL RESULT TO THE GOVERNMENT. OUR REVIEW OF THE LEGISLATIVE HISTORY OF P. L. 89-249 DOES NOT EVIDENCE A LEGISLATIVE INTENT TO OVERCOME THE WELL ESTABLISHED RULE THAT,

" *** OFFICERS OF THE GOVERNMENT HAVE NO AUTHORITY TO AMEND OR MODIFY EXISTING CONTRACTS UNLESS A COMPENSATING BENEFIT RESULTS TO THE UNITED STATES; AND THAT SUPERVENING EVENTS OR UNFORESEEN CAUSES WHICH RENDER CONTRACT PERFORMANCE MORE BURDENSOME, OR LESS PROFITABLE, OR EVEN OCCASION A LOSS, ARE NOT SUFFICIENT TO ENTITLE A CONTRACTOR TO AN ADJUSTMENT IN THE CONTRACT PRICE." B-158738, APRIL 18, 1966.

WE DO NOT BELIEVE THE RECORD ESTABLISHES SUCH COMPENSATING BENEFIT TO THE GOVERNMENT IN THE INSTANT CASE, AND WE THEREFORE SEE NO VALID BASIS FOR APPLYING GRFS RETROACTIVELY. THE FILE FORWARDED WITH THE LETTER OF SEPTEMBER 7 IS RETURNED, AND A COPY OF THIS DECISION SHOULD BE FILED WITH THE PERMIT WHEN ITS REFORMATION AND AMENDMENT ARE ACCOMPLISHED.