B-122895, JUN. 2, 1955

B-122895: Jun 2, 1955

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TO THE HONORABLE SECRETARY OF AGRICULTURE: REFERENCE IS MADE TO YOUR LETTER DATED FEBRUARY 9. AUCTION BIDDING WAS HELD ON MAY 1. L. WEISSINGER COMPANY WAS DECLARED THE HIGH BIDDER AND AWARDED THE CONTRACT. SECTION 2A MAKES PROVISION FOR THE REGULAR REDETERMINATIONS OF RATES WHICH ARE TO BE IN EFFECT FOR THE SUBSEQUENT PERIODS MENTIONED IN SECTION 2. WHICH ARE LOWER THAN THE BID RATES. 000 M BOARD FEET HAVE BEEN SCALED AND PAID FOR AT NOT LESS THAN BID RATES.'. SECTION 2F PROVIDES FOR SPECIAL REDETERMINATIONS OF RATES UPON APPLICATION BY THE PURCHASER IF "IT IS SHOWN THAT BECAUSE OF SUBSTANTIAL CHANGES IN MARKET OR OTHER ECONOMIC CONDITIONS SINCE THE LAST REAPPRAISAL. CURRENT RATES ARE UNREASONABLY HIGH.'.

B-122895, JUN. 2, 1955

TO THE HONORABLE SECRETARY OF AGRICULTURE:

REFERENCE IS MADE TO YOUR LETTER DATED FEBRUARY 9, 1955, REQUESTING A DECISION AS TO THE PROPER INTERPRETATION OF CONTRACT NO. A8FS9026DATED JUNE 1, 1951, COVERING THE SALE OF NATIONAL FOREST TIMBER TO THE E. L. WEISSINGER LUMBER COMPANY.

YOU STATE THAT THE FOREST SERVICE ADVERTISED TIMBER FOR SALE FROM THE AREA KNOWN AS FIRES CREEK ON THE NANTAHALA NATIONAL FOREST IN NORTH CAROLINA. AUCTION BIDDING WAS HELD ON MAY 1, 1951, WITH THE RESULT THAT THE E. L. WEISSINGER COMPANY WAS DECLARED THE HIGH BIDDER AND AWARDED THE CONTRACT. THE PURCHASER BID HIGH RATES FOR THE TIMBER WITH THE EXPECTATION THAT HE COULD MARKET IT AT PREMIUM PRICES BECAUSE OF THE FIGHTING IN KOREA. MARKET DEMAND PROVED TO BE OF SHORT DURATION.

SECTION 1 OF THE CONTRACT DESCRIBES THE SALE AREA AND SETS OUT AN ESTIMATED VOLUME OF 27,500 MBM OF TIMBER TO BE CUT FROM THE AREA. SECTION 2 SETS OUT THE RATES AGREED TO BE PAID BY THE PURCHASER FOR THE TIMBER SCALED PRIOR TO JUNE 21, 1953, AND FURTHER PROVIDES THAT RATES TO BE PAID IN SUBSEQUENT PERIODS SHALL BE AS REDETERMINED. THIS SECTION ALSO SETS OUT THE BASIC APPRAISED RATES. SECTION 2A MAKES PROVISION FOR THE REGULAR REDETERMINATIONS OF RATES WHICH ARE TO BE IN EFFECT FOR THE SUBSEQUENT PERIODS MENTIONED IN SECTION 2. SECTION 2E PROVIDES THAT REDETERMINED RATES SHALL NOT BE LESS THAN THE BASIC APPRAISED RATES SET OUT IN SECTION 2 PLUS DEPOSITS REQUIRED FOR STAND IMPROVEMENT BY SECTION 2B AND STIPULATES: "IN NO EVENT SHALL RATES SO ESTABLISHED, WHICH ARE LOWER THAN THE BID RATES, BECOME EFFECTIVE UNTIL AT LEAST 7,000 M BOARD FEET HAVE BEEN SCALED AND PAID FOR AT NOT LESS THAN BID RATES.' SECTION 2F PROVIDES FOR SPECIAL REDETERMINATIONS OF RATES UPON APPLICATION BY THE PURCHASER IF "IT IS SHOWN THAT BECAUSE OF SUBSTANTIAL CHANGES IN MARKET OR OTHER ECONOMIC CONDITIONS SINCE THE LAST REAPPRAISAL, CURRENT RATES ARE UNREASONABLY HIGH.' THESE SPECIAL REDETERMINED RATES ARE TO BE EFFECTIVE DURING THE REMAINDER OF THE CURRENT RATE PERIOD. SECTION 3 PROVIDES AS FOLLOWS:

"PERIOD OF CONTRACT.--- 3. UNLESS EXTENSION OF TIME IS GRANTED, ALL TIMBER SHALL BE CUT AND REMOVED AND THE REQUIREMENTS OF THIS AGREEMENT SATISFIED ON OR BEFORE JUNE 21, 1959. UNLESS SUCH AMOUNTS ARE CHANGED IN WRITING BY THE REGIONAL FORESTER, AT LEAST 7,000 M AND NOT MORE THAN 8,500 M SHALL BE CUT PRIOR TO JUNE 21, 1953; AND NOT LESS THAN 6,000 M OR MORE THAN 8,000 M DURING EACH FOLLOWING 2 YEAR PERIODS.'

SECTION 8 CONTAINS THE PROVISIONS RELATIVE TO THE PLAN OF LOGGING OPERATIONS AND PROVIDES THAT ,UNLESS CHANGED IN WRITING BY THE FOREST SUPERVISOR, LOGGING UNTIL JUNE 21, 1953, SHALL BE IN UNITS 7, 8, AND 9 AND ON ROAD RIGHTS OF WAY AND SAWMILL OR LOGGING CAMP SITES.' SECTION 24 PROVIDES THAT CERTAIN ROADS, WHICH WERE NEEDED IN THE LOGGING IN UNITS 7, 8 AND 9, WILL BE CONSTRUCTED BY THE PURCHASER BY JUNE 21, 1953.

THE CONTRACT WAS EXTENDED BY TWO AMENDMENTS, THE FIRST DATED JUNE 30, 1953, AND THE SECOND DATED JUNE 15, 1954. THE CONTRACT AS FINALLY AMENDED WAS CHANGED IN THE FOLLOWING RESPECTS:

1. SECTION 2 WAS CHANGED TO PROVIDE FOR THE FIRST REDETERMINATION OF RATES ON JUNE 21, 1955.

2. CHANGED THE MINIMUM AND MAXIMUM PERIODIC CUTTING REQUIREMENTS OF SECTION 3 TO NOT LESS THAN 6,000 M AND NOT MORE THAN 7,000 M BOARD FEET BY JUNE 21, 1955, AND NOT LESS THAN 3,500 M NOR MORE THAN 5,500 M BOARD FEET DURING EVERY 12-MONTH PERIOD THEREAFTER.

3. CHANGED THE REQUIREMENT IN SECTION 8 FOR THE LOGGING IN UNITS 7, 8 AND 9, TO REQUIRE LOGGING IN UNITS 6 AND 7 UNTIL JUNE 21, 1955.

4. CHANGED THE DATE REQUIRED IN SECTION 24, FOR THE CONSTRUCTION OF CERTAIN ROADS TO DECEMBER 31, 1954. THE REGIONAL FORESTER FURTHER EXTENDED THE TIME FOR THIS WORK TO JUNE 20, 1955, UNDER AUTHORITY OF SECTION 24 OF THE CONTRACT BY HIS LETTER OF DECEMBER 7, 1954.

IT APPEARS THAT FOR VARIOUS REASONS THE CUTTING ON THIS SALE HAS NOT PROCEEDED IN ACCORDANCE WITH THE REQUIREMENTS OF SECTION 3 OF THE CONTRACT. THE PURCHASER SUGGESTS THAT ONE OF THE REASONS FOR NOT MEETING THE CONTRACT RATE OF CUTTING AT THE OUTSET WAS THAT THERE WAS DELAY IN THE COMPLETION OF A BRIDGE THAT THE FOREST SERVICE WAS HAVING CONSTRUCTED. ALSO ALLEGES THAT HE WAS DELAYED FIVE MONTHS BECAUSE OF THE MANNER IN WHICH THE FOREST OFFICER ADMINISTERED THE SALE. IT ALSO APPEARS THAT THE CUTTING ON UNITS 7, 8 AND 9, ON WHICH LOGGING OPERATIONS WERE BEING CONDUCTED RAN CONSIDERABLY SHORT OF THE ORIGINAL ESTIMATES. IT IS NOW ESTIMATED THAT THE FINAL CUT ON THESE UNITS WILL BE ABOUT 4,850 M BOARD FEET AS COMPARED TO THE ORIGINAL ESTIMATE OF 7,000 M BOARD FEET.

IT IS CONTENDED FURTHER BY THE PURCHASER THAT THE CONTRACT MUST BE READ AS A WHOLE AND THAT EACH PROVISION MUST BE CONSTRUED IN THE LIGHT OF EACH OTHER PROVISION. HE ALSO CONTENDS THAT, SINCE THIS CONTRACT WAS PREPARED BY THE GOVERNMENT, IT SHOULD BE CONSTRUED MOST STRONGLY AGAINST THE GOVERNMENT. ON THE BASIS OF THESE PRINCIPLES OF LAW, THE PURCHASER ALLEGES THAT, INASMUCH AS HE WAS REQUIRED TO CUT AT LEAST 7,000 M BOARD FEET BY JUNE 21, 1953, AND SINCE HE WAS ENTITLED TO CUT ONLY IN UNITS 7, 8 AND 9 UNTIL THAT DATE, AND SINCE JUNE 21, 1953, WAS THE DATE ORIGINALLY SPECIFIED FOR THE FIRST REDETERMINATION OF RATES AND FOR COMPLETION OF THE ROADS NEEDED FOR UNITS 7, 8 AND 9, IT WAS INTENDED THAT THE 7,000 M BOARD FEET, WHICH HAD TO BE CUT BEFORE ANY REDETERMINATED RATES LOWER THAN BID RATES COULD GO INTO EFFECT ACCORDING TO SECTION 2E, WERE TO COME FROM UNITS 7, 8 AND 9. IN OTHER WORDS, THE PURCHASER CONTENDS THAT, IF UNITS 7, 8 AND 9 FAIL TO CUT 7,000 M BOARD FEET OR MORE, HE IS ENTITLED TO HAVE REDETERMINED RATES WHICH ARE LOWER THAN BID RATES PUT INTO EFFECT AS SOON AS UNITS 7, 8 AND 9 ARE CUT OUT WHERE THE LOGGING IN SUCH UNITS IS COMPLETED AFTER THE RATE REDETERMINATION DATE. HE ALSO CONTENDS THAT THE AMENDMENTS TO THE CONTRACT WERE NOT EXECUTED BY HIM WITH THE UNDERSTANDING THAT THEY SHOULD HAVE ANY EFFECT UPON THE MINIMUM AMOUNT REQUIRED TO BE CUT AND PAID FOR AT NOT LESS THAN THE BID RATES. FINALLY, HE STATES THAT HE WILL BE UNABLE TO CONTINUE OPERATIONS UNDER THIS CONTRACT IF HE IS REQUIRED TO MAKE PAYMENT AT BID RATES FOR THE FULL 7,000 M BOARD FEET.

REGARDING THE DELAY BY THE GOVERNMENT IN CONSTRUCTING THE BRIDGE, THE RECORD DOES NOT INDICATE THAT THIS DELAY CONTRIBUTED IN ANYWAY TO THE CONTRACTOR'S DELAY IN THE RATE OF CUTTING. THE RECORD SHOWS THAT BIDDERS WERE ADVISED AT THE TIME OF BIDDING THAT THERE WOULD BE DELAY IN CONSTRUCTING THE BRIDGE BUT THAT FOREST SERVICE WOULD INSTALL A TEMPORARY BRIDGE IF NEEDED AND THAT BY LETTER OF OCTOBER 5, 1951, TO WHICH NO REPLY WAS RECEIVED, THE REGION INVITED THE CONTRACTOR TO CALL ON THE FOREST SERVICE IF ANYTHING WERE NEEDED TO GET UNDER WAY. ALSO, YOU REPORT THAT, AT THE OUTSET, THERE WAS AMPLE TIMBER AVAILABLE FOR CUTTING AND HAULING OUT WITHOUT THE USE OF THE BRIDGE. IN THAT CONNECTION, IT IS NOTED THAT IN A LETTER DATED JUNE 17, 1952, THE PURCHASER ADVISED THE GOVERNMENT THAT, ALTHOUGH HE HAD BEEN DELAYED MANY MONTHS BECAUSE THE BRIDGE WAS NOT COMPLETED, HE WAS "STILL BEING DELAYED BY FINAL CLOSING OF THE R.F.C. LOAN, NEEDED TO PURCHASE ADEQUATE EQUIPMENT AND TO INSTALL A NEW SAWMILL.' THE PURCHASER ALSO ALLEGES THAT PRIOR TO JUNE 21, 1953, HE WAS DELAYED ABOUT FIVE MONTHS BECAUSE OF THE GOVERNMENT'S ADMINISTRATION OF THE SALE. IT IS SIGNIFICANT TO NOTE THAT THE PURCHASER HAD CUT 1,350 M BOARD FEET BY JUNE 1953 AND THAT,DURING THE PERIOD FROM JUNE 1953 TO JUNE 1954, HE ONLY CUT 1,950 M BOARD FEET WHEREAS SECTION 3 OF THE CONTRACT, AS AMENDED JUNE 30, 1953, REQUIRED HIM TO CUT NOT LESS THAN 6,000 M BOARD FEET BY JUNE 1, 1954, OR AT THE RATE OF ABOUT 3,000 M BOARD FEET PER YEAR. THESE FACTS CLEARLY SHOW THAT THE DELAY IN THE PROGRESS OF THE CUTTING WAS NOT ATTRIBUTABLE TO THE GOVERNMENT'S ADMINISTRATION OF THE SALE AND THE BELATED CONSTRUCTION OF THE BRIDGE, BUT RATHER WAS DUE TO THE PURCHASER'S FAILURE TO PROMPTLY PROCEED WITH THE CUTTING AS REQUIRED BY THE TERMS OF THE CONTRACT.

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

MOREOVER, WHILE SECTION 2A OF THE ORIGINAL CONTRACT PROVIDED FOR REDETERMINATION OF THE RATES FROM JUNE 21, 1953, THE REDETERMINATION WAS SUBJECT TO THE FURTHER PROVISIONS OF SECTION 2E OF THE CONTRACT WHICH EXPRESSLY PROHIBITED THE ESTABLISHMENT OF RATES LOWER THAN THE BID RATES UNTIL AT LEAST 7,000 M BOARD FEET HAD BEEN CUT AND PAID FOR AT NOT LESS THAN BID RATES. THERE IS NOTHING IN SECTION 2E OR ANY OTHER PROVISION OF THE CONTRACT TO INDICATE THAT THE 7,000 M BOARD FEET HAD TO BE CUT FROM UNITS 7, 8 AND 9. AS PREVIOUSLY STATED THE GOVERNMENT EXPRESSLY RESERVED THE RIGHT TO DESIGNATED OTHER UNITS FOR CUTTING IN THE EVENT THAT THOSE UNITS DID NOT YIELD 7,000 M BOARD FEET.

IN ADDITION, THERE MAY NOT BE OVERLOOKED THE FACT THAT THE PURCHASER EXECUTED THE AMENDMENT OF JUNE 15, 1954, AT THE TIME HE WAS PROTESTING THE RATES. BY ITS TERMS THE PURCHASER AGREED TO PAY THE BID PRICES FOR ALL TIMBER CUT PRIOR TO JUNE 21, 1955. HE ALSO AGREED TO CONDUCT LOGGING OPERATIONS IN UNITS 6 AND 7 AND TO CUT AT LEST 6,000 M AND NOT MORE THAN 7,000 M BOARD FEET BY JUNE 21, 1955. THE AMENDMENT FURTHER PROVIDED THAT THE PURCHASER AGREED TO CUT AND REMOVE THE TIMBER "IN STRICT ACCORDANCE WITH ALL AND SINGULAR THE TERMS AND PROVISIONS OF THE AFORESAID CONTRACT AS HEREIN MODIFIED.' CONSIDERING THE TERMS OF THE AMENDMENT IT SEEMS CLEAR THAT THE PURCHASER IS NOT ENTITLED TO A REDETERMINATION IN RATES UNTIL JUNE 21, 1955, AND THAT EVEN THEN THE REDETERMINED RATES COULD NOT BECOME EFFECTIVE UNTIL 7,000 M BOARD FEET HAD BEEN SCALED AND PAID FOR AT THE ORIGINAL RATES.

REGARDING THE PROVISIONS OF SECTION 2F WHICH PERMIT AN EMERGENCY REDETERMINATION OF RATES BECAUSE OF CHANGES IN MARKET OR ECONOMIC CONDITIONS, AS YOU INDICATE, THE WORDING OF THAT SECTION SHOWS THAT ITS PROVISIONS MAY NOT BE INVOKED UNTIL AFTER THE FIRST REDETERMINATION HAS BEEN MADE UNDER THE TERMS OF THE CONTRACT.

ACCORDINGLY, YOU ARE ADVISED THAT THERE IS NO LEGAL BASIS FOR REDETERMINING THE RATES UNTIL 7,000 M BOARD FEET OF TIMBER HAVE BEEN PAID FOR AT NOT LESS THAN BID RATES.