B-150005, DEC. 11, 1962

B-150005: Dec 11, 1962

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TO DWYER LUMBER AND PLYWOOD COMPANY: FURTHER REFERENCE IS MADE TO YOUR LETTER OF SEPTEMBER 26. YOUR CLAIM IS BASED UPON WHAT YOU CONTEND TO BE AN ERRONEOUS METHOD EMPLOYED BY THE FOREST SERVICE IN APPLYING THE PROVISIONS FOR ROAD AMORTIZATION CONTAINED IN SUBPARAGRAPH 3 OF SECTION 3A OF THE CONTRACT. AWARD WAS MADE TO YOU ON YOUR BID OF . THE RATES APPLICABLE AT THE TIME OF CUTTING WERE $30.89 PER MBF FOR DOUGLAS FIR AND WESTERN WHITE PINE. PARAGRAPH 3 OF SECTION 3A PROVIDED AS FOLLOWS: "THE TENTATIVE RATE FOR EACH SPECIES-PRODUCT WILL BE INCREASED BY THE AMORTIZATION RATE IN EFFECT FOR THAT SPECIES-PRODUCT WHEN THE UNAMORTIZED ESTIMATED COST OF THE ROADS AND BRIDGES LISTED IN SECTION 10B-1 HAS BEEN AMORTIZED BY TIMBER SCALED OR RELEASED FOR CUTTING.

B-150005, DEC. 11, 1962

TO DWYER LUMBER AND PLYWOOD COMPANY:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF SEPTEMBER 26, 1962, RELATIVE TO YOUR CLAIM FOR $1,254.36 REPRESENTING THE AMOUNT ALLEGEDLY OVERPAID BY YOUR COMPANY FOR STUMPAGE CUT UNDER TIMBER SALE CONTRACT NO. 12-11-0066; 44240, VELVET CREEK, MT. HOOD NATIONAL FOREST, DATED APRIL 26, 1962.

YOUR CLAIM IS BASED UPON WHAT YOU CONTEND TO BE AN ERRONEOUS METHOD EMPLOYED BY THE FOREST SERVICE IN APPLYING THE PROVISIONS FOR ROAD AMORTIZATION CONTAINED IN SUBPARAGRAPH 3 OF SECTION 3A OF THE CONTRACT. YOU PROTEST THE USE OF 80 PERCENT OF THE ADVERTISED VOLUME FOR AMORTIZATION OF THE ROAD COSTS INSTEAD OF USING 100 PERCENT OF THE ADVERTISED VOLUME IN ACCORDANCE WITH PRIOR ESTABLISHED PRACTICE. THE ESTIMATED VOLUME DESIGNATED FOR CUTTING UNDER THE CONTRACT CONSISTED OF 375 M BOARD FEET OF DOUGLAS-FIR AND WESTERN WHITE PINE LOGS AND DOUGLAS- FIR PEELER BLOCKS AND 245 M BOARD FEET OF WESTERN HEMLOCK AND OTHER SPECIES. AWARD WAS MADE TO YOU ON YOUR BID OF ,TENTATIVE" STUMPAGE RATES OF $33.25 PER MBF FOR EACH CLASSIFICATION. ADJUSTED AS PROVIDED IN PARAGRAPH 2B OF SECTION 3A, THE RATES APPLICABLE AT THE TIME OF CUTTING WERE $30.89 PER MBF FOR DOUGLAS FIR AND WESTERN WHITE PINE, AND $32.48 FOR WESTERN HEMLOCK AND OTHER SPECIES. PARAGRAPH 3 OF SECTION 3A PROVIDED AS FOLLOWS:

"THE TENTATIVE RATE FOR EACH SPECIES-PRODUCT WILL BE INCREASED BY THE AMORTIZATION RATE IN EFFECT FOR THAT SPECIES-PRODUCT WHEN THE UNAMORTIZED ESTIMATED COST OF THE ROADS AND BRIDGES LISTED IN SECTION 10B-1 HAS BEEN AMORTIZED BY TIMBER SCALED OR RELEASED FOR CUTTING.

"THE UNAMORTIZED ESTIMATED COST OF ROADS AND BRIDGES LISTED IN SECTION 10B-1 AND THE AMORTIZATION RATES ARE:

CHART.

UNAMORTIZED ESTIMATED COST: $5,372.00 AMORTIZATION RATES:

DOUGLAS-FIR AND WESTERN WHITE PINE -------------------- $14.12

WESTERN HEMLOCK AND OTHER SPECIES --------------------- 5.79.'

UNDER THE SALE YOU ACTUALLY CUT 451,870 FEET OF DOUGLAS-FIR AND WESTERN PINE, OR 121 PERCENT OF THE ESTIMATED QUANTITY OF SUCH SPECIES, AND 229,940 FEET OF WESTERN HEMLOCK AND OTHERS, OR 94 PERCENT OF THE ESTIMATED QUANTITY OF THOSE SPECIES. UPON COMPLETION OF THE CUTTING YOU WERE BILLED $23,766.48 BASED UPON THE REPORT OF TIMBER CUT, ITEMIZED AS FOLLOWS:

CHART.

SPECIE M.B.M. RATE VALUE DOUGLAS FIR AND W. PINE 300.00 $30.89 $9,267.00 W. HEMLOCK AND OTHERS 196.20 32.48 6,372.58

AFTER ROAD AMORTIZED DOUGLAS FIR AND W. PINE 151.87 45.01 6,835.67 W. HEMLOCK AND OTHERS 33.74 38.27 1,291.23

681.81 $23,766.48

IT IS YOUR CONTENTION THAT YOUR ACCOUNT SHOULD HAVE BEEN COMPUTED AS FOLLOWS:

CHART. DOUGLAS FIR AND W. PINE 375,000 FT. $30.89 $11,583.75 WESTERN HEMLOCK AND OTHERS 229,940 DO 32.48 7,468.45 DOUGLAS FIR AND W. PINE 76,870 DO 45.01 3,459.92

$22,512.12

CHARGE PER TIMBER REPORT 23,766.48

OVERCHARGE $ 1,254.36

YOU EXPLAIN THAT YOUR CLAIM FOR $1,254.36 WAS COMPUTED BY MULTIPLYING THE BID PRICE LESS THE INDEX BY THE ADVERTISED VOLUME (100 PERCENT) RATHER THAN 80 PERCENT.

YOU HAVE INTERPRETED PARAGRAPH 3 OF SECTION 3A AS MEANING THAT AFTER 375 MBF OF DOUGLAS-FIR AND WESTERN WHITE PINE AND 245 MBF OF HEMLOCK AND OTHER SPECIES (REPRESENTING THE TOTAL QUANTITY OF 620 MBF ADVERTISED) HAD BEEN REMOVED YOUR RATES WOULD THEN BE INCREASED BY $14.12 FOR THE DOUGLAS-FIR AND WESTERN WHITE PINE AND $5.79 FOR THE WESTERN HEMLOCK AND OTHER SPECIES. INSTEAD, YOU STATE THAT UNDER THE FOREST SERVICE BILLING YOU PAID YOUR BID PRICES (AS ADJUSTED BY APPLICATION OF THE INDICES) ON ONLY 311 MBF OF DOUGLAS-FIR (APPROXIMATELY 80 PERCENT OF THE ADVERTISED QUANTITY) AND ON ONLY 196.20 MBF OF HEMLOCK AND OTHER SPECIES (APPROXIMATELY 80 PERCENT OF THE ADVERTISED QUANTITY) AND THAT THEREAFTER YOUR RATES WERE INCREASED BY THE AMORTIZATION RATES OF $14.12 FOR DOUGLAS- FIR AND WESTERN PINE AND $5.79 FOR WESTERN HEMLOCK AND OTHER SPECIES.

IN SUPPORT OF YOUR CLAIM YOU STATE THAT IN DECEMBER 1961 AND JANUARY 1962 THERE WAS A CHANGE IN THE APPRAISAL METHODS--- A CHANGE AS TO WHICH THE INDUSTRY HAD NO NOTICE. YOU CONTEND THAT NEITHER THE PROSPECTUS NOR THE ADVERTISEMENT OF THE SALE STATED THAT THE ROAD AMORTIZATION RATES WOULD BE BASED UPON 80 PERCENT OF THE ADVERTISED VOLUME; THAT NO NOTIFICATION WAS GIVEN OF RECENT CHANGES IN APPRAISAL PROCEDURES EMPLOYED BY THE FOREST SERVICE AND THAT THE ROAD AMORTIZATION CLAUSE OF THE CONTRACT WAS MISREPRESENTED.

THE FOREST SERVICE HAS REPORTED THAT YOUR CLAIM IS THE RESULT OF A LACK OF UNDERSTANDING WHICH OCCURRED LAST SPRING WHEN IT CHANGED THE STUMPAGE PRICING FORMULA IN ITS TIMBER SALE CONTRACTS; THAT AT SUCH TIME, AT THE REQUEST OF THE INDUSTRY, ROAD DEFICITS WERE FIRST INCLUDED AS AN INTEGRAL PART OF THE TIMBER SALE RATE STRUCTURE; THAT THIS STRUCTURE, WHICH IS DEFINED IN SECTION 3 OF THE TIMBER SALE CONTRACT, ALREADY INCLUDED: (1) BASE RATES, (2) TENTATIVE RATES, (3) INDEX ADJUSTMENTS, AND (4) ROAD AMORTIZATION AND THAT THE METHOD OF ROAD AMORTIZATION WAS CHANGED AT THE SAME TIME IN ORDER TO SIMPLIFY THE APPLICATION OF THIS NEW AND MORE COMPLEX PRICING FORMULA. THE FOREST SERVICE HAS REPORTED FURTHER THAT WHILE THESE CHANGES IN THE STUMPAGE PRICING FORMULA TOOK PLACE AT ABOUT THE TIME THE VELVET CREEK CONTRACT WAS ENTERED INTO SUCH CHANGES DID NOT INCLUDE THE METHOD OF COMPUTING ROAD AMORTIZATION RATES UPON 80 PERCENT OF THE ESTIMATED VOLUME BECAUSE ROAD AMORTIZATION RATES ON COMPARABLE SALES IN THE PAST HAD COMMONLY BEEN BASED UPON 80 PERCENT OF THE ADVERTISED VOLUME. AS TO THE CHANGE INVOLVING THE METHOD OF ADJUSTING PAYMENT RATES FOR ROAD COST AMORTIZATION, FOREST SERVICE HAS REPORTED THAT PREVIOUSLY BID RATES WERE DECREASED SO THAT THE PURCHASER PAID LESS THAN THE BID RATES UNTIL SUCH TIME AS COMPLETE AMORTIZATION OF THE ESTIMATED COST HAD BEEN ACHIEVED, AT WHICH TIME THE RATE OF PAYMENT WOULD BE INCREASED BY THE AMOUNTS STATED IN THE CONTRACT. UNDER THE NEW PROCEDURE AS PROVIDED IN THE VELVET CREEK CONTRACT NO DECREASE IN BID RATES WAS PROVIDED. INSTEAD, THE CONTRACT PROVIDED THAT THE ACTUAL BID RATES WERE TO BE PAID UNTIL AMORTIZATION OF THE ESTIMATED ROAD COSTS WAS ACHIEVED AND THEN THE PAYMENT RATES WOULD BE INCREASED BY THE AMOUNTS OF THE AMORTIZATION RATES.

THE FOREST SERVICE HAS REPORTED THAT A CONSIDERABLE EFFORT WAS MADE TO POINT OUT TO THE BIDDERS AT THIS SALE THE NEW ROAD DEFICIT FEATURE, BUT THAT LESS EMPHASIS APPEARS TO HAVE BEEN PLACED UPON THE CHANGE IN ROAD AMORTIZATION BECAUSE THAT CHANGE WAS CONSIDERED INCIDENTAL. THE ADMINISTRATIVE REPORT HAS POINTED OUT, HOWEVER, THAT THE PRINCIPLE OF SPECIAL TREATMENT FOR ROAD AMORTIZATION WAS NOT A NEW CONTRACT FEATURE; THAT IN THE ADVERTISEMENT FOR BIDS, BIDDERS WERE NOTIFIED THAT FULL INFORMATION CONCERNING THE CONDITIONS OF SALE SHOULD BE OBTAINED FROM THE DISTRICT RANGER OR FOREST SUPERVISOR; AND THAT THE TIMBER SALE PROSPECTUS WAS ONLY DESIGNED TO ATTRACT INTEREST IN THE TIMBER OFFERING AND WAS NOT DESIGNED TO INCLUDE ALL CONDITIONS OF SALE. THIS, IT IS REPORTED, IS EVIDENCED BY THE FACT THAT THE PROSPECTUS REVIEWED ONLY GENERAL INFORMATION REGARDING THE SALE AND REFERRED PROSPECTIVE BIDDERS TO THE SAMPLE SALE CONTRACT WHICH THEY WERE EXPECTED TO REVIEW PRIOR TO BIDDING. IN ADDITION, IT WAS POINTED OUT THAT THE ,APPRAISAL SUMMARY" WHICH WAS AVAILABLE TO ALL INTERESTED PARTIES DURING THE ADVERTISEMENT SPECIFICALLY SHOWED THAT THE AMORTIZATION RATES WERE BASED UPON AMORTIZING ROAD COSTS AGAINST 80 PERCENT OF THE ESTIMATED VOLUME; THAT IN EXAMPLE "C" OF THE LEAFLET "THE ROAD AMORTIZATION RATE DEFICIT PROCEDURE" WHICH WAS DISTRIBUTED TO TIMBER SALE PURCHASERS ALL INTEGRAL PARTS OF THE NEW PRICING FORMULA FUNCTIONS WERE SHOWN AND EXAMPLE "C" USED 80 PERCENT OF THE ADVERTISED VOLUME TO ACCELERATE AMORTIZATION.

WHILE YOUR LETTER COMPLAINS OF THE ABSENCE OF ANY NOTICE TO THE INDUSTRY AS TO THE CHANGED PROCEDURES, YOUR CLAIM AS PRESENTED PRIMARILY CONCERNS THE PROPER INTERPRETATION OF THE ABOVE PROVISIONS OF SUBPARAGRAPH 3, SECTION 3A OF THE CONTRACT. IN OTHER WORDS, YOUR CLAIM REQUIRES A DETERMINATION AS TO WHEN, UNDER THE PROVISIONS OF THAT SUBPARAGRAPH, THE INCREASES OVER BID RATES WERE TO BECOME EFFECTIVE. YOU CONTEND THAT THIS PROVISION OF THE CONTRACT SHOULD BE INTERPRETED AS PROVIDING THAT "AFTER 375 M BOARD FEET OF DOUGLAS-FIR AND WESTERN WHITE PINE AND 245 M BOARD FEET OF HEMLOCK AND OTHER SPECIES WAS REMOVED (A TOTAL OF 620 M BOARD FEET WHICH WAS ADVERTISED), OUR (YOUR) RATES WOULD THEN BE INCREASED BY $14.12 FOR THE DOUGLAS-FIR AND WESTERN PINE AND $5.79 FOR WESTERN HEMLOCK AND OTHER SPECIES.' SO INTERPRETED, THE TENTATIVE RATES IN THIS INSTANCE NEVER WOULD HAVE BEEN INCREASED, SINCE A CUT OF 375 MBF OF DOUGLAS-FIR AND WHITE PINE AND 245 MBF OF WESTERN HEMLOCK AND OTHERS WAS NOT ACHIEVED AT ANY TIME DURING THE LIFE OF THE CONTRACT, THE TOTAL CUT OF WESTERN HEMLOCK AND OTHERS HAVING BEEN ONLY 229.9 MBF.

CONCERNING YOUR INTERPRETATION OF SUBPARAGRAPH 3, SECTION 3A OF THE CONTRACT, THE ASSISTANT SECRETARY OF AGRICULTURE HAS REPORTED AS FOLLOWS:

"WE DO NOT AGREE WITH THE COMPANY'S INTERPRETATION OF CONTRACTS SECTION 3A-3 (EXHIBIT I). THIS SECTION PROVIDES THAT STUMPAGE RATES WILL BE INCREASED BY THE AMORTIZATION RATES IN EFFECT WHEN THE ESTIMATED ROAD COSTS ARE AMORTIZED. ROAD AMORTIZATION PERMITS THE UNITED STATES TO REALIZE THE FULL VALUE FOR ITS TIMBER IN CASE OF AN OVERCUT, WHEREAS ACCELERATED ROAD AMORTIZATION PROTECTS THE INTERESTS OF THE PURCHASER IN CASE OF UNDERRUN. SECTION 3A-3 PURPOSELY DOES NOT SHOW THE PERCENT OF VOLUME OR VOLUME BY SPECIES USED IN THE APPRAISAL TO AMORTIZE THE ROADS. THE CONTRACT VOLUME WAS DETERMINED BY CRUISE. AN OVERRUN OR UNDERRUN AND SOME SHIFT IN THE RATIO OF SPECIES WAS EXPECTED. THE CONTRACT STATES THE UNAMORTIZED ESTIMATED COSTS AND APPLICABLE AMORTIZATION RATES, RATHER THAN VOLUMES, TO PREVENT INEQUITIES BECAUSE OF PROBABLE DIFFERENCES BETWEEN THE RATIO OF THE CRUISE AND THE VOLUME ACTUALLY CUT. VOLUME CONTROL IN AMORTIZATION WAS DISCARDED AS UNDESIRABLE A NUMBER OF YEARS AGO AS UNDER THAT METHOD IT IS POSSIBLE TO HAVE RATE INCREASES PRIOR TO COMPLETE ROAD AMORTIZATION. FURTHERMORE THE AMORTIZATION PROVISION MUST BE CONSIDERED AS AN INTEGRAL PART OF THE STUMPAGE RATE STRUCTURE RATHER THAN AS A SEPARATE ENTITY.'

AS SHOWN IN THE APPRAISAL SUMMARY--- ADMINISTRATIVELY REPORTED TO HAVE BEEN MADE AVAILABLE TO ALL INTERESTED PARTIES WHEN THE TIMBER WAS ADVERTISED FOR SALE--- THE AMORTIZATION RATES WERE SHOWN TO HAVE BEEN BASED UPON AMORTIZATION OF ROAD COSTS AGAINST 80 PERCENT OF THE ESTIMATED VOLUME. IN ADDITION, IN THE LEAFLET "THE ROAD AMORTIZATION RATE DEFICIT PROCEDURE," ISSUED MARCH 28, 1962, REPORTED TO HAVE BEEN DISTRIBUTED TO THE TIMBER SALE PURCHASERS, EXAMPLE "C" SHOWS ALL THE INTEGRAL PARTS OF THE NEW PRICING FORMULA FUNCTION AND USES 80 PERCENT OF THE ADVERTISED VOLUME TO ACCELERATE AMORTIZATION. ALSO, IT IS REPORTED THAT MR. R. F. DWYER, SR., INFORMED THE FOREST SERVICE THAT HIS BROTHER, MR. A. J. DWYER, EXAMINED THE SAMPLE CONTRACT PRESUMABLY PRIOR TO BIDDING AND THAT THE AUCTIONEER CALLED THE ATTENTION OF THE PROSPECTIVE BIDDERS TO THE FACT THAT THE CONTRACT PROVIDED FOR ACCELERATED ROAD AMORTIZATION AND THAT IT INCLUDED A ROAD DEFICIT PROCEDURE. IN THE CIRCUMSTANCES, IT IS DIFFICULT TO UNDERSTAND HOW YOUR COMPANY COULD INTERPRET THE ROAD AMORTIZATION PROVISION OF SUBPARAGRAPH 3 OF SECTION 3A OF THE CONTRACT AS MEANING THAT THE ADJUSTED BID RATES WOULD NOT BE INCREASED BY THE STATED AMORTIZATION RATES OF $14.12 AND $5.79 UNTIL AFTER THE ESTIMATED VOLUMES OF 375 MBF OF DOUGLAS-FIR AND WESTERN PINE AND 245 MBF OF WESTERN HEMLOCK AND OTHER SPECIES WERE REMOVED.

CONCERNING THE WRITTEN STATEMENT BY MR. R. F. DWYER ON THE REVERSE SIDE OF THE LETTER OF SEPTEMBER 26, 1962, TO THE EFFECT THAT IT WAS REPRESENTED TO HIM THAT THE AMORTIZATION CLAUSE MEANT THAT IT WAS THE SAME AS THE DECREASE-INCREASE CLAUSE (USED IN FORMER TIMBER SALE CONTRACTS) WHICH WOULD INCREASE THE TIMBER VALUE BY THE STATED AMOUNTS OF $14.72 FOR DOUGLAS-FIR AND $5.79 FOR THE HEMLOCK AND OTHER SPECIES AFTER THE ADVERTISED VOLUME WAS CUT, THE ASSISTANT SECRETARY HAS REPORTED THAT:

"WE HAVE NO KNOWLEDGE CONCERNING THE BASIS OF THE WRITTEN STATEMENT MADE BY MR. DWYER ON THE REVERSE SIDE OF THE LETTER OF SEPTEMBER 26, 1962. NEITHER TIME NOR INDIVIDUALS ARE MENTIONED. FOREST SERVICE FIELD PERSONNEL REPORT THAT THE CHANGED PROCEDURE WAS DISCUSSED AND, THEY THOUGHT, EXPLAINED. SINCE THESE WERE ORAL DISCUSSIONS, IT IS NOT NOW POSSIBLE TO BE CERTAIN OF THE PRECISE CONTEXT IN WHICH STATEMENTS WERE MADE. IF THE DISCUSSION IN QUESTION TOOK PLACE PRIOR TO BIDDING, IT INDICATES THAT THE COMPANY HAD SOME KNOWLEDGE OF THE CHANGE. IF THE DISCUSSION TOOK PLACE AFTER THE BIDDING, THE STATEMENT IS NOT GERMANE TO THIS CASE.' IN OUR VIEW, THE PROVISIONS OF THE CONTRACT ARE TOO PLAIN AND UNAMBIGUOUS TO REQUIRE RECOURSE TO EXTRANEOUS MATTERS SUCH AS PRIOR PROCEDURES OR TO JUSTIFY SUCH ERRONEOUS ASSUMPTIONS AS YOU CLAIM TO HAVE RELIED UPON. THE AMOUNT TO BE ALLOWED FOR ROAD COSTS, AND THE RATES OF AMORTIZATION PER UNIT OF EACH CLASS OF TIMBER, WERE DEFINITELY FIXED IN DOLLARS AND CENTS, AND IT WAS CLEARLY STATED THAT THE TENTATIVE BID RATES TO BE PAID WOULD BE INCREASED BY THE RESPECTIVE AMORTIZATION RATES "WHEN THE UNAMORTIZED ESTIMATED COST OF THE ROADS AND BRIDGES * * * HAS BEEN AMORTIZED BY TIMBER SCALED OR RELEASED FOR CUTTING.' THERE CAN BE NO DOUBT THAT THESE PROVISIONS LIMITED THE ALLOWABLE AMORTIZATION TO THE STATED OF $5,372, AND OBVIOUSLY NEGATIVED ANY INTERPRETATION WHICH WOULD RESULT IN A LARGER AMOUNT. ONLY A MOMENT'S CALCULATION WOULD DEMONSTRATE THAT APPLICATION OF THE STATED AMORTIZATION RATES TO THE TOTAL ADVERTISED VOLUME WOULD RESULT IN A ROAD ALLOWANCE OF $6,713.55, AND YOUR ASSUMPTION THAT THE STUMPAGE RATE INCREASE WOULD NOT APPLY UNTIL THE FULL ADVERTISED VOLUME HAD BEEN CUT WAS THEREFORE CONTRARY TO THE EXPRESS PROVISIONS OF THE CONTRACT. SINCE THE "PROSPECTUS" OF THE SALE WAS SILENT AS TO THE AMORTIZATION PROVISIONS BUT REFERRED PROSPECTIVE BIDDERS TO SAMPLE COPIES OF THE CONTRACT FORM AVAILABLE AT FOREST SERVICE OFFICES, YOU WERE FULLY ON NOTICE OF THE CONTRACT PROVISIONS.

SINCE YOUR CLAIM IS, IN SUBSTANCE AND EFFECT, FOR A ROAD ALLOWANCE OF $6,626.36 INSTEAD OF THE AMOUNT OF $5,372 FIXED BY THE CONTRACT AND ALLOWED BY THE ADMINISTRATIVE BILLING, IT CANNOT BE ALLOWED UNDER THE TERMS OF THE CONTRACT.