B-157940, JAN. 7, 1966

B-157940: Jan 7, 1966

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IT IS REPORTED THAT THE CONTRACT STUMPAGE RATES WERE INCREASED BY MODIFICATION IN CONNECTION WITH THE EXTENSION OF THE CONTRACT EXPIRATION DATE FROM MARCH 31. THE FOREST SERVICE REPORTS THAT A MUTUAL MISTAKE WAS MADE IN THE ESTIMATE OF TIMBER CUT AND SCALED AS OF MARCH 31. THE ASSISTANT SECRETARY ADVISES THAT: "IT IS IMPORTANT IN REVIEWING THIS CASE TO KEEP CLEARLY IN MIND THE DIFFERENCE BETWEEN THE ESTIMATE OF TOTAL VOLUME IN THE SALE AND THE ESTIMATE OF VOLUME CUT AS OF MARCH 31. THE ESTIMATE OF TOTAL VOLUME IS THE BEST ESTIMATE AVAILABLE. SINCE THE ACTUAL TOTAL CUT WILL NOT BE KNOWN UNTIL CUTTING IS COMPLETED. WAS. COULD HAVE BEEN REPORTED WITHIN A DAY OR TWO AFTERWARD. - WERE WRONG.

B-157940, JAN. 7, 1966

TO THE SECRETARY OF AGRICULTURE:

BY LETTER DATED OCTOBER 27, 1965, WITH ENCLOSURES, ASSISTANT SECRETARY JOHN A. BAKER REQUESTED OUR DECISION ON A PROPOSED REFORMATION OF A MODIFICATION TO TIMBER SALES CONTRACT NO. 2-11 0046;43609 WITH THE EDWARDS HINES LUMBER COMPANY FOR THE SALE OF AN ESTIMATED 31,200 THOUSAND BOARD FEET OF TIMBER.

IT IS REPORTED THAT THE CONTRACT STUMPAGE RATES WERE INCREASED BY MODIFICATION IN CONNECTION WITH THE EXTENSION OF THE CONTRACT EXPIRATION DATE FROM MARCH 31, 1965, TO MARCH 31, 1966. THE FOREST SERVICE REPORTS THAT A MUTUAL MISTAKE WAS MADE IN THE ESTIMATE OF TIMBER CUT AND SCALED AS OF MARCH 31, 1965, WHICH RESULTED IN THE REDETERMINED STUMPAGE RATES BEING $1.54 PER M.B.F. TOO HIGH FOR PONDEROSA PINE AND $0.72 PER M.B.F. TOO HIGH FOR DOUGLAS FIR AND OTHER SPECIES. THE ASSISTANT SECRETARY ADVISES THAT:

"IT IS IMPORTANT IN REVIEWING THIS CASE TO KEEP CLEARLY IN MIND THE DIFFERENCE BETWEEN THE ESTIMATE OF TOTAL VOLUME IN THE SALE AND THE ESTIMATE OF VOLUME CUT AS OF MARCH 31, 1965. THE ESTIMATE OF TOTAL VOLUME IS THE BEST ESTIMATE AVAILABLE, ON A MORE-OR-LESS BASIS, SINCE THE ACTUAL TOTAL CUT WILL NOT BE KNOWN UNTIL CUTTING IS COMPLETED. THE VOLUME CUT AS OF MARCH 31, 1965, WAS, OF COURSE, ACTUALLY CUT AND SCALED ON THAT DATE, AND COULD HAVE BEEN REPORTED WITHIN A DAY OR TWO AFTERWARD. IN THIS PARTICULAR CASE, IT APPEARS THAT BOTH OF THE ESTIMATES--- TOTAL VOLUME AND VOLUME CUT TO MARCH 31, 1965--- WERE WRONG. IT APPEARS LIKELY THAT THE FORMER ESTIMATE WAS WRONG, BUT IT IS KNOWN THAT THE LATTER WAS WRONG.

"OUR RECOMMENDATION IS THAT WE SHOULD CORRECT THE STUMPAGE RATES FOR THE LATTER ERROR, BUT NOT FOR THE FORMER. OUR REASON IS THAT ERRORS IN THE ESTIMATE OF TOTAL VOLUME ARE POSSIBLE IN ALL RATE REDETERMINATION ACTIONS. THE ERROR MAY BE LARGE OR IT MAY BE SMALL; IT MAY FAVOR THE PURCHASER OR IT MAY FAVOR THE GOVERNMENT; BUT IT IS EXTREMELY RARE TO HAVE A SALE CUT OUT EXACTLY THE ESTIMATE. ON THE OTHER HAND, THE VOLUME CUT AS OF THE REDETERMINATION DATE CAN BE OBTAINED VERY NEARLY EXACTLY BY TALLYING THE SCALE RECORDS A FEW DAYS AHEAD OF THE EFFECTIVE DATE, OR VERY EXACTLY BY PROVIDING FOR RETROACTIVE CONSIDERATION OF THIS FACTOR BEFORE THE RATES ARE ABLISHED.'

THE RECORD SHOWS THAT THE STANCLIFFE CREEK TIMBER SALE IN THE MALHEUR NATIONAL FOREST, OREGON, WAS MADE TO HINES ON JUNE 22, 1962, AND THAT ALL OF THE TIMBER CUTTING CONTEMPLATED BY THE CONTRACT COULD NOT BE COMPLETED BY MARCH 31, 1965--- THE CONTRACT EXPIRATION DATE. THE CONTRACT WAS THEREFORE EXTENDED TO MARCH 31, 1966, BY MUTUAL AGREEMENT ON MARCH 31, 1965, AND PURSUANT TO SECTION 5A-3 OF THE CONTRACT THE STUMPAGE RATES WERE REDETERMINED AND INCREASED AS FOLLOWS:

CONTRACT RATES RATES AT WHICH SALE

PRIOR TO EXTENSION WAS EXTENDED

TENTATIVE BASE ADJUSTED TENTATIVE BASE ADJUSTED SPECIES RATE INDEX RATE (*) RATE INDEX RATE (*) PINE $7.95 82.26 $8.62 $16.47 83.61 $16.47 DOUGLAS -FIR AND OTHER SPECIES 2.65 64.12 3.78 8.16 66.38 8.16

(*) TENTATIVE RATE ADJUSTED BY ESCALATION TO INDICES OF THE FOURTH

QUARTER OF C.Y. 1964.

SECTION 5A-3 OF THE CONTRACT PROVIDES:

"3. IF THE CONTRACT PERIOD IS EXTENDED, THE FOREST SERVICE MAY MODIFY THE TERMS OF THIS CONTRACT AND SHALL REDETERMINE THE RATES FOR STUMPAGE AND FOR REQUIRED DEPOSITS AS OF AND EFFECTIVE ON THE DAY FOLLOWING THE ORIGINAL TERMINATION DATE, BUT REDETERMINED RATES FOR EACH SPECIES-PRODUCT SHALL BE NO LOWER THAN THE RATE IN EFFECT IMMEDIATELY PRIOR TO THE EFFECTIVE DATE OF THE EXTENSION OF TIME, UNLESS OTHERWISE SPECIFIED IN THE APPROVAL OF THE EXTENSION. SUCH REDETERMINED RATES SHALL APPLY TO ALL TIMBER SCALED OR RELEASED FOR CUTTING DURING THE EXTENDED PERIOD, OR UNTIL THE NEXT REDETERMINATION OF RATES, IF FURTHER REDETERMINATION IS PROVIDED FOR IN THE EXTENSION OF TIME; PROVIDED, THAT IF THE FOREST SERVICE APPROVES AN APPLICATION FOR EXTENSION OF TIME WHICH IS RECEIVED LESS THAN 30 DAYS PRIOR TO THE TERMINATION DATE STATED ABOVE, OR AS ADJUSTED OR EXTENDED, THE RATES FOR STUMPAGE AND REQUIRED DEPOSITS SHALL BE REDETERMINED WITHIN 30 DAYS AFTER SUCH APPROVAL AND SHALL BE EFFECTIVE DURING SUCH EXTENDED PERIOD.'

THE VOLUME OF TIMBER CUT AND SCALED AS OF MARCH 31, 1965, WAS A KNOWN FACT. THEREAFTER, HINES PROMPTLY COMPLAINED TO THE FOREST SERVICE THAT THE FIGURES REPRESENTING THE VOLUME OF CUT AND SCALED TIMBER WERE INCORRECT, HOWEVER, NO ACTION WAS TAKEN. BECAUSE THESE FIGURES WERE AVAILABLE AND COULD HAVE BEEN REFLECTED IN THE APPRAISAL WHICH ENTERED INTO THE DETERMINATION OF AMORTIZATION RATES, THE FOREST SERVICE FEELS THAT THE REDETERMINED RATES SHOULD BE CORRECTED TO REFLECT THE ACTUAL VOLUMES CUT AS OF MARCH 31, 1965. ACTUAL VOLUMES CUT THROUGH THAT DATE WERE 21,952.95 M.B.F. FOR PONDEROSA PINE; 189.87 M.B.F. FOR DOUGLAS FIR AND OTHER SPECIES; AND 19.27 M.B.F. FOR OLDER DEAD TREES. THUS, THE TOTAL VOLUME CUT AND SCALED AS OF MARCH 31, 1965, AMOUNTED TO 22,162.09 M.B.F.

THE ADMINISTRATIVE EXPLANATION AND JUSTIFICATION FOR CORRECTION OF THE STUMPAGE RATES WHICH RESULTED FROM THE USE OF INCORRECT DATA IN THE RATE REDETERMINATION APPRAISAL IS AS FOLLOWS:

"6. THE ORIGINAL CONTRACT PROVIDED IN SECTION 3A-3 FOR A TOTAL UNAMORTIZED ESTIMATED ROAD COST OF $234,754 AND AMORTIZATION RATES OF $9.51 PER M FOR PONDEROSA PINE AND $1.82 PER M FOR DOUGLAS-FIR AND OTHER SPECIES. ROAD AMORTIZATION TO MARCH 31, 1965, WAS THEREFORE:

TABLE

VOLUME AMORTIZATION TOTAL

CUT RATE AMORTIZATION PONDEROSA PINE 21,952.95 $9.51 $208,772.55 DOUGLAS- FIR AND OTHERS 189.87 1.82

345.56 OLDER DEAD 19.27 - - - -

TOTALS 22,162.09 $209,118.11

REDETERMINED TOTAL ESTIMATED ROAD COST WAS $238,251.

"7. THE PROPER UNAMORTIZED ESTIMATED COST OF ROADS AS OF APRIL 1, 1965, WAS $238,251 LESS $209,118.11, OR $29,132.89. THE RATE REDETERMINATION APPRAISAL WHICH IS BEING QUESTIONED USED A FIGURE OF $19,486 DUE TO THE INCORRECT ESTIMATE OF VOLUME CUT AS OF MARCH 31, 1965. THIS WAS $9,646.89 TOO LOW.

"8. THE RATE REDETERMINATION APPRAISAL ACCELERATED THE WRITE-OFF OF THE $19,486 FIGURE AGAINST 6,240 M OF PINE AND 80 M OF FIR AND OTHER SPECIES TO DEVELOP PER M FIGURES OF $3.10 FOR PINE AND $1.41 FOR FIR AND OTHER SPECIES.

"9. THE PROPER WRITE-OFF SHOULD HAVE BEEN $29,132.89 AGAINST 6,240 M OF PINE AND 80 M OF FIR AND OTHER SPECIES. * * *

"10. REVISED REDETERMINED RATES, FOLLOWING THE STANDARD APPRAISAL PROCEDURE, WOULD BE LOWER THAN THOSE THAT WERE ESTABLISHED, BY THE AMOUNT OF DIFFERENCE IN ACCELERATED AMORTIZATION RATES:

TABLE

PONDEROSA DOUGLAS-FIR

PINE AND OTHERS AMORTIZATION RATES IN RATE

$3.10 $1.41

REDETERMINATION REPORT REVISED AMORTIZATION RATES 4.64 2.13

DIFFERENCE $1.54 $0.72

"REDETERMINED RATES SHOULD, THEREFORE BE REDUCED FOR PONDEROSA PINE FROM $16.47 TO $14.93 PER M, AND FOR DOUGLAS-FIR AND OTHER SPECIES FROM $8.16 TO $7.44 PER M. AMORTIZATION RATES IN CONTRACT SECTION 3A-3 SHOULD BE REVISED TO $4.64 FOR PONDEROSA PINE AND $2.13 FOR DOUGLAS FIR AND OTHER SPECIES.

"THE REVISED RATES ARE:

TABLE

BASE BASE TENTATIVE REQUIRED DEP.

INDEX RATES RATES SLASH DISPOSAL "SPECIES AND PRODUCTS LIVE AND RECENTLY DEAD (SOUND SAPWOOD) LOGS: PONDEROSA PINE $83.61 $6.40 $14.93 $1.65 DOUGLAS-FIR AND

OTHERS 66.38 2.00 7.44 1.65 OLDER DEAD (UNSOUND SAPWOOD) OGS: ALL SPECIES NONE -- 1.00 NONE

"TOTAL UNAMORTIZED ROAD COAST AS OF APRIL 1, 1965, IS $29,132.89. AMORTIZATION RATES ON AND AFTER APRIL 1, 1965:

PONDEROSA PINE - - - - - - - - - - - - - - -$4.64

DOUGLAS-FIR AND OTHERS - - - - - - - - - - - $2.13 "

THE REGIONAL FORESTER REPORTS THAT THE EFFECT OF THE EXTENSION AGREEMENT IS TO PRECLUDE FULL AMORTIZATION OF THE ESTIMATED ROAD COSTS WHICH WAS NOT THE INTENTION OF THE PARTIES. HE STATES THAT:

"THE INTENT OF OUR RATE REDETERMINATION ACTION WAS TO PROVIDE FOR COMPLETE AMORTIZATION OF ESTIMATED ROAD COSTS WHEN 80 PERCENT OF TIMBER REMAINING ON APRIL 1, 1965, HAD BEEN CUT. THIS WAS DEPENDENT ON ASSUMED CUTS PRIOR TO APRIL 1, 1965, AGREEING WITH ACTUAL CUTS. BECAUSE THE ACTUAL CUT PROVED TO BE APPROXIMATELY ONE MILLION BOARD FEET LESS THAN ASSUMED, THE INTENDED AMORTIZATION OF THE ESTIMATED ROAD COST CANNOT POSSIBLY MATERIALIZE.'

FURTHER, HE REPORTS THAT THE AMORTIZATION RATES AS ORIGINALLY FIXED WOULD HAVE AMORTIZED THE ORIGINAL UNAMORTIZED ESTIMATED COST OF ROADS ($234,754) WHEN 80 PERCENT OF THE ESTIMATED SALE VOLUME HAD BEEN CUT. HE THEN CONCLUDES BY STATING THAT:

"* * * TO CHANGE THE AMORTIZATION RATES AS DONE BY THE AGREEMENT TO EXTEND CONTRACT CHANGED THE TERMS OF THE CONTRACT IN A WAY NOT INTENDED BY SECTION 5A-3. OUR ACTION OF INCLUDING A CHANGE IN AMORTIZATION RATES AS A PART OF OUR RATE REDETERMINATION PURSUANT TO SECTION 5A-3, THEREFORE, WOULD APPEAR TO WARRANT CORRECTION.'

IN ORDER TO JUSTIFY REFORMATION OF ANY INSTRUMENT, THE MUTUAL MISTAKE MUST HAVE BEEN IN THE DRAWING OF THE INSTRUMENT AND NOT IN MAKING THE AGREEMENT OUT OF WHICH IT GREW OR WHICH IT EVIDENCES. A MUTUAL ERROR STANDING ALONE--- SUCH AS CONTENDED HERE--- IS NOT ENOUGH TO JUSTIFY REFORMATION, THE ERROR MUST OCCUR IN REDUCING THE UNDERSTANDING OF THE PARTIES TO WRITING AND CAUSE THAT WRITING TO EXPRESS THE PRIOR UNDERSTANDING INCORRECTLY. THE MISTAKE HERE WAS NOT IN EXECUTING THE EXTENSION AGREEMENT. AS FINALLY FORMALIZED THE AGREEMENT EXPRESSED THE INTENTION OF THE PARTIES AT THAT TIME. WE FEEL THAT REFORMATION IS NOT AUTHORIZED EVEN IF IT WERE CLEARLY ESTABLISHED THAT THE PARTIES WOULD HAVE COME TO A CERTAIN AGREEMENT HAD THEY BEEN AWARE OF CERTAIN FACTS. ALTHOUGH THE RECORD IS NOT SUFFICIENT TO ESTABLISH A MUTUAL MISTAKE SUCH AS WOULD JUSTIFY REFORMATION, THE RECORD DOES SATISFACTORILY ESTABLISH THAT THE PARTIES ENTERED INTO THE EXTENSION AGREEMENT UNDER A MUTUAL MISTAKE AS TO THE ACTUAL VOLUME OF TIMBER CUT AS OF MARCH 31, 1965, AND THAT HAD THIS ACTUAL VOLUME BEEN KNOWN AT THE TIME THE REDETERMINED STUMPAGE RATES WOULD NOT HAVE BEEN INCREASED SO SUBSTANTIALLY BY THE EXTENSION AGREEMENT. THE ERRONEOUS ASSUMPTION ON THE PART OF THE CONTRACTOR AND THE FOREST SERVICE IN THIS RESPECT CONSTITUTED A MUTUAL MISTAKE FURNISHING A PROPER BASIS FOR RESCISSION OF THE EXTENSION AGREEMENT. SEE 12 C.J.S., CANCELLATION OF INSTRUMENT, 27 (B); 41 COMP. GEN. 514, 520; AMERICAN CASUALTY CO. V. MEMORIAL HOSPITAL ASSOCIATION, 223 F.SUPP. 539 (1963); M. F. KEMPER CONST. CO. V. CITY OF LOS ANGELES, 235 P.2D 7 (1951).

ACCORDINGLY, ADMINISTRATIVE ACTION MAY BE TAKEN TO EXECUTE A NEW EXTENSION AGREEMENT, EFFECTIVE APRIL 1, 1965, WITH THE CONTRACTOR. THE APPROPRIATE BASIS FOR REDETERMINING THE STUMPAGE RATES AND THE AMORTIZATION RATES FOR ROAD COSTS ON AND AFTER APRIL 1, 1965, IS FOR ADMINISTRATIVE DETERMINATION AS TO WHICH WE EXPRESS NO OPINION.