B-169060, MAY 14, 1970

B-169060: May 14, 1970

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WHICH WAS IN FACT NOT THEN AVAILABLE. IS NOT WARRANTED SINCE RECORD FAILED TO EVIDENCE CONTRACTOR RELIED UPON GOVERNMENT'S REPRESENTATIONS TO SUCH EXTENT AS TO INVALIDATE CONTRACTS CONSIDERING THAT CONTRACTOR HERE (UNLIKE FIRM IN B-167699. HULT LUMBER COMPANY: THIS IS IN REPLY TO YOUR COUNSEL'S LETTER OF FEBRUARY 11. THE ILLAHEE SPRINGS TIMBER SALE CONTRACT WAS AWARDED TO YOUR COMPANY ON DECEMBER 5. IT IS YOUR POSITION THAT YOU RELIED UPON THE FINANCIAL ASSISTANCE REPRESENTATIONS MADE IN THE SUBJECT TIMBER SALE PROSPECTUSES WHICH PROVIDED. THE TIMBER SALE CONTRACT WILL PROVIDE FOR REPAYMENT OF SUCH LOANS THROUGH FOREST SERVICE AS THE TIMBER IS CUT (FSM 2436).". IT IS STATED THAT YOU HAD PLANNED TO COMMENCE ROAD CONSTRUCTION ON THESE CONTRACTS DURING 1970 AND THAT IN DECEMBER 1969 YOUR COMPANY SOUGHT TO NEGOTIATE WITH SBA FOR A DIRECT LOAN.

B-169060, MAY 14, 1970

TIMBER SALES--ACCESS ROADS--FINANCING CANCELLATION OF 2 TIMBER SALE CONTRACTS REQUIRING ROAD CONSTRUCTION ON BASIS OF RELIANCE UPON GOVERNMENT REPRESENTATIONS IN PROSPECTUSES RESPECTING SMALL BUSINESS ADMINISTRATION FINANCIAL ASSISTANCE, WHICH WAS IN FACT NOT THEN AVAILABLE, IS NOT WARRANTED SINCE RECORD FAILED TO EVIDENCE CONTRACTOR RELIED UPON GOVERNMENT'S REPRESENTATIONS TO SUCH EXTENT AS TO INVALIDATE CONTRACTS CONSIDERING THAT CONTRACTOR HERE (UNLIKE FIRM IN B-167699, OCT. 23, 1969) EXECUTED CONTRACT, PROVIDED PERFORMANCE BOND AND, WITH FULL KNOWLEDGE OF NONAVAILABILITY OF DIRECT SMALL BUSINESS ADMINISTRATION FINANCING, SUCCESSFULLY BID ON 2 OTHER CONTRACTS INVOLVING SUBSTANTIAL ROAD COSTS AND SUBMITTED BIDS ON 10 OTHER SUCH SALES.

TO PAUL B. HULT LUMBER COMPANY:

THIS IS IN REPLY TO YOUR COUNSEL'S LETTER OF FEBRUARY 11, 1970, REQUESTING CANCELLATION OF THE ILLAHEE SPRINGS AND LOST AGAIN TIMBER SALE CONTRACTS IN THE UMPQUA NATIONAL FOREST IN OREGON AND THAT ALL FUNDS DEPOSITED BY THE COMPANY WITH THE DEPARTMENT OF AGRICULTURE BE REFUNDED.

THE ILLAHEE SPRINGS TIMBER SALE CONTRACT WAS AWARDED TO YOUR COMPANY ON DECEMBER 5, 1968, IN THE AMOUNT OF $989,895, AND THE LOST AGAIN TIMBER SALE CONTRACT ON MARCH 5, 1969, FOR $927,286. IN ADDITION TO THE REMOVAL OF TIMBER, THESE CONTRACTS REQUIRE CONSTRUCTION OF SPECIFIED ROADS AND PROVIDE FOR CREDITS FOR COMPLETED ROAD CONSTRUCTION TO BE APPLIED TOWARDS CHARGES FOR REMOVAL OF TIMBER.

COUNSEL STATES THAT IN THE BELIEF THAT CONSTRUCTION OF THE REQUIRED ROADS WOULD BE FINANCED BY A SMALL BUSINESS ADMINISTRATION (SBA) DIRECT LOAN, YOUR COMPANY SUBMITTED BID GUARANTEES IN THE AMOUNTS SPECIFIED IN THE ADVERTISEMENTS, EXECUTED THE SUBJECT CONTRACTS AND FURNISHED THE REQUIRED PERFORMANCE BONDS. HE NOTES THAT THE ROAD CONSTRUCTION ON A PRIOR TIMBER SALE CONTRACT (CALAPOOYA) WITH YOUR COMPANY HAD BEEN FINANCED BY A DIRECT SBA LOAN, AND IT IS YOUR POSITION THAT YOU RELIED UPON THE FINANCIAL ASSISTANCE REPRESENTATIONS MADE IN THE SUBJECT TIMBER SALE PROSPECTUSES WHICH PROVIDED, IN PERTINENT PART, AS FOLLOWS:

"12. FINANCIAL ASSISTANCE. THE SMALL BUSINESS ADMINISTRATION (SBA), THROUGH AN AGREEMENT WITH FOREST SERVICE, HAS EXTENDED ITS FINANCIAL ASSISTANCE TO SMALL BUSINESS CONCERNS TO INCLUDE LOANS TO FINANCE CONSTRUCTION OF ROADS SPECIFIED UNDER A9, TABLE 5 OF THE TIMBER SALE CONTRACT. APPLICANTS MUST MEET SBA SIZE, ELIGIBILITY AND CREDIT REQUIREMENTS. IF REQUESTED BY PURCHASER OR AWARDEE, THE TIMBER SALE CONTRACT WILL PROVIDE FOR REPAYMENT OF SUCH LOANS THROUGH FOREST SERVICE AS THE TIMBER IS CUT (FSM 2436)."

IT IS STATED THAT YOU HAD PLANNED TO COMMENCE ROAD CONSTRUCTION ON THESE CONTRACTS DURING 1970 AND THAT IN DECEMBER 1969 YOUR COMPANY SOUGHT TO NEGOTIATE WITH SBA FOR A DIRECT LOAN. YOU DISCOVERED THAT SBA HAD CEASED MAKING DIRECT LOANS SINCE AUGUST 1968, WHICH PREDATED ISSUANCE OF THE SOLICITATIONS FOR THE SUBJECT TIMBER SALE CONTRACTS. UNDER THE EXISTING PROGRAMS FOR FINANCIAL ASSISTANCE, HOWEVER, SBA CONTINUES TO MAKE LOANS OF UP TO 75 PERCENT OF THE AMOUNT REQUIRED IF A PARTICIPATING FINANCIAL INSTITUTION AGREES TO PROVIDE THE REMAINING PORTION, AND SBA CAN ALSO GUARANTEE 90 PERCENT OF LOAN AMOUNTS MADE BY PARTICIPATING INSTITUTIONS. COUNSEL STATES THAT THREE FINANCIAL INSTITUTIONS HAVE REFUSED YOUR REQUESTS FOR A LOAN AND ARE UNWILLING TO PARTICIPATE UNDER THE PRESENT SBA PROGRAM FOR FINANCIAL ASSISTANCE. COPIES OF LETTERS FROM THESE INSTITUTIONS REJECTING YOUR REQUESTS HAVE BEEN SUBMITTED HERE.

IN SUPPORT OF YOUR REQUEST FOR RELIEF COUNSEL CITES OUR DECISION OF OCTOBER 23, 1969, B-167699, AS PRECEDENT. WE HELD IN THE CITED DECISION THAT THE PARTICULAR BIDDER WAS MISLED AND INDUCED TO BID BY THE REPRESENTATION REGARDING FINANCIAL ASSISTANCE IN THE TIMBER SALE PROSPECTUS TO A DEGREE WHICH WOULD RENDER THE CONTRACT OF SALE TO IT UNENFORCEABLE. THAT DECISION WAS BASED UPON THE GENERAL RULE OF LAW THAT AN INNOCENT MISREPRESENTATION WITH RESPECT TO A MATERIAL FACT MAY AFFORD GROUND FOR INVALIDATION OF A CONTRACT INDUCED THEREBY, PROVIDED THE OTHER PARTY RELIED THEREON AND WAS MISLED THEREBY. SEE 17 C.J.S. CONTRACTS, SECTION 147.

AFTER REVIEWING THE RECORD BEFORE US IN THE PRESENT CASE, HOWEVER, IT IS OUR CONSIDERED OPINION THAT THE SUBJECT CONTRACTS AWARDED TO YOU ARE VALID AND BINDING CONTRACTS, AND THAT THE RECORD DOES NOT CONTAIN ADEQUATE EVIDENCE TO REQUIRE OR JUSTIFY THE CONCLUSION THAT YOU WERE INDUCED TO ENTER INTO THEM BY THE GOVERNMENT'S REPRESENTATIONS AS TO THE FINANCIAL ASSISTANCE AVAILABLE FROM SBA.

IN THE CASE RELIED UPON AS PRECEDENT THE AGGRIEVED BIDDER'S DEPENDENCE UPON THE GOVERNMENT'S REPRESENTATIONS WAS CLEAR. THE RECORD OF THAT CASE INDICATED THAT THE COMPANY REQUESTED AND WAS DENIED A LOAN FROM SBA SHORTLY AFTER THE GOVERNMENT ADVISED ON MAY 29, 1969, THAT IT WAS THE SUCCESSFUL BIDDER, AND THEREUPON REFUSED TO FORMALLY EXECUTE THE CONTRACT OR TO SUBMIT A PERFORMANCE BOND, BOTH OF WHICH ACTIONS WERE REQUIRED TO BE ACCOMPLISHED WITHIN 30 DAYS OF NOTICE OF AWARD. THESE FACTS INDICATED TO US A HIGH DEGREE OF RELIANCE BY THE AGGRIEVED BIDDER UPON THE GOVERNMENT'S REPRESENTATION OF AVAILABILITY OF FINANCIAL ASSISTANCE FROM SBA.

ON THE OTHER HAND, THE RECORD IN THIS CASE INDICATES THAT YOU FORMALLY EXECUTED THE CONTRACT AND PROVIDED A PERFORMANCE BOND, AND MADE NO EFFORTS TO OBTAIN A SBA LOAN AND MADE NO COMPLAINT OF INABILITY TO FINANCE THE ROAD CONSTRUCTION UNTIL MORE THAN 12 MONTHS AFTER THE ILLAHEE SPRINGS SALE AND MORE THAN 9 MONTHS AFTER THE LOST AGAIN SALE. THE REPORT FROM THE DEPARTMENT OF AGRICULTURE IN THE PRESENT CASE CONTAINS A LETTER FROM THE DISTRICT DIRECTOR, SBA, PORTLAND, OREGON, TO THE EFFECT THAT MR. HULT CONTACTED THAT OFFICE ON JUNE 24, 1969, TO INQUIRE ABOUT A $200,000 LOAN FOR ROAD CONSTRUCTION BUT DROPPED THE MATTER WHEN IT BECAME APPARENT THAT BANK PARTICIPATION WAS NOT AVAILABLE AND THAT A 100 PERCENT DIRECT LOAN WAS NOT AVAILABLE FROM SBA AT THAT TIME. THE RECORD FURTHER SHOWS THAT EVEN AFTER THIS CONTACT WITH SBA ON JUNE 24, 1969, AND WITH FULL KNOWLEDGE OF THE NON AVAILABILITY OF DIRECT SBA FINANCING, YOU BID SUCCESSFULLY ON TWO TIMBER SALES WITH SUBSTANTIAL ROAD COSTS ("L.B. ROCK" SALE IN THE AMOUNT OF $1,312,270 WITH ROAD CONSTRUCTION CREDIT OF $155,308, AND THE SCARED MAN SALE IN THE AMOUNT OF $479,350 WITH ROAD CONSTRUCTION CREDIT OF $50,291) AND SUBMITTED FIRM BIDS ON TEN OTHER SALES REQUIRING ROAD CONSTRUCTION.

IN VIEW OF THE ABOVE STATED FACTS WE DO NOT FIND A SUFFICIENT BASIS TO CONCLUDE THAT YOU RELIEF UPON THE GOVERNMENT'S REPRESENTATION TO SUCH AN EXTENT AS TO INVALIDATE THE CONTRACTS AWARDED. THESE CONTRACTS THEREFORE MUST BE CONSIDERED AS VALID AND BINDING UPON BOTH PARTIES.