B-171131, MAR 17, 1971

B-171131: Mar 17, 1971

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IS AN ADJUNCT TO THE ROAD CONSTRUCTION CONTRACT AND THE CONTRACTING OFFICER IS AUTHORIZED TO MAKE THE NECESSARY DETERMINATIONS PURSUANT TO THE DISPUTES PROCEDURES IN THE CONTRACT. 970.26 REPRESENTING THE DIFFERENCE BETWEEN THE PRICE PAID BY THE CONTRACTOR AND THE PRICE HE OBTAINED FOR THE LOGS DUE TO A REDUCTION IN RIGHT-OF-WAY ACREAGE AND A FALL IN THE PRICE OF LOGS IS PROPERLY FOR CONSIDERATION BY THE CONTRACTING OFFICER PURSUANT TO THE APPLIABLE CONTRACT CLAUSES BECAUSE THE COMP. JENSEN: REFERENCE IS MADE TO YOUR LETTER. THE CLAIMANT WAS AWARDED CONTRACT NO. 002556 BY THE UNITED STATES DEPARTMENT OF AGRICULTURE. UNDER WHICH THE CONTRACT WAS AWARDED. WHICH WAS ESTIMATED BY THE FOREST SERVICE TO TOTAL 413.

B-171131, MAR 17, 1971

CONTRACTS - DISPUTES PROCEDURE DECISION THAT A TIMBER SALES CONTRACT BETWEEN THE GOVERNMENT AND ROY NORQUIST IN CONNECTION WITH THE CONSTRUCTION OF ROADS ON THE WINEMA NATIONAL FOREST, OREGON, IS AN ADJUNCT TO THE ROAD CONSTRUCTION CONTRACT AND THE CONTRACTING OFFICER IS AUTHORIZED TO MAKE THE NECESSARY DETERMINATIONS PURSUANT TO THE DISPUTES PROCEDURES IN THE CONTRACT. A CLAIM FOR $14,970.26 REPRESENTING THE DIFFERENCE BETWEEN THE PRICE PAID BY THE CONTRACTOR AND THE PRICE HE OBTAINED FOR THE LOGS DUE TO A REDUCTION IN RIGHT-OF-WAY ACREAGE AND A FALL IN THE PRICE OF LOGS IS PROPERLY FOR CONSIDERATION BY THE CONTRACTING OFFICER PURSUANT TO THE APPLIABLE CONTRACT CLAUSES BECAUSE THE COMP. GEN. VIEWS THE TIMBER SALES CONTRACT AS AN ADJUNCT TO THE ROAD CONSTRUCTION CONTRACT AND NOT AN INDEPENDENT INSTRUMENT.

TO MR. JENSEN:

REFERENCE IS MADE TO YOUR LETTER, NO. 6540, WITH ENCLOSURES, OF OCTOBER 16, 1970, REGARDING A CLAIM FOR $14,970.26 BY MR. ROY NORQUIST IN CONNECTION WITH THE CONSTRUCTION OF NEGUS AND YAINAX RIDGE ROADS ON THE WINEMA NATIONAL FOREST, OREGON.

ON JUNE 12, 1969, THE CLAIMANT WAS AWARDED CONTRACT NO. 002556 BY THE UNITED STATES DEPARTMENT OF AGRICULTURE, FOREST SERVICE, REGION 6, FOR THE CONSTRUCTION OF APPROXIMATELY 10.4 MILES OF ROAD (NEGUS AND YAINAX RIDGE ROADS) AT A PRICE OF $161,051.04. INVITATION FOR BIDS (IFB) NO. R6-69-176 ISSUED ON MAY 14, 1969, UNDER WHICH THE CONTRACT WAS AWARDED, PROVIDED THAT THE SUCCESSFUL BIDDER WOULD BE REQUIRED TO ENTER INTO AN AGREEMENT TO PURCHASE FROM THE GOVERNMENT AT A FIXED PRICE OF $29,510.38 THE MERCHANTABLE TIMBER ON THE RIGHTS-OF-WAY OF THE TWO ROADS, WHICH WAS ESTIMATED BY THE FOREST SERVICE TO TOTAL 413,000 BOARD FEET. IN ADDITION, THE IFB REQUIRED THAT THE SUCCESSFUL BIDDER PAY CERTAIN PRIVATE PARTIES THE SUM OF $947.42 FOR TIMBER ON THE RIGHTS-OF WAY GRANTED BY THEM TO THE GOVERNMENT. IN SUM, THE IFB REQUIRED THE CONTRACTOR TO PAY $30,457.80 FOR AN ESTIMATED 426,802 BOARD FEET OF TIMBER OF ASSORTED SPECIES. UNIT PRICES (PRICE PER MBF) WERE SPECIFIED FOR EACH SPECIES IF ADDITIONAL TREES HAD TO BE CUT FOR THE ROAD PROJECT. AFTER THE CLAIMANT WAS AWARDED THE ROAD CONSTRUCTION CONTRACT AND PURSUANT TO ITS TERMS, HE ENTERED INTO TIMBER SETTLEMENT CONTRACT NO. 00167-3 WITH THE FOREST SERVICE ON JULY 1, 1969.

THE TIMBER SETTLEMENT CONTRACT IS BASED ON A DETERMINATION BY THE FOREST SERVICE CONTAINED IN ITEM 50 OF THE SUPPLEMENTAL SPECIFICATIONS TO THE CONSTRUCTION CONTRACT AS TO THE AMOUNT OF TIMBER AVAILABLE FOR CUTTING; NO REFERENCE IS MADE TO POSSIBLE OVERRUNS OR UNDERRUNS.

ACCORDING TO THE CONTRACTING OFFICER THE MERCHANTABLE TIMBER ON THE YAINAX ROAD RIGHT-OF-WAY WAS ESTIMATED IN PREPARATION FOR AN UNSUCCESSFUL ADVERTISED SALE IN AUGUST 1968. YOU STATE THAT AFTER THE VOLUME AND VALUE OF ALL THE MERCHANTABLE RIGHT-OF-WAY TIMBER WERE ESTIMATED, BUT PRIOR TO THE ADVERTISEMENT OF THE ROAD CONSTRUCTION CONTRACT, THE ROAD ALIGNMENT WAS CHANGED SUBSTANTIALLY, RESULTING IN A REDUCTION IN RIGHT-OF-WAY ACREAGE OF APPROXIMATELY 20 PERCENT. HOWEVER, SOME ADDITIONAL ACREAGE REPRESENTING ROAD MATERIAL BORROW AREAS WAS ADDED BACK, SO THAT THE NET REDUCTION WAS ABOUT 12 PERCENT. NO CORRESPONDING CHANGE WAS MADE IN THE ESTIMATE OF TIMBER VOLUME AND VALUE IN THE TIMBER SETTLEMENT CONTRACT. YOU ASSERT THAT THERE IS NO CONCLUSIVE INFORMATION AS TO THE DIFFERENCES IN THE VOLUME AND QUALITY OF TIMBER CONTAINED IN THE NEW RIGHT-OF-WAY AREAS, BUT THAT IT MAY BE SAID THAT THE CHANGE CREATES A DEFINITE POTENTIAL FOR VARIATION IN SPECIES, VOLUME AND QUALITY EITHER AGAINST OR IN FAVOR OF THE CLAIMANT.

IN ADDITION, THE SALES CONTRACT DEFINES MERCHANTABLE TIMBER AS THOSE LOGS HAVING A DIAMETER INSIDE THE BARK OF SEVEN INCHES AT THE SMALL END, WHILE THE CLAIMANT CONTENDS THAT HE WAS UNABLE TO MARKET LOGS SMALLER THAN 10 INCHES IN DIAMETER. AS A RESULT OF THE SEVERAL OPERATIVE FACTORS HERE, YOU STATE THAT THE CLAIMANT WAS ABLE TO SELL ONLY 344,670 BOARD FEET OF LOGS RATHER THAN THE ESTIMATED 426,802 BOARD FEET FOR WHICH HE PAID. ARE ALSO INFORMED THAT THE PRICE OF LOGS FELL SUBSTANTIALLY BETWEEN THE TIME THE CLAIMANT PURCHASED THE LOGS AND THE TIME HE SOLD THEM, CAUSING A FURTHER LOSS. THE CLAIM OF $14,970.26 REPRESENTS THE DIFFERENCE BETWEEN THE PRICE PAID BY THE CONTRACTOR AND THE PRICE HE OBTAINED FOR THE LOGS. HOWEVER, THE ACTUAL LOSS APPEARS TO HAVE BEEN $14,870.26. THE DIFFERENCE RESULTS FROM AN APPARENT MISCALCULATION. (SEE SCHEDULE A OF THE LETTER DATED JUNE 10, 1970, FROM THE CLAIMANT'S ATTORNEY TO THE SUPERVISOR'S OFFICE, WINEMA NATIONAL FOREST.)

THE CLAIMANT'S ATTORNEY CONTENDS THAT THE GOVERNMENT SUBSTANTIALLY MISREPRESENTED A MATERIAL FACT BY STATING THAT THERE WERE 426,000 BOARD FEET OF MERCHANTABLE TIMBER ON THE RIGHTS-OF-WAY, WHEN IN FACT THE ACREAGE WAS SUBSTANTIALLY REDUCED BY THE ROAD DESIGN CHANGE, WHICH REDUCED THE AVAILABLE TIMBER BY 20 PERCENT AND ADVERSELY AFFECTED ITS QUALITY. FURTHER CONTENDS THAT THE NET EFFECT OF THIS REDUCTION IS TO RENDER THE TIMBER SETTLEMENT CONTRACT VOIDABLE AT THE OPTION OF THE CLAIMANT THEREBY ENTITLING HIM TO A SETTLEMENT FROM THE GOVERNMENT ON A QUANTUM MERUIT BASIS.

YOUR QUESTIONS SUBMITTED IN REGARD TO THIS MATTER ARE SET FORTH BELOW ALONG WITH OUR RESPONSES THERETO.

"1. IS THE TIMBER SALE CONTRACT A SEPARATE AND DISTINCT CONTRACT OR AN ADJUNCT TO THE ROAD CONSTRUCTION CONTRACT?"

YOU BELIEVE THAT IF THE TIMBER SALE CONTRACT IS AN ADJUNCT TO THE ROAD CONSTRUCTION CONTRACT, IT LOGICALLY FOLLOWS THAT THE DISPUTES CLAUSE AND OTHER PROVISIONS OF THE CONSTRUCTION CONTRACT DEALING WITH THE GOVERNMENT'S RESPONSIBILITY TO THE CONSTRUCTION CONTRACTOR EXTENDS TO THE SALES CONTRACT AS WELL. WE THINK THE POINT IS WELL TAKEN. WE NOTE THAT ITEM 50 (SUPPLEMENTAL SPECIFICATIONS) OF THE CONSTRUCTION CONTRACT CONTAINS A REPRESENTATION AS TO THE AMOUNT OF TIMBER AVAILABLE FOR SALE AND REQUIRES THE CONTRACTOR TO BUY THE TIMBER. PURSUANT TO THIS PROVISION, THE CONTRACTOR ENTERED INTO A TIMBER SALE CONTRACT UNDER THE TERMS REQUIRED BY THE CONSTRUCTION CONTRACT. THERE WAS NO BARGAINING FACTOR INVOLVED SINCE THE CONTRACTOR WAS REQUIRED TO ACCEPT THE GOVERNMENT'S PRICE AND QUANTITY ESTIMATE.

IN THESE CIRCUMSTANCES WE VIEW THE TIMBER SALE CONTRACT NOT AS AN INDEPENDENT INSTRUMENT BUT MERELY AS AN ADJUNCT TO THE CONSTRUCTION CONTRACT. THE CONTRACTOR HAS FILED HIS CLAIM UNDER THE CONSTRUCTION CONTRACT AND IN OUR OPINION HE IS ENTITLED TO HAVE HIS CLAIM ON THE TIMBER CONSIDERED IN ACCORDANCE WITH THE DISPUTES PROCEDURE OF THE CONSTRUCTION CONTRACT.

IN VIEW OF OUR ANSWER TO QUESTION NUMBER ONE, THERE IS NO NEED TO CONSIDER QUESTIONS TWO AND THREE.

"4. IF THE TIMBER SALE CONTRACT IS MERELY AN ADJUNCT TO THE ROAD CONSTRUCTION CONTRACT, MAY THE CONTRACTING OFFICER FOR THE ROAD CONTRACT ADJUST THE TERMS OF THE TIMBER SALE CONTRACT BECAUSE OF MISREPRESENTATION OF THE CONDITIONS OF THE TIMBER SALE, OR PERHAPS ON THE BASIS OF CHANGED CONDITIONS? IF THE CONTRACTING OFFICER FOR THE ROAD CONTRACT CANNOT DO THIS, WHO WOULD HAVE THE AUTHORITY TO MAKE SUCH ADJUSTMENTS?"

IF THE TIMBER SETTLEMENT IS REGARDED AS AN ADJUNCT TO THE ROAD CONSTRUCTION CONTRACT, THE CHANGES, DIFFERING SITE CONDITIONS, AND DISPUTES CLAUSES CONTAINED IN THE CONSTRUCTION CONTRACT ARE APPLICABLE TO PROBLEMS ARISING UNDER THE TIMBER SETTLEMENT PROVISIONS. LIKEWISE, THE CONTRACTING OFFICER FOR THE CONSTRUCTION CONTRACT IS THEREBY AUTHORIZED TO MAKE THE NECESSARY DETERMINATIONS PURSUANT TO THE DISPUTES PROCEDURES IN THAT CONTRACT. WE ARRIVE AT THIS CONCLUSION NOTWITHSTANDING THE FACT THAT THE FOREST SERVICE REGULATIONS PROVIDE AT 36 CFR 221.16 THAT MODIFICATIONS OF TIMBER SALES CONTRACTS ARE TO BE MADE BY THE OFFICER APPROVING THE SALE, HIS SUCCESSOR OR SUPERIOR; THE REGULATION APPEARS TO BE INAPPLICABLE TO THE INSTANT TIMBER SETTLEMENT BECAUSE THE TIMBER SALE CONTRACT IS NOT SEPARATE BUT MERELY A PROVISION WITHIN THE LARGER CONSTRUCTION CONTRACT.

"5. IF THE TIMBER SALE CONTRACT IS AN ADJUNCT TO THE ROAD CONTRACT, WOULD THE MISREPRESENTATION IN CONNECTION WITH THE TIMBER SALE BE MATERIAL TO THE ROAD CONTRACT AND SUFFICIENT TO RENDER THE ROAD CONTRACT VOIDABLE AT THE OPTION OF THE CLAIMANT?"

THE MISREPRESENTATION IN REGARD TO THE TIMBER SETTLEMENT INVOLVING, AT THE MOST, A LOSS OF $14,870.26 CANNOT BE SAID TO BE OF SUCH MAGNITUDE IN THE CONTEXT OF THE TOTAL CONTRACT VALUED AT OVER $160,000 TO CONFER UPON THE CLAIMANT THE RIGHT TO VOID THE ENTIRE CONSTRUCTION CONTRACT. IN ORDER FOR A MISREPRESENTATION TO EMPOWER THE INJURED PARTY TO VOID AN ENTIRE CONTRACT THE MISREPRESENTATION MUST GO TO THE VERY ROOT OF THE TRANSACTION. SEE UNITED STATES V SOUTHERN CONSTRUCTION COMPANY, INC., 293 F. 2D 492 (1961).

"6. IN VIEW OF THE ABOVE CIRCUMSTANCES, MAY THE ATTACHED VOUCHER BE CERTIFIED FOR PAYMENT IN WHOLE OR IN PART?"

IN OUR VIEW THE CLAIM IS PROPERLY FOR CONSIDERATION BY THE CONTRACTING OFFICER PURSUANT TO THE APPLICABLE CONTRACT CLAUSES. IF THE PARTIES CANNOT AGREE, THE DISPUTE IS PROPERLY FOR RESOLUTION UNDER THE DISPUTES CLAUSE. CONSIDERATION OF THE CLAIM BY OUR OFFICE BEFORE THE CONTRACTOR'S ADMINISTRATIVE REMEDIES ARE EXHAUSTED WOULD BE PREMATURE.

ACCORDINGLY, THE FILE IS RETURNED IN ORDER THAT THE FOREST SERVICE MAY TAKE ACTION IN REGARD TO THIS MATTER PURSUANT TO OUR RECOMMENDATIONS. THE VOUCHER WILL BE RETAINED HERE.