B-172193, DEC 21, 1971

B-172193, DEC 21, 1971

CONTRACT - "NOT FULLY UTILIZED" TIMBER - DETERMINATION OF PENALTY - BOARD OF FOREST APPEALS DECISION ALLOWING PAYMENT TO KOGAP MANUFACTURING COMPANY OF AN AMOUNT TO BE DETERMINED IN ACCORDANCE WITH A REDETERMINATION ORDERED BY THE BOARD OF FOREST APPEALS OF THE AMOUNT OF UNUTILIZED MATERIAL UNDER A TIMBER PURCHASE CONTRACT. THE FINDING OF THE BOARD IS ONE OF LAW AND IS THEREFORE NOT ACCORDED THE DEGREE OF FINALITY GIVEN TO FINDINGS OF FACT BY THE DISPUTES CLAUSE OF THE CONTRACT AND UNDER THE WUNDERLICH ACT, 41 U.S.C. 321, 322. WHILE THE CONTRACT PROVIDES FOR SCALING AND PAYMENT FOR MATERIAL NOT FULLY UTILIZED, THE TERM "NOT FULLY UTILIZED" IS NOT SUFFICIENTLY DEFINED IN THE CONTRACT TO PROVIDE A CLEAR BASIS TO OBJECT TO THE BOARD'S CONCLUSION. ACCORDINGLY, GAO WILL NOT OBJECT TO PAYMENT TO KOGAP OF AN AMOUNT PROPERLY CALCULATED IN ACCORDANCE WITH THE BOARD'S DECISION.

TO MR. SECRETARY:

THIS IS IN REFERENCE TO A LETTER OF FEBRUARY 8, 1971, REFERENCE NUMBER 6540, WITH ENCLOSURES, FROM THE AUTHORIZED CERTIFYING OFFICER, FOREST SERVICE, PORTLAND, OREGON, REQUESTING A DECISION AS TO WHETHER HE MAY CERTIFY FOR PAYMENT A VOUCHER DRAWN FOR PAYMENT TO KOGAP MANUFACTURING COMPANY PURSUANT TO A REDETERMINATION ORDERED BY THE BOARD OF FOREST APPEALS OF THE AMOUNT OF UNUTILIZED MATERIAL UNDER A CONTRACT FOR PURCHASE OF TIMBER. THIS MATTER WAS ALSO THE SUBJECT OF LETTERS DATED SEPTEMBER 17, 1971, FROM THE REGIONAL FISCAL AGENT, FOREST SERVICE, PORTLAND, OREGON, AND NOVEMBER 8, 1971, 1570 (2400), FROM THE DIRECTOR OF TIMBER MANAGEMENT, FOREST SERVICE.

KOGAP MANUFACTURING COMPANY ENTERED INTO TIMBER SALE CONTRACT NUMBER 10- 00568-4 ON JANUARY 21, 1966, TO HARVEST TIMBER ON APPROXIMATELY 580 ACRES OF LAND IN THE ROGUE RIVER NATIONAL FOREST KNOWN AS SQUARE SALE. TABLE 1, AT SECTION A2 OF THE CONTRACT, PROVIDES THAT THE MINIMUM SPECIFICATIONS FOR PERTINENT PRODUCT UTILIZATION ARE AS FOLLOWS:

PRODUCT MINIMUM LENGTH MINIMUM DIAMETER

FEET INCHES

DOUGLAS-FIR, LOGS 12 8

AND PEELER BLOCKS 8 24

WESTERN WHITE PINE &

SUGAR PINE, LOGS 12 8

AND PEELER BLOCKS 8 24

THE CONTRACT ALSO SPECIFIES IN TABLE 9, AT SECTION A14, THE FOLLOWING MAXIMUM SCALING LENGTHS:

MAXIMUM SCALING

SPECIES PRODUCT LENGTH

FEET

ALL SPECIES LOGS 40

ALL SPECIES PEELER BLOCKS 10

OTHER PERTINENT PROVISIONS OF THE CONTRACT ARE AS FOLLOWS:

"B2.2 UTILIZATION STANDARDS. THE MINIMUM SPECIFICATIONS FOR REQUIRED UTILIZATION STANDARDS FOR TREES OR PRODUCTS ARE STATED IN TABLE 1. THE TREE OR PRODUCT MUST EQUAL OR EXCEED ALL THE REQUIRED UTILIZATION STANDARDS SET OUT IN THE TABLE.

"B3.43 PRODUCTS NOT REMOVED. INCLUDED TIMBER MEETING UTILIZATION STANDARDS WHICH IS NOT REMOVED AND PRESENTED FOR SCALING SHALL BE SUBJECT TO THE FOLLOWING PROVISIONS:

B3.431 UNUTILIZED MATERIAL. MATERIAL FROM DESIGNATED TREES OR OTHER TREES CUT BY PURCHASER WHICH IS LEFT IN TOPS, CHUNKS OR LONG BUTTS, BROKEN BY CARELESS FELLING, OR OTHERWISE NOT FULLY UTILIZED, SHALL BE SCALED AND PAID FOR AT CURRENT CONTRACT RATES AND REQUIRED DEPOSITS *** .

"B6.4 CONDUCT OF LOGGING. UNLESS OTHERWISE SPECIFICALLY PROVIDED, PURCHASER SHALL FELL THE TREES DESIGNATED FOR CUTTING AND SHALL REMOVE THE PORTIONS WHICH MEET THE UTILIZATION STANDARDS OF TABLE 1, EXCEPT FOR OCCASIONAL TREES NOT CUT OR LOGS NOT REMOVED FOR GOOD REASON, SUCH AS POSSIBLE DAMAGE TO THE FOREST OR GROSS ECONOMIC IMPRACTICABILITY. LOGGING SHALL BE CONDUCTED IN ACCORDANCE WITH ANY REQUIREMENTS IN C6.4 AND THE FOLLOWING SPECIFICATIONS:

"B6.41 FELLING AND BUCKING. LOG LENGTHS SHALL BE VARIED SO AS TO OBTAIN THE GREATEST REASONABLE UTILIZATION OF MATERIAL MEETING UTILIZATIONS STANDARDS. THERE SHALL BE NO REQUIREMENT TO VARY LENGTHS FROM THOSE NEEDED IN STANDARD PRODUCTS.

"C6.4 - CONDUCT OF LOGGING. ***

C.1. THE BUCKING OF LONG BUTTS AND CHUNKS WILL BE PERMITTED TO ELIMINATE MATERIAL THAT CLEARLY DOES NOT MEET UTILIZATION STANDARDS. LONG BUTTS AND CHUNKS SHALL CONTAIN A MINIMUM PRACTICAL AMOUNT OF SOUND MATERIAL."

PRIOR TO EXECUTING THE CONTRACT KOGAP HAD BEEN PRODUCING VENEER EXCLUSIVELY, SUCH PRODUCTION IDEALLY UTILIZING EIGHT-FOOT PEELER BLOCKS. WHILE THE FOREST SUPERVISOR AND KOGAP HAD DISCUSSIONS AS TO REQUIRED UTILIZATION AND KOGAP WAS INFORMED THAT MAXIMUM UTILIZATION WOULD BE REQUIRED REGARDLESS OF THE USE MADE BY KOGAP OF THE HARVESTED TIMBER, KOGAP NEVERTHELESS INSTRUCTED ITS LOGGER TO BUCK FOR MAXIMUM PRODUCTION OF USABLE PEELER BLOCKS IN 8-FOOT MULTIPLES, AND A SUBSTANTIAL PORTION OF THE TIMBER WAS BUCKED IN THIS MANNER. THIS PRACTICE RESULTS IN A GREATER AMOUNT OF UNUTILIZED MATERIAL LEFT IN THE WOODS AS COMPARED TO BUCKING FOR PEELER BLOCKS, AND/OR SAW LOGS, IN VARYING LENGTHS. AFTER COMPLETION OF THE HARVEST, THE FOREST SERVICE CONDUCTED A UTILIZATION SCALE, BY CERTIFIED FOREST SERVICE SCALERS WHO EXAMINED THE MATERIAL LEFT IN THE WOODS, AND ASSESSED $18,667.31 WHICH KOGAP PAID. THE FOREST SERVICE CONSIDERS BOTH LUMBER AND VENEER TO BE STANDARD PRODUCTS PRODUCED BY MILLS IN THE AREA.

KOGAP CONTENDS THAT IT HAD THE RIGHT TO BUCK ONLY 8-FOOT PEELER BLOCKS BY VIRTUE OF THE SECOND SENTENCE IN SECTION B6.41 OF THE CONTRACT WHICH STATES THAT THERE SHALL BE NO REQUIREMENT TO VARY LENGTHS FROM THOSE NEEDED IN STANDARD PRODUCTS. KOGAP INTERPRETED "STANDARD PRODUCTS" AS THE STANDARD PRODUCT UTILIZED BY THE PURCHASER. AS A RESULT OF THE ASSESSMENT KOGAP FIRST APPEALED TO THE FOREST SUPERVISOR, WHO REFUSED TO CHANGE HIS POSITION; NEXT TO THE REGIONAL FORESTER, WHO SUSTAINED THE DECISION OF THE FOREST SUPERVISOR; AND THEN TO THE BOARD OF FOREST APPEALS. THE BOARD DETERMINED THAT KOGAP'S CONTENTION WAS CORRECT AND THAT IT WAS GIVEN THE OPTION TO ELECT WHICH PRODUCT IT WOULD MAKE. KOGAP MANUFACTURING CO., F.S. DOCKET NO. 159, SEPTEMBER 1, 1970. THIS FINDING IS ONE OF LAW AND IS THEREFORE NOT ACCORDED THE DEGREE OF FINALITY GIVEN TO FINDINGS OF FACT BY THE DISPUTES CLAUSE OF THE CONTRACT (B8.5) AND UNDER THE WUNDERLICH ACT, 41 U.S.C. 321, 322.

SINCE THE RECORD BEFORE THE BOARD DID NOT CONTAIN SUFFICIENT INFORMATION FOR A RECALCULATION OF THE PENALTY SCALE, THE CASE WAS REMANDED TO THE REGIONAL FORESTER WHO RECALCULATED THE UTILIZATION SCALE AND DETERMINED THAT KOGAP IS ENTITLED TO A REFUND OF $702.11. THE VOUCHER FOR THAT AMOUNT FORMS THE BASIS FOR THE CERTIFYING OFFICER'S REQUEST FOR A DECISION FROM THE COMPTROLLER GENERAL. HOWEVER, A MEMORANDUM IN THE AGENCY FILE DATED JULY 26, 1971, BY THE TIMBER SALES BRANCH INDICATES THAT UNDER AN ALTERNATE METHOD OF CALCULATION THE AMOUNT DUE WOULD BE $263.76. ALSO, SEE MEMORANDUM DATED AUGUST 2, 1971, BY THE DIRECTOR OF TIMBER MANAGEMENT, TO THE SAME EFFECT.

IN ARRIVING AT ITS DECISION, THE BOARD OBSERVED THAT BOTH LUMBER AND VENEER WERE CONSIDERED TO BE STANDARD PRODUCTS IN THE AREA FOR CERTAIN SPECIES OF TIMBER AND THAT THE PRODUCTS WHICH COULD BE UTILIZED UNDER SECTION A2, TABLE 1, OF THE CONTRACT WERE BOTH LOGS OF 12-FOOT MINIMUM LENGTH AND PEELER BLOCKS OF 8-FOOT MINIMUM LENGTH. THE BOARD REASONED THAT THE SECOND SENTENCE IN B6.41, STATING THAT THERE WOULD BE NO REQUIREMENT TO VARY LENGTHS FROM THOSE NEEDED IN STANDARD PRODUCTS, MUST BE READ TOGETHER WITH SECTION A2, AND THAT THE STANDARD PRODUCTS REFERRED TO IN SECTION B6.41 WERE THOSE PRODUCTS SHOWN IN SECTION A2. SINCE THE CONTRACTOR WAS GIVEN AN OPTION UNDER SECTION A2 TO ELECT TO BUCK FOR LOGS OR PEELER BLOCKS, THE BOARD CONCLUDED THAT KOGAP SHOULD NOT BE PENALIZED FOR EXCESS PEELER BLOCK MATERIAL LEFT IN THE WOODS AFTER BUCKING FOR PEELER BLOCKS IN THE MINIMUM LENGTH OF EIGHT FEET SPECIFIED IN SECTION A2 (WHICH THE CONTRACTOR NEEDED FOR ITS VENEER PRODUCTION).

WE CANNOT DISAGREE WITH THE BOARD'S OBSERVATION THAT SECTION A2 PROVIDES UTILIZATION STANDARDS FOR TWO SEPARATE PRODUCTS, LOGS AND PEELER BLOCKS. ALSO, WE NOTE THAT THE REQUIREMENT IN B6.41 THAT LENGTHS BE VARIED FOR GREATEST UTILIZATION OF MATERIAL SPECIFIES "LOG" LENGTHS, NOT PEELER BLOCKS. WHILE WE BELIEVE IT MAY BE SOMEWHAT DEBATABLE WHETHER THE SECOND SENTENCE OF THAT PARAGRAPH APPLIES TO PEELER BLOCKS, WE CAN FIND NO PROVISION IN THE CONTRACT, AND NONE HAS BEEN CITED, REQUIRING THAT THE LENGTHS OF PEELER BLOCKS BE VARIED FROM THE 8-FOOT MINIMUM SET OUT IN TABLE 1 TO THE 10-FOOT MAXIMUM SCALING LENGTH SET OUT IN TABLE 9, OR TO OTHER LENGTHS, FOR MAXIMUM UTILIZATION OF MATERIAL. WHILE B3.431 PROVIDES FOR SCALING AND PAYMENT FOR MATERIAL NOT FULLY UTILIZED, WE CANNOT HOLD THAT THE TERM "NOT FULLY UTILIZED" IS SUFFICIENTLY DEFINED IN THE CONTRACT SO AS TO PROVIDE A CLEAR BASIS FOR THIS OFFICE TO OBJECT TO THE BOARD'S CONCLUSION THAT THE CONTRACTOR SHOULD NOT BE PENALIZED FOR PEELER BLOCK MATERIAL LEFT IN THE WOODS AFTER EFFICIENTLY BUCKING PEELER BLOCK MATERIAL IN MULTIPLES OF EIGHT FEET AS ALLOWED BY THE UTILIZATION STANDARDS IN TABLE 1.

ACCORDINGLY, THIS OFFICE WILL NOT OBJECT TO PAYMENT TO KOGAP OF AN AMOUNT WHICH IS PROPERLY CALCULATED IN ACCORDANCE WITH THE BOARD'S DECISION. ANY ISSUE AS TO THE PROPRIETY OF THE METHOD TO BE USED IN THE PENALTY SCALING OF THE PEELER BLOCK MATERIAL, AND CALCULATION OF THE AMOUNT DUE KOGAP, TO COMPLY WITH THE BOARD'S DECISION WOULD ALSO SEEM TO BE A MATTER FOR RESOLUTION UNDER THE DISPUTES PROCEDURES OF THE CONTRACT.

WHILE WE DO NOT FIND AN ADEQUATE BASIS FOR OBJECTING TO THE BOARD'S CONCLUSION, WE ARE CALLING THIS MATTER TO YOUR ATTENTION SINCE WE BELIEVE THE PROCEDURES WHICH GAVE RISE TO THE DISPUTE SHOULD BE CORRECTED. STATED IN THE TIMBER MANAGEMENT'S MEMORANDUM OF SEPTEMBER 3, 1971, THE CASE BECAME CONFUSED WHEN THE ELEMENT OF PEELER BLOCK WAS INTRODUCED INTO THE SALE. IN VIEW THEREOF, IT IS RECOMMENDED THAT ACTION BE TAKEN BY YOUR DEPARTMENT TO INSURE THAT IN FUTURE TIMBER SALES THE PERTINENT DOCUMENTS CLEARLY INFORM BIDDERS AS TO THE MANNER IN WHICH UTILIZATION STANDARDS WILL BE APPLIED AND THE BASIS ON WHICH PENALTY SCALING WILL BE ACCOMPLISHED.

THE MATERIAL FORWARDED WITH THE CERTIFYING OFFICER'S LETTER OF FEBRUARY 8 IS ENCLOSED.