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B-211156, MAY 2, 1983

B-211156 May 02, 1983
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DOES NOT APPLY TO THE NAVY'S PURCHASE OF HOSPITAL SHIPS CONVERTED FROM EXISTING VESSELS FOR WHICH CONSTRUCTION-DIFFERENTIAL SUBSIDIES WERE GIVEN. WAS INTENDED ONLY TO APPLY TO THOSE VESSELS PURCHASED OR REQUISITIONED UNDER PRESIDENTIAL PROCLAMATION OF NATIONAL DEFENSE NEED OR OF NATIONAL EMERGENCY UNDER SECTION 902 OF THE ACT. LIMITING THE AMOUNT THAT THE GOVERNMENT MAY PAY FOR THE "PURCHASE OR REQUISITION" OF VESSELS FOR WHICH CONSTRUCTION-DIFFERENTIAL SUBSIDIES HAVE BEEN GIVEN. THE VESSELS PROPOSED FOR CONVERSION WERE ORIGINALLY BUILT WITH CONSTRUCTION-DIFFERENTIAL SUBSIDIES (CDS) GIVEN UNDER AUTHORITY OF TITLE V OF THE MERCHANT MARINE ACT OF 1936. ALTHOUGH THE NAVY WILL NOT REQUEST PRICE PROPOSALS UNTIL AFTER REVIEWING EACH OFFEROR'S DESIGNS.

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B-211156, MAY 2, 1983

DIGEST: SECTION 802 OF THE MERCHANT MARINE ACT OF 1936, 46 U.S.C. SEC. 1212, DOES NOT APPLY TO THE NAVY'S PURCHASE OF HOSPITAL SHIPS CONVERTED FROM EXISTING VESSELS FOR WHICH CONSTRUCTION-DIFFERENTIAL SUBSIDIES WERE GIVEN. SECTION 802, WHICH SPECIFIES A VALUATION FORMULA FOR CONSTRUCTION DIFFERENTIAL SUBSIDY VESSELS PURCHASED OR REQUISITIONED BY THE GOVERNMENT, WAS INTENDED ONLY TO APPLY TO THOSE VESSELS PURCHASED OR REQUISITIONED UNDER PRESIDENTIAL PROCLAMATION OF NATIONAL DEFENSE NEED OR OF NATIONAL EMERGENCY UNDER SECTION 902 OF THE ACT, 46 U.S.C. SEC. 1242.

DEPARTMENT OF THE NAVY'S T-AHX HOSPITAL SHIP PROGRAM: APPLICABILITY OF STATUTORY LIMITATION OF PAYMENT:

BY LETTER DATED MARCH 25, 1983, THE COMMANDER OF THE NAVAL SEA SYSTEMS COMMAND HAS REQUESTED OUR OPINION ON WHETHER SECTION 802 OF THE MERCHANT MARINE ACT OF 1936, AS AMENDED, 46 U.S.C. SEC. 1212, RESTRICTS THE AMOUNT THAT THE NAVY MAY PAY FOR HOSPITAL SHIPS CONVERTED FROM EXISTING VESSELS. SECTION 802 SPECIFIES A FORMULA, TO BE INCLUDED IN MARITIME CONSTRUCTION- DIFFERENTIAL SUBSIDY CONTRACTS, LIMITING THE AMOUNT THAT THE GOVERNMENT MAY PAY FOR THE "PURCHASE OR REQUISITION" OF VESSELS FOR WHICH CONSTRUCTION-DIFFERENTIAL SUBSIDIES HAVE BEEN GIVEN. FOR THE REASONS DISCUSSED BELOW, WE CONCLUDE THAT THE RESTRICTIONS OF SECTION 802 DO NOT GOVERN THE NAVY'S PURCHASE OF THE SHIPS IN QUESTION. WE DO NOT HERE ADDRESS, HOWEVER,

AFTER AN INITIAL QUALIFYING ROUND, THE NAVY REQUESTED TWO OFFERORS TO SUBMIT DESIGN PROPOSALS FOR THE HOSPITAL SHIPS. BOTH OFFERORS HAD PROPOSED TO PROVIDE SHIPS CONVERTED FROM EXISTING COMMERCIAL VESSELS. EACH CASE, THE VESSELS PROPOSED FOR CONVERSION WERE ORIGINALLY BUILT WITH CONSTRUCTION-DIFFERENTIAL SUBSIDIES (CDS) GIVEN UNDER AUTHORITY OF TITLE V OF THE MERCHANT MARINE ACT OF 1936, 46 U.S.C. SECS. 1151-1161.

THE T-AHX DESIGN (PHASE II) SOLICITATION INCLUDED PRICE PROPOSAL REQUIREMENTS, ALTHOUGH THE NAVY WILL NOT REQUEST PRICE PROPOSALS UNTIL AFTER REVIEWING EACH OFFEROR'S DESIGNS. THE ORIGINAL SOLICITATION, ISSUED JANUARY 27, 1983, REQUIRED OFFERORS TO DESCRIBE ANY MARITIME ADMINISTRATION SUBSIDIES AGAINST THE UNCONVERTED SHIPS, TO "SEPARATELY IDENTIFY *** THE PURCHASE PRICE OF THE UNCONVERTED SHIPS USING THE FORMULA SET FORTH IN 46 U.S.C. SEC. 1212," AND TO CERTIFY THAT PRICE PROPOSALS DO NOT INCLUDE AMOUNTS FOR UNCONVERTED VESSELS "IN EXCESS OF THE LIMITS SET FORTH IN 46 U.S.C. SECTION 1212." THESE REQUIREMENTS WERE ALL DELETED BY SOLICITATION AMENDMENT NO. A001, MARCH 15, 1983. THE REVISED SOLICITATION EXPRESSED THE VIEW THAT THE NAVY, IN ACCEPTING DELIVERY OF A HOSPITAL SHIP, WOULD NOT BE TAKING DELIVERY OF A CDS VESSEL, BECAUSE OF THE VESSEL'S ALTERED FORM. THE NAVY HAS ALTERNATIVELY EXPRESSED THE VIEW THAT SECTION 802 OF THE MERCHANT MARINE ACT OF 1936 (36 U.S.C. SEC. 1212) IS NOT APPLICABLE TO THIS PARTICULAR PROCUREMENT. THE NAVY, HOWEVER, HAS REQUESTED OUR VIEW OF SECTION 802 BEFORE PROCEEDING WITH CONTRACT AWARD.

PRIOR TO ISSUING AN OPINION, WE REQUESTED THE VIEWS OF THE MARITIME ADMINISTRATION. BY LETTER DATED APRIL 13, 1983, THE ADMINISTRATOR OF THE MARITIME ADMINISTRATION TRANSMITTED TO US THE OPINION OF HIS CHIEF COUNSEL THAT, BASED ON ITS STATUTORY LANGUAGE AND LEGISLATIVE HISTORY, SECTION 802 WAS ONLY APPLICABLE TO PURCHASES OR REQUISITIONS MADE UNDER AUTHORITY OF SECTION 902 OF THE ACT, 46 U.S.C. SEC. 1242.

DISCUSSION

SECTION 802 OF THE MERCHANT MARINE ACT OF 1936, AS AMENDED, PROVIDES: "EVERY CONTRACT EXECUTED BY THE SECRETARY OF TRANSPORTATION UNDER AUTHORITY OF TITLE V OF THIS ACT SHALL PROVIDE THAT -

"IN THE EVENT THE UNITED STATES SHALL, THROUGH PURCHASE OR REQUISITION, ACQUIRE OWNERSHIP OF THE VESSEL OR VESSELS ON WHICH A CONSTRUCTION-DIFFERENTIAL SUBSIDY WAS PAID, THE OWNER SHALL BE PAID THEREFOR THE VALUE THEREOF, BUT IN NO EVENT SHALL SUCH PAYMENT EXCEED THE ACTUAL DEPRECIATED CONSTRUCTION COST THEREOF (TOGETHER WITH THE ACTUAL DEPRECIATED COST OF CAPITAL IMPROVEMENTS THEREON, BUT EXCLUDING THE COST OF NATIONAL-DEFENSE FEATURES) LESS THE DEPRECIATED AMOUNT OF CONSTRUCTION-DIFFERENTIAL SUBSIDY THERETOFORE PAID INCIDENT TO THE CONSTRUCTION OR RECONDITIONING OF SUCH VESSEL OR VESSELS, OR THE FAIR AND REASONABLE SCRAP VALUE OF SUCH VESSEL AS DETERMINED BY THE SECRETARY OF TRANSPORTATION, WHICHEVER IS THE GREATER. SUCH DETERMINATION SHALL BE FINAL. COMPUTING THE DEPRECIATED VALUE OF SUCH VESSEL, DEPRECIATION SHALL BE COMPUTED ON EACH VESSEL ON THE SCHEDULE ADOPTED BY THE INTERNAL REVENUE SERVICE FOR INCOME-TAX PURPOSES.

"THE FOREGOING PROVISION RESPECTING THE REQUISITION OR THE ACQUISITION OF OWNERSHIP BY THE UNITED STATES SHALL RUN WITH THE TITLE TO SUCH VESSEL OR VESSELS AND BE BINDING ON ALL OWNERS THEREOF." 46 U.S.C. SEC. 1212, AS AMENDED BY MARITIME ACT OF 1981, PUB.L. NO. 97-31, SEC. 12 (120), 95 STAT. 151, 164.

THE NAVY HAS PUT FORWARD TWO ALTERNATE THEORIES IN SUPPORT OF ITS POSITION THAT SECTION 802 IS INAPPLICABLE TO THE PRESENT CASE. FIRST, THE NAVY ARGUES THAT, NOTWITHSTANDING THE ABSENCE OF ANY EXPRESS LIMITATION, THE WORDS "PURCHASE OR REQUISITION" IN THE PROVISION WERE INTENDED TO APPLY ONLY TO THOSE PURCHASES OR REQUISITIONS MADE UNDER PRESIDENTIAL PROCLAMATION OF NATIONAL DEFENSE NEED OR OF NATIONAL EMERGENCY UNDER THE AUTHORITY OF SECTION 902 OF THE MERCHANT MARINE ACT, 46 U.S.C. SEC. 1242. SECOND, THE NAVY ARGUES THAT ANY HOSPITAL SHIP PROVIDED WOULD NOT BE A CDS VESSEL, BUT WOULD BE, IN EFFECT, A NEW VESSEL, MATERIAL FOR WHICH MIGHT HAVE BEEN ACQUIRED FROM OLDER CDS SHIPS. BECAUSE WE AGREE WITH THE NAVY'S FIRST ARGUMENT, WE FIND IT UNNECESSARY TO CONSIDER THE MERIT OF ITS SECOND ARGUMENT. OUR OPINION IS BASED ON THE LANGUAGE OF SECTION 802 IN THE CONTEXT OF THE ENTIRE STATUTE, AND ON THE LEGISLATIVE HISTORY OF THE PROVISION.

IN OUR DECISION 36 COMP.GEN. 566 (1957), WE CONSIDERED THE QUESTION OF WHETHER SECTION 802 CONSTITUTED A LIMITATION ON THE VALUATION OF CDS VESSELS ACQUIRED BY THE MARITIME COMMISSION UNDER THE TRADE-IN AUTHORITY OF SECTION 510 OF THE MERCHANT MARINE ACT OF 1936, AS AMENDED, 46 U.S.C. SEC. 1160. WE HELD THAT SECTION 802 DID NOT ACT AS A PRICING LIMITATION TO SECTION 510 TRADE-INS. WHILE OUR DECISION WAS LIMITED TO VESSELS ACQUIRED BY TRADE-IN, OUR REASONING IN THAT CASE IS RELEVANT TO THE PRESENT DISCUSSION. WE STATED:

"EXAMINATION OF THE LEGISLATIVE HISTORY OF SECTION 802 CLEARLY ESTABLISHES THAT IT IS A COROLLARY OF SECTION 902, 46 U.S.C. 1242, WHICH AUTHORIZES THE 'REQUISITION OR PURCHASE OF ANY VESSEL OR OTHER WATERCRAFT OWNED BY CITIZENS OF THE UNITED STATES' 'WHENEVER THE PRESIDENT SHALL PROCLAIM THAT THE SECURITY OF THE NATIONAL DEFENSE MAKES IT ADVISABLE OR DURING ANY NATIONAL EMERGENCY DECLARED BY PROCLAMATION OF THE PRESIDENT.'"

36 COMP.GEN. 566 (1957).

WE HAVE REEXAMINED SECTION 802 AND ITS LEGISLATIVE HISTORY AND AGAIN CONCLUDE THAT IT IS ONLY APPLICABLE TO THE PURCHASE OR REQUISITION OF CDS VESSELS UNDER SECTION 902. FN2

AS ORIGINALLY ENACTED, THE MERCHANT MARINE ACT OF 1936 AUTHORIZED TWO METHODS BY WHICH THE UNITED STATES MARITIME COMMISSION (NOW THE SECRETARY OF TRANSPORTATION) COULD ACQUIRE VESSELS: BY PURCHASE OF TRADE-IN VESSELS REPLACED BY NEWLY-CONSTRUCTED SUBSIDIZED VESSELS (SECTION 507), AND BY REQUISITION OR PURCHASE PROCLAMATION OF THE PRESIDENT (SECTION 902). SEE 46 U.S.C. SECS. 1157, 1242. EACH PROVISION SPECIFIED THE VALUATION METHOD TO BE USED TO DETERMINE PAYMENT: TRADE-IN VESSELS UNDER SECTION 507 WERE TO BE ACQUIRED AT A "FAIR AND REASONABLE" VALUATION NOT EXCEEDING THE OWNER'S COSTS LESS DEPRECIATION. 46 U.S.C. SEC. 1157. VESSELS PURCHASED OR REQUISITIONED PURSUANT TO A NATIONAL DEFENSE OR NATIONAL EMERGENCY PROCLAMATION UNDER SECTION 902 WERE TO BE ACQUIRED FOR "JUST COMPENSATION" IF A NON SUBSIDIZED VESSEL, AND UNDER THE FORMULA SPECIFIED IN SECTION 802 IF SUBSIDIZED. THE SECTION 802 FORMULA DIFFERED FROM THE VALUATION LANGUAGE OF SECTION 507 IN TWO PRINCIPAL WAYS: IT SPECIFICALLY EXCLUDED THE COST OF NATIONAL DEFENSE FEATURES, AND IT REQUIRED THE DEDUCTION OF ANY CONSTRUCTION-DIFFERENTIAL SUBSIDY ON THE VESSEL. SECTION 802 WAS LATER AMENDED TO ALLOW, AS AN ALTERNATIVE. VALUATION AT REASONABLE SCRAP VALUE. ACT OF JUNE 23, 1938, PUBLIC LAW 75-705, SEC. 33, 52 STAT. 953, 962. NO CORRESPONDING CHANGE WAS MADE TO THE VALUATION METHOD SPECIFIED IN SECTION 507.

IN LATER AMENDMENTS TO THE MERCHANT MARINE ACT, SEVERAL OTHER METHODS OF VESSEL ACQUISITION WERE AUTHORIZED. SECTION 510, ADDED IN 1939, AUTHORIZED THE ACQUISITION OF "OBSOLETE" VESSELS FOR CREDIT, WITH VALUATION SET AT "FAIR AND REASONABLE" RATES, DETERMINED AFTER CONSIDERATION OF THE SCRAP, BOOK, AND MARKET VALUES OF VESSELS TRADED IN. SEE 46 U.S.C. SEC. 1160(A)-(D). IT WAS THIS PROVISION THAT WE SPECIFICALLY HELD IN 1957 TO BE INDEPENDENT OF ANY VALUATION OR PAYMENT LIMITATION INCLUDED IN SECTION 802. 36 COMP.GEN. 566 (1957). SIMILARLY, SECTION 215, ADDED IN 1938, PROVIDED GENERAL AUTHORITY TO ACQUIRE AMERICAN -BUILT VESSELS DEEMED NECESSARY TO SERVE THE FOREIGN TRADE. SEE 46 U.S.C. SEC. 1125. PAYMENT WAS TO BE MADE IN AN AMOUNT NOT TO EXCEED BY MORE THAN 5 PERCENT THE OWNER'S COSTS LESS DEPRECIATION, WITH A SPECIFIC EXCLUSION OF ANY COST OF NATIONAL DEFENSE FEATURES PAID BY THE GOVERNMENT, AND OF ANY CONSTRUCTION-DIFFERENTIAL SUBSIDY. ID.

THE CONGRESS, IN THE MERCHANT MARINE ACT, THUS SPECIFIED A NUMBER OF DIFFERENT INSTANCES FOR WHICH THE ACQUISITION OF VESSELS WOULD BE AUTHORIZED. EACH AUTHORIZING PROVISION CONTAINS LANGUAGE PURPORTING TO IDENTIFY THE PAYMENT OR VALUATION METHOD TO BE USED BY THE GOVERNMENT IN ITS ACQUISITION. IN LIGHT OF THIS, WE BELIEVE THAT THE PAYMENT LIMITATIONS OF SECTION 802, ALTHOUGH BROADLY WORDED, WERE NOT INTENDED TO GOVERN ALL PURCHASES OF SUBSIDIZED VESSELS. THUS, WE AGREE WITH THE CHIEF COUNSEL OF THE MARITIME ADMINISTRATION, WHO HAS STATED THAT AN EXPANSIVE READING OF SECTION 802 "CONFLICTS WITH OTHER PROVISIONS OF THE ACT THAT CONTAIN SPECIFIC FORMULAS FOR THE PURCHASE PRICE THE GOVERNMENT PAYS FOR ACQUIRING VESSELS." IT IS ARGUABLE THAT THE LANGUAGE OF SECTION 802 COULD BE READ TOGETHER WITH ANY OF THE PAYMENT OR VALUATION LANGUAGE OF OTHER PROVISIONS: IT WOULD SIMPLY HAVE THE EFFECT OF LIMITING THE CALCULATION OF AN OWNER'S ORIGINAL COSTS WHERE THE VESSEL IN QUESTION HAD RECEIVED A CONSTRUCTION-DIFFERENTIAL SUBSIDY. HOWEVER, UPON EXAMINATION OF THE CIRCUMSTANCES LEADING TO THE ENACTMENT OF SECTION 802, WE THINK THAT THE MORE PERSUASIVE VIEW IS THAT THE SECTION APPLIES ONLY TO PAYMENTS MADE UNDER AUTHORITY OF SECTION 902.

BOTH THE HOUSE- AND SENATE-REPORTED VERSIONS OF THE BILL LATER ENACTED AS THE MERCHANT MARINE ACT OF 1936 PROPOSED TO AUTHORIZE THE REQUISITION OR PURCHASE, FOR THE NATIONAL DEFENSE OR IN TIME OF NATIONAL EMERGENCY PROCLAIMED BY THE PRESIDENT, OF VESSELS MARITIME LOANS, SUBSIDIES OR OCEAN MAIL CONTRACTS. H.R. 8555, 74TH CONG., 1ST SESS. (JUNE 20, 1935) (REPORTED IN H.R. REP. NO. 1277. 75TH CONG., 1ST SESS. 26, 33 (1935)); H.R. 8555, 74TH CONG., 1ST SESS. (JULY 29, 1935) (REPORTED IN S. REP. NO. 1226, 74TH CONG., 1ST SESS. 3 (1935)). BOTH VERSIONS CONTAINED LANGUAGE TO ENSURE THAT SUBSIDY PAYMENTS WERE TAKEN INTO ACCOUNT IN DETERMINING THE VALUE OF REQUISITIONED VESSELS: THE HOUSE-REPORTED VERSION MERELY STATED THAT CONSIDERATION SHOULD BE GIVEN TO THE SUBSIDY AT THE TIME OF VALUATION; THE SENATE-REPORTED VERSION WAS CONSIDERABLY MORE SPECIFIC. SET OUT A SUBSIDY-RECOVERY REQUIREMENT TO BE INCLUDED AS A CONTRACT TERM FOR ALL VESSELS RECEIVING MARITIME FINANCIAL AID. THE SENATE'S LANGUAGE HAD BEEN INCLUDED AT THE REQUEST OF SENATOR BONE, WHO HAD INSISTED THAT THE BILL SPECIFICALLY PREVENT MARITIME SUBSIDIES FROM BEING USED AS A SOURCE OF PROFIT DURING WARTIME. 79 CONG.REC. 10,256 (1935). THAT VERSION, WHICH FORMED THE BASIS FOR SEVERAL OTHER SENATE VERSIONS, PROVIDED, IN PERTINENT PART, THIS AMENDMENT TO THE MERCHANT MARINE ACT OF 1928:

"SEC. 702. (A) THE FOLLOWING VESSELS THOSE RECEIVING FEDERAL LOANS, OCEAN-MAIL CONTRACTS, OR MARITIME SUBSIDIES MAY BE TAKEN OVER AND PURCHASED OR USED BY THE UNITED STATES FOR NATIONAL DEFENSE OR DURING ANY NATIONAL EMERGENCY DECLARED BY PROCLAMATION OF THE PRESIDENT, OR WHEN IN THE OPINION OF THE PRESIDENT A NATIONAL EMERGENCY IS IMMINENT, UNDER THE FOLLOWING CONDITIONS:

"(B) IN THE EVENT THE UNITED STATES SHOULD PURCHASE, ACQUIRE, OR USE ANY VESSEL OR VESSELS COVERED BY THE ABOVE *** THE OWNER SHALL BE PAID THE FAIR ACTUAL VALUE OF THE VESSEL AT THE TIME OF TAKING, OR PAID THE FAIR COMPENSATION FOR ITS USE BASED UPON SUCH FAIR ACTUAL VALUE, BUT IN NEITHER CASE SHALL SUCH FAIR ACTUAL VALUE BE ENHANCED BY THE CAUSES NECESSITATING THE TAKING. ***

"(C) EVERY CONTRACT EXECUTED UNDER THE MERCHANT MARINE ACT, 1935, FOR THE PAYMENT OF FINANCIAL AID IN RESPECT TO ANY VESSEL OR VESSELS SHALL CONTAIN A PROVISION (WHICH PROVISION SHALL CONTINUE IN FORCE AND EFFECT DURING THE ENTIRE ECONOMIC LIFE OF SUCH VESSEL OR VESSELS) PERMITTING ANY SUCH VESSEL OR VESSELS TO BE TAKEN OVER BY THE UNITED STATES BY CONDEMNATION OR PURCHASE, OR BE USED BY THE UNITED STATES FOR NATIONAL DEFENSE OR DURING ANY NATIONAL EMERGENCY DECLARED BY PROCLAMATION OF THE PRESIDENT UPON THE FOLLOWING TERMS AND CONDITIONS:

"(1) IN THE EVENT THE UNITED STATES SHOULD PURCHASE OR IN ANYWISE ACQUIRE OWNERSHIP OF SUCH VESSEL OR VESSELS, THE THEN OWNER SHALL BE PAID THEREFORE THE FAIR ACTUAL VALUE THEREOF, BUT IN NO EVENT SHALL SUCH PAYMENT EXCEED THE ACTUAL DEPRECIATED CONTRUCTION COST THEREOF (TOGETHER WITH THE ACTUAL DEPRECIATED COST OF CAPITAL IMPROVEMENTS THEREON) LESS THE DEPRECIATED AMOUNT OF CONSTRUCTION SUBSIDY THERETOFORE PAID INCIDENT TO THE CONSTRUCTION OR RECONDITIONING OF SUCH VESSEL OR VESSELS."

H.R. 8555, SEC. 1103, 74TH CONG., 1ST SESS. (JULY 29, 1935). SEVERAL LATER BILLS, INTENDED TO BE INTRODUCED AS SUBSTITUTES FOR H.R. 8555, CONTAINED ALMOST IDENTICAL PROVISIONS. SEE S. 3376, 74TH CONG., 1ST SESS., SEC. 1103 (JULY 29, 1935); S. 3500, 74TH CONG., 2D SESS., SEC. 903 (FEBRUARY 24, 1936) (REPORTED IN S. REP. NO. 1721, 74TH CONG., 2D SESS. (1936)).

SUBSECTION (C) OF THE ABOVE-QUOTED PROVISION OF H.R. 8555 CAN BE CLEARLY RECOGNIZED AS THE ORIGIN OF SECTION 802 OF THE MERCHANT MARINE ACT OF 1936. IT IS EQUALLY APPARENT THAT THE CONTRACT PROVISION IN SUBSECTION (C), ALTHOUGH WORDED AS BROADLY AS THE PRESENT SECTION 802, WAS APPLICABLE ONLY TO PURCHASES OR REQUISITIONS MADE UNDER THE EMERGENCY AUTHORITY OF THE PROPOSED SECTION 702. THIS WAS EMPHASIZED BY THE ACCOMPANYING SENATE REPORT:

"SECTION 1104 OF THE HOUSE BILL, WHICH DEALS WITH THE REQUISITION OF VESSELS, IS AMPLIFIED BY THE SENATE AMENDMENT TO CONTAIN THE PRINCIPLE OF ESTABLISHING BY CONTRACTUAL RELATIONS WITH THE OWNER OF THE VESSEL AT THE TIME THAT GOVERNMENT AID IS GRANTED, THE TERMS AND CONDITIONS UNDER WHICH SUCH VESSEL MAY BE REQUISITIONED BY THE GOVERNMENT IN A NATIONAL EMERGENCY." S. REP. NO. 1226, 74TH CONG., 1ST SESS. 3 (1935).

IN 1936, A SUBSTITUTE AMENDMENT FOR H.R. 8555 OFFERED BY SENATOR GUFFEY SEPARATED, APPARENTLY FOR THE FIRST TIME, THE CONTRACT PROVISION LATER ENACTED AS SECTION 802 AND THE EMERGENCY REQUISITION AUTHORITY LATER ENACTED AS SECTION 902. H.R. 8555, 74TH CONG., 2D SESS. SEC. 53 (APRIL 24, 1936). THIS FORMAT WAS DUPLICATED IN THE FINAL COMPROMISE VERSION OF THE BILL, INTRODUCED IN THE SENATE AS A SUBSTITUTE AMENDMENT ON JUNE 18, 1936. 80 CONG. REC. 9,885 (1936); H.R. 8555, 74TH CONG., 2D SESS. (JUNE 13, 1936). WHILE THERE WAS NO ACCOMPANYING EXPLANATION FOR THE SEPARATION OF THE TWO PROVISIONS, THE PURPOSE WAS APPARENTLY TO PLACE THE PRICE LIMITATION, INCLUDED SINCE THE SENATE-REPORTED VERSION IN 1933 AS A CONTRACT CLAUSE, INTO THE TITLE OF THE BILL DEVOTED TO "CONTRACT RESTRICTIONS." THERE APPEARS TO HAVE BEEN NO INTENTION BY THIS CHANGE TO DEPART IN ANY SUBSTANTIVE WAY FROM PREVIOUS VERSIONS OF THE BILL. THIS VIEW IS SUPPORTED BY THE RECORD OF DEBATE IN BOTH HOUSES OF THE CONGRESS PRIOR TO THE PASSAGE OF THE BILL. FN3

BASED ON THE FOREGOING, WE CONCLUDE, AS WE DID IN 36 COMP.GEN. 566 (1957), THAT SECTION 802 OF THE MERCHANT MARINE ACT OF 1936 WAS INTENDED TO BE READ AS A COROLLARY OF SECTION 902, APPLICABLE MADE "WHENEVER THE PRESIDENT SHALL PROCLAIM THAT THE ONLY TO THOSE PURCHASES OR REQUISITIONS NATIONAL DEFENSE MAKES IT ADVISABLE OR DURING ANY NATIONAL EMERGENCY DECLARED BY PROCLAMATION OF THE PRESIDENT." 46 U.S.C. SEC. 1242(A). SEE ALSO 41 COMP.GEN. 181 (1961)).

NOTWITHSTANDING OUR CONCLUSION AS TO THE APPLICABILITY OF SECTION 802, IT COULD BE ARGUED THAT ANY CDS CONTRACT RESTRICTION WHICH, BY ITS OWN TERMS, APPLIES TO ANY "PURCHASE OR REQUISITION" BY THE UNITED STATES, WOULD EFFECTIVELY BIND THE OWNER OF THE VESSEL IN TRANSACTIONS NOT NECESSARILY CONTEMPLATED BY THE DRAFTERS OF THE STATUTE. THE CONTRACTUAL RESTRICTION, HOWEVER, IS IDENTICAL TO, AND CANNOT BE DISASSOCIATED FROM, THE LANGUAGE SET OUT BY THE STATUTORY PROVISION. IT IS INCLUDED AS BOILERPLATE LANGUAGE IN EVERY CDS CONTRACT TO EFFECT THE PURPOSES OF THAT PROVISION: TO PREVENT EXCESSIVE PROFITS BY THE OWNERS OF REQUISITIONED VESSELS IN TIME OF WAR OR NATIONAL EMERGENCY. IN OUR VIEW, SUCH CONTRACTUAL RESTRICTIONS SHOULD BE INTERPRETED IN A MANNER CONSISTENT WITH THE STATUTORY PROVISION ITSELF.

FOR THE REASONS DISCUSSED ABOVE, WE ARE OF THE OPINION THAT THE NAVY IS NOT RESTRICTED BY THE PAYMENT LIMITATIONS OF SECTION 802, OR OF CDS CONTRACT RESTRICTIONS IMPOSED PURSUANT TO SECTION 802, IN ITS PURCHASE OF HOSPITAL SHIPS CONVERTED FROM EXISTING CDS VESSELS.

FN1 THE T-AHX PROGRAM WILL BE EXAMINED IN DETAIL IN AN UPCOMING AUDIT REPORT PREPARED AT THE REQUEST OF THE CHAIRMAN OF THE SUBCOMMITTEE ON DEFENSE, HOUSE COMMITTEE ON APPROPRIATIONS.

FN2 SECTION 902 PROVIDES, IN PERTINENT PART:

"(A) COMPENSATION; RESTORATION; CONSEQUENTIAL DAMAGES. WHENEVER THE PRESIDENT SHALL PROCLAIM THAT THE SECURITY OF THE NATIONAL DEFENSE MAKES IT ADVISABLE OR DURING ANY NATIONAL EMERGENCY DECLARED BY PROCLAMATION OF THE PRESIDENT, IT SHALL BE LAWFUL FOR THE SECRETARY OF TRANSPORTATION TO REQUISITION OR PURCHASE ANY VESSEL OR OTHER WATERCRAFT OWNED BY CITIZENS OF THE UNITED STATES, OR UNDER CONSTRUCTION WITHIN THE UNITED STATES, OR FOR ANY PERIOD DURING SUCH EMERGENCY, TO REQUISITION OR CHARTER THE USE OF ANY SUCH PROPERTY. *** WHEN ANY SUCH PROPERTY OR THE USE THEREOF IS SO REQUISITIONED, THE OWNER THEREOF SHALL BE PAID JUST COMPENSATION FOR THE PROPERTY TAKEN OR FOR THE USE OF SUCH PROPERTY, BUT IN NO CASE SHALL THE VALUE OF THE PROPERTY TAKEN OR USED BE DEEMED ENHANCED BY THE CAUSES NECESSITATING THE TAKING OR USE. ***

"(B) DETERMINATION OF VALUE OF VESSEL. WHEN ANY VESSEL IS TAKEN OR USED UNDER AUTHORITY OF THIS SECTION, UPON WHICH VESSEL A CONSTRUCTION-DIFFERENTIAL SUBSIDY HAS BEEN ALLOWED AND PAID, THE VALUE OF THE VESSEL AT THE TIME OF ITS TAKING SHALL BE DETERMINED AS PROVIDED IN SECTION 802 OF THIS ACT 46 U.S.C. SEC. 1212, AND IN DETERMINING THE VALUE OF ANY VESSEL TAKEN OR USED, ON WHICH A CONSTRUCTION-DIFFERENTIAL SUBSIDY HAS NOT BEEN PAID,

IN ORDER TO ACCOMPLISH ITS ORIGINAL OBJECTIVES AND TO CALCULATE THE DAMAGES IT BELIEVED WERE DUE BECAUSE OF TANGFELDT'S BREACH, THE FOREST SERVICE REOFFERED THE TIMBER FOR SALE. UNDER ITS OWN REGULATIONS, FOUND AT 36 C.F.R. SECS. 223.5(H) (1982), THE FOREST SERVICE HAD TO DETERMINE WHETHER TO ALLOW TANGFELDT, WHICH THE FOREST SERVICE CONSIDERED TO BE IN DEFAULT OF THE PUFF TIMBER SALE CONTRACTUAL OBLIGATIONS, TO BID ON THE RESALE. THE FOREST SERVICE REGULATIONS PROVIDE, IN PERTINENT PART, AT 36 C.F.R. SECS. 223.5(H)(1), THAT: ( "(H)(1) EXCEPT AS OTHERWISE PROVIDED IN THIS

SECTION, NO BID WILL BE CONSIDERED IN THE RESALE OF TIMBER REMAINING FROM ANY UNCOMPLETED TIMBER SALE CONTRACT FROM ANY PERSON, OR FROM AN AFFILIATE OF SUCH PERSON, WHO FAILED TO COMPLETE THE ORIGINAL CONTRACT: (I) BECAUSE OF TERMINATION FOR PURCHASER'S BREACH OR (II) THROUGH FAILURE TO CUT DESIGNATED TIMBER ON PORTIONS OF THE SALE AREA BY THE TERMINATION DATE, UNLESS ACCEPTANCE OF SUCH BID IS DETERMINED TO BE IN THE PUBLIC INTEREST."

THE FOREST SERVICE CONCLUDED THAT TANGFELDT'S PARTICIPATION WOULD FRUSTRATE LEGALLY IMPOSED LIMITATIONS ON CONTRACT EXTENSIONS AND, THEREFORE, WAS NOT IN THE PUBLIC INTEREST. ACCORDINGLY, TANGFELDT WAS NOTIFIED THAT IT WOULD NOT BE ALLOWED TO PARTICIPATE IN THE RESALE.

THE PUBLIC ADVERTISEMENT OF THE RESALE, THE TIMBER SALE PROSPECTUS AND THE BID FOR ADVERTISED TIMBER FORM ALL STATED THAT BIDS FROM TANGFELDT AND ITS AFFILIATES WOULD NOT BE CONSIDERED AND REQUIRED ALL BIDDERS TO SIGN A "CERTIFICATE OF NONAFFILIATION" TO SHOW THAT THEY WERE NOT TANGFELDT OR AFFILIATED WITH TANGFELDT SINCE TANGFELDT WAS INELIGIBLE FOR THE RESALE CONTRACT.

WHEN THE SALE WAS CONDUCTED ON MAY 28, 1982, TANGFELDT SUBMITTED A SEALED BID IN SPITE OF THE ABOVE NOTICES THAT A BID FROM TANGFELDT WOULD NOT BE CONSIDERED. FOREST SERVICE OFFICIALS ADVISED TANGFELDT THAT ITS SEALED BID WOULD NOT BE CONSIDERED, AND TANGFELDT WAS NOT ALLOWED TO PARTICIPATE IN THE ORAL AUCTION WHICH IMMEDIATELY FOLLOWED SUBMISSION OF SEALED BIDS. THE ORAL AUCTION WAS CONDUCTED WITHOUT TANGFELDT AND AWARD MADE TO NORTHWEST WOOD PRODUCTS, INC., THE HIGH BIDDER.

TANGFELDT FILED ITS PROTEST IN OUR OFFICE ON MAY 28, 1982, AT 12:19 P.M. SEALED BIDS WERE REQUIRED TO BE SUBMITTED TO THE CONTRACTING ACTIVITY NO LATER THAN 10 A.M. ON MAY 28. UNDER SECTION 21.2(B)(1) OF OUR BID PROTEST PROCEDURES (4 C.F.R. PART 21 (1983)), A PROTEST ALLEGING IMPROPRIETIES APPARENT IN THE SOLICITATION MUST BE FILED PRIOR TO BID OPENING. SINCE THE CONTRACTING ACTIVITY WAS LOCATED IN EUGENE, OREGON, AND THERE IS A 3- HOUR DIFFERENCE BETWEEN THE EASTERN AND PACIFIC TIME ZONES, TANGFELDT'S PROTEST WAS FILED BEFORE THE TIME SET FOR SUBMISSION OF SEALED BIDS. ACCORDINGLY, THE PROTEST IS TIMELY AND WILL BE CONSIDERED ON ITS MERITS.

REGARDING THE DISPUTE BETWEEN TANGFELDT AND THE FOREST SERVICE AS TO WHETHER TANGFELDT WAS ENTITLED TO AN AUTOMATIC EXTENSION OF ITS CONTRACT WITHOUT INCLUSION OF ANY PRIORITY REMOVAL REQUIREMENT AND WHETHER TANGFELDT, THE FOREST SERVICE, OR BOTH WERE IN BREACH OF THEIR CONTRACTUAL OBLIGATIONS, WE WILL NOT CONSIDER THE MERITS OF THE ISSUE BECAUSE IT INVOLVES A MATTER OF CONTRACT ADMINISTRATION AND, THEREFORE, IS NOT APPROPRIATELY FOR RESOLUTION AS PART OF OUR BID PROTEST FUNCTION. SEE NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY, 59 COMP.GEN. 746 (1980), 80-2 CPD 225. THEREFORE, WITHOUT DECIDING WHICH PARTY WAS AT FAULT, WE WILL RECOGNIZE THAT THERE WAS A DISPUTE AND TAKE THAT FACT INTO ACCOUNT IN OUR CONSIDERATION ONLY INSOFAR AS IT RELATES TO THE FOREST SERVICE'S DECISION TO EXCLUDE TANGFELDT FROM THE COMPETITION FOR THE RESALE.

THE FIRST ISSUE RAISED BY TANGFELDT CALLS FOR A DETERMINATION OF WHETHER THE FOREST SERVICE REGULATION (36 C.F.R. SECS. 223.5(H)(1)), WHICH ALLOWS THE FOREST SERVICE TO EXCLUDE A CONTRACTOR WHICH HAS BREACHED OR FAILED TO COMPLETE A TIMBER SALE CONTRACT FROM THE COMPETITION CONDUCTED FOR THE RESALE OF THE REMAINING TIMBER, IS VALID. WE CONCLUDE THAT THE REGULATION IS PROPER AND ITS USE WAS JUSTIFIED IN THESE CIRCUMSTANCES.

BASICALLY, TANGFELDT RELIES UPON OUR DECISION IN PRB UNIFORMS, INC., 56 COMP.GEN. 976 (1977), 77-2 CPD 213, WHEREIN WE HELD THAT, WHEN A CONTRACTING OFFICER CONDUCTS A NEW COMPETITION TO REPROCURE GOODS OR SERVICES NOT DELIVERED UNDER A PRIOR DEFAULTED CONTRACT, THE DEFAULTED CONTRACTOR HAS A RIGHT TO COMPETE FOR THE REPROCUREMENT CONTRACT. WE ALSO HELD THAT AUTOMATIC EXCLUSION OF THE DEFAULTED CONTRACTOR WOULD CONSTITUTE AN IMPROPER PREMATURE DETERMINATION OF NONRESPONSIBILITY. TANGFELDT ALSO CITES OUR DECISION IN B-195497, JUNE 2, 1980, WHEREIN WE REVIEWED, AT THE FOREST SERVICE'S REQUEST, THE FOREST SERVICE REGULATION AT ISSUE. IN THAT DECISION, WE EXAMINED FOREST SERVICE ARGUMENTS THAT RESALES OF TIMBER SHOULD NOT BE SUBJECTED TO THE SAME RULES AS REPROCUREMENTS AND THAT THE REGULATION IN 36 C.F.R. SEC. 223.5(H) REPRESENTS A PROPER EXERCISE OF THE FOREST SERVICE'S AUTHORITY IN ACCORD WITH THE NATIONAL FOREST MANAGEMENT ACT OF 1976, AS AMENDED (16 U.S.C. SEC. 472A (1976)). IN B-195497, SUPRA, WE RECOMMENDED THAT THE FOREST SERVICE CONSIDER REVISING ITS REGULATIONS AT 36 C.F.R. SEC. 223.5(H) AND CORRESPONDING SECTIONS OF THE FOREST SERVICE MANUAL TO ALLOW CONSIDERATION OF A DEFAULTED PURCHASER'S BID ON A TIMBER RESALE.

IN SPITE OF OUR RECOMMENDATION IN B-195497, SUPRA, THE FOREST SERVICE DID NOT MODIFY ITS REGULATIONS RELATED TO PREVENTING A DEFAULTED CONTRACTOR FROM COMPETING FOR THE RESALE CONTRACT. THE FOREST SERVICE HAS RAISED MOST OF THE SAME ARGUMENTS IN THE PRESENT CASE THAT IT RAISED IN B-195497, SUPRA. HOWEVER, SEVERAL NEW ARGUMENTS HAVE BEEN PRESENTED.

THE FOREST SERVICE CONTENDS THAT, IF DEFAULTED TIMBER PURCHASERS ARE ALLOWED TO BID ON THE RESALES, FOREST SERVICE MANAGEMENT OF THE NATIONAL FOREST SYSTEM WILL BE NEGATIVELY AFFECTED. IN ACCORD WITH 16 U.S.C. SEC. 475 (1976), THE FOREST SERVICE IS CHARGED WITH RESPONSIBILITY "TO FURNISH A CONTINUOUS SUPPLY OF TIMBER FOR THE USE AND NECESSITIES OF CITIZENS OF THE UNITED STATES." TO THIS END, THE FOREST SERVICE HAS THE AUTHORITY TO DETERMINE WHEN A TIMBER PURCHASER WILL BE GRANTED ADDITIONAL TIME TO COMPLETE THE TIMBER SALE CONTRACT. 16 U.S.C. SEC. 472AC) (1976). ACCORDING TO THE FOREST SERVICE, THE PRIMARY PREREQUISITE TO OBTAINING A CONTRACT EXTENSION IS THAT THE CONTRACTOR MUST HAVE PERFORMED DILIGENTLY UNDER THE CONTRACT - A PREREQUISITE WHICH TANGFELDT DID NOT MEET. TANGFELDT, OR ANY OTHER DEFAULTED PURCHASER, IS ALLOWED TO BID ON THE RESALE (IN THE ABSENCE OF ANY OVERRIDING PUBLIC INTEREST), THEN THE FOREST SERVICE ALLEGES ITS AUTHORITY TO DETERMINE WHETHER CONTRACTS SHOULD BE EXTENDED WILL BE UNDERMINED AND ITS ABILITY TO CONTROL SUCH EXTENSIONS DIMINISHED SINCE AWARD TO A PREVIOUSLY DEFAULTED PURCHASER AMOUNTS TO AN EXTENSION OF THE ORIGINAL CONTRACT AT POTENTIALLY MORE FAVORABLE TERMS. THE FOREST SERVICE ALSO ARGUES THAT THIS PARTICULAR RESALE WAS UNUSUAL IN THAT REMOVAL OF THE REMAINING TIMBER HAD TO BE ACCOMPLISHED VERY QUICKLY. THE FOREST SERVICE CONTENDS THAT THE SPECIES OF TIMBER (WESTERN HEMLOCK) WHICH HAD BEEN CUT BUT NOT REMOVED BY TANGFELDT WAS SUBJECT TO RAPID DETERIORATION DUE TO "CHECKING" (CRACKING AT THE ENDS OF THE LOGS). CHECKING WOULD BE PARTICULARLY RAPID BECAUSE THE LOGS WERE LEFT IN DIRECT SUNLIGHT. WE NOTE THAT TANGFELDT STRENUOUSLY DISPUTES THE FOREST SERVICE CLAIM THAT CHECKING WOULD OCCUR RAPIDLY. ALSO, THE FOREST SERVICE ARGUES THAT SINCE TANGFELDT HAD BID $906.50 PER THOUSAND BOARD FEET FOR WESTERN HEMLOCK WHICH THE FOREST SERVICE APPRAISED AT ONLY $24.56 PER THOUSAND BOARD FEET, TANGFELDT HAD AN ECONOMIC INCENTIVE NOT TO REMOVE THE REMAINING TIMBER. AGAIN, TANGFELDT DISPUTES THE FOREST SERVICE'S CONCLUSION IN THIS REGARD. FROM THESE ARGUMENTS, IT IS CLEAR THAT THE FOREST SERVICE BELIEVED THE RESALE TO BE URGENT AND DOUBTED WHETHER TANGFELDT WOULD DO THE JOB QUICKLY IF AWARDED THE RESALE CONTRACT.

THE FOREST SERVICE ALSO CONTENDS THAT, DUE TO PRICE FLUCTUATIONS IN THE TIMBER MARKET, PURCHASERS COULD USE THE DEFAULT AND RESALE PROCEDURE TO SPECULATE IN HOPE OF MORE FAVORABLE TERMS OR HIGHER MARKET PRICES AT THE TIME OF THE RESALE. THE FOREST SERVICE POINTS OUT THAT THE PRICE BID FOR THE WESTERN HEMLOCK BY TANGFELDT WAS 36 TIMES HIGHER THAN THE APPRAISED VALUE AND CONCLUDES THAT, PERHAPS BECAUSE OF MARKET FLUCTUATIONS, TANGFELDT MAY HAVE HAD INCENTIVE NOT TO HARVEST THE TIMBER.

IN SUPPORT OF ITS POSITION THAT THE PROVISIONS OF 36 C.F.R. SEC. 223.5(H)(1) ARE LEGAL, THE FOREST SERVICE CITES SILLER BROTHERS, INCORPORATED V. UNITED STATES, 655 F.2D 1039 (CT.CL. 1981), CERT. DENIED, 102 S.CT. 1970 (1982). IN SILLER BROTHERS, THE UNITED STATES COURT OF CLAIMS (NOW UNITED STATES CLAIMS COURT) UPHELD THE VALIDITY OF THE FOREST SERVICE'S REGULATION AND HELD FURTHER THAT THE FOREST SERVICE WAS NOT REQUIRED TO SEND A DETERMINATION NOT TO ALLOW A DEFAULTED SMALL BUSINESS CONTRACTOR TO BID ON THE TIMBER SALE TO THE SBA FOR REVIEW UNDER ITS CERTIFICATE OF COMPETENCY PROCEDURES.

TANGFELDT URGES OUR OFFICE TO EITHER REJECT THE HOLDING OF SILLER BROTHERS OR TO CONSIDER THE HOLDING TO BE BINDING ONLY IN THE UNIQUE SITUATION WHERE THE ORIGINAL PURCHASER HAD NOT FELLED A SINGLE TREE - THE FACTUAL SITUATION OF THE SILLER BROTHERS CASE.

IN PRB UNIFORMS, INC., SUPRA, WE HELD THAT WHILE THE STATUTORY REQUIREMENT THAT CONTRACTS BE LET AFTER COMPETITIVE BIDDING IS NOT APPLICABLE TO REPROCUREMENTS, ONCE THE CONTRACTING OFFICER DECIDES THAT IT IS APPROPRIATE TO CONDUCT A NEW COMPETITION FOR THE REPROCUREMENT, HE MAY NOT AUTOMATICALLY EXCLUDE THE DEFAULTED CONTRACTOR FROM THAT COMPETITION. OTHERWISE, SUCH EXCLUSION WOULD CONSTITUTE AN IMPROPER PREMATURE DETERMINATION OF NONRESPONSIBILITY. IN OUR JUNE 2, 1980, LETTER TO THE FOREST SERVICE (B-195497), WE RECOGNIZED THAT THE PROCUREMENT STATUTES AND REGULATIONS WHICH PROVIDED THE BASIS FOR OUR DECISION IN PRB UNIFORMS, INC., DO NOT APPLY TO TIMBER SALES. NEVERTHELESS, UNDER 16 U.S.C. SEC. 472A (FROM WHICH THE SECRETARY OF AGRICULTURE DERIVES AUTHORITY TO SELL TIMBER), THE SECRETARY OF AGRICULTURE IS REQUIRED TO SELECT BIDDING METHODS WHICH "INSURE OPEN AND FAIR COMPETITION." WE STATED OUR OPINION THAT AUTOMATIC EXCLUSION OF A DEFAULTED TIMBER PURCHASER DOES NOT INSURE OPEN AND FAIR COMPETITION. WE ALSO OPINED THAT, IN A RESALE OF TIMBER, THE ORIGINAL PURCHASER'S DEFAULT SHOULD BE ONLY ONE FACTOR TO BE CONSIDERED IN DETERMINING WHETHER A CONTRACT SHOULD BE AWARDED TO THAT PURCHASER AND, THEREFORE, RECOMMENDED THAT THE FOREST SERVICE CONSIDER CHANGING ITS REGULATIONS TO ALLOW CONSIDERATION OF A DEFAULTED PURCHASER'S BID ON A TIMBER RESALE.

IN SILLER BROTHERS, THE COURT RELIED UPON THE FACT THAT THE PURCHASER HAD NOT CUT A SINGLE TREE OVER THE 3-YEAR PERIOD OF ITS CONTRACT AND, THEREFORE, CONCLUDED THAT THE FOREST SERVICE HAD NO REASON TO THINK THAT THE CONTRACTOR WOULD PERFORM ANY BETTER IF IT WERE AWARDED A SECOND CONTRACT FOR THE SAME TIMBER. IMPLICIT IN THE FOREST SERVICE'S DECISION NOT TO CONSIDER THE ORIGINAL PURCHASER WAS A DETERMINATION THAT IT WAS NOT IN THE PUBLIC INTEREST TO ALLOW THE ORIGINAL PURCHASER TO BID ON THE RESALE. THE SILLER BROTHERS COURT HELD THAT SUCH AN IMPLICIT DETERMINATION WAS IN CONFORMITY WITH THE PROVISIONS OF 36 C.F.R. SEC. 223.5(H)(1). TANGFELDT ARGUES THAT THIS FAILURE TO CUT A SINGLE TREE IS A FACT WHICH MAKES THE SILLER BROTHERS CASE EASILY DISTINGUISHABLE FROM THE PRESENT PROTEST. WE DO NOT AGREE. THE RECORD SHOWS THAT OVER ONE-HALF OF THE WESTERN HEMLOCK (APPROXIMATELY 348,000 BOARD FEET), OR ABOUT 28 PERCENT OF THE TOTAL TIMBER, THOUGH CUT, WAS LEFT DECKED IN THE SALE AREA. SINCE TANGFELDT'S PRICE FOR THIS TYPE OF TIMBER WAS SO HIGH AND BECAUSE TANGFELDT DID NOT REMOVE SUCH A HIGH PROPORTION OF THE WESTERN HEMLOCK, WE BELIEVE THAT THERE WAS JUSTIFICATION FOR THE FOREST SERVICE'S FEAR THAT TANGFELDT WOULD AGAIN FAIL TO COMPLETE THE CONTRACT IN A TIMELY FASHION IF IT WERE AWARDED THE RESALE CONTRACT. IN ANY EVENT, WE FIND THAT THERE ARE NO MAJOR DISTINGUISHING FACTORS BETWEEN THE PRESENT CASE AND THE SITUATION PRESENTED TO THE COURT IN SILLER BROTHERS.

IN SILLER BROTHERS, THE COURT CONSIDERED OUR PRB UNIFORMS, INC., RULE AND EVEN NOTED OUR RECOMMENDATION IN B-195497 THAT THE FOREST SERVICE CONSIDER CHANGING ITS REGULATIONS CONCERNING BIDS FROM DEFAULTED PURCHASERS. THE COURT STATED THAT:

"SINCE THE FOREST SERVICE'S REGULATION PERMITS A DEFAULTING CONTRACTOR TO REBID IF THE SERVICE DETERMINES THAT ACCEPTANCE OF HIS BID WOULD BE IN THE PUBLIC INTEREST, THE COMPTROLLER GENERAL MIGHT UPHOLD THE EXCLUSION OF THE DEFAULTED BIDDER FROM REBIDDING IN THIS CASE."

THE COURT CONCLUDED THAT THE FOREST SERVICE'S REGULATION WAS VALID AND DID NOT VIOLATE THE GOVERNMENT'S DUTY TO MITIGATE DAMAGES DUE TO THE DEFAULT. FURTHERMORE, THE SILLER BROTHERS COURT HELD THAT THE PROVISIONS OF 15 U.S.C. SEC. 637(B)(7)(A) (SUPP. I, 1977), WHICH GRANTED THE SBA CONCLUSIVE AUTHORITY TO DETERMINE WHETHER SMALL BUSINESSES ARE RESPONSIBLE IN SALES OF GOVERNMENT PROPERTY, DID NOT MANDATE REFERRAL OF EXCLUSION OF A SMALL BUSINESS BIDDER (BECAUSE OF DEFAULT IN ACCORD WITH 36 C.F.R. SEC. 223.5(H)(1)) TO THE SBA. THE COURT STATED THAT THE FOREST SERVICE REGULATION DID NOT DISCRIMINATE AGAINST SMALL BUSINESS BIDDERS AND, THEREFORE, THE 1977 AMENDMENTS TO THE SMALL BUSINESS ACT WERE NOT INTENDED TO COVER THE SITUATION OF THE RELETTING OF A CONTRACT AFTER A SMALL BUSINESS PURCHASER HAD DEFAULTED IN PERFORMANCE.

IN VIEW OF THE SILLER BROTHERS HOLDING, WE HEREIN MODIFY OUR RECOMMENDATION IN B-195497 SO THAT WHERE, AS HERE, A SALE OF GOVERNMENT PROPERTY BY AN ORAL AUCTION PROCESS IS INVOLVED, DEFAULTED BIDDERS MAY BE BARRED FROM PARTICIPATING. HOWEVER, WE BELIEVE IT IS ESSENTIAL THAT IN OTHER CIRCUMSTANCES, BIDS BY DEFAULTED PURCHASERS BE ALLOWED WHERE THE PUBLIC INTEREST WILL BE BETTER SERVED. IN THIS CASE, THE FOREST SERVICE REGULATION CONTAINED SUCH A PROVISION.

EVEN THOUGH TANGFELDT WAS NEVER TERMINATED FOR DEFAULT, THE REGULATION DID NOT REQUIRE SUCH ACTION; ALL THAT WAS REQUIRED IS THAT THE RESALE WAS BECAUSE OF THE FAILURE OF TANGFELDT TO COMPLETE THE ORIGINAL CONTRACT BY THE TERMINATION DATE. WE FIND THAT THE FOREST SERVICE PROPERLY APPLIED THE REGULATION BECAUSE TANGFELDT HAD NOT REMOVED A CONSIDERABLE AMOUNT OF TIMBER AND BECAUSE, IN THE FOREST SERVICE'S VIEW, THAT TIMBER WAS VERY LIKELY TO DETERIORATE RAPIDLY. WE ALSO CONCLUDE THAT, IN VIEW OF THE EXPRESS FINDING IN SILLER BROTHERS, THAT 15 U.S.C. SEC. 637(B)(7)(A) DID NOT COVER THIS SITUATION, REFERRAL TO THE SBA FOR CERTIFICATE OF COMPETENCY REVIEW WAS NOT REQUIRED.

ACCORDINGLY, THE PROTEST IS DENIED.

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