B-124989, NOV. 8, 1955

B-124989, NOV. 8, 1955

TO MR. GARTH H. RUDD, AUTHORIZED CERTIFYING OFFICER, DEPARTMENT OF THE INTERIOR:

REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 19, 1955, REQUESTING RECONSIDERATION OF OUR DECISION TO YOU OF SEPTEMBER 22, 1955, CONCERNING THE PROPRIETY OF CERTIFYING A VOUCHER IN THE AMOUNT OF $198,781.10, STATED IN FAVOR OF THE LONG-BELL LUMBER COMPANY. THE VOUCHER COVERS A PROPOSED PAYMENT OF $199,000, LESS $218.90 FOR U.S. REVENUE STAMPS, UNDER THE PROVISIONS OF SECTION 2 OF ARTICLE III OF AN AGREEMENT DATED AUGUST 30, 1954, BETWEEN THE GOVERNMENT AND THE PAYEE.

THAT AGREEMENT PROVIDED FOR CONSTRUCTION BY THE GOVERNMENT OF A FEDERAL ACCESS ROAD IN THE VICINITY OF THE SIUSLAW RIVER DRAINAGE IN THE REVESTED OREGON AND CALIFORNIA RAILROAD LANDS, IN ORDER TO MAKE POSSIBLE THE SUSTAINED YIELD TIMBER MANAGEMENT OF THE GOVERNMENT'S LANDS IN THAT AREA. THE LONG-BELL LUMBER COMPANY, AS THE OWNER OF THE GREATER PART OF THE PRIVATELY-OWNED TIMBER LAND IN THE AREA, AGREED TO PERMIT THE INCORPORATION INTO THE PROJECT OF CERTAIN ACCESS ROADS PREVIOUSLY CONSTRUCTED BY IT, AND TO GRANT PERPETUAL EASEMENTS AND RIGHTS OF WAY OVER ITS LANDS FOR THE ADDITIONAL CONSTRUCTION, RECEIVING ON ITS PART PERPETUAL RIGHTS TO USE THE PROJECTED ROAD. THE AGREEMENT FURTHER PROVIDED FOR AMORTIZATION OF AN AGREED PORTION OF THE COST OF THE ROAD (INCLUDING THE EXPENSES OF RIGHT-OF-WAY AND ROAD ACQUISITIONS) BY THE PAYMENT OF USE FEES BY THE COMPANY, AND FOR THE SHARING OF ROAD MAINTENANCE COSTS BY THE GOVERNMENT, THE COMPANY, AND OTHER AUTHORIZED USERS IN PROPORTION TO THE QUANTITY OF LOGS HAULED.

THE GOVERNMENT HAD PREVIOUSLY ACQUIRED THE RIGHT TO USE THE ROADS CONTROLLED BY THE LONG-BELL LUMBER COMPANY UNDER THE TERMS OF AN AGREEMENT DATED APRIL 8, 1952, WHICH WAS MADE SUBJECT TO AND IN ACCORDANCE WITH APPLICABLE REGULATIONS OF THE DEPARTMENT OF THE INTERIOR (43 CFR, SECTIONS 115.154 TO 115.179). AS REQUIRED BY PARAGRAPH (A) (5), SECTION 115.174 OF THE REGULATIONS, THAT AGREEMENT CONTAINED THE STIPULATION BY THE COMPANY THAT, IN THE EVENT OF ACQUISITION BY THE GOVERNMENT OF ANY INTEREST IN LAND OCCUPIED BY A ROAD WHICH THE GOVERNMENT HAD ACQUIRED A RIGHT TO USE IN CONSIDERATION OF THE RIGHTS GRANTED TO THE COMPANY, IT WOULD "WAIVE COMPENSATION FOR THE VALUE OF THE ROAD EQUIVALENT TO THE PROPORTION THAT THE AMOUNT THE UNITED STATES HAS CONTRIBUTED BEARS TO THE TOTAL ACTUAL COST OF CONSTRUCTION OF THE ROAD," SUCH CONTRIBUTION TO INCLUDE ANY ALLOWANCE MADE BY THE UNITED STATES TO THE PERMITTEE IN ANY TIMBER SALES CONTRACT FOR ROAD COST. HOWEVER, UNDER ARTICLE III, PARAGRAPH 2, OF THE AGREEMENT OF AUGUST 30, 1954, THE GOVERNMENT AGREED TO PAY TO THE LONG- BELL LUMBER COMPANY THE RESPECTIVE AMOUNTS OF $199,000 AND $5,400, STATED TO BE THE ESTIMATED REPLACEMENT COSTS OF THE "LOWER SIUSLAW ROAD" SEGMENT AND THE "ESMOND CREEK-SIUSLAW ROAD" SEGMENT OF THE COMPANY'S ROADS TO BE INCORPORATED INTO THE FEDERAL ROAD.

IN OUR DECISION OF SEPTEMBER 22, 1955, WE HELD THAT REPORTED ALLOWANCES, TOTALING THE SUM OF $9,141.10, WERE PROPERLY FOR DEDUCTION UNDER THE PROVISIONS OF THE AGREEMENT OF APRIL 8, 1952, AND THE CITED REGULATION. YOU WERE FURTHER ADVISED THAT THE VOUCHER SUBMITTED SHOULD NOT BE CERTIFIED IN THE ABSENCE OF ANY INDICATION THAT THE PAYMENTS PROVIDED FOR BY PARAGRAPH 2 OF ARTICLE III OF THE CONTRACT OF AUGUST 30, 1954, WERE DETERMINED TO REPRESENT THE COST OF THE ROADS INVOLVED LESS THE AMOUNTS OF ALL DIRECT OR INDIRECT GOVERNMENT CONTRIBUTIONS PREVIOUSLY MADE.

YOU NOW STATE THAT A MISTAKE WAS MADE IN YOUR PRIOR SUBMISSION IN REPORTING THAT THE THREE TIMBER SALE CONTRACTS WITH THE LONG-BELL LUMBER COMPANY HAD PROVIDED FOR ROAD ALLOWANCES. FROM THE CONTRACTS AND APPRAISALS NOW SUBMITTED IT APPEARS THAT THE AMOUNT OF $9,141.10 REPRESENTED NO MORE THAN SO-CALLED ROAD ALLOWANCES SET FORTH IN TIMBER APPRAISAL REPORTS, WHICH WERE PREPARED SOLELY FOR THE INFORMATION AND GUIDANCE OF THE GOVERNMENT CONTRACTING OFFICIALS IN ESTABLISHING MINIMUM SALES PRICES FOR THE TIMBER OFFERED FOR SALE. AS IMPLIED IN YOUR LETTER, THE TIMBER SALE CONTRACTS MUST BE PRESUMED TO CONTAIN THE ENTIRE AGREEMENTS OF THE PARTIES. SINCE IT APPEARS THAT THE APPRAISALS WERE NOT INCORPORATED OR IN ANY WAY REFERRED TO IN THE CONTRACTS, AND THAT THE CONTRACT PRICES WERE SUBSTANTIALLY IN EXCESS OF THE APPRAISED VALUES, AND THAT NO ROAD ALLOWANCES WERE STATED IN THE CONTRACTS, WE MUST NOW CONCLUDE THAT THE ALLOWANCES INCLUDED IN THE APPRAISALS ARE TOO REMOTE TO PERMIT OF THEIR USE AS THE BASIS FOR DEDUCTIONS UNDER THE TERMS OF THE REGULATION. IT IS ENTIRELY POSSIBLE THAT, IF THE LONG-BELL LUMBER COMPANY HAD AGREED TO THE INCLUSION OF ROAD ALLOWANCE PROVISIONS IN THE CONTRACTS COVERING PURCHASES OF TIMBER FROM THE GOVERNMENT, THE PRICES WHICH IT OFFERED TO PAY FOR THE TIMBER WOULD HAVE BEEN LESS THAN AS STIPULATED IN THE THREE CONTRACTS OF SALE.

WITH REFERENCE TO THE USE OF ESTIMATED REPLACEMENT COSTS IN DETERMINING THE AMOUNTS PAYABLE FOR THE EASEMENTS COVERING THE LOWER SIUSLAW ROAD AND THE ESMOND CREEK-SIUSLAW ROAD, YOU REFER TO THE FACT THAT PARAGRAPH (A) (5), SECTION 115.174, OF THE CITED REGULATIONS PROVIDES FOR WAIVER OF COMPENSATION "FOR THE VALUE OF THE ROAD, EQUIVALENT TO THE PROPORTION THAT THE AMOUNT THE UNITED STATES HAS CONTRIBUTED BEARS TO THE ACTUAL COST OF CONSTRUCTION OF THE ROAD.' YOU STATE THAT BY REASON OF INCREASED COST OF CONSTRUCTION IN RECENT YEARS THE TERM "VALUE OF THE ROAD" HAS BEEN CONSTRUED TO MEAN REPLACEMENT COST VALUE RATHER THAN CONSTRUCTION COST VALUE. FURTHER, BECAUSE REPLACEMENT COST VALUE IS USED AS A STANDARD FOR COMPUTING AMORTIZATION IN OTHER SECTIONS OF THE REGULATIONS, THE VIEW IS EXPRESSED THAT THIS STANDARD SHOULD ALSO BE USED TO DETERMINE THE VALUE OF A ROAD WHICH IS BEING PURCHASED BY THE GOVERNMENT.

THE SUGGESTION IN OUR DECISION THAT PAYMENT FOR THE ROADS IN QUESTION SHOULD BE BASED UPON COST RATHER THAN REPLACEMENT VALUE WAS BASED PRIMARILY UPON THE LANGUAGE USED IN PARAGRAPH (F) OF SECTION 115.155 OF THE REGULATIONS. HOWEVER, UPON FURTHER CONSIDERATION, WE CONCLUDE THAT THE MORE SPECIFIC PROVISIONS OF SECTION 115.174 (A) (5) ARE OF GREATER WEIGHT, AND AGREE THAT THE ,VALUE" OF A ROAD WHICH THE GOVERNMENT PROPOSES TO PURCHASE WOULD SEEM REASONABLE FOR DETERMINATION ON THE BASIS OF CURRENT CONSTRUCTION COSTS AND THE CONDITION OF THE ROAD AT THE TIME OF ITS ACQUISITION BY THE GOVERNMENT. WE WERE ADVISED AT A RECENT CONFERENCE WITH REPRESENTATIVES OF YOUR DEPARTMENT THAT THE LOWER SIUSLAW ROAD IS IN GOOD CONDITION AND THAT THIS PROPOSED SEGMENT OF THE NEW FEDERAL ROAD WILL APPARENTLY BE USED WITHOUT THE NECESSITY FOR ANY IMPROVEMENT. ADDITION, IT APPEARS THAT UNDER THE AGREEMENT OF AUGUST 30, 1954, THE GOVERNMENT IS ACQUIRING MORE EXTENSIVE RIGHTS THAN IT WOULD BE STRICTLY ENTITLED TO UNDER THE PRIOR PERMIT AGREEMENTS WITH THE LONG BELL LUMBER COMPANY, WHICH IT WOULD, EXCEPT FOR THE AGREEMENT, HAVE TO ACQUIRE BY CONDEMNATION.

ACCORDINGLY, ON THE PRESENT RECORD, YOU ARE ADVISED THAT THE VOUCHER FOR $198,781.10 MAY BE CERTIFIED, IF OTHERWISE CORRECT. THE DOCUMENTS FORWARDED WITH YOUR LETTER ARE RETURNED HEREWITH.