B-157954, JUL. 11, 1966

B-157954, JUL. 11, 1966

TO THE SECRETARY OF AGRICULTURE:

BY LETTER DATED MAY 27, 1966, WITH ENCLOSURES, ASSISTANT SECRETARY JOSEPH M. ROBERTSON REQUESTED OUR DECISION AS TO WHETHER AIR TANKER SERVICE CONTRACT NO. 27-0826 WITH WENAIRCO, INC., AS REVISED JANUARY 28, 1966, AND SEVEN OTHER SIMILAR CONTRACTS, FOR THE CONTROL AND SUPPRESSION OF FOREST AND RANGE FIRES MAY BE MODIFIED TO INCLUDE REVISED GUARANTEES AND FLIGHT- HOUR RATES ESTABLISHED BY THE FOREST SERVICE IN MARCH 1966.

IT IS REPORTED THAT THE WENAIRCO CONTRACT AS REVISED PROVIDED FOR THE FURNISHING OF AIR TANKER SERVICE FOR THE PERIOD JANUARY 1, 1966, TO DECEMBER 31, 1966, AT PRESCRIBED PER HOUR RATES FOR ORDERED AIR TANKER FLIGHTS. THE CONTRACT FURTHER PROVIDED THAT A MINIMUM PAYMENT OF $39,700 WOULD BE GUARANTEED FOR THE AVAILABILITY OF THE BASIC AIR TANKERS, BUT THAT ALL PAYMENTS FOR ORDERED FLIGHTS WOULD REDUCE THE TOTAL GUARANTEED AMOUNT BY THE EARNINGS AT THE APPLICABLE FLIGHT-HOUR RATE IN EFFECT.

THE ASSISTANT SECRETARY ADVISES THAT THE CALIFORNIA AIR TANKERS ASSOCIATION AND THE NATIONAL AIR TANKER ASSOCIATION PROTESTED AGAINST THE SETOFF OF FLIGHT PAYMENTS FROM THE GUARANTEED MINIMUMS SINCE THIS RESULTED IN AN INADEQUATE FINANCIAL RETURN TO AIR TANKER OPERATORS. AT A MEETING WITH THE FOREST SERVICE IN FEBRUARY 1966, THE ASSOCIATIONS PRESENTED COST FIGURES TO SUBSTANTIATE THEIR CONTENTION THAT THE GUARANTEES WERE INSUFFICIENT TO MEET THE CONTRACTOR'S DIRECT AIRCRAFT OPERATING COSTS. BASED UPON THESE COST FIGURES AND FOREST SERVICE STUDIES, IT WAS AGREED THAT THE GUARANTEES WERE UNREASONABLE OR NOT IN LINE WITH STATED POLICY--- TO PROVIDE BY CONTRACT SUCH AIR TANKER RATES AS WOULD ASSURE THE CONTINUITY OF A STRONG, EFFECTIVE AND RELIABLE FIRE ATTACK FORCE. THEREAFTER, ON MARCH 4, 1966, OR SUBSEQUENT TO THE RENEWAL OF THE WENAIRCO CONTRACT, REVISED CONTRACT FLIGHT RATES WERE ESTABLISHED BY THE FOREST SERVICE TO PROVIDE FOR A DAILY GUARANTEE RATE FOR EACH CATEGORY OF AIR TANKER TO ASSURE THE READY AVAILABILITY OF SUCH AIR TANKERS. UNDER THESE NEW RATES, THE DAILY GUARANTEES ARE FIRM AND ANY HOURS FLOWN ARE PAID FOR IN ADDITION TO THE GUARANTEE FOR AVAILABILITY. ALSO, UNDER THE NEW RATES, 5 HOURS OF TEST FLIGHTS ARE TO BE FURNISHED BY THE CONTRACTOR FOR EACH AIR TANKER AS PART OF THE GUARANTEE, WHEREAS, UNDER THE OLD RATE STRUCTURE, PAYMENT WAS MADE FOR FLIGHT-TEST HOURS. WE ARE ADVISED THAT AT LEAST 5 HOURS OF TEST FLYING DURING A 90-DAY PERIOD OF LOW-FIRE EXPECTANCY ARE USED TO CHECK AIRCRAFT OPERATIONS AND TO MAINTAIN PILOT PROFICIENCY DURING PERIODS WHEN AIRCRAFT ARE NOT FLOWN ON ORDERED MISSIONS.

SUBSEQUENT TO THE ESTABLISHMENT OF THE NEW RATES, IT WAS LEARNED THAT SEVEN OPERATOR-CONTRACTORS UNDER EIGHT SEPARATE CONTRACTS HAD RENEWED THEIR CONTRACTS AT THE OLD RATES AND GUARANTEES. WE ARE ADVISED THAT AT THE TIME OF RENEWAL, WENAIRCO PROTESTED THAT THE GUARANTEES WERE INADEQUATE AND THAT IT WAS OPERATING AT A LOSS AS EVIDENCED BY ITS OPERATING COST DATA. BUT THE CONTRACT WAS RENEWED AT THE OLD RATES AND GUARANTEE "WITH THE UNDERSTANDING THAT WENAIRCO WOULD MAKE AVAILABLE THEIR RECORDS TO A FOREST SERVICE ACCOUNTANT AND IF THE LOSS WOULD BE SUBSTANTIATED, CONSIDERATION WOULD BE GIVEN TO AN ADJUSTMENT IN THE GUARANTEE.'

THE ASSISTANT SECRETARY POINTS OUT THAT THE GUARANTEES WERE ESTABLISHED ON A SERVICEWIDE BASIS BECAUSE OF THE IMPRACTICABILITY OF NEGOTIATING A GUARANTEE ON AN INDIVIDUAL CONTRACT BASIS; AND THAT ABOUT 85 PERCENT OF THE CONTRACTORS WILL BE SUBJECT TO THE NEW RATES AND GUARANTEES AND THE REMAINDER (15 PERCENT) WILL STILL BE SUBJECT TO THE OLD RATES AND GUARANTEES IF ADJUSTMENT IS DENIED FOR THOSE SEVEN CONTRACTORS WHO HAVE EXECUTED CONTRACT RENEWALS. FURTHER, IT IS STATED THAT STANDARDIZATION OF GUARANTEES IS DESIRABLE SINCE CONTRACTORS ARE USED INTERREGIONALLY AS NEEDED DEPENDING UPON THE EXTENT OF FIRE OCCURRENCE; THAT UNDER ESTABLISHED FOREST SERVICE POLICY, IT WAS INTENDED THAT CONTINUOUS OPERATOR COST STUDIES WOULD BE MADE AND GUARANTEES ADJUSTED IN ACCORDANCE WITH FINDINGS AT THE TIME OF CONTRACT RENEWAL OR NEGOTIATION OF NEW CONTRACTS; AND THAT THE ONLY FIGURES OR AMOUNTS FOR NEGOTIATION ARE THE FLIGHT-HOUR RATES SINCE THE GUARANTEES ARE PREDETERMINED AND FIXED BY THE FOREST SERVICE.

THE FOREST SERVICE MADE AN ANALYSIS OF TYPICAL COSTS UNDER THE OLD RATE STRUCTURE AND THE NEW RATE STRUCTURE THAT REASONABLY ESTABLISHES THAT THE NEW RATE STRUCTURE COULD VERY POSSIBLY RESULT IN DIRECT SAVINGS TO THE GOVERNMENT--- EXCEPT IN THE CASE OF SMALL ENGINE AIRCRAFT--- WHEN 13 HOURS OR LESS OF FLIGHT HOURS ARE ORDERED DURING ANY 90-DAY PERIOD OF THE FIRE SEASON. THIS MAY BEST BE ILLUSTRATED BY THE FOLLOWING EXAMPLES:

CHART

"2-ENGINE 90-DAY PERIOD

OLD RATE

$190 PER DAY TIMES 90 DAYS $17,100

13 HRS. AT $375 PER HOUR (4,875)

GOVERNMENT WOULD PAY $17,100

(GOVERNMENT ALSO PAYS FOR

TEST FLYING.)

NEW RATE

$160 PER DAY TIMES 90 DAYS $14,400

13 HRS. AT $360 PER HOUR 4,320

$18,720

GOVERNMENT RECEIVES 5 HRS. FREE

TEST FLYING 5 TIMES $360 $-1,800

GOVERNMENT WOULD PAY $16,920

"4-ENGINE 90-DAY PERIOD

OLD RATE

$245 PER DAY TIMES 90 DAYS $22,050

11 HRS. AT $575 PER HOUR (6,325)

GOVERNMENT WOULD PAY $22,050

(GOVERNMENT ALSO PAYS FOR

TEST FLYING)

NEW RATE

$210 PER DAY TIMES 90 DAYS $18,900

11 HRS. AT $500 PER HOUR 5,500

GOVERNMENT RECEIVES 5 HRS. FREE $24,400

TEST FLYING 5 TIMES $500 -2,500

GOVERNMENT WOULD PAY $21,900

APPROXIMATELY 11 HOURS OR LESS RESULTS IN DIRECT SAVINGS TO THE

GOVERNMENT.

"SINGLE-ENGINE 90-DAY PERIOD

OLD RATE

$80 PER DAY TIMES 90 DAYS $ 7,200

GOVERNMENT WOULD PAY AS MINIMUM $ 7,200

NEW RATE

$110 PER DAY TIMES 90 DAYS 9,900

GOVERNMENT RECEIVES 5 HRS. FREE

TEST FLYING 5 TIMES $275 -1,375

GOVERNMENT WOULD PAY $ 8,525"

THE DIRECTOR OF THE DIVISION OF FIRE CONTROL, FOREST SERVICE, HAS DETERMINED IN THIS REGARD AS FOLLOWS:

"THE AIR TANKER CONTRACTING RATES AND PROCEDURES WERE REVISED TO ASSURE A STRONG, EFFECTIVE AND RELIABLE INITIAL AIR ATTACK FORCE TO DROP CHEMICAL ON FOREST FIRES TO HOLD THEM TO SMALL SIZE. PREVIOUS RATES AND PROCEDURES WOULD NOT ASSURE THIS. OPERATORS UNDER THE OLD RATES COULD NOT CONTINUE TO SUSTAIN LOSSES AND STAY IN BUSINESS. THERE WAS DANGER OF THE ENTIRE AIR ATTACK SYSTEM BEING WEAKENED AND EVENTUALLY DISINTEGRATING. THE NEW RATES MEAN OPERATORS CAN PUT THEIR EQUIPMENT IN SAFE, RELIABLE CONDITION TO DO HIGHLY EFFECTIVE DROPPING. THEY CAN HIRE THE BEST AVAILABLE PILOTS FOR THIS HIGHLY SKILLED JOB, AND CAN OBTAIN AND USE THE NECESSARY SPECIALIZED SUPPORT FACILITIES AND STAFF.

"THE FOREST SERVICE IS DEPENDENT ON COMMERCIAL AVIATION OPERATORS FOR AIR TANKER SERVICES IN DROPPING RETARDANTS FOR INITIAL ATTACK ON FOREST FIRES. THEIR USE RAPIDLY INCREASED, REACHING A PEAK IN 1961. THE HOURS OF USE FOR AIR TANKER SERVICES IS DIRECTLY RELATED TO THE SEVERITY OF THE FOREST FIRE SEASON. AS A RESULT OF LESS SEVERE FIRE SEASON THE LAST FEW YEARS, THE HOURS OF FLYING FOR THESE SERVICES HAS SIGNIFICANTLY DECREASED. A 1964 STUDY SHOWED THE NEED TO HAVE SUCH SERVICES AVAILABLE AND FURNISHED BY THE BEST OPERATORS. AIR TANKERS FROM OUR INITIAL ATTACK BASES USUALLY ARE THE FIRST ATTACK UNITS TO REACH ANY FIRE TO WHICH THEY ARE DISPATCHED. THE ORIGINAL PERFORMANCE IS EITHER EFFECTIVE OR IT IS USELESS. A SMALL FIRE WHICH MIGHT HAVE BEEN INEXPENSIVELY CONTROLLED BY A TIMELY AND EFFECTIVE AIR TANKER DROP CAN BECOME A LARGE, EXPENSIVE AND DAMAGING ONE. THE INDIRECT BENEFITS TO BE GAINED, SUCH AS SAVINGS IN COSTS OF FIGHTING A LARGE FIRE AND REDUCTION OF LOSS OF NATURAL RESOURCES, BY FAR OUTWEIGH THE DIRECT COSTS OF GUARANTEEING AVAILABILITY AND PAYING FOR FLIGHT HOURS.

"OF SPECIAL SIGNIFICANCE IS THE PROBABILITY OF DIRECT SAVINGS BY LOWER FLIGHT HOURS. A REVIEW OF DATA ON AVERAGE NUMBER OF FLIGHT HOURS PER AIRCRAFT DURING THE PAST FIVE YEARS SHOWS A DEFINITE TREND TO LESS FLIGHT HOURS REQUIRED PER AIRCRAFT. THE RECORDS ALSO SHOW A GREATER NUMBER OF REGIONS HAD FLIGHT-HOURS THAT WERE EITHER ESPECIALLY LOW OR ESPECIALLY HIGH. IN BOTH CASES THERE IS A DEFINITE SAVINGS IN DIRECT COSTS TO THE GOVERNMENT UNDER THE NEW RATE SCHEDULE. AS AN EXAMPLE, IN 1965 SIX OF THE NINE REGIONS SHOWED 2 TO 13 HOURS AVERAGE PER AIRCRAFT. IN COMPARING THE OLD AND NEW RATE SCHEDULES USING TWIN ENGINE AIRCRAFT, THE LOW BREAK-EVEN POINT WAS 13 HOURS. ANY FLIGHT HOURS OF LESS THAN 13 RESULTS IN A DIRECT DOLLAR SAVINGS TO THE GOVERNMENT UNDER THE NEW RATE SCHEDULE. CONTINUANCE OF THE STATISTICAL TREND INDICATES THE 1966 SEASON WILL REQUIRE EVEN LESS FLIGHT-HOURS PER AIRCRAFT. THIS WILL RESULT IN ADDITIONAL DIRECT SAVINGS TO THE GOVERNMENT. OUR NEGOTIATION SYSTEM IS INTENDED TO GET BETTER PERFORMANCE OF STOPPING FIRES WHILE SMALL WHICH IN TURN MEANS LESS TOTAL FLIGHT-HOURS.

"ON THE BASIS OF THE ABOVE DATA AND PROJECTION, USE OF THE NEW RATES SHOULD RESULT IN DIRECT SAVINGS TO THE GOVERNMENT FOR NEW CONTRACTS TO BE NEGOTIATED AS WELL AS THE FEW ALREADY EXECUTED.'

IT IS A BASIC PRINCIPLE OF GOVERNMENT CONTRACT LAW THAT AN OFFICER AUTHORIZED TO MAKE A CONTRACT FOR THE UNITED STATES HAS THE IMPLIED AUTHORITY TO MODIFY THE PROVISIONS OF THAT CONTRACT WHERE IT IS CLEARLY IN THE BEST INTERESTS OF THE UNITED STATES TO DO SO. BRANCH BANKING AND TRUST CO., ET AL. V. UNITED STATES, 120 CT.CL. 72; EZRA B. WHITMAN, ET AL. V. UNITED STATES, 124 CT.CL. 464. IT IS LIKEWISE A BASIC PRINCIPLE THAT WITHOUT A COMPENSATING BENEFIT TO THE UNITED STATES, OFFICERS OF THE GOVERNMENT HAVE NO AUTHORITY TO MODIFY EXISTING CONTRACTS OR TO SURRENDER OR WAIVE CONTRACT RIGHTS THAT HAVE VESTED IN THE GOVERNMENT. 40 COMP. GEN. 684; 44 ID. 746.

IT IS CLEAR FROM THE RECORD, HOWEVER, THAT WENAIRCO AGREED TO THE EXTENSION OF THE CONTRACT ON THE BASIS THAT ITS PREVIOUS CONTRACT LOSSES WOULD BE VERIFIED THROUGH AN AUDIT EXAMINATION OF ITS OPERATION COSTS AND, IF VERIFIED, CONSIDERATION WOULD BE GIVEN TO AN ADJUSTMENT IN THE GUARANTEE. ALSO, IT IS SHOWN THAT WENAIRCO'S PERFORMANCE UNDER ITS RENEWED CONTRACT FOR 1966 WOULD RESULT IN FURTHER FINANCIAL LOSS TO IT, BUT THAT WENAIRCO AGREED TO THE RENEWAL WITH THE REASONABLE EXPECTATION THAT THE FOREST SERVICE WOULD, IN SOME MANNER, ALLEVIATE THE CONTRACTOR'S CRITICAL FINANCIAL POSITION THAT WAS CREATED BY THE THEN-EXISTENT CONTRACT RATE STRUCTURE. IN THE LIGHT OF THIS BACKGROUND, IT IS INCONCEIVABLE THAT WENAIRCO WOULD DELIBERATELY AGREE TO AN EXTENSION OF ITS CONTRACT, KNOWING THAT FURTHER LOSSES WOULD DEFINITELY RESULT THEREFROM, UNLESS, AS A REASONABLY PRUDENT BUSINESS ORGANIZATION, IT HAD SOME BASIS TO EXPECT AN ADJUSTMENT IN THE GUARANTEE AT A LATER DATE WHEN ITS LOSSES WERE VERIFIED. IN THE CONTEXT OF THESE CIRCUMSTANCES, IT WOULD NOT BE UNREASONABLE TO CONCLUDE THAT THE GOVERNMENT INDUCED THE CONTRACTOR, ALBEIT INNOCENTLY AND IN GOOD FAITH, TO EXECUTE THE RENEWAL AGREEMENT AT THE EXISTING RATE STRUCTURE WITH THE UNDERSTANDING THAT, UPON AUDIT VERIFICATION OF HIS LOSSES UNDER THE EXISTING RATE STRUCTURE, PRICE ADJUSTMENT RELIEF WOULD BE EXTENDED TO THE CONTRACTOR.

IT IS WELL-ESTABLISHED POLICY THAT THE GOVERNMENT, AS A CONTRACTOR, MUST FOLLOW STANDARDS OF FAIR DEALING IN ITS RELATIONS WITH CONTRACTORS; THAT IS, THE GOVERNMENT MAY NOT PERSUADE A CONTRACTOR "BY FAIR WORDS AND PROMISES" THAT RELIEF FROM A "LOSS CONTRACT" SITUATION WILL BE ,CONSIDERED" IF HE SIGNS THE AGREEMENT AND THEN REFUSE TO EXTEND SUCH RELIEF BECAUSE HE IS BOUND BY HIS IMPROVIDENT CONTRACT. CF. EDMUND J. RAPPOLI COMPANY, INC. V. UNITED STATES, 98 CT.CL. 99; LANGE V. UNITED STATES, 120 F.2D 886. SEE, ALSO, ARNDT, PRESTON, CHAPIN, LAMB AND KEEN, INC. V. L-M MFG.CO., 163 F.SUPP. 406, AFFIRMED 262 F.2D 343.

IN ADDITION TO THE FOREGOING, WE FEEL THAT REFUSAL TO PERMIT MODIFICATION OF THE CONTRACTS WOULD NOT BE IN THE BEST INTERESTS OF THE GOVERNMENT EITHER FROM THE STANDPOINT OF ASSURING CONTINUOUS, EFFECTIVE AIR TANKER SERVICE OR FROM A MONETARY POINT OF VIEW WHEN FULL CONSIDERATION IS GIVEN TO THE FACT THAT THE INTEREST OF THE GOVERNMENT TO PROTECT ITS FORESTS FROM MULTIMILLION DOLLAR FIRES CAN BE BEST PRESERVED BY MAINTAINING THE FINANCIAL INTEGRITY OF ITS PRESENT AIR TANKER CONTRACTORS. ACCORDINGLY, WE WILL NOT OBJECT TO A MODIFICATION OF THE WENAIRCO CONTRACT, AND THE SEVEN OTHERS SIMILARLY AFFECTED, TO INCLUDE THE REVISED GUARANTEES AND FLIGHT-HOUR RATES HERETOFORE ESTABLISHED BY THE FOREST SERVICE FOR COUNTRY -WIDE APPLICATION.