B-154229, AUG. 24, 1965

TO COMPASS AND FRANKLIN:

REFERENCE IS MADE TO YOUR LETTERS DATED AUGUST 13, NOVEMBER 3, AND NOVEMBER 17, 1964, WITH ENCLOSURES, REQUESTING IN BEHALF OF LATIMER AND SONS, INC., RECONSIDERATION AND REVIEW OF GENERAL ACCOUNTING OFFICE SETTLEMENT CERTIFICATE DATED AUGUST 6, 1964, WHICH DISALLOWED THE CLAIM OF LATIMER AND SONS, INC., IN THE AMOUNT OF $81,958.59 REPRESENTING THE DIFFERENCE BETWEEN THE STATED ROAD CONSTRUCTION COSTS OF $232,969.38 AND THE AMOUNT OF $151,010.79 IN AMORTIZATION FOR ROAD COSTS UNDER THE TERMS OF TIMBER SALE CONTRACT NO. 12-11-036-37854, EXECUTED JANUARY 28, 1959, WITH THE UNITED STATES DEPARTMENT OF AGRICULTURE, FOREST SERVICE.

IT APPEARS THAT ON NOVEMBER 26, 1958, THE FOREST SUPERVISOR, AT VANCOUVER, WASHINGTON, ISSUED A PROSPECTUS FOR THE PROPOSED WEST FOSSILAUCTION TIMBER SALE. AT OR ABOUT THE SAME TIME THERE WAS PUBLISHED IN A LOCAL NEWSPAPER OF GENERAL CIRCULATION, A TIMBER SALE ADVERTISEMENT GIVING INFORMATION AS TO THE DATE, TIME AND PLACE OF THE AUCTION SALE; ESTIMATED VOLUME BY SPECIES; MINIMUM ACCEPTABLE BID PRICE BY SPECIES; AND OTHER PERTINENT INFORMATION. THE OPENING PARAGRAPH OF THE PROSPECTUS STATED AS FOLLOWS:

"THIS PROSPECTUS IS FURNISHED TO YOU IN ORDER TO ACQUAINT YOU WITH THE PRINCIPAL REQUIREMENTS AND OUTSTANDING FEATURES OF THE TIMBER SALE OFFERING. NO GUARANTEE IS MADE OF ESTIMATED VOLUMES, TIMBER QUALITY, COSTS OF LOGGING OR ROADBUILDING MENTIONED HEREIN. EACH PURCHASER MUST DETERMINE FOR HIMSELF WHETHER OR NOT HE WISHES TO BUY THE TIMBER AT OR ABOVE THE APPRAISED PRICES. BY THE SUBMISSION OF A BID, THE PURCHASER ASSUMES FULL RESPONSIBILITY FOR THE SUCCESS OF THE OPERATION UNDER THE BID PRICES AND OTHER CONDITIONS OF THE CONTRACT. THE ULTIMATE AUTHORITY AS TO SALE REQUIREMENTS WILL BE THE TIMBER SALE CONTRACT, WHICH MUST BE EXECUTED SUBSEQUENT TO AWARD OF THE SALE TO THE HIGH BIDDER.'

THE PROSPECTUS ALSO PROVIDED, WITH REFERENCE TO DEVELOPMENT COSTS, AS FOLLOWS:

"4. ESTIMATE OF DEVELOPMENT COSTS. THE PURCHASER WILL BE REQUIRED TO CONSTRUCT APPROXIMATELY 2.8 MILES OF CLASS SN-16 TRUCK ROAD, 1.04 MILES OF CLASS SN-18 TRUCK ROAD. SURFACE 9 MILES OF CLASS DH-26 TRUCK ROAD AND INSTALL 2 MAJOR CULVERTS IN THE SN-18 ROAD (MATERIAL TO BE FURNISHED BY THE FOREST SERVICE) IN ORDER TO OPERATE THE SALE.

"ESTIMATED DEVELOPMENT COSTS FOR THE ABOVE CONSTRUCTION ARE APPROXIMATELY $174,400.00 NOT INCLUDING PROFIT OR RIGHT-OF-WAY LOGGING COST. THIS ESTIMATE ALSO IS NOT GUARANTEED IN ANY WAY.'

AT THE SCHEDULED DATE OF THE WEST FOSSIL SALE, JANUARY 5, 1959, NO BIDS WERE OFFERED, AND CONSEQUENTLY NO SALE WAS MADE. THEREAFTER LATIMER EXPRESSED AN INTEREST IN THE SALE AND ENTERED INTO NEGOTIATIONS WITH THE FOREST SERVICE FOR A TIMBER SALE CONTRACT FOR THE WEST FOSSIL SITE.

ON JANUARY 28, 1959, LATIMER AND THE UNITED STATES, THROUGH THE FOREST SERVICE, ENTERED INTO TIMBER SALE CONTRACT NO. 12-11-036-37854. UNDER THE CONTRACT, AS STATED IN SECTION I OF ITS GENERAL TERMS, THE FOREST SERVICE AGREED TO PERMIT THE PURCHASERS, AND THE PURCHASERS AGREED, TO CUT THE TIMBER INCLUDED UNDER THE CONTRACT AND THE FOREST SERVICE AGREED TO SELL AND THE PURCHASER AGREED TO BUY AND REMOVE A CERTAIN QUANTITY OF TIMBER, AS DETERMINED BY PROVISIONS OF THE CONTRACT, FROM A DESIGNATED AREA (WEST FOSSIL RANGE) OF THE GIFFORD PINCHOT NATIONAL FOREST, COWLITZ COUNTY, WASHINGTON. TO SECURE ACCESS TO THE TIMBER SALE AREA THE CONTRACT PROVIDED FOR THE CONSTRUCTION OF SPECIFIED ROADS. CONSTRUCTION OF ROAD ACCESS COMMENCED IN AUGUST OF 1959. SUBSEQUENTLY, IT DEVELOPED THAT THE SUBSOIL OF THE ROADBED WAS NOT ADEQUATE TO SUPPORT A ROAD CONSTRUCTED IN ACCORDANCE WITH THE CONTRACT SPECIFICATIONS. THIS NECESSITATED THE PURCHASER'S REINFORCING THE SUBBASE IN ORDER TO SECURE A STABLE FOUNDATION FOR THE ROAD. WHEN THIS INADEQUACY BECAME APPARENT, LATIMER NOTIFIED THE REGIONAL FORESTER WHOSE REPRESENTATIVE INVESTIGATED THE SITUATION. LATIMER WAS TOLD TO PROCEED WITH ROAD CONSTRUCTION AND THAT THE ADDITIONAL COST WOULD BE TAKEN CARE OF IN RATE REDETERMINATION. THE TOTAL COST OF ROAD CONSTRUCTION, AS STATED BY LATIMER, WHICH WAS ESTIMATED IN THE CONTRACT TO BE $174,432.00, AMOUNTED TO $232,969.38, THE PRINCIPAL CAUSE OF THE INCREASED COST BEING THE NEED TO STABILIZE THE SUBBASE. AFTER LOGGING OPERATIONS COMMENCED IN NOVEMBER 1959, IT DEVELOPED THAT DUE TO A LATENT INSECT INFESTATION THE QUANTITY OF MERCHANTABLE TIMBER ESTIMATED IN THE CONTRACT AS 23,700 M. BOARD FEET WOULD NOT BE CUT AND REMOVED. THE ACTUAL QUANTITY OF MERCHANTABLE TIMBER LOGGED WAS 3,182,240 BOARD FEET LESS THAN THE ESTIMATED QUANTITY. AS A RESULT OF THE INCREASED ROAD COST AND TIMBER VOLUME SHORTAGE, ONLY $151,010.79 OF ROAD COST WAS AMORTIZED AGAINST THE STUMPAGE RATES.

IT IS CONTENDED THAT LATIMER RELIED ON THE STATEMENT IN THE PROSPECTUS THAT THE "DEFECT IN THE TIMBER IS AVERAGE AS COMPARED WITH TIMBER IN THE GENERAL AREA" AND THAT THE LATENT INFESTATION WHICH WAS ALMOST IMPOSSIBLE TO DETECT UNTIL THE TIMBER WAS FELLED, WAS THE PRIME CAUSE OF THE UNDERCUT, AND MADE IT IMPOSSIBLE FOR LATIMER TO RECOVER BY AMORTIZATION EVEN THE BASIC ESTIMATED ACCESS ROAD COSTS. BY REASON OF THIS ALLEGED MISREPRESENTATION, LATIMER REQUESTS MODIFICATION OF THAT PART OF THE CONTRACT SETTING A DATE FOR RATE REDETERMINATION BY ADVANCING THE DATE STATED IN THE CONTRACT FROM JUNE 1, 1961, TO SEPTEMBER 27, 1960, THE DATE WHEN THE SHORTAGE OF MERCHANTABLE TIMBER BECAME APPARENT. IN THE ALTERNATIVE REFORMATION OF THE CONTRACT IS SOUGHT ON THE BASIS OF MUTUAL MISTAKE OF FACT REGARDING THE ROAD SUBBASE.

THE ADMINISTRATIVE OFFICE DENIED THE REQUEST FOR MODIFICATION OF THE CONTRACT ON THE BASIS INDICATED, STATING THAT IT HAD NO AUTHORITY TO ADVANCE THE REDETERMINATION DATE, OR TO REDUCE THE STUMPAGE RATE BELOW THE STATED MINIMUM OR BASE RATE SHOWN IN THE CONTRACT. WE AGREE THAT THE ADMINISTRATIVE AGENCY COULD NOT MODIFY THE CONTRACT IN ANY MANNER WHICH WOULD HAVE A NET RESULT OF REDUCING THE STUMPAGE RATE OF TIMBER FELLED TO A RATE BELOW THE MINIMUM OR BASE RATE ESTABLISHED BY THE CONTRACT. SINCE IT APPEARS THAT LATIMER HAS PAID ONLY THE BASE RATE FOR TIMBER ACTUALLY CUT, THE ADMINISTRATIVE CONCLUSIONS ARE PROPER. IT MAY BE ADDED THAT THE GOVERNMENT MADE NO REPRESENTATIONS, BUT ON THE CONTRARY, SPECIFICALLY FOREWARNED PROSPECTIVE BIDDERS THAT THE GOVERNMENT'S ESTIMATES WERE ONLY ESTIMATES, AND THAT THE PROSPECTIVE BIDDERS WERE FOREWARNED TO MAKE THEIR OWN SURVEYS AND ESTIMATES PRIOR TO MAKING AN OFFER. THE RECORD INDICATES THAT LATIMER MADE ITS OWN SURVEYS AND ESTIMATES AND NEGOTIATED WITH THE GOVERNMENT BEFORE SIGNING A MUTUALLY SATISFACTORY CONTRACT. HENCE THE RISK OF AN UNDERCUT OF TIMBER OR EXCESS COST OF CONSTRUCTING A ROAD IN ACCORDANCE WITH CONTRACT SPECIFICATIONS FELL ON THE PURCHASER, WITH, OF COURSE, THE CONDITION REGARDING REDETERMINATION OF COSTS AT THE END OF THREE YEARS OF THE CONTRACT PERIOD. THE ABOVE DOES NOT CONSIDER THE COST OF CONSTRUCTING THE ROAD SUBBASE WHICH IS DISCUSSED BELOW.

AS TO THE REQUEST FOR REFORMATION OF THE CONTRACT, WE ARE OF THE OPINION THAT SUCH ACTION MUST BE DENIED. THE RULE OF LAW IS THAT WHERE, BY REASON OF MISTAKE, A CONTRACT AS REDUCED TO WRITING DOES NOT REFLECT THE ACTUAL AGREEMENT OF THE PARTIES, THE WRITTEN INSTRUMENT MAY BE REFORMED IF IT CAN BE ESTABLISHED WHAT THE ACTUAL AGREEMENT WAS. ACKERLIND V. UNITED STATES, 240 U.S. 531; 39 COMP. GEN. 363, 365. IN THE PRESENT MATTER WE FIND NO EVIDENCE THAT THE CONTRACT AS WRITTEN IS NOT THE CONTRACT INTENDED TO BE SIGNED BY THE PARTIES AND THAT IT DOES NOT CONTAIN THE COMPLETE AGREEMENT. THE CONTRACT WAS A TIMBER SALES CONTRACT AND NOT A ROAD CONSTRUCTION CONTRACT. THE ROAD CONSTRUCTION PROVISIONS ARE ONLY INCIDENTAL TO THE PRIME PURPOSE--- TIMBER CUTTING. HENCE WE FIND NO BASIS FOR REFORMATION OF THE CONTRACT.

THE MATTER OF THE CONSTRUCTION OF A SUBBASE FOR THE CONTRACT REQUIRED ROAD, HOWEVER, REQUIRES SEPARATE CONSIDERATION. NEITHER PARTY TO THE CONTRACT KNEW THAT A SUBBASE WOULD BE REQUIRED IN ORDER TO SUPPORT THE CONTRACT SPECIFIED ROADWAY. HENCE, WE ARE OF THE OPINION THAT THE COST OF THE SUBBASE SHOULD BE CONSIDERED SEPARATE AND APART FROM THE CONTRACT.

IT IS NOT QUESTIONED THAT LATIMER IMMEDIATELY ON DISCOVERING THE NATURE OF THE SOIL OF THE PROPOSED ROADBED ADVISED APPROPRIATE GOVERNMENT AUTHORITY THAT A SUBBASE WAS REQUIRED. NOR IS THERE ANY QUESTION THAT LATIMER WAS ADVISED TO PROCEED WITH CONSTRUCTION OF THE SUBBASE. PAYMENT FOR SUCH ADDITIONAL WORK BY THE ADMINISTRATIVE AGENCY WAS FORECLOSED BY THE TERMS OF THE CONTRACT AND THE PROHIBITION AGAINST A NET RETURN TO THE GOVERNMENT OF LESS THAN THE BASE RATE FOR TIMBER LOGGED. NEVERTHELESS, A BENEFIT RESULTED TO THE GOVERNMENT BY THE CONSTRUCTION OF THE SUBBASE. THEREFORE ARE OF THE OPINION THAT A CLAIM FOR AMOUNTS EXPENDED FOR CONSTRUCTION OF THE ROAD SUBBASE SHOULD BE CONSIDERED ON A QUANTUM MERUIT BASIS, LIMITED TO THE DIFFERENCE BETWEEN THE AMOUNT STATED TO HAVE BEEN ACTUALLY EXPENDED FOR THE COMPLETED ROADWAY AND THE AMOUNT ESTIMATED IN THE CONTRACT AS THE COST OF THE ROAD; THAT IS, THE DIFFERENCE BETWEEN $232,969.38 AND $174,400.00. IN THIS CONNECTION IT IS URGED IN BEHALF OF LATIMER THAT THE AMOUNTS EXPENDED BY LATIMER HAVE NOT BEEN QUESTIONED BY THE ADMINISTRATIVE AGENCY OR DEPARTMENT. WE MUST POINT OUT THAT THERE WAS NO OCCASION TO QUESTION THE FIGURES SINCE, AS INDICATED ABOVE, PAYMENT COULD NOT BE MADE UNDER THE CONTRACT. SETTLEMENT, HOWEVER, ON A QUANTUM MERUIT BASIS MAY BE MADE BY OUR OFFICE. YOU ARE THEREFORE ADVISED THAT IF LATIMER WILL REVISE ITS CLAIM HERE FOR REIMBURSEMENT OF AMOUNTS EXPENDED IN CONSTRUCTION OF THE ROAD SUBBASE AND LIMIT ITS CLAIM AS INDICATED ABOVE, FURTHER CONSIDERATION WILL BE GIVEN THE MATTER. IF THE CLAIM IS REVISED, IT WILL BE NECESSARY TO SUBSTANTIATE THE AMOUNTS EXPENDED WITH APPROPRIATE ACCOUNTING DOCUMENTATION.