B-159737, JUN. 19, 1967

B-159737, JUN. 19, 1967

TO MR. MICHAEL T. HENNESSY:

REFERENCE IS MADE TO YOUR LETTERS OF FEBRUARY 17 AND JUNE 1, 1967, AND TO THE CONFERENCES YOU HAVE HAD IN OUR OFFICE, CONCERNING THE REJECTION OF THE HI-RIDGE LUMBER COMPANY JUNE 1963 BID ON AN OFFERING FOR SALE BY THE FOREST SERVICE, DEPARTMENT OF AGRICULTURE, OF TIMBER IN THE WINDY PEAK AREA OF THE ROGUE RIVER NATIONAL FOREST.

SECTION 476 OF TITLE 16 OF THE U.S.C. PROVIDES FOR THE SALE OF TIMBER FROM THE NATIONAL FORESTS AT NO LESS THAN APPRAISED VALUE AFTER ADVERTISING.

A PROSPECTUS ISSUED BY THE FOREST SERVICE JUNE 3, 1963, OUTLINED THE PRINCIPAL REQUIREMENTS OF THE IMMEDIATE SALE. INCLUDED IN THE PROSPECTUS WAS A STATEMENT AS FOLLOWS:

"ROAD REQUIREMENTS: SECTION 10B OF THE CONTRACT WILL PROVIDE THAT THE PURCHASER SHALL CONSTRUCT 10.7 MILES OF SL ROADS.

"SURFACING SPECIFICATIONS APPLY TO 5.6 MILES AND WILL CONSIST OF 6 INCHES COMPACTED DEPTH OF CRUSHED ROCK.

"FOREST SERVICE UNGUARANTEED ESTIMATE OF TOTAL COST OF REQUIRED CONSTRUCTION IS $167,292.00. THIS FIGURE IS EXCLUSIVE OF COST OF CUTTING, LOGGING AND SLASH DISPOSAL OF MERCHANTABLE TIMBER FROM R/W AND EXCLUDING ANY MARGIN FOR PROFIT OR RISK ON CONSTRUCTION.

"THE FOREST SERVICE HAS SURVEYED, DESIGNED AND WILL FURNISH PLANS AND PROFILES FOR 10.7 MILES OF ROADS WHICH ARE PRESENTLY AVAILABLE FOR INSPECTION AND TITLE SHEETS LISTING ESTIMATED QUANTITIES.'

THE PROSPECTUS STATED THAT THE TIMBER SALE ADVERTISEMENT WAS ATTACHED TO IT. THE ADVERTISEMENT SPECIFIED THE MINIMUM BID PER THOUSAND BOARD FEET WHICH WOULD BE ACCEPTED FOR SUCH SPECIES OF TIMBER. IT STATED FURTHER:

"* * * THE STUMPAGE RATES PAYABLE FOR EACH SPECIES WILL BE INCREASED BY THE AMORTIZATION RATE IN EFFECT FOR THAT SPECIES WHOM THE UNAMORTIZED ESTIMATED COST OF THE MAIN HAUL ROADS HAS BEEN AMORTIZED BY TIMBER SCALED. THE UNAMORTIZED COST IS $167,292.00.' THEREAFTER FOLLOWED THE AMORTIZATION RATES PER THOUSAND BOARD FEET FOR EACH SPECIES OF TIMBER.

THE PROSPECTUS ALSO STATED THAT THE COMPLETE REQUIREMENTS OF THE SALE ARE CONTAINED IN THE TIMBER SALE CONTRACT AND THAT A COPY OF THE CONTRACT COULD BE EXAMINED AT THE FOREST SERVICE OFFICE. SECTION 10 OF THE CONTRACT PROVIDED:

"SECTION 10A. AUTHORIZATION

"1. THE PURCHASER IS AUTHORIZED TO CONSTRUCT AND MAINTAIN ON NATIONAL FOREST LANDS, ALL ROADS, BRIDGES, AND OTHER TRANSPORTATION FACILITIES NEEDED FOR THE CUTTING AND REMOVAL OF THE TIMBER INCLUDED IN THIS CONTRACT. AS USED THROUGHOUT SECTION 10,"CONSTRUCT" INCLUDES "RECONSTRUCT.'

"2. SUCH ROADS AND OTHER FACILITIES SHALL BE LOCATED, CONSTRUCTED, AND MAINTAINED IN ACCORDANCE WITH THE PROVISIONS AND SPECIFICATIONS HEREINAFTER SET FORTH OR ATTACHED HERETO AND, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED, SHALL REMAIN ON THE NATIONAL FOREST AND SHALL BE THE PROPERTY OF THE UNITED STATES. THE LOCATION AND DESIGN OF ALL SUCH ROADS AND FACILITIES SHALL BE APPROVED BY THE FOREST SERVICE BEFORE CONSTRUCTION IS STARTED.

"SECTION 10B. CONSTRUCTION OF PRINCIPAL TRUCK ROADS

"1. CONSTRUCTION BY THE PURCHASER OF THE ROADS LISTED IN THE TABULATION BELOW SHALL BE IN ACCORDANCE WITH THE APPROVED *PLANS AND *SPECIFICATIONS ATTACHED HERETO AND MADE A PART HEREOF.

NO. APPROX. DESIGN"ROAD NO. NAME

STATIONS STATIONS MI. CLASS

FROM TO 1914.1 HUTTON RIDGE 0 PLUS 00 295 PLUS 295.31 5.6 SL

31 1914 HUTTON RIDGE M.P. 0.0 M.P. 4.6 4.6 SL 47N81 SEIAD VALLEY M.PM 0.0 M.P. 0.5 0.5 SL" SPECIFICATIONS FOR ROAD CONSTRUCTION TO APPLY TO THE THREE DESIGNATED ROADS WERE ATTACHED TO THE CONTRACT.

THE TIMBER TO BE SOLD WAS APPRAISED ON THE PREMISE THAT IT COULD BE HAULED NORTH TO MEDFORD, OREGON. THEREFORE, THE ROADS DESIGNATED FOR CONSTRUCTION IN THE CONTRACT WERE THOSE LEADING FROM THE WINDY PEAK AREA TO MEDFORD.

APPARENTLY, HI-RIDGE LUMBER COMPANY, SITUATED IN THE OPPOSITE DIRECTION OF MEDFORD, OREGON, IN SEIAD, CALIFORNIA, HAD CONTACTED THE FOREST SERVICE REGIONAL OFFICE ORALLY AND IN WRITING ON A NUMBER OF OCCASIONS SINCE 1955 TO MAKE KNOWN ITS INTEREST IN PURCHASING TIMBER WHICH MIGHT BE OFFERED FOR SALE FROM THE GENERAL AREA OF WINDY PEAK. IT IS STATED THAT DESPITE THE INTEREST SHOWN IN THE TIMBER, IT DID NOT RECEIVE THE SALE PROSPECTUS UNTIL JUNE 13, 1963, WHEN IT MADE A SPECIFIC REQUEST UPON LEARNING THAT THE PROSPECTUS HAD BEEN ISSUED. A REPRESENTATIVE OF THE COMPANY THEREAFTER MET WITH FOREST SERVICE PERSONNEL ON JUNE 18, 1963. ACCORDING TO FOREST SERVICE PERSONNEL, THE COMPANY REPRESENTATIVE INQUIRED AT THAT TIME WHETHER THE COMPANY, IF IT WAS THE SUCCESSFUL BIDDER, WOULD BE REQUIRED TO BUILD 1.8 MILES OF ROAD IT WOULD NOT NEED IN VIEW OF ITS INTENTION TO HAUL THE TIMBER SOUTH INSTEAD OF NORTH AS THE CONTRACT CONTEMPLATED. REPORTEDLY THE REPRESENTATIVE WAS ADVISED THAT THE COMPANY WOULD NOT HAVE TO BUILD ANY ROAD IT WOULD NOT USE, BUT THAT IT WOULD BE REQUIRED EITHER TO DO A COMPARABLE AMOUNT OF WORK ON ROADS IT WOULD UTILIZE OR THE STUMPAGE PRICE WOULD BE INCREASED TO COMPENSATE FOR THE ROADS NOT CONSTRUCTED. THE REPRESENTATIVE IS REPORTED TO HAVE REPLIED THAT THE COMPANY WOULD BUILD THE ROAD.

THE TIMBER SALE WAS HELD ON JUNE 26, 1963. THREE BIDDERS QUALIFIED TO PARTICIPATE IN THE AUCTION SALE BY SUBMITTING SEALED BIDS IN THE AMOUNT OF $88,731, THE APPRAISED STUMPAGE VALUE. AT THE CLOSE OF THE AUCTION, HI- RIDGE WAS THE HIGH BIDDER WITH A BID IN THE AMOUNT OF $184,753. DOUBLE DEE LUMBER COMPANY OF CENTRAL POINT, OREGON, WAS THE SECOND HIGH BIDDER WITH A BID IN THE AMOUNT OF $181,404. A THIRD COMPANY FROM MEDFORD, OREGON, DID NOT INCREASE ITS QUALIFYING BID.

AFTER THE AUCTION CLOSED, THE HI-RIDGE REPRESENTATIVE INQUIRED AGAIN WHETHER THE COMPANY WOULD BE REQUIRED TO BUILD THE 1.8 MILES OF ROAD PREVIOUSLY QUESTIONED. HE RECEIVED THE SAME ADVICE AS FURNISHED BEFORE, WHEREUPON HE ADVISED THAT THE COMPANY DID NOT INTEND TO BUILD THE 1.8 MILE SEGMENT. INASMUCH AS THE ESTIMATED COST OF THE 1.8 MILE SEGMENT WAS APPROXIMATELY $53,000, THE REPRESENTATIVE WAS INFORMED THAT A MODIFICATION OF THE CONTRACT WOULD BE MADE WITH A CORRESPONDING INCREASE IN STUMPAGE PAYMENTS. THE COMPANY REFUSED TO ACCEPT THE FOREST SERVICE TERMS.

YOU HAVE STATED THAT HI-RIDGE IS AND ALWAYS HAS BEEN READY TO SIGN THE ADVERTISED CONTRACT. INFORMATION TO THE CONTRARY IS CONTAINED IN THE JULY 22, 1963 DECISION OF THE CHIEF OF THE FOREST SERVICE. IT IS STATED AT PAGE 2 OF THAT DECISION THAT THE REGIONAL FORESTER "ADVISED THAT THE HI- RIDGE REPRESENTATIVE HAS STATED THAT HI-RIDGE WILL NOT SIGN THE CONTRACT WITHOUT THE ELIMINATION OF THE CONSTRUCTION PROVISION IN RESPECT TO THE 1.8 MILES OF ROAD IT DOES NOT NEED TO HAUL LOGS TO THE SOUTH.' HOWEVER, IN OUR VIEW, WHETHER HI-RIDGE HAS AGREED OR REFUSED TO ACCEPT THE ADVERTISED CONTRACT IS NOT RELEVANT TO THE MAIN ISSUE IN THE CASE.

THE JULY 22, 1963 DECISION OF THE CHIEF OF THE FOREST SERVICE DIRECTED THE REJECTION OF ALL BIDS. UPON YOUR REQUEST, THE MATTER WAS RECONSIDERED. ON JUNE 8, 1964, THE CHIEF REVERSED THE EARLIER DECISION AND DECIDED THAT THE CONTRACT SHOULD BE AWARDED TO HI-RIDGE. DOUBLE DEE, THE SECOND HIGH BIDDER, APPEALED THE DECISION TO THE SECRETARY OF AGRICULTURE WHO RULED ON JUNE 7, 1965, THAT ALL BIDS SHOULD BE REJECTED. YOU REQUESTED RECONSIDERATION OF THE SECRETARY'S DECISION. ON MAY 12, 1966, THE ASSISTANT SECRETARY DENIED THE REQUEST.

WHILE, FOR A VARIETY OF DIFFERENT REASONS, THE HI-RIDGE BID WAS REQUESTED, AND AT ONE STEP IN THE APPEAL PROCESS CONSIDERED ACCEPTABLE, IN OUR OPINION THE BID PROPERLY WAS FOR REJECTION FOR REASONS WHICH ARE HEREINAFTER SET FORTH.

IN VIEW OF THE LANGUAGE EMPLOYED IN THE SALES PROSPECTUS AND THE CONVERSATION THE HI-RIDGE REPRESENTATIVE HAD WITH FOREST SERVICE PERSONNEL PRIOR TO BIDDING ON THE SUBJECT SALE, IT SHOULD HAVE BEEN CLEAR TO HI- RIDGE THAT THE ROAD BUILDING REQUIREMENT WAS A MATERIAL CONDITION OF THE SALE. HI-RIDGE STATED NO EXCEPTION IN ITS BID TO THE SALES TERMS AND NOT UNTIL AFTER THE AUCTION WAS CLOSED DID IT CONTEND THAT ITS BID PRICE DID NOT CONTEMPLATE THE BUILDING OF THE 1.8 MILE SEGMENT OF ROAD. TO PERMIT HI-RIDGE UNDER THESE CIRCUMSTANCES TO RECEIVE AN AWARD ON A BASIS DIFFERENT THAN THAT CONTEMPLATED BY THE SALES TERMS WOULD BE TANTAMOUNT TO PROVIDING THE COMPANY WITH A $53,000 WINDFALL, SINCE THE OFFER OF THE COMPANY AS MADE PROVIDED FOR THE 1.8 MILES OF ROAD BUILDING WHICH THE COMPANY THEREAFTER SOUGHT TO AVOID. WHILE IT MAY BE THAT, UNDER THE ,PRUDENT OPERATOR CONCEPT," THE GOVERNMENT CONTRACTING PERSONNEL SHOULD NOT HAVE PROVIDED FOR ANY GREATER ROAD BUILDING THAN WAS NECESSARY FOR A PRUDENT OPERATOR TO REMOVE THE TIMBER FROM THE SALE AREA, THAT FACT REMAINS THAT HI-RIDGE TENDERED AN UNQUALIFIED OFFER WHICH TOOK NO EXCEPTION TO THE CONTRACT ROAD REQUIREMENTS. IN THAT CONNECTION, OUR OFFICE HAS HELD THAT WHEN A TIMBER PURCHASER IS NOT REQUIRED TO BUILD A SEGMENT OF ROAD FOR TIMBER REMOVAL, THE GOVERNMENT IS ENTITLED TO AN ADJUSTMENT IN THE STUMPAGE PRICE IN THE CONTRACT. B-160577, FEBRUARY 2, 1967; B-157241, AUGUST 27, 1965. THERE IS NO REASON WHY SUCH A ROAD BUILDING REQUIREMENT SHOULD BE CONSIDERED ANY LESS MATERIAL BECAUSE A QUESTION CONCERNING IT OCCURS BEFORE RATHER THAN AFTER THE CONTRACT IS AWARDED.

OUR OFFICE HAS STATED THE VIEW THAT PERMITTING BIDDERS TO VARY THE SPECIFICATIONS AFTER BIDS ARE OPENED WOULD SOON REDUCE TO A FARCE THE WHOLE PROCEDURE OF LETTING PUBLIC CONTRACTS ON AN OPEN COMPETITIVE BASIS. 37 COMP. GEN. 110, 112, AND 17 ID. 554, 558-559. IN THE LATTER DECISION, OUR OFFICE QUOTED FROM CITY OF CHICAGO ET AL V. MOHR, 74 N.E. 1056, AS FOLLOWS:

"* * * WHEN A BID IS PERMITTED TO BE CHANGED (AFTER-OPENING), IT IS NO LONGER THE SEALED BID SUBMITTED IN THE FIRST INSTANCE, AND, TO SAY THE LEAST, IS FAVORITISM, IF NOT A FRAUD--- A DIRECT VIOLATION OF LAW- - AND CANNOT BE TOO STRONGLY CONDEMNED.' FURTHER, IT IS A SETTLED RULE THAT AN AWARD MADE AFTER ADVERTISING MUST BE MADE UPON THE SAME SPECIFICATIONS WHICH WERE OFFERED TO ALL BIDDERS. 37 COMP. GEN. 524, 527, AND CITATIONS THEREIN. IN THIS REGARD, SEE, IN THE 37 COMP. GEN. DECISION LAST CITED ABOVE, THE QUOTATION FROM DIAMOND V. CITY OF MANKATO, 61 L.R.A. 448, 451, WHERE IT IS SAID THAT A PUBLIC AUTHORITY CANNOT ENTER INTO A CONTRACT WITH THE BEST BIDDER CONTAINING SUBSTANTIAL PROVISIONS BENEFICIAL TO HIM, NOT INCLUDED IN OR CONTEMPLATED IN THE TERMS AND SPECIFICATIONS UPON WHICH BIDS WERE INVITED AND THAT THE CONTRACT MUST BE THE CONTRACT OFFERED BY THE ADVERTISEMENT. ALSO, IN 41 COMP. GEN. 593, IT WAS HELD THAT WHEN SPECIFICATIONS CHANGE AFTER BID OPENING AND PRIOR TO AWARD, NOTWITHSTANDING THE CHANGES WOULD NOT BE SUFFICIENT TO CHANGE THE RELATIVE STANDING OF BIDDERS, THERE SHOULD BE A REJECTION OF ALL BIDS AND A READVERTISEMENT ON THE NEW BASIS. IN PASSING UPON THE MATTER, IT WAS STATED AT PAGE 595:

"* * * THE STATUTORY ADVERTISING REQUIREMENTS DO NOT CONTEMPLATE OR SANCTION THE SELECTION OF THE LOWEST BIDDERS ON THE BASIS OF AN ESTIMATE OF WHAT THOSE BIDDERS WOULD HAVE QUOTED ON TERMS WHICH WERE NOT IN FACT ADVERTISED. WHERE A CONTRACT IS TO BE AWARDED PURSUANT TO COMPETITIVE BIDDING, THE LOW BID MUST BE DETERMINED ON THE BASIS OF BIDS ON THE SPECIFICATIONS ACTUALLY TO BE UTILIZED ON THE WORK. THE ONLY PROPER WAY TO DETERMINE THE LOWEST BIDDER IS BY ADVERTISING THE ACTUAL CONTRACT TO BE EXECUTED AND THIS, IN OUR OPINION, IS WHAT THE LAW REQUIRES. 17 COMP. GEN. 427; 15 ID. 573.

"WE RECOGNIZE THAT THE REJECTION OF ALL BIDS AFTER A PUBLIC OPENING PREJUDICES THE LOW BIDDER AND MAY DO DAMAGE TO THE COMPETITIVE BID SYSTEM, PARTICULARLY IN THOSE INSTANCES WHERE THE LOW BIDDER WAS IN NO WAY RESPONSIBLE FOR THE CIRCUMSTANCES REQUIRING SUCH ACTION. HOWEVER, THE AVOIDANCE OF SUCH A RESULT CANNOT JUSTIFY AN OTHERWISE IMPROPER PROCUREMENT ACTION.'

ALTHOUGH A PROCUREMENT WAS INVOLVED IN THE ABOVE CASE, THE RULES ARE EQUALLY APPLICABLE TO TIMBER SALES. SEE 44 COMP. GEN. 292, 296. IN THIS CONNECTION, THE JULY 22 DECISION OF THE CHIEF OF THE FOREST SERVICE RECITES THAT THE TIMBER WAS APPRAISED ON THE PREMISE THAT IT WOULD BE HAULED TO MEDFORD, OREGON, FOR PROCESSING AND THAT THE ADVERTISED ROAD CONSTRUCTION REQUIREMENTS AND SPECIFICATIONS WERE DESIGNED FOR THAT PLAN OF LOGGING AND TRANSPORTATION AND TOOK NO COGNIZANCE OF A POSSIBLE TIMBER HAUL TO THE SOUTH OVER THE SISKIYOU SUMMIT TO THE KLAMATH RIVER. BEFORE BIDS WERE RECEIVED, THE FOREST SERVICE BECAME AWARE THAT THE SPECIFICATIONS HAD CHANGED. AT THAT TIME, THE ADVERTISED SPECIFICATIONS SHOULD HAVE BEEN CHANGED TO PROVIDE FOR ROAD BUILDING TO SEIAD, CALIFORNIA. ALTHOUGH THE FOREST SERVICE ATTEMPTED TO ACCOMPLISH THIS IN EFFECT AFTER BIDDING AND BEFORE AWARD, IT WOULD NOT HAVE BEEN PROPER TO MAKE AN AWARD TO HI-RIDGE. UNDER SUCH CIRCUMSTANCES, BIDS ARE REQUIRED TO BE REJECTED AND THE NEW SPECIFICATIONS ADVERTISED. IN VIEW OF THE FOREGOING, OUR OFFICE IS UNABLE TO CONCLUDE THAT THE REJECTION OF BIDS WAS IMPROPER. YOUR PROTEST IS THEREFORE DENIED.