B-167699, OCT. 23, 1969

B-167699, OCT. 23, 1969

TIMBER SALES--DEPOSITS--REFUND WHERE CLAIMANT (SUCCESSFUL BIDDER) HAD SUBMITTED BID DEPOSIT AND PARTICIPATED IN TIMBER SALE BIDDING ON BASIS OF ERRONEOUS BELIEF THAT IT COULD OBTAIN DIRECT LOAN FROM SMALL BUSINESS ADMINISTRATION (SBA) TO FINANCE ROAD CONSTRUCTION REQUIRED UNDER CONTRACT (WITHOUT WHICH LOAN BIDDER COULD NOT PERFORM), CLAIMANT IS ENTITLED TO DEPOSIT REFUND, AS SALE PROSPECTUS REPRESENTATION OF FINANCIAL ASSISTANCE AVAILABILITY WAS IDENTICAL TO PROVISIONS UNDER WHICH CLAIMANT HAD PREVIOUSLY ACQUIRED DIRECT SBA LOANS AND UNDER WHICH IT APPARENTLY WOULD HAVE BEEN ELIGIBLE IN THIS CASE BUT FOR CHANGE IN SBA POLICY NOT REFLECTED IN PROSPECTUS, AND CLAIMANT WAS MISLED AND INDUCED TO BID BY PROSPECTUS TO DEGREE RENDERING SALE CONTRACT UNENFORCEABLE.

TO MR. SECRETARY:

FURTHER REFERENCE IS MADE TO A CLAIM BY LANDRETH TIMBER COMPANY, INC. (LANDRETH), FOR REIMBURSEMENT OF ITS BID DEPOSIT SUBMITTED FOR THE HENDERSON TIMBER SALE, OKANOGAN NATIONAL FOREST, IN THE AMOUNT OF $21,000. THIS MATTER WAS THE SUBJECT OF A REPORT FROM THE ACTING CHIEF, FOREST SERVICE, DATED SEPTEMBER 16, 1969, REFERENCE 2430.

THE RECORD INDICATES THAT ON APRIL 17, 1969, AN INVITATION FOR BIDS WAS ISSUED FOR AN ESTIMATED 9,400 M BOARD FEET OF TIMBER MARKED OR OTHERWISE DESIGNATED FOR CUTTING. THE INVITATION CONTEMPLATED THAT ROADS BE CONSTRUCTED TO SPECIFICATIONS AND THAT CREDITS UP TO THE AMOUNT SHOWN IN THE SALE PROSPECTUS BE CREDITED TO THE PURCHASER'S TIMBER SALE ACCOUNT AS ROADS WERE CONSTRUCTED AND ACCEPTED. THE INVITATION SPECIFIED A MINIMUM UNIT PRICE TO WHICH ALL INTERESTED BIDDERS WERE REQUIRED TO AGREE IN ORDER TO BECOME ELIGIBLE FOR PARTICIPATION IN AN ORAL AUCTION IN WHICH THE FINAL PRICE AND HIGHEST BIDDER WERE TO BE DETERMINED. IN ADDITION, ONLY SMALL BUSINESS CONCERNS MAKING A DEPOSIT OF $21,000 WERE ELIGIBLE TO PARTICIPATE IN THE AUCTION. LANDRETH'S BID OF $666,150 WAS THE HIGHEST OFFERED AT THE AUCTION AND WAS ACCEPTED BY THE GOVERNMENT ON MAY 29, 1969.

ESSENTIALLY, IT IS LANDRETH'S POSITION THAT THE COMPANY SUBMITTED A BID DEPOSIT AND PARTICIPATED IN THE BIDDING ON THE BASIS OF AN ERRONEOUS BELIEF THAT A DIRECT LOAN OF $50,000 COULD BE OBTAINED FROM THE SMALL BUSINESS ADMINISTRATION (SBA) TO FINANCE THE CONSTRUCTION OF ROADS REQUIRED UNDER THE CONTRACT. THE COMPANY ADVISES ITS BELIEF RESULTED FROM THE FACT THAT IT HAD PREVIOUSLY OBTAINED DIRECT SBA LOANS UNDER SEVERAL TIMBER SALES INVITATIONS WHICH CONTAINED A PROVISION IDENTICAL TO THE REPRESENTATION MADE IN THE INSTANT TIMBER SALE PROSPECTUS WHICH PROVIDED, IN PERTINENT PART, AS FOLLOWS:

"12. FINANCIAL ASSISTANCE. THE SMALL BUSINESS ADMINISTRATION (SBA) THROUGH AN AGREEMENT WITH FOREST SERVICE, HAS EXTENDED ITS FINANCIAL ASSISTANCE TO SMALL BUSINESS CONCERNS TO INCLUDE LOANS TO FINANCE CONSTRUCTION OF ROADS SPECIFIED UNDER A9, TABLE 5 OF THE TIMBER SALE CONTRACT. APPLICANTS MUST MEET SBA SIZE, ELIGIBILITY AND CREDIT REQUIREMENTS. IF REQUESTED BY PURCHASER OR AWARDEE, THE TIMBER SALE CONTRACT WILL PROVIDE FOR REPAYMENT OF SUCH LOANS THROUGH FOREST SERVICE AS THE TIMBER IS CUT.' THE COMPANY CONTENDS IT WAS MISLED BY THE GOVERNMENT'S FAILURE TO CHANGE THE WORDING OF THE INSTANT TIMBER SALE PROSPECTUS SO AS TO ALERT BIDDERS TO THE FACT THAT SBA HAD DISCONTINUED ITS PRACTICE OF MAKING DIRECT LOANS FOR TIMBER ACCESS ROADS AND THAT IT WOULD ONLY MAKE PARTICIPATION LOANS WITH BANKS OR GUARANTEE SUCH LOANS. UNDER THE PROGRAM IN EFFECT AT THE TIME OF PRIOR SALES SBA WOULD LEND FUNDS TO SMALL BUSINESS CONCERNS WHICH SATISFACTORILY DEMONSTRATED THAT THE DESIRED CREDIT WAS NOT OTHERWISE AVAILABLE ON REASONABLE TERMS, WHEREAS UNDER THE PRESENT LOAN PROGRAM SBA WILL LEND ONLY A PORTION OF THE DESIRED LOAN (UP TO 75 PERCENT) IF A PARTICIPATING FINANCIAL INSTITUTION AGREES TO PROVIDE THE REMAINING PORTION. LANDRETH CONTENDS THAT IT WOULD HAVE BEEN ELIGIBLE FOR A DIRECT SBA LOAN, AND IN SUPPORT OF ITS POSITION HAS SUBMITTED COPIES OF LETTERS FROM THREE BANKS REFUSING TO LEND 25 PERCENT OF A $50,000 LOAN EVEN IF SBA DOES LEND THE REMAINING 75 PERCENT. ACCORDINGLY, THE COMPANY HAS TAKEN THE POSITION THAT IT IS UNABLE TO PERFORM, SHOULD BE PERMITTED TO WITHDRAW ITS BID, AND IS ENTITLED TO A REFUND OF ITS $21,000 BID DEPOSIT.

INCLUDED IN THE FOREST SERVICE'S REPORT TO THIS OFFICE IS A LETTER FROM THE SBA REGIONAL COUNSEL DATED JULY 29, 1969, WHEREIN IT IS STATED THAT DUE TO BUDGETARY RESTRICTIONS THE AGENCY HAS DISCONTINUED MAKING LOANS UNDER THE TIMBER ACCESS ROAD LOAN PROGRAM BUT THAT FINANCIAL ASSISTANCE HAS BEEN PROVIDED CONTRACTORS UNDER THE IMMEDIATE PARTICIPATION LOAN PROGRAM. IT HAS ALSO BEEN CONFIRMED THAT LANDRETH OBTAINED SEVERAL DIRECT LOANS FROM SBA IN THE PAST UNDER THE FORMER SBA PROGRAM.

AS A GENERAL RULE, AN INNOCENT MISREPRESENTATION WITH RESPECT TO A MATERIAL FACT MAY AFFORD GROUND FOR INVALIDATION OF A CONTRACT INDUCED THEREBY, PROVIDED THE PARTY RELIED THEREON AND WAS MISLED THEREBY 17 C.J.S. CONTRACTS, SECTION 147.

IN ITS REPORT TO THIS OFFICE, FOREST SERVICE HAS TAKEN THE POSITION THAT THE "FINANCIAL ASSISTANCE" CLAUSE IN THE SALE PROSPECTUS IS NOT CONSIDERED A GUARANTEE OF A DIRECT LOAN AND, THEREFORE, LANDRETH'S BID DEPOSIT SHOULD NOT BE REFUNDED. WHILE WE MUST AGREE THAT THE SALE PROSPECTUS DID NOT ACTUALLY GUARANTEE A DIRECT SBA LOAN TO BIDDERS, WE ARE OF THE OPINION THAT THE RECORD AND THE CIRCUMSTANCES OF THIS CASE SUPPORT LANDRETH'S POSITION THAT IT BID BECAUSE THE REPRESENTATION OF THE AVAILABILITY OF FINANCIAL ASSISTANCE IN THE SALE PROSPECTUS WAS IDENTICAL TO THE PROVISIONS UNDER WHICH IT HAD PREVIOUSLY ACQUIRED DIRECT SBA LOANS, AND UNDER WHICH IT APPARENTLY WOULD HAVE BEEN ELIGIBLE IN THIS CASE IN VIEW OF THE FACT THAT THREE BANKS REFUSED TO EXTEND CREDIT TO THE COMPANY. FURTHERMORE, WE NOTE THAT THE DEFINITION OF THE TERM "FINANCIAL ASSISTANCE," IN THE CURRENT SBA REGULATION, 13 CFR 120.1 (B), INCLUDES THE MAKING OF DIRECT SBA LOANS.

FOR THE ABOVE REASONS WE MUST CONCLUDE THAT THE BIDDER WAS MISLED AND INDUCED TO BID BY THE SALE PROSPECTUS TO A DEGREE WHICH WOULD RENDER THE CONTRACT OF SALE UNENFORCEABLE, AND THE BIDDER IS THEREFORE ENTITLED TO HAVE THE FULL AMOUNT OF ITS BID DEPOSIT RETURNED.

IT IS SUGGESTED THAT APPROPRIATE ACTION BE TAKEN IN FUTURE PROCUREMENTS TO INSURE THAT BIDDERS ARE EITHER ADVISED PRIOR TO BID OPENING OF THE EXTENT TO WHICH SBA MAY HAVE MODIFIED ITS FINANCIAL ASSISTANCE PROGRAMS, OR THAT THEY ARE CAUTIONED TO VERIFY WITH SBA, BEFORE BIDDING, THE TYPE AND EXTENT OF ASSISTANCE WHICH IS AVAILABLE FROM THAT AGENCY.