B-173358, OCT 18, 1971

B-173358, OCT 18, 1971

CONTRACTS - REFORMATION ADVISING THAT IN LIGHT OF UNUSUAL CIRCUMSTANCE, INCLUDING THE SUDDEN DECLINE IN THE LUMBER MARKET AND THE UNUSUAL AND UNINTENDED METHOD OF RATE REDETERMINATION, AND BECAUSE THE CONTRACT, AS MODIFIED, DOES NOT REFLECT THE CONTRACT INTENDED BY THE PARTIES, THE COMP. GEN. WOULD NOT OBJECT TO THE PROPOSED CHANGE TO PLACE ST. REGIS PAPER COMPANY IN A POSITION OF EQUALITY WITH OTHER CONTRACTORS SIMILARLY SITUATED.

TO MR. SECRETARY:

REFERENCE IS MADE TO YOUR LETTER DATED AUGUST 12, 1971, WITH ENCLOSURES, CONCERNING THE REQUEST OF THE ST. REGIS PAPER COMPANY FOR RELIEF UNDER THE CONTRACT FOR THE SMITH CABIN TIMBER SALE ON THE KOOTENAI NATIONAL FOREST (CONTRACT NO. 14-406), AWARDED JUNE 25, 1965, WITH THE PROVISION THAT THE REDETERMINED RATE OF ANY ONE SPECIES WOULD NOT BE USED IN PLACE OF THAT ESTABLISHED BY BIDDING, WHERE THE REDETERMINED RATE FOR THAT SPECIES IS LESS THAN THE INITIALLY-BID RATE, UNTIL A SPECIFIED VOLUME OF THE SPECIES HAD BEEN SCALED AND CHARGED.

THE CONTRACT AWARDED ON JUNE 25, 1965, INCLUDED A PROVISION FOR A SCHEDULED RATE REDETERMINATION AS OF AND EFFECTIVE APRIL 1, 1969. IT IS REPORTED THAT LUMBER AND PLYWOOD PRICES WERE VERY HIGH DURING THE FIRST QUARTER OF 1969.

AT THE TIME OF THE SCHEDULED RATE REDETERMINATION (APRIL 1, 1969) IT WAS FOUND NECESSARY TO MAKE A MINOR CHANGE IN THE CONTRACT TO INCLUDE A NEW PRICE INDEX FOR ENGELMANN SPRUCE. THIS BECAME NECESSARY THROUGH THE DISCONTINUANCE OF PUBLICATION OF THE 1959-61 BASIS INDEX, AND THE PUBLICATION OF A NEW ENGELMANN SPRUCE BASIS INDEX FOR THE YEARS 1964-65 66. THE USUAL METHOD OF RATE REDETERMINATION BY LETTER WOULD NOT EFFECT THE DESIRED CHANGE AND IT WAS DECIDED TO INCORPORATE THE NEW BASE INDEX FOR ENGELMANN SPRUCE WITH THE OTHER NECESSARY SCHEDULED RATE REDETERMINATIONS IN A MODIFICATION TO THE CONTRACT OF JUNE 25, 1965. INDICATED ABOVE, THIS MODIFICATION ESTABLISHED SUBSTANTIALLY HIGHER RATES TO BE PAID BY THE CONTRACTOR. THIS CHANGE BY MODIFICATION RATHER THAN BY THE USUAL LETTER WOULD, UNDER NORMAL CIRCUMSTANCES, HAVE CREATED NO PROBLEMS. HOWEVER, A SUDDEN AND DRASTIC DECLINE IN THE LUMBER MARKET MET THE CRITERIA FOR A RATE REDETERMINATION UPON APPLICATION OF THE TIMBER PURCHASER PURSUANT TO SECTION 3C OF THE CONTRACT WHICH STATES IN PART:

"1. IF UPON WRITTEN APPLICATION OF THE PURCHASER IT IS SHOWN TO THE SATISFACTION OF THE FOREST SERVICE THAT, BECAUSE OF CHANGES IN REGIONAL MARKET OR OTHER ECONOMIC CONDITIONS GENERALLY AFFECTING THE REGION SINCE THE LAST RATE REDETERMINATION, AVERAGE COSTS AND SELLING PRICES FOR THE THREE MONTHS PRIOR TO THE APPLICATION RESULT IN REDUCING THE WEIGHTED AVERAGE CONVERSION RETURN FOR THE TIMBER INCLUDED IN THIS CONTRACT TO A VALUE BELOW THE WEIGHTED AVERAGE ADJUSTED STUMPAGE RATES, THE CHIEF, FOREST SERVICE, SHALL REDETERMINE AND ESTABLISH TENTATIVE RATES AND BASE INDICES AND ROAD AMORTIZATION RATE DEFICITS AND DESIGNATE THE EARLIEST PRACTICAL DATE WHEN THE RATES AND BASE INDICES THUS REDETERMINED SHALL BE EFFECTIVE, SUBJECT, HOWEVER, TO THE PROVISIONS OF SECTION 3B-3. *** "

SECTION 3A-21 PROVIDES THAT STUMPAGE RATES FOR TIMBER ARE DERIVED BY APPLICATION OF A FORMULA AND SETS FORTH THE STUMPAGE RATES AND REQUIRED DEPOSITS TO BE IN EFFECT UNTIL REDETERMINED STUMPAGE RATES AND REQUIRED DEPOSITS BECOME EFFECTIVE. HOWEVER, SECTION 3B-3 OF THE CONTRACT PROVIDES IN PART:

"3. IN NO EVENT, HOWEVER, SHALL A STUMPAGE RATE FORMULA FOR A SPECIES- PRODUCT ESTABLISHED ON ANY ABOVE SCHEDULED RATE REDETERMINATION OR UPON APPLICATION OF THE PURCHASER AS PROVIDED IN SECTION 3C WHICH WILL RESULT IN ADJUSTED RATES LOWER THAN FROM APPLICATION OF THE STUMPAGE RATE FORMULA STATED IN SECTION 3A-2A (ORIGINAL RATE ON EXECUTION OF CONTRACT) BECOME EFFECTIVE FOR A PARTICULAR SPECIES PRODUCT UNTIL THE QUANTITY OF THE SPECIES-PRODUCT SCALED AND CHARGED TO THE PURCHASER EQUALS OR EXCEEDS THE FOLLOWING:

"HERE THERE IS SET FORTH THE QUANTITY OF EACH TYPE OF SPECIES REQUIRED TO BE LOGGED."

PURSUANT TO SECTION 3C, ST. REGIS REQUESTED THE SPECIAL RATE REDETERMINATION AND RATES WERE REDETERMINED ACCORDINGLY AS OF AND EFFECTIVE FEBRUARY 12, 1971. HOWEVER, AT THIS TIME, FEBRUARY 12, 1971, ST. REGIS HAD NOT COMPLETED THE MINIMUM CUTTING SET OUT IN SECTION 3B-3 AS MODIFIED. IT THUS FOLLOWED THAT UNDER THE TERMS OF THE CONTRACT THE NEW REDUCED RATES COULD NOT BECOME EFFECTIVE UNTIL AFTER THE MINIMUM QUANTITY HAD BEEN LOGGED AT THE HIGHER PRICE SET BY THE MODIFICATION OF APRIL 1, 1969. CONTRACTORS, WHOSE RATES WERE INCREASED APRIL 1, 1969, BY THE "LETTERS OF DETERMINATION" AS OPPOSED TO THE MODIFICATION HERE USED, WERE NOT SIMILARLY RESTRICTED SINCE THE BASIC CONTRACT STUMPAGE RATES HAD NOT BEEN REWRITTEN BUT WERE SIMPLY INCLUDED IN A LETTER.

THE ADMINISTRATIVE OFFICE AGREES THAT THE RESTRICTION ARISING BY REASON OF THE USE OF A "MODIFICATION" WAS INADVERTENT AND WAS NOT INTENDED BY EITHER OF THE PARTIES. THE USE OF THE "MODIFICATION" INSTEAD OF "LETTER OF DETERMINATION" WAS TO ADJUST A MINOR MATTER IN THE CONTRACT.

IN ITS REPORT, THE DEPARTMENT OF AGRICULTURE PROPOSES TO CORRECT ITS MISTAKE AND REESTABLISH THE APRIL 1, 1969, RATES AND BASE INDICES BY A LETTER OF REDETERMINATION, AND PLACE ST. REGIS ON A PAR WITH SIMILARLY SITUATED CONTRACTORS WHOSE RATE REDETERMINATION ON APRIL 1, 1969, WAS NOT ACCOMPLISHED BY "MODIFICATION," AND CONSEQUENTLY WERE NOT SUBJECT TO THE RESTRICTION.

SINCE IT APPEARS THAT THE CONTRACT, AS NOW WRITTEN, DOES NOT REFLECT THE CONTRACT INTENDED BY THE PARTIES, AND THE USE OF THE "MODIFICATION" IN APRIL 1969 HAD A RESULT NOT INTENDED BY EITHER OF THE PARTIES, WE HAVE NO OBJECTION TO THE PROPOSED CORRECTION. WE ARE TAKING THE LIBERTY OF SENDING A COPY OF THIS LETTER TO ST. REGIS.