Opinion ID: 779646
Heading Depth: 2
Heading Rank: 1

Heading: The Timber Contracts

Text: 2 At issue in this appeal are one timber sale contract, designated the What contract, between Seaboard and the Forest Service, and six timber sale contracts, designated the Bride, Pearl, Ram, Cougar, Short Flat, and Cow contracts, between CDC and the Forest Service. Seaboard disputes both liability and damages resulting from its breach of the What contract. CDC disputes both liability and damages resulting from its breach of the Cow contract. CDC concedes liability but disputes damages resulting from its breach of the Bride, Pearl, Ram, Cougar, and Short Flat contracts.
3 In September 1980, Seaboard entered into the What contract — a fixed price contract to harvest timber. At that time, there was a housing boom and the price of timber was high. The contract required Seaboard, by the contract termination date of March 31, 1983, to cut, remove, and pay for all of the timber on the What parcel. 4 Between 1981 and 1983, the government allowed interest rates to rise in order to combat inflation, and at least in part because of the rise in interest rates, the housing and lumber markets softened. Many contractors ran into financial difficulties. The timber in all of the parcels at issue in this appeal was of sufficient quality to harvest, and the contractors had the opportunity to conduct a harvest if they so desired. Some logging contractors performed on their timber contracts during this period. Others did not. 5 In April 1983, the Forest Service allowed Seaboard a two-year extension of the contract term under the agency's SOFT II extension policy, which allowed contract extensions due to then-depressed markets for forest products. The What contract expired, uncompleted, on December 28, 1985. 6 The What contract contained a damages provision, Provision B9.4, which stated, in pertinent part, that: 7 Damages due the United States for Purchaser's failure to cut and remove such timber meeting Utilization Standards shall be the amount by which Current Contract Value plus the cost of resale, less any effective Purchase Credit remaining at the time of termination, exceeds the resale value at new Bid Rates. If there is no resale, damages due shall be determined by subtracting the value established by said appraisal from the difference between Current Contract Value and Effective Purchaser Credit. 8 In 1984, Congress enacted the Federal Timber Contract Payment Modification Act, which stated that, effective 1985, in any contract for sale of timber from the National Forests, the Secretary of Agriculture shall require a cash down-payment at the time the contract is executed and periodic payments to be made over the remaining time of the contract. 16 U.S.C. § 618(d) (2000). The purported goal of these new financial requirements was to deter speculative bidding. 9 In 1987, the Forest Service resold the What contract. Pursuant to 16 U.S.C. § 618, the resale contract incorporated both a down payment requirement (10 percent of advertised resale plus a 20 percent bid premium) and a midpoint payment requirement (25 percent of the total contract value) that equaled $61,800 and $149,000, respectively. The original What contract contained neither financial requirement. In addition, the resale contract sold less timber than the original, 5,900 MBF 1 as opposed to the original 6,300 MBF, and contained a shorter logging period, 9.5 months of normal operating season as opposed to the original 18.5 months. 10 There were three bidders on the What resale, one fewer than on the original contract. The contract was resold for less than the then-current contract value of the remaining timber plus the cost of resale. Pursuant to the governing damages provision, the Forest Service's contracting officer demanded the difference. The government subsequently reduced the requested damage amount to reflect what it estimated to be the effect of the down payment and midpoint payment requirements in reducing the resale price.
11 On April 15, 1983, CDC and the Forest Service entered into the Cow contract. The contract required CDC to cut, remove, and pay for all of the timber included in the sale by the contract termination date of March 31, 1985. By early 1985, CDC had removed over 75 percent of the original estimated volume of 4,300 MBF. CDC sought and the Forest Service granted a one-year extension pursuant to Special Provisions C8.23 & C8.231. 2 In July 1985, the contracting officer sent CDC a letter stating that the Cow contract will not qualify for any further extensions. Nevertheless, CDC requested a second one-year extension. The Forest Service denied this request. CDC abandoned the contract on December 26, 1985 after harvesting an amount of timber that was in excess of 100% of the original estimated volume but was not all of the timber in the Cow parcel. 12 The Cow contract, like CDC's other contracts, contained Provision C9.4, which provides, in pertinent part: 13 Damages due the United States for Purchaser's failure to cut and remove Included Timber meeting Utilization Standards shall be the amount by which Current Contract Value, plus costs described below, less any Effective Purchaser Credit remaining at time of termination, exceeds the resale value at new Bid Rates. If there is no resale, damages due shall be determined by subtracting the value established by said appraisal from the difference between the Current Contract Value and unused Effective Purchaser Credit, plus any of the following applicable costs: 14
15 (2) Any increase in Purchaser Credit Limit allowance for unconstructed Specified Road facilities which are needed to harvest the remaining uncut volume....; 16 .... 17 (4) The Government's loss caused by the delay in receipt of stumpage payments. Such loss will be measured by interest at the current rate being paid for borrowing by the United States (as published or calculated by the Treasury Department in TFRM 6-8020-20) on the unpaid contract value at Termination Date. Interest will be charged for the total number of months, or portions thereof from Termination Date until midpoint of the contract resale period, less any time in excess of 1 year needed to make the resale; 18 (5) Any increase in reforestation costs .... 19 In August 1986, the Forest Service resold the Cow contract. The resale contract differed from CDC's original contract in several respects. 20 First, the original contract included an estimated 4,300 MBF of timber, while the resale included less, an estimate of only 792 MBF, due to CDC's partial performance. The resale provided one and one-half operating seasons for logging, while the original contract, as extended to March 31, 1986, provided three operating seasons in which to log. In addition, the resale contract required a 10 percent down payment of $6,300, while the original contract required only a 5 percent down payment of $27,500. Furthermore, the resale contract required a midpoint payment in the amount of $15,874.51, while the original contract did not require a midpoint payment. 21 The resale contract sold for less than the then-current value of the remaining timber volume, plus cost of resale. Pursuant to Provision C9.4, the Forest Service's contracting officer demanded the difference with interest as damages. The amount was $82,916.
22 The Bride resale contract differed in requiring a 10 percent down payment of $7,300, while the original contract required only 5 percent, an increase of $3,700. The resale contract required a midpoint payment in the amount of $27,853, while the original contract required a midpoint payment in the amount of $18,200, an increase of $9,653. 23 There was one bidder on the Bride Resale. It sold for less than the then-current value of the remaining timber volume plus the cost of resale. Pursuant to Provision C9.4, the Forest Service's contracting officer demanded $15,549.78 in damages.
24 The Pearl resale contract differed from the original contract in several respects. First, the original sale included an estimated 5,400 MBF of timber, while the resale included less, an estimated 2,497 MBF. Second, the original contract provided three operating seasons for logging operations, while the resale contract provided two operating seasons. This period was two-thirds of the operating season time allowed to harvest 46 percent of the timber estimated to be in the original sale. In addition, the resale contract required a 10 percent down payment of $26,700, while the original contract required only a 5 percent down payment of $34,700. Further, the resale contract required a midpoint payment in the amount of $66,505.81, which was based on 25 percent of the estimated sale value, while the original contract required a larger midpoint payment, in the amount of $301,968, which was 50 percent of CDC's bid premium. 25 There were three bidders on the Pearl Resale. It sold for less than the then-current value of the remaining timber volume plus the cost of resale. Pursuant to Provision C9.4, the Forest Service's contracting officer demanded the difference with interest as damages. The amount demanded was $125,556.71.
26 The Ram resale contract differed from the original contract in several ways. The original sale included an estimated 2,100 MBF of timber, while the resale included less, an estimated 530 MBF, as a result of CDC's partial performance. The original contract provided three operating seasons for logging operations, while the resale contract provided only a single operating season. The resale contract provided for a 10 percent down payment of $3,600, while the original contract required a 5 percent down payment of $9,800. The resale contract required a midpoint payment in the amount of $11,534.48, while the original contract did not require a midpoint payment. 27 There were three bidders on the Ram resale. It sold for less than the then-current value of the remaining timber volume plus the cost of resale. Pursuant to Provision C9.4, the Forest Service's contracting officer demanded the difference with interest as damages. The amount demanded was $29,935.71.
28 The Cougar and Short Flat contracts were advertised but not resold. The appraised value of the remaining timber on both contracts was less than the then-current value of remaining timber volume at the default date. Pursuant to Provision C9.4, the contracting officer demanded damages. Included in the damage demands were resale costs, reforestation costs, and interest. At the time, the amounts requested on the Cougar and Short Flat contracts were $51,830.75 and $24,785.86, respectively. 29 The government subsequently made several changes to its damage demands. In the aggregate, factoring in what it believed was the effect of the down payment and midpoint payment requirements on damages, the government demanded $160,454.12 on all six CDC contracts.