Opinion ID: 779646
Heading Depth: 3
Heading Rank: 1

Heading: The What Contract

Text: 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.