Prineville Sawmill Co., Inc. v. U.S.

• Decision Date: 14 October 1988
• Docket Number: No. 88-1199,88-1199
• Citation: 859 F.2d 905
• Parties: 35 Cont.Cas.Fed. (CCH) 75,569 PRINEVILLE SAWMILL COMPANY, INC., Plaintiff-Appellant, v. The UNITED STATES, Defendant-Appellee. Appeal
• Court: U.S. Court of Appeals — Federal Circuit

Page 905

859 F.2d 905

35 Cont.Cas.Fed. (CCH) 75,569

PRINEVILLE SAWMILL COMPANY, INC., Plaintiff-Appellant, v. The UNITED STATES, Defendant-Appellee.

Appeal No. 88-1199.

United States Court of Appeals, Federal Circuit.

Oct. 14, 1988.

Gary G. Stevens, Saltman & Stevens, P.C., Washington, D.C., argued, for plaintiff-appellant. With him on the brief, was Ruth G. Tiger, Washington, D.C.

Katherine A. Day, Commercial Litigation Branch, Dept. of Justice, Washington, D.C., argued, for defendant-appellee. With her on the brief, were John R. Bolton, Asst. Atty. Gen., David M. Cohen, Director and Thomas W. Petersen, Asst. Director, Washington, D.C. Also on the brief, was James Perry, Office of Gen. Counsel, Dept. of Agr., Washington, D.C., of counsel.

Before ARCHER, MAYER, and MICHEL, Circuit Judges.

MICHEL, Circuit Judge.

Prineville Sawmill Co., Inc. (Prineville) appeals the decision of the United States Claims Court, Prineville Sawmill Co., Inc.

v. United States, 14 Cl.Ct. 186 (1988), granting summary judgment to the United States in Prineville's pre-award bid protest action against the Forest Service regarding sale of salvage timber. We reverse and remand.

Background

On April 17, 1987, the Forest Service advertised the sale of salvage timber from the South Crater area of the Deschutes National Forest. The sale was to be conducted by an oral auction scheduled for May 19, 1987. The Forest Service sent copies of the sale advertisement and a short form prospectus to Prineville and other prospective purchasers. The advertisement included an estimate by the Forest Service of the amount of timber of the different species offered for sale. Specifically, the Forest Service estimated that the sale area contained 10,450 thousand board feet (MBF) of Ponderosa Pine, 3,650 MBF of Lodgepole Pine, and 290 MBF of White Fir and other timber. The Forest Service appraised the total value of the timber offered for sale at approximately $1.8 million.

The Forest Service also made available a sample contract of sale and bid forms for use at the auction. The prospectus, the sample contract, and the bid forms notified prospective purchasers that they should not rely upon the Forest Service's timber estimates for the total timber and individual species quantities, but should perform their own inspection and develop their own estimates. The Forest Service also notified prospective purchasers that the Service "reserved the right to reject any and all bids."

The procedure for the sale called for each bidder to submit, prior to the oral auction, a sealed bid specifying the price that the purchaser would pay per MBF of the biddable species. In accordance with standard Forest Service policy, the total value of the sealed bids would be determined by multiplying the bid rate on each species by the Forest Service's estimate of that species, and adding the total amounts bid for each species. ¹ Each bidder whose total bid exceeded the Forest Service's appraised value for the timber qualified to participate in the subsequent oral auction. The total price of the oral bids would also be determined on the basis of the Forest Service's species estimates. The oral auction was to proceed at discrete bidding intervals, as long as each subsequent bid resulted in a total bid price higher than the previous bid, until no further bids were offered. Thus, the last bid properly made would also be the high bid.

Even though the Forest Service species estimates would be used in determining the total bid prices at the auction and in correspondingly determining the high bidder, the high bidder's final total bid price would not be the actual purchase price ultimately paid by that bidder (the purchaser). Rather, the purchaser would pay the Forest Service for the total amount of timber as actually measured (scaled) upon removal from the sale area, at the rates specified in the prevailing bid. Thus, the true final purchase price, and the amount that the Forest Service would receive from the sale, would not be known until the timber was removed.

Prior to the auction, Prineville obtained its own estimate of the volume of the various species at the South Crater site. Prineville estimated less Lodgepole Pine than the Forest Service. In reliance on its assumption that its estimate of the Lodgepole Pine volume was more accurate, Prineville prepared to follow a skewed bidding strategy at the oral auction, as permitted under Forest Service policy. Under such a bidding strategy, a bidder would submit an unusually high bid for the species which it believes to have been overestimated by the Forest Service and a correspondingly lower than usual bid on the remaining, more accurately-estimated At the timber sale, six bidders, including Prineville, submitted qualifying written bids. In the subsequent oral bidding, all six bidders kept their bid price for the White Fir constant. The five bidders other than Prineville altered their total bid prices by varying their bids on Ponderosa Pine, while keeping their Lodgepole Pine bid constant. Prineville alone, however, skewed its bid with respect to Lodgepole Pine.

                species. 2   The skewed bidding strategy permits the bidder to offer the Forest Service an apparently higher overall price for the total timber than could be offered without skewing the bids.  Since the actual purchase price is calculated from the scaled timber values as removed from the site, a skewed bidder awarded the contract would end up paying less for the salvage timber than would a bidder using its bid values against the Forest Service estimates.  However, the bidder pays less only if its estimates were indeed more accurate than the Forest Service's
                

Eventually, Prineville submitted the final bid of the auction. This bid reflected per MBF bid rates of $161.76 for Ponderosa Pine, $515.00 for Lodgepole Pine, and $11.15 for White Fir. When multiplied by the Forest Service species estimates, this bid resulted in a bid price of $3,573,375.50. DAW Forest Products had submitted the last previous (next highest) bid which contained per MBF bid rates of $339.00 for Ponderosa Pine, $7.00 on Lodgepole Pine, and $11.15 on White Fir, for a total price of $3,571,333.50. At the close of bidding, the Forest Service designated Prineville's final bid as being "responsive" to the Forest Service offering and designated Prineville as the highest bidder. On June 4, 1987, the Forest Service confirmed by letter that Prineville was the highest bidder.

Thereafter, prompted by Prineville's bidding strategy, the Forest Service checked its estimate of the volume of Lodgepole Pine. It determined that a variety of computational (arithmetical, transpositional, and tabular) errors had been made in estimating Lodgepole Pine. According to the Forest Service's new approximation, the sale area contained only 2,960 MBF of Lodgepole Pine, 690 less MBF than originally estimated. Assuming the revised estimate to be more accurate than the original, there was 19% less Lodgepole Pine and 5% less total timber. By letter dated July 8, 1987, the contracting officer notified Prineville that, notwithstanding the confirmed designation of Prineville as the highest bidder, the Forest Service had decided to reject all bids on the sale because of the errors in its original estimate. Specifically, the letter stated that the Forest Service errors "so flawed this sale offering that your [Prineville's] apparent high bid was not in fact the high bid."

Prineville promptly filed a complaint with the Claims Court seeking injunctive relief against readvertisement of the sale and resolicitation of bids. Relying on Massman Construction Co. v. United States, 60 F.Supp. 635, 102 Ct.Cl. 699, cert. denied, 325 U.S. 866, 65 S.Ct. 1403, 89 L.Ed. 1985 (1945), Prineville argued that once bids have been publicly disclosed, the Forest Service could reject bids only for a "cogent or compelling" reason and that the rejection of the bids for the South Crater sale was not based on a cogent or compelling reason. In response, the Forest Service argued, relying upon S & S Logging Co. v. Barker, 366 F.2d 617 (9th Cir.1966), and Hi-Ridge Lumber Co. v. United States, 443 F.2d 452 (9th Cir.1971), that an exception to the Massman standard permits the Forest Service an "unlimited" right to reject all bids.

The Claims Court, ruling on the parties' cross-motions for summary judgment, essentially held that the Forest Service decision to reject all bids and readvertise the South Crater sale did not require a cogent or compelling reason, but is within the discretion of the Forest Service, sustainable absent clear proof of arbitrary or capricious action amounting to an abuse of discretion. The Claims Court further held that the Forest Service's decision to reject bids was not uniquely disadvantageous to

Prineville, and that therefore the Service's action was not arbitrary or capricious, and did not represent an abuse of discretion. Accordingly, the court granted the government summary judgment. Prineville appeals.

OPINION

A.

An invitation for bids issued by the government carries, as a matter of course, an implied contractual obligation to fairly and honestly consider all responsive bids. See United States v. John C. Grimberg Co., Inc., 702 F.2d 1362, 1367 (Fed.Cir.1983); Heyer Products Co. v. United States, 140 F.Supp. 409, 413, 135 Ct.Cl. 63 (1956); see also Mack Trucks, Inc. v. United States, 6 Cl.Ct. 68, 70 (1984). ³ And if this duty is breached, a bidder may rely upon the explicit grant of remedial power to the Claims Court in bid protest actions against the government, 28 U.S.C. Sec. 1491(a)(3) (1988), and may seek equitable relief before the underlying contract is awarded. John C. Grimberg, 702 F.2d at 1367; see also Mack Trucks, 6 Cl.Ct. at 70. Also, as the Claims Court determined, government consideration of solicited bids is reviewed as to whether it was arbitrary and capricious, an abuse of discretion, and thus not in keeping with the...