CBCA 5089 GRANTED IN PART; CBCA 5619 GRANTED:

CBCA 5089 GRANTED IN PART; CBCA 5619 GRANTED:

July 30, 2021

CBCA 5089, 5619

MICHAEL JOHNSON LOGGING,

Appellant,

v.

DEPARTMENT OF AGRICULTURE,

Respondent.

Joseph Scuderi, Jeremey Dobbins, and Andrew Friese of Scuderi Law Offices, P.S.,

Olympia, WA, counsel for Appellant.

Kate Z. Schneider, Office of the General Counsel, Department of Agriculture,

Portland, OR, counsel for Respondent.

Before Board Judges SHERIDAN, ZISCHKAU, and O’ROURKE.

O’ROURKE, Board Judge.

Appellant, Michael Johnson Logging (Johnson or purchaser), claimed damages for

breach of contract by respondent, the Department of Agriculture (USDA or agency), related

to Johnson’s performance of a timber sale contract. In CBCA 5089, Johnson claimed

damages in the amount of $1,112,417, which was later amended in its post-hearing brief to

$700,000, arising from USDA’s administration of the contract. In CBCA 5619, Johnson

appealed USDA’s decision to withhold a cash performance bond of $6000 and the cash

balance remaining on the contract of $15,551.86, a total of $21,551.86, representing the cost

to complete post-termination contract work.

Based on the contract’s clear terms, as well as the substantial evidentiary record, we

find that Johnson failed to establish USDA breached the implied duty of good faith and fair

CBCA 5089, 5619

2

dealing in its administration of the contract, precluding any recovery for lost productivity,

performance suspensions, use of inadequate skid trails, and equipment damage. We

conclude, however, that USDA did breach certain express terms of the contract and,

therefore, grant in part Johnson’s claim in CBCA 5089 and award damages in the amount

of $89,425. We grant Johnson’s appeal in CBCA 5619.

Findings of Fact

Solicitation, Bid, and Contract Award

On September 1, 2007, USDA sent a letter and timber sale prospectus to potential

bidders, notifying them of the upcoming Big Shrew South timber sale in Olympia,

Washington. Attached to the prospectus were a map of the sale area and a sample contract

that contained the relevant terms and conditions of the sale and encouraged bidders to

“inspect the sale area and sample contract before submitting a bid.” The sale was limited to

small businesses, and bidders could expect to harvest about 25,397 tons of timber. The

minimum acceptable bid for the advertised timber was $56,635.31, and the minimum

acceptable bid rate for the biddable species was $2.23 per ton. The contract identified

December 23, 2010, as the termination date.

On September 18, 2007, Johnson submitted a certified bid in response to the

solicitation. Section 22 of the bid form, entitled “Terms of Bidder’s Offer,” stated:

Bidder certifies and represents that the Bidder has read and understands each

and every provision of this bid form (together with any attachments thereto)

and the sample sale contract. The Bidder agrees that it assumes the

responsibility to clarify any questions before signing this form. The Bidder

agrees that the written provisions of this bid form (together with any

attachments) and the sample contract constitute the entire agreement of the

parties until a written contract is executed and neither the bid form (and any

attachments) nor the sample contract, can be orally modified. The Bidder

expressly adopts the terms of this bid form and the sample contract as material

parts of the Bidder’s offer for the advertised timber or forest product.[1]

On September 25, 2007, USDA awarded Johnson the contract for a bid price of

$58,413.10. USDA received no other bids.

1

The requirements for Big Shrew South were based on a habitat study

conducted by the agency. Although bidders were not informed about the study, the contract

requirements were developed with the study in mind.

CBCA 5089, 5619

3

Relevant Contract Terms

The contract contained both standard provisions for scaled timber sales and special

provisions related to the Big Shrew South timber sale. Detailed timber specifications

identified in sections B2 and C2.35 of the contract included: a description of trees

designated for harvesting, exceptions to individual tree designations, procedures for

managing damaged or unintentionally cut timber, marking of individual trees, spacing

distance requirements between cut trees, and minor adjustments to the boundaries of cutting

units.

Sections B6.31, “Operation Schedule,” and B6.311, “Plan of Operations,” required

the purchaser to provide an annual operations schedule and a general plan of operations

containing information about major activities, such as logging, scaling, road construction,

timber harvesting, debris disposal, erosion control measures, and other contractual

requirements. Changes to the schedule or plan were permitted due to weather, markets, or

other unpredictable circumstances, but were subject to the approval of the contracting

officer.

Section B6.33, “Safety,” stated, “Purchaser’s operations shall facilitate USDA’s safe

and practical inspection of Purchaser’s operations and conduct of other official duties on sale

area. Purchaser has all responsibility for compliance with safety requirements for its

employees.”

Section B6.422, “Landings and Skid Trails,” stated, “Location of all landings, tractor

roads and skid trails shall be agreed upon prior to their construction. The cleared or

excavated size of landings shall not exceed that needed for efficient skidding and loading

operations.”

Section C6.42, “Yarding/Skidding Requirements,” required the purchaser to submit

a yarding and skidding operations plan to USDA for approval prior to the start of felling

operations and stated, “Location of all skid roads and trails, tractor roads, skyline corridors,

mechanized harvester trails, forwarder roads, and other log skidding facilities shall be

approved prior to their use and construction. See attached table for requirements.” The table

specified eighteen requirements for yarding and skidding. Relevant provisions included:

Dedicated skid trails shall be no closer than 100 feet apart center to center and

will not exceed 12 feet in width.

Skid trails shall minimize disturbance to existing large down logs and felled

hazard trees. If such logs are removed, they will be replaced as directed by the

USDA.

CBCA 5089, 5619

4

Skid trails shall impact less than 20% of the area.

The location of all skid trails and skyline corridors shall be approved prior to

felling operations.

Skid trail junctions shall be set back from landings to minimize the landing

openings. No more than 2 skid trails coming into the landing unless otherwise

agreed to by the USDA.

Use existing skid trails where they meet spacing guidelines as stated above.

Section C6.422, “Constructed Landings,” stated, “In an effort to avoid irreparable soil

and watershed damage in areas on Sale Area Map designated ‘landing construction critical,’

Purchaser shall construct landings in accordance with the following plans and

specifications.” Those relevant to this decision included:

Clearing: Stumps and other vegetative material shall not be left hanging over

the top of the excavated area. Clearing limits shall be marked on the ground

and be approved by the USDA.

Debris Disposal: All vegetative material at least 3 inches [in] diameter and

3 feet long, which does not meet utilization standards in A2, shall be disposed

of in accordance with [section] C6.74#. This material may be scattered in the

unit when agreed to by USDA.

Protection of Permanent Roads: When landings are located on system roads,

Purchaser’s landing construction activity will be designed to minimize damage

to the road. After the landing has served purchaser’s purpose, the road will be

returned to its original condition as soon as weather conditions permit.

Section B6.5, “Streamcourse Protection,” stated, in paragraph (a):

Purchaser’s operations shall be conducted to prevent debris from entering

Streamcourses . . . . In the event Purchaser causes debris to enter

Streamcourses in an amount that may adversely affect the natural flow of the

stream, water quality, or fishery resource, Purchaser shall remove such debris

as soon as practicable, but not to exceed 2 days, and in an agreed manner that

will cause the least disturbance to Streamcourses.

Section B6.6, “Erosion Prevention and Control,” stated:

CBCA 5089, 5619

5

Purchaser’s operations shall be conducted reasonably to minimize soil erosion.

Equipment shall not be operated when ground conditions are such that

excessive damage will result. Purchaser shall adjust the kinds and intensity

of erosion control work done to ground and weather conditions and the need

for controlling runoff. Erosion control work shall be kept current immediately

preceding expected seasonal periods of precipitation or runoff.

If Purchaser fails to do seasonal erosion control work prior to any seasonal

period of precipitation or runoff, USDA may temporarily assume

responsibility for the work and any unencumbered deposits hereunder may be

used by USDA to do the work.

Section B6.64, “Landings,” stated, “After landings have served Purchaser’s purpose,

Purchaser shall ditch and slope them to permit water to drain or spread. Unless agreed

otherwise, cut and fill banks around landings shall be sloped to remove overhangs and

otherwise minimize erosion.”

Section B 6.66, “Current Operating Areas,” stated:

Where logging or road construction is in progress but not completed, unless

agreed otherwise, Purchaser shall, before operations cease annually, remove

all temporary log culverts and construct temporary cross drains, drainage

ditches, dips, berms, culverts, or other facilities needed to control erosion.

Such protection shall be provided, prior to end of a Normal Operating Season,

for all disturbed, unprotected ground that is not to be disturbed further prior

to end of operations each year, including roads and associated fills, tractor

roads, skid trails and fire lines. When weather permits operations after normal

operating season, Purchaser shall keep such work on any additional disturbed

areas as up to date as practicable.

Section C6.6, “Erosion Control and Soil Treatment By Purchaser,” contained detailed

specifications pertaining to erosion prevention and control, as well as soil treatment. It

stated, “Erosion prevention and control work required by B6.6, shall be completed within

15 calendar days after yarding/skidding operations related to each landing are substantially

completed.” It also required erosion control measures in locations “[w]here soil has been

disturbed or displaced on Sale Area by Purchaser’s operations, and where measures

described in B6.6 will not result in satisfactory erosion control.” The purchaser was

authorized to use “alternate methods of erosion control” when agreed to by USDA. Detailed

scarification and subsoiling requirements were also outlined in this section.

CBCA 5089, 5619

6

Section B8.21, “Contract Term Adjustment,” provided for adjustments to the contract

term. Adjustments could be made for the following reasons: delays in the beginning of

operations due to causes beyond the purchaser’s control, poor market conditions for timber,

emergency fire closure, or delays in reconstructing processing facilities for timber.

Section B8.23, “Contract Term Extension,” addressed extensions to the contract term

at the request of the purchaser. These provisions identified requirements that the purchaser

must have met to receive an extension, such as the purchaser’s progress at the time of the

request, payment of consideration in exchange for the extension, and compliance with

operational requirements during performance to date.

Section B8.3, “Contract Modification,” stated, “The conditions of this timber sale are

completely set forth in this contract. Except as provided for in B8.32 and B8.33, this

contract can be modified only by written agreement between the parties.”

Section B8.33, “Contract Suspension and Modification,” authorized the contracting

officer to delay or interrupt the purchaser’s operations or modify the contract in whole or in

part “[to] prevent environmental degradation or resource damage, including but not limited

to harm to habitat, plants, animals, cultural resources, or cave resources; or to ensure

consistency with land or resource management plans.”

Section B9.3, “Breach,” stated:

In [the] event Purchaser breaches any of the material provisions of this

contract, USDA shall give Purchaser notice of such breach and, allowing

reasonable time for remedy of such breach and of USDA’s election to

suspend, may give notice to suspend all or any part of Purchaser’s operations.

Such notice of breach and notice to suspend Purchaser’s operations shall be

written, except oral notices may be given if such breach constitutes an

immediate threat to human life or a threat of immediate and irreparable

damage to National Forest resources. . . . Such suspension shall be lifted as

early as conditions permit.

Section B9.4, “Damages for Failure to Cut or Termination for Breach,” stated that if

the purchaser failed to cut the required timber by the termination date of the contract, USDA

“shall appraise the remaining Included Timber” and determine the appropriate damages in

accordance with the calculations described therein.

Section B9.5, “Settlement,” stated:

CBCA 5089, 5619

7

If obligations of Purchaser have not been fully discharged by Termination

Date, any money advanced or deposited hereunder shall be retained and

applied toward unfulfilled obligations of Purchaser without prejudice to any

other rights or remedies of USDA. Such funds may be treated as cooperative

deposits . . . for uncompleted work 30 days after receipt of written notice from

Contracting Officer to Purchaser of work to be done and Purchaser’s failure

to deny the obligation or to do the work.

Contract Performance

During calendar year 2008, USDA issued quarterly letters to Johnson regarding low

values for the softwood lumber index. Each of the four letters stated that “prices have

declined sufficiently to activate Market Related Contract Term Addition (MRCTA),” in

accordance with section B8.212 of the contract, and extension requests had to be submitted

by the purchaser in writing. Johnson submitted an undated written request for an extension

to the contract under the MRCTA provision. The contracting officer granted the request on

January 26, 2009. Johnson received an extension of one year and six months based on the

first three MRCTA letters. A fourth extension was issued on February 2, 2009, extending

the termination date of the contract to February 1, 2013.

On May 8, 2009, a pre-operations meeting was held between USDA and Johnson,

where they signed an operational tree agreement, authorizing Johnson to cut trees that were

not included in the timber sale as long as the trees were “cut for operational or safety

reasons, within the sale area, and not painted orange or specifically reserved by the Timber

Sale Contract.” The agreement required Johnson to “notify the USDA within 24 hours

giving the location, description, and painted number of tree or trees cut under this

authorization.” Trees were included in the sale at the discretion of the contracting officer.

On November 10, 2009, Johnson submitted its general plan of operations for the

contract and its operating schedule for calendar year 2009, both of which were approved by

USDA. On December 2, 2009, USDA approved the first set of skid trails and landings

proposed by Johnson in the sale area. In February 2010, Johnson hauled its first loads of

timber from Big Shrew South.

During performance, USDA employees visited the sale site to observe and inspect

logging operations, assess contract compliance, document and map completed activities,

annotate acceptance of work, review and approve proposed skid trails and landings,

comment on weather and ground conditions, and rate progress. USDA documented this

information on a form entitled “timber sale inspection report” (TSIR). The form contained

signature blocks for both parties, followed by the statement: “I agree on behalf of Purchaser

(delete if inapplicable),” and “I acknowledge receipt of this document.” Approximately

CBCA 5089, 5619

8

265 TSIRs were completed during performance of the contract. Johnson signed most of

them, but made no comments, objections, or reservations directly on the reports. Nor did

it delete on any of the TSIRs the phrase “I agree on behalf of Purchaser.” On some of the

TSIRs, USDA documented comments or requests made by Johnson during performance.

When Johnson was not on site, USDA mailed the TSIR to Johnson for review, comment, and

signature.

On April 6, 2010, cutting was suspended on the site for breach of the following

sections of the contract: B2.2 “Utilization,” B2.3 “Timber Designations,” C2.35# (Option 1)

“Individual Tree Designation,” B6.1 “Representatives,” B6.3 “Control of Operations,” B6.41

“Felling and Bucking,” and B6.412 “Stump Heights.” Although cutting was suspended,

skidding and hauling activities were permitted to continue. A TSIR, signed by both parties,

documented the alleged violations, but contained no comments, reservations, or objections

by Johnson, nor did Johnson delete the phrase “I agree on behalf of Purchaser.” The

contracting officer issued a formal suspension letter, which also identified conditions for

remedying the breach. On April 13, 2010, the contracting officer lifted the suspension after

verifying that Johnson had remedied the breach.

On August 2, 2010, cutting was suspended on the site for breach of the following

contract provisions: B2.3 “Timber Designations,” C2.35# (Option1) “Individual Tree

Designation,” B6.1 “Representatives,” and B6.3 “Control of Operations.” Twenty-nine

undesignated trees were cut. Johnson self-reported the incident after realizing its error.

Although cutting was suspended, skidding and hauling operations were permitted to

continue. The violations were documented on a TSIR, which contained no comments,

reservations, or objections by Johnson nor did Johnson delete the phrase “I agree on behalf

of Purchaser.” On August 12, 2010, the contracting officer lifted the suspension after

verifying that Johnson had remedied the breach.

On October 27, 2010, a harvest inspector observed “significant ponding and rutting

occurring on the main skid trails due to wet conditions.” The contracting officer suspended

logging operations for the following breaches: B6.1 “Representatives,” B6.3 “Control of

Operations,” and B6.6 “Erosion Prevention and Control.” No further operations were

permitted in the southeast lobe of the subdivision until most of the water dispersed from the

landing or the ground froze. Johnson was told to find a different subdivision to work in with

conditions more suitable for wet weather operations. Johnson was required to install silt

fencing and submit a wet weather operations plan to remedy the breach. The violations were

documented on a TSIR, which contained no comments, reservations, or objections by

Johnson nor did Johnson delete the phrase “I agree on behalf of Purchaser.” Johnson

verbally complained to USDA about being shut down because Johnson planned on returning

to the site the next day to continue working.

CBCA 5089, 5619

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On November 2, 2010, Johnson submitted a letter to the contracting officer stating

that the fencing was installed and operations were moved to a different subdivision. The

letter also outlined Johnson’s plan for avoiding damage to the forest during and after periods

of heavy rainfall. On November 8, 2010, the contracting officer notified Johnson that the

breach had been remedied and the suspension was lifted.

Multiple TSIRs documented incidents where Johnson mistakenly cut one or two

undesignated trees. On those occasions, USDA representatives discussed the circumstances

with Johnson, reviewed the “Designation by Description” to ensure it was understood by

Johnson, and recommended that the contracting officer include those few cut trees in the

sale. On those occasions, USDA did not place Johnson in breach or suspend operations, but

simply noted the non-compliance on a TSIR.

USDA made adjustments to Johnson’s proposed skid trails and landings to comply

with the terms of the contract and avoid cutting trees outside the contract and to minimize

damage to the forest. A TSIR was used to document the parties’ agreement regarding

location and layout of skid trails and landings. Most of the TSIRs addressing the issue

simply conveyed USDA’s approval of the proposed locations and layouts without comment

from Johnson.

Multiple TSIRs documented verbal requests by Johnson to extend or expand skid

trails and landings and USDA’s approval of those requests. For example:

A TSIR, dated December 1, 2010, contained the following comment by the

harvest inspector: “Spoke with Mike Johnson today (PR) as he was leaving

the sale area. His feller has not been available and no volume has been cut on

the NE lobe of this unit. He asked if I could look at the landing location again

and mark a few more trees as he didn’t feel it was large enough. I revisited the

site and marked about 8 more trees w/ green tracer paint (X0469).”

A TSIR, dated February 28, 2011, referenced contract provision B6.422 and

contained the following statement by the harvest inspector: “[M]arked

additional trees for landing clearing with green tracer paint (X0611).”

A TSIR, dated June 2, 2011, contained the following comment by the timber

sale administrator: “Mike informed me of one skid trail that needed to be

extended. This is approved and was painted with green tracer paint (X0611).”

A TSIR, dated July 18, 2011, contained the following comment by the timber

sale administrator: “Approved [and] marked with green tracer paint (X0611)

an extension to the NW most skid trail in 15-3 to provide access to subdivision

CBCA 5089, 5619

corner [and] skid trails as shown below in 15-6.”

administrator illustrated the extension on the TSIR.

10

The timber sale

A TSIR, dated November 20, 2012, documented Johnson’s request for

authorization to use USDA Road 2257 as a landing to log two small areas in

unit 12-1. The contracting officer approved the request.

A TSIR, dated September 28, 2012, contained the following comment by the

timber sale administrator: “Approved requested deviation from original skid

trail location.”

A TSIR, dated May 22, 2013, contained the following comment by the timber

sale administrator: “Approved and marked with green tracer paint skid trails

as shown along with additional trees needed for landing clearing.”

A TSIR, dated June 13, 2013, contained the following comment by the timber

sale administrator: “Walked last skid trail with Mike Johnson and agreed to

move part of the last skid away from road. Approved and marked with green

tracer paint (B0437).”

A TSIR, dated September 8, 2014, contained the following comment by the

timber sale administrator: “Approved and marked with green tracer paint

(D0294) 400' extension of main skid road going SW [and] 3 short skid trails

off of it.”

A TSIR, dated July 2, 2015, contained the following comment by the timber

sale administrator: “Approved and marked with green tracer [paint] (D0570)

main skid road (old road) [and] landing as shown below.” The administrator

also noted that he “planned on marking additional skid roads, but after Mike

looked at a couple of the ones laid out by the contract crew, [Mike]

determined that they were not suitable to his needs [and] needed to be redone.

Layout crew made the skid roads on straight compass bearings which caused

the skid roads to go through skips [and] large old growth stumps.”

Throughout performance, Johnson cut numerous trees in accordance with the

operational tree agreement and requested they be included in the sale. The requests were

documented on TSIRs. Nearly every request was granted by USDA.

On March 15, 2011, USDA informed Johnson that it may qualify for more time

under MRCTA and to submit any requests for an adjustment in writing. Johnson issued a

written request the same day. On March 31, 2011, the contracting officer granted the

CBCA 5089, 5619

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request, entitling Johnson to three months of additional time. The contract termination date

was adjusted to May 1, 2013, and additionally to August 12, 2013, after the contracting

officer approved additional MRCTA requests.

During performance of the contract, Johnson was also responsible for the High Math

Complex timber sale (High Math). USDA awarded Johnson the High Math contract on

August 14, 2007, about five weeks before USDA awarded Johnson the Big Shrew South

contract. High Math required harvesting 49,920 tons of timber, nearly twice the amount

required for Big Shrew South. Prior to both of these awards, Johnson had only ever

completed one USDA contract, with an estimated harvest of 7800 tons. In late 2013,

Johnson subcontracted out the remaining work on High Math.

Johnson had financial and staffing challenges at various times during the contract,

which were known to USDA. Johnson occasionally worked other jobs, especially when

lumber prices were extremely low. During the contract term, Johnson and USDA

maintained a cooperative working relationship despite these challenges.

On July 18, 2013, Johnson requested a contract term adjustment (CTA) for sixty-five

days due to bad weather. The contracting officer substantiated and granted a forty-two-day

CTA on July 30, 2013, in accordance with contract section B8.21, “Contract Term

Adjustment.” The termination date was amended to September 23, 2013.

In September 2013, about a week prior to the termination of the contract, Johnson

requested a one-year contract term extension (CTE). The contracting officer granted the

request in accordance with section B8.23 of the contract after determining that Johnson met

all of the qualifying conditions for the extension. The terms and conditions of the one-year

CTE were captured in a modification to the contract. The new contract termination date was

September 23, 2014, and, as required under the CTE provision of the contract, Johnson had

to pay for the extension.2 The contracting officer established a monthly extension deposit

of $10,328.93, which was based on a bid rate of $11.91 per ton. Pursuant to the

modification, deposits were due for each of the six months remaining in the normal operating

season, as follows: October 31, 2013; November 30, 2013; December 31, 2013; January 31,

2014; February 28, 2014; and August 31, 2014. The contracting officer waived the first

deposit since Johnson already had sufficient funds in its timber account to cover that

2

Adjustments to the contract term under the MRCTA and CTA provisions

extended the contract’s term, but required no payment since they were for reasons such as

bad weather and poor market conditions for timber. A CTE also extended the contract term,

but required payment since it was solely at the purchaser’s request.

CBCA 5089, 5619

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payment.3 The modification was not signed by appellant or the required witnesses, but

neither party claimed it was not bound by its terms. The modification did not contain a

release of claims. Johnson was eager to continue working the sale, but expressed concern

about the deposit amount being too high and worried that it would not be able to complete

the contract as a result. The contracting officer explained the contractual consequences if

Johnson walked off of the job. Johnson asked the contracting officer to check the amount.

USDA made no changes to the deposit amount in response to Johnson’s concerns.

Scale reports in the record showed that during the one-year CTE period (September

2013–September 2014), Johnson hauled fourteen loads of timber. Scale reports covering

each calendar year of performance reflected the following load totals:

YEAR

# LOADS HAULED

2010

109

2011

322

2012

159

2013

91

2014

21

2015

26

Over the remaining course of the Big Shrew South contract, Johnson received

additional time (under the CTA provision of the contract) due to bad weather, lack of

government appropriations, a government shutdown, and other matters. The final adjusted

termination date for the contract was February 13, 2016.

Johnson’s Certified Claim and USDA’s Refund to Johnson

On June 26, 2015, while harvest operations continued, Johnson submitted a certified

claim for $1,112,417, alleging that unreasonable management decisions by USDA restricted

Johnson’s ability to productively log the sale. Johnson claimed $741,837 for lost

productivity; $22,000 for equipment damage; $54,000 for mandating the use of inadequate

skid trails; $52,600 for unreasonable suspensions of work; lost profits in the amount of

3

The record shows different amounts for the same figure. The lowest amount

was $61,000, the highest was $75,000. The total figure included the five deposit payments,

funds in the account, and a stumpage payment of $10,599.

CBCA 5089, 5619

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$91,980 for unharvested timber;4 and business devastation damages in the amount of

$150,000.

On August 24, 2015, the contracting officer documented the substance of a phone call

she had with Johnson about the claim. The document stated, in relevant part:

I told [Mike] that I had been working on my [final decision] in response to his

claim and in the process, discovered that the CTE appraisal was done using an

incorrect date and the stumpage rate should not have changed. He said he was

very frustrated, as those payments broke him . . . . I told him that I would put

together a modification to change the rates back, refund him . . . . He asked if

. . . he [could] get more time added on so he [could] finish the contract. . . . I

reminded him that I already asked [the regional office] and they said nothing

was coming. He asked if an exception could be made due to the local

conditions, with mills shutting down. I told him he could submit a written

request and I’ll pass it up.

On August 26, 2015, Johnson signed a second modification to the contract correcting

the rates for the one-year CTE. The modification reflected the correct rate of $2.30 per ton,

versus the charged rate of $11.91 per ton, and the correct monthly deposit of $159.95 per

month, rather than the assessed amount of $10,328.93 per month. Johnson again requested

more time due to the error. USDA issued Johnson a refund, but did not respond to the

request for additional time.

The Contracting Officer’s Final Decision and Johnson’s Appeal

On November 6, 2015, the contracting officer issued a final decision denying

Johnson’s claim in its entirety and asserting a counterclaim of $2424.02 for costs resulting

from the purchaser’s failure to cut and remove timber prior to the CTE. The decision

acknowledged that USDA owed Johnson $2162.16 in interest for excess CTE deposits, but

maintained that this amount was offset by USDA’s counterclaim and that Johnson actually

owed USDA $261.86.

On December 4, 2015, Johnson timely appealed the contracting officer’s final

decision to the Board. Johnson’s appeal was docketed as CBCA 5089. In February 2016,

while the appeal was pending before the Board, the Big Shrew South contract expired.

4

For the lost profits portion of the claim, Johnson contended that USDA

breached the contract when it required Johnson to pre-pay unharvested timber at $12 per ton,

instead of its original bid price of $4 per ton.

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Approximately 6102 tons of timber remained unharvested. Johnson’s total timber harvest

was 20,647 tons.

USDA’s Claim Against Johnson, Johnson’s Appeal, and USDA’s Summary Judgment

Motion

By letter dated November 2, 2016, the contracting officer asserted a claim against

Johnson, stating that USDA would retain $21,551.86 of Johnson’s money to complete

post-termination work. The letter identified itself as a contracting officer’s final decision.

On January 31, 2017, Johnson appealed the decision to the Board. The appeal was docketed

as CBCA 5619 and consolidated with CBCA 5089.

USDA filed a motion for summary judgment on Johnson’s entire claim. The Board

granted the motion as to the business devastation claim and denied the motion on the

remaining claims. Michael Johnson Logging v. Department of Agriculture, CBCA 5089,

18-1 BCA ¶ 36,938 (2017). After informal attempts to resolve the disputes were

unsuccessful, the Board heard testimonial evidence on the remaining claims.

Discussion

We evaluate claims that allege a violation of the duty of good faith and fair dealing

consistent with the principles articulated in the Restatement of Contracts, relevant case law,

and the terms of the underlying contract. The principles and precedent regarding this duty

are well established. “Every contract imposes upon each party a duty of good faith and fair

dealing in its performance and enforcement.” Restatement (Second) of Contracts § 205

(1981), quoted in Alabama v. North Carolina, 560 U.S. 330, 351 (2010). Failure to fulfill

that duty constitutes a breach of contract, as does failure to fulfill a duty “imposed by a

promise stated in the agreement.” Restatement (Second) of Contracts § 235. “The covenant

of good faith and fair dealing . . . include[s] the duty not to interfere with the other party’s

performance and not to act so as to destroy the reasonable expectations of the other party

regarding the fruits of the contract.” Centex Corp. v. United States, 395 F.3d 1283, 1304

(Fed. Cir. 2005). These principles have been applied to contracts with the Federal

Government. E.g., Precision Pine & Timber, Inc. v. United States, 596 F.3d 817, 828 (Fed.

Cir. 2010); Malone v. United States, 849 F.2d 1441, 1445-46 (Fed. Cir. 1988).

Johnson alleges that USDA breached the implied duty of good faith and fair dealing

through its administration of the contract, which interfered with its ability to productively

log the sale. Johnson also alleges a breach of the contract’s terms when USDA erroneously

calculated deposit amounts for a one-year extension to the contract. As the party seeking

damages for these breaches, Johnson has the burden of proving both the fact of its loss and

CBCA 5089, 5619

15

the amount. Native American Construction Services, LLC v. Department of the Interior,

CBCA 5232, 16-1 BCA ¶ 36,512.

Skid Trails and Equipment Damage

Johnson claimed USDA did not permit it to construct straight corridors consistent

with industry standards, but instead required Johnson to “zig-zag” around saved trees, felled

trees, and other forest growths, hindering its operations and damaging its equipment in

violation of certain implied duties. To decide this claim, we first look to the terms of the

contract. Airclaims, Inc. v. Department of the Interior, CBCA 2554, 12-2 BCA ¶ 36,156

(citing LAI Services, Inc. v. Gates, 573 F.3d 1306, 1314 (Fed. Cir. 2009)). If the plain

language of the contract is unambiguous on its face, the inquiry ends, and the contract’s plain

language controls. Hunt Construction Group, Inc. v. United States, 281 F.3d 1369, 1373

(Fed. Cir. 2002).

Here, the contract clearly delineated the requirements for skid trails. The contract

specified the width of each trail, the minimum spacing between trails, how to handle fallen

trees in the trails, and how much of the surrounding area could be disturbed by the trails.

The contract also required USDA’s approval for the location of skid trails and their layout

prior to their construction. Johnson accepted the contract’s requirements when it bid on the

contract without seeking clarification of its terms or requesting changes to them. Although

USDA admitted to making some adjustments to the skid trails laid out by Johnson, the

record does not support a finding of contract interference.

On the contrary,

contemporaneous inspection reports show that Johnson did not object to these adjustments

when they were made or oppose them as inconsistent with industry standards. The reports

also show that where Johnson sought deviations or extensions to skid trails, or asked that

additional trees be cut from them, the requests were almost always granted. A single report

refers to a statement by Johnson that certain skid trails were unsuitable because the layout

crew made the skid trails on straight compass bearings, causing them to go right through

skips and large growth stumps. During this exchange, Johnson merely stated that the trails

needed to be redone. Johnson made no reference to industry standards.

In addition to the contract’s clear terms, the record contained no corroborating

evidence regarding the conditions of skid trails or their impact on performance, as alleged

in Johnson’s claim. The Board has held that “a party asserting a claim has met its burden

of proof by presenting corroborating evidence in support of that claim.” Systems Integration

& Management, Inc. v. General Services Administration, CBCA 1512, et al., 13 BCA

¶ 35,417 (citing Navigant SatoTravel v. General Services Administration, CBCA 449, 11-1

BCA ¶ 34,765). No photographs were presented showing trees left in the middle of skid

trails or bends in the trails that allegedly impeded performance. Not a single member of

Johnson’s crew testified about having to operate around standing trees. None of the other

CBCA 5089, 5619

16

contemporaneous documents contained comments referring to delays caused by irregular

skid trails or complaints about the wear and tear on equipment from having to “zig-zag”

around trees. All we have are Johnson’s general statements about the layout of the skid trails

and their impact on productivity—issues which were raised for the first time in Johnson’s

claim to the contracting officer. Assertions without corroboration are insufficient to prove

contract interference, especially since we find the contracting officer’s explanation

reasonable (i.e., that the adjustments to skid trails were slight and were made to avoid cutting

reserved trees).

We also note that before harvesting began, Johnson signed an operational tree

agreement which authorized it to cut trees that were not included in the timber sale, as long

as they were cut for operational or safety reasons and not specifically reserved by the

contract. Multiple inspection reports reflected Johnson’s understanding of its authority

under that agreement and its effective use of the same during performance. Johnson did not

explain why this agreement was inadequate to address its operational needs in skid trails, but

we presume, based on information in the record, it was due to the prescription which

prevented the cutting of certain trees. The prescription was a contract requirement, with

which Johnson was required to comply. Nonetheless, Johnson’s expert testified that a

different contract provision authorized the removal of all trees within a constructed area,

which included skid trails. The contracting officer disagreed with this interpretation, as do

we.

“In interpreting the language of a contract, reasonable meaning must be given to all

parts of the agreement so as not to render any portion meaningless, or to interpret any

provision so as to create a conflict with other provisions of the contract.” Serco, Inc. v.

Pension Benefit Guaranty Corp., CBCA 1695, 11-1 BCA ¶ 34,662 (citing Fortec

Constructors v. United States, 760 F.2d 1288, 1292 (Fed. Cir. 1985); United States v.

Johnson Controls, Inc., 713 F.2d 1541, 1555 (Fed. Cir. 1983)). An interpretation that gives

a reasonable meaning to all provisions of a contract is favored over one that renders a

particular provision “useless, inexplicable, inoperative, void, insignificant, meaningless,

superfluous, or achieves a weird and whimsical result.” Arizona v. United States, 575 F.2d

855, 863 (Ct. Cl. 1978); see also, e.g., Gould, Inc. v. United States, 935 F.2d 1271, 1274

(Fed. Cir. 1991). Because Johnson’s interpretation of the construction clearing provision

would render the tree prescription meaningless, we reject it. Even if we were to accept it,

we are not persuaded that the skid trails were so congested with standing trees that they

interfered with Johnson’s ability to harvest the timber consistent with the contract’s terms.

Johnson has not offered a specific example of operations that were adversely impacted due

to trees left standing in skid trails. On the contrary, the record is replete with examples of

cooperation between the parties when laying out skid trails.

CBCA 5089, 5619

17

In light of the contract’s clear terms and the substantial, performance-related

information in the record, we cannot accept Johnson’s assertions of interference related to

the construction and approval of skid trails. Expert testimony that industry standards

required straight skid trails does not prevail over the clear terms of the contract. Sam’s

Electric, GSBCA 8497, 89-3 BCA ¶ 22,166. Johnson’s argument that USDA permitted

straight skid trails on other timber sales fails for the same reasons. Adjudicating the merits

of Johnson’s claims under this contract requires us to interpret the same. We see no reason

to entertain extrinsic evidence when the terms of this contract were clear.5 Douglas P.

Fleming, LLC v. Department of Veterans Affairs, CBCA 3655, 16-1 BCA ¶ 36,509 (citing

McAbee Construction, Inc. v. United States, 97 F.3d 1431, 1435 (Fed. Cir. 1996); Alaska

Lumber & Pulp Co. v. Madigan, 2 F.3d 389, 392 (Fed. Cir. 1993)).

Since we find that the planning and administration of skid trails were consistent with

the terms of the contract, we need not address Johnson’s claims for equipment damage

purportedly caused by irregular skid trails. Accordingly, we deny all claims attributed to

irregular skid trails and equipment damage.

Landing Size

Johnson claimed that landings were too small, making work difficult and dangerous.

As with the skid trails, Johnson attributed these conditions to USDA’s mismanagement of

the contract, but unlike the requirements for skid trails, the contract did not specify

dimensions for landings. Instead, the contract based landing size on “efficiency.” Even

where soil erosion was a significant concern in specified sale units, the contract did not

impose any dimensions for constructing landings. In those areas, the contract required the

purchaser to mark clearing limits on the ground and to obtain approval by USDA. By

establishing operational efficiency as the benchmark for determining landing size, the

contract authorized Johnson to decide how large or small each one should be. USDA’s role

was generally limited to approving the location of landings.

5

The United States Court of Appeals for the Federal Circuit has held that even

where a contract is unambiguous, evidence of trade practice and custom may be useful in

interpreting a contract term whose ordinary meaning is different from the accepted industry

meaning. TEG-Paradigm Environmental, Inc. v. United States, 465 F.3d 1329, 1338 (Fed.

Cir. 2006) (citing Hunt Construction Group, Inc., 281 F.3d at 1373). The fact that Johnson’s

engineer, a former Forest Service employee, laid out skid trails on straight compass bearings

lends credibility to this argument. However, since Johnson did not provide sufficient

evidence of skid trail conditions as alleged, industry standards are unavailing in these

circumstances.

CBCA 5089, 5619

18

Despite this clear division of responsibilities, Johnson maintains that USDA exceeded

its authority by insisting on smaller landings, making the work less efficient and significantly

more dangerous. The evidentiary record does not support these assertions. On the contrary,

it illustrates a cooperative pattern of planning, approval, and construction. For example,

TSIRs dated December 1, 2010, May 22, 2013, August 27, 2013, and July 2, 2015, all

showed that Johnson asked USDA to mark additional trees to widen landings, and they were

marked as requested. The contracting officer testified that she recalled making one or two

adjustments to landings to comply with the requirement that landings adjacent to certain

roads had to be “a minimum of 50 feet off the road surface where feasible unless otherwise

agreed to in writing by the USDA.” This provision, like several others, impacted the layout

of landings without specifically defining their dimensions. Johnson did not dispute this

explanation nor did Johnson provide any evidence of specific instances during performance

where it was forced to operate in a landing that did not comply with the contract’s terms.

Even where serious injuries occurred on a landing, Johnson offered no evidence linking the

size of that landing with specific directives or demands by USDA personnel.

Before the hearing, Johnson revisited the sale area to measure the landings. Johnson

testified that they ranged in size from 73 feet by 78 feet, to 144 feet by 111 feet. Expert

testimony on this issue established the ideal landing size as 128 feet by 128 feet because it

allows for safe and efficient operations consistent with industry standards. The fact that

many of the landings on Big Shrew South were smaller than the industry standard is not

evidence of breach, especially since the contract gave Johnson the discretion to determine

landing sizes. Furthermore, had landing sizes been a significant concern during

performance, we would have expected Johnson to have measured them at that time and to

have communicated those concerns to USDA officials, but Johnson did neither. To explain

this evidentiary void, testimony was offered regarding Johnson’s compliant disposition and

general reluctance to challenge agency decisions during performance. Explaining a lack of

evidence, however, should not be confused with meeting an evidentiary burden.

In reviewing what was offered as evidence of contract interference—testimony about

ideal landing sizes, safety violations with no direct connection to agency actions, and

adjusting landing sizes to comply with the contract’s terms—we find that such evidence fails

to support Johnson’s assertions of mismanagement and interference. Accordingly, we deny

Johnson’s claim for lost productivity as it pertained to landing sizes.

The Requirement to Use Pre-Existing Skid Trails

Johnson claimed that the requirement to use pre-existing skid trails caused flooding

and halted work. The contract instructed bidders to “[u]se existing skid trails where they

meet spacing guidelines.” When Johnson bid on the contract, Johnson signed a bid form

certifying and representing that it read and understood the terms of the contract, including

CBCA 5089, 5619

19

the requirement to use existing skid trails where they met spacing guidelines. Johnson

further agreed to assume the responsibility “to clarify any questions before signing this

form,” and, by signing, Johnson “expressly adopt[ed] the terms of this bid form and the

sample contract as material parts of the Bidder’s offer for the advertised timber or forest

product.” Jonathan Noeldner v. Department of Agriculture, CBCA 5379, 16-1 BCA

¶ 36,499. Despite Johnson’s significant logging experience, Johnson presented no evidence

that it sought clarification of this requirement or a modification of the contract prior to

bidding on the contract. Thus, by submission of his bid, Johnson agreed to use existing skid

trails where required.

At some point during performance, Johnson expressed a desire to cut trails at higher

elevations to avoid standing water, but we found no evidence that any specific requests were

submitted to the contracting officer or other officials for approval. Without a contract

modification or an approved deviation from the contract’s requirements, Johnson was

required to comply with them, including the requirement to use pre-existing skid trails where

they met spacing guidelines. The fact that using such trails made performance more difficult

during wet weather does not constitute interference. We deny the claim.

Performance Suspensions

“Both the duty not to hinder and the duty to cooperate are aspects of the implied duty

of good faith and fair dealing.” Precision Pine, 596 F.3d at 820 n.1. Johnson claims that

USDA violated these duties when it suspended Johnson’s operations on three separate

occasions: in April 2010, August 2010, and October 2010. In its claim for damages,

Johnson seeks compensation for idle equipment and labor costs while suspended for a total

of twenty-five days. Johnson acknowledges that the contract authorized USDA to suspend

performance in the event of a material breach, but maintains that, under the circumstances

of each breach, suspension was not warranted. According to Johnson, the breaches were too

minor in nature to suspend work. By shutting Johnson down on these occasions, as opposed

to simply documenting, warning, and remedying the breach in place, Johnson asserts that

USDA hindered Johnson’s performance in violation of USDA’s duty to cooperate and,

consequently, deprived Johnson of the fruits of its labor. We disagree.

Based on the covenant of good faith and fair dealing inherent in every contract, all

parties to a contract are charged with acting reasonably. Butte Timberlands, LLC v.

Department of Agriculture, CBCA 646, 08-1 BCA ¶ 33,730. Bearing that standard in mind,

we find that USDA acted reasonably when it suspended Johnson’s operations. All three

suspensions occurred during the first year of performance, which was approximately

two-and-a-half years after the contract was awarded. Agency officials explained that at the

outset of a timber contract, it is important to ensure the purchaser understands the

requirements, especially the tree designation. In suspending Johnson’s operations the first

CBCA 5089, 5619

20

time, USDA determined that Johnson’s inability to distinguish between trees that could be

cut and those that could not rendered its continued operations a threat to USDA resources.

Johnson illustrated this concern when it progressed from cutting five undesignated trees

under the first suspension to mowing down a twenty-nine-tree wind buffer just four months

later. The fact that it was twenty-nine trees among thousands, or that Johnson self-reported

the violation, does not transform a contractual exercise of authority into an abuse of

discretion.

Furthermore, the first two suspensions were partial suspensions—only cutting was

suspended. Skidding and hauling operations were permitted to continue. The first

suspension was lifted the same day that Johnson remedied the breach, and the second one

was lifted two days after Johnson remedied the breach. The third suspension was issued due

to erosion damage caused by wet weather operations. Lifting the suspension required the

installation of silt fencing to prevent further erosion. Although Johnson installed the fence

as directed, USDA halted operations in that subdivision until the water dispersed and the

ground froze. In the meantime, however, Johnson was permitted to move its operations to

an area more suitable for wet weather work.

In light of the contract’s clear terms and the relevant facts, we find no breach of

USDA’s implied duties based on any of the suspensions. Contrary to Johnson’s repeated

allegations that USDA “shut it down” and destroyed its momentum, we find that each

suspension allowed Johnson to continue working on some aspect of the sale. This is the

essence of reasonableness. There was no subterfuge, no lack of cooperation, and no abuse

of power to determine compliance—none of that was present here. The election to suspend

Johnson’s operations was simply a contractual response to a violation of the parties’

agreement. We are further reassured that USDA acted reasonably based on the information

reflected in multiple TSIRs, which showed that where one or two trees were mistakenly cut,

Johnson was able to continue operating. This demonstrated that USDA not only tailored

suspensions to remedy specific transgressions, but also acted reasonably in those cases where

Johnson had been working for several years on the sale but made an occasional mistake. For

these reasons, we find that where suspensions were issued for cutting the wrong trees or for

causing erosion damage, the breaches were Johnson’s, not USDA’s. Accordingly, we deny

Johnson’s claim for damages based on performance suspensions.

Contract Extension Deposits

In approving Johnson’s request for a one-year extension, USDA grossly miscalculated

the amount of the required extension deposits. Because the contract’s terms established a

method for calculating the deposits, and USDA failed to comply with it, Johnson claimed

that USDA breached the contract’s express terms, depriving Johnson of much-needed capital

CBCA 5089, 5619

21

to complete performance. In its claim, Johnson seeks lost profits in the amount of $91,980

for the unharvested timber.

USDA admitted to the miscalculation, but treated it as an administrative error

remediable through a simple modification to the contract to correct the rates and refund the

excess deposit amounts. In addition to a refund, the contracting officer determined that

USDA owed Johnson $2162.16 in interest for holding the excess deposits. Although the

parties do not dispute the facts underlying this issue, they disagree on the legal import of

those facts. Here, we must decide whether USDA’s actions constituted a breach of contract

and, if they did, what the appropriate remedy is for the breach.

To recover for a breach of contract, a party “must allege and establish (1) a valid

contract between the parties, (2) an obligation or duty arising out of the contract, (3) a breach

of that duty, and (4) damages caused by the breach.” TAS Group, Inc. v. Department of

Justice, CBCA 52, 08-1 BCA ¶ 33,866. The record readily establishes USDA’s breach.

First, the Big Shrew South contract at B.8.23 contained a provision for calculating contract

extensions. Second, that provision directed USDA to use “appraisal data in effect 45 days

prior to the original Termination Date” (emphasis added); the contract’s original termination

date was December 31, 2010. Third, in her final decision, and at the hearing, the contracting

officer admitted that USDA used the wrong termination date (September 23, 2013), resulting

in a monthly deposit amount of $10,328.93, rather than the correct amount of $159.95 per

month. Furthermore, the contract contained no disclaimers or remedy-granting clauses that

would preclude a finding of breach. See Cochran Lumber Co. v. Department of Agriculture,

CBCA 895, 09-2 BCA ¶ 34,154 (no finding of breach when USDA failed to comply with

the Forest Service Manual in calculating timber estimates since the contract did not expressly

require compliance with the manual and because purchaser signed a disclaimer holding

USDA harmless from such errors); cf. Cleereman Forest Products, AGBCA 2000-101-1,

02-1 BCA ¶ 31,664 (2001), reconsideration denied, 02-1 BCA ¶ 31,829 (where a breach of

contract was found when USDA did not abide by the Timber Cruising Handbook in

developing the cruise, but the contract expressly stated that it did).

USDA advanced several arguments against a finding of breach. These included the

fact that the contracting officer identified the error, not Johnson; the understanding that

timber sales do not guarantee a profit; and the concern that a finding of breach would

dissuade contracting officers from granting CTEs in the future since they are granted at the

discretion of the contracting officer. We are not persuaded by these arguments. The

contracting officer identified the error in response to Johnson’s certified claim and refunded

the excess deposits two years after they were assessed. Although the contract did not

guarantee that Johnson would make a profit, that principle speaks to the contractor’s ability

to perform—not to the circumstances here, where the agency’s miscalculation was so

CBCA 5089, 5619

22

substantial that the resulting deposits could not be construed as a routine cost of doing

business.

Normally, an overcharge like the one at issue here will not provide a basis for

damages, as a contractor is expected to be able to have sufficient financial resources to

perform its contracts. See Litchfield Manufacturing Corp. v. United States, 338 F.2d 94, 98

(Ct. Cl. 1964) (inadequate financial resources do not excuse non-performance since the

financial ability and capacity of a contractor to perform a government contract is a matter

within its control); see also RAK Contractors v. Department of Agriculture, CBCA 4011,

15-1 BCA ¶ 35,934 (“A lack of working capital is not an excuse for non-performance of a

contract when the Government does not contribute to the financial problem of the

contractor.”); Electro Optical Mechanisms, Inc., ASBCA 20422, 79-2 BCA ¶ 14,118 (“The

financial burden resulting from production and performance disruptions falls upon appellant

under the general rule that contractors have the responsibility to provide the necessary

financial resources for performance.”). Nevertheless, that rule cannot apply in situations in

which the agency’s financial imposition is so overwhelming and outrageous that it would

put even the most conservatively and carefully positioned contractor in dire straits. Here,

USDA’s demand that, contrary to the actual terms of the contract, the contractor pay a fee

that was more than 6000% above what the contract required made it impossible for this

particular contractor to harvest the remaining timber. All of the funding that Johnson would

have used to perform the logging activities had been taken by USDA. Such a demand would

have done the same to virtually any contractor of the size of appellant, given that contractors

of that size and nature do not typically possess the type of resources to fulfill the financial

demand that USDA incorrectly imposed here. See Cleereman, 02-1 BCA ¶ 31,664 (“While

every Government failure to follow a procedure . . . is not material and every failure by the

Government does not [entitle] a purchaser to relief for breach, this case involves specific

overwhelming facts.”).

As to the last argument, regarding the impact that a finding of breach will have on

future CTE requests, we decline to speculate on what other contracting officers would do

under similar circumstances, but we are generally optimistic that such errors are not routine.

USDA’s breach was plain, and we find its arguments to the contrary unavailing. We turn

now to the issue of Johnson’s damages.

USDA previously determined that the proper measure of Johnson’s damages was

$2162.16, which represented interest on the overcharged amounts. We disagree with

USDA’s determination. Interest is an appropriate remedy in cases that involve a delay in

payment or the withholding of a payment owed to a party. See Ramsey v. United States, 101

F. Supp. 353, 356 (Ct. Cl. 1951) (“The law is well-settled that as a general rule, special

damages, beyond the amount recognized as legal interest, cannot be recovered for a breach

of contract to pay money which results only in a delay in payment.” (citing Loudon v. Taxing

CBCA 5089, 5619

23

District, 104 U.S. 771 (1881))). The circumstances here are different. Johnson was not

seeking payment of an invoice. Johnson made payments to USDA in exchange for more

time to harvest the remaining timber. Any timber left standing in the sale area when the

contract expired meant Johnson would not only forfeit what it paid USDA for the

unharvested timber, but also that Johnson would lose the opportunity to harvest and sell the

timber for a profit.

The common law measure of damages for breach of contract is to place the contractor

in as good a position as it would have been had the breach not been committed. Ardco Inc.

v. Department of Agriculture, AGBCA 2003-183-1, 06-2 BCA ¶ 33,352. “One way the law

makes the non-breaching party whole is to give him the benefits he expected to receive had

the breach not occurred.” Glendale Federal Bank v. United States, 239 F.3d 1374, 1380

(Fed. Cir. 2001) (citing Restatement (Second) of Contracts § 344(a)). “The benefits that

were expected from the contract, ‘expectancy damages,’ are often equated with lost profits,

although they can include other damage elements as well.” Id.; see also Force 3, LLC v.

Department of Health & Human Services, CBCA 6654 (Apr. 27, 2021). The test for lost

profits requires the non-breaching party to establish, by a preponderance of the evidence, that

(1) its loss was the proximate result of the breach, (2) the loss of profits caused by the breach

was within the contemplation of the parties because the loss was foreseeable or because the

defaulting party had knowledge of special circumstances at the time of contracting, and (3)

a sufficient basis exists for estimating the amount of lost profits with reasonable certainty.

Energy Capital Corp. v United States, 303 F.3d 1314, 1325 (Fed. Cir. 2002).

Here, the evidence establishes a clear link between the agency’s breach and Johnson’s

critical lack of operating capital. The agency’s own expert witness pointed to insufficient

cash flow as a significant factor in Johnson’s failure to complete the sale. The witness

observed that, without adequate funds to pay crews, logging operations substantially

declined. Agency inspection reports issued during the CTE period documented the lack of

activity on the sale, even when the weather was ideal for logging operations. Corresponding

scaling records underscored this lack of activity: Johnson hauled a mere fourteen loads

during the CTE period, whereas previous annual hauls consisted of 91, 159, 322, and 109

loads.

USDA points to that same performance record to support the theory that Johnson

itself—not USDA—was the impediment here. Johnson’s performance at various times was

not without its challenges. Those challenges, however, were not an intervening cause of

Johnson’s damages during the one-year extension period. At that time, Johnson had

subcontracted High Math to another contractor and had completed nearly 80% of the Big

Shrew South contract. Without the funds to pay a crew and other operating costs, however,

Johnson’s owner self-performed much of the work, which resulted in significantly lower

hauls. The consequence of the agency’s breach was clear: without adequate funding, the

CBCA 5089, 5619

24

CTE was fruitless. Each miscalculated extension deposit constituted a breach of the

contract’s express terms, compounding Johnson’s performance burdens. Despite Johnson’s

attempts to regain momentum, it was unable to complete the harvest.

The second factor that we must consider is whether Johnson’s damages were

foreseeable. In Chain Belt Co. v. United States, 115 F. Supp. 701 (Ct. Cl. 1953), the Court

of Claims established a fact-based standard for foreseeability of lost profits. The Court

quoted from the Restatement of Contracts: “If the injury is one that follows the breach in

the usual course of events, there is sufficient reason for the defendant to foresee it; otherwise

it must be shown that the defendant had reason to know the facts and foresee the injury.”

Restatement of the Law, Contracts § 330. A mathematical error that eviscerates the

operating capital of a small business creates a foreseeable loss. Moreover, Johnson raised

concerns about the deposit amount at the outset of the CTE period, placing USDA on notice

that the deposit amounts were plainly excessive. Based on these facts, there can be no doubt

that USDA had reason to anticipate that the breach would cause the type of loss incurred

here. See Nycal Offshore Development Corp. v. United States, 743 F.3d. 837, 840-41 (Fed.

Cir. 2014) (“[G]iven the terms of the lease agreements, the government assumed the risk that

if it interfered with the oil companies’ option to explore, ‘it was on the hook for whatever

profits could be established with meaningful certainty.’”).

Notwithstanding that conclusion, the requirement that damages be foreseeable carries

with it a contractor’s duty to mitigate its damages. Restatement (Second) of Contracts § 350.

“Once an unforeseeable event occurs, the contractor cannot sit back and fail to take

reasonable steps in response to it . . . it has an obligation to attempt to mitigate the resulting

damage.” Yates-Desbuild Joint Venture v. Department of State, CBCA 3350, et al., 17-1

BCA ¶ 36,870 (citing Midwest Industrial Painting of Florida, Inc. v. United States, 4 Cl. Ct.

124, 133 (1983)). If Johnson could have taken steps to reduce its damages, its recovery is

limited by this duty. Here again, we note the unusual circumstances of this case and find that

Johnson’s hauls during the CTE, meager as they were, were an attempt to mitigate its losses.

Furthermore, when the agency finally acknowledged its miscalculation, Johnson implored

the contracting officer to grant it additional time, but such requests fell on deaf ears.

Returning the deposits without granting Johnson the opportunity to complete the harvest

deprived Johnson of its best opportunity to mitigate its damages. Any meaningful argument

that an award of lost profits would disproportionately compensate Johnson was stripped

away by the agency’s own actions.

The Federal Circuit has held that when a reasonable probability of damage can be

clearly established, uncertainty as to the amount will not preclude recovery. California

Federal Bank v. United States, 245 F.3d 1342, 1350 (Fed. Cir. 2001). On the other hand,

the computation of damages must be more than mere speculation. Bob L. Walker v.

Department of Agriculture, CBCA 2131, et al., 18-1 BCA ¶ 36,921 (citing Willems

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25

Industries, Inc. v. United States, 295 F.2d 822, 831 (Ct. Cl. 1961)); see also Nu-Way

Concrete Co. v. Department of Homeland Security, CBCA 1411, 11-1 BCA ¶ 34,636.

Johnson based its calculation of lost profits on the amount of timber it paid for but left

standing, then reduced that amount by its performance costs. This amount was relatively

easy to quantify. The volume of unharvested timber at contract expiration was undisputed,

and lumber prices and performance costs were readily ascertainable. The record is replete

with performance data and financial information, including scaling reports, USDA bills of

collection for harvested timber, confirmation of payment receipts, USDA Timber Sale

account statements, and timber appraisals, which provided detailed data on performance

costs. Johnson based his claim for lost profits, in the amount of $91,980, on 180 loads of

unharvested timber at the time of claim submission, multiplied by $1400 per load, then

multiplied again by a cost factor of .365.

USDA did not dispute these figures at any point from receipt of Johnson’s claim

through the hearing and post-hearing submissions. USDA’s expert witness was an

experienced Forest Service auditor who was called for the purpose of rebutting the damages

report on lost productivity and other claims produced by Johnson’s accounting expert.

Notwithstanding the scope of this testimony, the agency was free to address the issue of

Johnson’s claim for lost profits, but did not. We find no reason to challenge it here.

However, because scaling reports show that Johnson hauled five additional loads of timber

between submission of its claim and the expiration of the contract, Johnson’s load count

should be reduced by five. Accordingly, we find $89,425 to be the appropriate measure of

Johnson’s damages.

USDA’s Counterclaim

In the contracting officer’s final decision, the agency asserted a counterclaim against

Johnson in the amount of $2424.02, consisting of $47.27 in interest on timber left standing

at the time of the CTE and $2376.75 for the costs that USDA incurred to re-establish cutting

unit boundaries and re-mark areas requiring protection on the sale area. USDA contended

that it incurred these costs due to the purchaser’s failure to cut and remove timber prior to

the CTE. The latter figure allegedly covered salary costs of USDA employees ($2081.25)

and the costs of flags and tags ($295.50). The contracting officer stated that these amounts

were not known at the time of the CTE, yet the contracting officer previously determined

that Johnson met all of the qualifying conditions for the CTE.

In response, Johnson stated that this work fell within the scope of the agency’s duties,

so USDA, not Johnson, was responsible for funding these costs. The agency did not respond

to this assertion nor provide any additional evidence in support of its claim. The Board has

found that a party asserting a claim has met its burden of proof by presenting corroborating

evidence in support of that claim. Navigant SatoTravel. USDA offered no such

CBCA 5089, 5619

26

corroboration. For these reasons, we conclude that USDA has not met its burden of proof

with regard to its counterclaim. The agency’s claim against Johnson for $2424.02 is denied.

USDA’s Second Claim Against Johnson (CBCA 5619)

The appeal docketed as CBCA 5619 stemmed from a final decision by the contracting

officer to retain a cash performance bond of $6000 and the cash balance of $15,551.86

remaining in Johnson’s timber account for a total $21,551.86. The contracting officer stated

that these amounts were retained to complete post-termination work on Big Shrew South.

In reviewing the record, we find that USDA’s claim was not supported by evidence

of actual costs incurred by the agency, but rather by email messages with various estimates

and a spreadsheet of proposed costs. We need not address the sufficiency of this evidence,

however, since we determined under CBCA 5089 that USDA’s breach precluded Johnson

from completing the sale. We deny USDA’s claim for unfinished restoration work for the

same reason. Accordingly, we grant Johnson’s appeal of the agency’s claim.

Decision

We GRANT IN PART the appeal in CBCA 5089. Johnson’s claims for lost

productivity, equipment damage, use of inadequate skid trails, and suspensions are denied.

Johnson’s claim for lost profits is granted, but reduced. The agency shall pay Johnson

$89,425, plus interest consistent with 41 U.S.C. § 7109. This award of damages vacates and

replaces the agency’s previous award of $2162 in interest for excess deposits.

We GRANT the appeal in CBCA 5619. All amounts retained by the agency under

this appeal shall be returned to Johnson.

Kathleen J. O’Rourke

KATHLEEN J. O’ROURKE

Board Judge

We concur:

Patricia J. Sheridan

PATRICIA J. SHERIDAN

Board Judge

Jonathan D. Zischkau

JONATHAN D. ZISCHKAU

Board Judge