S. S. SILBERBLATT, INC. v. THE UNITED STATES, 193 Ct. Cl. 269

Per Curiam: Tbis case was referred to Trial Commissioner George Willi with directions to make findings of fact and recommendation for conclusions of law under the order of reference and Rule 134(h). The commissioner has done so in an opinion and report filed on October 14,1969. Exceptions to the commissioner’s opinion, findings and recommended conclusion of law were filed by plaintiff. Defendant has requested the court to adopt the commissioner’s opinion, findings and conclusion.

The case has been submitted to the court on oral argument of counsel and the briefs of the parties. 'Since the court agrees with the commissioner’s opinion, findings and recommended conclusion of law, as hereinafter set forth, it hereby adopts the same as the basis for its judgment in this case. Therefore, plaintiff is entitled to recover $29,300 and judgment is entered for plaintiff in that sum.

OPINION OP COMMISSIONER Willi, Commissioner: Plaintiff, a general contractor operating as a New York corporation, was the successful bidder on a $27,578,000 contract for a 1685-unit Capehart Housing Project for military personnel stationed at the Plattsburgh Air Force Base, Plattsburgh, New York. The single controversy remaining in the case at this point relates to the defendant’s refusal to accept a portion of the lumber that plaintiff proposed to use on the project.

The other major claim originally in suit, relating to the topography of the site as depicted by the contract plans and specifications, was settled by agreement of the parties reached in the course of trial. The defendant’s current acknowledgment on brief that it erred in taking a $29,300 change order credit for allegedly defective lumber in certain of the buildings that had already been enclosed when the impasse over lumber quality arose, has removed that aspect of the lumber claim from dispute.

What remains is plaintiff’s contention that the contracting officer acted improperly when, about half-way through the job, he refused to permit construction to continue until the lumber in plaintiff’s job inventory and that which had been used in framing uncompleted units (and was still exposed) was inspected for quality by a disinterested official grading agency. After that was done, and the rejected lumber replaced, the job was satisfactorily completed within the contract’s authorized performance period.

In accordance with the Disputes clause of the contract, plaintiff timely appealed the contracting officer’s rejection of its claim for an equitable adjustment on the lumber inspection issue.

No action having ever been taken on that appeal, suit was filed in this court and the question fully tried on the merits. (Findings 5, 39 infra.) Contending that inspection of the lumber mid-way through performance of the job was improper under the contract as a matter of law and that, in any event, the problem of substandard lumber should have been corrected by an adjustment in the contract price, rather than enforced replacement, plaintiff seeks damages for the cost of the inspection, for the cost of replacing lumber, and for the cost of delay to the job as a whole that resulted from the time consumed by the inspection and subsequent replacement operations.

For the reasons that follow, plaintiff’s claim is without merit. Though the parties compiled a voluminous trial record in support of their respective positions, reflected in the detailed findings of fact accompanying this opinion, the determinative facts are 'both relatively few and uncomplicated. The quality requirements for the 9y2 million board feet of dimensional lumber needed for the contract were detailed in

Section 5-02 of the specifications. (Finding 5.) The applicable quality standard was expressed in terms of the official grades promulgated by the West Coast Lumber Inspection Bureau (WCLIB), with the endorsement of the American Lumber Standards Committee.

The latter body is appointed by the Secretary of Commerce and has the responsibility for formulating and maintaining lumber quality standards that are used on an industry-wide basis. (Finding 6.) After receiving the housing contract plaintiff contracted in writing with the Baldwin Lumber Company (hereinafter referred to as “Baldwin”) to supply all of the dimensional lumber needed for the job.

Plaintiff’s purchase terms with Baldwin expressly included all of the lumber quality requirements contained in the specifications of its contract with the Government, including appropriate grademarking of each piece by either WCLIB or its counterpart PLIB (Pacific Lumber Inspection Bureau). (Finding 7.) Baldwin was in the millwork business and had never sold lumber in the volume involved in its transaction with plaintiff.

To meet its supply commitment Baldwin entered into a subcontract with First Lumber Corporation, a dealer that purchased lumber from mills and brokers for resale. (Finding 8.) Under this tripartite arrangement plaintiff periodically notified Baldwin of its current lumber needs; Baldwin, in turn, advised First Lumber; and the latter then purchased the lumber from mills or brokers and had it shipped directly to Plattsburgh. (Finding 8.) After securing its subcontract from Baldwin, First Lumber purchased the Quality Forest Products Corporation of Albeit Lea, Minnesota.

First Lumber operated its acquisition primarily as a so-called “cut-up” mill, a mill that instead of using logs as raw material, buys undergrade lumber from other mills and by reducing its dimensions attempts to eliminate the flaws that caused it to be undergrade. After the reprocessing is done, the lumber is graded and sold on the market.

As essentially scavenger operations, “cut-up” mills do not enjoy a good reputation in the lumber industry and a prudent builder would not knowingly purchase lumber for housing construction from a “cut-up” mill. (Finding 14.) In the instant case, neither plaintiff nor Baldwin knew where the lumber in any particular shipment would be coming from. First Lumber made its purchases from many different sources, including Quality Forest Products, various brokers, and lumber mills.

In some instances the lumber was in easterly rail transit, in an unconsigned status, when First Lumber bought it. (Finding 10.) Paragraph 6 of the General Provisions of plaintiff’s contract with the Government provided as follows: 6. Inspection. (

a) Except as otherwise provided herein, all material and workmanship, if not otherwise designated by the Specifications, shall be subject to inspection, examination, and test by the Contracting Officer at any and all times during manufacture and/or construction and at any and all places where such manufacture and/or construction are carried on. The Department and the mortgagor-builder, or either of them, shall have the right to reject defective material and workmanship or reqiure its correction.

Rejected workmanship shall be satisfactorily corrected, and rejected material shall foe satisfactorily replaced with proper material, without charge therefor, and the eligible builder shall promptly segregate and remove the rejected material from the premises. If the eligible builder fails to proceed at once with the replacement of rejected material and/or the correction of defective workmanship, such failure may be treated as a default. (

b) The eligible builder shall furnish promptly, without additional charge, all reasonable facilities, labor and materials necessary for the safe and convenient inspection and tests that may be required by the Contracting Officer. All inspection and tests by the Department shall be performed in such manner as not unnecessarily to delay the work. Special, full size, and performance tests shall be as described in the Specifications. The eligible builder shall be charged with any additional cost of inspection when material and workmanship are not ready at the time inspection is requested by the eligible builder. (

c) Inspection of material and finished articles to be incorporated in the work at the site shall be made at the place of production, manufacture, or shipment, whenever the quantity justifies it, unless otherwise stated in the Specifications; and such inspection and written or other formal acceptance, unless otherwise stated in the Specifications, shall be final, except for latent defects, departures from specific requirements of this Housing Contract, damage or loss in transit, fraud, or such gross mistakes as amount to fraud.

Subject to requirements contained in the preceding sentence, the inspection of material and workmanship for final acceptance as a whole or in part shall be made at the site. Nothing contained in this paragraph shall in any way restrict the rights of the mortgagor-builder and the Department, or either of them, under any warranty or guaranty of material and workmanship. Plaintiff contends that subparagraph (

c) of the above provision obliged the Government to inspect the lumber at its source; that having failed to do so it cannot thereafter reject it for reasons of sub-specification quality or, in any event, cannot halt the contract work while an inspection is made. Research discloses two cases in this court involving the construction of similar contract language. In both the question was the Government’s right to ultimately reject certain fabricated materials even though it had inspected and approved them at the point of fabrication. Southwest Welding & Mfg. Co. v. United States, 188 Ct.

Cl. 925, 413 F. 2d 1167 (1969), disapproved a subsequent rejection whereas Merritt-Chapman & Scott Corp. v. United States, 178 Ct.Cl. 883, cert. denied, 389 U.S. 851 (1967), held that a preliminary acceptance based on source inspection did not bar later rejection. Significantly differing factual contexts accounted for the divergence in results.

Since source inspections were actually made in those cases, the emphasis on the contract language here involved concerned the finality that it imparted to an acceptance following a source inspection rather than on the creation of an affirmative Government duty to make inspections at the source. Nonetheless, those cases do confirm the common sense proposition that when source inspections are made it is with the advance knowledge and understanding of the Government and its contractoi’ and pursuant to prearrangement between them. The same premise is especially evident from the Board’s opinion in Gordon H.

Ball, Inc., 1963 BCA ¶ 3925, a case cited by plaintiff to illustrate the application of the language present here but again involving the effect on the Government’s subsequent rejection rights of its earlier acceptance pursuant to an inspection of the goods at the source. Plaintiff mistakenly urges that United States v. John A. Johnson & Sons, 65 F. Supp. 514 (D.C.

Md. 1945), aff’d. 153 F. 2d 534 (4th Cir. 1946), squarely supports its thesis that the contract language present here requires the Government to make a source inspection of building materials, in that case brick used in a Government contract for public housing, under pain of forfeiture of its right to later reject the material as defective. Though the prime contract with Johnson contained a source inspection clause like that here involved, all comments directed to it were strictly dictum.

As the Court of Appeals observed, the question of the Government’s liability to its contractor, Johnson, was not involved in the litigation. 153 F. 2d 534, 542. The cited authority actually involved two consolidated Miller Act suits; a suit by a brick manufacturer against the masonry subcontractor, who had refused to pay for the brick rejected by the Government, and a suit by the subcontractor against Johnson, who had refused to pay for the corrective work necessitated by the Government’s rejection. Judgment was for the plaintiff in each instance.

Central to both liability determinations were the factual conclusions (1) that, unlike the lumber involved in this case, the disputed brick met the contract specifications and (2) that any deficiency in its performance as an exterior surfacing material was attributable to the fact that the specifications did not call for a sufficiently high quality of brick to do the job intended. Considered in the light of these factual essentials, the trial court’s gratuitous observations concerning the Government’s obligations and risk exposure under the source inspection clause become almost totally abstract. 65 F.

Supp. 514, 522. The undisputed facts of the instant case impel the conclusion that the dimensional lumber that plaintiff purchased from Baldwin was not within the scope of the source inspection clause of paragraph Q of the General Provisions, supra, whatever the legal effect of that clause in situations where it applies.

The direct evidence points singularly to the fact that neither the Government, plaintiff, Baldwin, nor Baldwin’s sole subcontractor, First Lumber, had any idea or expectation at the time that the lumber was procured that it was to be inspected at its point of origin. (Finding 10.) Not until after the dispute over lumber quality had matured into an enforced work stoppage did plaintiff first suggest that the Government had a contractual obligation to inspect the lumber at its source. By then, all of the lumber for the job had long since been delivered to Plattsburgh.

In the absence of compelling indications to the contrary, not present here, the construction that the parties have themselves placed on a contractual provision ante litem motam should not be disturbed when, at a later date, the meaning of the provision is called into question by one of them. Chahroudi v. United States, 124 Ct. Cl. 792, 797-798 (1953), and authority cited therein.

First Lumber filled the Baldwin order by purchasing from a great many different mill and broker sources, frequently not even knowing itself where the lumber involved actually originated; some of it being in actual rail transit when purchased. Accordingly, it simply would not have been feasible for the Government to have undertaken a source inspection even if it had wanted to.

Finally, it is to be noted that the clause in question envisions an inspection at source “* * * whenever the quantity justifies it * * With the possible exception of the lumber that came from Quality Forest Products, First Limber’s subsidiary “cut-up” mill in Minnesota, there is no evidence that in any instance there was sufficient quantity involved to justify the expense of a source inspection. In any event, neither the plaintiff nor anyone acting on its behalf ever notified the Government of the source and quantity of any portion of the lumber purchased for use in performance of the contract.

The nature of the Quality Forest Products operation being what it was, the failure of plaintiff and its contract suppliers to cause a Government inspection there is understandable. For the above reasons, plaintiff’s contention that the Government was obliged by contract to inspect the lumber at its source is untenable. Because of the size of the overall housing contract plaintiff was required to deal in very large quantities of materials. Delivery of the dimensional lumber alone required over 400 rail cars.

To handle this logistical problem plaintiff rented an 8-acre tract, called the Day Farm, that had a private rail siding and was located 3-4 miles from the construction site. Plaintiff used this property as its receiving and storage yard for the job. Belying on a 10-day reinspection provision of the WOLIB’s grading rules as evidence of an established trade practice, plaintiff suggests that the Government should have inspected the lumber for compliance with the quality specifications of the contract upon its arrival at the Day Farm.

However valid the trade rule that a buyer of lumber graded by WCLIB has only 10 days after delivery to him within which to challenge the grade and call for a reinspection, the rule has no application to the Government in this case since it was not a buyer of lumber. Thus, while this trade practice may have application to plaintiff, Baldwin, or First Lumber, it imposes no inspection obligation or peril of waiver on the Government. Plaintiff does not contend that its own contract with the Government created any duty on the latter to inspect the lumber on arrival at the storage yard.

Aside from the absence of any legal obligation to do so, it would not have been reasonable for the Government to have undertaken an inspection of the lumber on arrival at Plattsburgh. As stated, the lumber arrived in rail box cars. It was not ]oose in the cars but bound into large bundles by steel strapping. Plaintiff verified quantity by tallying tibe shipments as they were unloaded. The bundles were immediately stacked, 3 to 4 high, for storage in the yard pending later transportation to the building site.

At this point, the lumber could not have been inspected without dismantling the bundles and that procedure, including reassembly and restrapping for storage and final truck delivery to the job, would have been so cumbersome and time-consuming as to have been unreasonable in the circumstances. (Finding 9.) The notice to proceed under the contract in suit was issued May 23,1957. Lumber deliveries to the yard at the Day Farm began in November 1957, and framing of the buildings started in March 1958.

Plaintiff’s planned production rate called for framing 20 dwelling units per day and this pace was achieved by the summer of 1958. To meet this production

schedule lumber, still in the baled form in which it was received by rail, was loaded on trucks at the Day Farm by fork lift, delivered to the building where it was to be used, and dumped on the ground. The lumber was ordinarily used in framing that was begun 24 to 48 hours thereafter.

The overall size of the job and the limited time that the lumber was at the actual building site prior to use created a situation in which the first reasonable opportunity afforded the Air Force inspectors to adequately examine the dimensional lumber for compliance with quality specifications was after the framing had been erected and before it was enclosed with interior and exterior covering. (Finding 9.) In fact, this was the inspection procedure that was employed.

At first the architect-engineer required the Air Force inspectors to issue tickets, in triplicate, on which deficiencies requiring correction were noted. One copy was for the individual who had done the deficient work; one copy for the plaintiff’s administrative officer on the job; and the third for the contracting officer.

The deficiency ticket system was abandoned in mid-summer 1958 at plaintiff’s request and was replaced by an arrangement wherein a card bearing a description of each of the several phases of work involved in the construction of a building was tacked on the outside of each building in a conspicuous place. Under this plan the foreman overseeing the phase of work in question would signify its readiness for inspection by initialing the appropriate work description appearing on the card.

Thus notified, an Air Force inspector would check the indicated work and if he found it acceptable would place his initials on the card, signifying that plaintiff could proceed with the next phase in the work sequence. (Finding 11.) Insofar as inspection of the framing lumber was concerned, the card plan proved no more satisfactory than the deficiency ticket system that it displaced. This was true primarily because of the manner in which plaintiff elected to supervise its framing operations.

Instead of the carpentry superintendent being held responsible for inspecting the completed framing, and making corrections and replacements where necessary, plaintiff delegated this responsibility to its wallboard subcontractor. Naturally that subcontractor’s primary interest was in beginning and completing his own phase of the work as quickly as possible. As might be expected, his sole criterion for suitability of framing was whether wallboard or sheetrock could be fastened to it.

The subcontractor’s anxiety to get on with his phase of the work inevitably led to wallboard operations being begun before the Air Force inspectors had examined the framing and signified approval by initialing the card on the building. (Finding 12.) Despite the above difficulties encountered in lumber inspection procedures, it was not until September 1958 that serious problems arose. At that point the Air Force’s chief inspector noted a large proportion of bad lumber arriving at the building site; lumber containing oversize knots, splits and dry rot.

He also observed that most 'of this bad lumber bore the grade-marks of the Hickox Inspection Service and the A. E. Green Inspection Service, the two grading agencies that operated at First Lumber’s cut-up mill in Minnesota, previously described.

After going to the storage yard at the Day Farm and failing to obtain any satisfactory explanation from the foreman there as to the reason for the sudden influx of bad lumber, the inspector called the problem to the attention of plaintiff’s administrative officer and assistant project superintendent, both of whom acknowledged that the lumber in the yard was excessively knotty, rotten, and crooked, and gave assurances that such material would not be sent to the job site.

The inspector also informed plaintiff’s president of the problem. (Finding 13.) Notwithstanding the apparent recognition by all concerned of the largely inferior quality of the lumber remaining in plaintiff’s yard inventory and its assurances that such material would not be used on the job, the problem did not diminish; in fact it became more acute. By mid-September the proportion of bad lumber being used in the framing grew so large that it became physically impossible for the Air Force inspectors to examine and reject it on an individual piece basis.

Moreover, such rejections as they did make were frequently met with disagreement and argument from plaintiff’s representatives as to whether replacement was actually necessary. (Finding 15.) The recalcitrance of plaintiff’s supervisory personnel coupled with the wallboard subcontractor’s determination to proceed with his work as quickly as possible compounded the difficulties occasioned by the bad lumber.

Having received reports from the architect-engineer depicting the situation outlined above, the contracting officer visited the buildings where framing was in progress and confirmed the accuracy of those reports. In addition to observing the pervasive use of obviously bad lumber, which typically bore the stamp of the Hickox and A. E. Green inspection services, he discovered instances where the Air Force inspectors’ initials had been forged on the building inspection cards erroneously indicating that the framing had been approved.

On September 16, following his inspection at the buildings, the contracting officer went to the yard at the Day Farm. He selected a bale of lumber at random and broke it open. While the outside pieces bore the WCLIB gradestamp, none of the interior members bore any stamp at all. (Finding 16.) In the face of his findings at both the construction áte and the storage yard, including the indications of fraud, the contracting officer became thoroughly alarmed.

He telephoned the Army’s Lumber Control Office at Saint Louis to report his problem and request that one of the Office’s graders be sent to Plattsburgh to examine the lumber. He was told, that all of the Army graders were tied up on other work at the time. The Control Office, whose function is the procurement of all lumber purchased by the Army, suggested that the contracting officer contact WCLIB or PLIB and attempt to secure grading assistance there.

After first advising plaintiff’s administrative officer of what he planned to do, the contracting-officer telephoned WCLIB on the West Coast and was referred to one of their supervisor-inspectors, Charles McNew, who was then in New York City. McNew agreed to come to Plattsburgh and undertake a preliminary inspection to determine whether the lumber that plaintiff was using and proposing to use was really as far wide of the lumber quality specifications as the Government representatives, none of whom were qualified lumber graders, believed it to be.

McNew, with over 30 years’ experience in lumber grading and 17 years’ employment by WCLIB as a grade supervisor, arrived at Plattsburgh on September 19. That morning he was given a copy of the contract specifications covering lumber quality and was accompanied by a representative of the architect-engineer and the chief inspector on the job for the Air Force to the Day Farm where he graded random samples of the lumber in storage there. For the most part, he found the lumber that he examined to be substantially below the grade requirements of the contract.

Though in most instances such lumber bore no grade markings at all, there were some pieces of decidedly inferior quality that were nonetheless grademarked by the A. E. Green or Hickox services as being of a quality equal to or above the requirements of the contract. (Finding 18.) In the afternoon the contracting officer and plaintiff’s administrative officer joined the group. They returned to the Day Farm where the morning’s experience was generally repeated. They then went to some of the buildings where the framing was still exposed.

McNew found approximately 30 percent of the ceiling joists and 90 percent of the studs (species other than redwood) to be below the contract specifications. After the inspection tour the parties returned to the architect-engineer’s office where McNew’s findings of substantial grade deficiencies and large amounts of unmarked lumber were discussed, with, particular emphasis on how the problem might be remedied.

As a practical solution, the contracting officer suggested that in view of the very large quantity of material involved, plaintiff could call in a qualified and disinterested grading agency and have the lumber in the exposed framing and at the Day Farm graded in the manner contemplated by the specifications. The administrative officer agreed that this was a sound proposal but indicated that he would have to secure the approval of plaintiff’s president.

Following that discussion the contracting officer issued plaintiff the following written directive (finding 20): You are hereby directed to remove and replace all lumber that is not grade marked or certified in accordance with

Section 5-05, Part A of contract specifications. You are further directed that all lumber not in accordance with the above specification be removed from the housing site. Being promptly advised of the foregoing developments by his administrative officer, plaintiff’s president shortly came to the job site to personally look into the matter. Once there the contracting officer toured the project with him and pointed out examples of the inferior lumber that had caused the issuance of the September 19 directive.

The proposition that a large portion of the lumber was in fact defective having been established, the two then discussed the question of resolving the problem and the contracting officer reiterated the suggestion that he had earlier made to plaintiff’s administrative officer following the McNew inspection.

Plaintiff’s president agreed that calling in a disinterested agency to grade the exposed lumber in the buildings and the lumber in storage at the Day Farm would be a proper procedure and further agreed that he would contact either WCLXB or PLIB, the two grading agencies specified in plaintiff’s contract with the Government, for that purpose. (Finding 21.)' Following his meeting with the contracting officer, plaintiff’s president did not contact either of the West Coast grading services as he had agreed.

Instead, he telephoned Baldwin Lumber, his supplier, and demanded that it send an inspection agency to Plattsburgh, to grade tbe lumber. Baldwin, in turn, contacted its supplier, First Lumber, who sent a grader employed by the Hickox Inspection Service to the site. The grader arrived September 22 and proceeded to grade and stamp some of the exposed lumber in the buildings. On September 25 the contracting officer first became aware that someone was grading lumber in the buildings. Upon inquiry of plaintiff’s president, he learned that the grader was a representative of the Hickox Inspection Service.

Since it had already been established that some of the patently defective lumber on the job had been misgraded by that agency, the contracting officer objected to the idea of having its personnel do the grading that had been agreed to by plaintiff.

Faced with this objection, which was clearly reasonable in the circumstances, plaintiff’s president stated that he had no fixed preference as to who did the grading and thereupon telephoned the Portland headquarters of "VYCLIB and requested that grading services be supplied at Plattsburgh. (Findings 22,28.) Later the same day the contracting officer issued a written directive to plaintiff incorporating the substance of the agreement that he had reached with its president concerning grading of the lumber as a necessary preliminary to enclosure of the buildings that had .already been framed. (Finding 22.) By letters of September 26 and October 1, plaintiff formally advised Baldwin of the defective quality of the framing-lumber, of the agreed procedure for grading and replacement of substandard material, and of the fact that all costs of these operations would be charged to Baldwin. (Findings 24,25.) In late September, while the parties were in the process of concluding the arrangements that led to the retainer of WCLIB by plaintiff, a representative of the Chemical Corn Exchange Bank, plaintiff’s mortgagee for this project, arrived at Plattsburgh.

This individual, Mr. Norman, was employed by an engineering consulting firm that the bank had insisted be retained by plaintiff in order to resolve various pending problems and expedite satisfactory completion of the job. Norman had extensive experience as a construction superintendent and was well qualified to act as a trouble shooter. (Finding 26.) Upon his arrival at the site Norman examined the exposed lumber in the buildings and the storage inventory at the Day Farm. As others had concluded, he found it to be extensively defective.

His findings prompted him to recommend that plaintiff’s carpentry superintendent be dismissed, which was done, and that outside lumber graders be called in; the procedure ultimately agreed to by plaintiff’s president and the contracting officer. (Findings 26, 27.) Pursuant to plaintiff’s letter request of September 25, three WCLIB graders arrived at Plattsburgh on September 28. They met with plaintiff’s job supervisors and then began to inspect the exposed lumber in the buildings.

The grading force was augmented by four additional WCLIB men and the grading job in the buildings and at the Day Farm was completed in an efficient and expeditious manner by October 23. (Findings 28, 32.) In fact, on that date plaintiff’s administrative officer wrote WCLIB a commendatory letter. (Finding 35.) Inspection in the buildings revealed that a large number of the studs were redwood, a species not included among those designated for use as studding in the contract specifications (finding 5) and one that the WCLIB was not officially authorized to grade.

The parties overcame this technical difficulty by agreeing that they would accept the informal judgment of the WCLIB graders. (Finding 21.) Evaluated under this arrangement, the redwood was found to be of generally good quality. On October 7, 1958, approximately 10 days after the WCLIB graders had begun their work, plaintiff’s president, in a letter to the contracting officer, for the first time took exception to the grading operation then under way; asserting that substantially all of the lumber met the contract specifications and that in any event the Government had the duty of inspecting it at its source.

Despite receiving this protest, the contracting officer permitted the WCLIB men to continue their work. (Finding 31.) The findings as to grade were generally consistent among the several WCLIB representatives and as between the exposed framing in the buildings and the lumber in storage at the Day Farm. Aside from the redwood, which was found to be adequate, approximately 80 percent of the installed studs and 30 percent of the ceiling joists were of a quality significantly below that called for in the contract specifications.

There was no redwood at the Day Farm and some 80 percent of the fir and hemlock was well below the required grade. In the course of their work, the WCLIB graders, who collectively pronounced this to be the worst lot of lumber that they had ever been called upon to grade, noticed that invariably the defective lumber that was stamped as being up to quality bore the legend of Quality Forest Products Corp. and the grademark of either the A. E.

Green or Hickox Inspection Services. (Findings 33, 34.) At the trial of this case plaintiff adduced no credible evidence rebutting the findings and conclusions of the WCLIB personnel. Those findings of substantial and extensive deficiencies in the quality of the lumber that plaintiff was using and proposing to use clearly demonstrate that the contracting officer was well within his rights, and indeed his obligations, in refusing to approve further construction in the absence of the grading arrangement to which plaintiff’s president agreed in advance.

Having made that agreement with the certain awareness that it represented the only possible solution to the dilemma in which its lumber suppliers had placed it, plaintiff cannot now disavow it by pointing to general contract language indicating that all inspections were to be made by the Government, rather than the contractor. Finally, after essentially finessing the merits of the issue of lumber quality as a matter of proof, plaintiff contends at length that the Government erred in dealing with the problem of defects in the lumber as it did.

Instead of requiring compliance with the contract specifications, the argument goes, tbe Government should have permitted plaintiff to proceed according to its own dictates and then settled the matter by a downward adjustment in the contract price; this in the spirit of conformity with alleged trade practice. 'Assuming both the existence of such a practice and its amenity to situations involving technical or marginal shortcomings under contract specifications, it has no proper place in the context of the significant and pervasive lumber deficiencies present on the basically unchallenged facts of this case.

Moreover, this court has recently held that trade practice in the building industry cannot override an unambiguous contract provision. WRB Corp. v. United States, 183 Ct.Cl. 409, 436 (1968). The specifications involved here were both clear and reasonable. The Government did no more than insist on compliance with them.H.L.C. & Associates Constr. Co. v. United States, 176 Ct.Cl. 285, 306-307, 367 F. 2d 586, 598 (1966); Maxwell Dynamometer Co. v. United States, 181 Ct.Cl. 607, 628, 386 F. 2d 855, 868 (1967).

The suggestion that the Government’s action, manifestly reasonable in the circumstances, was motivated by the contracting officer’s animosity towards plaintiff’s president is completely unsupported by the evidence as a whole. (Finding 38.) As noted at the outset, after completion of the contract and over the objection of the contracting officer, the Air Force authorities issued a change order to the contract under which they withheld $29,300 alleged to represent a guantmn meruit-type deduction for defective lumber presumed to have been already enclosed in the buildings at the time that the WCLIB graders arrived on the scene.

Np evidence was adduced to support the proposition that any of such lumber was in fact defective and, as noted, the Government now concedes that the deduction was improper. (Finding 37.) Plaintiff’s various contentions, aside from the uncontested deduction item, being without merit, judgment should be entered for it in the amount of $29,300. FINDINGS OK Fact 1. Plaintiff is a New York corporation engaged in the general contracting business with its principal office in New York City. 2.

On May 6, 1957, plaintiff entered into a contract with the United States, acting through the Department of the Air Force, known as Contract No. AF 30(636)-136, for the construction of a 1685-unit housing project for military personnel at Plattsburgh Air Force Base in the State of New York. The 1685 individual units were contained in almost 400 separate buildings.

The contract was awarded to the plaintiff after competitive bidding for the price of $27,578,000, some $1,600,000 below the next lowest bid, and provided that the work was to- commence on or before May 23, 1957, and be completed to the satisfaction of the contracting officer and the mortgagor-builders within 730 calendar days thereafter, or May 23, 1959. 3.

The family housing called for by the contract was constructed under the authority of the Capehart Act, as amended, 12 U.S.C. §§ 1748-1748a — g (1958 ed.); 42 U.S.C. §§ 1594-1594f (1958 ed.), which had its inception in Title IY of the Housing Amendments of 1955, 69 Stat. 646. The purpose of the Act is to provide housing for armed services personnel without resorting to the procedure of direct annual appropriations. To accomplish this objective, the Act provides for construction of housing projects on Government-owned property pursuant to competitive bidding by private builders.

The successful bidder (eligible builder) forms a corporation (mortgagor-builder) which leases the land from the Government for a nominal sum and arranges with a financial institution to finance the project by a 100 percent mortgage which is insured by the Federal Housing Administration. The eligible builder causes the project to be constructed and is paid therefor entirely out of mortgage proceeds. As construction progresses, individual houses are placed under the control of the military department.

Determination as to completion of the project is made by the FHA which then issues a final endorsement of the mortgage note for mortgage insurance. Upon completion of the project and after payment of the loan proceeds to the eligible builder, the capital stock of the mortgagor-builder is transferred to the United States and the loan is amortized through moneys appropriated to pay the housing allowances of personnel who are assigned quarters in the project. 4.

In this action plaintiff seeks to recover damages for the cost of replacing lumber (and consequent delay) which the contracting officer found did not conform with the specifications of the contract. The issue, then, is whether the lumber which the plaintiff installed, and was about to install, in the buildings of the project met the specifications, and as a corollary, whether the contracting officer took the proper steps pursuant to the authority granted him by the contract to insure that the lumber conformed with the contractual requirements. 5.

The subject contract and specifications contained the following provisions which are pertinent to the claim.

Article XIV (22) of the HotjsiNG Contract relating to “Control of Housing Units,” provided as follows : The respective mortgagor-builder and the eligible builder shall place each housing unit under the control of the Department, without charge or cost to the Department, upon the determination by the Contracting Officer and Commissioner that such unit is available for occupancy, and neither the mortgagor-builder nor the eligible builder shall, except with the written consent of the Department, permit or condone the occupancy of any housing unit prior to such determination; provided, however, that such determination shall be considered as final acceptance of such housing unit except for such defects as may be specified in writing by the Contracting Officer.

Article XVIII (32) of the Housing Contract relating to “Inspection,” provided as follows: The Department will make all inspection necessary to determine compliance with the terms of this Housing Contract. Paragraph 6 of the General Provisions-Housing Contract, relating to “Inspection,” provided as follows: (

a) Except as otherwise provided herein, all material and workmanship, if not otherwise designated by the Specifications, shall be subj ect to inspection, examination, a.nri test by the Contracting Officer at any and all times during manufacture and/or construction and at any and all places where such manufacture and/or construction are carried on. The Department and the mortgagor-builder, or either of them, shall have the right to reject defective material and workmanship or require its correction.

Rejected workmanship shall be satisfactorily corrected, and rejected material shall be satisfactorily replaced with proper material, without charge therefor, and the eligible builder shall promptly segregate and remove the rejected material from the premises. If the eligible builder fails to proceed at once with the replacement of rejected material and/or the correction of defective workmanship, such failure may be treated as a default. (

b) The eligible builder shall furnish promptly, without additional charge, all reasonable facilities, labor and materials necessary for the safe and convenient inspection and tests that may be required by the Contracting-Officer. All inspection and tests by the Department shall be performed in such manner as not unnecessarily to delay the work. Special, full size, and performance tests shall be as described in the Specifications. The eligiblo builder shall be charged with any additional cost of inspection when material and workmanship are not ready at the time inspection is requested by the eligible builder. (

c) Inspection of material and finished articles to be incorporated in the work at the site shall be made at the place of production, manufacture, or shipment, whenever the quantity justifies it, unless otherwise stated in the Specifications; and such inspection and written or other formal acceptance, unless otherwise stated in the Specifications, shall be final, except for latent defects, departures from specific requirements of this Housing Contract, damage or loss in transit, fraud, or such gross mistakes as amount to fraud.

Subject to requirements contained in the preceding sentence, the inspection of material and workmanship for final acceptance as a whole or in part shall be made at the site. Nothing contained in this paragraph shall in any way restrict the rights of the mortgagor-builder and the Department, or either of them, under any warranty or guaranty of material and workmanship.

Paragraph 8 of the General Provisions-Housing Contract relating to “Disuptes” provided as follows: Except as otherwise provided in this Housing Contract, any dispute concerning a question of fact arising under this Housing Contract which is not finally decided by the Commissioner, which may be adjusted between the eligible builder and the Contracting Officer and which is not in fact disposed of by agreement shall be decided by the Contracting Officer, who shall reduce his decision to writing and mail or otherwise furnish a copy thereof to the eligible builder.

Within 30 days from the date of receipt of such copy, the eligible builder may appeal by mailing or otherwise furnishing to the Contracting Officer a written appeal addressed to the head of the Department, and the decision of the head of the Department or his duly authorized representative for the hearing of such appeals shall, unless determined by a court of competent jurisdiction to have been fraudulent or capricious or arbitrary, or so grossly erroneous as necessarily to imply bad faith, or not supported by substantial evidence, be final and conclusive; provided that, if no such appeal is taken, the decision of the Contracting Officer shall be final and conclusive; and provided further, that in no event shall the Contracting Officer, the head of the Department or his duly authorized representative have authority under this clause to make any decision which shall cause the total amount payable to the eligible builder under this Housing Contract to exceed the maximum amount payable from mortgage proceeds.

In connection with any appeal proceeding under this clause, the eligible builder shall be afforded an opportunity to be heard and to offer evidence in support of its appeal. Pending final decision of a dispute hereunder, the eligible bunder shall proceed diligently with the performance of this Housing Contract and in accordance with the decision of the Contracting Officer. Paragraph 9 (a), (b), (c), of the GeNeeal Provisions-Hotjsing CoNtraot, relating to “Changes and Changed Conditions,” provided as follows: (

a) The Contracting Officer may, at any time, by a Construction Change Eequest, Form FHA 2437, and without notice to sureties, propose changes in the Drawings and/or Specifications of this Housing Contract and within the general scope thereof. Each such proposed construction change will be submitted to the eligible builder for his estimate of the increase or decrease in cost and time of performance, if any. After such action by the eligible buñder, the proposed construction change will be returned to the Contracting Officer.

Likewise, the eligible builder may, without notice to sureties, propose changes within the same scope, all such proposed changes to be in writing and to contain the eligible builder’s estimate of the increase in cost and time of performance, if any, and to be submitted to the Contracting Officer. In all cases, the eligible builder will sign proposed construction changes for himself and as agent for the mortgagor-builder. (

b) All proposed construction changes, including those resulting m no increase or decrease of cost, will be submitted by the Contracting Officer to the Commissioner, with copy to the mortgagee. The determination of the Commissioner as to the increase or decrease in cost and time of performance shall be final with respect to all such changes to be paid or deducted from mortgage proceeds.

If any such change is approved by the mortgagee and the Commissioner to be paid or deducted from mortgage proceeds, the amount of the maximum insurable mortgage as herein defined and this Housing Contract will be considered as modified by such approved change order, and the eligible builder shall proceed diligently to execute such approved change. (

c) No change of any character shall be made unless in pursuance of a written order approved as required in tiie preceding paragraphs, and no claim for adjustment of the contract sum shall be recognized unless the eligible builder, prior to the making of such claim for adjustment is in receipt of an approved written order. * * * * * Paragraph 10 of the GeNeral ProvisioNS-HousiNG CoNtract, relating to “Deductions for Uncorrected Work,” provided as follows: If the Contracting Officer and the Commissioner deem it inexpedient to correct work not performed in accordance with this Housing Contract, an equitable deduction of the contract price shall be made therefor pursuant to the construction change procedure herein provided.

Paragraph 13 of the GeNeral PeovisioNs-HousiNG CoN-tRAgt, relating to “Termination for Default of Eligible Builder,” provided as follows: (

a) If the eligible builder should neglect to prosecute the work properly or fail to perform any provision of this Housing Contract, the Contracting Officer shall give ten days’ notice in writing to the eligible builder and to his sureties, and the Contracting Officer shall report such neglect or failure to the mortgagee and the Commissioner; whereupon, without further notice to the eligible builder or his sureties or the mortgagor-builder, the mortgagee may treat such neglect or failure as a default of the mortgagor-builder under the Building-Loan Agreement herein elsewhere identified, entitling the mortgagee under his power of attorney from the mortgagor-builder to make good such deficiencies and to deduct the cost thereof from the payment then or thereafter due the mortgagor-builder; provided, however, that the Contracting Officer and the Commissioner shall approve such action and the amount charged therefor. (

b) If the eligible builder should be adjudged a bankrupt, or if he should make a general assignment for the benefit of Ms creditors, or if a receiver should be appointed on account of his insolvency, or if he should persistently or repeatedly refuse or should fail, except in cases in which an extension of time for performance is provided, to supply enough skilled workmen or proper material, or if he should fail to make prompt payment to subcontractors or for material or labor, or persistently disregard the instructions of the Contracting Officer, or otherwise be guilty of a substantial violation of any provision of this Housing Contract, then the Contracting Officer may, without prejudice to any other right or remedy and after giving ten (10) days’ notice in writing to the eligible builder and to his sureties, report such facts to the mortgagee and the Commssioner; whereupon, without further notice to the eligible builder or his sureties or to the mortgagor-builder, the mortgagee may treat such deficiencies, or any of them, as a default of the mortgagor-builder under the Building Loan Agreement, with right among others therein provided to terminate the Building Loan Agreement with the mortgagor-builder.

Section 5 of tbe Specifications related to Carpentry and provided as follows: 5-01 SCOPE: The work consists in furnishing all plant, labor, equipment, appliances, and materials, and in performing all operations in connection with the in-stafiation of carpentry, complete, in strict accordance with this

section of the specifications and the applicable drawings. 5-02 MATERIALS, LUMBER AND WOODWORK : At the Contractor’s option, lumber for the various uses shall be one of the species listed for the purpose and of the grade indicated. A certificate of conformance will be accepted in lieu of inspection requirements. The Contractor may use lumber other than that specified above providing it meets the requirements for which it is to be used and providing that approval is obtained in writing prior to delivery of the material to the site. (

a) Framing and structural lumber: Use Grade Species

(1) Rafters Trussed Rafters Headers Stair Stringers Stair Carriages Eloor joists 1,100 f, 860 o Any stress-graded species 1,1400,000E (unless otherwise indicated on the drawings)

(2) Studs Plates Caps Sills No. 1 No. 2 Eir, white, Spruce, Sitka Douglas fir, coast and inland Eir, white Hemlock, eastern and west coast Larch Pine, northern white, Norway, ponderosa, and southern Spruce, eastern, Engelmann, and Sltka¡

(3) Ribbon Boards Ridge Boards Bracing Eurring Grounds Catwalks No. 2 Douglas fir, coast Hemlock, west coast Pine, southern Spruce, Sitka No.3 Douglas fir, inland Eir, white Hemlock, eastern Larch No. 2 Construction Pine, Idaho white, lodgepole, northern white, Norway, pon-derosa, and sugar Spruce, eastern and Engelmann Poplar, yellow 5-05 LUMBER: (

a) Grade Marking: Each piece of yard and structural lumber shall bear the official grade mark of the appropriate inspection bureau or association; or in lieu thereof, each shipment shall be accompanied by a certificate of inspection issued by the appropriate inspection bureau or association, or other agency approved as competent by the Contracting Officer. ***** 6. The grades for the lumber specified in

Section 5-02 of the specifications, above, refer to the grading standards for certain species of West Coast lumber issued by the West Coast Lumber Inspection Bureau (hereinafter referred to as “WCLIB”), as certified and approved by the American Lumber Standards Committee (hereinafter referred to as “ALSO”). ALSO is appointed by the Secretary of Commerce and its function is to set the standards for the grading of lumber as to quality and to approve any grading rules published by a competent and reliable agency having adequate facilities for mill inspection and reinspection.

WCLIB is a nonprofit organization, an independent branch of the West Coast Lumbermen’s Association, which provides a wide variety of lumber grading services, including the supervision of grading at the mill, as well as direct inspection and grading under special contract. A lumber grader at the mill level is required to pass a series of efficiency tests under the supervision of a WCLIB supervisor-grader before he is permitted to use the WCLIB grading stamps. WCLIB supervisors are required to take a training program for about a year and a half before they are considered to be qualified for their duties.

WCLIB was also authorized by ALSC to draw up and issue the “Standard Grading and Dressing Buies” which became the official standards for grading Douglas fir, Sitka spruce, West Coast hemlock, and Western red cedar. The rules set out the various factors which determine the quality of the lumber, such as the size and position of knots, the extent of splits or shakes (a form of split), and the amount of warp or decay.

Grading is performed by visual inspection ; the inspector looks at all sides of the piece of lumber and stamps on it the grade, together with the mark of the inspecting agency, the purpose of which is to identify to the consumer the quality of lumber received. In the Number 14 edition of the WCLIB rules, dated August 1, 1947, which were in effect when the specifications in this case were issued, the lumber grades for joists and studs required by the specifications were denominated as No. 1 and No. 2.

In the Number 15 edition, which became effective March 15, 1956, the nomenclature was changed to “Construction” and “Standard,” respectively.

Lower grades in Number 15 were listed as “Utility” and “Economy.” There were also some changes made in the standards for determining the grades, but these were so slight as to effect no appreciable difference in the grading results, and it was the standard industry practice, after Eule Number 15 came into effect, to grade under that rule lumber which had been purchased under contracts when Eule Number 14 was in effect, since the results of the grading would be expected to be the same.

Finally, the WCLIB rules contained a provision under which a buyer of lumber graded by that agency had only 10 days after delivery within which to challenge the correctness of the grades that had been affixed by WCLIB. After that period or after the lumber had been used, whichever occurred earlier, the rule provided that the buyer forfeited his right to challenge quality. 7. The Plattsburgh project required about 9million board feet of dimensional lumber and approximately 7 million square feet of plywood, none of the latter being involved in the present dispute.

Over 400 freight cars were required to transport the lumber to the construction site. On November 20,1957, and on December 4,1957, plaintiff entered into contracts with Baldwin Lumber-Junction Milling, Inc., subsequently known as Baldwin Lumber Company (hereinafter referred to as “Baldwin”) for the delivery of the required lumber.

The November contract contained the following provisions: All the material will conform with the applicable provisions of the specifications for Stress Grade Lumber, and also with the Federal Specifications 1100F, 850 C and l,14O,00OE. _ _ The above material is to be No. 1 (Construction Grade) West Coast Hemlock and/or Douglas Fir with a maximum of 20% #2 (Standard) NO UTILITY Grade. Each piece of lumber is to be grade marked with stamp of “WCLIB” or “PLIB”. Furthermore all lumber must be anti-stain treated. The moisture content is not to exceed 19% (3% leeway) Min dried or air dried.

All material must be straight and dry as specified above. The December contract contained the following provisions: All the above material will conform to the applicable provision of Specifications for Furring, Bracing, etc. Material is to be #2 and better Douglas Fir, West Coast Hemlock, Southern Pine or Sitka Spruce. (No Utility Grade.) All the material included in tMs contract is to be grade marked with Stamp of WCLIB or PLIB. The moisture content is not to exceed 19% (3% leeway), Min dried or air dried. All material must be straight and dry as specified above.

We reserve the right to reject any part that does not conform with all the mentioned requirements. “WCLIB” and “PLIB” meant West Coast Lumber Inspection Bureau and Pacific Lumber Inspection Bureau. In its purchase negotiations and agreements with Baldwin plaintiff gave no indication that it expected the lumber supplied by Baldwin to be inspected by the defendant prior to delivery at Plattsburgh. 8. Baldwin was in the naillwork business and the Silber-blatt contract was the first large volume contract that it ever had for lumber.

It did not purchase the lumber directly but entered into a subcontract with the First Lumber Corporation, a dealer that procured the lumber from various mills and brokers for delivery directly to Plattsburgh as ordered by S'ilberblatt through Baldwin. 9. The Air Force made available to plaintiff for storage of lumber an area called the Day Farm which was about 3 or 4 miles from the construction site and had private rail sidings to accommodate railroad cars. Although there were some loose pieces, the lumber generally came in bales banded with steel bands about three-fourths of an inch wide.

Cas Krulik, plaintiff’s administrative officer on the job, and plaintiff’s field superintendent checked in the lumber for quantity purposes but it was not practical to break open the bales. Thus, only the outside pieces could be seen. The lumber, therefore, could not reasonably be inspected for grademarks or quality at the rail siding. After being checked in, the lumber was trucked to the Day Farm where it was stacked, three or four bales to the stack, 12 to 16 feet high. Here, too, it was altogether impracticable to break open the bales to inspect the lumber.

When the lumber was to be installed, the bales were loaded on trucks by fork lift and dumped at the building site. The lumber was incorporated into the housing structures within 24 to 48 hours thereafter. In view of the fact that at peak production plaintiff was framing about 20 housing units a day scattered oyer several hundred acres, it is evident that the first reasonable opportunity that the Air Force inspectors had to inspect the lumber was after it had been installed in the framing. 10.

The evidence shows that it was not feasible for the Air Force to inspect the dimensional lumber at the point of production or shipment. There is no indication that the parties ever intended that the lumber be inspected in that manner. Neither plaintiff nor its supplier Baldwin, who subcontracted the lumber contract to First Lumber Corporation, knew where the lumber was coming from.

Frank Malina, the president of First Lumber Corporation, did not purchase all of the lumber required for the Plattsburgh job from any one source, but in comparatively small quantities as and when ordered by Baldwin from a large number of suppliers, brokers, and wholesalers as well as mills located throughout the West Coast and Canada. When he placed an order with a broker, the latter made his own contract with the mill which shipped the lumber directly to Platts-burgh. In such an event, Malina would not even know from which mill the lumber was shipped.

Furthermore, much of the lumber shipped to Plattsburgh was purchased in transit. This is a common practice in the lumber business. Many mills load their lumber on freight cars headed for the eastern part of the country without specifying any particular destination until they receive an order, whereupon the cars are rerouted to the location of the buyer. Lumber purchased in transit can be inspected only at the destination.

Invoices from at least 23 different suppliers, including brokers and wholesalers, showing purchase of lumber for Plattsburgh were received in evidence and these invoices did not cover all dimensional lumber purchases. It was necessary for First Lumber Corporation to have as wide a selection of suppliers as possible so as to get the best price available.

Malina testified that the price of his subcontract with Baldwin and the conditions under which he was compelled to purchase the lumber, that is in small quantities from many outlets, from brokers and in transit, would have made inspection at the source by the Air Force impossible and the subcontract was not entered into with any intention of such inspection.

There is no evidence that at any time during the process of procuring the lumber involved in this dispute plaintiff either advised the defendant of the point or points of origin of any of the lumber or suggested that any inspection of it be made prior to arrival at Plattsburgh. 11. Lumber deliveries to the yard at the Day'Farm began in November 1957. Framing of the buildings began in March 1958.

The original inspection system devised by the supervisor of inspectors assigned to the job by Kelly & Gruzen, the architect-engineers, required the inspectors, when they found some deficiency in materials or workmanship, to prepare a ticket in triplicate setting out the matter which had to be corrected; one copy for the person doing the work involved, one for Krulik, and one for Captain William C. McAfee, the contracting officer.

During the summer of 1958, Krulik complained to Captain McAfee that the inspectors were being too hasty and were handing out tickets before the various operations were completed and the contractor’s own inspectors had had a chance to review the work. It was accordingly agreed to abandon the deficiency ticket system. Instead, a card was to be placed in a window or other conspicuous place on the structure and as each work phase was completed, the car'd was to be initialed by the contractor’s foreman as notification to the Air Force that particular work had been completed and was ready for inspection.

After the work had been inspected and approved by the Air Force inspector, lie initialed the card to indicate that the next operation could be begun. 12. This system did not work efficiently with respect to the framing because of the unusual relationship between the carpentry subcontractor and the sheetrock subcontractor. It is customary practice in the construction trade for the carpentry superintendent to inspect the framing and make any corrections which are needed before it is covered up by sheet-rock or wallboard.

In this case, however, plaintiff’s subcontract for the installation of the wallboard contained a provision cautioning the subcontractor “to erect wallboard only on framing suitable for the proper application,” and plaintiff interpreted this provision as imposing on the wallboard subcontractor the primary responsibility for the inspection of the framing and the correction of any improper work including the replacement of studs or joists where necessary. The wallboard subcontractor considered it unfair to have to bear this responsibilty and strenuously but unsuccessfully protested the arrangement.

The carpentry superintendent, John Johnson, at first even refused to provide the wallboard subcontractor the carpenters required to rectify improper work in the framing. Eventually the subcontractor succeeded in obtaining the required personnel but he was still required to make the decision as to whether a correction was to be made. The subcontractor did not wait for the framing to be inspected by the Air Force inspectors before beginning to install the wallboard; he began his work whenever in his judgment the framing was ready for it. He had never dealt in lumber and knew nothing about lumber grades.

In making his inspection of the framing, his only concern was whether it could hold the wallboard. It was only if, in nailing the wallboard, the members were so bad that a stud would break or a joist bow out so as to cause a lump in the ceiling, that he ordered them replaced. 13. The lack of proper supervision by the plaintiff’s carpentry superintendent of the quality of lumber going into the framing did not appreciably affect the job until after the end of August of 1958.

Although at the beginning there were a few shipments of lumber with excessive moisture, the lumber which, was incorporated in the framing of the houses generally complied with the specification requirements of the contract. At the beginning of September, however, there was a sudden influx of bad lumber at the building site which was materially below the grades called for in

Section 5-02 of the specifications (No. 2 or better). The lumber contained knots of excessive size, splits, and showed dry rot. Robert E. Woodward, the Air Force’s chief inspector on the job, noticed that most of the bad lumber bore the grading marks of the Hickox Inspection Service and the A. E. Green Inspection Service. Mr. Woodward became worried and went to the Day Farm to try to find out where all this bad lumber was coming from. He spoke to the foreman in charge of the yard about the deficient material he was sending to the job, but could get no explanation from him. Woodward complained to Mr.

Krulik and Mr. Ker amidas, plaintiff’s assistant project superintendent, both of whom acknowledged that the lumber in the yard was excessively knotty, rotten, and crooked. Ker amidas accompanied Woodward to the lumber yard and told the foreman not to send this type of material to the building site, but it continued to come to the site, at an ever-increasing rate. Woodward also spoke to plaintiff’s president, Mr. Shepard S. Silberblatt, and the carpentry foreman, Albert Anderson, about the problem.

Anderson said that the project was so large and there were so many men working at the framing that he could not watch them all, and they could not care less what they put into the buildings. 14. Woodward did not further pursue the question of the source of the undergrade lumber which was coming on the job, but it was subsequently revealed that a large part of it came from a mill known as the Quality Forest Products Corporation located in Albert Lea, Minnesota.

Subsequent to the time that First Lumber Corporation obtained the subcontract from Baldwin Lumber Corporation for the supplying of the lumber for the Plattsburgh job, First Lumber purchased the Quality Forest Products Corporation and operated it as a re-manufacturing mill, or, as it is customarily called in the lumber business, a “cut-up” mill. A cut-up mill purchases low-grade lumber and by reprocessing it attempts to bring it up to a higher grade.

The Quality Forest Products Corporation purchased rough lumber from small mills, called “gypo mills,” resurfaced and trimmed it to eliminate defects such as knots and decay, and cut it to desired size. The reprocessed boards were then supposed to be inspected and stamped with the appropriate grade. Cut-up mills do not have a good reputation in the lumber business. A prudent builder would not knowingly purchase from a cut-up mill lumber for housing. 15.

By mid-September the amount of bad lumber had become so extensive that it became impossible for the Air Force inspectors to inspect and reject the undergrade studs and joists on an individual basis. Although they got reasonable cooperation in the replacement of members that were so obviously bad that they could not hold the wallboard, there were constant quarrels between the Air Force inspectors and Krulik and Keramidas as to whether the lumber met the requirements of the specifications. At the rate the undergrade lumber was coming to the building site, Mr.

Woodward did not believe the Air Force could hire enough inspectors to stop it. Mr. Woodward had been reporting the situation to Mr. Belcher of Kelly & Gruzen, the architect-engineer firm, who brought the matter to the attention of the contracting officer, Captain McAfee. 16. Captain McAfee inspected the buildings then being framed and found that a very large amount of lumber which appeared to him to be obviously undergrade, containing oversize knots, cracks, and splits, was being incorporated in the framing. He noted that most of the bad lumber bore the grademarks of Hickox and A. E. Green grading agencies.

It became apparent that the amount of the undergrade lumber was so extensive that the Air Force inspectors were unable to cope with the situation. McAfee held a conference on the matter with Mr. Post, the project superintendent, and Mr. Krulik, and also conferred with the assistant carpentry superintendent, Carl Johnson, and his foreman, Albert Anderson. They asked for an opportunity to replace the bad lumber but Captain McAfee found that the wallboard contractor was covering up the framing so rapidly that corrections could not be made.

In some instances the Air Force inspectors’ initials on the inspection card indicating the framing had been approved were forged. On September 16, Captain McAfee went to the Day Farm where the lumber was stored and selected a bale at random and broke it open. The outside members bore a WCLIB stamp, but the interior pieces bore no grading stamp at all. 17. At this point the contracting officer became thoroughly alarmed.

The buildings were being framed rapidly, at the rate of about 20 units a day, and the wallboard contractor was proceeding to cover up the framing without waiting for the Air Force inspectors to complete their inspections. The amount of bad lumber going into the buildings was so large that no ordinary team of inspectors could reasonably be expected to keep up with it. Moreover, it appeared that the lumber which bore the Hickox and Green grading stamps had been improperly graded, and the bale that had been broken open at the Day Farm indicated possible fraud on the part of the lumber suppliers.

Since the ordinary Government construction inspector does not have the expertise to grade lumber, the contracting officer felt that he needed expert assistance. He called the Army Lumber Control Office at St. Louis, Missouri, which purchases large quantities of lumber, and asked whether they could send him one of their lumber graders.

The Control Office informed Captain McAfee that they were in their busy season and could not spare any of their personnel but advised him to get in touch with the West Coast Lumber Inspection Bureau or the Pacific Lumber Inspection Bureau on the West Coast who might be of assistance to him. Captain McAfee advised Mr. Krulik of what he was going to do, and called Mr. Howard Brown, the General Superintendent of WCLIB in Portland, Oregon. Mr. Brown referred him to one of their supervisor-inspectors, Charles McNew, who was stationed in New York City.

Captain McAfee called McNew and requested 'him to come to Platts-burgh to look at the lumber on the project. 18. Charles McNew was a man of wide experience in lumber grading. He had been grading lumber since 1924 and had been with WCLIB for 17 years as a grade supervisor in the New York area where he would visit and spot-check mills authorized to use the WCLIB grading stamp in order to determine whether the resident graders were performing-in accordance with the official grading standards. He arrived at Plattsburgh on September 19, 1958, and was taken to Mr. Belcher’s office. Captain McAfee was not present.

Bel-cher and Woodward told him that they had doubts as to whether they were getting the grades of lumber required in the specifications. They gave him a copy of the specifications which called for gradestamped material No. 1 and No. 2, or, as commonly expressed, “No. 2 and better.” All McNew was supposed to do was to look at the lumber and give his opinion as to whether it met the specification of No. 2 or better. They went to the Day Farm where McNew examined several loads of 2 x 4 lumber. One load was banded and had never been opened.

The top layer of boards was gradestamped “Construction” with the stamp of the A. E. Green Inspection Agency. (“Construction” grade is equivalent to No. 1; “Standard” is equivalent to No. 2.) Upon breaking the band, it was found that, with the exception of a few pieces which bore the grademark of the Hickox Inspection Service and which were graded Construction, the pieces had no grade-mark. They were all below No. 2 grade, including the ones marked with the Hickox stamp.

McNew also examined a load of 100 pieces which was part of a stock that had been broken open and placed on carrier blocks for shipment to the building site. There were no gradestamps and all the pieces were below No. 2 grade; they were all “utility” (equivalent to No. 3) or “economy” (below No. 3). A third load which was stamped with the Hickox stamp contained 150 pieces all below the No. 2 grade. The defects in the lumber were, in the main, oversized knots, excessive rot, and decay and shake, which is a separation of the wood fibers. 19.

After lunch, the party was joined by Captain McAfee and Cas Krulik and they again went to the Day Farm. The first load (2x8 studs) was gradestamped and was on grade. The yard man said that this particular stack had been there for 2 years. Another load of 2 x 8 studs was not banded and McNew examined each piece. They all had the Hickox grade-stamp but were all below the No. 2 grade and appeared to be rejects from a mill. At this point Captain McAfee suggested that they look at the buildings. McNew examined the framing in several buildings.

He found that about 30 percent of the ceiling joists were below the No. 2 grade. The studs in two of the buildings were redwood and since redwood was not included in the WCLIB grading rules, McNew declined to give an opinion on them. The studs of the other two buildings were Douglas fir and hemlock. Some of the studs were not grademarked; most of those which were bore the stamp of the Hickox Inspection Service. McNew found that 90 percent of the studs were so far below the No.. 2 grade as to be instantly recognizable as such by any carpenter or construction foreman.

They had the usual defects of oversized knots, excessive rot and decay, as well as shake. 20. Captain McAfee, Krulik, McNew, and Belcher then went back to Belcher’s office where McNew reported to Captain McAfee that the lumber was definitely of inferior grade and much of it even worse than utility lumber. Captain McAfee told Krulik that he had a right to reject lumber which did not come up to the quality of the specifications and, in view of the great quantity involved in the project, he suggested that Krulik obtain the services of a lumber gxader to grade and stamp the lumber.

Krulik agreed that this should be done but said that he would have to discuss-the matter with Mr. Shepard Silberblatt. Captain McAfee asked Mr. McNew whether he could do the job and McNew replied that any such arrangement would have to be made with the Portland office of the WCLIB. On the same day, September 19, 1958, Captain McAfee wrote the following letter to the plaintiff: You are hereby directed to remove and replace all lumber that is. not grade marked or certified in accordance with

Section 5-05, Part A of contract specifications. You are further directed that all lumber not in accordance with the above specification be removed from the housing site. At this point, 854 dwelling units had been fully covered with wallboard and insulation. The framing in those units could therefore not be inspected. There were 334 units that had been completely framed and 266 units that had been framed on the exterior only. 21. Cas Krulik informed Mr. Silberblatt by telephone what had occurred and shortly thereafter Silberblatt discussed the matter personally with the contracting officer.

Silberblatt said that he had purchased the finest lumber obtainable, whereupon Captain McAfee showed Silberblatt about the project and pointed out the defects that the inspectors had complained about and again suggested, as he had earlier to Krulik, that the only practical way of meeting the problem was to call in an unbiased grading agency to inspect and grade the lumber. Silberblatt asked whether he had any suggestions as to how this could best be done and Captain McAfee told him of the agencies on the West Coast, the West Coast Lumber Inspection Bureau and the Pacific Lumber Inspection Bureau.

Silberblatt agreed to call in one of these agencies. Notably, these were the two grading agencies specified by plaintiff in its contract of purchase with Baldwin. 22. Mr. Silberblatt did not at that time get in touch with these West Coast agencies. Instead, he called his contract supplier, the Baldwin Lumber Company, and told them, “You get an unbiased inspection agency up there and inspect that lumber.” Baldwin apparently relayed this direction to its subcontractor, First Lumber Corporation, because on September 22, First Lumber sent Paul Campbell, one of its supervisor-graders, to Plattsburgh.

Campbell was employed by the Hickox Inspection Service and was stationed at First Lumber’s subsidiary, the Quality Forest Products Corporation of Albert Lea, Minnesota, to supervise the graders at that mill who were using the Hickox inspection stamps. Campbell spent 4 days, from September 22nd to September 25th, inspecting and gradestamping the framing in the buildings. On September 25, Captain McAfee first learned that an inspector was gradestamping in the buildings and he asked Shepard Silber-blatt who he was. When Mr.

Silberblatt told him that Campbell was a Hickox Service inspector, Captain McAfee protested that a Hickox representative could not be the unbiased person they bad agreed upon since it was tbe lumber bearing tbe Hickox stamp that was being questioned as having been improperly or perhaps fraudulently graded. He again suggested that tbe regrading should be performed by either WCLIB or PLIB. Mr. Silberblatt expressed no preference as to who did the grading, whether WCLIB, PLIB, or Paid Campbell; he said that if Captain McAfee would be satisfied with inspectors of WCLIB, he would call them in to do the regrading.

While Mr. Silberblatt was understandably distraught that the job had been largely shut down, the evidence shows that at this point he had personally gained sufficient knowledge of the situation to realize that in fact a large percentage of the dimensional lumber in the exposed framing and in storage at the Hay Farm was seriously defective and not nearly within the specific requirements of the contract specifications, those being the identical requirements that he had used in buying the lumber from Baldwin.

Accordingly, except for the directive to stop framing operations, which directive the contracting officer rescinded one day later at plaintiff’s request, the following letter of September 25,1958, from the contracting officer to the plaintiff accurately reflects the agreement reached between the contracting officer and Mr.

Shepard Silberblatt as to future procedures to be employed with the lumber: You are hereby directed to comply with the requirements of Paragraph 5-05 of the specifications entitled “Grade Marking.” Becent inspection of lumber in buildings and on storage areas revealed that the lumber was not of the quality required. In accordance with Paragraph 5-05 of the specifications, you are directed to obtain the services of a lumber grader, satisfactory to the Contracting Officer and perform a grade stamping inspection on all lumber in the yard and installed in the buildings.

Further, you are hereby directed to suspend all operation on framing, insulation and wall board until the buildings have been inspected and corrective action taken has been approved by my inspectors. Kecords will be kept indicating amou

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