A W A R D - British Columbia



A W A R D

I have been appointed by the parties to arbitrate a logging rate dispute under the Timber Harvesting Contract and Subcontract Regulation, B.C. Reg. 22/96 (the “Regulation”). Ray Savidan Enterprises Ltd. (the “contractor”) is a logging contractor operating out of Likely, British Columbia. The contractor provides high lead logging services to Weldwood of Canada Limited (the “company”), the holder of Forest Licence A20017, in the Williams Lake Timber Supply Area.

The contractor and the company are parties to a replaceable logging contract, dated May 19, 1997 (Exhibit “1,” Tab 14), with a five year term commencing on May 19, 1997, and expiring on May 18, 2002. The contract requires the contractor to provide stump to truck logging services, and contemplates that the contractor will harvest approximately 22,500 cubic metres per year. Evidence adduced by the contractor indicates that it harvested an average of 21,868.57 cubic metres in each of the years 1993 through 1997 (Exhibit “1,” Tab 19). The contract further stipulates that the period of operation, unless otherwise required by the company, will commence on May 1, and complete on March 31. Mr. Ray Savidan, the principal of the contractor, described the contract in his testimony as providing for a “break up to break up” logging season.

The parties have, for some years, negotiated an hourly rate for the logging services provided by Ray Savidan Enterprises Ltd. to Weldwood. Because the parties failed to reach agreement on a rate for the 1998 - 1999 logging year (May 1998 through March 31, 1999), my task is to determine that rate in accordance with the requirements of the Regulation.

At the commencement of the arbitration hearing, it was suggested, on behalf of the contractor, that Ray Savidan Enterprises Ltd. had entered into the replaceable contract of May 19, 1997 under duress, and that the contractor would seek to revisit in this arbitration the 1997 - 1998 logging rate, as well as seek a determination of the 1998 - 1999 logging rate. I ruled that my jurisdiction in this case under the Regulation was confined to a determination of the 1998 - 1999 logging rate, and that if the contractor intended to pursue a claim that it had entered into the replaceable contract of May 19, 1997 under duress, it would have to do so elsewhere.

Section 25 (1) of the Regulation sets out an arbitrator’s mandate in a rate dispute:

“25. (1) A replaceable contract must provide that if a rate dispute is referred to arbitration, the arbitrator must determine the rate according to what a licence holder and a contractor acting reasonably in similar circumstances would agree is a rate that

(a) is competitive by industry standards, and

(b) would permit a contractor operating in a manner that is reasonably efficient in the circumstances in terms of costs and productivity to earn a reasonable profit.”

In Hayes Forest Services Limited and Timberwest Forest Limited, Arbitrator Donald Munroe, Q.C., in his Award of April 10, 1997, at pp 3 - 4, observed:

“Section 25(1) is mandatory. This is, I am obliged (“the arbitrator must”) to determine a rate based on my appraisal of what a license holder and a contractor, acting reasonably, would agree in the given circumstances to be an appropriate rate - i.e., in the sense of being competitive by industry standards; and in the sense of permitting the contractor to earn a reasonable profit (assuming reasonable efficiencies and costs).”

In an appeal from Arbitrator Munroe’s Award, Madam Justice Baker, in Hayes Forest Services Limited and Forestland Industries Limited v. Timberwest Forest Limited, Supreme Court of British Columbia, Vancouver Registry A971531, December 2, 1998, stated at pp. 11 - 12, para. 25, that s. 25 of the Regulation establishes an objective standard for the determination of rate disputes. Commenting on Arbitrator Munroe’s Award, she said this:

“. . . But the language used in the award makes it clear that he understood that the rate ultimately determined must fit within the objective parameters of s. 25, and that while attempting to replicate the parties’ behaviour, the result must be objectively capable of being tested against the standard imposed by the legislation, which is a rate “according to what a licence holder and a contractor acting reasonably in similar circumstances would agree . . . .”

While section 25 (1) of the Regulation is mandatory, section 25 (2) provides an arbitrator with discretion to take into consideration, in determining a rate under section 25 (1), the following enumerated factors:

“25. (2) In determining a rate under subsection (1), an arbitrator may take into consideration the following:

(a) rates agreed to by the licence holder and contractor for prior timber harvesting services;

(b) the costs and productivity of the contractor for prior timber harvesting services carried out by the contractor;

(c) relative to prior timber harvesting services, the impact on costs and productivity likely to arise from:

(i) changes in operating conditions including, without limitation, changes to terrain, yarding distances, hauling distances, volume of timber per hectare;

(ii) changes in the total amount of timber processed;

(iii) changes in the required equipment configuration;

(iv) changes in law if the changes affect costs or productivity of the timber harvesting operation;

(v) changes in the underlying costs of timber harvesting operation including, without limitation, the cost of labour and the impact of inflation on wages, fuel, parts and supplies;

(d) the costs in the logging industry for each phase or component of a similar timber harvesting operation;

(e) the rates in the logging industry for similar timber harvesting operations;

(f) any other data or criteria that the arbitrator considers relevant in ascertaining the rate that a licence holder and a contractor acting reasonably in similar circumstances would agree to.”

My task then is to determine a rate for 1998 - 1999, which is objectively capable of being tested against the standard imposed by section 25 (1). In doing so, I may have regard to the various factors enumerated in section 25 (2) of the Regulation.

Background of the Dispute

The contractor has provided cable logging services to Weldwood since the mid-1980s. In 1985, Ray Savidan Enterprises Ltd. acquired a 1976 071 Madill yarder, and a Caterpillar 966C loader. At the time it acquired this equipment, and began to perform high lead logging for Weldwood, it anticipated that it would be logging approximately 30,000 metres per annum. The equipment which the contractor had acquired was uniquely suited to high lead logging, and is not readily adaptable to more conventional logging operations. Mr. Savidan testified that his company is the only high lead logging contractor providing services to Weldwood in the Williams Lake Timber Supply Area. Initially, the contractor logged for Weldwood under contracts which provided for a rate per cubic metre logged. Since at least 1992, Weldwood and the contractor have contracted at an hourly rate. The rates paid by the company to the contractor since 1992 are set out in Exhibit “1,” Tab 15, and are as follows:

May 1, 1992 - March 31, 1993 $ 330.47/hr

May 1, 1993 - March 31, 1994 $ 337.40/hr

May 1, 1994 - March 31, 1995 $ 354.76/hr

May 1, 1995 - March 31, 1996 $ 362.77/hr

May 1, 1996 - March 31, 1997 $ 420.00/hr

May 1, 1997 - March 31, 1998 $ 460.73/hr

Over the previous five years, the contractor has performed logging services for the company for an average of 1,777.43 hours per year. In 1997, the contractor did not start logging until late June, and operated for a total of 1,723 hours over 196 days (Exhibit “1,” Tab 19).

Throughout the time that the contractor has logged for the company, it has continued to operate the 1976 Madill 071 yarder, and the Caterpillar 966C loader, which it acquired in 1985. Both of these pieces of equipment have been extensively rebuilt over the years. Mr. Savidan testified that the Madill loader has been remanufactured to embrace current technology. Furthermore, the contractor has efficiently performed extensive ongoing maintenance on all of its equipment.

The Dispute Regarding the 1998 Logging Rate

At the commencement of the arbitration hearing, the company, as I understood its position, asserted that the 1998 - 1999 logging rate should be no higher than it had been for 1997 - 1998, or $460.74. The contractor maintained that the appropriate rate for 1998 - 1999 was $550.67. The differences between the company’s suggested rate of $460.74*, and the contractor’s suggested rate of $550.67* are set out in Exhibit “1,” Tab 13, and lie in their competing positions on the following components of the hourly rate:

a. a factor of 1.297 vs. 1.396 for payroll loading costs

The spread in payroll loading costs is attributable to two items. First, the contractor has included, as part of its payroll loading costs, a salary of $36,500.00 paid to Mrs. Savidan for bookkeeping services. The company maintains that this amount is excessive. Further, it contends that, in any event, bookkeeping costs should be removed from payroll loading, and included in the contractor’s administrative costs. Secondly, the contractor has included in its payroll loading calculation a Workers’ Compensation safety bonus of .89 per cent paid to its employees as an incentive to encourage workplace safety.

b. 8.75 vs. 8.6 hours per day

* It was common ground that each of these rates would be increased by $8.38 when the contractor was using carriage travel over one hour’s duration (Exhibit “1,” Tab 13).

c. $94.05 vs. $122.52 per hour for the yarder (excluding operator)

d. 9.5 vs. 10 hours per day for the loader

e. $83.39 vs. $97.81 per hour for the loader (including operator)

f. $73.69 vs. $87.79 for one of the contractor’s pickup trucks

g. $12.35 vs. $33.41 per hour for supervision

h. $2.80 vs. $4.87 per hour for the supervisor’s pickup

i. allowance for profit and risk

With respect to profit and risk, the company maintains that since the contractor is paid an hourly rate, it assumes little or no risk for logging chance, or productivity, and that accordingly, the allowance for profit and risk should be in the 7.5 to 10 per cent range. The contractor has calculated its proposed hourly rate to achieve an allowance for profit and risk of 18 per cent.

Much of the evidence adduced by the parties addressed these items.

However, by the conclusion of the arbitration, the company was urging that the appropriate hourly rate was no more than $400.00. This rather dramatic change in position came about as the result of the production by the contractor, during the hearing, of a net income summary (Exhibit “5”) intended to show the contractor’s logging revenues and costs for each of the years 1993 through 1997.

The contractor sought to adduce this evidence after it had acknowledged that certain accounting evidence previously disclosed to the company was not entirely accurate in so far as the material initially produced did not isolate the revenues earned, and expenses incurred by the contractor in its high lead logging show from those attributable to other and unrelated business activities conducted by Ray Savidan Enterprises Ltd.

For 1997, Exhibit “5” recorded the following information:

Total logging revenue $ 770,100.35

Costs $ 724,130.74

Total cubic metres 21,119.77

Total hrs/yr 1,723.0

Cost/cubic metre $ 34.29

Revenue/cubic metre $ 36.46

Cubic metre/hr $ 12.26

Cost/hr $ 420.27

Net revenue $ 45,969.61

Net revenue/hr $ 26.68

During the cross examination of Mrs. Savidan, the contractor’s bookkeeper, it became apparent that the $724,130.74 claimed by the contractor for 1997 logging costs included a one time payment totalling approximately $100,000.00 to Mr. and Mrs. Savidan from funds realized by the contractor from the sale of a helicopter, which Ray Savidan Enterprises had formerly used in a separate enterprise. Mr. and Mrs. Savidan invested these funds in RRSPs. Mrs. Savidan testified that these one time payments of approximately $55,000.00 for Mr. Savidan, and $45,000.00 for Mrs. Savidan were included in the wages attributed by the contractor to its logging operations. She also conceded that the wages for the company’s logging operations in 1998 would be reduced by this $100,000.00, or, to put it another way, would be about $100,000.00 less than they were in 1997.

Counsel for the company submits that the appropriate approach in this case is to determine the contractor’s costs for 1998, and then add an allowance for profit and risk. Relying upon the opinion of Mr. Martin Roberts, an expert in business evaluation with substantial experience in the logging industry, he further submits that the allowance should be less than 15 per cent, which Mr. Roberts described as the industry standard for contractors who are paid on a per cubic metre basis. Mr. Roberts testified that such contractors assume risks of logging chance, and variations in productivity, which do not apply to a contractor paid an hourly rate.

Mr. Bennett argues that the 1998 rate ought to be set by deducting from the contractor’s reported 1997 logging costs of $724,130.74, the $100,000.00 paid by the contractor to Mr. and Mrs. Savidan as one time RRSP investments. He points out that Exhibit “5” clearly indicates that the costs for wages and related payroll costs recorded by the contractor for its logging operation increased from $428,369.00 for 1996, to $527,252.00 in 1997, and that the difference is accounted for by the $100,000.00 RRSP investment.

He then argues that, after the deduction of the $100,000.00 RRSP payment, the contractor’s total costs for logging in 1997 are reduced to $624,000.00. That amount closely approximates the contractor’s average annual logging costs of $620,406.00 for the five years between 1993 and 1997. Counsel for the company urges that the appropriate rate in this case may be determined by adding a 10 per cent allowance for profit and risk to the contractor’s adjusted 1997 logging costs of $624,000.00, resulting in a total of $686,400.00. He then divides that figure by the 1,723 hours during which the contractor operated in 1997 to produce an hourly rate of $398.00, before any further deductions for what the company says are excessive amounts claimed by the contractor for bookkeeping and supervision.

Weldwood argues that the appropriate rate, based on Arbitrator Munroe’s approach in Hayes v. Timberwest, is about $400.00, if one ignores any adjustment to the bookkeeping and supervisory costs. The company says that it is unnecessary to address all of the various disputed components of the logging rate because all of the contractor’s actual logging costs are included in the logging cost figures reported in Exhibit “5,” after deduction of the $100,000.00 one time RRSP payment.

Weldwood relies on Mr. Roberts’ evidence that the appropriate allowance for profit and risk is 7.5 to 10 per cent in this case, rather than the industry norm of 15 per cent, because the contractor is receiving an hourly rate for every hour it works regardless of fluctuations in productivity. Therefore, it has a lower than normal exposure to the significant risks normally associated with logging chance and productivity.

Finally, the company asserts that a rate of $460.00 per hour would be too high because, after subtracting the $100,000.00 RRSP payment from the contractors’ 1997 logging costs, its net revenues for that year increased from $45,969.61 to $145,969.61, against costs of $624,130.00, resulting in a profit of 23.4 per cent.

All of this, of course, assumes that the contractor’s logging costs for 1998 - 1999 would be substantially the same as those incurred in 1997 (after deduction of the $100,000.00 RRSP payment). It also assumes that the contractor’s hours of operation for the 1998 - 1999 season would be the same as those in 1997.

In response, Mr. MacLeod, for the contractor, argues that it would be unfair to determine a 1998 rate solely on the basis of the contractor’s costs and revenues for 1997. He also urges that under section 25 (2)(b) of the Regulation, evidence regarding the contractor’s costs for prior timber harvesting services is only one factor which the arbitrator may take into consideration. He asks me to also consider the evidence adduced in these proceedings regarding logging costs realized in the industry, and rates for equipment similar to that utilized by the contractor.

Counsel for the contractor also made a submission that if I were to render an award based on the cost figures disclosed by the contractor in Exhibit “5,” I would, in effect, be denying the contractor natural justice. Mr. MacLeod argued that the contractor was denied the opportunity to correct errors contained in Exhibit “5”. As I have previously indicated, the contractor sought, during the course of the arbitration hearing, to introduce Exhibit “5” in order to correct what it conceded to be inaccurate financial information previously disclosed to the company. The company initially objected the admission of Exhibit “5” at such a late stage in the proceedings. After hearing submissions from counsel, I admitted Exhibit “5,” but also directed that, in order to avoid any prejudice to the company flowing from the late disclosure of this material, the contractor also produce to the company additional documentation which would provide a reconciliation between the financial records previously produced by the contractor to the company, and the information contained in Exhibit “5”. I also ordered the contractor to produce year end balance sheets, and certain corporate and personal income tax statements.

During her cross examination, Mrs. Savidan acknowledged the error in Exhibit “5” made by the contractor recording the $100,000.00 RRSP payments as part of its 1997 logging costs. There was no suggestion during the hearing that Exhibit “5” contained other errors. Ultimately, the company waived production of the additional documentation I had ordered disclosed by the contractor, and elected to proceed to closing argument. Counsel for the contractor did not make any submission during the hearing that his client should have the opportunity to produce the additional documentation, nor did he assert, or suggest, that there were other material errors in Exhibit “5”. In these circumstances, I reject the contractor’s submission that I ought not rely upon any of the information contained in Exhibit “5” on the ground that there was a denial of natural justice.

However, although the approach advocated by the company may have the virtue of simplicity, I have concluded that it does not satisfy the requirements of section 25 of the Regulation. It is based upon an analysis of the contractor’s 1997 costs and revenues, whereas my task is to set a rate for 1998, which will bear objective scrutiny. I must determine the 1998 rate according to what a licence holder, and a contractor acting reasonably in similar circumstances would agree is a rate that is competitive by industry standards, and which would permit a reasonably efficient contractor to earn a reasonable profit.

In the absence of evidence of all of the contractor’s actual costs for the 1998 - 1999 logging year, it would be unfair to assume that 1998 will simply replicate 1997 costs after deduction of the $100,000.00 RRSP payment. Exhibit “5” indicates that the contractor’s logging costs have fluctuated considerably from year to year. For example, in 1996, the contractor’s logging costs were $730,478.38, as reported in Exhibit “5”. Although its true costs for wages and related payroll expenses were about $100,000.00 lower in 1996 than they were in 1997 (with the difference being largely accounted for by the $100,000.00 RRSP payment incorrectly reported as wages in 1997), the contractor’s repair and maintenance costs for 1996 were over $100,000.00 higher in that year than they were in 1997 (Exhibit “5,” p. 2). I mention this as an example of the variation in the contractor’s costs from year to year.

I am satisfied on the evidence before me, and particularly that of Mr. Burger, that these parties, in negotiating the logging rates for 1996 - 1997 and 1997 - 1998, conducted themselves as would a reasonable licensee and a reasonable contractor. They gathered and exchanged information regarding costs of labour, overhead and equipment rentals, including other rates paid by industry for equipment comparable to that operated by the contractor, and then engaged in negotiations which resulted in the rate of $420.00 for 1996, and $460.74 for 1997.

In short, the parties’ recent bargaining history is consistent with the conduct one would expect of a reasonable contractor, and a reasonable licensee.

I have concluded that it is necessary to address the various components of the 1998 rate in issue between the parties in order to arrive at a rate which meet the requirements of s. 25 of the Regulation.

1.297 v. 1.396 for Payroll Loading

The various payroll loading costs claimed by the contractor are summarized in Exhibit “4”. They include costs of employment insurance and Canada Pension Plan premiums, statutory holidays and holiday pay, and the contractor’s Workers’ Compensation Board premium of 8.55 per cent, none of which are disputed by the company. The two items in issue are the bookkeeper’s salary, and a Workers’ Compensation “safety bonus” paid by the contractor to its employees.

I accept the submission of the company that the salary paid to Mrs. Savidan as a bookkeeper for the contractor’s high lead logging operation should be removed from the payroll loading, and that a proper allowance for bookkeeping should be included in the contractor’s administration costs. Similarly, the .89 per cent claimed by the contractor for a Workers’ Compensation safety bonus should also be deleted. The contractor pays this safety bonus to its employees as an incentive to work as safely as possible. The contractor, based upon its safety record, receives a rebate on its WCB premiums. Mrs. Savidan testified that the contractor’s Workers’ Compensation base premium was 8.55 per cent, but that it received back from the Workers’ Compensation Board at the end of the year a safety rebate which reduced the contractor’s annual premium to 6.8 per cent.

The .89 per cent safety bonus which the contractor pays to its employees is, in effect, expended in order to obtain a reduction in the WCB premiums from 8.55 per cent to 6.8 per cent. In my view, it is not reasonable for the contractor to calculate its payroll loading costs utilizing the 8.55 per cent WCB premium, to then receive the benefit of the rebate, which reduces its premium to an effective rate of 6.8 per cent, and to then pass on to the company the cost of the .89 per cent WCB safety bonus. Accordingly, I would also reduce the payroll loading factor by .89 per cent. I, therefore, accept the company’s position that the appropriate payroll loading factor is 1.297.

I also accept that the salary paid by the contractor to Mrs. Savidan for bookkeeping for the contractor’s high lead logging operation is excessive. Mrs. Savidan testified she received a salary of $3,000.00 per month. Later, she acknowledged that the logging costs recorded in Exhibit “5” included bookkeeper’s wages in the amount of $38,983.19.

The company adduced evidence indicating that various accounting and bookkeeping firms in the Williams Lake area would charge fees ranging from $3,600.00 to $12,000.00 in order to provide bookkeeping services to a logging contractor similar to Savidan Enterprises Ltd. (Exhibit “6,” Tab 11). The company suggests I use the average fee of the seven firms surveyed, of $6,639.00, for the contractor’s 1998 bookkeeping costs. Mrs. Savidan testified that in addition to bookkeeping, she also performed additional duties, and assisted her husband, Ray Savidan, in negotiating rates. I agree with Mr. Bennett’s submission that Mrs. Savidan’s role in negotiations is really that of a principal of the contractor, rather than a paid employee. However, I also accept her testimony that her duties include, in addition to bookkeeping, some office management, and miscellaneous delivery duties. Accordingly, I would make an allowance for bookkeeping at the high end of the range surveyed by Mr. Roberts, and would add the sum of $12,000.00 to the contractor’s administration costs, which would increase the contractor’s administration costs, as shown in Exhibit “1,” Tab 13, from $33,584.43 to $45,584.43. When divided by 1,777.43, this produces an hourly cost of $25.65.

8.75 v. 8.6 Hours per Day

The contractor has based its rate calculation on a five year average of 8.6 hours per day for the years 1993 through 1997. However, for January and February of 1998, Exhibit “1,” Tab 19 demonstrates that the contractor averaged 8.79 hours per day. Similarly, the contractor averaged 8.76 hours per day in 1996, and 8.79 hours per day in 1997. Furthermore, the contractor has based its rate calculations on eight hours of straight time, and .75 hours per day of overtime, which is consistent with the average of 8.75 hours per day used by Weldwood. In my view, having particular regard to the evidence of actual hours worked by the contractor for 1996, 1997, and the early winter months of 1998, and the contractor’s own formula of calculating overtime costs based upon an 8.75 hour day, a reasonable contractor and a reasonable licensee would conclude that the average number of hours per day for the purpose of calculating a logging rate in this case is 8.75 hours.

$94.05 v. $122.52 per hour for the Madill 071 Yarder

I reject the contractor’s calculation of an hourly rate for the 071 Madill yarder set out at Exhibit “1,” Tab 25. The contractor has calculated an hourly rate of owning and operating this machine of $122.52. As previously described, this piece of equipment was originally manufactured in 1976, was acquired by the contractor in 1985, and has been extensively rebuilt over the past 13 years. However, the contractor’s proposed rate is calculated as if it had expended $500,400.00 to acquire a brand new machine, and as if it had incurred the costs of financing, and insuring a brand new machine. At the same time, the contractor has claimed the actual repair and maintenance costs incurred for the 1976 Madill 071.

I accept the opinion of Mr. Martin Roberts that the contractor has “double counted” the costs of the yarder by including both the high capital costs, which would be incurred if it acquired a new machine, and the repair and maintenance costs commensurate with an old, but well-maintained piece of equipment.

The company adduced evidence, found at Exhibit “6,” Tabs 1, 3 and 4, indicating that the hourly rental rates of two other licensees for 1976 Madill 071 yarders (excluding the operator) were approximately $76.00 per hour, and $85.89 per hour. The contractor introduced evidence of a Letter of Understanding, dated March 21, 1995, between Crestbrook Forest Industries Ltd., and the East Kootenay Loggers’ Association, which set rates for various pieces of equipment used in stump to truck logging operations in the East Kootenays. I heard evidence that there were a number of high lead logging contractors operating under that Agreement. The Crestbrook Agreement stipulated an hourly rate for a Madill 071 yarder manufactured between 1979 and 1983 of $96.50, less an 11 per cent reduction, or $85.89 (Exhibit “1,” Tab 28, and Exhibit “3”). The 11 per cent reduction was intended to reflect the fact that equipment utilized in long term logging operations would command a lesser rental rate than equipment engaged for short term work.

The rates set out in the Crestbrook Letter of Understanding of March 21, 1995, were still in effect, as of December 18, 1998 (Exhibit “3”). I note that even if one were to treat the contractor’s rebuilt 1976 Madill 071 as being equivalent to a Madill tower yarder of recent vintage, according to Exhibit “1,” Tab 28, the hourly rate under the Crestbrook Agreement would be $104.00, less 11 per cent, or $92.56. In my view, the rate proposed by the company of $94.05 per hour is reasonable and competitive by industry standards. Because the contractor is the only high lead logging operator contracting to Weldwood, it is reasonable to expect that he would be able to negotiate a slightly higher rate than high lead operators in the East Kootenays would be able to command under the Crestbrook Agreement where they are in competition with each other for Crestbrook’s work.

9.5 v. 10.0 Hours per day for the Loader

For the company, Mr. Burger, whose duties include overseeing logging and road building operations for approximately 50 per cent of Weldwood’s 500,000 cubic metre allowable annual cut under Forest Licence A20017, testified that 9.5 hours per day was sufficient time for the loader to efficiently perform its functions in the high lead logging operations of the contractor. He also testified that the company had previously agreed to increase the loader hours from 9 to 9.5 hours after it had changed its log sorting requirements. I accept Mr. Savidan’s evidence that in the particular circumstances of this operation, 10 hours is a reasonable allowance for the loader.

Mr. Savidan testified that he requires the loader, and its operator, to be on hand 10 hours per day. He operates from a relatively remote location with comparatively long haul distances. Whereas formerly, one of his truck drivers would load the first truck out in the early morning, he now requires the loader on site to perform that function. There is no dispute that Mr. Savidan is a reasonably efficient operator. Furthermore, he is highly experienced in cable logging operations. I accept that in the particular circumstances of this operation, 10 hours is a reasonable allowance for the loader.

$83.39 v. $97.81 per hour for the Loader

The contractor’s proposed rate of $97.81 for the 1985 966C Caterpillar loader, as set out in Exhibit “1,” Tab 29, is subject to the same criticism as the contractor’s rate calculation for the 1976 Madill 071 yarder.

A reasonable contractor and a reasonable licensee would not set a rate for this piece of equipment based upon the cost of acquiring, financing, and insuring a brand new loader, and the contractor’s actual costs of repairing and maintaining a much older machine.

Under the Crestbrook Agreement, the hourly rate for a comparable 966C Caterpillar loader, including operator, would be $84.90 per hour (Exhibit “3”). This rate is arrived at by taking the 1994 - 1995 British Columbia Ministry of Transportation and Highways’ Equipment Rental Rate Guide rate (commonly referred to as the “Green Book”), and discounting the machine rate for the loader by 9 per cent. Again, the discount reflects the fact that full time work would attract a lower hourly rate than would short term, intermittent highway construction work. The operator’s rate is then added in to arrive at the rate of $84.90 per hour for a comparable loader under the Crestbrook Agreement.

Again, the evidence before me shows that the Crestbrook rate of $84.90 had not changed between March 21, 1995, and December 1998.

The company also adduced evidence that the Blue Book rate for the 966C loader is $82.66. The “Blue Book” is an equipment rental rate guide published by B.C. Hydro and Power Authority and B.C. Rail Ltd. The Blue Book rate for a comparable loader is $97.75. However, as Mr. Burger testified, and as Exhibit “6,” Tab 8 demonstrates, that rate must be adjusted by the deduction of $7.76 because it includes the cost of a pick up to transport the operator to and from the work site. The company and the contractor have traditionally calculated a logging rate which makes separate provision for the cost of pick up trucks. In addition, I accept the company’s evidence that a further reduction of $7.33 is appropriate to reflect the fact that the Blue Book rate is typically reduced by between 5 and 10 per cent where a piece of equipment is rented for long term use. $7.33 represents a reduction of 7.5 per cent, or the mid point of the range. Accordingly, the adjusted Blue Book rate for a similar loader would be $82.66.

The company’s proposed rate for the loader is $83.39, which is the same as the loader rate used in determining the 1997 - 1998 logging rate. It includes an allowance of 10 per cent for return on investment as, indeed, did all of the company’s 1997 equipment rates (Exhibit “1,” Tab 11).

The company also led evidence that two other forest companies operating in the Williams Lake area paid hourly rental rates for similar loaders, including the costs of the operator, ranging from $87.47 to approximately $90.00 (Exhibit “6,” Tabs 6 and 7). According to Mr. Martin Roberts, these were estimated hourly rates provided by forest companies who, in fact, paid their contractors per cubic metre of production. The estimate of $87.47, contained at Exhibit “6,” Tab 6, incorporated a 15 per cent allowance for profit and risk. Having regard to the evidence before me of the range of rates for similar Caterpillar loaders used in long term logging operations, in my view, a licence holder and a contractor acting reasonably in circumstances similar to the instant case would agree on a rate for the 966C loader which, including the operator, fell within the range of $82.66 to $90.00. I have selected a rate at the mid point of that range, or $86.33. In doing so, I have taken into account the fact that the estimated rates obtained by the company from other Williams Lake licensees, which are at the high end of the range, assume a 15 per cent allowance for profit and risk, and per cubic metre payment to the contractor. For the reasons I address later in this Award, I have decided that a 10 per cent allowance for profit and risk is appropriate.

$73.69 v. $87.79 for one of the Pick Ups

Mr. Burger gave evidence that Weldwood paid a 1998 hourly rate of $73.69 for pick ups for all of its contractors.

The contractor’s calculation of the $87.79 proposed rate for one of its pick up trucks, as set out in Exhibit “1,” Tab 31, is subject to criticism similar to that of its proposed rates for the yarder and the loader in so far as it inflates the capital cost of the vehicle. Furthermore, Mr. Savidan acknowledged in his testimony that the contractor’s rate calculations for the pick up truck, and, indeed, for the yarder and the loader were driven, in part, by a desire to achieve an 18 per cent allowance for profit and risk, and were calculated to produce that result. For the reasons stated below, an allowance of profit and risk of that magnitude in the calculation of an hourly rate for this logging operation is not appropriate. I have concluded that the company’s pick up truck rate of $73.69, which is, as I have previously stated, the rate paid by Weldwood to all of its contractors in the Williams Lake Timber Supply Area, is a reasonable and appropriate rate in this case.

Supervision

Mr. Savidan charges out the time he devotes to supervision at $26.39 per hour. He testified that he had recorded 1,611.8 hours of supervisory time during the 1997 - 1998 logging year, the last full season for which such information was available. During 1997, the contractor conducted its logging operations for a total of 1,723 hours. Mr. Savidan testified that, in addition to the time he recorded for supervision, he charged out time he expended performing maintenance work on the contractor’s equipment at a heavy duty mechanic’s hourly rate of $55.00.

Over the five year period 1993 to 1997, the contractor operated an average of 1,777.43 hours per annum. The contractor derives a supervision rate of $33.41 as follows:

$26.39 x 1.396 (payroll loading) x 1,611.8 hours divided by 1,777.43 = $33.41

The company, through Mr. Burger, gave evidence that a high lead logging operation employing eight to ten persons, and harvesting between three and five cutblocks each year, only required the equivalent of one-third of a full time supervisor. It pointed out that prior to 1996, Mr. Savidan had operated the loader, and supervised the crew, and that the contractor now employs Mr. Savidan’s son-in-law on a full time basis to run the loader. It questions why a full time supervisor is now required.

Mr. Bennett also points out that the 1,611.8 hours recorded by Mr. Savidan as supervision time for 1977 - 1978 included 283 hours during spring break up, when no logging took place. Mr. Savidan testified that during this time, he was engaged in contract negotiations with the company. I agree with the company’s submission that time devoted by Mr. Savidan to contract rate negotiations is time expended in his capacity as an owner of the contractor, rather than as a logging supervisor.

I also heard evidence from both Mr. Savidan and Mr. Paul Klotz, a registered professional forester called by the contractor, that, since the advent of the Forest Practices Code, the contractor’s supervisory responsibilities, and the time required and costs for supervision of logging operations, have increased substantially both for this contractor, and others in the industry. I also take into account Mr. Savidan’s evidence that high lead cable logging is potentially hazardous, and that, therefore, the regular presence of a supervisor on site is necessary to reinforce employees’ compliance with Workers’ Compensation standards. However, I must also take into account Mr. Burger’s evidence that the responsibility for such matters as the design of cutblocks to meet requirements of the Code lies with the licence holder, rather than the contractor. Weighing all of these factors, I have concluded that while there must be some downward adjustment to the supervision time claimed by the contractor, a rate based upon only one-third of a full time supervisor position would be inordinately low. I allow $19.26 per hour for supervision based upon 1,000 hours of supervision time calculated as follows:

$26.39 x 1.297 x 1,000 divided by 1,777.43 = $19.26

$2.80 an hour v. $4.87 per hour for the Supervisor’s Pick Up

I have adjusted the rate for the supervisor’s pick up truck from $4.87 to $3.02 to reflect the reduction in supervision time from 1,611.8 hours to 1,000.00 hours.

Profit and Risk

I accept the evidence of Mr. Martin Roberts that an allowance to the contractor of 15 per cent for profit and risk is the standard in the forest industry where logging rates are calculated on a per cubic metre basis.

I also accept Mr. Roberts’ testimony that because this contractor is paid an hourly rate, rather than a price per unit logged, it is not exposed to the same risks of lower than expected productivity, and adverse logging chance as is a logging contractor paid per cubic metre. While it is true that the contractor may still bear the risk of fire closures, or a shut down due to market conditions, the risk of loss due to poor quality timber, or adverse terrain, is, in this instance, borne by the company, rather than the contractor.

I am satisfied that there is no basis whatever on the evidence before me for the contractor’s suggested allowance for profit and risk of 18 per cent. Furthermore, Mr. Roberts has testified that given the substantially reduced risk borne by the contractor in this case, by virtue of its hourly logging rate, the appropriate allowance would be in the range of 7.5 per cent to 10 per cent. I accept Mr. Roberts’ evidence on this point, and find that a reasonable allowance for profit and risk in this case is 10 per cent.

The 1998 - 1999 Rate

As mentioned earlier in this Award, Exhibit “1,” Tab 13 sets out each of the components of the logging rate, and calculations of the company’s proposed rate of $460.74, and the contractor’s suggested rate of $550.67. I have addressed in this Award each of the disputed components of the 1998 - 1999 rate. In addition, I would further adjust the labour rates set out in Exhibit “1,” Tab 13 to incorporate Weldwood’s 1998 labour rates for a hook tender at $24.38 per hour, chokerman at $21.02 per hour, chaser at $21.92 per hour, and engineer at $22.78 per hour, as set out in Exhibit “1,” Tab 12. In the absence of any evidence of any adjustment for 1998 to the hourly rate for the rigging slinger, I use the hourly rate of $22.03 shown in Exhibit “1,” Tab 13. This produces an hourly labour rate, using a payroll factor of 1.297, of $145.43. Similarly, I would adjust the overtime allowance set out in Exhibit “1,” Tab 13 to $18.70 to reflect the 1998 wage increases described above. For the purposes of determining the 1998 - 1999 logging rate, I have used the faller’s daily rate of $362.83, as set out in Exhibit “1,” Tab 12, which equates to the hourly faller’s rate of $48.12, a saw allowance of $3.71 per hour, and an additional allowance of $2.97 for the chaser’s saw, all as shown in the “Weldwood column” of Exhibit “1,” Tab 13. Hourly rates for the yarder and loader are as previously described in this Award, subject only to a further adjustment to the loader rate to reflect my determination that the contractor should be allowed 10 hours per day for the loader and operator. That adjustment produces a rate of $98.66 ($86.33 x 10 hours divided by 8.75).

When each of the remaining components of the rate, as described above, is taken into account, the result is an hourly logging rate of $485.00.

Accordingly, my Award is that the hourly logging rate for 1998 - 1999 is $485.00. That rate would be increased by a further $8.38 per hour, as shown in Exhibit “1,” Tab 13, when the contractor is using carriage travel of more than one hour.

Under Regulation 26(b), the company was required to pay the contractor a provisional rate equal to the rate paid to the contractor for 1997. I would direct the parties to make the retroactive adjustment required by section 26(d) of the Regulation.

I retain jurisdiction to address any incidental matters which may arise regarding the implementation of this Award.

DATED at the City of Victoria, in the Province of British Columbia, this 22nd day of March, 1999.

Paul J. Pearlman, Q.C.

Arbitrator

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