Had them speak directly a few days ago. Building Inspector is hanging his hat on the statute in the building codes that says each piece of stuctural framing lumber ultimately needs to be graded, regardless of what the licensed engineer is willing to take for responsibility. My hands are tied to the point where I've had to work with the engineer to come up with a solution that requires removal of the reclaimed timber and replace it with a new one and adding a Simpson connector. Customer is not happy! Thanks for the input.