8HP Briggs Governor Shaft Leak

[Forest#2]

It's a typical lip oil seal. The O.D of the seal looks like it's supposed to fit on the outside of the bushing in the block of the engine. I wouldn't think you'd ream the bushing and install the seal in the bushing.
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Your two pictures looks like the OD of the seal might be larger than the outside protrusion of the aluminum casting on the outside of the block? (your block is not flat as shown in fig 46

Appears not machined for that seal you have seal that goes into the block on the outside even though the parts lists shows such?????????????