[Federal Register: August 13, 2009 (Volume 74, Number =
155)]
[Rules and Regulations] =20
[Page 40736-40744]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13au09-7] =20
=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=
=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=
=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D
-----------------------------------------------------------------------
DEPARTMENT OF AGRICULTURE
Forest Service
36 CFR Part 223
RIN 0596-AC80
=20
Sale and Disposal of National Forest System Timber; Downpayment=20
and Periodic Payments
AGENCY: Forest Service, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This final rule revises the Forest Service's downpayment and=20
periodic payment regulations to reflect changes in contracting=20
procedures and authorities since these regulations were adopted in=20
1991. The changes remove obsolete references and procedures; make=20
downpayments and periodic payments optional for stewardship contracts;=20
allow downpayment and periodic payment amounts to be recalculated when=20
contracts receive rate redeterminations; revise procedures for=20
releasing downpayments; and allow downpayments to be temporarily=20
reduced for certain delays, interruptions, or extensions. This final=20
rule protects the Government's financial security, reduces speculative=20
bidding, and encourages purchasers to harvest timber in a timely=20
manner. In addition, the rule provides financial relief to timber=20
purchasers when forest product prices drastically decline or purchasers=20
receive additional contract time and are not expected to operate.
DATES: This final rule is effective September 14, 2009.
FOR FURTHER INFORMATION CONTACT: Lathrop Smith, Forest Management=20
staff, at (202) 205-0858, or Richard Fitzgerald, Forest Management=20
staff, at (202) 205-1753. Individuals who use telecommunication devices=20
for the deaf (TDD) may call the Federal Information Relay Service=20
(FIRS) at 1-800-877-8339 between 8 a.m. and 8 p.m., Eastern Standard=20
Time, Monday through Friday.
SUPPLEMENTARY INFORMATION:
Background
The downpayment regulation (36 CFR 223.49) and periodic payments=20
regulation (36 CFR 223.50) were adopted on July 31, 1991, (56 FR 36099)=20
to protect the Government's financial security, reduce speculative=20
bidding, encourage purchasers to harvest timber in a timely manner and=20
to comply with section 2d of the Federal Timber Contract Payment=20
Modification Act (Pub. L. 98-478, 98 Stat 2213; 16 U.S.C. 618) (Buy-out=20
Act).\1\
-------------------------------------------------------------------------=
--
\1\ Section 2(d) provides that ``[e]ffective January 1, 1985, in=20
any contract for the sale of timber from the National Forests, the=20
Secretary of Agriculture shall require a cash down-payment at the=20
time the contract is executed and periodic payments to be made over=20
the remaining period of the contract.''
-------------------------------------------------------------------------=
--
The downpayment regulation requires purchasers to make a cash=20
deposit in the timber sale account at the time of sale award equal to=20
10 percent of the sale's total advertised value plus 20 percent of the=20
bid premium. This cash is held by the Forest Service and cannot be used=20
by the purchaser until (i) on scaled sales, stumpage representing 25=20
percent of the total bid value has been charged and paid for, or (ii)=20
on tree measurement sales, stumpage representing 25 percent of the=20
total bid value is shown on the timber sale statement of account to=20
have been cut, removed, and paid for. (36 CFR 223.49(d).)
This final rule revises 36 CFR 223.49 by: (1) Removing obsolete=20
definitions, references and procedures; (2) making downpayments=20
optional for stewardship contracts; (3) adding procedures to=20
recalculate downpayments when contracts receive rate redeterminations;=20
(4) revising procedures for releasing downpayments; and (5) adding=20
procedures to temporarily reduce downpayments when the Forest Service=20
authorizes or orders certain contract delays, interruptions, or=20
extensions.
Section 223.49(b) is revised to make downpayments optional for=20
stewardship contracts. Stewardship contracts are awarded on a best=20
value basis, which virtually eliminates the potential for speculative=20
bidding because factors other than price determine best value. Further,=20
section 323 of the Department of the Interior and Related Agencies=20
Appropriations Act of 2003 (as contained in division F of Public Law=20
108-7; 16 U.S.C. 2104 Note) authorizes the Forest Service to apply the=20
value of timber or other forest products removed under a stewardship=20
project as an offset against the cost of service work. Doing so=20
provides financial security to the Government and incentivizes=20
contractors to harvest timber and perform service work in a timely=20
manner. Stewardship contracts require contractors to make cash deposits=20
equal in value to timber they plan to cut before performing service=20
work. To get these cash deposits back, contractors must perform the=20
service work. Alternatively, if a contractor performs the service work=20
first, the Government uses the value of timber the contractor harvests=20
to offset the service work's cost. For these reasons, most stewardship=20
contracts do not need a downpayment.
However, there can be exceptions. For example, if the value of the=20
timber greatly exceeds the cost of services under a contract, a=20
downpayment may be needed to provide financial security. Therefore,=20
this final rule allows contracting officers to require downpayments on=20
stewardship contracts when needed to ensure the Government's financial=20
security.
This rule also revises Sec. 223.49(c) to allow downpayments to be=20
recalculated when contracts receive rate redeterminations. The initial=20
downpayment amount deemed necessary to protect the Government's=20
financial security and encourage purchasers to timely harvest timber in=20
is based on a percentage of a contract's value at time of award.=20
However, timber sale contracts contain procedures to redetermine=20
stumpage rates for (1)
[[Page 40737]]
environmental modification; (2) catastrophic damage; (3) Forest Service=20
ordered suspension or delay; and (4) emergency rate redeterminations.=20
Redetermined rates can change a contract's total value. While many=20
contracts already provide that required deposits can be redetermined=20
when contract rates are redetermined, the practice has not been to=20
adjust downpayments. This final rule clarifies that downpayments should=20
be recaclulated when rates are redetermined. Allowing downpayment=20
redeterminations maintains the government's financial security because=20
the same percentage of downpayment to total contract value deemed=20
necessary under Sec. 223.49 is retained under this final rule.
In addition, this rule revises Sec. 223.49(d) to allow=20
downpayments to be released when they equal or exceed the value of a=20
sale's remaining timber. Section 223.49(d)(1) was added for scaled=20
sales and Sec. 223.49(d)(2) was added for tree measurement sales. This=20
change was made to prevent situations where prices on sales subject to=20
stumpage rate adjustments decline so much that the downpayment exceeds=20
the value of remaining timber without triggering the downpayment's=20
release. The Forest Service never intended to hold downpayments greater=20
than the value of remaining timber.
Finally, this rule adds Sec. 223.49(k), which allows downpayments=20
to be temporarily reduced when the Forest Service authorizes or orders=20
certain contract delays, interruptions, or extensions. The Forest=20
Service has determined that it is not necessary to require full cash=20
downpayments when the scenarios identified in Sec. 223.49(k) occur.
Periodic payments are ``amounts specified in a contract that a=20
purchaser must pay by the periodic payment determination date(s) unless=20
reduced by amounts paid as stumpage for volume removed.'' (36 CFR=20
223.50(a)(4).) The initial periodic payment is equal to 35 percent of=20
the total contract value or 50 percent of the bid premium, whichever is=20
greater. Where an additional periodic payment is required by the=20
contract, 75 percent of the total contract value at time of award must=20
be paid by the second periodic payment determination date. The periodic=20
payment(s) amount is reduced when payment would result in the=20
purchaser's credit balance for timber charges exceeding the current=20
contract value (36 CFR 223.50(c)). Many purchasers never receive a=20
periodic payment bill because their stumpage payments for volume=20
removed stay ahead of periodic payment amounts. For purchasers that are=20
billed, or are about to be billed, the periodic payment is an economic=20
incentive to resume or accelerate harvesting.
This final rule revises 36 CFR 223.50 by: (1) Amending paragraph=20
(b) to clarify that periodic payments are not required for stewardship=20
contracts and (2) amending paragraph (f) to add procedures to=20
recalculate periodic payment(s) amounts after contractual rate=20
redeterminations and to remove obsolete procedures. These changes were=20
made for the same reasons as the corresponding changes made to section=20
223.49.
Amendments to the Downpayment Requirements
Section 223.49 is amended as follows:
In paragraph (a)(2), the definition of ineffective purchaser credit=20
is removed and paragraphs (3)-(5) are renumbered (2)-(4). Section 329=20
of the Department of the Interior and Related Agencies Appropriations=20
Act, 1999 (as contained in section 101(e) of division A of Public Law=20
105-277; 16 U.S.C. 535a) directed, among other things, that the=20
``purchaser credit'' procedure be eliminated no later than April 1,=20
1999. The use of purchaser credit was discontinued in timber sales=20
advertised after March 31, 1999, by making changes in timber sale=20
contract provisions (File code 2450 letter to Regional Foresters dated=20
February 19, 1999). As of March 30, 2008, only $6,000 worth of=20
purchaser credit was being used to cover downpayment requirements.=20
Because no additional purchaser credit is being earned, references to=20
ineffective purchaser credit in the downpayment regulation are obsolete=20
and unnecessary.
In paragraph (b), the option of using effective purchaser credit is=20
eliminated for the same reasons cited above. A sentence has also been=20
added making downpayments optional for stewardship contracts unless=20
needed to ensure the Government's financial security.
In paragraph (c), obsolete references to converting units of=20
measure other than board feet to board feet have been removed. The=20
downpayment amount is calculated as a percentage of sale value without=20
regard to unit of measure. Paragraph (c) is further amended to include=20
procedures to recalculate downpayments when contract rates are=20
redetermined.
Paragraph (d) is amended to allow downpayments to be released when=20
the estimated value of remaining timber is less than the downpayment.=20
Paragraph (d)(1) is added for scaled sales and paragraph (d)(2) is=20
added for tree measurement sales.
Paragraph (g) is amended to allow contracts subject to paragraph=20
(e)'s higher downpayment requirement to have their downpayments=20
recalculated when stumpage rates are redetermined. This change was made=20
for the same reasons as the changes to paragraph (c). In addition,=20
paragraphs (g)(1) and (2) are removed to eliminate obsolete references=20
to ineffective purchaser credit and converting units of measure other=20
than board feet to board feet. The removal of those paragraphs was made=20
for the same reasons as the deletions made in paragraph (a)(2).
Paragraph (j) is amended to specify that the Chief of the Forest=20
Service may preclude temporary downpayment reductions under paragraph=20
(k)(2) and (3) to deter speculation.
Paragraph (k) is added to allow temporary downpayment reductions=20
when a contractor is not cutting or removing timber because its=20
scheduled operations were delayed, interrupted, or extended for 30=20
consecutive days or more for any of the following reasons: (1) Forest=20
Service requested or ordered delay or interruption of operations for=20
reasons other than breach; (2) a contract term addition pursuant to=20
contractor shifting operations to a sale designated by the Forest=20
Service as in urgent need of harvesting; or (3) a contract term=20
extension authorized upon a determination of substantial overriding=20
public interest, including a market-related contract term addition, or=20
urgent removal contract term extension under 36 CFR 223.53.
Paragraph (l) is added to allow downpayments to be reduced to the=20
greater of $1,000 or two percent of the amount stated in the contract=20
during qualifying periods of delay, interruption, or extension under=20
paragraph (k), unless the purchaser is cutting or removing timber.=20
Purchasers cannot cut or remove a contract's timber until the=20
downpayment stated in the contract is restored.
Amendments to the Periodic Payment Requirements
Section 223.50 is amended as follows:
Paragraph (b)(3) is added to clarify that not all stewardship=20
contracts require periodic payments. Paragraph (f) is amended to remove=20
obsolete contract modification procedures and add procedures to=20
recalculate periodic payment(s) amounts following a contract rate=20
redetermination authorized. The obsolete procedures being removed=20
required pre-1991 contract purchasers to make a written request by 1991=20
to receive market-related contract term additions.
[[Page 40738]]
Agency Response to Major Public Comments
On October 29, 2008, the Forest Service published a notice of=20
proposed rule and request for comment on revisions to 36 CFR 223.49 and=20
223.50 in the Federal Register (73 FR 64288). During the comment=20
period, which ended December 29, 2008, the Forest Service received 4=20
comments responsive to the rule's merits and 2 non-responsive comments.=20
The four responsive comments were from the Federal Timber Purchasers=20
Committee, Westek Forest, Ltd., New Hampshire Timber Owners=20
Association, and the Wilderness Society. Following are the Forest=20
Service's responses to those comments.
Comment 1: We believe the proposed changes to the downpayment=20
regulation are well designed and will help timber purchasers with cash=20
management in these difficult markets.
Response 1: This is a statement for which no response is necessary.
Comment 2: We urge you to act expeditiously to give timber=20
purchasers as much relief as possible in order to keep them viable and=20
preserve options for the management of the National Forests.
Response 2: This is a statement for which no response is necessary.
Comment 3: I agree with the proposed rule change. This change will=20
give contractors better flexibility to complete stewardship contracts.
Response 3: This is a statement for which no response is necessary.
Comment 4: Nationwide, the forest products industry is undergoing=20
extreme stress due to reduced demand for forest products, lower prices,=20
and increased costs of production. It does the American people no good=20
to force wood producers into bankruptcy or to deal with timber sale=20
contracts that cannot be operated profitably under current market=20
conditions. If these sale contracts are cancelled and the timber=20
reoffered, it would not sell or would only bring greatly reduced=20
prices. This process would be expensive and yield no positive results.=20
We have reviewed the proposed rules and agree that they would have an=20
overall positive effect on the Forest Service timber sale program and=20
are in the best interest of the people of the United States.
Response 4: These are statements for which no response is=20
necessary.
The remaining comments were from a single respondent prefaced by=20
the statements that (1) significant information necessary to fully=20
understand the proposed rule and prepare informed comments is missing=20
and (2) the Federal Register notice proposes significant changes in the=20
amount and requirements for downpayments and periodic payments yet the=20
basic facts and conditions that have caused the agency to pursue these=20
rule changes are undisclosed. Unless otherwise noted, no changes were=20
made in response to the following comments.
Comment 5: The Forest Service states a desire to lower the risk of=20
timber contract default. This would not be proposed unless default was=20
a significant problem. What is the rate and percentage of default in=20
the last five or ten years and over the past 12 months? What is the=20
projected rate of default based on current market conditions?
Response 5: The Forest Service does not track defaults so it can=20
not calculate a percentage of defaults over a five or ten year period.=20
Although snapshots of the timber sale accounting system can be taken to=20
determine the number of contracts coded as defaulted on specific dates,=20
the system can not tally the number of defaults over a period of time.
On March 31, 2009, the Forest Service had 1,972 open contracts on=20
forms FS-2400-6 and FS-2400-6T. Twenty-three of those contracts or 1.2=20
percent were coded in the timber sale accounting system as defaulted.=20
On March 31, 2008, there were 1,961 open contracts on those same forms;=20
24 or 1.2 percent were coded as defaulted. Sales on other contract=20
forms were not included in these calculations because the Forest=20
Service is not aware of any other types of open contracts subject to=20
this final rule.
A projected default rate based on current market conditions would=20
only be an unsubstantiated estimate subject to dispute. However, it is=20
reasonable to predict that when purchasers are forced to cease=20
operating due to adverse market conditions, uncompleted contracts are=20
at an increased risk of default. An objective of the final rule is to=20
lower default risk by adjusting downpayments to reflect drastic=20
declines in contract values and temporarily reducing downpayments when=20
appropriate. These changes are expected to help purchaser cash flow,=20
which may help them continue operating and/or purchasing contracts.
Comment 6: The Forest Service recently described over 1,000 agency=20
timber sales as eligible for market-related contract term additions=20
(MRCTA). All would then be eligible for downpayment and periodic=20
payment redeterminations.
Response 6: The MRCTA procedures do not include a mechanism for=20
redetermining contract rates Therefore, a sale's eligibility for MRCTA=20
does not mean it will receive a rate or periodic payment=20
redetermination. On March 31, 2009, the Forest Service had=20
approximately 615 sales eligible for downpayment and periodic payment=20
redeterminations under this rule. Of those 615 sales, only 199 still=20
had downpayments on deposit, for a total value of $6.8 million. Without=20
looking at the statement of account for each one of those contracts, it=20
is not possible to assess each contract's periodic payment status.
Comment 7: How many sales would be eligible for redetermination=20
under the three clauses (environmental modification, catastrophic=20
damage and emergency rate determination)? What percentage of sales does=20
this represent? How often do these cases occur?
Response 7: The commenter is asking the Forest Service to quantify=20
where and when unpredictable events such as natural disasters may occur=20
in the future. Any attempt to do so would be purely speculative.=20
However, we do know that on March 31, 2009, there were 1,972 open sales=20
and 615 or 31 percent were potentially eligible for emergency rate=20
redeterminations. Of those 615 sales, only 199 still had downpayments=20
on deposit in the amount of $6.8 million.
Comment 8: The Forest Service retains authority to set larger=20
downpayment amounts and proposes to limit redeterminations in=20
geographic areas where speculation has or could occur. Where has the=20
agency set larger downpayments in the past? How does the agency=20
recognize when speculation is occurring?
Response 8: The Forest Service uses appraisal performance reports,=20
Forest Service Manual (FSM) 2422, and Bid Monitoring Reports, FSM=20
2432.52, to identify speculative bidding. The agency has not increased=20
downpayments pursuant to the authority in 36 CFR 223.49(c).
Comment 9: The agency states: ``Further, the Forest Service has=20
determined that the benefits of temporarily reducing downpayments under=20
223.49(k) outweigh the potential increased risks to the government's=20
financial security.'' Federal Register, Volume 73, No. 210, page=20
64,290. Please provide a copy of the analysis that led to this=20
determination.
Response 9: The Forest Service has closely monitored the drastic=20
decline in forest product markets since late 2004. As the market=20
decline deepened, reports in the national press, trade bulletins, (such=20
as Random Lengths, TDC Stumpage Price Report, WWPA
[[Page 40739]]
Barometer and others), as well as discussions with individual=20
purchasers and representatives from industry associations, provided=20
information about falling prices and a growing number of mill closures.=20
Despite the current decline's severity, the default rate on open sales=20
has been less than 1.25 percent over the last two years. The Forest=20
Service believes this relatively low default rate, in the face of=20
extreme market turmoil, is the result of several successful proactive=20
measures it has taken to avoid the widespread defaults seen in the=20
1980s. These measures include (1) market-related contract term=20
additions; (2) additional contract time authorized under the November=20
2006, November 2007, and September 2008 findings of substantial=20
overriding public interest; (3) emergency rate redeterminations; and=20
(5) contract cancellations, rate redeterminations, and extensions=20
authorized by the 2008 Farm Bill. Despite the apparent success of these=20
measures, forest product makets have continued to worsen, leading the=20
Forest Service to conclude that this rule is needed to further reduce=20
the risk of defaults. After careful consideration, the Forest Service=20
determined that the benefits of further reducing potential defaults and=20
their associated costs outweigh any potential increased risks to the=20
government's financial security created by this rule.
This determination was made based on extensive oral discussions=20
among the Washington Office's Forest Management staff. The Forest=20
Management staff considered the following factors: (a) Deteriorating=20
market conditions; (b) procedures to temporarily reduce downpayments=20
when the Forest Service orders a delay or interruption for=20
environmental reasons are already part of all post-April 2004=20
contracts; (c) existing administrative authority to change the rule to=20
achieve its intended effect; (d) concern that these changes are needed=20
to prevent the loss of industry infrastructure; (e) concern that costs=20
to the government of treating vegetation under service contracts=20
exceeds the costs of doing so under timber sale contracts; (f) general=20
knowledge that most defaults occur after the downpayment has been=20
released; (g) general knowledge that cash flow is critical to sustained=20
operations for timber purchasers, and tying up money in downpayments on=20
sales the Forest Service is not expecting purchasers to operate until=20
market conditions improve obligates cash that may be needed elsewhere;=20
(h) general knowledge that purchasers' fixed costs, including payments=20
on equipment, continue even if a purchaser isn't operating; (i)=20
industry requests; and (j) in the event a contract defaults while the=20
downpayment has been temporarily reduced, the government can still=20
apply the performance bond to damages.
Since the analysis of market conditions that led to the proposed=20
rule, the Forest Service has learned that housing starts in April 2009=20
hit a record low down almost 80 percent from the peak in January 2006;=20
greatly exceeding the 46 percent decline during the 1981 downturn and=20
the 60 percent decline in the 1986-1991 period.\2\ U.S. Census Bureau=20
data shows privately-owned housing starts in April were at a seasonally=20
adjusted annual rate of 458,000 which is 12.8 percent below the revised=20
March estimate of 525,000 and is 54.2 percent below the revised April=20
2008 rate of 1,001,000.\3\ Adding to this dismal picture, a Western=20
Wood Products Association (WWPA) March 24, 2009, news release predicted=20
that the poor economy and a weak housing market are expected to reduce=20
demand for lumber in the U.S to the lowest level in modern history.\4\=20
The article notes that since reaching an all-time high of 64.3 billion=20
board feet in 2005, U.S. demand for lumber has dropped by more than 55=20
percent representing the steepest decline in the history of the=20
industry. While home construction which accounts for about 45 percent=20
of the lumber used each year is predicted to increase slightly in 2010=20
to a little over a half million, WWPA does not expect housing starts to=20
exceed 1 million units until 2012.
-------------------------------------------------------------------------=
--
\2\ USA Today, May 20, 2009, Record-low housing starts in April=20
cast pall over market, by Julie Schmidt.
\3\ NEW RESIDENTIAL CONSTRUCTION IN APRIL 2009, U.S. Census=20
Bureau News, Joint Release, U.S. Department of Housing and Urban=20
Development, May 19, 2009; http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=3DleavingFR.=
html&log=3Dlinklog&to=3Dhttp://www.census.gov/const/newresconst.
\4\ Western Wood Products Association, news release, Robert=20
Bernhardt, Jr. Information Services Director, March 24, 2009.
-------------------------------------------------------------------------=
--
Another measure of the drastic decline in lumber prices is the=20
Bureau of Labor Statistics index for softwood lumber. The Forest=20
Service monitors this index to determine when drastic declines in=20
forest products prices sufficient to trigger granting Market-Related=20
Contract Term Additions pursuant to 36 CFR 223.52 occur. The softwood=20
lumber index began declining in the 3rd calendar quarter of 2004 and=20
beginning with the 3rd quarter of 2005 began triggering Market-Related=20
Contract Term Additions. Through the first quarter of calendar year=20
2009 the softwood index, after adjustments to a constant dollar basis,=20
has lost about 49 percent of its value and has triggered Market-Related=20
Contract Term Additions an unprecedented 15 consecutive quarters. The=20
previous greatest decline of the softwood lumber index was in the early=20
1980s when it lost about 36 percent of its value and would have=20
triggered 12 consecutive quarters of Market-Related Contract Term=20
Additions if the procedure had been in place at that time. The softwood=20
lumber index hit its lowest point yet in March 2009, and showed a=20
slight increase in April 2009, but it is too early to tell if the April=20
increase marks the beginning of a recovery.
The data and predictions indicate that while the decline in demand=20
for lumber may be at or near bottoming out, the recovery will be long=20
and gradual. Meanwhile the agency has been routinely receiving reports=20
of sawmills curtaining operations or permanently closing. The Forest=20
Service accomplishes many of its vegetation management objectives=20
through timber sale contracts, which enables the Forest Service to=20
achieve its objectives while generating revenues. A large pool of=20
timber sale purchasers allows the Forest Service to accomplish these=20
objectives in a more cost-effective manner by increasing competition=20
for National Forest System timber sales, which can result in higher=20
contract prices. Absent a viable industry infrastructure capable of=20
purchasing and processing Forest Service timber, the Forest Service=20
would have to pay service contractors to perform certain vegetative=20
management objectives currently achieved by selling timber. This would=20
substantially reduce the Agency's ability to accomplish important=20
management objectives such as reducing hazardous fuels in wildland=20
urban interface areas where much of the work must be perfomed by=20
mechanical means and can often be done with timber sales.
Temporarily reducing downpayments is unlikely to prevent or reduce=20
defaults by itself. However, in conjunction with other relief measures,=20
it is expected to provide short-term relief that will help reduce the=20
number of defaults and loss of industry infrastructure that might occur=20
in its absence. Specifically it will free up cash purchasers need for a=20
variety of reasons including (1) harvesting sales that are operable in=20
this economic climate, (2) storing increasing inventories of lumber=20
until demand picks up, (3) making payments on equipment, and (4)=20
maintaining bonds on existing sales.
On March 31, 2009, the Forest Service had 1,972 open contracts on=20
forms FS-2400-6 and FS-2400-6T. Twenty-three of those contracts or 1.2=20
percent were coded in the timber sale accounting
[[Page 40740]]
system as defaulted. Only five of the default sales still had=20
downpayments on deposit, which totaled $101,300; less than 1 percent of=20
the $26.1 million total value of downpayments on deposit. One year=20
earlier, on March 31, 2008, there were 1,961 open contracts of which 24=20
or 1.2 percent were coded as defaulted; 5 of the defaults still had=20
downpayments on deposit in the amount of $100,600.
Considering the above-referenced factors, the Forest Service=20
determined that the benefits of temporarily reducing downpayments under=20
223.49(k) outweigh the potential increased risks to the government's=20
financial security.
Comment 10: This and previous Federal Register notices on market-
related contract term additions and substantial overriding public=20
interest (SOPI) determinations describe the government's reasons for=20
wanting to maintain numerous economically viable timber sale=20
purchasers. These include having a pool of contractors in situations=20
where the Forest Service determines that timber is in need of urgent=20
removal. But the definition of ``urgent removal'' at 36 CFR 223.53=20
applies only to private and other non-National Forest System (NFS)=20
lands. The context for the term here and in the market-related contract=20
term addition/substantial overriding public interest (SOPI) Federal=20
Register notices imply that the term refers to NFS lands. Please=20
provide the regulatory cite that allows the Forest Service to shift=20
contract operations to a NFS sale in urgent need of harvesting as=20
described on page 64,290 of the Federal Register notice.
Response 10: The authority is in 36 CFR 223.112, Modification of=20
contracts. Implementation procedures are documented in Forest Service=20
Handbook 2409.18, section 55.21. In addition, please see the response=20
to comment 11.
Comment 11: It is unclear how exactly the agency defines ``urgent''=20
projects in each context, the conditions under which it is applied or=20
how the Forest Service maintains consistency in the application of this=20
term throughout the national forest system (NFS). This lack of clarity=20
would then affect who is potentially eligible for downpayment and=20
periodic payment redeterminations. The term and its application here=20
should be defined.
Response 11: The determination of whether timber in a specific sale=20
or project is in urgent need of removal is a decision the Forest=20
Service makes on a case-by-case basis after considering the relative=20
conditions on the ground. Indicators of a sale in urgent need of=20
removal include, but are not limited to situations where:
1. Dead or dying timber is subject to rapid deterioration;
2. Failure to harvest the timber promptly could threaten public=20
safety. For example, removing hazardous trees along public roads.
3. Failure to harvest the timber promptly could create an insect=20
disease epidemic on National Forest system lands or other lands or=20
resources.
The Forest Service is currenty drafting an amendment to chapter 50=20
of the sale preparation handbook, FSH 2409.18, that will provide land=20
managers with more specific guidance to determine when a sale contains=20
timber in urgent need of removal.
Comment 12: The proposed rule language at 36 CFR 223.49(c)(4) and=20
223.49(g)(4) lists ``an emergency rate redetermination'' as a reason=20
for contract downpayment redetermination. But we can find no definition=20
of the term ``emergency rate redetermination.''
Response 12: Emergency rate redetermination is a procedure=20
addressed in standard timber sale contract provisions (B/BT3.34) and=20
standard integrated resource timber contract clauses (D/DT.3.4) for=20
adjusting rates when the Bureau of Labor Statistics Producer Price=20
Index stated in the contract declines by 25% or more after the contract=20
award date.
Comment 13: If the Forest Service is referring to ``urgent=20
removal'' (as defined at 36 CFR 223.53) in its use of the emergency=20
rate redetermination clause, then it should clearly state so and=20
disclose to the public that downpayment and periodic payment reductions=20
would be granted to allow timber companies to pursue harvest on private=20
and non-National Forest System (NFS) lands.
Response 13: Prior to authorizing urgent removal contract=20
extensions pursuant to 36 CFR 223.53, a Regional Forester must make a=20
determination that there is a substantial overriding public interest in=20
extending National Forest System timber sale contracts for undamaged=20
(green) timber not requiring expeditious removal in order to facilitate=20
the rapid harvest of catastrophically damaged timber requiring=20
expeditious removal on private and other non-National Forest System=20
lands. Similarly Forest Service policy is to grant contract term=20
adjustments on certain timber sale contracts for undamaged (green)=20
timber not requiring expeditious removal in order to facilitate the=20
rapid harvest of other National Forest System timber in urgent need of=20
harvesting (FSH 2409.18, Sec. 55.21).
Contract provision B/BT3.34 does not permit emergency rate=20
redeterminations for contracts receiving contract term extensions=20
pursuant to 36 CFR 223.53 The contract permits, however, emergency rate=20
redeterminations to facilitate the rapid harvest of National Forest=20
System timber and the urgent removal harvesting. This is done pursuant=20
to provision B/BT8.21. However, the Forest Service may modify timber=20
sale contracts in accordance with 36 CFR 223.112. In response to the=20
severity of the current market conditions, and in the interest of=20
preventing further erosion of the timber industry infrastructure, the=20
Forest Service is currently modifying rates on contracts extended=20
pursuant to 36 CFR 223.53 to allow emergency rate redetermination=20
procedures when requested by purchasers. Contracting Officers should=20
not modify contracts that are in breach and shall seek Washington=20
Office advice prior to modifying contracts that are determined to be at=20
high risk for default. For much the same reason this rule allows=20
temporary reductions in downpayments when a timber purchaser receives=20
additional time to harvest timber in urgent need of removal on non-NFS=20
lands pursuant to 36 CFR 223.53.
This rule does not modify emergency rate redetermination=20
procedures.
Comment 14: We believe the Forest Service should make concurrent=20
changes in its National Environmental Policy Act (NEPA) procedures in=20
order to reduce the need for downpayment and periodic payment=20
redeterminations and ensure that important resource management goals=20
are being met.
Response 14: Changes to NEPA procedures recommended by the=20
commenter are not responsive to the merits of the rule.
Comment 15: Stating that the proposed rule only changes the amount=20
of the downpayment is the wrong lens through which to view=20
environmental impacts. While downpayments may have been required for=20
many years, the proposed reductions to just 2% of the downpayment or=20
$1000.00 whichever is greater while still holding the contract is=20
significant and unprecedented. This would expose the Federal government=20
to significant financial risk. The agency states their belief that this=20
will not result in an increase in speculative bidding and that the=20
benefits will outweigh the potential increased risks to the=20
government's financial security. No evidence for these assertions is=20
presented.
Response 15: This comment pertains to the rule's procedures to=20
temporarily reduce downpayments when contracts
[[Page 40741]]
are delayed, interrupted or extended for reasons listed in Sec. =20
223.49(k). Contrary to the commenter's assertion that this is=20
significant and unprecedented, timber sale contract forms FS-2400-6 and=20
FS-2400-6T dated April 2004 and later already allow temporary=20
downpayment reductions when the Forest Service orders certain delays or=20
interruptions. This rule expands this existing process to include=20
situations where the downpayment's economic inducement to operate is=20
not warranted.
The agency believes these temporary reductions will not increase=20
speculative bidding because nothing in the final rule removes the=20
downpayment requirement at time of award. Once deposited, the=20
downpayment can not be temporarily reduced unless one of the three=20
conditions specified in the rule occurs. Therefore, speculative bidders=20
must speculate that the market will rise above overbids and that at=20
least one of the conditions allowing temporary downpayment reductions=20
will occur. Even if that happened, the downpayment still has to be=20
reestablised before the sale can be operated. Considering these=20
safeguards, the Forest Service concluded the rule was unlikely to=20
increase speculative bidding.
Nevertheless, the Forest Service will continue to monitor bidding=20
patterns and the agency will deny temporary downpayment reductions=20
where speculative bidding is occurring. In response to this comment,=20
the final rule has been revised to clarify that requests for temporary=20
downpayment reductions may be denied in market areas where the Chief=20
determines speculative bidding is occurring.
Comment 16: For the reasons cited in our response, we believe the=20
Forest Service has failed to follow proper procedures in proposing this=20
rule without analysis under the National Environmental Policy Act=20
(NEPA). We believe that changes in the Forest Service Handbook (FSH),=20
Forest Service Manual (FSM) and agency NEPA analysis of economic=20
effects as we detailed would fulfill agency requirements for this=20
proposed rule under NEPA. We urge the agency to consider them in=20
completing the required regulatory certification of environmental=20
impact for the proposed rule.
Response 16: The changes in the FSH, FSM and agency NEPA analysis=20
of economic effects provided by the commenter are not responsive to the=20
merits of the rule. Furthermore, this final rule is categorically=20
excluded under 36 CFR 220.6.
Comment 17: Because commercial sales are now most often regarded as=20
a tool to meet management objectives and not the objective or purpose=20
and need itself, the effect of possible contract extensions (and=20
subsequent downpayment and periodic payment redeterminations) must be=20
analyzed under NEPA in determining the ability of commercial sales (for=20
each alternative that uses this tool) to meet the purpose and need. We=20
do not think this would entail undue burden on the agency given current=20
and suggested procedures.
Response 17: Please see the response to comment 16.
Comment 18: Commenter presented a series of comments questioning=20
agency NEPA procedures for forest management projects and proposing=20
changes to those procedures.
Response 18: These comments are beyond the final rule's scope and=20
are nonresponsive to its merits.
Comment 19: National Forest System (NFS) lands supply a very small=20
percentage of the U.S. timber supply (< 4% according to recent=20
estimates). A seemingly small percentage of Forest Service timber sale=20
contracts (eligible for downpayment and/or periodic payment=20
redetermination) multiplied by a small percentage of the timber supply=20
means a very small percentage of the U.S. timber supply would be=20
affected by this proposed rule. As described above, the Forest Service=20
should disclose the total number of timber sale contracts eligible for=20
downpayment and periodic payment redeterminations in order to assess=20
the full impact of the proposed rule and its financial (and other)=20
effects. The notion that failure to enact this change will affect the=20
U.S. timber industry is not credible--the amount or value of timber=20
involved simply is not large enough to be important.
Response 19: On March 31, 2009, the Forest Service had 1,972 sales=20
on contract forms FS-2400-6 and FS-2400-6T. The remaining value of=20
those sales was $249.1 million. Of those sales, 615 or 31 percent were=20
potentially eligible for emergency rate redeterminations. Only 199 of=20
those 615 still had downpayments on deposit, in the amount of $6.8=20
million. Although the data base could not be queried to show how many=20
sales eligible for emergency rate redeterminations are also eligible=20
for periodic payment redeterminations, it would be less than 615.
The commenter is correct that the number of Forest Service=20
contracts eligible for downpayment and periodic payment=20
redeterminations is small and failure to enact the rule is unlikely to=20
significantly affect the U.S. timber industry. However, the rule's=20
effect may be significant for individual purchasers on the brink of=20
closure; with unemployment rates continuing to increase at alarming=20
rates, preventing or reducing job losses is a national issue.
One respondent commenting on this rule wrote that the forest=20
products industry sector of New Hampshire's economy is vibrant and is=20
the third largest sector of manufacturing in the Granite State,=20
employing over 9,500 people directly with an annual payroll over $320=20
million. The respondent also stated that high quality timber from the=20
White Mountain National Forest provides an important raw material=20
source.
Further, a June 2008 report by the University of Minnesota-Deluth=20
Labovitz School's Bureau of Business and Economic Research addressed=20
the economic impact of declines in forestry-related industries in=20
Minnesota, Wisconsin and Michigan. (http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi=
?from=3DleavingFR.html&log=3Dlinklog&to=3Dhttps://lsbe.d.umn.edu/=
departments/bber/bber_projects.php). The report documented that, in =
2006, forestry=20
related industries in the study area employed over 58,000 workers and=20
estimated that for every worker laid off another 2.2 jobs were lost in=20
the economy. The collapsing timber industry in this three State region=20
provided the impetus in the 2008 Farm Bill, Section 8401 of the Food,=20
Conservation, and Energy Act of 2008, Public Law 110-246,122 Stat.=20
1651, granting additional contract time and price relief to qualifying=20
contracts. While the National Forest System's contribution to the=20
national timber supply may not be significant, it is an important=20
component and in some areas it is the primary source.
Comment 20: The terms of the proposed rule would allow companies to=20
bid on and hold National Forest System timber sales for future harvest=20
while receiving most of their downpayment back for a number of loosely=20
defined reasons.
Response 20: As noted previously, this final rule requires=20
purchasers to make downpayments at time of award and only allows=20
temporary reductions when the conditions specified in section 223.49(k)=20
are met. Once those conditions cease to exist, purchasers must restore=20
their downpayments.
Comment 21: The proposed rule change has been justified in part on=20
the basis of community stability and economic health. This is dubious=20
at best. It is questionable whether this rule will make a difference=20
even in local or regional markets. It has been clear for years that=20
supplying timber to local mills is an ineffective (at best) strategy
[[Page 40742]]
for supporting sustainable local economic development. (Rasker, R.,=20
Gorte, J. F., and Alkire, C. 1996. Logging National Forests to Create=20
Jobs: An Unworkable Covenant, Washington, DC: The Wilderness Society.)=20
The Forest Service should analyze the socio-economic costs associated=20
with an historic emphasis on resource extraction, which has resulted in=20
repetitious cycles of socio-economic distress for rural communities.=20
The extractive industries, including the timber industry, represent an=20
ever smaller portion of the total jobs and income in rural counties.=20
The relative importance of these industries compared to expanding=20
industries in the professional and service sectors and those which=20
depend on non-labor income must be acknowledged.
Response 21: The Forest Service agrees that communities with a=20
broad economic base tend to be more stable than those dependent on a=20
single business. But a socio-economic analysis isn't needed to=20
demonstrate that the loss of jobs has adverse economic effects,=20
especially in small rural communities. With rising unemployment rates,=20
any loss of jobs, regardless of business sector or community size, has=20
a negative effect on communities where lost jobs are located. Arguing=20
that the Forest Service program is insignificant when looking at the=20
industry or the country as a whole and downplaying the importance of=20
jobs in extractive industries ignores the significance of those jobs to=20
affected individuals and communities. To the extent that this rule=20
reduces defaults, it is also expected to help reduce job losses.
Comment 22: What is not fully discussed or disclosed is the extent=20
of possible financial risk and exposure accruing to the Federal=20
government, and to taxpayers, from these proposed changes, especially=20
during extensive market downturn as is the case today.
Response 22: Any estimate or prediction of future defaults or=20
specific damage amounts associated with them would be highly=20
speculative and subject to challenge. The October 29, 2008, Federal=20
Register notice (73 FR 64288) discussed the financial risks of the=20
proposed changes in relative terms. In addition, data pulled from the=20
timber sale accounting system on March 31, 2009, showed 1,972 open=20
contracts, of which 23 were coded as defaulted. The defaulted contracts=20
had a remaining value of $18.3 million and performance bonds totaling=20
about $2.5 million. Only five of the defaults still had downpayments on=20
deposit when they defaulted, in the amount of $101,300. By comparison,=20
on March 31, 2008, there were 1,961 open contracts of which 24 or 1.2=20
percent were coded as defaulted. The 24 defaulted sales had performance=20
bonds totaling about $4.4 million; only 5 still had downpayments on=20
deposit in the amount of $100,600. Had this final rule been in effect=20
when those contracts defaulted, the potential loss to the government of=20
reduced downpayments could have equaled the reduced downpayment=20
amounts. However, that estimate is a worst-case scenario based on the=20
assumption that every defaulting contractor had (1) a temporarily=20
reduced downpayment, (2) insufficient bonding to cover default damages,=20
and (3) an inability to pay applicable damages, including those ordered=20
by a Federal court. Such an outcome is unlikely.
Although the Government may potentially lose some financial=20
security under this rule, the Forest Service believes this risk is=20
outweighed by the benefits associated with averting potential defaults.=20
Given the above data, the factors addressed in response 9, and default=20
costs to the Forest Service, industry, and timber-dependent=20
communities, the agency believes the potential risks associated with=20
this rule are justified.
Comment 23: Citing the ability of potential contractors to bid on=20
yet more Federal (and private) sales would only seem to increase=20
Federal exposure to risk. Continued market downturn would result in=20
continued downpayment and periodic payment redetermination. Examining=20
the need for timber sales in the first place and other possible methods=20
to accomplish the purpose and need for vegetation management projects=20
would seem a more prudent and less fiscally risky approach.
Response 23: Contracting officers are required under 36 CFR 223.101=20
to make an affirmative determination of a purchaser's responsibility=20
prior to awarding a contract. When conducting a responsibility=20
determination, consideration is given to the purchaser's financial=20
ability to complete the contract while taking into account all of the=20
purchaser's commercial and governmental business commitments. This=20
process limts the government's risk.
When proposing vegetation management projects, the Forest Service=20
considers alternatives to timber sale contracts for accomplishing the=20
necessary work, including stewardship contracts, procurement contracts,=20
agreements, and using its own employees.
Comment 24: The commenter presented a series of comments pertaining=20
to questions of the effect of the proposed rule on other costs=20
associated with timber harvest and suggested that there is research=20
providing compelling evidence for maintaining lands in their protected=20
state and/or for treating vegetation with methods other than timber=20
sales.
Response 24: These comments are beyond the scope of this rule and=20
were deemed nonresponsive to the rule's merits.
Conclusion
This final rule revises the Forest Service's downpayment and=20
periodic payment regulations to reflect changes in contracting=20
procedures and authorities since these regulations were adopted in=20
1991. The rule will protect the Government's financial security, reduce=20
speculative bidding, and encourage purchasers to harvest timber in a=20
timely manner. In addition, the rule provides financial relief to=20
timber purchasers when forest product prices drastically decline or=20
purchasers receive additional contract time and are not expected to=20
operate.
Regulatory Certifications
Regulatory Impact
This final rule has been reviewed under USDA procedures and=20
Executive Order 12866 on Regulatory Planning and Review. The Office of=20
Management and Budget (OMB) has determined that this is not a=20
significant regulatory action and is not subject to OMB review. This=20
rule will not have an annual effect of $100 million or more on the=20
economy nor adversely affect productivity, competition, jobs, the=20
environment, public health or safety, nor State or local Governments.=20
This rule will not interfere with an action taken or planned by another=20
agency nor raise new legal or policy issues. This rule consists of=20
technical administrative changes to regulations affecting the=20
administration of commercial timber sales on National Forest lands.=20
Finally, this action will not alter the budgetary impact of=20
entitlements, grants, user fees, or loan programs or the rights and=20
obligations of recipients of such programs. Accordingly, this final=20
rule is not subject to OMB review under Executive Order 12866.
Regulatory Flexibility Act
This final rule has been considered in light of the Regulatory=20
Flexibility Act (5 U.S.C. 601 et seq.), and it is hereby certified that=20
this rule will not have a significant economic impact on a substantial=20
number of small entities. This rule makes only technical administrative=20
changes to existing
[[Page 40743]]
regulations affecting the administration of certain commercial timber=20
sales on National Forest System land. The final rule imposes minimal=20
additional requirements on all timber purchasers while providing=20
economic relief from current market conditions. The information=20
required is easily within the capability of small entities to produce.
Unfunded Mandates Reform
Pursuant to Title II of the Unfunded Mandates Reform Act of 1995,=20
which the President signed into law on March 22, 1995, the Department=20
has assessed the effects of this rule on State, local, and Tribal=20
Governments and the private sector. This final rule does not compel the=20
expenditure of $100 million or more by any State, local, or Tribal=20
Government or anyone in the private sector. Therefore, a statement=20
under section 202 of the Act is not required.
Environmental Impact
The agency's preliminary assessment is that this rule falls within=20
36 CFR 220.6, which excludes from documentation in an environmental=20
assessment or impact statement ``rules, regulations, or policies to=20
establish Service-wide administrative procedures, program processes, or=20
instructions'' that do not significantly affect the quality of the=20
human environment. This final rule establishes uniform criteria to=20
temporarily reduce or change timber sale downpayments and periodic=20
payments. This rule does not change the longstanding requirement that=20
timber sale contracts include downpayments and periodic payments.=20
Implementation of this rule will be controlled at the local level by=20
the Timber Sale Contracting Officer. This final rule falls under 36 CFR=20
220.6(d)(2), which excludes from documentation in an environmental=20
assessment or impact statement ``rules, regulations, or policies to=20
establish Service-wide administrative procedures, program processes, or=20
instructions'' that do not significantly affect the quality of the=20
human environment.
No Takings Implications
This final rule has been analyzed in accordance with the principles=20
and criteria contained in Executive Order 12630. It has been determined=20
that the rule does not pose the risk of a taking of private property.=20
There are no private property rights to be affected because the rule=20
applies to commercial timber sale on National Forest lands.
Civil Justice Reform Act
This final rule has been reviewed under Executive Order 12988,=20
Civil Justice Reform. If this rule were adopted, (1) all State and=20
local laws and regulations that are in conflict with this rule or which=20
would impede its full implementation would be preempted; (2) no=20
retroactive effect may be given to this rule; and (3) it would not=20
require administrative proceedings before parties may file suit in=20
court challenging its provisions.
Controlling Paperwork Burdens on the Public
This final rule does not contain any record-keeping or reporting=20
requirements or other information collection requirement as defined in=20
5 CFR Part 1320, Controlling Paperwork Burdens on the Public.=20
Accordingly, the review provisions of the Paperwork Reduction Act of=20
1995 (44 U.S.C. 3501 et seq.) and its implementing regulations at 5 CFR=20
part 1320 do not apply.
List of Subjects in 36 CFR Part 223
Administrative practice and procedures, Exports, Forests and forest=20
products, Government contracts, National Forests, Reporting and=20
recordkeeping requirements.
0
For the reasons set forth in the preamble, Part 223 of Title 36 of the=20
Code of Federal Regulations is amended as follows:
PART 223--SALE AND DISPOSAL OF NATIONAL FOREST SYSTEM TIMBER
0
1. The Authority citation for Part 223 continues to read as follows:
Authority: 90 Stat. 2958, 16 U.S.C. 472a; 98 Stat. 2213; 16=20
U.S.C. 618, 104 Stat. 714-726, 16 U.S.C. 620-620j, unless otherwise=20
noted.
Subpart B--Timber Sale Contracts
0
2. Revise Sec. 223.49 to read as follows:
Sec. 223.49 Downpayments.
(a) For the purposes of this section, the terms listed in this=20
paragraph shall have the following meaning:
(1) Total bid value is the sum of the products obtained by=20
multiplying the rate the purchaser bid for each species by the=20
estimated volume listed in the contract.
(2) Bid premium is the amount in excess of the advertised value=20
that a purchaser bids for timber offered.
(3) Lump sum timber sales are premeasured sales where the entire=20
value of the sale is paid in one payment at time of release for=20
cutting.
(4) Affiliate. Concerns or individuals are affiliates if directly=20
or indirectly, either one controls or has the power to control the=20
other, or a third party controls or has the power to control both. In=20
determining whether or not affiliation exists, the Forest Service shall=20
consider all appropriate factors, including, but not limited to, common=20
ownership, common management, and contractual relationships.
(b) Timber sale contracts shall include provisions that require=20
purchasers to make a downpayment in cash at the time a timber sale=20
contract is executed, except that a downpayment is not required for=20
stewardship contracts unless the contracting officer determines that a=20
downpayment is needed to ensure the government's financial security.
(c) The minimum downpayment shall be equivalent to 10 percent of=20
the total advertised value of each sale, plus 20 percent of the bid=20
premium, except in those geographic areas where the Chief of the Forest=20
Service determines that it is necessary to increase the amount of the=20
downpayment in order to deter speculation. The amount of the=20
downpayment shall be redetermined when contract rates for timber are=20
redetermined under the terms of the contract for environmental=20
modification; catastrophic damage; market change; or an emergency rate=20
redetermination. For the purpose of recalculating the minimum=20
downpayment, total advertised value shall be replaced with total=20
redetermined value.
(d) A purchaser cannot apply the amount deposited as a downpayment=20
to cover other obligations due on that sale until:
(1) On scaled sales, stumpage value representing 25 percent of the=20
total bid value of the sale has been charged and paid for, or the=20
estimated value of unscaled timber is equal to or less than the amount=20
of the downpayment; or
(2) On tree measurement sales, stumpage value representing 25=20
percent of the total bid value of the sale is shown on the timber sale=20
statement of account to have been cut, removed, and paid for, or the=20
estimated value of timber remaining to be cut, removed and paid for as=20
shown on the timber sale statement of account is equal to or less than=20
the amount of the downpayment. On lump sum sales, the downpayment=20
amount may be applied to payment for release of the single payment=20
unit.
(e) A purchaser or any affiliate of that purchaser awarded a Forest=20
Service timber sale contract must meet the additional downpayment=20
requirements of paragraph (g) of this section under the following=20
circumstances:
(1) The purchaser or its affiliate after September 29, 1988, has=20
failed to perform in accordance with the terms of a Forest Service or=20
Bureau of Land
[[Page 40744]]
Management timber sale contract and is notified by a Contracting=20
Officer that a contract has expired uncompleted or is terminated for=20
cause; and
(2) The estimated value of the unscaled timber on scaled sales, or=20
the estimated value of the timber outstanding on tree measurement=20
sales, included in those terminated or expired contracts exceeds=20
$100,000; and
(3) Unpaid damages claimed by the Government remain outstanding=20
prior to award of the new sale at issue and corrective action has not=20
been taken to avoid future deficient performance.
(f) A subsequent final determination by the Contracting Officer or=20
by a court of competent jurisdiction that a contract was improperly=20
classified under the criteria in paragraph (e) of this section will=20
result in the refund or credit of any unobligated portion of the amount=20
of downpayment exceeding that required by paragraphs (c) and (d) of=20
this section and the limitations of paragraph (h) of this section on=20
application of downpayment shall no longer apply.
(g) Notwithstanding the provisions of paragraphs (c) and (d) of=20
this section, a purchaser meeting the criteria of paragraph (e) of this=20
section must make a minimum downpayment equal to 20 percent of the=20
total advertised value of that sale, plus 40 percent of the total bid=20
premium. This higher downpayment requirement applies throughout the=20
National Forest System, except in those areas where the Chief of the=20
Forest Service determines, before advertisement of the sale, that=20
another downpayment rate is necessary to achieve the management=20
objectives of the National Forest System. The amount of the downpayment=20
shall be redetermined in accordance with this paragraph when contract=20
rates for timber are redetermined under the terms of the contract for=20
environmental modification; catastrophic damage; market change; or an=20
emergency rate redetermination. For the purpose of redetermining the=20
downpayment, total advertised value shall be replaced with total=20
redetermined value.
(h) A purchaser subject to the additional downpayment requirements=20
of paragraph (g) of this section cannot apply the amount deposited as a=20
downpayment to other uses until:
(1) On scaled sales, the estimated value of the unscaled timber is=20
equal to or less than the amount of the downpayment; or
(2) On tree measurement sales, the estimated value remaining to be=20
cut and removed as shown on the timber sale statement of account is=20
equal to or less than the amount of the downpayment.
(i) For the purpose of releasing funds deposited as downpayment by=20
a purchaser subject to paragraph (f) of this section, the Forest=20
Service shall compute the estimated value of timber as follows:
(1) On scaled sales, the estimated value of the unscaled timber is=20
the sum of the products obtained by multiplying the current contract=20
rate for each species by the difference between the advertised volume=20
and the volume that has been scaled of that species.
(2) On tree measurement sales, the estimated value of the timber=20
outstanding (i.e., not shown on the timber sale statement of account as=20
cut and removed) is the sum of the products obtained by multiplying the=20
current contract rate for each species by the difference between the=20
advertised volume and the volume that has been shown on the timber sale=20
statement to have been cut and removed of the species. The current=20
contract rate for each species is that specified in the Forest Service=20
timber sale contract.
(j) In order to deter speculation, the Chief of the Forest Service=20
may increase the period for retention of the downpayment and/or=20
preclude temporary reduction of the downpayment under paragraphs (k)(2)=20
and (k)(3) of this section for future contracts subject to such=20
criteria as the Chief may adopt after giving the public notice and=20
opportunity to comment.
(k) The Forest Service may temporarily reduce the downpayment when=20
a purchaser's scheduled operations are delayed, interrupted, or=20
extended for 30 or more consecutive days for any of the following=20
reasons:
(1) Forest Service requests or orders purchaser to delay or=20
interrupt operations for reasons other than breach;
(2) A contract term addition pursuant to purchaser shifting=20
operations to a sale designated by the Forest Service as in urgent need=20
of harvesting; or
(3) An extension of the contract term authorized upon a=20
determination of substantial overriding public interest, including a=20
market-related contract term addition, or an urgent removal contract=20
term extension under 36 CFR 223.53.
(l) When purchaser is not cutting or removing timber under contract=20
during a qualifying period of delay, interruption, or extension listed=20
in paragraph (k) of this section, the downpayment may be reduced to=20
$1000 or 2 percent of the downpayment amount stated in the contract,=20
whichever is greater. The purchaser must restore the downpayment to the=20
full amount stated in the contract within 15 days from receipt of the=20
bill for collection and written notice from the contracting officer=20
that the basis for temporarily reducing the downpayment no longer=20
exists. Purchaser shall not cut or remove timber on a contract where=20
the downpayment has been temporarily reduced until the downpayment=20
amount stated in the contract is fully restored.
0
3. Amend Sec. 223.50 by revising paragraphs (b) introductory text and=20
(f) and adding paragraph (b)(3) to read as follows:
Sec. 223.50 Periodic payments.
* * * * *
(b) Except for lump sum sales, each timber sale contract of more=20
than one full normal operating season shall provide for periodic=20
payments. The number of periodic payments required will be dependent=20
upon the number of normal operating seasons within the contract, but=20
shall not exceed two such payments during the course of the contract.=20
Periodic payments must be made by the periodic payment determination=20
date, except that the amount of the periodic payment shall be reduced=20
to the extent that timber has been removed and paid for by the periodic=20
payment determination date. Should the payment fall due on a date other=20
than normal billing dates, the contract shall provide that the payment=20
date will be extended to coincide with the next timber sale statement=20
of account billing date.
* * * * *
(3) Notwithstanding this paragraph (b), periodic payments are not=20
required for stewardship contracts unless the contracting officer=20
determines that periodic payments are needed to ensure the Government's=20
financial security.
* * * * *
(f) The amount of any periodic payment(s) not yet reached shall be=20
revised when rates are redetermined under the contract. The revised=20
periodic payment amounts shall be based on a recalculated total=20
contract value using the same procedures described in (c) and (d) of=20
this section. The recalculated total contract value is the current=20
contract value following the rate redetermination plus:
(1) The total value of timber scaled prior to establishing=20
redetermined rates in a scaled sale; or
(2) The total value of timber shown on the timber sale statement of=20
account as having been cut, removed and paid for.
Dated: August 7, 2009.
Ann Bartuska,
Acting Deputy Undersecretary, NRE.
[FR Doc. E9-19372 Filed 8-12-09; 8:45 am]
BILLING CODE 3410-11-P