E6-12177. Revision of Timber Sale Contract Forms FS-2400-6 and FS-2400-6T

AGENCY:

Forest Service, USDA.

ACTION:

Notice of Availability; revised standard timber sale contracts.

SUMMARY:

By this notice, the Forest Service is putting into use revised versions of its standard timber sale contracts, Form FS-2400-6, for scaled sale procedures, and Form FS-2400-6T, for tree measurement timber sale procedures. After the Forest Service issued substantially revised versions of these contracts on May 6, 2004, the agency continued to receive comments from industry stakeholders. In response to these comments, the Forest Service engaged a consultant to evaluate the contracts with regard to allocation of risk between the timber Purchaser and the agency. The present revisions reflect the agency's further analysis of the contracts in light of the stakeholders' comments and the consultant's conclusions. A side-by-side comparison of the revised contracts and the previous versions is available as provided in the ADDRESSES section of this notice.

DATES:

The contract revisions will be implemented for contracts advertised after August 30, 2006.

ADDRESSES:

These timber sale contract forms are available for public review on the Forest Service worldwide Web/Internet site at http://www.fs.fed.us/​forestmanagement/​infocenter/​newcontracts/​index.shtml. Alternatively, the contracts can be reviewed in the office of the Director of Forest Management, Third Floor, Northwest Wing, Yates Building, 201 14th Street, SW., Washington, DC. Visitors are encouraged to call ahead to [phone] to facilitate entry into the building.

FOR FURTHER INFORMATION CONTACT:

Lathrop Smith, Forest Management Staff, [phone].

SUPPLEMENTARY INFORMATION:

Background

The Forest Service uses standard contracts for all large, complex sales of timber from National Forest System lands. The agency uses timber sale contract Form FS-2400-6 when timber is measured for payment after it is harvested; it uses timber sale contract Form FS-2400-6T when the basis for payment is measurement prior to sale. These instruments are comprehensive in scope and are designed to fully set forth the respective rights and obligations of the Forest Service and the timber Purchaser.

The Forest Service first put the standard timber sale contracts into use in the early 1970s, after extensive discussions with representatives of the timber industry. Based upon its initial experience with the contracts, which included feedback from stakeholders, and because of certain policy changes, the Forest Service retooled the contracts in late 1973. The agency did not revise the contracts again until 2001, when it updated them to reflect changes in law and agency policy and to incorporate certain special provisions that, over time, had become applicable to most timber sales. These changes did not materially alter the rights and obligations of the Purchaser and the Forest Service.

On May 6, 2004, after notice and comment, the Forest Service released substantially revised versions of its FS-2400-6 and FS-2400-6T contracts. As a general matter, the agency sought to make the contracts more consistent with government contracts law and policy. In particular, the agency attempted to address many of the complicated issues that arise when the Forest Service must suspend, modify, or terminate a timber sale contract because of environmental considerations. In this regard, the agency sought to clarify and simplify existing contract remedies, and to establish new remedies for certain situations, such as liquidated damages and rate redetermination. The agency also sought to allow the Purchaser to protect its interests by giving it the right to terminate the contract under certain circumstances. Through these modifications, the Forest Service attempted to allocate risk fairly between itself and the Purchaser.

After the release of the revised contracts, some timber industry stakeholders continued to provide feedback to the Forest Service on an ad-hoc basis. Although comments varied, some industry stakeholders expressed concerns over the contracts' allocation of risk, including the provisions on delay, suspension, or termination of operations. In particular, some stakeholders suggested that the 2004 contracts did not provide fair compensation to the Purchaser for delay, suspension, and termination, and thus exposed the Purchaser to substantial risk. To explore these concerns, the Forest Service decided to engage an outside consultant to review the contracts and to issue a report on the allocation of risk between the Purchaser and the agency.

The consultant's report generally concluded that the revised timber sale contracts allocated risk to the detriment of the Purchaser. In reaching this conclusion, the report focused upon provisions giving the Forest Service the unilateral right to delay, suspend, modify, or terminate the contracts. The consultant asserted that these provisions forced the Purchaser to accept too much uncertainty and, at the same time, failed to provide adequate compensation. However, the report also noted several key provisions that favored the Purchaser, including making liquidated damages available under certain circumstances and allowing for an emergency rate redetermination for severe decline in the timber market.

After evaluating the outside consultant's report and considering the feedback that it received from industry stakeholders, the Forest Service decided to revise certain provisions of the contracts to achieve a more equitable distribution of risk. In making these changes, the agency did not simply adopt the recommendations of the consultant or the comments of certain industry representatives. Rather, the agency used this information to broaden its frame of reference in dealing with some of the more complicated aspects of the timber sale contracts, while keeping in mind its fundamental obligations to protect the public interest and, under the Multiple-Use Sustained-Yield Act, to manage to National Forest System lands “in the combination that will best meet the needs of the American people.” 16 U.S.C. 531. Considering the foregoing, the Forest Service has revised the contracts to balance risk fairly between the agency, as the steward of the Nation's forest lands, and the Purchaser, as a competitive enterprise.

Contract Revisions and Explanation

1. B4.22 Temporary Reduction of Downpayment. The timber sale contracts require the Purchaser to make a downpayment before commencing harvesting operations and to maintain it until completion of operations. The downpayment covers 10 percent of the advertised value of the timber sale plus 20 percent of the value of the bid premium to discourage speculative bidding. For larger timber sales, the amount of the downpayment can be substantial. The previous iteration of this provision required the Purchaser to wait 90 days, from the beginning of any delay or interruption ordered by the agency, before the downpayment could be reduced and refunded or transferred to another account. After considering stakeholders' concern that the 90 day period unfairly froze the Purchaser's financial resources, the Forest Service has reduced the waiting period to 30 days.

2. B.5.27 Temporary Credit for Unamortized Specified Road Construction Cost. For the same rationale identified in Item 1, above, the Forest Service has reduced the applicable waiting period before credit can be issued to the Purchaser for the unamortized cost of specified roads. The period is reduced from 90 days to 30 days.

3. B6.24 Protection Measures Needed for Plants, Animals, Cultural Resources, and Cave Resources. This provision has been revised to clarify the respective responsibilities of the Forest Service and the Purchaser with regard to areas within the Sale Area needing special measures for the protection of plants, animals, cultural resources, and/or cave resources. The previous iteration of the contract placed an affirmative duty on the Purchaser to protect known and identified resources. To eliminate stakeholders' uncertainty as to the extent of the Purchaser's duty and to diminish potential liability, the Forest Service has revised this provision to contain a simple, negative duty not to damage or disturb designated areas.

Additionally, this provision retains the disclaimer applicable to the Forest Service's identification of protected areas. Because the agency cannot control environmental conditions affecting a sale, which are inherently subject to natural change, and because of its various obligations to protect the environment, which exist under federal law, the agency cannot warrant that specified protective measures will remain adequate over the life of a sale. Instead, the Forest Service must include a disclaimer to avoid exposure to liability.

4. B6.35 Equipment Cleaning. This provision has been revised primarily to clarify the circumstances that trigger the Purchaser's obligation to clean Off-Road Equipment to protect against the spread of invasive species of concern. If this provision materially increases the purchaser's operating costs, then the increased operating costs would be factored into the appraised value for the timber sale.

5. B8.33 Contract Suspension and Modification. This provision has been revised to clarify the remedies that are available to the Purchaser in the event that the Contracting Officer must delay, suspend, or modify contract operations. References to termination contained in the previous iteration of this provision were confusing to stakeholders. Accordingly, the Forest Service has deleted these references and has substantially revised provisions B8.34 and B8.36 to address, among other things, the Purchaser's right to terminate the contract under various circumstances. The revised version of this provision also clarifies that out-of-pocket expenses, in addition to a rate redetermination, shall be available to the Purchaser when a delay or suspension accompanies a contract modification. Additionally, the subsection addressing the provision's applicability has been revised to affirm the Purchaser's ability to exercise its rights under the Contract Disputes Act. Ambiguity in the previous iteration caused some stakeholders to believe that the Forest Service had attempted to eliminate these rights.

6. B8.34 Contract Termination. The Forest Service has divided the main provision governing contract termination into three separate parts to eliminate ambiguity that existed in the previous iteration, and, thereby, to remove stakeholders' uncertainty as to the Purchaser's rights and obligations. After the introductory part, separate parts address termination by the agency and termination by the Purchaser. In response to comments from stakeholders and after conducting its own analysis, the Forest Service has decided to make replacement timber volume and liquidated damages available as a remedy for termination and partial termination. The agency has qualified the availability of liquidated damages, allowing this remedy only if, after good faith negotiations, the parties cannot agree on the location or stumpage for the replacement volume. However, if replacement volume is less than the deleted volume, liquidated damages shall be applicable to the shortfall. The Forest Service believes that the availability of replacement volume and/or liquidated damages substantially improves the contracts' allocation of risk and ensures that the Purchaser shall be fairly compensated in instances of full or partial termination.

7. B8.35 Out-of-Pocket Expenses. The revision responds to comments from stakeholders that the list of out-of-pocket expenses was too limited. The provision now specifically includes expenses for road maintenance, dust abatement, and certain authorized improvements. Additionally, in order to foster consistent application, the provision specifically lists items that do not qualify as out-of-pocket expenses. These items are disallowed because they are not directly related to the Purchaser's operations under the contract. To facilitate expeditious and accurate claims processing, the provision requires the Purchaser to submit documentation and supporting analysis for expenses that it has paid or that it has a legal obligation to pay.

8. B8.36 Termination for Market Changes. This revision provides another set of circumstances under which the Purchaser may terminate the contract for market change during a delay or interruption under B8.33.

9. B9.13 Temporary Bond Reduction. Consistent with the changes to B4.22 and B5.27, described above, the revision allows the Purchaser's performance bond to be temporarily reduced after 30 days during a delay or a suspension.

A side-by-side comparison of the specific differences between the existing contracts and the proposed revised contracts is available electronically and in paper copy as provided in the ADDRESSES section of this notice.

Dated: July 19, 2006.

Dale N. Bosworth,

Chief.