Downpayment and Periodic Payments: Sale and Disposal of National Forest System Timber
Federal Register: August 13, 2009 (Volume 74, Number 155)
Rules and Regulations
Page 40736-40744
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
DOCID:fr13au09-7
DEPARTMENT OF AGRICULTURE
Forest Service 36 CFR Part 223
RIN 0596-AC80
Sale and Disposal of National Forest System Timber; Downpayment and Periodic Payments
AGENCY: Forest Service, USDA.
ACTION: Final rule.
SUMMARY: This final rule revises the Forest Service's downpayment and periodic payment regulations to reflect changes in contracting procedures and authorities since these regulations were adopted in 1991. The changes remove obsolete references and procedures; make downpayments and periodic payments optional for stewardship contracts; allow downpayment and periodic payment amounts to be recalculated when contracts receive rate redeterminations; revise procedures for releasing downpayments; and allow downpayments to be temporarily reduced for certain delays, interruptions, or extensions. This final rule protects the Government's financial security, reduces speculative bidding, and encourages purchasers to harvest timber in a timely manner. In addition, the rule provides financial relief to timber purchasers when forest product prices drastically decline or purchasers 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 staff, at (202) 205-0858, or Richard Fitzgerald, Forest Management staff, at (202) 205-1753. Individuals who use telecommunication devices for the deaf (TDD) may call the Federal Information Relay Service
(FIRS) at 1-800-877-8339 between 8 a.m. and 8 p.m., Eastern Standard
Time, Monday through Friday.
SUPPLEMENTARY INFORMATION:
Background
The downpayment regulation (36 CFR 223.49) and periodic payments regulation (36 CFR 223.50) were adopted on July 31, 1991, (56 FR 36099) to protect the Government's financial security, reduce speculative bidding, encourage purchasers to harvest timber in a timely manner and to comply with section 2d of the Federal Timber Contract Payment
Modification Act (Pub. L. 98-478, 98 Stat 2213; 16 U.S.C. 618) (Buy-out
Act).\1\
\1\ Section 2(d) provides that ``[e]ffective January 1, 1985, in any contract for the sale of timber from the National Forests, the
Secretary of Agriculture shall require a cash down-payment at the time the contract is executed and periodic payments to be made over the remaining period of the contract.''
The downpayment regulation requires purchasers to make a cash deposit in the timber sale account at the time of sale award equal to 10 percent of the sale's total advertised value plus 20 percent of the bid premium. This cash is held by the Forest Service and cannot be used by the purchaser until (i) on scaled sales, stumpage representing 25 percent of the total bid value has been charged and paid for, or (ii) on tree measurement sales, stumpage representing 25 percent of the total bid value is shown on the timber sale statement of account to have been cut, removed, and paid for. (36 CFR 223.49(d).)
This final rule revises 36 CFR 223.49 by: (1) Removing obsolete definitions, references and procedures; (2) making downpayments optional for stewardship contracts; (3) adding procedures to recalculate downpayments when contracts receive rate redeterminations;
(4) revising procedures for releasing downpayments; and (5) adding procedures to temporarily reduce downpayments when the Forest Service authorizes or orders certain contract delays, interruptions, or extensions.
Section 223.49(b) is revised to make downpayments optional for stewardship contracts. Stewardship contracts are awarded on a best value basis, which virtually eliminates the potential for speculative bidding because factors other than price determine best value. Further, section 323 of the Department of the Interior and Related Agencies
Appropriations Act of 2003 (as contained in division F of Public Law 108-7; 16 U.S.C. 2104 Note) authorizes the Forest Service to apply the value of timber or other forest products removed under a stewardship project as an offset against the cost of service work. Doing so provides financial security to the Government and incentivizes contractors to harvest timber and perform service work in a timely manner. Stewardship contracts require contractors to make cash deposits equal in value to timber they plan to cut before performing service work. To get these cash deposits back, contractors must perform the service work. Alternatively, if a contractor performs the service work first, the Government uses the value of timber the contractor harvests to offset the service work's cost. For these reasons, most stewardship contracts do not need a downpayment.
However, there can be exceptions. For example, if the value of the timber greatly exceeds the cost of services under a contract, a downpayment may be needed to provide financial security. Therefore, this final rule allows contracting officers to require downpayments on stewardship contracts when needed to ensure the Government's financial security.
This rule also revises Sec. 223.49(c) to allow downpayments to be recalculated when contracts receive rate redeterminations. The initial downpayment amount deemed necessary to protect the Government's financial security and encourage purchasers to timely harvest timber in is based on a percentage of a contract's value at time of award.
However, timber sale contracts contain procedures to redetermine stumpage rates for (1)
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environmental modification; (2) catastrophic damage; (3) Forest Service ordered suspension or delay; and (4) emergency rate redeterminations.
Redetermined rates can change a contract's total value. While many contracts already provide that required deposits can be redetermined when contract rates are redetermined, the practice has not been to adjust downpayments. This final rule clarifies that downpayments should be recaclulated when rates are redetermined. Allowing downpayment redeterminations maintains the government's financial security because the same percentage of downpayment to total contract value deemed necessary under Sec. 223.49 is retained under this final rule.
In addition, this rule revises Sec. 223.49(d) to allow downpayments to be released when they equal or exceed the value of a sale's remaining timber. Section 223.49(d)(1) was added for scaled sales and Sec. 223.49(d)(2) was added for tree measurement sales. This change was made to prevent situations where prices on sales subject to stumpage rate adjustments decline so much that the downpayment exceeds the value of remaining timber without triggering the downpayment's release. The Forest Service never intended to hold downpayments greater than the value of remaining timber.
Finally, this rule adds Sec. 223.49(k), which allows downpayments to be temporarily reduced when the Forest Service authorizes or orders certain contract delays, interruptions, or extensions. The Forest
Service has determined that it is not necessary to require full cash downpayments when the scenarios identified in Sec. 223.49(k) occur.
Periodic payments are ``amounts specified in a contract that a purchaser must pay by the periodic payment determination date(s) unless reduced by amounts paid as stumpage for volume removed.'' (36 CFR 223.50(a)(4).) The initial periodic payment is equal to 35 percent of the total contract value or 50 percent of the bid premium, whichever is greater. Where an additional periodic payment is required by the contract, 75 percent of the total contract value at time of award must be paid by the second periodic payment determination date. The periodic payment(s) amount is reduced when payment would result in the purchaser's credit balance for timber charges exceeding the current contract value (36 CFR 223.50(c)). Many purchasers never receive a periodic payment bill because their stumpage payments for volume removed stay ahead of periodic payment amounts. For purchasers that are billed, or are about to be billed, the periodic payment is an economic incentive to resume or accelerate harvesting.
This final rule revises 36 CFR 223.50 by: (1) Amending paragraph
(b) to clarify that periodic payments are not required for stewardship contracts and (2) amending paragraph (f) to add procedures to recalculate periodic payment(s) amounts after contractual rate redeterminations and to remove obsolete procedures. These changes were made for the same reasons as the corresponding changes made to section 223.49.
Amendments to the Downpayment Requirements
Section 223.49 is amended as follows:
In paragraph (a)(2), the definition of ineffective purchaser credit is removed and paragraphs (3)-(5) are renumbered (2)-(4). Section 329 of the Department of the Interior and Related Agencies Appropriations
Act, 1999 (as contained in section 101(e) of division A of Public Law 105-277; 16 U.S.C. 535a) directed, among other things, that the
``purchaser credit'' procedure be eliminated no later than April 1, 1999. The use of purchaser credit was discontinued in timber sales advertised after March 31, 1999, by making changes in timber sale contract provisions (File code 2450 letter to Regional Foresters dated
February 19, 1999). As of March 30, 2008, only $6,000 worth of purchaser credit was being used to cover downpayment requirements.
Because no additional purchaser credit is being earned, references to ineffective purchaser credit in the downpayment regulation are obsolete and unnecessary.
In paragraph (b), the option of using effective purchaser credit is eliminated for the same reasons cited above. A sentence has also been added making downpayments optional for stewardship contracts unless needed to ensure the Government's financial security.
In paragraph (c), obsolete references to converting units of measure other than board feet to board feet have been removed. The downpayment amount is calculated as a percentage of sale value without regard to unit of measure. Paragraph (c) is further amended to include procedures to recalculate downpayments when contract rates are redetermined.
Paragraph (d) is amended to allow downpayments to be released when the estimated value of remaining timber is less than the downpayment.
Paragraph (d)(1) is added for scaled sales and paragraph (d)(2) is added for tree measurement sales.
Paragraph (g) is amended to allow contracts subject to paragraph
(e)'s higher downpayment requirement to have their downpayments recalculated when stumpage rates are redetermined. This change was made for the same reasons as the changes to paragraph (c). In addition, paragraphs (g)(1) and (2) are removed to eliminate obsolete references to ineffective purchaser credit and converting units of measure other than board feet to board feet. The removal of those paragraphs was made for the same reasons as the deletions made in paragraph (a)(2).
Paragraph (j) is amended to specify that the Chief of the Forest
Service may preclude temporary downpayment reductions under paragraph
(k)(2) and (3) to deter speculation.
Paragraph (k) is added to allow temporary downpayment reductions when a contractor is not cutting or removing timber because its scheduled operations were delayed, interrupted, or extended for 30 consecutive days or more for any of the following reasons: (1) Forest
Service requested or ordered delay or interruption of operations for reasons other than breach; (2) a contract term addition pursuant to contractor shifting operations to a sale designated by the Forest
Service as in urgent need of harvesting; or (3) a contract term extension authorized upon a determination of substantial overriding public interest, including a market-related contract term addition, or urgent removal contract term extension under 36 CFR 223.53.
Paragraph (l) is added to allow downpayments to be reduced to the greater of $1,000 or two percent of the amount stated in the contract during qualifying periods of delay, interruption, or extension under paragraph (k), unless the purchaser is cutting or removing timber.
Purchasers cannot cut or remove a contract's timber until the 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 contracts require periodic payments. Paragraph (f) is amended to remove obsolete contract modification procedures and add procedures to recalculate periodic payment(s) amounts following a contract rate redetermination authorized. The obsolete procedures being removed required pre-1991 contract purchasers to make a written request by 1991 to receive market-related contract term additions.
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Agency Response to Major Public Comments
On October 29, 2008, the Forest Service published a notice of proposed rule and request for comment on revisions to 36 CFR 223.49 and 223.50 in the Federal Register (73 FR 64288). During the comment period, which ended December 29, 2008, the Forest Service received 4 comments responsive to the rule's merits and 2 non-responsive comments.
The four responsive comments were from the Federal Timber Purchasers
Committee, Westek Forest, Ltd., New Hampshire Timber Owners
Association, and the Wilderness Society. Following are the Forest
Service's responses to those comments.
Comment 1: We believe the proposed changes to the downpayment regulation are well designed and will help timber purchasers with cash 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 purchasers as much relief as possible in order to keep them viable and 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 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 extreme stress due to reduced demand for forest products, lower prices, and increased costs of production. It does the American people no good to force wood producers into bankruptcy or to deal with timber sale contracts that cannot be operated profitably under current market conditions. If these sale contracts are cancelled and the timber reoffered, it would not sell or would only bring greatly reduced prices. This process would be expensive and yield no positive results.
We have reviewed the proposed rules and agree that they would have an overall positive effect on the Forest Service timber sale program and are in the best interest of the people of the United States.
Response 4: These are statements for which no response is necessary.
The remaining comments were from a single respondent prefaced by the statements that (1) significant information necessary to fully understand the proposed rule and prepare informed comments is missing and (2) the Federal Register notice proposes significant changes in the amount and requirements for downpayments and periodic payments yet the basic facts and conditions that have caused the agency to pursue these rule changes are undisclosed. Unless otherwise noted, no changes were made in response to the following comments.
Comment 5: The Forest Service states a desire to lower the risk of timber contract default. This would not be proposed unless default was a significant problem. What is the rate and percentage of default in the last five or ten years and over the past 12 months? What is the projected rate of default based on current market conditions?
Response 5: The Forest Service does not track defaults so it can not calculate a percentage of defaults over a five or ten year period.
Although snapshots of the timber sale accounting system can be taken to determine the number of contracts coded as defaulted on specific dates, 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 forms FS-2400-6 and FS-2400-6T. Twenty-three of those contracts or 1.2 percent were coded in the timber sale accounting system as defaulted.
On March 31, 2008, there were 1,961 open contracts on those same forms; 24 or 1.2 percent were coded as defaulted. Sales on other contract forms were not included in these calculations because the Forest
Service is not aware of any other types of open contracts subject to this final rule.
A projected default rate based on current market conditions would only be an unsubstantiated estimate subject to dispute. However, it is reasonable to predict that when purchasers are forced to cease operating due to adverse market conditions, uncompleted contracts are at an increased risk of default. An objective of the final rule is to lower default risk by adjusting downpayments to reflect drastic declines in contract values and temporarily reducing downpayments when appropriate. These changes are expected to help purchaser cash flow, which may help them continue operating and/or purchasing contracts.
Comment 6: The Forest Service recently described over 1,000 agency timber sales as eligible for market-related contract term additions
(MRCTA). All would then be eligible for downpayment and periodic payment redeterminations.
Response 6: The MRCTA procedures do not include a mechanism for redetermining contract rates Therefore, a sale's eligibility for MRCTA does not mean it will receive a rate or periodic payment redetermination. On March 31, 2009, the Forest Service had approximately 615 sales eligible for downpayment and periodic payment redeterminations under this rule. Of those 615 sales, only 199 still had downpayments on deposit, for a total value of $6.8 million. Without looking at the statement of account for each one of those contracts, it is not possible to assess each contract's periodic payment status.
Comment 7: How many sales would be eligible for redetermination under the three clauses (environmental modification, catastrophic damage and emergency rate determination)? What percentage of sales does this represent? How often do these cases occur?
Response 7: The commenter is asking the Forest Service to quantify where and when unpredictable events such as natural disasters may occur in the future. Any attempt to do so would be purely speculative.
However, we do know that on March 31, 2009, there were 1,972 open sales and 615 or 31 percent were potentially eligible for emergency rate redeterminations. Of those 615 sales, only 199 still had downpayments on deposit in the amount of $6.8 million.
Comment 8: The Forest Service retains authority to set larger downpayment amounts and proposes to limit redeterminations in geographic areas where speculation has or could occur. Where has the agency set larger downpayments in the past? How does the agency recognize when speculation is occurring?
Response 8: The Forest Service uses appraisal performance reports,
Forest Service Manual (FSM) 2422, and Bid Monitoring Reports, FSM 2432.52, to identify speculative bidding. The agency has not increased downpayments pursuant to the authority in 36 CFR 223.49(c).
Comment 9: The agency states: ``Further, the Forest Service has determined that the benefits of temporarily reducing downpayments under 223.49(k) outweigh the potential increased risks to the government's financial security.'' Federal Register, Volume 73, No. 210, page 64,290. Please provide a copy of the analysis that led to this determination.
Response 9: The Forest Service has closely monitored the drastic decline in forest product markets since late 2004. As the market decline deepened, reports in the national press, trade bulletins, (such as Random Lengths, TDC Stumpage Price Report, WWPA
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Barometer and others), as well as discussions with individual purchasers and representatives from industry associations, provided information about falling prices and a growing number of mill closures.
Despite the current decline's severity, the default rate on open sales has been less than 1.25 percent over the last two years. The Forest
Service believes this relatively low default rate, in the face of extreme market turmoil, is the result of several successful proactive measures it has taken to avoid the widespread defaults seen in the 1980s. These measures include (1) market-related contract term additions; (2) additional contract time authorized under the November 2006, November 2007, and September 2008 findings of substantial overriding public interest; (3) emergency rate redeterminations; and
(5) contract cancellations, rate redeterminations, and extensions authorized by the 2008 Farm Bill. Despite the apparent success of these measures, forest product makets have continued to worsen, leading the
Forest Service to conclude that this rule is needed to further reduce the risk of defaults. After careful consideration, the Forest Service determined that the benefits of further reducing potential defaults and their associated costs outweigh any potential increased risks to the government's financial security created by this rule.
This determination was made based on extensive oral discussions among the Washington Office's Forest Management staff. The Forest
Management staff considered the following factors: (a) Deteriorating market conditions; (b) procedures to temporarily reduce downpayments when the Forest Service orders a delay or interruption for environmental reasons are already part of all post-April 2004 contracts; (c) existing administrative authority to change the rule to achieve its intended effect; (d) concern that these changes are needed to prevent the loss of industry infrastructure; (e) concern that costs to the government of treating vegetation under service contracts exceeds the costs of doing so under timber sale contracts; (f) general knowledge that most defaults occur after the downpayment has been released; (g) general knowledge that cash flow is critical to sustained operations for timber purchasers, and tying up money in downpayments on sales the Forest Service is not expecting purchasers to operate until market conditions improve obligates cash that may be needed elsewhere;
(h) general knowledge that purchasers' fixed costs, including payments on equipment, continue even if a purchaser isn't operating; (i) industry requests; and (j) in the event a contract defaults while the downpayment has been temporarily reduced, the government can still apply the performance bond to damages.
Since the analysis of market conditions that led to the proposed rule, the Forest Service has learned that housing starts in April 2009 hit a record low down almost 80 percent from the peak in January 2006; greatly exceeding the 46 percent decline during the 1981 downturn and the 60 percent decline in the 1986-1991 period.\2\ U.S. Census Bureau data shows privately-owned housing starts in April were at a seasonally adjusted annual rate of 458,000 which is 12.8 percent below the revised
March estimate of 525,000 and is 54.2 percent below the revised April 2008 rate of 1,001,000.\3\ Adding to this dismal picture, a Western
Wood Products Association (WWPA) March 24, 2009, news release predicted that the poor economy and a weak housing market are expected to reduce demand for lumber in the U.S to the lowest level in modern history.\4\
The article notes that since reaching an all-time high of 64.3 billion board feet in 2005, U.S. demand for lumber has dropped by more than 55 percent representing the steepest decline in the history of the industry. While home construction which accounts for about 45 percent of the lumber used each year is predicted to increase slightly in 2010 to a little over a half million, WWPA does not expect housing starts to exceed 1 million units until 2012.
\2\ USA Today, May 20, 2009, Record-low housing starts in April cast pall over market, by Julie Schmidt.
\3\ NEW RESIDENTIAL CONSTRUCTION IN APRIL 2009, U.S. Census
Bureau News, Joint Release, U.S. Department of Housing and Urban
Development, May 19, 2009; http://www.census.gov/const/newresconst.
\4\ Western Wood Products Association, news release, Robert
Bernhardt, Jr. Information Services Director, March 24, 2009.
Another measure of the drastic decline in lumber prices is the
Bureau of Labor Statistics index for softwood lumber. The Forest
Service monitors this index to determine when drastic declines in forest products prices sufficient to trigger granting Market-Related
Contract Term Additions pursuant to 36 CFR 223.52 occur. The softwood lumber index began declining in the 3rd calendar quarter of 2004 and beginning with the 3rd quarter of 2005 began triggering Market-Related
Contract Term Additions. Through the first quarter of calendar year 2009 the softwood index, after adjustments to a constant dollar basis, has lost about 49 percent of its value and has triggered Market-Related
Contract Term Additions an unprecedented 15 consecutive quarters. The previous greatest decline of the softwood lumber index was in the early 1980s when it lost about 36 percent of its value and would have triggered 12 consecutive quarters of Market-Related Contract Term
Additions if the procedure had been in place at that time. The softwood lumber index hit its lowest point yet in March 2009, and showed a slight increase in April 2009, but it is too early to tell if the April increase marks the beginning of a recovery.
The data and predictions indicate that while the decline in demand for lumber may be at or near bottoming out, the recovery will be long and gradual. Meanwhile the agency has been routinely receiving reports of sawmills curtaining operations or permanently closing. The Forest
Service accomplishes many of its vegetation management objectives through timber sale contracts, which enables the Forest Service to achieve its objectives while generating revenues. A large pool of timber sale purchasers allows the Forest Service to accomplish these objectives in a more cost-effective manner by increasing competition for National Forest System timber sales, which can result in higher contract prices. Absent a viable industry infrastructure capable of purchasing and processing Forest Service timber, the Forest Service would have to pay service contractors to perform certain vegetative management objectives currently achieved by selling timber. This would substantially reduce the Agency's ability to accomplish important management objectives such as reducing hazardous fuels in wildland urban interface areas where much of the work must be perfomed by mechanical means and can often be done with timber sales.
Temporarily reducing downpayments is unlikely to prevent or reduce defaults by itself. However, in conjunction with other relief measures, it is expected to provide short-term relief that will help reduce the number of defaults and loss of industry infrastructure that might occur in its absence. Specifically it will free up cash purchasers need for a variety of reasons including (1) harvesting sales that are operable in this economic climate, (2) storing increasing inventories of lumber until demand picks up, (3) making payments on equipment, and (4) maintaining bonds on existing sales.
On March 31, 2009, the Forest Service had 1,972 open contracts on forms FS-2400-6 and FS-2400-6T. Twenty-three of those contracts or 1.2 percent were coded in the timber sale accounting
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system as defaulted. Only five of the default sales still had downpayments on deposit, which totaled $101,300; less than 1 percent of the $26.1 million total value of downpayments on deposit. One year earlier, on March 31, 2008, there were 1,961 open contracts of which 24 or 1.2 percent were coded as defaulted; 5 of the defaults still had downpayments on deposit in the amount of $100,600.
Considering the above-referenced factors, the Forest Service determined that the benefits of temporarily reducing downpayments under 223.49(k) outweigh the potential increased risks to the government's financial security.
Comment 10: This and previous Federal Register notices on market- related contract term additions and substantial overriding public interest (SOPI) determinations describe the government's reasons for wanting to maintain numerous economically viable timber sale purchasers. These include having a pool of contractors in situations where the Forest Service determines that timber is in need of urgent removal. But the definition of ``urgent removal'' at 36 CFR 223.53 applies only to private and other non-National Forest System (NFS) lands. The context for the term here and in the market-related contract term addition/substantial overriding public interest (SOPI) Federal
Register notices imply that the term refers to NFS lands. Please provide the regulatory cite that allows the Forest Service to shift contract operations to a NFS sale in urgent need of harvesting as described on page 64,290 of the Federal Register notice.
Response 10: The authority is in 36 CFR 223.112, Modification of contracts. Implementation procedures are documented in Forest Service
Handbook 2409.18, section 55.21. In addition, please see the response to comment 11.
Comment 11: It is unclear how exactly the agency defines ``urgent'' projects in each context, the conditions under which it is applied or how the Forest Service maintains consistency in the application of this term throughout the national forest system (NFS). This lack of clarity would then affect who is potentially eligible for downpayment and periodic payment redeterminations. The term and its application here should be defined.
Response 11: The determination of whether timber in a specific sale or project is in urgent need of removal is a decision the Forest
Service makes on a case-by-case basis after considering the relative conditions on the ground. Indicators of a sale in urgent need of 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 safety. For example, removing hazardous trees along public roads. 3. Failure to harvest the timber promptly could create an insect disease epidemic on National Forest system lands or other lands or resources.
The Forest Service is currenty drafting an amendment to chapter 50 of the sale preparation handbook, FSH 2409.18, that will provide land managers with more specific guidance to determine when a sale contains timber in urgent need of removal.
Comment 12: The proposed rule language at 36 CFR 223.49(c)(4) and 223.49(g)(4) lists ``an emergency rate redetermination'' as a reason for contract downpayment redetermination. But we can find no definition of the term ``emergency rate redetermination.''
Response 12: Emergency rate redetermination is a procedure addressed in standard timber sale contract provisions (B/BT3.34) and standard integrated resource timber contract clauses (D/DT.3.4) for adjusting rates when the Bureau of Labor Statistics Producer Price
Index stated in the contract declines by 25% or more after the contract award date.
Comment 13: If the Forest Service is referring to ``urgent removal'' (as defined at 36 CFR 223.53) in its use of the emergency rate redetermination clause, then it should clearly state so and disclose to the public that downpayment and periodic payment reductions would be granted to allow timber companies to pursue harvest on private and non-National Forest System (NFS) lands.
Response 13: Prior to authorizing urgent removal contract extensions pursuant to 36 CFR 223.53, a Regional Forester must make a determination that there is a substantial overriding public interest in extending National Forest System timber sale contracts for undamaged
(green) timber not requiring expeditious removal in order to facilitate the rapid harvest of catastrophically damaged timber requiring expeditious removal on private and other non-National Forest System lands. Similarly Forest Service policy is to grant contract term adjustments on certain timber sale contracts for undamaged (green) timber not requiring expeditious removal in order to facilitate the rapid harvest of other National Forest System timber in urgent need of harvesting (FSH 2409.18, Sec. 55.21).
Contract provision B/BT3.34 does not permit emergency rate redeterminations for contracts receiving contract term extensions pursuant to 36 CFR 223.53 The contract permits, however, emergency rate redeterminations to facilitate the rapid harvest of National Forest
System timber and the urgent removal harvesting. This is done pursuant to provision B/BT8.21. However, the Forest Service may modify timber sale contracts in accordance with 36 CFR 223.112. In response to the severity of the current market conditions, and in the interest of preventing further erosion of the timber industry infrastructure, the
Forest Service is currently modifying rates on contracts extended pursuant to 36 CFR 223.53 to allow emergency rate redetermination procedures when requested by purchasers. Contracting Officers should not modify contracts that are in breach and shall seek Washington
Office advice prior to modifying contracts that are determined to be at high risk for default. For much the same reason this rule allows temporary reductions in downpayments when a timber purchaser receives additional time to harvest timber in urgent need of removal on non-NFS lands pursuant to 36 CFR 223.53.
This rule does not modify emergency rate redetermination procedures.
Comment 14: We believe the Forest Service should make concurrent changes in its National Environmental Policy Act (NEPA) procedures in order to reduce the need for downpayment and periodic payment redeterminations and ensure that important resource management goals are being met.
Response 14: Changes to NEPA procedures recommended by the commenter are not responsive to the merits of the rule.
Comment 15: Stating that the proposed rule only changes the amount of the downpayment is the wrong lens through which to view environmental impacts. While downpayments may have been required for many years, the proposed reductions to just 2% of the downpayment or
$1000.00 whichever is greater while still holding the contract is significant and unprecedented. This would expose the Federal government to significant financial risk. The agency states their belief that this will not result in an increase in speculative bidding and that the benefits will outweigh the potential increased risks to the government's financial security. No evidence for these assertions is presented.
Response 15: This comment pertains to the rule's procedures to temporarily reduce downpayments when contracts
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are delayed, interrupted or extended for reasons listed in Sec. 223.49(k). Contrary to the commenter's assertion that this is significant and unprecedented, timber sale contract forms FS-2400-6 and
FS-2400-6T dated April 2004 and later already allow temporary downpayment reductions when the Forest Service orders certain delays or interruptions. This rule expands this existing process to include situations where the downpayment's economic inducement to operate is not warranted.
The agency believes these temporary reductions will not increase speculative bidding because nothing in the final rule removes the downpayment requirement at time of award. Once deposited, the downpayment can not be temporarily reduced unless one of the three conditions specified in the rule occurs. Therefore, speculative bidders must speculate that the market will rise above overbids and that at least one of the conditions allowing temporary downpayment reductions will occur. Even if that happened, the downpayment still has to be reestablised before the sale can be operated. Considering these safeguards, the Forest Service concluded the rule was unlikely to increase speculative bidding.
Nevertheless, the Forest Service will continue to monitor bidding patterns and the agency will deny temporary downpayment reductions where speculative bidding is occurring. In response to this comment, the final rule has been revised to clarify that requests for temporary downpayment reductions may be denied in market areas where the Chief determines speculative bidding is occurring.
Comment 16: For the reasons cited in our response, we believe the
Forest Service has failed to follow proper procedures in proposing this rule without analysis under the National Environmental Policy Act
(NEPA). We believe that changes in the Forest Service Handbook (FSH),
Forest Service Manual (FSM) and agency NEPA analysis of economic effects as we detailed would fulfill agency requirements for this proposed rule under NEPA. We urge the agency to consider them in completing the required regulatory certification of environmental impact for the proposed rule.
Response 16: The changes in the FSH, FSM and agency NEPA analysis of economic effects provided by the commenter are not responsive to the merits of the rule. Furthermore, this final rule is categorically excluded under 36 CFR 220.6.
Comment 17: Because commercial sales are now most often regarded as a tool to meet management objectives and not the objective or purpose and need itself, the effect of possible contract extensions (and subsequent downpayment and periodic payment redeterminations) must be analyzed under NEPA in determining the ability of commercial sales (for each alternative that uses this tool) to meet the purpose and need. We do not think this would entail undue burden on the agency given current and suggested procedures.
Response 17: Please see the response to comment 16.
Comment 18: Commenter presented a series of comments questioning agency NEPA procedures for forest management projects and proposing changes to those procedures.
Response 18: These comments are beyond the final rule's scope and are nonresponsive to its merits.
Comment 19: National Forest System (NFS) lands supply a very small percentage of the U.S. timber supply (
