40736 Federal Register / Vol. 74, No. 155 / Thursday, August 13, 2009 / Rules and Regulations 

1Section 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.’’ 

§ 165.T13–092 Safety Zone; Hood Canal 

Bridge Cable Laying Operation, Hood 

Canal, WA 

(a) Location. The following area is a 

safety zones: (1) All waters of the Hood 

Canal, from surface to bottom, within a 

100 yard radius around any 

construction barge participating in the 

Hood Canal Bridge Construction Project 

while the barge is in operation; and 

(2) All waters of the Hood Canal, from 

surface to bottom, between any barge 

participating in the Hood Canal Bridge 

Construction Project and the Hood 

Canal Bridge itself. 

(b) Enforcement period. This rule will 

be enforced from 6 a.m. on June 15, 

2009, until 6 a.m. September 30, 2009, 

unless cancelled or ended sooner. 

(c) Regulations. 

(1) In accordance with the general 

regulations in 33 CFR Part 165, Subpart 

C, no vessel may enter, transit, moor, or 

anchor within this safety zone unless 

authorized by the Captain of the Port or 

her Designated Representative. 

(2) ‘‘Designated Representative’’ 

means any Coast Guard commissioned, 

warrant, or petty officer who has been 

designated by the Captain of the Port to 

act on her behalf. 

(3) To request authorization to operate 

within the safety zone, contact the 

USCG Sector Seattle Joint Harbor 

Operations Center at 206–217–6001. 

Additional information regarding the 

construction work may be obtained from 

Kiewit-General Construction Company 

at 360–620–3423, or the on-scene 

official patrol, or M/V REDWOOD CITY 

on VHF–FM channel 13, 14, or 16. 

Dated: June 14, 2009. 

S.E. Englebert, 

Captain, U.S. Coast Guard, Captain of the 

Port, Puget Sound. 

[FR Doc. E9–19434 Filed 8–12–09; 8:45 am] 

BILLING CODE 4910–15–P 

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

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 § 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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Federal Register / Vol. 74, No. 155 / Thursday, August 13, 2009 / Rules and Regulations 40737 

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 § 223.49 is retained under this 

final rule. 

In addition, this rule revises 

§ 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 § 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 § 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 § 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 marketrelated 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 marketrelated contract term additions. 


pwalker on DSK8KYBLC1PROD with RULES
40738 Federal Register / Vol. 74, No. 155 / Thursday, August 13, 2009 / Rules and Regulations 

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 nonresponsive 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 marketrelated 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 


pwalker on DSK8KYBLC1PROD with RULES
Federal Register / Vol. 74, No. 155 / Thursday, August 13, 2009 / Rules and Regulations 40739 

2USA Today, May 20, 2009, Record-low housing 

starts in April cast pall over market, by Julie 

Schmidt. 3NEW 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. 4Western Wood Products Association, news 

release, Robert Bernhardt, Jr. Information Services 

Director, March 24, 2009. 

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. 

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 MarketRelated 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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40740 Federal Register / Vol. 74, No. 155 / Thursday, August 13, 2009 / Rules and Regulations 

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 marketrelated 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 nonNational 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, 

§ 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 § 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 

(< 4% according to recent estimates). A 

seemingly small percentage of Forest 

Service timber sale contracts (eligible 

for downpayment and/or periodic 

payment redetermination) multiplied by 

a small percentage of the timber supply 

means a very small percentage of the 

U.S. timber supply would be affected by 

this proposed rule. As described above, 

the Forest Service should disclose the 

total number of timber sale contracts 

eligible for downpayment and periodic 

payment redeterminations in order to 

assess the full impact of the proposed 

rule and its financial (and other) effects. 

The notion that failure to enact this 

change will affect the U.S. timber 

industry is not credible—the amount or 

value of timber involved simply is not 

large enough to be important. 

Response 19: On March 31, 2009, the 

Forest Service had 1,972 sales on 

contract forms FS–2400–6 and FS– 

2400–6T. The remaining value of those 

sales was $249.1 million. Of those sales, 

615 or 31 percent were potentially 

eligible for emergency rate 

redeterminations. Only 199 of those 615 

still had downpayments on deposit, in 

the amount of $6.8 million. Although 

the data base could not be queried to 

show how many sales eligible for 

emergency rate redeterminations are 

also eligible for periodic payment 

redeterminations, it would be less than 

615. 

The commenter is correct that the 

number of Forest Service contracts 

eligible for downpayment and periodic 

payment redeterminations is small and 

failure to enact the rule is unlikely to 

significantly affect the U.S. timber 

industry. However, the rule’s effect may 

be significant for individual purchasers 

on the brink of closure; with 

unemployment rates continuing to 

increase at alarming rates, preventing or 

reducing job losses is a national issue. 

One respondent commenting on this 

rule wrote that the forest products 

industry sector of New Hampshire’s 

economy is vibrant and is the third 

largest sector of manufacturing in the 

Granite State, employing over 9,500 

people directly with an annual payroll 

over $320 million. The respondent also 

stated that high quality timber from the 

White Mountain National Forest 

provides an important raw material 

source. 

Further, a June 2008 report by the 

University of Minnesota-Deluth 

Labovitz School’s Bureau of Business 

and Economic Research addressed the 

economic impact of declines in forestryrelated industries in Minnesota, 

Wisconsin and Michigan. (https:// 

lsbe.d.umn.edu/departments/bber/ 

bber_projects.php). The report 

documented that, in 2006, forestry 

related industries in the study area 

employed over 58,000 workers and 

estimated that for every worker laid off 

another 2.2 jobs were lost in the 

economy. The collapsing timber 

industry in this three State region 

provided the impetus in the 2008 Farm 

Bill, Section 8401 of the Food, 

Conservation, and Energy Act of 2008, 

Public Law 110–246,122 Stat. 1651, 

granting additional contract time and 

price relief to qualifying contracts. 

While the National Forest System’s 

contribution to the national timber 

supply may not be significant, it is an 

important component and in some areas 

it is the primary source. 

Comment 20: The terms of the 

proposed rule would allow companies 

to bid on and hold National Forest 

System timber sales for future harvest 

while receiving most of their 

downpayment back for a number of 

loosely defined reasons. 

Response 20: As noted previously, 

this final rule requires purchasers to 

make downpayments at time of award 

and only allows temporary reductions 

when the conditions specified in section 

223.49(k) are met. Once those 

conditions cease to exist, purchasers 

must restore their downpayments. 

Comment 21: The proposed rule 

change has been justified in part on the 

basis of community stability and 

economic health. This is dubious at 

best. It is questionable whether this rule 

will make a difference even in local or 

regional markets. It has been clear for 

years that supplying timber to local 

mills is an ineffective (at best) strategy 


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40742 Federal Register / Vol. 74, No. 155 / Thursday, August 13, 2009 / Rules and Regulations 

for supporting sustainable local 

economic development. (Rasker, R., 

Gorte, J. F., and Alkire, C. 1996. Logging 

National Forests to Create Jobs: An 

Unworkable Covenant, Washington, DC: 

The Wilderness Society.) The Forest 

Service should analyze the socioeconomic costs associated with an 

historic emphasis on resource 

extraction, which has resulted in 

repetitious cycles of socio-economic 

distress for rural communities. The 

extractive industries, including the 

timber industry, represent an ever 

smaller portion of the total jobs and 

income in rural counties. The relative 

importance of these industries 

compared to expanding industries in the 

professional and service sectors and 

those which depend on non-labor 

income must be acknowledged. 

Response 21: The Forest Service 

agrees that communities with a broad 

economic base tend to be more stable 

than those dependent on a single 

business. But a socio-economic analysis 

isn’t needed to demonstrate that the loss 

of jobs has adverse economic effects, 

especially in small rural communities. 

With rising unemployment rates, any 

loss of jobs, regardless of business sector 

or community size, has a negative effect 

on communities where lost jobs are 

located. Arguing that the Forest Service 

program is insignificant when looking at 

the industry or the country as a whole 

and downplaying the importance of jobs 

in extractive industries ignores the 

significance of those jobs to affected 

individuals and communities. To the 

extent that this rule reduces defaults, it 

is also expected to help reduce job 

losses. 

Comment 22: What is not fully 

discussed or disclosed is the extent of 

possible financial risk and exposure 

accruing to the Federal government, and 

to taxpayers, from these proposed 

changes, especially during extensive 

market downturn as is the case today. 

Response 22: Any estimate or 

prediction of future defaults or specific 

damage amounts associated with them 

would be highly speculative and subject 

to challenge. The October 29, 2008, 

Federal Register notice (73 FR 64288) 

discussed the financial risks of the 

proposed changes in relative terms. In 

addition, data pulled from the timber 

sale accounting system on March 31, 

2009, showed 1,972 open contracts, of 

which 23 were coded as defaulted. The 

defaulted contracts had a remaining 

value of $18.3 million and performance 

bonds totaling about $2.5 million. Only 

five of the defaults still had 

downpayments on deposit when they 

defaulted, in the amount of $101,300. 

By comparison, on March 31, 2008, 

there were 1,961 open contracts of 

which 24 or 1.2 percent were coded as 

defaulted. The 24 defaulted sales had 

performance bonds totaling about $4.4 

million; only 5 still had downpayments 

on deposit in the amount of $100,600. 

Had this final rule been in effect when 

those contracts defaulted, the potential 

loss to the government of reduced 

downpayments could have equaled the 

reduced downpayment amounts. 

However, that estimate is a worst-case 

scenario based on the assumption that 

every defaulting contractor had (1) a 

temporarily reduced downpayment, (2) 

insufficient bonding to cover default 

damages, and (3) an inability to pay 

applicable damages, including those 

ordered by a Federal court. Such an 

outcome is unlikely. 

Although the Government may 

potentially lose some financial security 

under this rule, the Forest Service 

believes this risk is outweighed by the 

benefits associated with averting 

potential defaults. Given the above data, 

the factors addressed in response 9, and 

default costs to the Forest Service, 

industry, and timber-dependent 

communities, the agency believes the 

potential risks associated with this rule 

are justified. 

Comment 23: Citing the ability of 

potential contractors to bid on yet more 

Federal (and private) sales would only 

seem to increase Federal exposure to 

risk. Continued market downturn would 

result in continued downpayment and 

periodic payment redetermination. 

Examining the need for timber sales in 

the first place and other possible 

methods to accomplish the purpose and 

need for vegetation management 

projects would seem a more prudent 

and less fiscally risky approach. 

Response 23: Contracting officers are 

required under 36 CFR 223.101 to make 

an affirmative determination of a 

purchaser’s responsibility prior to 

awarding a contract. When conducting a 

responsibility determination, 

consideration is given to the purchaser’s 

financial ability to complete the contract 

while taking into account all of the 

purchaser’s commercial and 

governmental business commitments. 

This process limts the government’s 

risk. 

When proposing vegetation 

management projects, the Forest Service 

considers alternatives to timber sale 

contracts for accomplishing the 

necessary work, including stewardship 

contracts, procurement contracts, 

agreements, and using its own 

employees. 

Comment 24: The commenter 

presented a series of comments 

pertaining to questions of the effect of 

the proposed rule on other costs 

associated with timber harvest and 

suggested that there is research 

providing compelling evidence for 

maintaining lands in their protected 

state and/or for treating vegetation with 

methods other than timber sales. 

Response 24: These comments are 

beyond the scope of this rule and were 

deemed nonresponsive to the rule’s 

merits. 

Conclusion 

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 rule will protect 

the Government’s financial security, 

reduce speculative bidding, and 

encourage 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. 

Regulatory Certifications 

Regulatory Impact 

This final rule has been reviewed 

under USDA procedures and Executive 

Order 12866 on Regulatory Planning 

and Review. The Office of Management 

and Budget (OMB) has determined that 

this is not a significant regulatory action 

and is not subject to OMB review. This 

rule will not have an annual effect of 

$100 million or more on the economy 

nor adversely affect productivity, 

competition, jobs, the environment, 

public health or safety, nor State or local 

Governments. This rule will not 

interfere with an action taken or 

planned by another agency nor raise 

new legal or policy issues. This rule 

consists of technical administrative 

changes to regulations affecting the 

administration of commercial timber 

sales on National Forest lands. Finally, 

this action will not alter the budgetary 

impact of entitlements, grants, user fees, 

or loan programs or the rights and 

obligations of recipients of such 

programs. Accordingly, this final 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 Flexibility Act (5 

U.S.C. 601 et seq.), and it is hereby 

certified that this rule will not have a 

significant economic impact on a 

substantial number of small entities. 

This rule makes only technical 

administrative changes to existing 


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Federal Register / Vol. 74, No. 155 / Thursday, August 13, 2009 / Rules and Regulations 40743 

regulations affecting the administration 

of certain commercial timber sales on 

National Forest System land. The final 

rule imposes minimal additional 

requirements on all timber purchasers 

while providing economic relief from 

current market conditions. The 

information 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, which 

the President signed into law on March 

22, 1995, the Department has assessed 

the effects of this rule on State, local, 

and Tribal Governments and the private 

sector. This final rule does not compel 

the expenditure of $100 million or more 

by any State, local, or Tribal 

Government or anyone in the private 

sector. Therefore, a statement under 

section 202 of the Act is not required. 

Environmental Impact 

The agency’s preliminary assessment 

is that this rule falls within 36 CFR 

220.6, which excludes from 

documentation in an environmental 

assessment or impact statement ‘‘rules, 

regulations, or policies to establish 

Service-wide administrative procedures, 

program processes, or instructions’’ that 

do not significantly affect the quality of 

the human environment. This final rule 

establishes uniform criteria to 

temporarily reduce or change timber 

sale downpayments and periodic 

payments. This rule does not change the 

longstanding requirement that timber 

sale contracts include downpayments 

and periodic payments. Implementation 

of this rule will be controlled at the 

local level by the Timber Sale 

Contracting Officer. This final rule falls 

under 36 CFR 220.6(d)(2), which 

excludes from documentation in an 

environmental assessment or impact 

statement ‘‘rules, regulations, or policies 

to establish Service-wide administrative 

procedures, program processes, or 

instructions’’ that do not significantly 

affect the quality of the human 

environment. 

No Takings Implications 

This final rule has been analyzed in 

accordance with the principles and 

criteria contained in Executive Order 

12630. It has been determined that the 

rule does not pose the risk of a taking 

of private property. There are no private 

property rights to be affected because 

the rule applies to commercial timber 

sale on National Forest lands. 

Civil Justice Reform Act 

This final rule has been reviewed 

under Executive Order 12988, Civil 

Justice Reform. If this rule were 

adopted, (1) all State and local laws and 

regulations that are in conflict with this 

rule or which would impede its full 

implementation would be preempted; 

(2) no retroactive effect may be given to 

this rule; and (3) it would not require 

administrative proceedings before 

parties may file suit in court challenging 

its provisions. 

Controlling Paperwork Burdens on the 

Public 

This final rule does not contain any 

record-keeping or reporting 

requirements or other information 

collection requirement as defined in 5 

CFR Part 1320, Controlling Paperwork 

Burdens on the Public. Accordingly, the 

review provisions of the Paperwork 

Reduction Act of 1995 (44 U.S.C. 3501 

et seq.) and its implementing 

regulations at 5 CFR part 1320 do not 

apply. 

List of Subjects in 36 CFR Part 223 

Administrative practice and 

procedures, Exports, Forests and forest 

products, Government contracts, 

National Forests, Reporting and 

recordkeeping requirements. 

■ For the reasons set forth in the 

preamble, Part 223 of Title 36 of the 

Code of Federal Regulations is amended 

as follows: 

PART 223—SALE AND DISPOSAL OF 

NATIONAL FOREST SYSTEM TIMBER 

■ 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 U.S.C. 618, 104 Stat. 714–726, 

16 U.S.C. 620–620j, unless otherwise noted. 

Subpart B—Timber Sale Contracts 

■ 2. Revise § 223.49 to read as follows: 

§ 223.49 Downpayments. 

(a) For the purposes of this section, 

the terms listed in this paragraph shall 

have the following meaning: 

(1) Total bid value is the sum of the 

products obtained by multiplying the 

rate the purchaser bid for each species 

by the estimated volume listed in the 

contract. 

(2) Bid premium is the amount in 

excess of the advertised value that a 

purchaser bids for timber offered. 

(3) Lump sum timber sales are 

premeasured sales where the entire 

value of the sale is paid in one payment 

at time of release for cutting. 

(4) Affiliate. Concerns or individuals 

are affiliates if directly or indirectly, 

either one controls or has the power to 

control the other, or a third party 

controls or has the power to control 

both. In determining whether or not 

affiliation exists, the Forest Service shall 

consider all appropriate factors, 

including, but not limited to, common 

ownership, common management, and 

contractual relationships. 

(b) Timber sale contracts shall include 

provisions that require purchasers to 

make a downpayment in cash at the 

time a timber sale contract is executed, 

except that a downpayment is not 

required for stewardship contracts 

unless the contracting officer 

determines that a downpayment is 

needed to ensure the government’s 

financial security. 

(c) The minimum downpayment shall 

be equivalent to 10 percent of the total 

advertised value of each sale, plus 20 

percent of the bid premium, except in 

those geographic areas where the Chief 

of the Forest Service determines that it 

is necessary to increase the amount of 

the downpayment in order to deter 

speculation. The amount of the 

downpayment shall be redetermined 

when contract rates for timber are 

redetermined under the terms of the 

contract for environmental 

modification; catastrophic damage; 

market change; or an emergency rate 

redetermination. For the purpose of 

recalculating the minimum 

downpayment, total advertised value 

shall be replaced with total 

redetermined value. 

(d) A purchaser cannot apply the 

amount deposited as a downpayment to 

cover other obligations due on that sale 

until: 

(1) On scaled sales, stumpage value 

representing 25 percent of the total bid 

value of the sale has been charged and 

paid for, or the estimated value of 

unscaled timber is equal to or less than 

the amount of the downpayment; or 

(2) On tree measurement sales, 

stumpage value representing 25 percent 

of the total bid value of the sale is 

shown on the timber sale statement of 

account to have been cut, removed, and 

paid for, or the estimated value of 

timber remaining to be cut, removed 

and paid for as shown on the timber sale 

statement of account is equal to or less 

than the amount of the downpayment. 

On lump sum sales, the downpayment 

amount may be applied to payment for 

release of the single payment unit. 

(e) A purchaser or any affiliate of that 

purchaser awarded a Forest Service 

timber sale contract must meet the 

additional downpayment requirements 

of paragraph (g) of this section under the 

following circumstances: 

(1) The purchaser or its affiliate after 

September 29, 1988, has failed to 

perform in accordance with the terms of 

a Forest Service or Bureau of Land 


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40744 Federal Register / Vol. 74, No. 155 / Thursday, August 13, 2009 / Rules and Regulations 

Management timber sale contract and is 

notified by a Contracting Officer that a 

contract has expired uncompleted or is 

terminated for cause; and 

(2) The estimated value of the 

unscaled timber on scaled sales, or the 

estimated value of the timber 

outstanding on tree measurement sales, 

included in those terminated or expired 

contracts exceeds $100,000; and 

(3) Unpaid damages claimed by the 

Government remain outstanding prior to 

award of the new sale at issue and 

corrective action has not been taken to 

avoid future deficient performance. 

(f) A subsequent final determination 

by the Contracting Officer or by a court 

of competent jurisdiction that a contract 

was improperly classified under the 

criteria in paragraph (e) of this section 

will result in the refund or credit of any 

unobligated portion of the amount of 

downpayment exceeding that required 

by paragraphs (c) and (d) of this section 

and the limitations of paragraph (h) of 

this section on application of 

downpayment shall no longer apply. 

(g) Notwithstanding the provisions of 

paragraphs (c) and (d) of this section, a 

purchaser meeting the criteria of 

paragraph (e) of this section must make 

a minimum downpayment equal to 20 

percent of the total advertised value of 

that sale, plus 40 percent of the total bid 

premium. This higher downpayment 

requirement applies throughout the 

National Forest System, except in those 

areas where the Chief of the Forest 

Service determines, before 

advertisement of the sale, that another 

downpayment rate is necessary to 

achieve the management objectives of 

the National Forest System. The amount 

of the downpayment shall be 

redetermined in accordance with this 

paragraph when contract rates for 

timber are redetermined under the terms 

of the contract for environmental 

modification; catastrophic damage; 

market change; or an emergency rate 

redetermination. For the purpose of 

redetermining the downpayment, total 

advertised value shall be replaced with 

total redetermined value. 

(h) A purchaser subject to the 

additional downpayment requirements 

of paragraph (g) of this section cannot 

apply the amount deposited as a 

downpayment to other uses until: 

(1) On scaled sales, the estimated 

value of the unscaled timber is equal to 

or less than the amount of the 

downpayment; or 

(2) On tree measurement sales, the 

estimated value remaining to be cut and 

removed as shown on the timber sale 

statement of account is equal to or less 

than the amount of the downpayment. 

(i) For the purpose of releasing funds 

deposited as downpayment by a 

purchaser subject to paragraph (f) of this 

section, the Forest Service shall 

compute the estimated value of timber 

as follows: 

(1) On scaled sales, the estimated 

value of the unscaled timber is the sum 

of the products obtained by multiplying 

the current contract rate for each species 

by the difference between the advertised 

volume and the volume that has been 

scaled of that species. 

(2) On tree measurement sales, the 

estimated value of the timber 

outstanding (i.e., not shown on the 

timber sale statement of account as cut 

and removed) is the sum of the products 

obtained by multiplying the current 

contract rate for each species by the 

difference between the advertised 

volume and the volume that has been 

shown on the timber sale statement to 

have been cut and removed of the 

species. The current contract rate for 

each species is that specified in the 

Forest Service timber sale contract. 

(j) In order to deter speculation, the 

Chief of the Forest Service may increase 

the period for retention of the 

downpayment and/or preclude 

temporary reduction of the 

downpayment under paragraphs (k)(2) 

and (k)(3) of this section for future 

contracts subject to such criteria as the 

Chief may adopt after giving the public 

notice and opportunity to comment. 

(k) The Forest Service may 

temporarily reduce the downpayment 

when a purchaser’s scheduled 

operations are delayed, interrupted, or 

extended for 30 or more consecutive 

days for any of the following reasons: 

(1) Forest Service requests or orders 

purchaser to delay or interrupt 

operations for reasons other than 

breach; 

(2) A contract term addition pursuant 

to purchaser shifting operations to a sale 

designated by the Forest Service as in 

urgent need of harvesting; or 

(3) An extension of the contract term 

authorized upon a determination of 

substantial overriding public interest, 

including a market-related contract term 

addition, or an urgent removal contract 

term extension under 36 CFR 223.53. 

(l) When purchaser is not cutting or 

removing timber under contract during 

a qualifying period of delay, 

interruption, or extension listed in 

paragraph (k) of this section, the 

downpayment may be reduced to $1000 

or 2 percent of the downpayment 

amount stated in the contract, 

whichever is greater. The purchaser 

must restore the downpayment to the 

full amount stated in the contract within 

15 days from receipt of the bill for 

collection and written notice from the 

contracting officer that the basis for 

temporarily reducing the downpayment 

no longer exists. Purchaser shall not cut 

or remove timber on a contract where 

the downpayment has been temporarily 

reduced until the downpayment amount 

stated in the contract is fully restored. 

■ 3. Amend § 223.50 by revising 

paragraphs (b) introductory text and (f) 

and adding paragraph (b)(3) to read as 

follows: 

§ 223.50 Periodic payments. 

* * * * * 

(b) Except for lump sum sales, each 

timber sale contract of more than one 

full normal operating season shall 

provide for periodic payments. The 

number of periodic payments required 

will be dependent upon the number of 

normal operating seasons within the 

contract, but shall not exceed two such 

payments during the course of the 

contract. Periodic payments must be 

made by the periodic payment 

determination date, except that the 

amount of the periodic payment shall be 

reduced to the extent that timber has 

been removed and paid for by the 

periodic payment determination date. 

Should the payment fall due on a date 

other than normal billing dates, the 

contract shall provide that the payment 

date will be extended to coincide with 

the next timber sale statement of 

account billing date. 

* * * * * 

(3) Notwithstanding this paragraph 

(b), periodic payments are not required 

for stewardship contracts unless the 

contracting officer determines that 

periodic payments are needed to ensure 

the Government’s financial security. 

* * * * * 

(f) The amount of any periodic 

payment(s) not yet reached shall be 

revised when rates are redetermined 

under the contract. The revised periodic 

payment amounts shall be based on a 

recalculated total contract value using 

the same procedures described in (c) 

and (d) of this section. The recalculated 

total contract value is the current 

contract value following the rate 

redetermination plus: 

(1) The total value of timber scaled 

prior to establishing redetermined rates 

in a scaled sale; or 

(2) The total value of timber shown on 

the timber sale statement of 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 


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