RS20985 -- Stewardship Contracting for Federal Forests Updated April 10, 2003 Procurement contracts are used by federal agencies to perform a wide variety of tasks, and could be used for many forest stewardshipservices. Typically, a contract proposal identifies the tasks to be performed: the unmerchantable trees or underbrushto be cut and thetreatment of the cut (and possibly additional) materials -- left as is, piled and burned, lopped and scattered toaccelerate rotting or forprescribed burning, or even removed from the site. It is also possible, though not commonly used, to specify thedesired resultingcondition of the area to be treated, rather than specifying the tasks to be performed. Currently, federal agenciesaward contracts to thelowest bidder; however, Congress could specify other factors to consider -- for example, local employment orquality of a bidder'spast performance -- in directing or further authorizing procurement contracting for stewardship services. In addition, some have suggested that any commercially valuable material could be collected under a procurement contract and soldseparately, at least by the Forest Service. (4) Thisapproach, commonly known as log sales, is common in Europe and has beendiscussed sporadically for the national forests for at least 40 years. The authorization for Forest Service timber salesalso permits logsales, but the agency has not used this authority extensively. Advantages of Traditional Procurement Contracting. The principal advantage ofusing current contracting methods for forest stewardship is that it is the system the federal agencies currently usefor procuring mostservices. It is a simple, straightforward approach, well-known to agency personnel and to the potential privatecontractors, andnumerous private contractors exist to bid on such contract proposals. Another advantage of using the current contracting system is the opportunity for congressional control and oversight. Annual budgetjustifications for forest stewardship, under the current structure or a new structure designed to enhance oversightof federal foreststewardship, could give Congress a way to assess the efficiency and effectiveness of agency efforts, while theappropriations for suchefforts could be targeted to areas of greatest need. Limitations of Traditional Service Contracting. One major limitation of usingtraditional service procurement contracting for federal forest stewardship is the potentially enormous federalexpenditures on such aprogram. The Forest Service has identified 36 million federal acres of frequent-fire forest ecosystems, and 39million federal acres ofother forest ecosystems, as having a high risk of significant ecological damage from catastrophic wildfires due toaccumulations ofexcess biomass. (5) With treatment costs averagingabout $300 per acre (ranging from $100 to $1,000), (6) treating these 75 millionacres could cost more than $20 billion -- possibly less but also possibly substantially more. If the lands at moderaterisk of ecologicaldamage from catastrophic wildfires -- another 90 million federal acres of frequent-fire forest ecosystems and 66million federal acresof other forest ecosystems -- are also to be treated, the total cost for all 231 million federal acres could be around$70 billion. Suggested modifications to traditional service procurement contracting for forest stewardship could also hamper efforts at improvingfederal forest health. Using resulting desired conditions (instead of tasks to be performed) would probably bestimprove foreststewardship, because it would focus on what's left on the site, rather than on the activities performed or on thebiomass (wood)removed from the site. However, no standardized measures of desired forest conditions for contracting (or forreporting on agencystewardship efforts) have been developed, making this approach difficult to implement. In addition, proponentsadvocate separate logsales for any commercially valuable wood to be removed. However, log values often depend on how the log is cut(log lengths andlocations of major knots); the independence of the service contractors from the potential log purchasers would bedifficult to assure,but important to avoid possible conflicts-of-interest; and the agency has little experience with log sales. Thus,traditional serviceprocurement contracting has limitations for improving federal forest health. Most observers believe that, to improve forest health, it is necessary to combine various activities ( e.g. , salvage sales withmixed-species planting, or prescribed burning after precommercial thinning). (7) Because of this need and the high cost of manyactivities, some have proposed a different approach to contracting for forest stewardship: trading goods(commercially valuabletimber) for services (other activities in the same area). Called land management service contracts, stewardshipcontracts, end-resultscontracts, and other terms, these goods-for-services contracts are essentially highly modified timber sales, wheretimber purchasers arerequired to perform other, typically related, services ( e.g. , precommercial thinning or watershedrestoration), and in return pay less forthe timber harvested. Various federal laws prohibit federal agencies from retaining and using the receipts from selling assets ( e.g. , from timber sales)without congressional authorization. A few pilot tests of goods-for-services contracts were authorized in theFY1992 and FY1993Interior Appropriations Acts ( P.L. 102-154 and P.L. 102-381 , respectively). In 1998, Congress established a broader test of goods-for-services contracting. Section 347 of the FY1999 Interior AppropriationsAct ( P.L. 105-277 ) authorized 28 "stewardship end result contracting demonstration projects" with substantialdirection on thelocations and procedures to be followed. Another 28 projects were authorized in the FY2001 InteriorAppropriations Act ( P.L.106-291 ), and 28 more in the FY2002 Interior Appropriations Act ( P.L. 107-63 ). Goods-for-services stewardship contracting was considered in the 2002 Farm Bill. The House-passed version of H.R. 2646 would have authorized goods-for-services contracting for the Forest Service through FY2007, without limitson numbers of suchcontracts (although limited by appropriations), but otherwise consistent with 347 of the FY1999 InteriorAppropriations Act. TheSenate-passed version would have authorized 28 contracts consistent with 347 (through FY2006), but would haverequired that 14 ofthose contracts be traditional service contracts with separate log sales, and would have required reports comparingthe twoapproaches. The differences could not be resolved, and the final bill ( P.L. 107-171 ) included no provision ongoods-for-servicescontracting. Following the severe 2002 fire season, President Bush proposed goods-for-services stewardship contracting as a way to reduce forestfuels in his Healthy Forests Initiative. (8) The Senatedebated stewardship contracting as part of wildfire management funding in theFY2003 Interior Appropriations Act ( H.R. 5093 ). The protracted debate over this and other provisions toenact much ofthe Healthy Forests Initiative eventually forestalled action on the bill, and Interior appropriations were containedin continuingresolutions without such provisions. Finally, Interior appropriations for FY2003 were enacted as Division F of P.L.108-7 , theConsolidated Appropriations Resolution. Section 323 amended 347 of the FY1999 Interior Appropriations Actin several ways: it authorized "stewardship end result contracting" through FY2013; it extended the program to BLM lands as well as to the national forests; it deleted "demonstration" from the provision; it modified one of the identified goals to remove "noncommercial" from cutting or other objectives;and it authorized the Secretaries of Agriculture and the Interior to select a contracting officer withoutconstraints. (9) The goods-for-services demonstration projects, and the general expectations of the approach, have been modified timber sales toallow the agencies to impose non-timber harvesting requirements on the purchasers. However, no provision in thestatute directlyspecifies commercial timber sales and harvesting. Rather, the statute authorizes removing vegetation and applyingthe value oftimber or other forest products removed to offset the cost of services received. It is not clear whether stewardshipcontracts could beused in areas where commercial timber harvesting is prohibited by statute or administrative decision. Advantages of Goods-For-Services Contracting. One possible advantage ofgoods-for-services contracting is greater efficiency, and thus lower cost, in forest stewardship activities. The desiredservices mayrequire some of the same equipment as timber harvesting and removal, and the same personnel might be used forboth tasks. Relyingon the same equipment and personnel for multiple tasks on a site seems likely to reduce the total cost of performingthe tasks. Thus,one contractor and one contract for multiple, related tasks that encompass both sale of goods and performance ofservices might bemore efficient than multiple, independent, traditional contracts for the tasks. Some proponents also claim that goods-for-services contracting is beneficial because it is off-budget financing for forest stewardship. Concerns over the adequacy of appropriations for forest stewardship have led some to search for alternative fundingmechanisms, andgoods-for-services contracting is one approach that has been proposed. Essentially, the federal agencies would beable to buystewardship services with timber assets, as part of modified timber sale contracts, instead of with appropriations. Limitations of Goods-For-Services Contracting. One limitation of using goods-for-services contracts to improve forest stewardship may be higher contracting costs from combining severalactivities in onecontract. One observer noted that the Forest Service procedures for the pilot tests of goods-for-services contractingwere acomplicated combination of traditional service contracting with standard timber sale contracting: "The result is anextremelycumbersome process which requires more up-front effort than if the activities were done separately" (10) -- and thus higher costs thanfor two separate contracts. This critic also suggested that a longer-term authorization and simpler contractingprocedures were neededto realize the benefits of goods-for-services contracting; the provision as enacted at least provides the longer-termauthorization. Another possible limitation is that, in bypassing the annual appropriations process, goods-for-services contracting is likely to receiveless congressional oversight and control. Other congressionally authorized federal "off-budget" financingmechanisms (technically,permanent appropriations of receipts for specific purposes), such as the Forest Service's Knutson-Vandenberg (KV)Fund and brushdisposal funds, have received very little congressional oversight. The agencies might be able to usegoods-for-services contracting formany years with little or no public participation in or congressional control over its use. Some interests have questioned the appropriateness of goods-for-services contracting generally. Observers have noted thatexchanging goods for services creates an incentive for managers to increase the sale of goods (timber) to generatevalue to provideservices ( e.g. , precommercial thinning). In another context, the incentive to increase timber sales togenerate value to provide services-- mitigating and enhancing other resource values in timber sale areas under the KV Fund -- has been described as"perverseincentives," where managers support an allegedly environmentally damaging activity (timber harvests) to generatefunds to be usedfor environmental restoration, including to mitigate damage caused by generating the funds. (11) Exchanging timber for foreststewardship activities might create similar incentives, especially when the needed stewardship activities for wildfireprotectioninvolve cutting and removing non-commercial woody biomass on or near the ground (since timber harvestingexacerbates the wildfirethreat in the short run by bringing combustible and quickly decaying material, such as tree limbs and tops, to groundlevel). Inaddition, dominant or exclusive use of goods-for-services contracts would emphasize stewardship on lands withcommercial timber,and might limit the opportunities for stewardship on other federal forests that need treatment. Finally, some observers have questioned whether a broad-scale, long-term program was appropriate. Two proponents have noted thatthe success of goods-for-services contracts has been difficult to evaluate. (12) Others have concluded that the goods-for-services pilotprojects provide "an important experimental opportunity to test alternative contracting arrangements under 'realworld' conditions." (13) However, although there were tests in the early 1990s and in several recent years, the effectiveness and efficiencyofgoods-for-services stewardship contracting has not been evaluated in an independent audit.

Summary:
Many forests, especially the national forests, are widely thought to have unnaturallyhighamounts of dead and dying trees, dense undergrowth, and dense stands of small trees. This biomass can exacerbateinsect and diseaseinfestations and wildfire threats. Because much of this biomass has little or no commercial value, some haveproposed stewardshipcontracting to reduce these threats. Two approaches have been suggested: traditional service procurement contractsand contracts thatinclude exchanging goods (timber) for stewardship services. Congress authorized goods-for-services contractingthrough FY2013 byamending a previous pilot program in the FY2003 Omnibus Appropriations law. This report discusses theadvantages and limitationsof each of these approaches. It provides background on the issue and is unlikely to be updated.