The Forest Service, through its 9 regional offices, and BLM, through its 12 state offices, award contracts to individuals or companies to harvest and remove timber from the federal lands under their jurisdiction. The contracts set forth specific terms and provisions of the sale, including the estimated volume of timber to be removed, the period for removal, the price to be paid to the government, and the environmental protection measures to be taken. For contracts valued at $2,000 or more, for fiscal years 1990 through 1995, the Forest Service reported that it had awarded almost 24,500 timber sale contracts valued at about $27 billion; for fiscal year 1996, data from the Forest Service showed that it had awarded over 8,000 timber sale contracts valued at more than $4 billion as of the end of April 1996. BLM had about 200 contracts valued at more than $173 million. Both the Forest Service’s and BLM’s regulations and procedures specify that the agencies can extend the time for completing a timber sale contract under certain circumstances and that they can modify, suspend, cancel, or partially cancel a timber sale contract for various reasons, including the need to protect threatened or endangered species and their habitat. The Forest Service’s and BLM’s procedures outline similar steps to take when deciding whether to suspend or cancel a timber sale contract. For example, within the Forest Service and BLM, the contracting officer can suspend a contract to protect threatened or endangered species. However, only the Chief of the Forest Service and BLM’s state directors are authorized to cancel contracts for environmental reasons. (App. I provides additional information on the Forest Service’s and BLM’s procedures.) From October 1992 through June 1996, the Forest Service and BLM paid more than $6.6 million in claims for 49 contracts that were suspended or canceled to protect threatened or endangered species. The Forest Service had 48 of the claims; BLM had 1. The agencies have paid the purchasers for the value of replacement timber, interest, lost profits, and unrecovered costs incurred under the contracts. BLM settled its claim of almost $228,000 (plus interest) by modifying another contract held by the purchaser to reduce the amount paid to the government without changing the original volume to be harvested. Data from the Forest Service show that it settled 48 claims (totaling almost $6.5 million) from timber management appropriations. According to timber management officials, the Forest Service attempts to find replacement timber when it must cancel all or a portion of a sale. However, the data that the Forest Service provided to us do not indicate whether the agency took such action to settle past claims for contracts suspended or canceled to protect threatened or endangered species. According to Forest Service and BLM officials and attorneys representing some timber sale purchasers, the agencies rarely suspended or canceled timber sale contracts before the 1990s to protect threatened or endangered species. Before that time, public interest groups raised little opposition to timber sales, particularly as they affected threatened or endangered species. After that time, new scientific information about forest ecosystems came to light, environmental advocacy groups became more aggressive and effective, the public and the media focused greater attention on environmental issues, and the listing of new threatened or endangered species by the Fish and Wildlife Service under the Endangered Species Act led to the suspension or cancellation of timber sale contracts. One central issue in the Pacific Northwest concerned whether and how much of the remaining old-growth forests should remain available for timber harvesting or be left undisturbed, in part to protect the habitat of the Northern spotted owl, marbled murrelet, various salmon populations, and other species. In addition, in the early 1990s, various environmental groups brought legal actions to suspend or cancel timber sale contracts. For example, in May 1991, the U.S. District Court for the Western District of Washington ordered the Forest Service to stop selling timber in much of the area inhabited by the Northern spotted owl until the agency had prepared a management plan and environmental impact statement for the species. Similarly, in June 1992, the U.S. District Court for the District of Oregon ordered BLM not to proceed with timber sale contracts because the agency had not prepared a supplemental environmental impact statement. The primary cause of the suspensions was that the Forest Service and BLM had failed to produce plans that satisfied the requirements of such laws as the National Forest Management Act of 1976, the Endangered Species Act of 1973, or the National Environmental Policy Act of 1969. Purchasers who disagree with a Forest Service or BLM decision to suspend or cancel a timber sale contract may submit a claim to the responsible agency’s contracting officer for a decision. Under the Contract Disputes Act, appeals from the contracting officer’s decision may be filed with the respective agency’s Board of Contract Appeals or the U.S. Court of Federal Claims. Either party may appeal a decision of one of these bodies to the U.S. Court of Appeals for the Federal Circuit. Generally, claims arising from the suspension or cancellation of timber sale contracts to protect threatened or endangered species have resulted from disagreements between the federal agencies and the purchasers over the types and amounts of compensation to which the purchasers are entitled. Once a court decides the merits of a case, the purchasers can seek reimbursement for their attorneys’ fees under the Equal Access to Justice Act if the purchasers meet the criteria defined in the act. If the court awards attorneys’ fees, the Forest Service or BLM generally has to pay the fees from appropriations. Any estimate of future liability must be viewed with uncertainty. The outcome of ongoing and future litigation is unpredictable and could result in the award of more or less in damages than the purchasers claim. In September 1996, for example, USDA’s Board of Contract Appeals awarded a purchaser over $4.2 million (plus interest) on a $10 million claim for five timber sale contracts that the Forest Service had suspended in September 1992. Also uncertain are the results of countersuits that could be filed by the Forest Service or BLM, the success of the agencies’ offers to replace timber in lieu of paying damages, and the settlement of claims that have not yet been filed. Claims pending against the Forest Service and BLM for contracts suspended or canceled to protect threatened or endangered species totaled almost $61 million and about $2.2 million, respectively, as of October 1996. Purchasers have filed claims for such expenses as property taxes and insurance; the salaries of officers and watchmen; depreciation; idle equipment, including logging trucks, skidders, loaders, graders, and other assorted vehicles; interest; and the value of replacement timber. When pending claims, the agencies’ “best estimates” of potential future liability, and other information are considered, the Forest Service’s potential future liability as of October 1996 could be at least $259 million; BLM officials estimate that the agency’s potential future liability could be between $37 million and $42 million. Table 1 shows the number and amount of the pending claims and the “best estimates” of potential future liability. According to timber management officials, purchasers had not, as of October 1996, filed claims for the additional $198 million. For example, $170 million of the $198 million potential future liability represents an estimate of potential claims that are still up in the air because of a recent settlement agreement. On September 17, 1996, the Justice Department and 15 timber companies (44 section 318 sales) agreed that the Forest Service would provide alternative timber to the companies between 1997 and 1999, after completing environmental analyses related to the replacement timber being offered. Under the agreement, the purchasers waive all rights to file claims for delays in providing replacement timber that occur after the date of the agreement. Given the above settlement agreement and a multiplicity of court cases, it is difficult, according to Forest Service officials, for the agency to determine a reasonable damage estimate. Forest Service officials added that the September 1996 settlement agreement does not preclude environmental groups from filing suits to prevent the sale of replacement timber that could be offered to the purchasers. This possibility adds further uncertainty to estimates of the Forest Service’s future liability. According to Forest Service officials, the agency may not have the funds to settle pending and future claims. In the past, the agency has not requested a specific appropriation to settle claims but has reprogrammed funds or used funds carried over from prior fiscal years. However, the amount of settled claims was significantly smaller than the amount of potential future claims. Timber management officials are concerned that a large judgment against one or several forests could cause the Forest Service to stop all or some programs in the forests or request supplemental appropriations to pay the damages. Under the Forest Service’s policies, the cost of administering a timber sale contract is a cost of the forest on which the sale occurs, and any costs associated with claims are to be covered by the forest’s funds. Therefore, the applicable forest would first pay the damages out of current appropriations from the account of the program responsible for administering the contract—for example, timber management or salvage sales. The policy also states that the involved forest and region may have to reprogram funds to cover these costs. The Forest Service has the discretion to reprogram funds within the National Forest System Appropriations Account. In fiscal year 1996, the Congress appropriated $1.3 billion for that account. The policy further notes that funds must be available to avoid violating the Anti-Deficiency Act and states that contracting officers should not issue a decision on a claim unless funds are available. The policy also states that the Forest Service does not have the authority to use either the Timber Sale Deposit Fund or the National Forest Fund accounts to pay for settling claims because federal law requires the deposit of all receipts from timber sales into a miscellaneous receipts account of the U.S. Treasury except in specific situations that do not include payments for contract claims. Officials from the Forest Service’s Northwest Region told us that they have considered other options to fund future damages.