Financial Security of National Forest System Timber Sale Contracts

DEPARTMENT OF AGRICULTURE

Forest Service

RIN 0596-AA33

Financial Security of National Forest System Timber Sale

Contracts

AGENCY: Forest Service, USDA.

ACTION: Notice; adoption of final policy.

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SUMMARY: The Forest Service is adopting final policy and procedure

related to timber sale contract financial security. The final policy

will increase the amount of the bid guarantee, revise the method for

determining damages for failure to consummate a contract, eliminate the

performance bond ceiling, and limit the applicability of the sale

discounting procedures. The intent of the final policy is to better

protect the public's interest in the sale of National Forest System

timber by reducing the opportunity for speculative bidding and

defaulting contract obligations. This policy is being issued to guide

Forest Service personnel as Amendment No. 2400-93-____ to the Forest

Service Manual (FSM) chapter 2430, Amendment No. 2400-93-____ to FSM

chapter 2450 and Amendment No. 2409.18-93-____ to chapter 50 of FSH

2409.18, the Timber Sale Preparation Handbook.

EFFECTIVE DATE: These amendments are effective February 2, 1994.

FOR FURTHER INFORMATION CONTACT: Questions about this policy should be

addressed to Fred Walk, Timber Management Staff, Forest Service, USDA,

P.O. 96090, Washington, DC 20090-6090, (202) 205-0858.

SUPPLEMENTARY INFORMATION:

Background

After the timber market collapse of 1981, an unprecedent number of

National Forest System timber sale contracts became unprofitable. Some

contracts were defaulted and others were ``bought out'' by the

Government under the Federal Timber Contract Payment Modification Act.

The market decline during the 1980 period exposed a number of potential

long-term difficulties with National Forest System timber sale

procedures which, if not remedied, could result in speculative bidding

and increase the potential for contract defaults in the future.

In 1982, the Forest Service began implementing a number of contract

reforms to reduce speculative and unsound bidding, to provide for an

even flow of timber receipts into the Treasury, and to prevent sale

defaults. The following changes or additions to financial requirements

on National Forest System sales were made:

(1) The timber sale bid guarantee was raised to 5 percent of the

advertised value of contract;

(2) A cash deposit was required. The initial deposit requirement

was for 5 percent of the bid value of a sale; this was later increased

to 10 percent;

(3) The maximum amount of the performance bond was changed from

$200,000 to $500,000; and

(4) A midpoint payment to the Government was required to provide

additional incentive for timely timber removal.

These changes in timber sale financial requirements have been

somewhat successful in stabilizing timber sale contracting by

encouraging performance; discouraging speculation; and more adequately

securing contract performance. However, additional changes are needed

to further enhance financial security of timber sale contracts and to

protect the taxpayer from repudiation of bids and default of contracts.

Past experience indicates that prices being bid for Forest Service

timber frequently rise substantially over the advertised rates

established by the agency's appraisal of the fair market value of the

timber. The agency determines the appraised value by using the selling

value of lumber and other forest products or by using transaction

evidence of other comparable timber sales. When bid values far exceed

advertised values and lumber selling values remain constant or rise

minimally, the potential for purchase financial loss increases. Thus,

based on bidding experience, the Forest Service believes that the

public and the Government could be facing additional repudiations of

bids and defaults of contracts if lumber selling values do not keep

pace with bid values and if additional financial security requirements

are not instituted. Accordingly, the agency believes it is essential to

take additional steps to protect the public's financial interests in

timber sale contracts, assure timely execution and completion of

contracts, and minimize the financial risk to the Government. These

additional financial security measure were published as a proposed

policy in the Federal Register of December 7, 1990 (55 FR 50651).

Analysis and Response to Public Comments

The comment period on the proposed policy closed January 7, 1991.

Nineteen respondents submitted comments. The comments came from 2

private citizens, 10 timber purchasers, 5 timber purchase associations,

a preservation association, and timber advocacy group. Of the 19 public

comments received, 15 came from the West and 4 from the East. Fifty-

eight percent of the respondents expressed support for the policy

proposals either in their entirety or with suggested modification. The

remaining 42 percent did not support the proposal primarily because of

perceived increases in the cost of doing business.

The following summarizes the comments and suggestions received on

the proposed policy changes and the Department's response to these in

the final policy.

1. Performance Guarantee Ceiling

The proposed policy would have eliminated the present $500,000

ceiling on the amount of performance guarantee required by the timber

sale contract and set the minimum performance guarantee at 10 percent

of the bid value.

One respondent suggested that, at the time of first entry into a

sale area, the performance bond be equal to the present value of the

``worse case'' outcome of the logging operation. The agency disagrees.

The objective of a performance guarantee or performance bond is to

assure that the terms of the contract are met. Performance guarantees

must protect the interests of the Government. The respondent's

suggestion would be impossible to administer. The Agency believes that

determining the ``worst case'' outcome would be highly subjective and

subject to dispute between the contract parties. The ``worst case''

outcome might be the default of a high priced sale which was later

resold to determine damages. Making a projection of some future resale

value of a sale that may or may not be defaulted is speculative and

could result in very high performance bonds which would place an unfair

economic burden on the majority of the timber purchasers who fully

perform their timber sale contracts.

Four respondents objected to eliminating the performance bond

ceiling. They thought the change would result in increases in their

bonding requirements, put them at a competitive disadvantage, and

discriminate against small business. The agency recognizes that small

business could be disadvantaged in obtaining bonding in excess of

$500,000. Nevertheless, the agency believes that only a few large and

high value timber sales will require bonds of more than $500,000. The

agency is of the opinion that 10 percent of the bid value is a

reasonable amount for providing the minimum amount of performance bond

to provide assurance of contract performance.

Most of the timber sale contracts sold within the last 15 years

have required a performance guarantee that was equivalent to 10 percent

of the bid value subject to certain maximum amounts. The maximum

performance guarantee for sales sold since the spring of 1982 has been

$500,000. Removal of the $500,000 ceiling would ensure that the

performance guarantee amount would be applied equally to all sales. In

the face of existing bids, the current ceiling could result in less

secure guarantees that purchasers of high-priced sales will perform

their contracts. Removal of the ceiling on performance guarantees

should not affect many of those purchasers that ordinarily bid on

National Forest timber sales. The removal of the cap would only affect

sales with more than $5 million bid value. Very few sales are this

size, and few small businesses buy timber sales that are this

expensive. Therefore, the change would not stifle or constrain

competition. What the removal of the ceiling will do is help to deter

speculation by increasing capital requirements and, thus, in these

large sales increase bidder financial liability in the event of

default.

Having considered the comments received, the agency is retaining

the elimination of the $500,000 upper limit on performance bonds in the

final policy.

2. Increased Bid Guarantee

Under the proposed policy, the amount of bid guarantee required for

bidding on National Forest System timber sales would increase to 10

percent of the advertised value.

One respondent suggested that the purchaser be required to pay the

full amount of the winning bid at the time of the sale. The agency

believes this would place a severe economic hardship on timber

purchasers that would result in a significant decrease in competition

and a reduction in receipts to Federal, State, and county treasuries.

In some cases, requiring full payment of bid value at time of sale

could prevent companies from purchasing National Forest System timber

resulting in loss of employment and economic hardship to dependent

communities.

Five respondents were opposed to increasing the amount of bid

guarantee to 10 percent of the advertised value. The basis for their

objection was that the additional bid guarantee would place an

additional economic stress on the small timber purchaser and would

eliminate many from bidding. The agency disagrees. The bid guarantee

(deposit with bid) is a good faith showing that a timber sale high

bidder will complete the requirements for contract award and will

execute the contract within the specified time period. The bid

guarantee also serves as a measure of the ability of the bidder to meet

the financial requirements for a downpayment, periodic payment, and

bonding capacity. Many bidders use bid bonds as a bid guarantee rather

than obligating their cash. If bid bonds are used, only the high bidder

would be required to convert the bid bond to cash, and it is not

necessarily an increase in cash requirements for all bidders. The high

bidder's cash would then be used to offset the amount required for

downpayment. The increase in bid guarantee from 5 percent to 10 percent

of advertised value will result in the high bidder making a larger cash

deposit for the approximately 30 days between the bid date and the due

date for the downpayment. This short-term increased cash requirement

could create a financial hardship for some high bidders. The agency

believes that this hardship is more than offset by the increased

protection from speculative bidding and from contract repudiation. The

increase in bid guarantee will also provide the government with

increased financial security by providing a source of funds to satisfy

the Government's losses if the contract is repudiated. Therefore, an

increase in bid guarantee to 10 percent of the advertised value is

adopted in the final policy.

3. Procedures for Determining Contract Repudiation Damages

The proposed policy based the determination of damages resulting

from repudiation of a bid on the terms contained in timber sale

contract provision C(T)9.4. Provision C(T)9.4 generally establishes

damages as the difference between current contract value at the time of

breach and the bid value established upon resale. The proposed policy

provided the option of retaining the timber and establishing damages

for breach based on appraised rather than resale value, if resale could

not be accomplished in the immediate future or if no bid was received

at resale.

One respondent supported the concept that repudiation constitutes a

breach of contract. The respondent suggested that the penalty for this

breach should not only exclude the bidder from participating in the

resale, but also treat damages as a default with the bidder being

required to furnish double the normal downpayment until any default

amount is satisfied. The agency agrees with this comment. Repudiation

of contracts will be handled under 36 CFR 223.49(e) which requires that

a purchaser or affiliate awarded a future Forest Service contract must

meet additional downpayment requirements under specific circumstances,

including failure to perform in accordance with the terms of a timber

sale contract. The additional downpayment requirements are that such a

purchaser must make a minimum downpayment equal to 20 percent of the

total advertised value, plus 40 percent of the total bid premium.

Three respondents suggested that repudiated contracts be offered

and sold to the second high bidder at the price submitted by that

bidder. They further suggested that damages be determined as the

difference between the original high bid and the second high bid. This

approach would be satisfactory in many instances. The agency believes,

however, that there will be instances where second high bidders would

decline to accept the sale at the price they bid because of the lapse

of time from the bid date. When this occurs there would be no resale of

the timber and, consequently, no basis for determining damages. This

approach would also present the risk of selling the sale at the lower

second high bid when, during an ascending market, open competitive

bidding would result in a higher bid. Consequently, the final policy

retains the features of the proposed policy, and damage calculation

will be based on offering the sale to the lower bidders in descending

order of their bids at the high bid price. If no bidder accepts the

sale at the high bid price, it would normally be reoffered at

advertised rates for open bidding.

One respondent stated that the proposed policy was an over reaction

to the problem and suggested that the government make an estimate of

repudiation damages before advertising and then set the bid guarantee

accordingly. This approach is similar to the concept of liquidated

damages that is currently the method for determining damages resulting

from repudiation of service contracts. however, the agency believes

that to adequately protect the public interest, damages must be based

on an actual loss or cost to the government and that estimating the

damages of a potential repudiation well in advance of the fact would be

fraught with inaccuracies and very subjective. It would be very

difficult to accurately estimate bid rates 60 or more days in advance.

In summary, this approach would not provide the government with an

adequate determination of damages resulting from repudiation of a bid.

Four respondents objected to the language of the proposed policy

that would provide the Forest Service the option of retaining the

timber and establishing damages for this breach based on appraisal

rather than resale, if resale cannot be accomplished in the immediate

future or if no bids are received on the resale. These respondents

think that the Forest Service must resell the repudiated sale in order

to establish damages. They contend that if the repudiated sale is

withdrawn for some reason, the government has not suffered damages.

They would establish damages based on the resale value plus certain

additional costs, such as interest and the cost of resale. The agency

disagrees with this comment. The effort and resources expended to

prepare and offer a timber sale are made in good faith. Repudiations

add delay and costs regardless of subsequent events. Delay may cause

loss of the opportunity to sell the timber at all if timber is damaged

or deteriorates due to fire, insects, or storm damage. Also legal or

other government actions such as new legislation, new court

interpretations of existing law, or an agency listing of a wildlife

species as threatened or endangered may develop during or as a result

of delay which make prompt resale not possible. Even though most sales

are reoffered for sale within six months, the agency strongly believes

that damages based on the appraised value of the sale plus

administrative costs associated with the repudiation are appropriate if

the sale cannot be reoffered.

Therefore, the final policy differs from the proposed policy only

in that a bidder that repudiates a timber sale contract will be subject

to double down payment for future contracts. Under the final policy,

when a sale is reoffered and the resale bid price does not exceed the

original purchaser's price plus certain additional costs (e.g. interest

and the cost of resale), damages are assessed at the amount of the

deficiency. Further, the policy provides the Forest Service the option

of retaining the timber and establishing damages for this breach based

on appraisal rather than resale, when resale is not accomplished in the

immediate future or if no bids are received at resale.

4. Timber Sale Discounting

The proposed policy would have discontinued the discount procedure

implemented on a forest-wide test basis on some National Forests in

western Oregon, western Washington, and northern California and would

have applied the current discounting procedures on an individual sale

basis when timber characteristics support a need for immediate

harvesting. Instances might include fire-damaged, insect-damaged, and

wind-thrown timber when prompt removal would support the accomplishment

of land management objectives and provide for optimal utilization of

salvage timber.

Four respondents objected to discontinuing the discounting test.

They stated that discounting provides an incentive to counter the

hoarding tendency of some purchasers and enhances the continued harvest

of timber sales in a timely manner. These respondents think that an

incentive-based approach encouraging early harvest is much better than

the proposed policy which they considered a disincentive. Two

respondents objected to use of discounting procedures on an individual

sale basis. Stating that the proposal was inadequately defined, was an

administrative over-reaction, and was costly and complicated, these

respondents concluded that the Forest Service will be reluctant to

apply discounting to individual sales.

The agency recognizes that incentives such as discounting are

effective in encouraging early harvest of timber. However, the agency

believes that continued area-wide use of discounting as an inducement

for early harvest of timber is not warranted based on current market

conditions, low volume of timber under contract, current rapid rates of

harvest, and anticipated lower sale levels. The agency believes that

blanket use of discounting unnecessarily devalues the timber when there

is no need for prompt harvest of timber. Further, the agency believes

the continued use of discounting could contribute to speculative

bidding by persons who expect to harvest timber early in the contract

period. Such speculation may result in an unfair competitive advantage

for some purchasers. Also, if a purchaser's expectations of early

harvest cannot be realized, payment of undiscounted prices higher than

expected could cause default.

Despite agency concerns about the blanket application of area-wide

discounting, the agency believes that there are some situations (e.g.,

early removal of fire-damaged, insect-damaged, and wind-thrown timber),

where the use of discounting can be warranted. In such situations, the

expectation is that lower payment rates and the other disadvantages of

discounting will be more than offset by the benefits of prompt harvest

of timber subject to rapid deterioration and by protection of other

resource values. Further, discounting procedures on an area-wide basis

may become warranted if the present market or other conditions is an

area change to the degree that encouragement of prompt harvest is in

the government's interest. For example, high levels of uncut volume

under contract could cause the agency to consider area-wide use of

discounting.

Recognizing that the discount procedures are complicated and that

there could be some reluctance among Forest Service officials to

include discounting provisions in an individual timber sale contract or

to seek approval for area-wide use, the agency believes that

justification and approval processes will ensure that discounting is

applied only where and when there is good rationale for its use.

Therefore, having considered all of the comments, the final policy

on discounting is the same as that proposed. The final policy provides

for use of discounting upon an individual sale basis when specific

situations justify the need for immediate harvesting and on an area-

wide basis only when warranted by market conditions and upon request of

the Regional Forester and approved by the Chief. Under the final

policy, situations requiring the use of discounting must be documented

by the line officer with the authority to approve the sale on which it

is to be used. When market conditions warrant discounting on a National

Forest or area-wide basis, the Regional Forester may request approval

to use discounting from the Chief of the Forest Service. The request

for approval must document the existing and anticipated market

conditions (e.g., volume under contract, rate of removal, when volume

is removed during the contract, expected sell levels) for the Region or

area affected.

Conclusion

The objectives of the financial security measures contained in this

final policy are to assure timely execution and completion of timber

sale contracts, to maintain competition by qualified bidders, to

discourage speculation, and to minimize the financial risk to the

Government in instances where purchasers do not complete contracts.

The final policy eliminates the present $500,000 ceiling on the

amount of performance guarantee required by the timber Sale contract,

and establishes the minimum performance guarantee at 10 percent of the

total bid value.

The final policy increases the amount of bid guarantee required to

bid on National Forest System timber sales to 10 percent of the total

advertised value.

Under the final policy, repudiation of a bid will be considered a

breach of contract and damages will be based on the bid price of the

reoffered timber plus administrative costs, such as the costs incurred

by the government in making the reoffer plus interest. Further, if no

bids are received on the reoffered sale or if the timber cannot be

immediately reoffered due to delay or other factors, damages will be

the difference between the repudiated bid value and the appraised value

of the reoffering. Administrative costs will then be added to the

difference in values.

The final policy discontinues the discounting procedure implemented

on a forest-wide, test basis on some National Forests in western

Washington, Oregon and Northern California initiated in 1982 (47 FR

16181). The final policy provides for Service-wide use of discounting

upon an individual sale basis when specific situations justify the need

for immediate harvesting and on an area-wide basis only when warranted

by market conditions and upon request of the Regional Forester and

approval by the Chief.

Regulatory Impact

This action has been reviewed under USDA procedures and Executive

Order 12291 on Federal Regulations. It has been determined that this

policy is not a major rule. The procedures implemented by this policy

will not have an effect of $100 million or more on the economy,

substantially increase prices or costs for consumers, industry, State,

or local governments, nor adversely affect competition, employment,

investment, productivity, innovation, or the ability of United States-

based enterprises to compete in foreign markets. In short, little or no

effect on the National economy will result from this notice of policy

change. This action consists of administrative changes to policy for

timber sale contract financial security. With regard to the removal of

the bond maximum, very few sales are over $5 million in value;

therefore, few sales or purchasers are involved. The largest of sales

are more likely to affect large businesses than small. The change in

liability for repudiation of contract (by failing to provide the

necessary bond; execute the contract; or make the required cash

deposit) will only have an effect on purchasers who do not consummate

their contracts. These purchasers are expected to be few in number. All

prospective purchasers must submit a bid guarantee with their bids. The

guarantee is returned to the unsuccessful bidders after completion of

the bid opening procedures. Only the high bidder is required to

maintain the bid guarantee until the contract is consummated. Under

existing procedures, the successful purchaser would have to provide a

performance bond equal to 10 percent of the bid value and, in addition,

make a minimum cash deposit equal to 10 percent of the bid value within

30 days after notification of award. In view of existing requirements,

increasing the bid guarantee to 10 percent of the advertised value

should have minimal effects on purchasers.

This final policy has been analyzed in accordance with the

principles and criteria contained in Executive Order 12630, and it has

been determined that the final policy does not pose the risk of a

taking of constitutionally protected private property.

Moreover, this policy has been considered in light of the

Regulatory Flexibility Act (5 U.S.C. 601 et. seq.), and it has been

determined that this policy will not have a significant effect on a

substantial number of small entities as defined by the Act. Additional

financial security measures do have some economic impact on all classes

of businesses, and the majority of the agency's timber sales are

purchased by small businesses. However, the adopted measures have the

intended effect of preventing speculative bids, defaults, and

repudiation of timber sales. Therefore, they will benefit the majority

of small businesses dependent on the agency's timber sales as a source

of raw material, by helping ensure that small businesses are not

competing for the limited timber resource that is offered for sale

against businesses that speculatively bid or make a high bid and then

lack the financial means to operate the sales. Moreover, these measures

will preserve the long-range revenues to affected counties and will

reduce the adverse economic impacts these entities would experience in

the event of sale defaults.

Further, this policy has been reviewed under Executive Order 12778,

Civil Justice Reform. Adoption of this policy will have the following

effect: (1) All state and local laws and regulations that are in

conflict with this policy or which would impede its full implementation

are preempted; (2) the policy expressly repeals or modifies previous

policies; (3) the policy is not to be applied retroactively; (4) and no

administrative procedures are necessary before a party may file suit in

court challenging this policy.

This policy will not result in additional paperwork not already

required by law or not already approved for use. Therefore, the review

provisions of the Paperwork Reduction Act of 1980 (44 U.S.C. 3507) and

implementing regulations at 5 CFR part 1320 do not apply.

This policy deals with business practices related to timber sale

contracts and, as such, has no direct effect on the amount, location,

or manner of timber offered for purchase. Section 31.1b, paragraph 2,

of Forest Service Handbook 1909.15 (57 FR 43180; September 18, 1992)

excludes from documentation in an environmental assessment or impact

statement ``rules, regulations, or policies to establish Service-wide

administrative procedures, program processes, or instructions.'' Based

on consideration of the comments received and the nature and scope of

this policy, the Forest Service has determined that this rule falls

within this category of actions and that no extraordinary circumstances

exist which would require preparation of an environmental assessment or

environmental impact statement (40 CFR 1508.4).

The text of the final policy as it will be issued in the Forest

Service Manual and Timber Sale Preparation Handbook is set out at the

end of this notice.

Dated: December 28, 1993.

David M. Unger,

Associate Chief.

Financial Security Measures

Forest Service Manual Chapter 2430, Commercial Timber Sales

2431.33--Discounting. The line officer with the authority to make

the timber sale may approve the use of discounting procedures set forth

in FSH 2409.18, section 54.4 for an individual timber sale to:

1. Support a need for immediate harvesting, such as an economic

incentive for early removal of fire-damaged, insect-damaged, or wind-

thrown timber;

2. Support the accomplishment of land management objectives;

3. Provide for optimal utilization of salvage timber. Document the

need and rationale for discounting in the environmental assessment or

other environmental documentation prepared for the sale.

The use of discounting on an area-wide basis is permissible upon

the Regional Forester's request and the Chief's approval when remaining

volume under contract in an area exceeds 3 times the Allowable Sale

Quantity (ASQ) or exceeds 3 or more years of sold volume whichever is

greater. In making this determination, consider total unprocessed

volume inventories held by area purchasers. Base the request to provide

a discounting incentive on the need for increasing or providing an even

flow of timber receipts to the Government.

* * * * *

2431.43--Bid Guarantee. Require a bid guarantee of 10 percent of

the advertised value for National Forest System timber sales.

* * * * *

2432.54--Bid Repudiation. Consider a timber sale contract to be

repudiated when a timber sale is not consummated because the high

bidder fails to make the downpayment, provide a performance bond, and/

or execute the contract.

2432.54a--Notice to Purchaser. The Contracting Officer shall notify

the bidder of the repudiation and breach of contract by certified mail.

The date of the receipt of notice shall be the date of the repudiation.

Also, include notice that the bidder has breached the contract and:

1. Is subject to exclusion from bidding on the resale pursuant to

36 CFR 223.86(a)(1).

2. May be required to make downpayment equal to 20 percent of the

total advertised value, plus 40 percent of the total bid premium on

future Forest Service contracts pursuant to 36 CFR 223.49(e).

2432.54b--Assessment of Damages. Assess damages for a repudiated

sale in the following manner and sequence:

1. Offer the sale to the second high bidder at the rates bid by the

high bidder. If the second high bidder declines the contract, offer it

in turn to remaining bidders in the order of their bids. If any bidder

accepts the contract offer at the high bid rate, assess no damages.

2. If there is no second high bidder, more than one second high

bidder (tied), or all bidders decline the contract offer, attempt to

readvertise the repudiated sale within six months of repudiation at

appropriate appraised rates.

a. Determine damages based on the difference between the total

resale bid value and the total value of the repudiated contract. Add

certain additional costs (such as interest and the cost of resale) as

indicated in the applicable provision of the sample contract prepared

for the sale.

b. If there are no bids on the readvertised sale, base damages on

the difference between the readvertised appraised value and the total

bid value of the repudiated contract. Add certain additional costs

(such as interest and the cost of resale) as indicated by the

applicable provision of the sample contract prepared for the sale.

3. If the sale is not excepted to be readvertised within 6 months,

base damages on the difference between the appraised value of the

repudiated contract as of date of repudiation and the total bid value

of the repudiated contract. Add certain additional costs (such as

interest and the cost of resale) as indicated by the applicable

provision of the sample contract prepared for the repudiated sale.

* * * * *

Forest Service Manual Chapter 2450, Timber Sale Contract Administration

FSM 2456.14--Penal Sum of the Performance Bond. The penal sum of

the performance bond shall be at least 10 percent of the total bid

value rounded up to the next $100 when the bid value is $10,000 or less

and the next $1,000 when the bid value exceeds $10,000. The bond may be

higher than the minimum amount of bond if needed to cover work required

of the purchaser after the logging season is completed.

Forest Service Handbook

FSH 2409.18, Timber Sale Preparation Handbook--Chapter 50, Final

Package Preparation, Review, Appraisal and Offering

54.4--Discount of Payment Rates for Early Harvest. Use the

procedures of this section for individual sales or on an area-wide

basis where discounting has been approved (FSM 2431.33). Use the

following guidelines in establishing discounted rates:

1. Discounting of payment rates for early harvest may only be

authorized for scaled sales.

2. Discount rates are a percentage factor based upon a combination

of the interest rate being paid on money being borrowed by the Treasury

at the time of advertisement and the length of time before the sale

termination date that material is cut and scaled, up to a maximum

discount of 25%.

a. Make no discount for material scaled during the 12 months before

termination of the sale.

b. For material scaled 12 to 24 months before termination date,

apply a discount factor of 50 percent of the Treasury rate stated in

the advertisement.

c. For material scaled 24 to 36 months before the termination date,

apply a discount factor of 100 percent of the Treasury rate stated in

the advertisement.

d. For material scaled 36 to 48 months before the termination date,

apply a discount factor of 150 percent of the Treasury rate stated in

the advertisement.

e. For material scaled 48 to 60 months before the termination date,

apply a discount factor of 200 percent of the Treasury rate stated in

the advertisement.

f. For material scaled 60 to 72 months before the termination date,

apply a discount factor of 250 percent of the Treasury rate stated in

the advertisement.

g. Make no discount factor exceeding 25 percent of the bid rates at

any time.

h. Apply no discount factor that reduces the miminum charge below

that needed to ensure cost recovery of small business opted road

construction to be done by the Forest Service or that reduces the

minimum charge below base rates.

i. Apply no discount rate that reduces the minimum charge for a

combination of species, product, and unit of measure listed in the

timer sale contract below the advertised rate for that combination.

That is, limit the maximum discount to the bid premium shown for each

appraisal group listed.

[FR doc. 94-2302 Filed 2-1-94; 8:45 am]

BILLING CODE 3410-11-M