# Financial Security of National Forest System Timber Sale Contracts

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/fr%3A94-2302

## Record

- **Collection:** Federal Register
- **Document type:** Uncategorized Document
- **Published:** February 2, 1994

## Text

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.

-----------------------------------------------------------------------

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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A94-2302. Public record. Not legal advice.