Disposal of National Forest Timber; Cancellation of Timber Sale Contracts

DEPARTMENT OF AGRICULTURE

Forest Service

36 CFR Part 223

Disposal of National Forest Timber; Cancellation of Timber Sale

Contracts

RIN 0596-AB21

AGENCY: Forest Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would revise the existing rules on

cancellation of timber sale contracts, permits, and other such

instruments authorizing the sale or harvest of timber or other forest

products to clarify when, why, and by whom contracts may be cancelled,

to remove redundant provisions, and to provide a new formula for

compensation when the government must cancel timber sale contracts.

This proposed rule also would limit financial liability of the United

States on certain contracts, remove cancellation limits applicable to

the length of the contract term, and define the contractual terms

``purchaser'', ``modification'', ``partial cancellation'', and

``cancellation''. The proposed rule would also require that all sales

are to be laid out in identifiable units. These changes are necessary

because the Forest Service is unable to continue bearing most of the

financial risk and burden of contract cancellation arising from

compliance with increasingly complex and rigorously enforced

environmental laws and regulations. This proposed rule would reasonably

reallocate risk between the Government and private parties, thereby

protecting the U.S. taxpayer from unreasonable and excessive financial

damages arising from cancellation of timber sale contracts and other

such instruments.

DATES: Comments must be received in writing by February 13, 1997.

ADDRESSES: Send written comments to Director, Timber Management Staff

(2400), Forest Service, USDA, P.O. Box 96090, Washington, DC 20090-

6090.

The public may inspect comments received on this proposed rule in

the Office of the Director, Wing 3NW, Auditors Building, 201 14th

Street, SW, Washington, DC 20250. Parities wishing to view comments are

encouraged to call ahead (202-205-0893) to facilitate entry into the

building.

FOR FURTHER INFORMATION CONTACT:

Rex Baumback, Timber Management Staff, (202) 205-0855.

SUPPLEMENTARY INFORMATION: The rules at Title 36, Code of Federal

Regulations (CFR), part 223 govern the sale of National Forest System

timber. Section 223.30 provides that each timber sale contract will be

consistent with plans, environmental standards, and other management

requirements. Section 223.30 sets forth specific management

requirements for timber sales contracts in addition to general

compliance with environmental standards and resource management plans,

for example, fire protection and suppression, minimizing increases in

erosion, regeneration of timber, and so forth. Sections 223.40 and

223.116 set out the current bases for cancellation of timber sale

contracts by either the Government or the purchaser and prescribe the

amount of damages, if any, in the event of cancellation.

Section 223.40 requires that timber sale contracts, permits, and

other such instruments with terms longer than 2 years provide for

cancellation when necessary to prevent serious environmental damage or

when they are significantly inconsistent with land management plans

adopted or revised in accordance with section 6 of the Forest and

Rangeland Renewable Resources Act of 1974, as amended (16 U.S.C. 1601,

et seq.) and 36 CFR part 219--Planning.

Section 223.116 provides that timber sale contracts and permits may

be cancelled based on specifically listed conditions. This section also

authorizes the Chief of the Forest Service to cancel contracts and

places limitations on the re-delegation of cancellation authority to

Regional Foresters.

Background

Under existing regulations, purchasers may request cancellation of

contracts if, as a result of catastrophic damage caused by forces

beyond the control of the purchaser, the value of the remaining timber

is materially diminished. The Government may cancel contracts under any

of the following conditions: (1) By mutual agreement with the purchaser

when such action is to the advantage of the United States or not

prejudicial to its interests; (2) for purchaser's violation of contract

terms; (3) for purchaser's conviction of violation of criminal statutes

or for violation of civil standards, orders, permits, or other

regulations, issued by a Federal agency, State agency, or political

subdivision thereof, for the protection of environmental quality, on

National Forest System land, unless compliance with such laws or

regulations would preclude performance of other contractual

requirements; and (4) upon determination by the Chief of the Forest

Service that operations under the contract would result in serious

environmental degradation or resource damage.

Unlike government-wide rules governing procurement contracts, the

existing cancellation regulation places an inappropriate amount of the

financial liability on the Forest Service when the agency must, for

reasons of public policy or statutory direction, cancel a timber sale

contract or permit. In an effort to address this issue, the agency

published a proposed rule to revise its rules on cancellation of timber

sale contracts, permits, and other such instruments in the Federal

Register on August 31, 1990, at 55 FR 35683-35686. No public comment

was received as a result of this publication. After subsequent review

of the cancellation regulation, the agency identified additional

changes that are needed but that were not included in the proposed

rule. Therefore, the agency is publishing a new proposed rule and

inviting public comments.

The need for the revised contract cancellation procedures and

expanded use of identifiable units for all forest product sales arises

from the changing circumstances over the last two decades surrounding

forest product sales and the increasing likelihood that a forest

product sales may have to be changed in order to comply with the law.

Consequently, the Federal manager must have contractual flexibility in

order to maintain compliance with the law within reasonable economic

limits.

Under the existing regulation when a sale is cancelled, the Forest

Service pays a purchaser's out-of-pocket costs for a purchaser's

operations up to the date of cancellation. The Forest Service also

compensates the purchaser for the presumptive increased cost of

acquiring comparable timber to replace the timber lost through

cancellation, without regard to whether the purchaser actually

purchases replacement timber. By holding inventory in a rising market,

a purchaser generally earns a profit under the existing rules. In a

falling market, the current rule shields the purchaser from loss that

otherwise would be incurred if the contract had not been cancelled by

the Forest Service.

Given the inability of the Forest Service to predict or control the

need to adjust management practices to respond

[[Page 68691]]

to environmental statutes or other requirements, it is no longer

appropriate for the Forest Service to guarantee purchasers a

replacement supply of timber or to assure them a margin of profit in

the event of cancellation. Moreover, this policy is very costly to the

taxpayer. For example, in addition to paying out-of-pocket expenses,

the Forest Service has already had to pay approximately $9 million to

cover purchaser's replacement timber costs that resulted primarily from

contract cancellations or partial contract cancellations in Arizona and

New Mexico to protect the Mexican spotted owl and northern goshawk.

There is also $57 million in unresolved lawsuits and contract claims

related to contract cancellation. Further, this amount of potential

liability does not include potential damages that may result from

cancellation of the 77 timber sales involved in the Silver v. Thomas

(CIV-94-1610-PHX-CAM) injunction in Arizona and New Mexico or the

Section 318 timber sales that are the subject of the Rescissions Act

and related litigation in Oregon and Washington.

By statute, the agency is required to pay from available

appropriations any timber contract claim that arises from a dispute

with a purchaser (41 U.S.C. 612(c)). Because cancellation costs come

out of the agency's current budget, providing for lost profits

adversely affects all Forest Service operations, including other timber

operations and non-timber programs. If timber is to be sold, neither

the Forest Service nor the taxpayer can justify assuming risks of this

magnitude. The benefits and burdens must be shared by all users,

purchasers and the general public alike. Furthermore, as a practical

matter, the agency is not appropriated enough funds to provide for

replacement compensation for all the timber sales that may need to be

cancelled, in whole or in part, in order to comply with environmental

laws. Accordingly, although cancellation of contracts by the Forest

Service remains in the public interest, the Forest Service has

concluded that it is no longer in the public interest for the agency to

bear more than out-of-pocket expenses in these instances, nor is it

fiscally feasible, given the increasing uncertainty surrounding

National Forest System timber sales.

This uncertainty is caused by several factors. Developing case law

on environmental and related statutes and regulations, such as the

Endangered Species Act, the Clean Water Act, and the Clean Air Act, in

conjunction with increasing amounts of new information on the

environmental effects and resource impacts of various activities on

National Forest System land has led to constantly changing and more

rigorous management requirements. The uncertainty surrounding timber

sales is compounded by a growing competition and public concern for the

National Forests' limited resources. For example, the Forest Service

may be forced to cancel or substantially modify existing timber sale

contracts and permits if the Fish and Wildlife Service, an agency of

the Department of the Interior, lists an animal or plant species as a

threatened species under the Endangered Species Act. Specifically, in

response to the listing of the red-cockaded woodpecker as an endangered

species under the Endangered Species Act in 1973 and subsequent

discovery of new information in 1989, the Forest Service was required

to reevaluate its management practices throughout the woodpecker's

range on National Forests in the South. This re-evaluation resulted in

modification and cancellation of several existing timber sale

contracts.

In addition, the Forest Service has recently been judicially

compelled to cancel or modify additional timber sale contracts in order

to protect the Mexican spotted owl and marbled murrelet, which are both

listed as a threatened species under the Endangered Species Act. This

has also happened with the northern spotted owl. Further, there are

proposals that the Fish and Wildlife Service list the goshawk, other

owl species, and some species of Pacific salmon under the Endangered

Species Act.

Modification or cancellation of existing legal contractual

obligations is not limited, however, to efforts to comply with the

Endangered Species Act. In one case, the activities of a private

landowner upstream from a National Forest resulted in stream sediment

loading to such a level that sale activities on adjoining National

Forest land would have violated the Clean Water Act. As a result, the

Forest Service had to alter its timber harvesting plans for the area

adjacent to that stream. If timber sales had been under contract within

the area adjacent to that stream, contract cancellation and payment of

compensation to the purchaser would have been required to avoid

violations of the Clean Water Act.

The Forest Service takes every precaution before authorizing a

particular activity on National Forest System lands to ensure that its

authorization conforms with existing laws and with existing conditions

on the ground at the time of the authorization. However, when deciding

to go forward with such projects, the Forest Service must plan for

potential intervening events and circumstances. Given the increasing

pressures on forest resources from a variety of sources, it is

essential that Forest Service officials have flexibility to adjust

management activities on National Forest System lands and associated

contractual arrangements without incurring enormous financial

liability. Reasonable limits to the Government's exposure to financial

liability and burden of risk in the event of such adjustments are

imperative to protect the public's financial interests. Without

reasonable limits to such exposure, spiraling costs to the Forest

Service could seriously reduce future timber sale offerings.

Provisions of the Proposed Rule

Section 223.30

To accomplish the needed changes, the agency proposes to revise 36

CFR 223.30 to include a new paragraph (g) which would provide that all

timber sale contracts, permits, and other such instruments authorizing

the sale or harvest of timber or other forest products must identify

subdivision(s), payment unit(s), cutting unit(s), clearcutting unit(s),

understory harvest unit(s), individual tree marked area(s), or harvest

unit(s) within a designated sale area boundary. Under this revision,

the District Ranger or other Forest Service official responsible for

sale layout would be required to consider, among others, the following

factors when determining whether or not the sale area is to be divided

into more than one unit: Type of forest product; type of sale; acreage;

volume; topography; density of product within the area; value of the

sale; and management needs. Sales that are divided into two or more

harvest units are divisible.

This provision would extend the harvest unit layout concept that is

now used only in timber sale contracts using FS Form 2400-6 to all

other contract forms, permits, and other such instruments authorizing

the sale or harvest of timber or other forest products. Under this

provision, all timber sale instruments which may reasonably be divided

into two or more units would be treated similarly for purposes of

modification, partial cancellation, or cancellation. This revision

would add uniformity to the timber administration process and also

extend the application of damage limiting provisions to all forest

product sale instruments.

To accommodate this new paragraph (g), existing paragraphs (g) and

(h) would be designated as paragraphs (h) and (i) respectively.

[[Page 68692]]

Section 223.40

Section 223.40 would be revised to require that all contracts,

permits, and other such instruments authorizing the harvest of trees or

other forest products provide for cancellation. The current requirement

that only contracts two years in length or longer contain a provision

for cancellation would be removed. No current basis supports a

different standard of liability for short term contract than for

contracts with terms of two (2) or more years.

This proposed revision would also eliminate potential confusion in

the use of the terms ``cancellation'' and ``termination.'' This

proposed rule would define these terms as synonymous when used in

timber sale contracts, permits, or other such instruments. The proposed

rule would also revise the title of Sec. 223.40 to read ``Cancellation

procedures.'' Further, the proposed revision would restructure

Sec. 223.40 to include the provisions currently found in Sec. 223.116,

thus incorporating all of the requirements relating to cancellation of

contracts, permits, and other such instruments into one section and,

thereby eliminating the redundancy and confusion of having two separate

sections on cancellation. Section 223.116 would be removed in its

entirety.

The proposed rule would also substantially revise the existing

provisions of Sec. 223.40 and Sec. 223.116. First, a new paragraph (a)

would define ``purchaser'' for purposes of this section as a holder of

a National Forest System timber sale contract, permit, or other such

instrument authorizing the sale and harvest of forest products. The new

paragraph (a) of the proposed rule would also define the terms

``partial cancellation'' of a timber sale contract. This definition is

included in response to a recent court decision, Stone Forest

Industries v. United States, 973 F.2d 1548 (Fed. Cir. 1992), in which

the court found that the timber sale contract was not divisible.

``Partial cancellation'' would be defined as the elimination of one or

more, but not all, of the identifiable harvest units from a timber sale

contract and is based upon the divisibility of the timber sale contract

into units. Thus, this regulation would incorporate the concept of

divisibility, which would be adopted in 36 CFR 223.30, and, thereby,

would eliminate any ambiguity regarding the ability of the Forest

Service to partially cancel a contract. Partial cancellation would

afford the Forest Service flexibility in today's uncertain climate by

allowing as much of a timber sale to be harvested as is legally

allowable while avoiding a breach of contract as a whole.

Additionlly, the terms ``modification'' and ``cancellation'' would

be defined to eliminate any confusion that might arise as to their

meaning in relation to partial cancellation and use in executing timber

sale contract changes. Modification would be defined as the elimination

of a portion but not all of a harvest unit or units. The timber sale

contract provides for rate redetermination in the event of unilateral

modification. Cancellation is defined as the cancellation or

termination of contract requirement(s) for removal of the remaining

timber or other forest products from all of the identifiable harvest

units under the timber sale contract, permit, or other timber sale

instrument.

Mutual modifications and cancellations as provided in the current

regulation at 36 CFR 223.112 and 36 CFR 223.116(2) would also be

provided for in this proposed regulation at 223.40(c)(2). Compensation

for a mutually agreed upon contract change would be provided for in the

mutual agreement between the parties. Mutual agreements between the

Forest Service and a purchaser can only be made if the agreement is to

the advantage of the United States or not prejudicial to its interests.

Proposed paragraph (b) is a revision and expansion of provisions

presently in 36 CFR 223.40 and 36 CFR 223.116 and would limit to the

Chief the authority to cancel a timber sale contract, permit, or other

such instrument based upon a determination by the Chief that continued

operations under such contracts will result in the violation of a

statute or regulation or will unreasonably conflict with management of

other forest resources. Proposed paragraph (b)(1) would authorize the

cancellation or partial cancellation of a timber sale by the Chief

before operations result in a situation where a Federal statute or

regulation would be violated, thereby giving the Forest Service the

authority to pro-actively manage and avoid environmental crises. Causes

for cancellation or partial cancellation under proposed paragraph

(b)(1) would include, for example, the need to prevent inconsistencies

with approved land and resource management plans adopted pursuant to 36

CFR part 219; damage to cultural resources; and unacceptable adverse

impacts to Federally-listed threatened or endangered species. Proposed

paragraph (b)(2) would provide for the cancellation or partial

cancellation of a timber sale contract, permit, or other such

instrument by the Chief, upon determination by the Chief that operation

of the sale may unreasonably conflict with the management of other

forest resources. For example, (b)(2) would provide for cancellation or

partial cancellation in order to prevent unreasonable conflict with

sensitive species listed by Regional Foresters pursuant to the Forest

Service Mutual Chapter 2670 or published in the Federal Register.

Paragraph (c) of proposed Sec. 223.40 would set forth the

conditions under which a contract, permit, or other such instrument for

removal of National Forest System timber or other forest products may

be cancelled. Existing paragraphs (a)(1)-(a)(3) of Sec. 223.116 would

become paragraphs (c)(1), (c)(2), and (c)(3) of Sec. 223.40 and remain

substantially the same. Both paragraphs (b) and (c) of revised

Sec. 223.40 would require the cancellation decisions to be based upon

an administrative record.

Paragraph (c)(1) would provide for cancellation by the Government

in the event of a material breach of continued violation of the terms

of the contract, permit, or other such instrument. This is consistent

with the principle of law that failure to perform a material element of

the contract constitutes a breach and merits cancellation of the

contract. It also establishes that continued, intentional violation of

the contract which prevents timely performance may merit cancellation

of the contract.

Paragraph (c)(2) would slightly revise text now in

Sec. 223.116(a)(2) by adding the phrases, ``for reasons other than

those listed in this section,'' and would provide that a contract may

be cancelled in whole or in part by mutual agreement upon application

of the purchaser or at the request of the Government with consent of

the purchaser. The proposed paragraph (c)(2) would limit mutual

cancellation or partial cancellation to cases in which it is determined

to be in the best interests of the United States.

Paragraph (c)(3) would incorporate and revise existing

Sec. 223.116(a)(3) and provide that, upon application of the purchaser

or upon notice by the Forest Service, the contract may be cancelled in

whole or in part if the value of the timber remaining to be cut is

diminished materially because of catastrophic damage caused by forces

beyond the control of the purchaser or the Forest Service. This

proposed provision would change the current rule by also authorizing

the Forest Service to cancel a contract in the event of catastrophic

damage. Since the very nature of damage resulting from a catastrophe

can adversely affect the Government to the same extent as the

[[Page 68693]]

purchaser, logic and equity demand that the Government should have the

ability to cancel in whole or in part the contract, permit, or other

such instrument under these circumstances.

Paragraphs (c)(4) and (c)(5) would incorporate and revise existing

Sec. 223.116(a)(4). The two causes for cancellation that are presently

combined in paragraph (a)(4) would be divided into separate paragraphs

to clarify and distinguish between the judicial and administrative

causes that may result in cancellation. Paragraph (c)(4) would clarify

that contracts, permits, or other such instruments authorizing the

harvesting of trees or other forest products may be cancelled upon any

conviction of a purchaser for violation of a Federal or State criminal

statute, when such violation is in any way connected with obtaining,

attempting to obtain, selling, trading, or processing public timber, or

obtaining, attempting to obtain, or performing a public contract or

subcontract.

Paragraph (c)(5) would permit cancellation of timber sale

contracts, permits, or other such instruments authorizing the

harvesting of trees or other forest products upon the conviction of the

purchaser for a violation of civil standards, orders, permits, or other

regulations written for the protection of the environment.

Cancellation under paragraphs (c)(4) or (c)(5) would be an

administrative action intended to ensure that the Government does

business only with reasonable parties, that is, parties who possess a

satisfactory record of integrity and business ethics.

A new proposed paragraph (c)(6) would provide the authority to

cancel or partially cancel a contract, permit, or other such instrument

authorizing the harvesting of trees or other forest products as a

result of a court order or court approved settlement agreement. This

proposed paragraph also would permit cancellation even though a sale

contract, permit, or other such instrument is not specifically named in

an order or settlement agreement if the Forest Service determines that

the order or settlement agreement would be applicable to the conditions

existing on the area governed by the contract, permit, or other such

instrument. This paragraph is necessary for the Government to properly

and efficiently respond to litigation over National Forest management

and competing resource uses and would remove any ambiguity or potential

misinterpretation over the agency's cancellation authority in light of

court orders or court approved settlements.

Paragraph (d) of the proposed rule would provide that any timber

sale contract, permit, or any other such instrument for the sale or

harvest of timber or forest products containing individually

identifiable harvest units may be partially cancelled without the

Forest Service incurring liability for the entire contract. Paragraph

(d) would also provide that when a timber sale is partially cancelled,

a duty to perform the remaining portion of the contract continues with

the purchaser, in most cases.

The present method for determining reasonable compensation to the

purchaser is described at Secs. 223.40 and 223.116(a)(5). Proposed

223.40(e) would provide the basis for determining compensation, if any,

in the event a contract is cancelled for any reason. Proposed paragraph

(e)(1)(i) provides that limited compensation, in the form of out-of-

pocket expenses, would be provided when contracts, permits, or other

such instruments are cancelled or partially cancelled pursuant to

paragraphs (b)(1), (b)(2), or (c)(6), except where the Forest Service

finds the purchaser contributed to the reason(s) for cancellation.

These provisions allow the Government to cancel or partially cancel

contracts, permits, or other such instruments in order to, among other

things, comply with a court order, federal statute or regulation, or

avoid adverse conflicts with other environmental resources. Out-of-

pocket expenses are a fair way of allocating part of the risk

associated with these cancellations or partial cancellations. Proposed

paragraph (e)(1) would limit out-of-pocket expense to unrecovered costs

actually paid out and arising from acquiring and performing the

contract, and would expressly exclude attorney's fees, unrealized or

lost profits, replacement cost of timber, or any other anticipatory

losses by the purchaser.

Proposed paragraph (e)(1)(i) provides an exception to the payment

of out-of-pocket expenses in situations where fairness dictates that

the purchaser absorb their own expenses. Specifically, the exception

excludes compensation in situations where the purchaser contributes to

the cancellation reason(s) such as the violation of a statute. In most

cases, such a situation would be treated as a breach or as another

cancellation reason included under proposed paragraph (e)(1)(ii).

Consequently, the (e)(1)(i) exception to the payment of out-of-pocket

expenses is intended to apply only where no other cancellation reason

is applicable. This exception would also exclude compensation in

situations where either the purchaser or both the purchaser and the

Government may be responsible for the cancellation reason(s).

Proposed paragraph (e)(1)(ii) would provide that no compensation

would be given for cancellations or partial cancellations pursuant to

paragraphs (c)(1), (3), (4), or (5). Compensation would be

inappropriate for contracts, permits, or other such instruments

cancelled pursuant to paragraphs (c)(1), (4), or (5) because the

cancellation would be the result of a purchaser's failure to

satisfactorily perform a contract, permit, or other such instrument or

the result of a purchaser's failure to comply with appropriate law,

orders, rules, regulations, or standards. It would also be unreasonable

for the Government to compensate such a purchaser for unrecovered costs

when the cancellation results from a purchaser's own bad faith acts.

Furthermore, compensation for a cancellation or partial

cancellation involving a catastrophe pursuant to proposed paragraph

(c)(3) would also be inappropriate. The purchaser has the option under

the terms of a timber sale contract for a contract modification and

rate redetermination as well as the option to request that a contract

be cancelled. If it is in the purchaser's best interest to request a

cancellation, the Government should not be obligated to do more than

cancel the contract, permit, or other such instrument and accept the

return of damaged and/or devalued timber. Likewise, if the Government

elects to cancel or partially cancel a contract as a result of a

catastrophic event, equitable treatment of both parties to the contract

would dictate there be no compensation given.

Cancellations or partial cancellations pursuant to proposed

paragraph (c)(2) would be the result of a request for cancellation or

partial cancellations originating from either the purchaser or the

Government and would require the consent and agreement of the other

party. The agreement reached between the parties may or may not include

a financial settlement as part of the terms of the agreement. Proposed

paragraph (e)(2) permits but does not require compensation for the

purchaser. To require compensation for the purchaser would unfairly

restrict the bargaining position of the Government when a contract,

permit, or other such instrument is cancelled or partially cancelled by

written mutual agreement.

Section 223.116

The procedure that has been in place for determining the value of

comparable replacement timber, based on timber sold within the past 6

months on the same National Forest (Sec. 223.40 and

[[Page 68694]]

Sec. 223.116 (a)(5)), is often difficult and not workable. This method

fails to provide the necessary flexibility to deal with different

circumstances faced in individual timber sale cancellations or partial

cancellations. Additionally, comparable replacement timber is becoming

increasingly expensive and exposes the Forest Service and the taxpayer

to excessive liability. Further, there is no assurance that there will

be comparable sales sold within the 6 months prior to the cancellation

or partial cancellation. Therefore, the proposal does not retain the

current procedures.

Finally, paragraph (b) of Sec. 223.116 would be replaced because it

is redundant. The Secretary of Agriculture has delegated full authority

to the Chief to administer the National Forest System timber sale

program (7 CFR 2.42). The Chief delegates his authorities to lower

level officials or reserves authority through the Forest Service Manual

except as otherwise noted in the regulations at part 223.

Environmental Impact

This proposed rule would establish uniform criteria to be

considered when a timber sale contract, permit, or other such

instrument authorizing the sale or harvest of timber or other forest

products must be cancelled or partially cancelled. Section 31.1b-2 of

the 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.''

Paragraph d of Section 31.1b further excludes ``proposing changes in

contract terms and conditions or terms and conditions of special use

authorizations.'' The agency's preliminary assessment is 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. A final determination

will be made upon adoption of the final rule.

Controlling Paperwork Burdens on the Public

This rule does not require any recordkeeping or reporting

requirements or other information collection requirements as defined in

5 CFR part 1320 not already approved for use and, therefore, imposes no

additional paperwork burden on the public. Accordingly, the review

provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501, et

seq.) and implementing regulations at 5 CFR part 1320 do not apply.

No Takings Implications

This proposed rule has been analyzed in accordance with the

principles and criteria contained in Executive Order 12630. It has been

determined that the proposed rule does not pose a risk of a taking of

Constitutionally-protected private property because these proposed

regulations apply to the discretionary use of Federally owned land.

Unfunded Mandates Reform

Pursuant to Title II of this Unfunded Mandates Reform Act of 1995,

which the President signed into law on March 22, 1995, the Department

has assessed the effects of this rule on State, local, and tribal

governments and the private sector. This rule does not compel the

expenditure of $100 million or more by any State, local, or tribal

governments or anyone in the private sector. Therefore, a statement

under section 202 of the Act is not required.

Regulatory Impact

This proposed rule was reviewed under USDA procedures and

determined to be a significant rule under Executive Order 12866 on

Regulatory Planning and Review because of the expected strong public

interest in the proposed rule. Accordingly, this proposed rule is

subject to OMB review under Executive Order 12866. However, this

proposed rule will not have an annual effect of $100 million or more on

the economy, or substantially increase prices or costs for consumers,

individual industries, Federal, State or local governments, or

geographic regions. Furthermore, it will not have significant adverse

effects on competition, employment, investment, productivity,

innovation, or on the ability of United States-based enterprises to

compete with foreign-based enterprises in domestic or export markets.

This proposed rule will not limit the amount of National Forest System

timber to be offered for sale or restrict competition for such timber.

Rather, this proposed rule would remove the unreasonable degree of

financial risk currently borne by the Federal Government in the event

of timber sale contract cancellation and thus limit the Federal

financial liability to reasonable risks.

In addition, this proposed rule has been considered in light of the

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

determined that this action will not have a significant economic impact

on a substantial number of small entities as defined by that act.

Civil Justice Reform Act

This proposed rule has been reviewed under Executive Order 12778,

Civil Justice Reform. If this proposed rule were adopted, (1) all State

and local laws and regulations that are in conflict with this proposed

rule or which would impede its full implementation would be preempted;

(2) the proposed rule may be given retroactive effect on existing

contracts that contain limiting compensation provisions; and (3) it

would not require administrative proceedings before parties may file

suit in court challenging its provisions.

List of Subjects in 36 CFR Part 223

Exports, Government contracts, National forests, Reporting

requirements, and Timber sales.

Therefore, for the reasons set forth in the preamble, part 223 of

chapter II of title 36 of the Code of Federal Regulations is proposed

to be amended as follows:

PART 223--SALE AND DISPOSAL OF NATIONAL FOREST SYSTEM TIMBER

1. The authority citation for part 223 continues to read as

follows:

Authority: 90 Stat. 2958, 16 U.S.C. 472a; 98 Stat. 2213, 16

U.S.C. 618, unless otherwise noted.

Subpart B--Timber Sale Contracts

2. Amend Sec. 223.30 by redesignating paragraphs (g) and (h) as

paragraphs (h) and (i) respectively and adding new paragraph (g) to

read as follows:

Sec. 223.30 Consistency with plans, environmental standards, and other

management requirements.

* * * * *

(g) Identification and designation of individually separable

subdivision(s), payment unit(s), cutting unit(s), clearcutting unit(s),

understory harvest unit(s), overstory harvest unit(s), individual tree

marked area(s), or harvest unit(s) within a designated sale area

boundary. Whenever reasonably feasible, the District Ranger or other

Forest Service official responsible for sale layout shall divide the

sale or permit area into two or more units, thereby making the contract

divisible.

* * * * *

3. Revise Sec. 223.40 to read as follows:

Sec. 223.40 Cancellation procedures.

Timber sale contracts, permits, and other such instruments

authorizing the harvesting of trees or other forest products, shall

provide for cancellation

[[Page 68695]]

of partial cancellation for the reasons specified in paragraph (b) and

(c) of this section. For the purposes of this section, the terms

``cancellation'' and ``termination'' as used in this section and in

timber sale contracts, permits, and other such instruments are

synonymous and may be used interchangeably.

(a) Definitions. The following definitions apply to the provisions

of this section.

(1) Purchaser means, for the purpose of this section, any holder of

a National Forest System timber sale contract, permit, or other such

instrument authorizing the harvest of timber or other forest products.

(2) Partial Cancellation means the elimination of one or more, but

not all, of the identifiable harvest units from a timber sale contract,

permit, or other such instrument.

(3) Modification means the elimination of a portion of, but not all

of, an identifiable harvest unit or units from a timber sale contract,

permit, or other such instrument.

(4) Cancellation means the termination of contract requirement(s)

for the removal of the remaining timber or other forest products from

all of the identifiable harvest units of a timber sale contract,

permit, or other such instrument.

(b) Cancellation actions reserved to the Chief. Based upon review

of the administrative record, the Chief of the Forest Service shall

cancel or partially cancel any timber sale contract, permit, and other

such instrument authorizing the sale and harvest of trees or other

forest products upon a determination that one or both of the following:

(1) Continued operation of the timber sale contract, permit, or

other such instrument will result in the violation of a Federal statute

or regulation; and/or

(2) Continued operation of the timber sale contract, permit, or

other such instrument will unreasonably conflict with the management of

other forest resources.

(c) Other cancellation actions. Based upon review of the

administrative record, the Chief of the Forest Service, or other Forest

Service official to whom such authority is delegated, may cancel or

partially cancel, timber sale contracts, permits, or other such

instruments authorizing the sale and harvest of trees or other forest

products for any of the following reasons:

(1) For material breach or continued violation of their terms.

(2) Upon application or with the consent of the purchaser, for

reasons other than those listed in this section, when such action is of

advantage to the United States or not prejudicial to its interests.

(3) Upon application of the purchaser or by notice of the Forest

Service, when catastrophic damage caused by forces beyond the control

of either the purchaser or the Forest Service materially diminishes the

value of the timber remaining to be cut because of substantial damage

to the timber itself or because of physical change in the sale area or

access to the timber.

(4) For a conviction of a purchaser for violation of any Federal or

State criminal statute, when such violation is in any way connected

with obtaining, attempting to obtain, selling, trading, or processing

public timber, or obtaining, attempting to obtain, or performing a

public contract or subcontract.

(5) Upon final agency or judicial determination of a purchaser's

violation of civil standards, orders, permits, or other regulations for

the protection of environmental quality issued by a Federal agency,

State agency, or political subdivision thereof, in the conduct of

operations under such regulations on National Forest System land.

(6) To comply with a Federal court order or a court approved

settlement agreement, regardless of whether the sale is named in such

an order, upon determination by the Forest Service that the order

applies to the conditions existing on the sale.

(d) Partial Cancellation. Any timber sale contract, permit, or

other such instrument for the sale or harvest of timber or forest

products that contains individually identifiable harvest units may be

partially cancelled without the Forest Service incurring liability for

breach of the entire contract. When a timber sale is partially

cancelled, a purchaser retains the duty to perform the remaining

portions of the contract, unless, based upon evidence provided by the

purchaser, the Contracting Officer determines that it would be

uneconomical for the purchaser to perform the remaining portion of the

contract.

(e) Compensation. (1) In the event of cancellation or partial

cancellation by the Government of a contract, permit, or other such

instrument under paragraphs (b) and (c) of this section, compensation,

if any, is to be determined as follows:

(i) If the cancellation or partial cancellation is made pursuant to

paragraph (b)(1), (b)(2), or (c)(6) of this section, the purchaser may

receive compensation for out-of-pocket expenses, except where the

Forest Service finds the purchaser contributed to the reason(s) for

cancellation. Out-of-pocket expenses include only unrecovered costs

arising from acquiring and performing the contract prior to

cancellation. Out-of-pocket expenses do not include attorney's fees,

lost profits, replacement cost of timber, or any other anticipatory

losses by the purchaser. All such expense claims must be submitted,

along with supporting documentation, to the Contracting Officer,

pursuant to the Contract Disputes Act of 1978 (41 U.S.C. 605).

(ii) If the cancellation or partial cancellation is made pursuant

to paragraphs (c)(1), (3), (4), or (5) of this section, the purchaser

shall not receive any compensation.

(2) If the cancellation or partial cancellation by the government

is made pursuant to paragraph (c)(2) of this section, compensation to

either party will be determined subject to such terms as may be

included in a written mutual agreement between the parties.

Sec. 223.116 [Removed]

4. Remove Sec. 223.116 in its entirety.

Dated: May 3, 1996.

David G. Unger,

Associate Chief.

Editiorial Note: This document was received in the Office of the

Federal Register on December 23, 1996.

[FR Doc. 96-32937 Filed 12-27-96; 8:45 am]

BILLING CODE 3410-11-M