Extension of Certain Timber Sale Contracts; Finding of Substantial Overriding Public Interest, 64991-64994 [E7-22534]

Agencies

• DEPARTMENT OF AGRICULTURE
• Forest Service

[Federal Register Volume 72, Number 222 (Monday, November 19, 2007)]
[Notices]
[Pages 64991-64994]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-22534]


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DEPARTMENT OF AGRICULTURE

Forest Service


Extension of Certain Timber Sale Contracts; Finding of 
Substantial Overriding Public Interest

AGENCY: Forest Service, USDA.

ACTION: Notice of contract extensions.

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SUMMARY: On November 2, 2007, the Chief of the Forest Service 
determined there is Substantial Overriding Public Interest in extending 
certain National Forest System timber sale contracts for up to one 
year, subject to a maximum total contract length of 10 years. Pursuant 
to the November 2, 2007, finding, timber sale contracts awarded prior 
to January 1, 2007, are eligible for extension and deferral of periodic 
payment due dates for up to one year. This finding does not apply to 
(1) contracts that have been or are currently eligible to be extended 
under market related contract term addition (MRCTA) contract 
provisions, except sales using the Hardwood Lumber index that were 
awarded after December 31, 2005, (2) salvage sale contracts that were 
sold with the objective of harvesting deteriorating timber, (3) 
contracts the Forest Service determines are in urgent need of 
harvesting due to deteriorating timber conditions that have developed 
following award of the contract, or (4) contracts that are in breach. 
To receive an extension, purchasers must make a written request to the 
appropriate Contracting Officer. Purchasers also must agree to release 
the Forest Service from all claims and liability if a contract extended 
pursuant to the November 2, 2007, finding is suspended, modified, or 
terminated in the future.
    The intended effect of the Substantial Overriding Public Interest 
finding and contract extensions is to minimize contract defaults, mill 
closures, and company bankruptcies. The Government benefits if 
defaulted timber sale contracts, mill closures, and bankruptcies can be 
avoided by granting extensions. Having numerous, economically viable, 
timber sale purchasers increases competition for National Forest System 
timber sales, results in higher prices paid for such timber, and allows 
the Forest Service to provide a continuous supply of timber to the 
public in accordance with Forest Service authorizing legislation. See 
Act of June 4, 1897 (Ch. 2, 30 Stat. 11 as amended, 16 U.S.C. 475) 
(Organic Administration Act). In addition, by extending contracts and 
avoiding defaults, closures, and bankruptcies, the Government avoids 
the difficult, lengthy, expensive, and sometimes impossible process of 
collecting default damages.

DATES: The determination was made on November 2, 2007, by the Chief of 
the Forest Service.

FOR FURTHER INFORMATION CONTACT: Lathrop Smith, Forest Management 
Staff, (202) 205-0858 or Richard Fitzgerald, Forest Management Staff 
(202) 205-1753; 1400 Independence Ave., SW., Mailstop 1103, Washington, 
DC 20250-1103.
    Individuals who use telecommunication devices for the deaf (TDD) 
may call the Federal Information Relay Service (FIRS) at 1-800-877-8339 
between 8 a.m. and 8 p.m., Eastern Standard Time, Monday through 
Friday.

SUPPLEMENTARY INFORMATION: The Forest Service sells timber and forest 
products from National Forest System lands to individuals or companies 
pursuant to the National Forest Management Act of 1976, 16 U.S.C. 472a 
(NFMA). Each sale is formalized by execution of a contract between the 
purchaser and the Forest Service. The contract sets forth the explicit 
terms and provisions of the sale including such matters as the 
estimated volume of timber to be removed, the period for removal, price 
to be paid to the Government, road construction and logging 
requirements, and environmental protection measures to be taken. The 
average contract period is approximately two to three years, although a 
few contracts have terms of five or more years.
    Rules in 36 CFR 223.52 (Market Related Contract Term Additions) 
permit contract extensions when the Chief of the Forest Service 
determines that adverse wood product market conditions have resulted in 
a drastic decline in wood product prices. Under market-related contract 
addition procedures, the Forest Service refers to the following three 
producer price indices maintained by the Bureau of Labor Statistics: 
Softwood Lumber 0811 and Hardwood Lumber 0812 in the 
Commodity Series, and Wood Chips PCU32113321135 in the 
Industry Series.
    The Softwood and Hardwood Lumber indices indicate a major downturn 
in those markets began following a peak in September 2004 and was still 
on a downward trend as of September 2007, with the relative Softwood 
Lumber index decreasing by about 36 percent and the Hardwood Lumber 
index decreasing by about 19 percent, during this time. While most 
purchasers holding contracts with those indices have received or are 
eligible to receive MRCTA, an anomaly in the wood

[[Page 64992]]

products markets and indices used in contracts in the Lake States area 
and some other parts of the country has left many purchasers without 
this remedy.
    Section 472a(c) of NFMA provides that the Secretary of Agriculture 
shall not extend any timber sale contract period with an original term 
of two years or more, unless the purchaser has diligently performed in 
accordance with an approved plan of operations or the ``Substantial 
Overriding Public Interest'' justifies the extension. The authority to 
make this determination has been delegated to the Deputy Under 
Secretary of Agriculture for Natural Resources and Environment in 7 CFR 
2.59.
    Accordingly, based on current data, the Chief has made a finding 
that there is a Substantial Overriding Public Interest in extending 
certain sales for up to one year. This finding does not apply to (1) 
contracts that have been or are currently eligible to be extended under 
MRCTA contract provisions, except sales using the Hardwood Lumber index 
that were awarded after December 31, 2005, (2) salvage sale contracts 
that were sold with the objective of harvesting deteriorating timber, 
(3) contracts the Forest Service determines are in urgent need of 
harvesting due to deteriorating timber conditions that have developed 
following award of the contract, or (4) contracts that are in breach. 
In addition to extending contracts pursuant to the Chief's finding, 
periodic payments will be deferred for up to one year on the extended 
sales. To receive an extension and periodic payment deferral, 
purchasers must make a written request to the appropriate Contracting 
Officer. Purchasers must also agree to release the Forest Service from 
all claims and liability if a contract is suspended, modified, or 
terminated, after the contract is extended pursuant to the Chief's 
November 2, 2007 finding. The text of the finding, as signed by the 
Chief of the Forest Service is set out at the end of this notice.

    Dated: November 2, 2007.
Joel D. Holtrop,
Deputy Chief for National Forest System.

Determination of Substantial Overriding Public Interest for Extending 
Certain Timber Sale Contracts

    The National Forest Management Act of 1976 (16 U.S.C. 472a(c) 
provides that the Secretary of Agriculture shall not extend any timber 
sale contract period with an original term of two years or more unless 
he finds that the purchaser has diligently performed in accordance with 
an approved plan of operations or that the ``Substantial Overriding 
Public Interest'' justifies the extension.
    As a result of continued drastic reductions in forest product 
prices, there is a Substantial Overriding Public Interest in extending 
certain timber sale contracts.

Background

    On December 7, 1990, the Forest Service published a final rule (55 
FR 50643) establishing procedures in 36 CFR 223.52 for extending 
contract termination dates in response to adverse conditions in the 
timber markets. These procedures, known as Market Related Contract Term 
Additions (MRCTA), authorize extensions of timber sale contracts up to 
one additional year when qualifying market conditions are met. When the 
MRCTA procedures were established, experience indicated that the type 
and magnitude of lumber market declines that would trigger MRCTA 
generally coincide with low numbers of housing starts and are usually 
indicative of substantial economic dislocation in the wood products 
industry. Such economic distress broadly affects community stability, 
the ability of industry to supply construction lumber and other 
products for public use, and threatens maintaining plant capacity 
necessary to meet future demands for wood products from domestic 
sources. The Department has determined that a drastic reduction in wood 
product prices can result in a Substantial Overriding Public Interest 
sufficient to justify a contract term extension for existing contracts, 
as authorized by the National Forest Management Act of 1976 (16 U.S.C. 
472a(c)) and existing regulations at 36 CFR 223.115(b).
    Following promulgation of the rule in 1990, the Forest Service 
began tracking four producer price indices provided by the Bureau of 
Labor Statistics as indicators of a drastic reduction in wood product 
prices. Those indices were the Southern Pine Dressed, Douglas-fir 
Dressed, Other Species Dressed, and Hardwood Lumber. Beginning in the 
first quarter of 1994 through the first quarter of 1996, government 
indices indicated a major downturn in the lumber markets throughout the 
country was occurring, but only the Douglas-fir Dressed Lumber index 
used in contracts in Washington and Oregon dropped sufficiently to 
trigger MRCTA. Meanwhile, purchasers in other parts of the country were 
facing defaults, mill closures, and bankruptcies but were not eligible 
for MRCTA. To avert these problems, the Chief of the Forest Service 
determined that it was in the Substantial Overriding Public Interest to 
extend for a period of up to one year certain contracts that had not 
received any MRTCA. The Forest Service also initiated a study of the 
MRTCA procedures and indices to determine why they did not appear to 
perform as expected. Findings in that study led the Forest Service to 
adopt four different producer price indices from the Bureau of Labor 
Statistics in May 1998; (1) Hardwood Lumber (SIC 24211), (2) Eastern 
Softwood Lumber (SIC 24213), (3) Western Softwood Lumber (SIC 24214), 
and (4) Wood Chips (SIC 24215). However, after December 2003, the 
Bureau of Labor Statistics discontinued publishing the Western Softwood 
Lumber index (SIC 24214), Eastern Softwood Lumber index (SIC 24213), 
and Hardwood Lumber index (SIC 24211). At the same time the Wood Chips 
index (SIC 24215) was renumbered as PCU32113321135. In January 2006, 
the Forest Service published a notice in the Federal Register (71 FR 
3409) adopting the Softwood Lumber index 0811 and the Hardwood Lumber 
index 0812 to replace the three indices that were no longer supported 
by the Bureau of Labor Statistics. The Forest Service continued to rely 
upon the Wood Chips index, now numbered PCU32113321135, to gauge 
certain market conditions. The three indices the Forest Service adopted 
to gauge most market conditions, however, are not able to address 
market conditions for all forest products, e.g. biomass. Additionally, 
because the indices are national in scope, they may fail to address 
drastic declines in local markets.

Market Conditions Leading to the November 2006, Determination of 
Substantial Overriding Public Interest To Extend Certain Sales

    The Softwood Lumber index 0811 began declining, after 
peaking in September 2004, and with adjustments for inflation the 
relative index had declined 47.9 points or 31 percent by September 
2006. Between the third quarter 2005 and the third quarter 2006, there 
were five consecutive calendar quarters where the declines were large 
enough to trigger MRCTA. This was a substantially larger drop than the 
one in the period between 1994-1996, when the index declined about 38 
points or 21 percent. The period from 1994-1996 was also the last time 
there were five consecutive qualifying quarters for MRCTA.
    The Hardwood Lumber index 0812 also began declining, after 
peaking in September 2004, and with adjustments for inflation declined 
18.6 points or 14 percent as of September 2006. There

[[Page 64993]]

were three consecutive quarters beginning with the third quarter of 
2005 through the first quarter of 2006, where the quarterly declines 
were large enough to trigger MRCTA equal to one calendar year plus one 
normal operating season. The Hardwood Lumber index continued to decline 
in the second and third quarters of 2006, but the decline was not 
sufficient to trigger MRCTA. Consequently, some hardwood purchasers 
were expected to begin facing additional hardships as the MRCTA time 
they previously obtained expired.
    Between September 2004 and January 2006, the Wood Chips index 
remained fairly static but was on a steady rise since then. The last 
time the Wood Chips index had a qualifying quarter was the third 
quarter of 1997.
    As of November 2006, the MRCTA procedures on softwood lumber and 
hardwood lumber sales were generally functioning as expected. 
Additional contract time was being offered for qualifying sale, which 
assisted purchasers by allowing more time to wait for markets to 
recover or to spread out harvesting of high priced sales. But, as was 
the case in 1996, there were exceptions.
    For example, in the Lake States area, a combination of factors 
contributed to a more drastic decline in forest product prices than was 
occurring in other parts of the country and/or the producer price 
indices were not triggering MRCTA. The predominant forest products 
produced in that area are wood chips used in pulping for paper and 
oriented strand board (OSB). Both the pulp and OSB sales used the Wood 
Chips index which had not had a qualifying quarter for MRCTA since 
1997. National Forest System timber sales in the Lake States area often 
contain a diverse mix of forest products, which attracted strong 
competition leading to relatively high bid rates. Problems began in 
2005, when prices for both pulp and OSB chips started declining 
sharply.
    OSB is a building product with prices that tend to follow lumber 
market prices. Because lumber market prices were declining 
significantly across most of the country, contracts tied to the 
Softwood Lumber index were eligible to receive MRCTA. But in places, 
such as much of the Lake States region, many purchasers marketing OSB 
material were not getting this relief because most of their contracts 
were tied to the wood chips index which had not declined and was not 
triggering market related contract term additions. Concurrently, while 
lake states area pulp prices were declining national wood chip prices 
were stable or increasing, so purchasers marketing pulp material were 
not eligible for market related contract term additions. The principal 
cause of this anomaly was due to the location along the great lakes and 
Canadian border, where competition from cheaper imported wood chips was 
driving prices down. As a result of these factors, purchasers in the 
Lake States area were faced with high bid prices on their existing 
contracts, low product prices, and no MRCTA to provide additional time 
for markets to recover or to mix the higher priced timber with lower 
priced timber for other sources. The MRCTA procedures were not 
functioning as expected here.
    In another example, the sale of biomass material has been 
increasing in recent years with most of that material utilized for 
generating electricity in co-generation facilities. A reliable index 
for tracking this new product has not been found, so most sales of 
biomass material also use the Wood Chips index. Energy prices can 
differ substantially in different parts of the country and don't 
necessarily follow the Wood Chips index. Consequently, in areas where 
energy prices have drastically declined and purchasers are holding high 
price timber sale contracts, they are not currently eligible to receive 
a MRCTA because the Wood Chips index has not triggered.
    The Government benefits if defaulted timber sale contracts, mill 
closures, and bankruptcies can be avoided by granting extensions. 
Having numerous, economically viable, timber sale purchasers increases 
competition for National Forest System timber sales, results in higher 
prices paid for such timber, and allows the Forest Service to provide a 
continuous supply of timber to the public in accordance with the 
Organic Administration Act. In addition, by extending contracts and 
avoiding defaults, closures and bankruptcies, the Government avoids the 
difficult, lengthy, expensive, and sometimes impossible, process of 
collecting default damages.
    Therefore, on November 2, 2006, the Deputy Under Secretary of 
Agriculture for Natural Resources and Environment determined there was 
a Substantial Overriding Public Interest in extending certain National 
Forest System timber sale contracts for up to one year, subject to a 
maximum total contract length of 10 years. Pursuant to the November 2, 
2006, finding, timber sale contracts awarded prior to January 1, 2006, 
were eligible for extension and deferral of periodic payment due dates 
for up to one year. Contracts that were in breach, have been or were 
currently eligible to be extended under MRCTA contract provisions, or 
salvage sale contracts that were sold with the objective of harvesting 
deteriorating timber were not eligible for extension pursuant to the 
November 2, 2006, finding. To receive an extension, purchasers were 
required to make a written request to the appropriate Contracting 
Officer. Purchasers were also required to agree to release the Forest 
Service from all claims and liability if a contract extended pursuant 
to the November 2, 2006, finding was suspended, modified, or terminated 
in the future.

2007 Market Conditions

    Market conditions leading to the November 2, 2006, determination of 
Substantial Overriding Public Interest have continued to decline. 
Between September 2006, and September 2007, the relative Softwood 
Lumber index dropped an additional 9.4 points bringing the total 
decline since September 2004 to 57 points or 36.4 percent. Including 
the third quarter of calendar year 2007, the Softwood Lumber index has 
triggered for MRCTA, an unprecedented nine consecutive calendar 
quarters, which is the longest sustained decline since the Forest 
Service established the MRCTA procedures in December 1990. Between 
September 2006 and September 2007, the relative Hardwood Lumber index 
dropped an additional 7.5 points, bringing the total decline since 
September 2004 to 26.1 points or 19.1 percent. But, although the 
Hardwood Lumber index has steadily declined, the rate of decline has 
not been sufficient to trigger MRCTA for sales awarded since January 1, 
2006. Between September 2006 and September 2007, the Wood Chips index 
continued an upward trend. In recognition of the seriousness of the 
market problems, the State of Minnesota and some counties within 
Minnesota have provided price relief to purchasers of their sales. The 
U.S. Forest Service has no statutory authority at this time to provide 
price relief but can offer additional contract time based on a 
determination of Substantial Overriding Public Interest.

Determination of Substantial Overriding Public Interest

    The Government benefits if defaulted timber sale contracts, mill 
closures, and bankruptcies can be avoided over large geographic areas 
by granting extensions. Having numerous, economically viable, timber 
sale purchasers increases competition for National Forest System timber 
sales, results in higher prices paid for such timber, and allows the 
Forest Service to provide a continuous supply of timber to the public 
in

[[Page 64994]]

accordance with the Organic Administration Act. In addition, by 
extending contracts and avoiding defaults, closures and bankruptcies, 
the Government avoids the difficult, lengthy, expensive, and sometimes 
impossible, process of collecting default damages.
    Therefore, pursuant to 16 U.S.C. 472a, and the authority delegated 
to me at 7 CFR 2.60, I have determined that it is in the Substantial 
Overriding Public Interest to extend for up to one year certain 
National Forest System timber sales that were awarded prior to January 
1, 2007. This finding does not apply to (1) contracts that have been or 
are currently eligible to be extended under MRCTA contract provisions, 
except sales using the Hardwood Lumber index that were awarded after 
December 31, 2005, (2) salvage sale contracts that were sold with the 
objective of harvesting deteriorating timber, (3) contracts the Forest 
Service determines are in urgent need of harvesting due to 
deteriorating timber conditions that have developed following award of 
the contract, or (4) contracts that are in breach. Total contract 
length shall not exceed 10 years as a result of this extension. For 
those contracts extended pursuant to this finding, periodic payments 
due after the date of this determination will also be deferred for up 
to one year. To receive the extension and periodic payment deferral, 
purchasers must make written request and agree to release the Forest 
Service from all claims and liability if a contract extended pursuant 
to this finding is suspended, modified, or terminated in the future.

    Dated: November 2, 2007.
Abigail R. Kimbell,
Chief.
 [FR Doc. E7-22534 Filed 11-16-07; 8:45 am]
BILLING CODE 3410-11-P