Sale and Disposal of National Forest System Timber; Downpayment and Periodic Payments, 40736-40744 [E9-19372]

Agencies

• DEPARTMENT OF AGRICULTURE
• Forest Service

[Federal Register Volume 74, Number 155 (Thursday, August 13, 2009)]
[Rules and Regulations]
[Pages 40736-40744]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-19372]


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DEPARTMENT OF AGRICULTURE

Forest Service

36 CFR Part 223

RIN 0596-AC80


Sale and Disposal of National Forest System Timber; Downpayment 
and Periodic Payments

AGENCY: Forest Service, USDA.

ACTION: Final rule.

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SUMMARY: This final rule revises the Forest Service's downpayment and 
periodic payment regulations to reflect changes in contracting 
procedures and authorities since these regulations were adopted in 
1991. The changes remove obsolete references and procedures; make 
downpayments and periodic payments optional for stewardship contracts; 
allow downpayment and periodic payment amounts to be recalculated when 
contracts receive rate redeterminations; revise procedures for 
releasing downpayments; and allow downpayments to be temporarily 
reduced for certain delays, interruptions, or extensions. This final 
rule protects the Government's financial security, reduces speculative 
bidding, and encourages purchasers to harvest timber in a timely 
manner. In addition, the rule provides financial relief to timber 
purchasers when forest product prices drastically decline or purchasers 
receive additional contract time and are not expected to operate.

DATES: This final rule is effective September 14, 2009.

FOR FURTHER INFORMATION CONTACT: Lathrop Smith, Forest Management 
staff, at (202) 205-0858, or Richard Fitzgerald, Forest Management 
staff, at (202) 205-1753. 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:

Background

    The downpayment regulation (36 CFR 223.49) and periodic payments 
regulation (36 CFR 223.50) were adopted on July 31, 1991, (56 FR 36099) 
to protect the Government's financial security, reduce speculative 
bidding, encourage purchasers to harvest timber in a timely manner and 
to comply with section 2d of the Federal Timber Contract Payment 
Modification Act (Pub. L. 98-478, 98 Stat 2213; 16 U.S.C. 618) (Buy-out 
Act).\1\
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    \1\ Section 2(d) provides that ``[e]ffective January 1, 1985, in 
any contract for the sale of timber from the National Forests, the 
Secretary of Agriculture shall require a cash down-payment at the 
time the contract is executed and periodic payments to be made over 
the remaining period of the contract.''
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    The downpayment regulation requires purchasers to make a cash 
deposit in the timber sale account at the time of sale award equal to 
10 percent of the sale's total advertised value plus 20 percent of the 
bid premium. This cash is held by the Forest Service and cannot be used 
by the purchaser until (i) on scaled sales, stumpage representing 25 
percent of the total bid value has been charged and paid for, or (ii) 
on tree measurement sales, stumpage representing 25 percent of the 
total bid value is shown on the timber sale statement of account to 
have been cut, removed, and paid for. (36 CFR 223.49(d).)
    This final rule revises 36 CFR 223.49 by: (1) Removing obsolete 
definitions, references and procedures; (2) making downpayments 
optional for stewardship contracts; (3) adding procedures to 
recalculate downpayments when contracts receive rate redeterminations; 
(4) revising procedures for releasing downpayments; and (5) adding 
procedures to temporarily reduce downpayments when the Forest Service 
authorizes or orders certain contract delays, interruptions, or 
extensions.
    Section 223.49(b) is revised to make downpayments optional for 
stewardship contracts. Stewardship contracts are awarded on a best 
value basis, which virtually eliminates the potential for speculative 
bidding because factors other than price determine best value. Further, 
section 323 of the Department of the Interior and Related Agencies 
Appropriations Act of 2003 (as contained in division F of Public Law 
108-7; 16 U.S.C. 2104 Note) authorizes the Forest Service to apply the 
value of timber or other forest products removed under a stewardship 
project as an offset against the cost of service work. Doing so 
provides financial security to the Government and incentivizes 
contractors to harvest timber and perform service work in a timely 
manner. Stewardship contracts require contractors to make cash deposits 
equal in value to timber they plan to cut before performing service 
work. To get these cash deposits back, contractors must perform the 
service work. Alternatively, if a contractor performs the service work 
first, the Government uses the value of timber the contractor harvests 
to offset the service work's cost. For these reasons, most stewardship 
contracts do not need a downpayment.
    However, there can be exceptions. For example, if the value of the 
timber greatly exceeds the cost of services under a contract, a 
downpayment may be needed to provide financial security. Therefore, 
this final rule allows contracting officers to require downpayments on 
stewardship contracts when needed to ensure the Government's financial 
security.
    This rule also revises Sec.  223.49(c) to allow downpayments to be 
recalculated when contracts receive rate redeterminations. The initial 
downpayment amount deemed necessary to protect the Government's 
financial security and encourage purchasers to timely harvest timber in 
is based on a percentage of a contract's value at time of award. 
However, timber sale contracts contain procedures to redetermine 
stumpage rates for (1)

[[Page 40737]]

environmental modification; (2) catastrophic damage; (3) Forest Service 
ordered suspension or delay; and (4) emergency rate redeterminations. 
Redetermined rates can change a contract's total value. While many 
contracts already provide that required deposits can be redetermined 
when contract rates are redetermined, the practice has not been to 
adjust downpayments. This final rule clarifies that downpayments should 
be recaclulated when rates are redetermined. Allowing downpayment 
redeterminations maintains the government's financial security because 
the same percentage of downpayment to total contract value deemed 
necessary under Sec.  223.49 is retained under this final rule.
    In addition, this rule revises Sec.  223.49(d) to allow 
downpayments to be released when they equal or exceed the value of a 
sale's remaining timber. Section 223.49(d)(1) was added for scaled 
sales and Sec.  223.49(d)(2) was added for tree measurement sales. This 
change was made to prevent situations where prices on sales subject to 
stumpage rate adjustments decline so much that the downpayment exceeds 
the value of remaining timber without triggering the downpayment's 
release. The Forest Service never intended to hold downpayments greater 
than the value of remaining timber.
    Finally, this rule adds Sec.  223.49(k), which allows downpayments 
to be temporarily reduced when the Forest Service authorizes or orders 
certain contract delays, interruptions, or extensions. The Forest 
Service has determined that it is not necessary to require full cash 
downpayments when the scenarios identified in Sec.  223.49(k) occur.
    Periodic payments are ``amounts specified in a contract that a 
purchaser must pay by the periodic payment determination date(s) unless 
reduced by amounts paid as stumpage for volume removed.'' (36 CFR 
223.50(a)(4).) The initial periodic payment is equal to 35 percent of 
the total contract value or 50 percent of the bid premium, whichever is 
greater. Where an additional periodic payment is required by the 
contract, 75 percent of the total contract value at time of award must 
be paid by the second periodic payment determination date. The periodic 
payment(s) amount is reduced when payment would result in the 
purchaser's credit balance for timber charges exceeding the current 
contract value (36 CFR 223.50(c)). Many purchasers never receive a 
periodic payment bill because their stumpage payments for volume 
removed stay ahead of periodic payment amounts. For purchasers that are 
billed, or are about to be billed, the periodic payment is an economic 
incentive to resume or accelerate harvesting.
    This final rule revises 36 CFR 223.50 by: (1) Amending paragraph 
(b) to clarify that periodic payments are not required for stewardship 
contracts and (2) amending paragraph (f) to add procedures to 
recalculate periodic payment(s) amounts after contractual rate 
redeterminations and to remove obsolete procedures. These changes were 
made for the same reasons as the corresponding changes made to section 
223.49.

Amendments to the Downpayment Requirements

    Section 223.49 is amended as follows:
    In paragraph (a)(2), the definition of ineffective purchaser credit 
is removed and paragraphs (3)-(5) are renumbered (2)-(4). Section 329 
of the Department of the Interior and Related Agencies Appropriations 
Act, 1999 (as contained in section 101(e) of division A of Public Law 
105-277; 16 U.S.C. 535a) directed, among other things, that the 
``purchaser credit'' procedure be eliminated no later than April 1, 
1999. The use of purchaser credit was discontinued in timber sales 
advertised after March 31, 1999, by making changes in timber sale 
contract provisions (File code 2450 letter to Regional Foresters dated 
February 19, 1999). As of March 30, 2008, only $6,000 worth of 
purchaser credit was being used to cover downpayment requirements. 
Because no additional purchaser credit is being earned, references to 
ineffective purchaser credit in the downpayment regulation are obsolete 
and unnecessary.
    In paragraph (b), the option of using effective purchaser credit is 
eliminated for the same reasons cited above. A sentence has also been 
added making downpayments optional for stewardship contracts unless 
needed to ensure the Government's financial security.
    In paragraph (c), obsolete references to converting units of 
measure other than board feet to board feet have been removed. The 
downpayment amount is calculated as a percentage of sale value without 
regard to unit of measure. Paragraph (c) is further amended to include 
procedures to recalculate downpayments when contract rates are 
redetermined.
    Paragraph (d) is amended to allow downpayments to be released when 
the estimated value of remaining timber is less than the downpayment. 
Paragraph (d)(1) is added for scaled sales and paragraph (d)(2) is 
added for tree measurement sales.
    Paragraph (g) is amended to allow contracts subject to paragraph 
(e)'s higher downpayment requirement to have their downpayments 
recalculated when stumpage rates are redetermined. This change was made 
for the same reasons as the changes to paragraph (c). In addition, 
paragraphs (g)(1) and (2) are removed to eliminate obsolete references 
to ineffective purchaser credit and converting units of measure other 
than board feet to board feet. The removal of those paragraphs was made 
for the same reasons as the deletions made in paragraph (a)(2).
    Paragraph (j) is amended to specify that the Chief of the Forest 
Service may preclude temporary downpayment reductions under paragraph 
(k)(2) and (3) to deter speculation.
    Paragraph (k) is added to allow temporary downpayment reductions 
when a contractor is not cutting or removing timber because its 
scheduled operations were delayed, interrupted, or extended for 30 
consecutive days or more for any of the following reasons: (1) Forest 
Service requested or ordered delay or interruption of operations for 
reasons other than breach; (2) a contract term addition pursuant to 
contractor shifting operations to a sale designated by the Forest 
Service as in urgent need of harvesting; or (3) a contract term 
extension authorized upon a determination of substantial overriding 
public interest, including a market-related contract term addition, or 
urgent removal contract term extension under 36 CFR 223.53.
    Paragraph (l) is added to allow downpayments to be reduced to the 
greater of $1,000 or two percent of the amount stated in the contract 
during qualifying periods of delay, interruption, or extension under 
paragraph (k), unless the purchaser is cutting or removing timber. 
Purchasers cannot cut or remove a contract's timber until the 
downpayment stated in the contract is restored.

Amendments to the Periodic Payment Requirements

    Section 223.50 is amended as follows:
    Paragraph (b)(3) is added to clarify that not all stewardship 
contracts require periodic payments. Paragraph (f) is amended to remove 
obsolete contract modification procedures and add procedures to 
recalculate periodic payment(s) amounts following a contract rate 
redetermination authorized. The obsolete procedures being removed 
required pre-1991 contract purchasers to make a written request by 1991 
to receive market-related contract term additions.

[[Page 40738]]

Agency Response to Major Public Comments

    On October 29, 2008, the Forest Service published a notice of 
proposed rule and request for comment on revisions to 36 CFR 223.49 and 
223.50 in the Federal Register (73 FR 64288). During the comment 
period, which ended December 29, 2008, the Forest Service received 4 
comments responsive to the rule's merits and 2 non-responsive comments. 
The four responsive comments were from the Federal Timber Purchasers 
Committee, Westek Forest, Ltd., New Hampshire Timber Owners 
Association, and the Wilderness Society. Following are the Forest 
Service's responses to those comments.
    Comment 1: We believe the proposed changes to the downpayment 
regulation are well designed and will help timber purchasers with cash 
management in these difficult markets.
    Response 1: This is a statement for which no response is necessary.
    Comment 2: We urge you to act expeditiously to give timber 
purchasers as much relief as possible in order to keep them viable and 
preserve options for the management of the National Forests.
    Response 2: This is a statement for which no response is necessary.
    Comment 3: I agree with the proposed rule change. This change will 
give contractors better flexibility to complete stewardship contracts.
    Response 3: This is a statement for which no response is necessary.
    Comment 4: Nationwide, the forest products industry is undergoing 
extreme stress due to reduced demand for forest products, lower prices, 
and increased costs of production. It does the American people no good 
to force wood producers into bankruptcy or to deal with timber sale 
contracts that cannot be operated profitably under current market 
conditions. If these sale contracts are cancelled and the timber 
reoffered, it would not sell or would only bring greatly reduced 
prices. This process would be expensive and yield no positive results. 
We have reviewed the proposed rules and agree that they would have an 
overall positive effect on the Forest Service timber sale program and 
are in the best interest of the people of the United States.
    Response 4: These are statements for which no response is 
necessary.
    The remaining comments were from a single respondent prefaced by 
the statements that (1) significant information necessary to fully 
understand the proposed rule and prepare informed comments is missing 
and (2) the Federal Register notice proposes significant changes in the 
amount and requirements for downpayments and periodic payments yet the 
basic facts and conditions that have caused the agency to pursue these 
rule changes are undisclosed. Unless otherwise noted, no changes were 
made in response to the following comments.
    Comment 5: The Forest Service states a desire to lower the risk of 
timber contract default. This would not be proposed unless default was 
a significant problem. What is the rate and percentage of default in 
the last five or ten years and over the past 12 months? What is the 
projected rate of default based on current market conditions?
    Response 5: The Forest Service does not track defaults so it can 
not calculate a percentage of defaults over a five or ten year period. 
Although snapshots of the timber sale accounting system can be taken to 
determine the number of contracts coded as defaulted on specific dates, 
the system can not tally the number of defaults over a period of time.
    On March 31, 2009, the Forest Service had 1,972 open contracts on 
forms FS-2400-6 and FS-2400-6T. Twenty-three of those contracts or 1.2 
percent were coded in the timber sale accounting system as defaulted. 
On March 31, 2008, there were 1,961 open contracts on those same forms; 
24 or 1.2 percent were coded as defaulted. Sales on other contract 
forms were not included in these calculations because the Forest 
Service is not aware of any other types of open contracts subject to 
this final rule.
    A projected default rate based on current market conditions would 
only be an unsubstantiated estimate subject to dispute. However, it is 
reasonable to predict that when purchasers are forced to cease 
operating due to adverse market conditions, uncompleted contracts are 
at an increased risk of default. An objective of the final rule is to 
lower default risk by adjusting downpayments to reflect drastic 
declines in contract values and temporarily reducing downpayments when 
appropriate. These changes are expected to help purchaser cash flow, 
which may help them continue operating and/or purchasing contracts.
    Comment 6: The Forest Service recently described over 1,000 agency 
timber sales as eligible for market-related contract term additions 
(MRCTA). All would then be eligible for downpayment and periodic 
payment redeterminations.
    Response 6: The MRCTA procedures do not include a mechanism for 
redetermining contract rates Therefore, a sale's eligibility for MRCTA 
does not mean it will receive a rate or periodic payment 
redetermination. On March 31, 2009, the Forest Service had 
approximately 615 sales eligible for downpayment and periodic payment 
redeterminations under this rule. Of those 615 sales, only 199 still 
had downpayments on deposit, for a total value of $6.8 million. Without 
looking at the statement of account for each one of those contracts, it 
is not possible to assess each contract's periodic payment status.
    Comment 7: How many sales would be eligible for redetermination 
under the three clauses (environmental modification, catastrophic 
damage and emergency rate determination)? What percentage of sales does 
this represent? How often do these cases occur?
    Response 7: The commenter is asking the Forest Service to quantify 
where and when unpredictable events such as natural disasters may occur 
in the future. Any attempt to do so would be purely speculative. 
However, we do know that on March 31, 2009, there were 1,972 open sales 
and 615 or 31 percent were potentially eligible for emergency rate 
redeterminations. Of those 615 sales, only 199 still had downpayments 
on deposit in the amount of $6.8 million.
    Comment 8: The Forest Service retains authority to set larger 
downpayment amounts and proposes to limit redeterminations in 
geographic areas where speculation has or could occur. Where has the 
agency set larger downpayments in the past? How does the agency 
recognize when speculation is occurring?
    Response 8: The Forest Service uses appraisal performance reports, 
Forest Service Manual (FSM) 2422, and Bid Monitoring Reports, FSM 
2432.52, to identify speculative bidding. The agency has not increased 
downpayments pursuant to the authority in 36 CFR 223.49(c).
    Comment 9: The agency states: ``Further, the Forest Service has 
determined that the benefits of temporarily reducing downpayments under 
223.49(k) outweigh the potential increased risks to the government's 
financial security.'' Federal Register, Volume 73, No. 210, page 
64,290. Please provide a copy of the analysis that led to this 
determination.
    Response 9: The Forest Service has closely monitored the drastic 
decline in forest product markets since late 2004. As the market 
decline deepened, reports in the national press, trade bulletins, (such 
as Random Lengths, TDC Stumpage Price Report, WWPA

[[Page 40739]]

Barometer and others), as well as discussions with individual 
purchasers and representatives from industry associations, provided 
information about falling prices and a growing number of mill closures. 
Despite the current decline's severity, the default rate on open sales 
has been less than 1.25 percent over the last two years. The Forest 
Service believes this relatively low default rate, in the face of 
extreme market turmoil, is the result of several successful proactive 
measures it has taken to avoid the widespread defaults seen in the 
1980s. These measures include (1) market-related contract term 
additions; (2) additional contract time authorized under the November 
2006, November 2007, and September 2008 findings of substantial 
overriding public interest; (3) emergency rate redeterminations; and 
(5) contract cancellations, rate redeterminations, and extensions 
authorized by the 2008 Farm Bill. Despite the apparent success of these 
measures, forest product makets have continued to worsen, leading the 
Forest Service to conclude that this rule is needed to further reduce 
the risk of defaults. After careful consideration, the Forest Service 
determined that the benefits of further reducing potential defaults and 
their associated costs outweigh any potential increased risks to the 
government's financial security created by this rule.
    This determination was made based on extensive oral discussions 
among the Washington Office's Forest Management staff. The Forest 
Management staff considered the following factors: (a) Deteriorating 
market conditions; (b) procedures to temporarily reduce downpayments 
when the Forest Service orders a delay or interruption for 
environmental reasons are already part of all post-April 2004 
contracts; (c) existing administrative authority to change the rule to 
achieve its intended effect; (d) concern that these changes are needed 
to prevent the loss of industry infrastructure; (e) concern that costs 
to the government of treating vegetation under service contracts 
exceeds the costs of doing so under timber sale contracts; (f) general 
knowledge that most defaults occur after the downpayment has been 
released; (g) general knowledge that cash flow is critical to sustained 
operations for timber purchasers, and tying up money in downpayments on 
sales the Forest Service is not expecting purchasers to operate until 
market conditions improve obligates cash that may be needed elsewhere; 
(h) general knowledge that purchasers' fixed costs, including payments 
on equipment, continue even if a purchaser isn't operating; (i) 
industry requests; and (j) in the event a contract defaults while the 
downpayment has been temporarily reduced, the government can still 
apply the performance bond to damages.
    Since the analysis of market conditions that led to the proposed 
rule, the Forest Service has learned that housing starts in April 2009 
hit a record low down almost 80 percent from the peak in January 2006; 
greatly exceeding the 46 percent decline during the 1981 downturn and 
the 60 percent decline in the 1986-1991 period.\2\ U.S. Census Bureau 
data shows privately-owned housing starts in April were at a seasonally 
adjusted annual rate of 458,000 which is 12.8 percent below the revised 
March estimate of 525,000 and is 54.2 percent below the revised April 
2008 rate of 1,001,000.\3\ Adding to this dismal picture, a Western 
Wood Products Association (WWPA) March 24, 2009, news release predicted 
that the poor economy and a weak housing market are expected to reduce 
demand for lumber in the U.S to the lowest level in modern history.\4\ 
The article notes that since reaching an all-time high of 64.3 billion 
board feet in 2005, U.S. demand for lumber has dropped by more than 55 
percent representing the steepest decline in the history of the 
industry. While home construction which accounts for about 45 percent 
of the lumber used each year is predicted to increase slightly in 2010 
to a little over a half million, WWPA does not expect housing starts to 
exceed 1 million units until 2012.
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    \2\ USA Today, May 20, 2009, Record-low housing starts in April 
cast pall over market, by Julie Schmidt.
    \3\ NEW RESIDENTIAL CONSTRUCTION IN APRIL 2009, U.S. Census 
Bureau News, Joint Release, U.S. Department of Housing and Urban 
Development, May 19, 2009; https://www.census.gov/const/newresconst.
    \4\ Western Wood Products Association, news release, Robert 
Bernhardt, Jr. Information Services Director, March 24, 2009.
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    Another measure of the drastic decline in lumber prices is the 
Bureau of Labor Statistics index for softwood lumber. The Forest 
Service monitors this index to determine when drastic declines in 
forest products prices sufficient to trigger granting Market-Related 
Contract Term Additions pursuant to 36 CFR 223.52 occur. The softwood 
lumber index began declining in the 3rd calendar quarter of 2004 and 
beginning with the 3rd quarter of 2005 began triggering Market-Related 
Contract Term Additions. Through the first quarter of calendar year 
2009 the softwood index, after adjustments to a constant dollar basis, 
has lost about 49 percent of its value and has triggered Market-Related 
Contract Term Additions an unprecedented 15 consecutive quarters. The 
previous greatest decline of the softwood lumber index was in the early 
1980s when it lost about 36 percent of its value and would have 
triggered 12 consecutive quarters of Market-Related Contract Term 
Additions if the procedure had been in place at that time. The softwood 
lumber index hit its lowest point yet in March 2009, and showed a 
slight increase in April 2009, but it is too early to tell if the April 
increase marks the beginning of a recovery.
    The data and predictions indicate that while the decline in demand 
for lumber may be at or near bottoming out, the recovery will be long 
and gradual. Meanwhile the agency has been routinely receiving reports 
of sawmills curtaining operations or permanently closing. The Forest 
Service accomplishes many of its vegetation management objectives 
through timber sale contracts, which enables the Forest Service to 
achieve its objectives while generating revenues. A large pool of 
timber sale purchasers allows the Forest Service to accomplish these 
objectives in a more cost-effective manner by increasing competition 
for National Forest System timber sales, which can result in higher 
contract prices. Absent a viable industry infrastructure capable of 
purchasing and processing Forest Service timber, the Forest Service 
would have to pay service contractors to perform certain vegetative 
management objectives currently achieved by selling timber. This would 
substantially reduce the Agency's ability to accomplish important 
management objectives such as reducing hazardous fuels in wildland 
urban interface areas where much of the work must be perfomed by 
mechanical means and can often be done with timber sales.
    Temporarily reducing downpayments is unlikely to prevent or reduce 
defaults by itself. However, in conjunction with other relief measures, 
it is expected to provide short-term relief that will help reduce the 
number of defaults and loss of industry infrastructure that might occur 
in its absence. Specifically it will free up cash purchasers need for a 
variety of reasons including (1) harvesting sales that are operable in 
this economic climate, (2) storing increasing inventories of lumber 
until demand picks up, (3) making payments on equipment, and (4) 
maintaining bonds on existing sales.
    On March 31, 2009, the Forest Service had 1,972 open contracts on 
forms FS-2400-6 and FS-2400-6T. Twenty-three of those contracts or 1.2 
percent were coded in the timber sale accounting

[[Page 40740]]

system as defaulted. Only five of the default sales still had 
downpayments on deposit, which totaled $101,300; less than 1 percent of 
the $26.1 million total value of downpayments on deposit. One year 
earlier, on March 31, 2008, there were 1,961 open contracts of which 24 
or 1.2 percent were coded as defaulted; 5 of the defaults still had 
downpayments on deposit in the amount of $100,600.
    Considering the above-referenced factors, the Forest Service 
determined that the benefits of temporarily reducing downpayments under 
223.49(k) outweigh the potential increased risks to the government's 
financial security.
    Comment 10: This and previous Federal Register notices on market-
related contract term additions and substantial overriding public 
interest (SOPI) determinations describe the government's reasons for 
wanting to maintain numerous economically viable timber sale 
purchasers. These include having a pool of contractors in situations 
where the Forest Service determines that timber is in need of urgent 
removal. But the definition of ``urgent removal'' at 36 CFR 223.53 
applies only to private and other non-National Forest System (NFS) 
lands. The context for the term here and in the market-related contract 
term addition/substantial overriding public interest (SOPI) Federal 
Register notices imply that the term refers to NFS lands. Please 
provide the regulatory cite that allows the Forest Service to shift 
contract operations to a NFS sale in urgent need of harvesting as 
described on page 64,290 of the Federal Register notice.
    Response 10: The authority is in 36 CFR 223.112, Modification of 
contracts. Implementation procedures are documented in Forest Service 
Handbook 2409.18, section 55.21. In addition, please see the response 
to comment 11.
    Comment 11: It is unclear how exactly the agency defines ``urgent'' 
projects in each context, the conditions under which it is applied or 
how the Forest Service maintains consistency in the application of this 
term throughout the national forest system (NFS). This lack of clarity 
would then affect who is potentially eligible for downpayment and 
periodic payment redeterminations. The term and its application here 
should be defined.
    Response 11: The determination of whether timber in a specific sale 
or project is in urgent need of removal is a decision the Forest 
Service makes on a case-by-case basis after considering the relative 
conditions on the ground. Indicators of a sale in urgent need of 
removal include, but are not limited to situations where:
    1. Dead or dying timber is subject to rapid deterioration;
    2. Failure to harvest the timber promptly could threaten public 
safety. For example, removing hazardous trees along public roads.
    3. Failure to harvest the timber promptly could create an insect 
disease epidemic on National Forest system lands or other lands or 
resources.
    The Forest Service is currenty drafting an amendment to chapter 50 
of the sale preparation handbook, FSH 2409.18, that will provide land 
managers with more specific guidance to determine when a sale contains 
timber in urgent need of removal.
    Comment 12: The proposed rule language at 36 CFR 223.49(c)(4) and 
223.49(g)(4) lists ``an emergency rate redetermination'' as a reason 
for contract downpayment redetermination. But we can find no definition 
of the term ``emergency rate redetermination.''
    Response 12: Emergency rate redetermination is a procedure 
addressed in standard timber sale contract provisions (B/BT3.34) and 
standard integrated resource timber contract clauses (D/DT.3.4) for 
adjusting rates when the Bureau of Labor Statistics Producer Price 
Index stated in the contract declines by 25% or more after the contract 
award date.
    Comment 13: If the Forest Service is referring to ``urgent 
removal'' (as defined at 36 CFR 223.53) in its use of the emergency 
rate redetermination clause, then it should clearly state so and 
disclose to the public that downpayment and periodic payment reductions 
would be granted to allow timber companies to pursue harvest on private 
and non-National Forest System (NFS) lands.
    Response 13: Prior to authorizing urgent removal contract 
extensions pursuant to 36 CFR 223.53, a Regional Forester must make a 
determination that there is a substantial overriding public interest in 
extending National Forest System timber sale contracts for undamaged 
(green) timber not requiring expeditious removal in order to facilitate 
the rapid harvest of catastrophically damaged timber requiring 
expeditious removal on private and other non-National Forest System 
lands. Similarly Forest Service policy is to grant contract term 
adjustments on certain timber sale contracts for undamaged (green) 
timber not requiring expeditious removal in order to facilitate the 
rapid harvest of other National Forest System timber in urgent need of 
harvesting (FSH 2409.18, Sec.  55.21).
    Contract provision B/BT3.34 does not permit emergency rate 
redeterminations for contracts receiving contract term extensions 
pursuant to 36 CFR 223.53 The contract permits, however, emergency rate 
redeterminations to facilitate the rapid harvest of National Forest 
System timber and the urgent removal harvesting. This is done pursuant 
to provision B/BT8.21. However, the Forest Service may modify timber 
sale contracts in accordance with 36 CFR 223.112. In response to the 
severity of the current market conditions, and in the interest of 
preventing further erosion of the timber industry infrastructure, the 
Forest Service is currently modifying rates on contracts extended 
pursuant to 36 CFR 223.53 to allow emergency rate redetermination 
procedures when requested by purchasers. Contracting Officers should 
not modify contracts that are in breach and shall seek Washington 
Office advice prior to modifying contracts that are determined to be at 
high risk for default. For much the same reason this rule allows 
temporary reductions in downpayments when a timber purchaser receives 
additional time to harvest timber in urgent need of removal on non-NFS 
lands pursuant to 36 CFR 223.53.
    This rule does not modify emergency rate redetermination 
procedures.
    Comment 14: We believe the Forest Service should make concurrent 
changes in its National Environmental Policy Act (NEPA) procedures in 
order to reduce the need for downpayment and periodic payment 
redeterminations and ensure that important resource management goals 
are being met.
    Response 14: Changes to NEPA procedures recommended by the 
commenter are not responsive to the merits of the rule.
    Comment 15: Stating that the proposed rule only changes the amount 
of the downpayment is the wrong lens through which to view 
environmental impacts. While downpayments may have been required for 
many years, the proposed reductions to just 2% of the downpayment or 
$1000.00 whichever is greater while still holding the contract is 
significant and unprecedented. This would expose the Federal government 
to significant financial risk. The agency states their belief that this 
will not result in an increase in speculative bidding and that the 
benefits will outweigh the potential increased risks to the 
government's financial security. No evidence for these assertions is 
presented.
    Response 15: This comment pertains to the rule's procedures to 
temporarily reduce downpayments when contracts

[[Page 40741]]

are delayed, interrupted or extended for reasons listed in Sec.  
223.49(k). Contrary to the commenter's assertion that this is 
significant and unprecedented, timber sale contract forms FS-2400-6 and 
FS-2400-6T dated April 2004 and later already allow temporary 
downpayment reductions when the Forest Service orders certain delays or 
interruptions. This rule expands this existing process to include 
situations where the downpayment's economic inducement to operate is 
not warranted.
    The agency believes these temporary reductions will not increase 
speculative bidding because nothing in the final rule removes the 
downpayment requirement at time of award. Once deposited, the 
downpayment can not be temporarily reduced unless one of the three 
conditions specified in the rule occurs. Therefore, speculative bidders 
must speculate that the market will rise above overbids and that at 
least one of the conditions allowing temporary downpayment reductions 
will occur. Even if that happened, the downpayment still has to be 
reestablised before the sale can be operated. Considering these 
safeguards, the Forest Service concluded the rule was unlikely to 
increase speculative bidding.
    Nevertheless, the Forest Service will continue to monitor bidding 
patterns and the agency will deny temporary downpayment reductions 
where speculative bidding is occurring. In response to this comment, 
the final rule has been revised to clarify that requests for temporary 
downpayment reductions may be denied in market areas where the Chief 
determines speculative bidding is occurring.
    Comment 16: For the reasons cited in our response, we believe the 
Forest Service has failed to follow proper procedures in proposing this 
rule without analysis under the National Environmental Policy Act 
(NEPA). We believe that changes in the Forest Service Handbook (FSH), 
Forest Service Manual (FSM) and agency NEPA analysis of economic 
effects as we detailed would fulfill agency requirements for this 
proposed rule under NEPA. We urge the agency to consider them in 
completing the required regulatory certification of environmental 
impact for the proposed rule.
    Response 16: The changes in the FSH, FSM and agency NEPA analysis 
of economic effects provided by the commenter are not responsive to the 
merits of the rule. Furthermore, this final rule is categorically 
excluded under 36 CFR 220.6.
    Comment 17: Because commercial sales are now most often regarded as 
a tool to meet management objectives and not the objective or purpose 
and need itself, the effect of possible contract extensions (and 
subsequent downpayment and periodic payment redeterminations) must be 
analyzed under NEPA in determining the ability of commercial sales (for 
each alternative that uses this tool) to meet the purpose and need. We 
do not think this would entail undue burden on the agency given current 
and suggested procedures.
    Response 17: Please see the response to comment 16.
    Comment 18: Commenter presented a series of comments questioning 
agency NEPA procedures for forest management projects and proposing 
changes to those procedures.
    Response 18: These comments are beyond the final rule's scope and 
are nonresponsive to its merits.
    Comment 19: National Forest System (NFS) lands supply a very small 
percentage of the U.S. timber supply (< 4% according to recent 
estimates). A seemingly small percentage of Forest Service timber sale 
contracts (eligible for downpayment and/or periodic payment 
redetermination) multiplied by a small percentage of the timber supply 
means a very small percentage of the U.S. timber supply would be 
affected by this proposed rule. As described above, the Forest Service 
should disclose the total number of timber sale contracts eligible for 
downpayment and periodic payment redeterminations in order to assess 
the full impact of the proposed rule and its financial (and other) 
effects. The notion that failure to enact this change will affect the 
U.S. timber industry is not credible--the amount or value of timber 
involved simply is not large enough to be important.
    Response 19: On March 31, 2009, the Forest Service had 1,972 sales 
on contract forms FS-2400-6 and FS-2400-6T. The remaining value of 
those sales was $249.1 million. Of those sales, 615 or 31 percent were 
potentially eligible for emergency rate redeterminations. Only 199 of 
those 615 still had downpayments on deposit, in the amount of $6.8 
million. Although the data base could not be queried to show how many 
sales eligible for emergency rate redeterminations are also eligible 
for periodic payment redeterminations, it would be less than 615.
    The commenter is correct that the number of Forest Service 
contracts eligible for downpayment and periodic payment 
redeterminations is small and failure to enact the rule is unlikely to 
significantly affect the U.S. timber industry. However, the rule's 
effect may be significant for individual purchasers on the brink of 
closure; with unemployment rates continuing to increase at alarming 
rates, preventing or reducing job losses is a national issue.
    One respondent commenting on this rule wrote that the forest 
products industry sector of New Hampshire's economy is vibrant and is 
the third largest sector of manufacturing in the Granite State, 
employing over 9,500 people directly with an annual payroll over $320 
million. The respondent also stated that high quality timber from the 
White Mountain National Forest provides an important raw material 
source.
    Further, a June 2008 report by the University of Minnesota-Deluth 
Labovitz School's Bureau of Business and Economic Research addressed 
the economic impact of declines in forestry-related industries in 
Minnesota, Wisconsin and Michigan. (https://lsbe.d.umn.edu/departments/bber/bber_projects.php). The report documented that, in 2006, forestry 
related industries in the study area employed over 58,000 workers and 
estimated that for every worker laid off another 2.2 jobs were lost in 
the economy. The collapsing timber industry in this three State region 
provided the impetus in the 2008 Farm Bill, Section 8401 of the Food, 
Conservation, and Energy Act of 2008, Public Law 110-246,122 Stat. 
1651, granting additional contract time and price relief to qualifying 
contracts. While the National Forest System's contribution to the 
national timber supply may not be significant, it is an important 
component and in some areas it is the primary source.
    Comment 20: The terms of the proposed rule would allow companies to 
bid on and hold National Forest System timber sales for future harvest 
while receiving most of their downpayment back for a number of loosely 
defined reasons.
    Response 20: As noted previously, this final rule requires 
purchasers to make downpayments at time of award and only allows 
temporary reductions when the conditions specified in section 223.49(k) 
are met. Once those conditions cease to exist, purchasers must restore 
their downpayments.
    Comment 21: The proposed rule change has been justified in part on 
the basis of community stability and economic health. This is dubious 
at best. It is questionable whether this rule will make a difference 
even in local or regional markets. It has been clear for years that 
supplying timber to local mills is an ineffective (at best) strategy

[[Page 40742]]

for supporting sustainable local economic development. (Rasker, R., 
Gorte, J. F., and Alkire, C. 1996. Logging National Forests to Create 
Jobs: An Unworkable Covenant, Washington, DC: The Wilderness Society.) 
The Forest Service should analyze the socio-economic costs associated 
with an historic emphasis on resource extraction, which has resulted in 
repetitious cycles of socio-economic distress for rural communities. 
The extractive industries, including the timber industry, represent an 
ever smaller portion of the total jobs and income in rural counties. 
The relative importance of these industries compared to expanding 
industries in the professional and service sectors and those which 
depend on non-labor income must be acknowledged.
    Response 21: The Forest Service agrees that communities with a 
broad economic base tend to be more stable than those dependent on a 
single business. But a socio-economic analysis isn't needed to 
demonstrate that the loss of jobs has adverse economic effects, 
especially in small rural communities. With rising unemployment rates, 
any loss of jobs, regardless of business sector or community size, has 
a negative effect on communities where lost jobs are located. Arguing 
that the Forest Service program is insignificant when looking at the 
industry or the country as a whole and downplaying the importance of 
jobs in extractive industries ignores the significance of those jobs to 
affected individuals and communities. To the extent that this rule 
reduces defaults, it is also expected to help reduce job losses.
    Comment 22: What is not fully discussed or disclosed is the extent 
of possible financial risk and exposure accruing to the Federal 
government, and to taxpayers, from these proposed changes, especially 
during extensive market downturn as is the case today.
    Response 22: Any estimate or prediction of future defaults or 
specific damage amounts associated with them would be highly 
speculative and subject to challenge. The October 29, 2008, Federal 
Register notice (73 FR 64288) discussed the financial risks of the 
proposed changes in relative terms. In addition, data pulled from the 
timber sale accounting system on March 31, 2009, showed 1,972 open 
contracts, of which 23 were coded as defaulted. The defaulted contracts 
had a remaining value of $18.3 million and performance bonds totaling 
about $2.5 million. Only five of the defaults still had downpayments on 
deposit when they defaulted, in the amount of $101,300. By comparison, 
on March 31, 2008, there were 1,961 open contracts of which 24 or 1.2 
percent were coded as defaulted. The 24 defaulted sales had performance 
bonds totaling about $4.4 million; only 5 still had downpayments on 
deposit in the amount of $100,600. Had this final rule been in effect 
when those contracts defaulted, the potential loss to the government of 
reduced downpayments could have equaled the reduced downpayment 
amounts. However, that estimate is a worst-case scenario based on the 
assumption that every defaulting contractor had (1) a temporarily 
reduced downpayment, (2) insufficient bonding to cover default damages, 
and (3) an inability to pay applicable damages, including those ordered 
by a Federal court. Such an outcome is unlikely.
    Although the Government may potentially lose some financial 
security under this rule, the Forest Service believes this risk is 
outweighed by the benefits associated with averting potential defaults. 
Given the above data, the factors addressed in response 9, and default 
costs to the Forest Service, industry, and timber-dependent 
communities, the agency believes the potential risks associated with 
this rule are justified.
    Comment 23: Citing the ability of potential contractors to bid on 
yet more Federal (and private) sales would only seem to increase 
Federal exposure to risk. Continued market downturn would result in 
continued downpayment and periodic payment redetermination. Examining 
the need for timber sales in the first place and other possible methods 
to accomplish the purpose and need for vegetation management projects 
would seem a more prudent and less fiscally risky approach.
    Response 23: Contracting officers are required under 36 CFR 223.101 
to make an affirmative determination of a purchaser's responsibility 
prior to awarding a contract. When conducting a responsibility 
determination, consideration is given to the purchaser's financial 
ability to complete the contract while taking into account all of the 
purchaser's commercial and governmental business commitments. This 
process limts the government's risk.
    When proposing vegetation management projects, the Forest Service 
considers alternatives to timber sale contracts for accomplishing the 
necessary work, including stewardship contracts, procurement contracts, 
agreements, and using its own employees.
    Comment 24: The commenter presented a series of comments pertaining 
to questions of the effect of the proposed rule on other costs 
associated with timber harvest and suggested that there is research 
providing compelling evidence for maintaining lands in their protected 
state and/or for treating vegetation with methods other than timber 
sales.
    Response 24: These comments are beyond the scope of this rule and 
were deemed nonresponsive to the rule's merits.

Conclusion

    This final rule revises the Forest Service's downpayment and 
periodic payment regulations to reflect changes in contracting 
procedures and authorities since these regulations were adopted in 
1991. The rule will protect the Government's financial security, reduce 
speculative bidding, and encourage purchasers to harvest timber in a 
timely manner. In addition, the rule provides financial relief to 
timber purchasers when forest product prices drastically decline or 
purchasers receive additional contract time and are not expected to 
operate.

Regulatory Certifications

Regulatory Impact

    This final rule has been reviewed under USDA procedures and 
Executive Order 12866 on Regulatory Planning and Review. The Office of 
Management and Budget (OMB) has determined that this is not a 
significant regulatory action and is not subject to OMB review. This 
rule will not have an annual effect of $100 million or more on the 
economy nor adversely affect productivity, competition, jobs, the 
environment, public health or safety, nor State or local Governments. 
This rule will not interfere with an action taken or planned by another 
agency nor raise new legal or policy issues. This rule consists of 
technical administrative changes to regulations affecting the 
administration of commercial timber sales on National Forest lands. 
Finally, this action will not alter the budgetary impact of 
entitlements, grants, user fees, or loan programs or the rights and 
obligations of recipients of such programs. Accordingly, this final 
rule is not subject to OMB review under Executive Order 12866.

Regulatory Flexibility Act

    This final rule has been considered in light of the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.), and it is hereby certified that 
this rule will not have a significant economic impact on a substantial 
number of small entities. This rule makes only technical administrative 
changes to existing

[[Page 40743]]

regulations affecting the administration of certain commercial timber 
sales on National Forest System land. The final rule imposes minimal 
additional requirements on all timber purchasers while providing 
economic relief from current market conditions. The information 
required is easily within the capability of small entities to produce.

Unfunded Mandates Reform

    Pursuant to Title II of the 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 final rule does not compel the 
expenditure of $100 million or more by any State, local, or Tribal 
Government or anyone in the private sector. Therefore, a statement 
under section 202 of the Act is not required.

Environmental Impact

    The agency's preliminary assessment is that this rule falls within 
36 CFR 220.6, which excludes from documentation in an environmental 
assessment or impact statement ``rules, regulations, or policies to 
establish Service-wide administrative procedures, program processes, or 
instructions'' that do not significantly affect the quality of the 
human environment. This final rule establishes uniform criteria to 
temporarily reduce or change timber sale downpayments and periodic 
payments. This rule does not change the longstanding requirement that 
timber sale contracts include downpayments and periodic payments. 
Implementation of this rule will be controlled at the local level by 
the Timber Sale Contracting Officer. This final rule falls under 36 CFR 
220.6(d)(2), which excludes from documentation in an environmental 
assessment or impact statement ``rules, regulations, or policies to 
establish Service-wide administrative procedures, program processes, or 
instructions'' that do not significantly affect the quality of the 
human environment.

No Takings Implications

    This final rule has been analyzed in accordance with the principles 
and criteria contained in Executive Order 12630. It has been determined 
that the rule does not pose the risk of a taking of private property. 
There are no private property rights to be affected because the rule 
applies to commercial timber sale on National Forest lands.

Civil Justice Reform Act

    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. If this rule were adopted, (1) all State and 
local laws and regulations that are in conflict with this rule or which 
would impede its full implementation would be preempted; (2) no 
retroactive effect may be given to this rule; and (3) it would not 
require administrative proceedings before parties may file suit in 
court challenging its provisions.

Controlling Paperwork Burdens on the Public

    This final rule does not contain any record-keeping or reporting 
requirements or other information collection requirement as defined in 
5 CFR Part 1320, Controlling Paperwork Burdens on the Public. 
Accordingly, the review provisions of the Paperwork Reduction Act of 
1995 (44 U.S.C. 3501 et seq.) and its implementing regulations at 5 CFR 
part 1320 do not apply.

List of Subjects in 36 CFR Part 223

    Administrative practice and procedures, Exports, Forests and forest 
products, Government contracts, National Forests, Reporting and 
recordkeeping requirements.


0
For the reasons set forth in the preamble, Part 223 of Title 36 of the 
Code of Federal Regulations is amended as follows:

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

0
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, 104 Stat. 714-726, 16 U.S.C. 620-620j, unless otherwise 
noted.

Subpart B--Timber Sale Contracts

0
2. Revise Sec.  223.49 to read as follows:


Sec.  223.49  Downpayments.

    (a) For the purposes of this section, the terms listed in this 
paragraph shall have the following meaning:
    (1) Total bid value is the sum of the products obtained by 
multiplying the rate the purchaser bid for each species by the 
estimated volume listed in the contract.
    (2) Bid premium is the amount in excess of the advertised value 
that a purchaser bids for timber offered.
    (3) Lump sum timber sales are premeasured sales where the entire 
value of the sale is paid in one payment at time of release for 
cutting.
    (4) Affiliate. Concerns or individuals are affiliates if directly 
or indirectly, either one controls or has the power to control the 
other, or a third party controls or has the power to control both. In 
determining whether or not affiliation exists, the Forest Service shall 
consider all appropriate factors, including, but not limited to, common 
ownership, common management, and contractual relationships.
    (b) Timber sale contracts shall include provisions that require 
purchasers to make a downpayment in cash at the time a timber sale 
contract is executed, except that a downpayment is not required for 
stewardship contracts unless the contracting officer determines that a 
downpayment is needed to ensure the government's financial security.
    (c) The minimum downpayment shall be equivalent to 10 percent of 
the total advertised value of each sale, plus 20 percent of the bid 
premium, except in those geographic areas where the Chief of the Forest 
Service determines that it is necessary to increase the amount of the 
downpayment in order to deter speculation. The amount of the 
downpayment shall be redetermined when contract rates for timber are 
redetermined under the terms of the contract for environmental 
modification; catastrophic damage; market change; or an emergency rate 
redetermination. For the purpose of recalculating the minimum 
downpayment, total advertised value shall be replaced with total 
redetermined value.
    (d) A purchaser cannot apply the amount deposited as a downpayment 
to cover other obligations due on that sale until:
    (1) On scaled sales, stumpage value representing 25 percent of the 
total bid value of the sale has been charged and paid for, or the 
estimated value of unscaled timber is equal to or less than the amount 
of the downpayment; or
    (2) On tree measurement sales, stumpage value representing 25 
percent of the total bid value of the sale is shown on the timber sale 
statement of account to have been cut, removed, and paid for, or the 
estimated value of timber remaining to be cut, removed and paid for as 
shown on the timber sale statement of account is equal to or less than 
the amount of the downpayment. On lump sum sales, the downpayment 
amount may be applied to payment for release of the single payment 
unit.
    (e) A purchaser or any affiliate of that purchaser awarded a Forest 
Service timber sale contract must meet the additional downpayment 
requirements of paragraph (g) of this section under the following 
circumstances:
    (1) The purchaser or its affiliate after September 29, 1988, has 
failed to perform in accordance with the terms of a Forest Service or 
Bureau of Land

[[Page 40744]]

Management timber sale contract and is notified by a Contracting 
Officer that a contract has expired uncompleted or is terminated for 
cause; and
    (2) The estimated value of the unscaled timber on scaled sales, or 
the estimated value of the timber outstanding on tree measurement 
sales, included in those terminated or expired contracts exceeds 
$100,000; and
    (3) Unpaid damages claimed by the Government remain outstanding 
prior to award of the new sale at issue and corrective action has not 
been taken to avoid future deficient performance.
    (f) A subsequent final determination by the Contracting Officer or 
by a court of competent jurisdiction that a contract was improperly 
classified under the criteria in paragraph (e) of this section will 
result in the refund or credit of any unobligated portion of the amount 
of downpayment exceeding that required by paragraphs (c) and (d) of 
this section and the limitations of paragraph (h) of this section on 
application of downpayment shall no longer apply.
    (g) Notwithstanding the provisions of paragraphs (c) and (d) of 
this section, a purchaser meeting the criteria of paragraph (e) of this 
section must make a minimum downpayment equal to 20 percent of the 
total advertised value of that sale, plus 40 percent of the total bid 
premium. This higher downpayment requirement applies throughout the 
National Forest System, except in those areas where the Chief of the 
Forest Service determines, before advertisement of the sale, that 
another downpayment rate is necessary to achieve the management 
objectives of the National Forest System. The amount of the downpayment 
shall be redetermined in accordance with this paragraph when contract 
rates for timber are redetermined under the terms of the contract for 
environmental modification; catastrophic damage; market change; or an 
emergency rate redetermination. For the purpose of redetermining the 
downpayment, total advertised value shall be replaced with total 
redetermined value.
    (h) A purchaser subject to the additional downpayment requirements 
of paragraph (g) of this section cannot apply the amount deposited as a 
downpayment to other uses until:
    (1) On scaled sales, the estimated value of the unscaled timber is 
equal to or less than the amount of the downpayment; or
    (2) On tree measurement sales, the estimated value remaining to be 
cut and removed as shown on the timber sale statement of account is 
equal to or less than the amount of the downpayment.
    (i) For the purpose of releasing funds deposited as downpayment by 
a purchaser subject to paragraph (f) of this section, the Forest 
Service shall compute the estimated value of timber as follows:
    (1) On scaled sales, the estimated value of the unscaled timber is 
the sum of the products obtained by multiplying the current contract 
rate for each species by the difference between the advertised volume 
and the volume that has been scaled of that species.
    (2) On tree measurement sales, the estimated value of the timber 
outstanding (i.e., not shown on the timber sale statement of account as 
cut and removed) is the sum of the products obtained by multiplying the 
current contract rate for each species by the difference between the 
advertised volume and the volume that has been shown on the timber sale 
statement to have been cut and removed of the species. The current 
contract rate for each species is that specified in the Forest Service 
timber sale contract.
    (j) In order to deter speculation, the Chief of the Forest Service 
may increase the period for retention of the downpayment and/or 
preclude temporary reduction of the downpayment under paragraphs (k)(2) 
and (k)(3) of this section for future contracts subject to such 
criteria as the Chief may adopt after giving the public notice and 
opportunity to comment.
    (k) The Forest Service may temporarily reduce the downpayment when 
a purchaser's scheduled operations are delayed, interrupted, or 
extended for 30 or more consecutive days for any of the following 
reasons:
    (1) Forest Service requests or orders purchaser to delay or 
interrupt operations for reasons other than breach;
    (2) A contract term addition pursuant to purchaser shifting 
operations to a sale designated by the Forest Service as in urgent need 
of harvesting; or
    (3) An extension of the contract term authorized upon a 
determination of substantial overriding public interest, including a 
market-related contract term addition, or an urgent removal contract 
term extension under 36 CFR 223.53.
    (l) When purchaser is not cutting or removing timber under contract 
during a qualifying period of delay, interruption, or extension listed 
in paragraph (k) of this section, the downpayment may be reduced to 
$1000 or 2 percent of the downpayment amount stated in the contract, 
whichever is greater. The purchaser must restore the downpayment to the 
full amount stated in the contract within 15 days from receipt of the 
bill for collection and written notice from the contracting officer 
that the basis for temporarily reducing the downpayment no longer 
exists. Purchaser shall not cut or remove timber on a contract where 
the downpayment has been temporarily reduced until the downpayment 
amount stated in the contract is fully restored.

0
3. Amend Sec.  223.50 by revising paragraphs (b) introductory text and 
(f) and adding paragraph (b)(3) to read as follows:


Sec.  223.50  Periodic payments.

* * * * *
    (b) Except for lump sum sales, each timber sale contract of more 
than one full normal operating season shall provide for periodic 
payments. The number of periodic payments required will be dependent 
upon the number of normal operating seasons within the contract, but 
shall not exceed two such payments during the course of the contract. 
Periodic payments must be made by the periodic payment determination 
date, except that the amount of the periodic payment shall be reduced 
to the extent that timber has been removed and paid for by the periodic 
payment determination date. Should the payment fall due on a date other 
than normal billing dates, the contract shall provide that the payment 
date will be extended to coincide with the next timber sale statement 
of account billing date.
* * * * *
    (3) Notwithstanding this paragraph (b), periodic payments are not 
required for stewardship contracts unless the contracting officer 
determines that periodic payments are needed to ensure the Government's 
financial security.
* * * * *
    (f) The amount of any periodic payment(s) not yet reached shall be 
revised when rates are redetermined under the contract. The revised 
periodic payment amounts shall be based on a recalculated total 
contract value using the same procedures described in (c) and (d) of 
this section. The recalculated total contract value is the current 
contract value following the