Small Business Timber Set-Aside Program, 66199-66221 [2016-22861]

Agencies

• SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 81, Number 187 (Tuesday, September 27, 2016)]
[Proposed Rules]
[Pages 66199-66221]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-22861]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AG69


Small Business Timber Set-Aside Program

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA or Agency) seeks 
comments on a proposed amendment to its regulations governing the small 
business timber set-aside program (hereafter referred to as the 
``timber program'') so that appraisals on small business set-aside 
sales be made to the nearest small business mill. Timber sale 
appraisals are performed for small business qualifying set-aside and 
non-set-aside sales. When the U.S. Department of Agriculture's (USDA) 
Forest Service (FS) offers timber for sale, it appraises its potential 
market value and sets the minimum bid that it will accept based on that 
appraisal. Currently, appraisals in small business set-aside timber 
sales take into account the haul costs to the nearest mill regardless 
of that mill's size. Since set-aside timber sales require the use of 
small business mills, SBA proposes that the appraisal on set-aside 
timber sales

[[Page 66200]]

be made to the nearest small business mill in order to accurately 
reflect the estimated cost to an eligible bidder. SBA is also 
requesting comment on a possible policy alternative that would use a 
weighted approach to appraising.

DATES: Comments must be received on or before November 28, 2016.

ADDRESSES: You may submit comments, identified by RIN: 3245-AG69, by 
any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     For mail, paper, disk, or CD/ROM submissions: Brenda J. 
Fernandez, Procurement Analyst, U.S. Small Business Administration, 
Office of Policy, Planning and Liaison, 409 Third Street SW., 8th 
Floor, Washington, DC 20416.
     Hand Delivery/Courier: Brenda J. Fernandez, Procurement 
Analyst, U.S. Small Business Administration, Office of Policy, Planning 
and Liaison, 409 Third Street SW., 8th Floor, Washington, DC 20416.
    SBA will post all comments on www.regulations.gov. If you wish to 
submit confidential business information (CBI) as defined in the User 
Notice at www.regulations.gov, please submit the information to: Brenda 
J. Fernandez, Procurement Analyst, U.S. Small Business Administration, 
Office of Policy, Planning and Liaison, 409 Third Street SW., 8th 
Floor, Washington, DC 20416, or send an email to 
brenda.fernandez@sba.gov. Highlight the information that you consider 
to be CBI and explain why you believe SBA should hold this information 
as confidential. SBA will review the information and make the final 
determination on whether it will publish the information.

FOR FURTHER INFORMATION CONTACT: Brenda J. Fernandez, Procurement 
Analyst, U.S. Small Business Administration, Office of Policy, Planning 
and Liaison, 409 Third Street SW., 8th Floor, Washington, DC 20416; 
(202) 205-7337; brenda.fernandez@sba.gov.

SUPPLEMENTARY INFORMATION: 

Background and Rationale for Proposed Rule

    In cooperation with SBA, the FS manages the timber program. The 
timber program was designed for small businesses whose product needs 
are timber. Throughout the country, the FS offers timber sales that are 
composed of multi-products for which the purchaser pays different rates 
for each product. Multi-product sales may be composed of sawlogs, pulp 
logs, biomass, or other products not generally processed into sawlogs. 
Timber sales that have substantial sawlog volume are targeted for the 
set-aside program. Small independent loggers, often called gypos, are 
identified as small non-manufacturers, and are eligible to purchase the 
set-aside timber sale and have to adhere to the contract rules of where 
the timber can be milled. The volume purchased by these non-
manufacturers is credited, under the set-aside program, to the small 
business market share.
    Section 15(a) of the Small Business Act authorizes small businesses 
to receive any contract which would ``assur[e] that a fair proportion 
of the total purchases and contracts for property and services for the 
Government in each industry category are placed with small-business 
concerns'' and which would ``assur[e] that a fair proportion of the 
total sales of Government property be made to small-business 
concerns.'' 15 U.S.C. 644(a). Contracts for the sale of government 
owned timber are, therefore, required to be set aside for small 
businesses in order to assure that small businesses receive a fair 
proportion of such sales. While the Small Business Act does not define 
``fair proportion,'' SBA interpreted ``fair proportion'' in adopting 
the market share system used today and detailed below. The D.C. 
District Court upheld this interpretation in 1974 in Duke City Lumber 
Co. v. Butz, 382 F. Supp. 362 (D.D.C., 1974), aff'd, 539 F.2d 220 (D.C. 
Cir., 1976).
    Congress further decreed in section 2 of the Small Business Act 
that the ``economic well-being [and] security of this Nation . . . 
cannot be realized unless the actual and potential capacity of small 
business is encouraged and developed.'' 15 U.S.C. 631. To that end, 
Congress directed all ends of the Government to ``maintain and 
strengthen the overall economy of the Nation'' by assuring that small 
businesses receive a fair proportion of total government contracts and 
total government sales. Through sections 2 and 15 of the Small Business 
Act, SBA is entrusted with keeping Federal government agencies 
accountable on their collective obligation to deliver a fair proportion 
of contracts and sales to small businesses. SBA's regulations, however, 
currently do not address how SBA calculates ``fair proportion'' in the 
context of government-owned timber sales. SBA's regulations also do not 
address how goods-for-services stewardship timber sales should be 
treated in the context of the small business fair proportion or market 
share calculation.

Establishing Hauling Cost Appraisals That Are Accurate

    SBA proposes to amend its regulations to include instructions on 
how hauling costs are to be estimated in developing the appraised price 
for small business set-aside sales under the timber program. SBA's 
current regulations provide that on a set-aside sale the small business 
may not resell more than 30% of the advertised sawtimber volume to a 
large business concern in all FS regions outside of Alaska. As such, at 
least 70% of the advertised sawtimber volume must be processed at a 
small mill. This provision is known as the ``30/70 rule.'' When the FS 
offers a timber program sale as a set-aside, it appraises its potential 
market value and sets the minimum bid that it will accept based on that 
appraisal. One factor in the appraisal is the haul cost that the 
purchaser (small or large) will have to absorb to bring the timber to a 
manufacturing facility. Currently, appraisals are made to the nearest 
mill regardless of that mill's size. Because of the locations and 
sparse number of remaining small sawmills, the current appraisal points 
used for calculating hauling costs may have prevented small mills from 
bidding on set-aside sales, since fuel and non-fuel costs for 
transporting the timber from the forest to the processing location may 
negate the bidder's profit margin of the purchase when the 30/70 rule 
is also applied.
    In order to provide small businesses an ability to meet the 
requirements of the law as required under set-aside provisions, and to 
encourage small business competition, SBA is proposing that small 
business set-aside timber sales be appraised to the nearest small 
business mill to accurately reflect the haul costs to eligible bidders. 
As an alternative, SBA is also requesting comments on whether the 
requirement to appraise the set-aside timber sales to the nearest small 
mill should have some reasonable distance or haul cost limitation, such 
as 60 miles (from the sale area to the nearest mill), because it may 
not be economically feasible to haul timber over large distances. In 
addition, SBA is also requesting comments on whether all 100% of the 
hauling costs should be appraised to the nearest small business mill, 
or, when the nearest mill is a large business, whether 70% of the 
hauling costs should be appraised to the nearest small mill and 
remaining 30% appraised to the nearest large mill in accordance

[[Page 66201]]

with the 70/30 ratio under the set-aside rule.
    The proposed regulatory amendment would affect the FS timber 
program only. As noted below, FS and the Department of Interior's (DOI) 
Bureau of Land Management (BLM) are the primary timber ``sales 
agencies.'' However, BLM's small business set-aside sales, which are 
limited to eight markets in Oregon (FS Region 6), are made in 
accordance with the terms of a separate Memorandum of Understanding 
(MOU) between SBA and BLM. Rather than setting forth considerations for 
small business market share computation methods, SBA's MOU with BLM 
affords SBA the opportunity to review BLM's annual timber sale plans 
prior to publication and to request set-aside sales under the authority 
of the Small Business Act. When BLM agrees to set-aside certain timber 
sales for small businesses, BLM consults with SBA concerning financial 
and other performance qualifications to be included in the conditions 
of sale. Accordingly, the proposed amendment to the timber program 
would have no impact on BLM's timber sale program since BLM's current 
policy is to appraise the hauling costs on its set-aside sales to the 
closest mill that qualifies as a small business under SBA's 
regulations. While SBA is also considering an amendment stewardship 
contracting to include the stewardship sawtimber volume in the small 
business market share calculation, this possible policy change would 
not impact BLM's use of stewardship sales since BLM already credits/
counts the stewardship sawtimber volume in administering its set-aside 
program.
    SBA invites comments on all aspects of this proposed rule, the 
timber program, and other policy changes currently under consideration. 
In particular, SBA requests comments on the proposed change to 
appraising the haul costs to the small business set-aside sales and the 
alternative weighted approach to appraising the haul costs using the 
30/70 rule. SBA is also interested in comments on whether there should 
be a reasonableness test for distance from the sale area to the nearest 
qualifying small business mill and how this test should be applied. In 
addition, SBA invites comments on impacts of the potential inclusion of 
the stewardship sawtimber volume in the small business ``fair 
proportion'' calculation that SBA is currently considering but not 
proposing in this rule.
    The federal government regularly sells timber and non-timber 
products from the federal forests managed by the USDA's FS, the DOI's 
BLM, the DOI's Fish and Wildlife Service, the U.S. Department of 
Defense, the U.S. Department of Energy, and the Tennessee Valley 
Authority. Collectively, these agencies are referred to as the ``sales 
agencies'' with FS and BLM being the primary sales agencies.
    This proposed rule intends to amend SBA's regulations governing the 
timber program. As mandated by the Small Business Act, SBA and the 
sales agencies jointly set-aside timber program sales for exclusive 
bidding by small business concerns when market conditions demonstrate 
that small businesses are not receiving their fair share of timber 
volume under full-and-open competition or unrestricted sales. When the 
small business share of the timber market falls below a certain level, 
a small business set-aside sale is triggered.
    In order to determine the small business market share that triggers 
a set-aside sale, FS calculates the current small business market share 
based on small business purchases of sawtimber volume sold under the 
timber program over a five-year period. This percentage, based upon 
historical purchases of sawtimber in the market area, sets the 
framework for what constitutes small businesses' fair proportion of the 
total sales volume. If at any time, the small business market share 
falls below this percentage, subsequent timber program sales would be 
set-aside for preferential bidding by small businesses. Set-aside sales 
in the timber program will continue until such time that the small 
business market share rises above the triggering percentage.
    Currently, only the advertised sawtimber volume sold under the 
timber program is used to calculate the small business market share, 
which establishes whether or not a timber sale should be set-aside for 
preferential bidding by small business. Sawtimber volume sold under 
stewardship contracting is not presently considered in this 
calculation. SBA is considering a change to the calculation of the 
small business market share using the volume of sawtimber sold under 
both the timber program and stewardship contracting. By counting all 
sawtimber volume, regardless of which way it's sold, the triggers for 
set-aside procedures under the timber program could more accurately 
reflect the small business market for FS timber. However, SBA 
recognizes that including sawtimber volume sold through stewardship 
contracting in the small business market share calculation could, under 
some circumstances, result in there not being a set-aside sale where 
there otherwise would have been a set-aside had stewardship sawtimber 
not been included in the calculation and vice versa. SBA requests 
comment on the possible impacts to small businesses should SBA propose 
to include the stewardship sawtimber volume in the calculation of small 
business fair proportion. The Agency further requests comment on the 
need for transparency in the timber market as well as additional data 
in order to help SBA further analyze the impacts of including 
stewardship sawtimber volume in determining the small business fair 
proportion of the market used in triggering set-aside sales under the 
timber program.
    It is also important to note that under this potential policy 
change, although the volume of sawtimber sold through the timber 
program and stewardship contracting would be used in the calculation of 
the size of the small business market share that triggers a set-aside 
sale, set-aside sales would only continue to occur under the timber 
program. Since set-aside sales are not provided for under stewardship 
contracting, such a policy change would not affect the FS's 
implementation of the stewardship process.
    The following is an illustration of how including stewardship 
sawtimber may result in a more accurate depiction of the market that 
small businesses are operating in:
    Example A. The target market share for small business is 47%. A 
timber program sale is conducted through full-and-open procedures. A 
small business wins the award which contains 1,000 CCF (one hundred 
cubic feet) of sawtimber. Since small business has attained 80% of the 
sawtimber market share (large business is allotted 20% of the offered 
timber program sale volume per FS regulations), unless that share drops 
below 37% (trigger occurs when small business market share is 10 
percentage points or more below the established baseline market share) 
through subsequent timber sales, there will be no trigger for set-aside 
sales and future timber program sales will continue under full-and-open 
competition.
    Example B. In the same market area, there have also been four (4) 
stewardship sawtimber sales. These are always conducted as full-and-
open competition sales, because set-asides for small business are not 
provided for in implementing stewardship contracting projects. These 
four (4) awards have all gone to large businesses, each for 1,000 CCF. 
The next timber program sawtimber sale is for another 1,000 CCF, but 
because stewardship sawtimber volume is not counted, the attained

[[Page 66202]]

small business market share, from example A, is still reflected as 80%. 
As a result, the next timber program sawtimber sale will be advertised 
as a full-and-open sale. Had the previous stewardship sawtimber volume 
been counted, the attained small business market share would have been 
reflected as only 20% (1,000 out of 5,000 CCF sold) and this next 
timber program sawtimber sale would have triggered a small business 
set-aside since the 20% small business attainment is more than 10 
percentage points below the minimum established for the market share of 
47% in that market area.
    Example C. Even if two (2) of the stewardship sawtimber sales in 
example B had been previously won by small businesses the trigger for a 
set-aside of the next timber program sawtimber sale would not have 
occurred as small business would have been shown to have purchased a 
total market share of 60% (3,000 out of 5,000 CCF) which is better than 
the minimum established 47% share for that market area.
    The FS received authority to implement pilot stewardship 
contracting projects in section 347 of the FY1999 Omnibus 
Appropriations Act (Pub. L. 105-277, sec. 347). Similarly, BLM was 
authorized to use stewardship contracting in 2003 (Pub. L. 108-7, 16 
U.S.C. 2104). The purpose of stewardship contracting was to help 
achieve land management goals in National Forests and in the public 
lands managed by BLM, in addition to helping meet the needs of local 
and rural communities. Initially, stewardship contracting was scheduled 
to expire in 2003 and then again in 2013. The Agricultural Act of 2014 
established stewardship contracting as a permanent authority (Pub. L. 
113-79, sec. 8205).
    Stewardship contracting is a goods-for-services arrangement that 
requires timber companies who cut trees on federal (FS and BLM) lands 
to perform other service work in exchange for the timber volume. 
Stewardship contracts fall into two general categories, Integrated 
Resource Timber Contract (IRTC) formats, which were developed for 
exclusive use in implementing stewardship contracting projects when the 
value of goods exceeds the value of services and Integrated Resource 
Service Contract (IRSC) formats, which were developed for exclusive use 
in implementing stewardship contracting projects when the value of 
services exceeds the value of the goods.

Developments in the Timber Industry

    The entire wood products industry in the U.S. has undergone 
dramatic changes in the past three decades. The sale of timber from the 
National Forest System (NFS) has decreased from an annual timber volume 
of approximately 10 billion board feet in 1990 to approximately 2.9 
billion board feet in 2015. While the reasons for this decline are not 
relevant to this proposed rule, the significance of this decline shows 
that all mills, both small and large, and the communities that they 
support have struggled to cope with the diminished supply of timber to 
sustain their operations. Coupled with other economic factors, such as 
the recession of 2008-2009 which saw a reduction in finished product 
markets, particularly the new single family home construction market, 
the decline in the timber industry has resulted in the closure of a 
significant number of small and large mills. The segment of the U.S. 
timber industry that derives its timber from the NFS does not operate 
in a vacuum but in the overall market for timber. In the United States, 
in the late 1990s, over 90% of the timber harvest volume came from 
private lands and only about 5% came from USFS sales. During the 
recession, the drop in new residential construction from 1.7 million 
units annually to 450,000 and a decline in home remodeling as 
residential mortgages tightened and home sales dropped combined to 
impact wood manufacturing. From 2005 to 2009, over 1,000 sawmills 
closed, comprising nearly 19% of all domestic mills in the forest 
sector. Many other mills operated at limited capacity. All mills, both 
large and small, have been forced to adapt and retool in response to 
these changes, including mills of all sizes that do not rely on timber 
supplied from NFS lands. Competition from overseas markets for private 
timber also complicates the ability for U.S. markets to compete. Thus, 
the importance of timber supply from FS lands may have increased, 
however the impacts to businesses may be attributed to a combination of 
supply, demand and global market changes. The closure of small mills of 
all sizes has had and continues to have an adverse effect on employment 
and the overall economy in rural timber communities where the timber 
industry is the leading provider of employment and income. Small mills 
depend on the SBA Timber Set-Aside Program to purchase their fair share 
of timber offered for sale by the FS.
    SBA conducted annual field visits in different regions of the 
country and from interviews with small businesses in the logging, 
sawmill and other wood manufacturing industries has learned they have 
suffered immensely due to a diminished supply of timber. Based on the 
data from the U.S. Census Bureau's County (CBP) Business Patterns 
Reports available at www.census.gov/econ/cbp/, from 1997 to 2012, the 
number of small businesses (i.e., fewer than 500 employees) in the 
logging industry, classified under North American Industry 
Classification System (NAICS) code 113310 (Logging), decreased 40%. 
Similarly, based on the data from U.S. Bureau's Economic Censuses 
available at www.census.gov/econ/census/, the number of small 
businesses (i.e., fewer than 500 employees) in the sawmills industry, 
NAICS 321113, decreased 34% in the same period. The number of employees 
of small businesses fell by 40% for the logging industry and by 39% for 
the sawmills industry. The majority of remaining industries in NAICS 
Subsector 321 (Wood Product Manufacturing) also saw significant 
reductions in numbers of small businesses and workers employed by them.
    The data also confirms that the number of large business firms 
(i.e., with more than 500 employees) and number of people employed by 
them in those industries also decreased. For example, from 1997 to 
2012, the number of larger firms decreased 44% in the logging industry 
and 42% in the sawmills industry. The number of employees hired by 
large businesses decreased 48% and 52%, respectively. Many other wood 
product manufacturing industries also saw similar decreases in number 
of firms and employment.
    While total employment fell across both small and large firms in 
those industries, the proportion of employees that is employed by small 
businesses increased from 1997 to 2012. For example, as a percentage of 
total industry's employment, employment by small logging firms 
increased from 94% to 95%. Likewise, employment by small sawmills 
increased from 67% of total industry's employment in 1997 to 72% of 
total industry employment in 2012. This increase in the proportion of 
workers employed by small businesses has coincided with the significant 
decrease in the number of small businesses. This indicates that, even 
if they have decreased in number, small businesses are increasingly 
responsible for supporting employment in those industries.
    As demonstrated in Tables 1, 2, and 3 below, stewardship timber 
volume (i.e., sawtimber plus non-saw timber) accounted for a steadily 
increasing percentage of FS's total timber sales from 2004 to 2013. 
These tables provide data on total and stewardship timber sales for 
each of the nine FS regions,

[[Page 66203]]

numbered Region 1 (R-1) through Region 10 (R-10). Region 7 was 
eliminated in 1965 when the current Eastern Region was created from the 
former Eastern and North Central Regions. The nine FS regions that 
exist today are as follows:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Region 1 (Northern)...............  Montana, North Dakota, NW corner
                                     South Dakota, and Idaho Panhandle.
Region 2 (Rocky Mountain).........  Colorado, Wyoming, South Dakota,
                                     Nebraska, and Kansas.
Region 3 (Southwestern)...........  Arizona and New Mexico.
Region 4 (Intermountain)..........  Utah, Nevada, Western Wyoming,
                                     Southern Idaho, and a small portion
                                     of California.
Region 5 (Pacific Southwest)......  California.
Region 6 (Pacific Northwest)......  Oregon and Washington.
Region 8 (Southern)...............  Virginia, North Carolina, South
                                     Carolina, Georgia, Florida,
                                     Kentucky, Tennessee, Alabama,
                                     Mississippi, Louisiana, Texas,
                                     Oklahoma, and Arkansas.
Region 9 (Eastern)................  Minnesota, Wisconsin, Iowa,
                                     Missouri, Illinois, Indiana,
                                     Michigan, Ohio, West Virginia,
                                     Maryland, Delaware, Pennsylvania,
                                     New Jersey, New York, Rhode Island,
                                     Connecticut, Massachusetts,
                                     Vermont, New Hampshire, Maine.
Region 10.........................  Alaska.
------------------------------------------------------------------------

    In Fiscal Year 2013, stewardship timber sales accounted for 31% of 
all timber volume (timber plus non-timber) sold by the FS, up from only 
5% a decade earlier. It should be noted that stewardship sawtimber 
volume is different from the total stewardship timber volume, and that 
all tables/references are based using the timber volume data only.

                             Table 1--Total Timber Volumes Sold by Each of the 9 FS Regions * (R-1 to R-10) FY 2004-FY 2013
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                 Year (FY)                     R-1        R-2        R-3        R-4        R-5        R-6        R-8        R-9        R-10      All FS
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                     All Sales, Sawtimber + Non-sawtimber (Volumes in Millions of Board Feet (MMbf))
--------------------------------------------------------------------------------------------------------------------------------------------------------
2004......................................        159        163         49        107        208        434        359        319         85      1,883
2005......................................        243        132         72         49        386        392        414        364         54      2,105
2006......................................        189        165         69         68        228        470        858        381         83      2,511
2007......................................        135        198         57         69        272        489        501        352         29      2,101
2008......................................        186        201         43         70        109        525        539        349          4      2,026
2009......................................        216        199         21         41        236        498        476        319          6      2,011
2010......................................        180        196         46         60        252        424        540        358         45      2,100
2011......................................        149        159         54         46        212        464        556        379         37      2,056
2012......................................        144        196         32         53        219        512        521        419         41      2,137
2013......................................        115        210        129         71        229        527        475        393         13      2,162
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Region 7 (R-7) was eliminated in 1965 as part of re-designation of FS regions.
Source: Timber Data Company; November 19, 2013.


                          Table 2--Stewardship Timber Volume Sold by Each of the 9 FS Regions * (R-1 to R-10), FY 2004-FY 2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
                 Year (FY)                     R-1        R-2        R-3        R-4        R-5        R-6        R-8        R-9        R-10      All FS
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                       Stewardship Timber/Service Sales (Volumes in Millions of Board Feet (MMbf))
--------------------------------------------------------------------------------------------------------------------------------------------------------
2004......................................          7          9         25         12         23         19          0          0          0         96
2005......................................         12          9         17          7         23         30          4          2          1        105
2006......................................         48         16         18         15         24         64         42          4          0        231
2007......................................         44         16         28          9         62         91         34         23          1        308
2008......................................         64         35         21         12         14        100         28         10          1        284
2009......................................         45         38         15         11         54         96         62         22          0        343
2010......................................         56         70         26         38         75        120         50         50          0        486
2011......................................         43         33         31         21         47        105         62         50         33        427
2012......................................         41         35         19         22        102        175         92         67         40        592
2013......................................         36         39        107         51         75        202         90         61          0        661
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Region 7 (R-7) was eliminated in 1965 as part of re-designation of FS regions.
Source: Timber Data Company; November 19, 2013.


                            Table 3--Stewardship Timber Sales as a Percentage of Total Timber Sold by Region, FY 2004-FY 2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
                 Year (FY)                     R-1        R-2        R-3        R-4        R-5        R-6        R-8        R-9        R-10      All FS
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      % Stewardship
--------------------------------------------------------------------------------------------------------------------------------------------------------
2004......................................          4          5         51         12         11          4          0          0          0          5
2005......................................          5          7         23         13          6          8          1          1          1          5
2006......................................         25         10         26         22         11         14          5          1          0          9
2007......................................         33          8         49         14         23         19          7          6          2         15
2008......................................         35         17         49         17         13         19          5          3         27         14
2009......................................         21         19         72         27         23         19         13          7          0         17
2010......................................         31         36         56         64         30         28          9         14          0         23
2011......................................         29         21         59         47         22         23         11         13          9         21

[[Page 66204]]

 
2012......................................         28         18         58         42         47         34         18         16         96         28
2013......................................         32         19         83         72         33         38         19         16          0         31
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Region 7 (R-7) was eliminated in 1965 as part of re-designation of FS regions.
Source: Timber Data Company; November 19, 2013.

    According to historical sales data, the average number of bidders 
is 1.02 for stewardship timber sales and 1.97 for timber program sales; 
a statistically significant difference. This suggests that stewardship 
timber contracting may have fewer competitors. On average, stewardship 
timber sales are substantially larger than timber program sales, 
especially those awarded to small businesses. According to the analyses 
of both timber program and stewardship sales data provided by FS, as 
shown below in Table 4, compared to timber program volume, small 
businesses acquired a larger percentage of stewardship timber volume in 
Region 2 (100%), Region 4 (100%), Region 8 (94%), and Region 9 (87%) 
where stewardship timber volumes are quite minimal relative to total 
volumes sold. However, small businesses received a lower percentage of 
stewardship timber sales in Region 1 (70%), Region 5 (49%), and Region 
6 (56%) where stewardship timber sales are generally fairly large 
relative to total sales. While small businesses received a larger 
percentage of stewardship timber volume in five regions individually, 
in aggregate (i.e. when all regions combined) the small business share 
was substantially lower at about 62% under stewardship contracting, as 
compared to nearly 71% under the timber sales program. Thus, based on 
these data, SBA is concerned that small businesses may be less 
successful in getting their fair share of government timber sales under 
stewardship contracting projects than under the timber program in 
certain FS regions and markets and that this situation may get worse 
over time as more and more FS timber is sold through stewardship 
contracting, as indicated by recent trends shown above in Table 2. 
Accordingly, to address this issue, SBA is considering a policy change 
to include the stewardship timber volume in the calculation of small 
business market shares. SBA seeks comments on the potential impacts of 
this change in the methodology, and how any impacts to small businesses 
may vary across regions or across market areas within the region.

         Table 4--Total Timber Volumes Sold Under Timber Program and Stewardship Sales and Shares of Timber Sold to Small Businesses by Region *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Total timber volume sold (1,000 CCF)                  Share of timber sold to small businesses
                                          ------------------------------------------------------------------                     (%)
                  Region                          Timber              Stewardship       Total timber sales  --------------------------------------------
                                          ------------------------------------------------------------------
                                             Total      Small      Total      Small      Total      Small       Timber       Stewardship        Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Region 1.................................      1,949      1,454        304        213      2,253      1,667          74.6             70.0          74.0
Region 2.................................      2,471      1,910        121        120      2,591      2,031          77.3            100.0          78.4
Region 3.................................        615        615         62         62        677        677         100.0            100.0         100.0
Region 4.................................        859        588         29         29        888        618          68.5            100.0          69.6
Region 5.................................      2,484      1,261        230        113      2,715      1,373          50.7             48.9          50.6
Region 6.................................      8,206      5,369      2,067      1,152     10,273      6,520          65.4             55.7          63.5
Region 8.................................      4,434      3,546        139        131      4,572      3,677          80.0             94.4          80.4
Region 9.................................      1,614      1,533         59         51      1,673      1,584          94.9             86.6          94.7
All Regions..............................     22,632     16,275      3,011      1,871     25,643     18,146          71.9             62.2          70.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Region 7 was eliminated in 1965 as part of redesignation of FS regions. Region 10 was not included in FS calculations.
Source: FS calculations based on the Timber Data Company data for FY 2002-2010 for Regions 2 through 5, 8 and 9, and FY 2002-2015 for Regions 1 and 6.

    Still, SBA faces data challenges in analyzing the impact on small 
businesses from a potential policy change to include the stewardship 
sawtimber in the calculation of small business fair proportion or 
market share used to establish a set-aside sale within the timber 
program. The FS conducted an analysis with FY 2002-2010 data for 
Regions 2 through 5, 8 and 9 and with FY 2002-2015 data for Regions 1 
and 6. To bridge these gaps in the data, SBA evaluated the percentages 
of timber program and stewardship sales awarded to small businesses 
using the data from the SBA's Timber Sales System (TSS) for FY 2004-
2014. These results, as shown below in Table 5, also showed fairly 
similar patterns as in the FS analysis in Table 4, with small 
businesses generally acquiring a relatively larger percentage of 
stewardship timber in most regions where stewardship contracting is 
limited and a smaller percentage in regions where stewardship timber 
sales are substantial relative to total sales, such as Regions 1, 5 and 
6.

[[Page 66205]]



Table 5--Share (%) of Total Timber Volume Sold to Small Businesses by Type of Sale--Timber Program (T) and Stewardship (S)--by FS Region, FY 2004-2014 *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     Region
                                                      --------------------------------------------------------------------------------------------------
                         Year                                      Region 1                         Region 2                         Region 3
                                                      --------------------------------------------------------------------------------------------------
                                                           T          S        Total        T          S        Total        T          S        Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
2004.................................................       70.2  .........       70.2       57.3  .........       57.3      100.0  .........      100.0
2005.................................................       81.9      100.0       82.2       73.5      100.0       75.2      100.0      100.0      100.0
2006.................................................       81.3       89.4       83.5       82.1       54.5       79.6      100.0      100.0      100.0
2007.................................................       84.9       94.0       87.8       75.6      100.0       77.8      100.0      100.0      100.0
2008.................................................       89.3       85.5       88.0      100.0      100.0      100.0      100.0      100.0      100.0
2009.................................................       60.4       64.3       61.0      100.0      100.0      100.0       90.9      100.0       96.4
2010.................................................       86.6       38.5       66.9      100.0      100.0      100.0      100.0      100.0      100.0
2011.................................................       68.8       50.6       63.7       96.1      100.0       97.0      100.0      100.0      100.0
2012.................................................       90.8       15.2       69.8       93.6      100.0       94.8      100.0      100.0      100.0
2013.................................................       41.2       34.8       39.4       88.2      100.0       89.6      100.0      100.0      100.0
2014.................................................       48.5      100.0       54.1       44.4      100.0       53.4      100.0      100.0      100.0
All years............................................       74.9       55.4       69.9       83.0       97.7       85.4       99.8      100.0       99.9


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     Region
                                                      --------------------------------------------------------------------------------------------------
                         Year                                      Region 4                         Region 5                         Region 6
                                                      --------------------------------------------------------------------------------------------------
                                                           T          S        Total        T          S        Total        T          S        Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
2004.................................................       66.5  .........       66.5       78.3  .........       77.7       71.2  .........       71.2
2005.................................................       94.2      100.0       94.6       28.6       17.6       28.0       54.3       15.2       50.8
2006.................................................       77.1       81.5       78.0       28.1       57.4       30.8       57.8       67.7       59.3
2007.................................................       74.6       88.9       76.5       58.8       45.6       55.8       62.4       41.3       58.7
2008.................................................       76.9       91.3       79.3       86.6       95.7       87.4       63.7       59.5       62.9
2009.................................................       79.7      100.0       85.2       71.4       74.7       72.1       75.4       59.5       72.0
2010.................................................      100.0       66.7       79.8       62.8       56.4       60.5       64.7       61.2       63.7
2011.................................................      100.0       44.3       68.5       54.4       87.9       62.6       66.4       60.3       65.0
2012.................................................       96.8      100.0       98.1       79.2       40.6       62.7       64.6       57.6       62.1
2013.................................................       95.0      100.0       98.4       68.5       55.6       64.1       65.8       72.8       68.6
2014.................................................      100.0       42.4       65.1       37.6       86.0       44.6       70.5       70.1       70.3
All years............................................       82.0       75.5       79.9       56.3       57.8       56.6       65.1       61.6       64.3


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     Region
                                                      --------------------------------------------------------------------------------------------------
                         Year                                      Region 8                         Region 9                        Region 10
                                                      --------------------------------------------------------------------------------------------------
                                                           T          S        Total        T          S        Total        T          S        Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
2004.................................................       89.3  .........       89.3       78.8  .........       78.8      100.0  .........      100.0
2005.................................................       86.9      100.0       87.0       79.3      100.0       79.4      100.0      100.0      100.0
2006.................................................       74.1      100.0       75.3       92.7      100.0       92.7      100.0  .........      100.0
2007.................................................       80.1      100.0       81.3       85.3       74.3       84.6      100.0  .........      100.0
2008.................................................       85.3       97.9       86.0       89.4      100.0       89.6      100.0      100.0      100.0
2009.................................................       93.2       94.6       93.3       92.2      100.0       92.8      100.0  .........      100.0
2010.................................................       85.4       95.7       86.4       87.8       95.7       88.8      100.0  .........      100.0
2011.................................................       86.8       96.7       88.1       85.7       89.9       86.3      100.0      100.0      100.0
2012.................................................       91.3       78.8       89.1       88.4       98.2       90.0      100.0      100.0      100.0
2013.................................................       91.6      100.0       93.1       90.4       90.9       90.5      100.0  .........      100.0
2014.................................................       77.2       89.9       80.4       84.3       80.2       83.6      100.0      100.0      100.0
All years............................................       84.7       92.9       85.5       86.8       90.6       87.1      100.0      100.0      100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Region 7 was eliminated in 1965 as part of re-designation of FS regions.
Source: Timber Sales System.

    As shown below in Table 6, the data further indicates that, during 
FY 2004--2014, more than two-thirds of businesses (68% of all 
businesses and 67% of small businesses) that receive stewardship timber 
contracts also acquired timber through the timber program. Likewise, 
87% of stewardship timber volumes sold to all firms and 83% of 
stewardship timber volumes sold to small firms was acquired by 
businesses that purchase timber through both stewardship and timber 
program sales (see Table 7 below). Except for Region 4 with respect to 
the number of firms and Region 3 with respect to timber volume (in both 
cases the percentages are less than 50%), the results are more or less 
similar across regions. The majority of stewardship timber purchasers 
successfully compete in both markets.

[[Page 66206]]



 Table 6--Number of Firms Getting Timber Program (T), Stewardship (S), and Both (T & S) Types of Timber Sales by
                                              Region, FY 2004-2014
----------------------------------------------------------------------------------------------------------------
                                                                                                   (T&S)/total S
            Region *                  T only          S only       Both (T & S)       Total S           (%)
----------------------------------------------------------------------------------------------------------------
                                               Number of All Firms
----------------------------------------------------------------------------------------------------------------
1...............................             558              10              34              44            77.3
2...............................             432              14              30              44            68.2
3...............................             272              17              17              34            50.0
4...............................             313              24              20              44            45.5
5...............................             540              11              44              55            80.0
6...............................             464              28              54              82            65.9
8...............................             918              18              56              74            75.7
9...............................             692              37              85             122            69.7
10..............................              99               1               6               7            85.7
                                 -------------------------------------------------------------------------------
    Total.......................           4,288             160             346             506            68.4
----------------------------------------------------------------------------------------------------------------
                                              Number of Small Firms
----------------------------------------------------------------------------------------------------------------
1...............................             546               9              28              37            75.7
2...............................             407              14              28              42            66.7
3...............................             268              17              16              33            48.5
4...............................             300              21              17              38            44.7
5...............................             516               9              38              47            80.9
6...............................             447              26              40              66            60.6
8...............................             861              17              49              66            74.2
9...............................             645              34              78             112            69.6
10..............................              97               1               6               7            85.7
                                 -------------------------------------------------------------------------------
    Total.......................           4,087             148             300             448            67.0
----------------------------------------------------------------------------------------------------------------
* Region 7 was eliminated in 1965 as part of re-designation of FS regions.
Source: Timber Sales System.


      Table 7--Volume of Timber Sold to Firms Getting Timber Program (T), Stewardship (S), and Both (C & S) Types of Sales by Region, FY 2004-2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   Both (T & S)                            S Under both/
                      Region *  (1)                         T only  (2)     S only  (3)  --------------------------------  Total S  (6 =   total S (\5/
                                                                                              T  (4)          S  (5)         (3 + 5))         6\) (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       Timber Acquired by All Firms (in 1,000 CCF)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................................           1,193             156           2,370           1,045           1,201            87.0
2.......................................................           2,675              56           1,642             769             825            93.2
3.......................................................             297             212             499             186             397            46.7
4.......................................................             605             179             604             310             489            63.4
5.......................................................           1,241              40           4,843           1,235           1,276            96.8
6.......................................................           2,610             188           6,247           2,489           2,677            93.0
8.......................................................           6,069             257           4,434             967           1,224            79.0
9.......................................................           3,400             107           3,415             583             690            84.5
10......................................................             491               6             456             375             381            98.5
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................          18,580           1,201          24,510           7,959           9,160            86.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      Timber Acquired by Small Firms (in 1,000 CCF)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................................           1,114             152           1,311             531             683            77.8
2.......................................................           2,177              56           1,337             649             704            92.1
3.......................................................             289             212             417             127             338            37.4
4.......................................................             497             115             476             206             321            64.2
5.......................................................           1,045              26           2,097             592             618            95.7
6.......................................................           2,179             139           4,148           1,345           1,483            90.7
8.......................................................           4,927             253           4,004             800           1,053            76.0
9.......................................................           2,727              97           2,957             419             516            81.2
10......................................................             251               6             832             375             381            98.5
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................          15,207           1,055          17,580           5,043           6,097            82.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Region 7 was eliminated in 1965 as part of re-designation of FS regions.
Source: Timber Sales System.


[[Page 66207]]

The Timber Program

    The FS sells logs in accordance with the National Forest Management 
Act, which describes the process for buying, paying for, harvesting, 
and removing wood from NFS lands. Pursuant to the Small Business Act 
(15 U.S.C. 644(a)), SBA established the timber program in 1958. At that 
time, the timber program was a mechanism for the USDA to set aside 
timber sales. In 1971, SBA and USDA signed a Memorandum of 
Understanding (MOU) which established the guidelines for determining 
``fair proportion,'' created a five-year re-computation period for 
determining the base average shares of timber purchases, and 
established a ``trigger'' mechanism for initiating set-aside timber 
sales. Currently, FS has 9 Regions comprised of 140 market areas, of 
which 139 are active as shown in Table 11. See https://www.fs.fed.us/. 
The FS sells timber through both the timber program and stewardship 
contracting. With respect to timber program sales, each FS market area 
has a distinct small business market share. This percentage, based upon 
historical sawtimber volume acquired by small businesses, sets the 
framework for what constitutes small businesses' fair proportion of the 
total timber program sawtimber sales volume. Whenever the small 
businesses market share drops 10 percentage points or more below the 
established small business market share for a market area, a set-aside 
sale is ``triggered'' and FS is required to offer set-aside sales to 
increase the small business market share. If small businesses do not 
submit bids, the set-aside sale is converted to a full-and-open sale in 
which other-than-small businesses can also compete.
    Currently, FS does not consider the sawtimber volume from IRTC and 
IRSC stewardship contracting in calculating the small business market 
share. The omission of the stewardship sawtimber volume in the 
calculation may affect small business market shares in either direction 
relative to the current policy. For example, FS' Mt. Hood market area 
(located in Region 6) has an established small business market share of 
80% (as calculated during the 2010 re-computation of small business 
market shares). Because 20% of FS' timber program sales must be 
competed as full and open in order to ensure that large businesses also 
have the opportunity to compete, 80% is the maximum allowable small 
business share and indicates a robust small business timber purchase 
market. Over the period from November 2010 through March 2015, twenty-
six (26) timber sales were offered in the Mt. Hood market area. Of 
those 26 sales, sixteen (16) were stewardship timber contracts which 
included timber volume. Twelve (12) of these were awarded to small 
businesses under full and open conditions. Ten (10) of the 26 sales 
were timber program sales. Eight (8) were awarded as full-and-open 
sales, and two (2) were small business set-aside sales.
    This data suggests that small businesses have been successfully 
obtaining timber volume in this market area, but because stewardship 
sawtimber volume is not included in determining what the correct small 
business market share calculation should be, the small business fair 
market share has dropped from 80% to 72%. This is one example of how 
not counting stewardship sawtimber volume in the calculation can 
influence what the small business established fair share should be. 
Based on the limited data available, as it appears, it is also possible 
that including the stewardship sawtimber volume in the calculation of 
fair proportion could have the reverse effect in some regions, 
increasing the five-year fair market share relevant to the current 
policy.

Public Comments in Response to SBA's Advance Notice of Proposed 
Rulemaking

    In response to requests from timber industry stakeholders, SBA 
published an Advance Notice of Proposed Rulemaking (ANPRM) in the 
Federal Register on March 25, 2015 (80 FR 15697) inviting the public to 
submit comments on or before May 26, 2015. Specifically, the ANPRM 
requested detailed comments addressing the possible inclusion of the 
stewardship contracting sawtimber volume in the small business market 
share calculations and the possible appraisal of small business set-
aside sales to the nearest qualifying small business mill. SBA received 
responses from 842 commenters. The summary of comments is provided in 
the following sections.

Comments on the State of the Timber Industry

    The ANPRM presumed that the U.S. timber industry has undergone 
dramatic changes in the past decades. As stated in the ANPRM, the 
supply of timber from the FS timber program decreased significantly 
over the past three decades impacting both large and small businesses.
    Comments to the ANPRM provided more insights into the state of the 
timber industry. For example, according to comments from a trade group 
representing small timber products companies, Timber Products 
Manufacturers Association (TPMA), since stewardship contracting was 
first piloted, small sawmills' share of Federal timber has declined by 
71%. For example, in 1993, 146 small sawmills shared access to the FS 
timber in the Western regions; in 2014, that number had decreased to 43 
firms. According to comments, remaining small business sawmills have 
made changes in their processes and the way they do business to remain 
competitive and stay in business.
    TPMA also commented that, as the number of small businesses 
declines, large firms are increasingly able to raise costs through 
anti-competitive means. That is, as the number of potential buyers for 
timber gets smaller, dominant firms are enabled to set the price. TPMA 
pointed to a study published by the SBA's Office of Advocacy. 
Innovation & Information Consultants, Inc., 2008, Analyzing the Impacts 
of Antitrust Laws and Enforcement on Small Business, prepared for the 
U.S. Small Business Administration, Office of Advocacy under contract 
no. SBAHQ-06-M-0476, available at www.sba.gov. The study found evidence 
of harmful anti-competitive behavior in the timber industry; however 
industry-wide trends indicated macroeconomic factors were equally 
important in the decline of small businesses. Specifically, the study 
indicated that a particular global forest products company made efforts 
to monopolize the red alder timber market in the Pacific Northwest by 
employing anti-competitive strategies. Still, antitrust litigation in 
the Northwest did not deter new entry into the market during this time. 
Thirty-one Washington and Oregon hardwood mills closed between 1980 and 
2001, when the large company was suspected of anti-competitive behavior 
in those states.
    In response to the ANPRM, other-than-small industry participants 
submitted data showing that, as the FS reduced its timber harvest by 
over 90%, the majority of sawmills in the western United States that 
existed in 1971 have now closed. According to a regional trade 
association representing large business operations, the Public Timber 
Purchasers Group (PTPG), between 1990 and 2010, 207 mills closed in 
Oregon (a decrease of 66%) causing a loss of 21,000 jobs. PTPG asserted 
that these economic forces have caused small sawmills to merge or be 
purchased. As a result, according to PTPG, there is only one operating 
small business sawmill capable of purchasing federal timber in some FS 
areas--and in some other areas, there are no longer small business 
purchasers at all. Additionally, a union representing manufacturing

[[Page 66208]]

workers observed that, in Oregon, virtually all organized labor in the 
lumber manufacturing sector is found in mills with consolidated 
ownership.
    Commenters also provided localized observations and data. In Bonner 
County, Idaho, according to the Bonner County Board of Commissioners, 
800 logging and sawmill jobs have been lost and only one small sawmill 
remains. According to a commenter from Coos Bay, Oregon, one of the 
largest mill sites has been converted to a casino. An executive from a 
small lumber products company in Clarkston, Washington, spoke at a May 
7, 2015 regulatory fairness hearing in Spokane about closing the 
company's Clarkston mill in 2009 because of the recession. However, 
partly because of small business set-aside timber sales from the 
Umatilla National Forest, the company has been able to reopen the 
Clarkston mill and support 80 jobs. It now operates two sawmills and 
employs 240 workers. Conversely, two small business sawmills in Montana 
initiated layoffs of between one-third and one-half of their workers.

Comments on the Current Timber Set-Aside Program

    In response to SBA's invitation for comments on the current 
Program, 221 commenters expressed general support for the current 
Program. Commenters generally asserted that small mills depend on the 
Program to purchase their fair share of timber offered for sale by the 
FS. By contrast, large business mills appear to make greater use of 
private land as a reserve for harvesting timber.
    TPMA commented that in addition to supporting small firms and their 
surrounding communities, small business set-asides do not significantly 
reduce federal revenues. The group's comment pointed to a government 
analysis showing that set-aside sales take in only two percent less 
than open sales. A study published in 2013 found that set-asides reduce 
FS revenue by 5%, and the effect of reducing competition by excluding 
large businesses is partially offset by increased small business 
participation. Athey, Susan, Dominic Coey, and Jonathan Levin. 2013. 
``Set-Asides and Subsidies in Auctions.'' American Economic Journal: 
Microeconomics, 5(1): 1-27, available at www.aeaweb.org. The commenter 
also posited that if small sawmills are pushed from the market, large 
firms would be able to drive down federal revenues from timber sales. 
The commenter pointed to revenue data from the Panhandle National 
Forest to assert that market competition from small businesses 
stabilize prices for government timber sales. TPMA asserted that 
because stewardship contracting is not part of the fair proportion 
calculation in the small business set-aside Program, small timber 
product manufacturing companies have sustained a market decline of 71% 
since the stewardship contracting was launched. The small business 
trade group observed that, in 2014, one-third of the timber volume 
offered by FS was distributed through stewardship contracting, 
including 38% in the western United States. In some regions, 
stewardship contracting exceeds 70% of FS timber volume transactions. 
According to the commenter, failure to include the volume of timber 
associated with stewardship contracting lowers the market share for 
small business set-aside sales.
    SBA also received comments from a variety of local legislators who 
described how the timber set-aside program operates in their areas. 
According to the comments, in Klamath County, Oregon, the only 
operating sawmill is an other-than-small business, so instituting set-
asides would impact the county's budget. By contrast, a legislator from 
Marion County, Oregon, commented that smaller mills that rely on set-
asides support much of the county's employment. Fifteen years ago, the 
milling industry supported 63.5% of the employment in the North Santiam 
Canyon communities; because of the downturn in the industry, the 
industry now supports 41% of employment.
    The Commissioners of Powell County, Montana, noted that the trend 
toward increasing stewardship contracts in three national forests--
Beaverhead-Deerlodge, Helena and Lolo National Forests--has reduced the 
potential amount of funding to the county because stewardship 
contracting does not feature revenue sharing as timber program sales 
do. From 2001 to 2013, the percentage of stewardship contracting on the 
Beaverhead-Deerlodge and Lolo National Forests accounted for over 23% 
of the sawlog volume sold during that period.
    A commenter from Salem, Oregon, responded that the local community 
has suffered a devastating impact because of the reduction in revenues 
from timber sales. According to the commenter, declining timber 
revenues has meant fewer jobs, less revenue for county services, and 
less revenue to support families.
    Several private business commenters remarked that failure to 
include the volume of timber associated with stewardship contracting 
lowers the market share for small business set-aside sales. A lumber 
company in Lyons, Oregon, that employs 430 people commented that 38% of 
its federal timber was bought on a small business set-aside basis. The 
commenter expressed concern that half of the sales volume available to 
it is being distributed through stewardship contracting, which limits 
the volume available through timber program open and set-aside timber 
sales. A 93-year-old lumber company in southwest Oregon stated that 
100% of its federal timber under contract was purchased through small 
business set-asides. The commenters worried that, without the small 
business set-aside program in place, large businesses would starve 
small businesses out of public timber.
    Another small business lumber company in north central Idaho 
remarked that the small business set-aside program is non-existent in 
Nez Perce-Clearwater National Forest because in excess of 80% of the 
forest's timber volume is sold through stewardship contracts. The 
commenter stated that, because the stewardship program is not subject 
to set-asides, its business could not avoid bidding against large 
businesses.
    From Montana, a family-owned sawmill and forest management company 
commented that 15 million board feet of logs from the Flathead National 
Forest has been made available through stewardship contracting, rather 
than through the timber sales program. The commenter observed that this 
volume would be enough to run its mill for nearly six months.

Comments With Requests for Government Action

    A substantial number of commenters asserted that agency action is 
required to avoid irreparable harm to the competitive timber market in 
the United States, leading to the closure of many small timber 
manufacturers. Many commenters from small business mills are the 
primary employers in their rural communities, and they believe that the 
lack of action will result in thousands of jobs lost and the 
destruction of many of these communities. The small business industry 
group commented specifically that failing to include stewardship 
contracts in the small business timber set-aside program has decimated 
small timber manufacturers.
    Several commenters also noted that large multinational companies 
have begun to aggressively pursue both timber program full-and-open and 
stewardship sales in an attempt to drive small businesses from the 
playing field. For example, a third-generation small

[[Page 66209]]

business logging operation in Washington and Oregon found that 
stewardship contracting is replacing the timber sale program. The 
commenter purchases most of its federal timber from the Mt. Hood and 
Gifford Pinchot National Forests, but has seen a 90% reduction in 
available timber volume since 1990. The commenter observed that there 
are very few small business set-aside sales because of the predominance 
of stewardship sales, and speculated that large forest products 
companies have worked to drive small family-owned companies out of 
business in order to consolidate the market share.
    A small business lumber company from Deer Lodge, Montana, operating 
in an area where the FS owns over 60% of timber lands, commented that 
it is dependent on the small business timber set-aside program. The 
commenter stated that it initially supported stewardship contracting, 
but did not expect that it would be a major part of FS's timber 
offerings. As the percentage of stewardship offerings has become a 
third of the overall timber program volume, the commenter predicted 
that it would only be able to continue operations if it has an 
opportunity to bid on a fair share of federal timber sales without 
interference from large businesses. The Mayor and City Council of Deer 
Lodge, Montana, also support the set-aside program, stating that the 
sawmill industry made up the cultural and economic basis for the 
community.
    A small sawmill in Kamiah, Idaho, commented that it had been shut 
down during the 2008 recession, but started up again with 65 employees 
after it was auctioned off. The commenter responded that it has found 
predatory bidding in non-set-aside sales and, as a result, has not been 
able to purchase public logs in two years. The commenter stated that it 
is surviving only on private landowner logs, and it believes that its 
sawmill will fail and 65 jobs will be lost if the set-aside program is 
not amended. The Mayor of Kamiah commented that the city has one of the 
highest unemployment rates in Idaho. The Mayor wrote that losing the 
local sawmill industry would devastate the area economically.
    A substantial number of commenters from across the western United 
States commented that their communities and families relied on the 
local sawmills. One commenter from Colville, Washington, responded that 
he has been on unemployment twice in the past three years because of 
timber shortages. An individual commenter from St. Regis, Montana, 
added that small family-owned forest product companies need the SBA 
set-aside program to ensure stable access to government timber. 
Similarly, an individual from Lyons, Oregon, commented that the set-
aside program supported a stable environment for small-town families. A 
commenter from Weippe, Idaho, remarked that the sawmill that was 
founded there in 1947 has relied on set-aside sales to compete with 
large sawmills.
    A union group commented that it opposes any government action and 
believes that agencies should craft a solution that does not 
disproportionately punish organized labor.
    Several commenters pointed to Congressional efforts to force agency 
action. Congress has urged the Administration to address this issue 
through multiple bills and correspondence. In 2014, Congress included 
the following report language in the Joint Explanatory Statement 
accompanying Public Law 113-235, the Consolidated and Further 
Continuing Appropriations Act, 2015 (160 Cong. Rec. H9768, Daily ed. 
Dec. 11, 2014):

    The Forest Service is strongly encouraged to expeditiously 
prepare and publish draft rulemaking to establish a small business 
set[hyphen]aside program for timber contracts undertaken using 
stewardship contracting authority that is consistent with previous 
commitments made by the Service and the Department of Agriculture on 
this matter.

    Similar language on the need for either SBA or the FS to address 
the issue through regulation is included in the FY2016 appropriations 
bills or in Congressional correspondence to the agencies.

Comments on Including Stewardship Contracting Sawtimber Volume in Small 
Business Market Share Calculations

    Over 300 commenters urged SBA to include stewardship sawtimber 
volume in the small business market share calculation, while 15 
commenters opposed it. Based on SBA's analysis of both the available 
data and comments received in response to the ANPRM, SBA is considering 
including the stewardship sawtimber volume in the calculation of small 
business market shares. SBA's ANPRM requested comments on how the 
inclusion of stewardship sawtimber might impact future market share 
calculations, stumpage prices, land management activities, retained 
receipts, and sale values. SBA also requested comments on whether an 
increase in the utilization of stewardship contracts in a market area 
might result in a lower representation of small businesses successfully 
bidding for timber sales in that market area and whether this should 
lead to lowering the market share for small business set-aside sales in 
that market area when the FS and SBA compute small business 
participation. Commenters provided a wide range of views on these 
topics.
    Of the 842 commenters, 327 suggested that stewardship sawtimber 
sales should be included in the calculation of set-aside trigger 
points. Further, 14 commenters urged SBA and FS to include the 
stewardship sawtimber volume in the upcoming (now recent) five-year re-
computation of small business shares to ensure accurate representation 
of small business participation. TPMA, the small business trade group, 
commented that increasing use of stewardship contracting, in particular 
IRTCs, creates a ``loophole'' in the small business market share 
calculation. According to TPMA, as IRTC contracting becomes more 
prevalent, the calculated small business market shares become distorted 
because they are only computed based on a handful of sales. This is 
because one-third of the market volume is being transacted through 
stewardship contracts and is currently excluded from the small business 
market share calculation. TPMA asserted that the omission of 
stewardship contracts understates the volume of timber being transacted 
and thus results in the inflation of the calculation of the small 
business market share. TPMA pointed to the Payette market area, where 
there were only two standard timber sales contracts. TPMA asserted that 
excluding stewardship volumes from the calculation prevents small 
businesses from achieving a representative re-computation that is 
consistent with the Small Business Act.
    Fifteen commenters stated that stewardship timber volume should not 
be included in the calculation. The PTPG commented that the goal of the 
stewardship program is to accomplish forest health, watershed 
improvement and similar projects with the sold timber offsetting some 
or all of the costs. Because the selection of stewardship contractors 
is a subjective process that uses a ``best-value'' process, PTPG 
asserted that stewardship contracting should be excluded because re-
computations of market shares for set-aside sales should be based upon 
objective timber sale data. Also, PTPG commented that, if stewardship 
sales were included in the set-aside timber sale program, the number of 
potential contractors would be significantly limited for any 
stewardship sale designated as a set-aside.

[[Page 66210]]

    Thirty-nine commenters expressed that failure to include the 
stewardship sawtimber volume in the small business market share 
calculation will adversely affect the small businesses which rely on 
the federal timber supply. These commenters suggested that the trend 
towards stewardship contracting negates the positive impacts of the 
small business timber set-aside program. In particular, a small 
business sawmill in Deer Lodge, Montana, and the largest private 
employer in Deer Lodge, commented that stewardship contracting has been 
increasing in use, both in terms of number of sales and sawlog volume. 
Although the business has promoted stewardship contracting as a 
positive method of resolving resource conflicts on National Forest 
Land, it supports including the stewardship sawtimber volume in the SBA 
set-aside calculations.
    Similarly, a trade group in Idaho representing logging and wood 
hauling contracting businesses supported including stewardship 
contracting sawtimber in the calculation of shares of timber program 
sales acquired by small businesses. The trade group observed that, in 
some Idaho forests, the stewardship timber volume has exceeded over 80% 
of total timber sales in four of the last five years.
    The comments from a small business trade group emphasized that 
adding the stewardship sawtimber would add transparency and diligence 
to the recordkeeping process. These commenters observed that, even 
within the timber program, the volume in transactions with small 
businesses is inaccurate because the calculations are based on volumes 
advertised and awarded, and does not include volumes added through 
contract modifications.
    SBA's ANPRM requested comments as to how the stewardship sawtimber 
volume should be accounted for in calculating the small business market 
share. Six commenters suggested that FS simply use existing timber 
program sale rules and norms to count sawtimber volume from stewardship 
projects. TPMA asserted that adding stewardship sawtimber volumes to 
the calculation would not be difficult. According to TPMA, FS develops 
an appraisal for each stewardship opportunity to decide the value of 
the timber available to be exchanged for services. These volumes and 
values could be tracked and used to adjust proportions used in the 
Program. Additionally, TPMA commented that FS provides upon the 
requests of the Timber Data Company with Reports of Timber Sales (FS 
2400-17) which contain timber volume data for all timber sale 
contracts.
    Three commenters asserted that, depending on the market area, 
inclusion of the stewardship timber volume may increase small business 
participation in both stewardship contracting and the timber program. 
Five commenters felt that increased competition from the inclusion of 
stewardship sales would increase stumpage rates. The same number of 
commenters stated that inclusion of the stewardship sawtimber volume 
would reduce the number of bidders and decrease stumpage rates.
    Six commenters felt that any financial impact on sales value is 
less important than the socioeconomic benefits. These commenters also 
suggested that while timber prices may increase with the inclusion of 
stewardship sawtimber volume in the small business market share 
calculation, it would have no impact to the treasury. Conversely, four 
commenters stated that inclusion of the stewardship sawtimber volume 
would reduce treasury revenue and the value of public timber.
    Seven commenters felt that the impact on small market shares of 
including the stewardship sawtimber volume in the calculation would 
vary by market area. One commenter expressed that inclusion of the 
stewardship sawtimber volume would have a beneficial impact on future 
market shares.
    Eleven commenters suggested that if stumpage rates were decreased, 
restoration activities, retained receipts and local employment would be 
negatively impacted. A small, second-generation, family-owned lumber 
manufacturing business in Eugene, Oregon, supported including 
stewardship sawtimber volume to prevent circumvention of the set-aside 
program.
    Nineteen commenters went so far as to state SBA and FS have a legal 
obligation to include the stewardship contracting sawtimber volume in 
the small business market share calculation to ensure small businesses 
purchase a fair proportion of sawtimber volume. Under section 15(a) of 
the Small Business Act, SBA bears the responsibility of ensuring that 
small businesses receive a fair proportion of ``total sales'' of 
Government property. SBA believes that sawtimber transacted through 
stewardship contracting should be properly included as an element of 
``total sales'' under the Small Business Act, because much of 
stewardship contracting is done through IRTC contracts where FS 
receives cash from the transaction.
    While several commenters believed that the small business market 
share is overstated, overall small business base market share may 
actually be understated because small business' high share of the 
stewardship contracting sawtimber volume is not included in the base 
market share calculation. As noted above, stewardship sales account for 
approximately one-third of total timber sold by the FS. In the majority 
of FS regions, small businesses purchase the majority of the 
stewardship contracting timber volume. However, large businesses 
capture the majority of the stewardship contracting timber volume in 
some market areas. For example, according to comments, large businesses 
captured 75% of the stewardship volume in the St. Joe Market Area, 
presenting a challenge to two small sawmills in the area.
    SBA's is considering a potential policy change to include 
stewardship contracting sawtimber volume in the calculation of small 
business market shares. SBA's analysis shows that failure to include 
stewardship contracting sawtimber volume may either favorably, 
unfavorably, or negligibly skew the base small business market shares 
used to determine when FS must set aside timber program sales in some 
market areas. Inclusion of stewardship contracting sawtimber volume in 
the small business market share calculation could also more accurately 
capture small business participation and ensure transparency of the 
Program, another justification under consideration.
    SBA welcomes additional comments on the possibility of including 
the stewardship sawtimber volume in the calculation of base small 
business market shares. Specifically, SBA requests additional comments 
and data related to the calculation methodology and analysis set forth 
in this rule. SBA requests comments as to whether those regions or 
market areas where small businesses purchase a large percentage of 
sawtimber through stewardship contracting should receive different 
treatment in the computation of small business market shares and, if 
so, what that alternative treatment should be. Likewise, SBA requests 
comments as to whether those market areas where the stewardship 
contracting represents a large percentage of overall sawtimber volume 
should receive different treatment. Additionally, SBA seeks comments as 
to whether the inclusion of the stewardship sawtimber volume should be 
subject to any caps or other special considerations. SBA also seeks 
comment on its authority under section 15(a) of the Small Business Act 
to treat all stewardship sawtimber sales as an element of ``total 
sales'' and whether there are alternative treatments--

[[Page 66211]]

including whether to consider some or all stewardship contracts as an 
element of ``total purchases and contracts'' under section 15(a). In 
order to have the most robust picture possible, SBA is further 
requesting additional data regarding the potential impact of including 
the stewardship sawtimber volume in the small business market share 
calculation. SBA is particularly interested in any data suggesting 
potential impacts on future market shares and stumpage rates.

Comments on Changing Appraisal Point in Calculating Minimum Acceptable 
Bid for Set-Aside Timber Sales

    SBA's ANPRM requested comments on several issues related to the 
appraisal methodology FS uses to appraise set-aside timber sales under 
the timber program: How to best reflect the actual haul costs to 
eligible small business timber set-aside purchasers; whether there 
should be special considerations in those market areas that do not have 
mills that would qualify as ``small'' under the SBA's criteria; how to 
account for the ``30/70 rule'' in the appraisal process; and whether 
trust funds would be impacted by changing the appraisal point in set-
aside sales.
    Regarding the appropriate appraisal point, 28 commenters stated 
that appraisal of haul costs should be made to the nearest small mill 
in set-aside sales while 12 commenters expressed that the appraisal 
should be made to the nearest mill regardless of size. Those in support 
of changing the appraisal point in set-aside sales to the nearest small 
mill believed that such an approach would more accurately reflect the 
realities faced by small businesses. Several commenters observed that, 
for its set-aside sales, the BLM appraises haul costs to the nearest 
small business facility capable of handling the timber volume in BLM's 
eight markets in Oregon. A small business commenter responded that the 
current process of appraising set-aside timber sales to a large 
business defeats the purpose of the set-aside program. The small 
business trade group commented that the appraisal of a set-aside sale 
should include a haul-cost adjustment to account for the actual cost of 
hauling. The same commenter pointed to the FS Timber Sale Preparation 
Handbook, Chapter 40, section 45.11 (FSH 2409.18), available to the 
public at https://www.fs.fed.us/cgi-bin/Directives/get_dirs/fsh?2409.18, 
which provides that the FS chooses an appraisal point where the 
manufacturing facility ``is capable of'' processing the end product 
being appraised.'' Because of the 30/70 rule, applying the Handbook 
approach should result in the FS appraising for haul costs to a small 
manufacturer, rather than the closest large business facility. SBA 
agrees that appraisal to a small business mill more accurately captures 
the cost to eligible bidders. As such, SBA is proposing to appraise 
haul costs to the nearest qualifying small mill in set-aside sales.
    Ten commenters felt that a change in the appraisal process would 
require haul cost subsidies and lead to reduced revenue and 
reinvestment opportunities. The PTPG, for example, commented that 
changing the appraisal point would cause the FS to divert stewardship 
funds to subsidize long hauls to distant mills. Some set-aside sales 
could result in negative appraised value, according to the PTPG 
comments. Another commenter responded that a change to the appraisal 
point would divert federal timber away from union workers and would 
reduce federal timber receipt-sharing for rural communities.
    Four commenters stated that a change in the appraisal point will 
not impact trust fund collections, while three commenters believed that 
trust fund deposits would be reduced. The large business trade group in 
particular commented that, if the appraisals resulted in below-cost 
timber sales, rural communities would be harmed by the reduction in 
federal timber payments. The same commenter responded that a change in 
the appraisal point would cause inefficiency by allowing distant mills 
to purchase set-aside logs.
    Thirteen commenters felt that FS and SBA should take greater steps 
to enforce the 30/70 rule in set-aside sales. Fifteen commenters felt 
that appraisal should be made to the nearest small mill only if it is 
located within a reasonable distance from the sale. These commenters 
believed that FS should suspend the set-aside or waive the 30/70 rule 
if no small mills are located within a reasonable distance of the sale. 
Seven commenters expressed that the 30/70 rule should either be 
eliminated altogether or waived for non-manufacturers when no small 
mill is present. Eleven commenters felt that inclusion of the 30/70 
rule in appraisal point calculations would unnecessarily complicate the 
process, increase risks, and reduce stumpage rates and revenue.
    Although commenters to the ANPRM proposed various alternatives as 
to how haul costs should be appraised in small business set-aside 
sales, none of the commenters provided any data that would adequately 
support one alternative over the other. As such, SBA requests 
additional comments regarding the other alternatives identified in 
comments to the ANPRM. Specifically, SBA requests comments as to 
whether haul cost adjustments should be made for non-manufacturers. 
Further, as noted above, several commenters recommended appraisal to 
the nearest small mill only if it is a ``reasonable distance'' from the 
sale. SBA requests comments as to what constitutes a reasonable 
distance. SBA also requests examples of market areas where the 
recommended reasonable distance would make a significant difference in 
the appraisal price. Understanding that any sale price accepted by the 
government must be ``fair and reasonable,'' SBA requests comments as to 
why an increased appraisal cost to the nearest small mill would still 
support such a finding.
    SBA is also aware that certain market areas do not have small mills 
located within their geographic boundaries. Accordingly, SBA requests 
additional comments regarding potential geographic exceptions for 
market areas with no small mills.
    Finally, with respect to appraising haul costs with respect to the 
30/70 rule, SBA requests comments as to whether SBA should consider, 
when the nearest mill is a large business, appraising 70% of the haul 
costs to the nearest small mill and 30% of the haul costs to the 
nearest large mill. SBA specifically requests comments as to whether 
such an approach is or is not favorable, given that it may accurately 
reflect the true costs to haul the timber, but may unnecessarily 
complicate the process.
    SBA notes that a number of commenters interpreted SBA's ANPRM to 
propose a change of the appraisal point in all timber program sales. 
This is not SBA's intent. As noted above, SBA is proposing that the 
appraisal be made to the nearest small mill only in the case of set-
aside sales.

Comments on Other Issues

    SBA notes that a number of commenters interpreted SBA's ANPRM as a 
proposal to subject stewardship contracting to the procedures of the 
small business timber set-aside program. For example, a large business 
trade group stated that, if stewardship sales were included in the set-
aside timber sale program, the number of potential contractors would be 
significantly limited for any stewardship sale designated as set-aside. 
The same commenter remarked that stewardship set-aside sales would 
complicate the application of the 30/70 rule. The commenter also noted 
that if a stewardship sale is designated by the

[[Page 66212]]

SBA as set-aside and there are no local small business mills, local 
labor would not be involved in the processing of those logs. Another 
industry commenter predicted that fewer acres of at-risk forest would 
be restored if stewardship contracts were subject to the set-aside 
requirement, and this would be contrary to congressional authorization 
of local preference and best-value contracting. A union commenter 
responded that the inclusion of stewardship contracts in the set-aside 
program would circumvent an award to the most local and economic mill 
in favor of a small business that could potentially be hundreds of 
miles away. Six commenters felt that small businesses already purchase 
a substantial share of the federal sawtimber. Conversely, the small 
business trade group stated that stewardship sales should be set aside, 
and the result would be preservation of competition for government 
sales.
    It is not the intent of this proposed rule, however, to apply the 
set-aside rules to stewardship contracting. The intent of this rule is 
only to define, under authority of section 15(a) of the Small Business 
Act, what procedures SBA should use to calculate the proportion of 
``total sales'' of timber flowing to small businesses. SBA is 
considering whether to include the stewardship sawtimber volume 
purchased by small businesses in the calculation of small business base 
market shares used in triggering timber program sale set-asides, but 
SBA is seeking comments and data before moving forward with such a 
policy change.
    Approximately 45 commenters urged SBA and FS to conduct a 
comprehensive review of small business timber sale set-aside program 
procedures before implementing any changes. These commenters observed 
that SBA and FS rules for the set-aside timber sale program have not 
been updated to reflect the changing industry infrastructure or federal 
timber supply. Other commenters disagreed, urging SBA to make these 
changes prior to the October 1, 2015 re-computation. These commenters 
also emphasized that they have been seeking these changes for many 
years and saw further reviews or studies merely as another delaying 
tactic.
    An additional five commenters felt that the re-computation period 
should be shortened to ensure continued accurate representation of 
market shares. Three commenters suggested that the structural re-
computation method should be eliminated altogether. One commenter 
suggested carrying forward market area deficits into the next five-year 
period. SBA believes these issues are more appropriately addressed 
through negotiations between SBA and FS.

Potential Changes to the Timber Program Currently Under Consideration

    As discussed in detail above, SBA is considering including the 
volume of sawtimber sold through stewardship contracting in developing 
the 5-year re-computation of small business market shares which are 
used to determine when timber program sales must be set aside for small 
businesses in the FS regions. SBA recognizes that in some regions, 
small businesses are successfully competing for full-and-open sales 
under the stewardship contracts. This possible policy would not likely 
alter that fact. SBA also recognizes that in some regions, small 
business may be successfully winning under timber program sales without 
set-asides. Again, this policy would not be intended to alter that 
fact. In some regions, counting the stewardship sawtimber volume may 
result in triggering a set-aside opportunity that might not otherwise 
occur without this new policy in place. In others, counting the 
stewardship sawtimber volume may result in removing a set-aside 
opportunity where one previously existed. In still other regions, 
including the stewardship sawtimber may have no impact relative to the 
status quo. Regardless, this policy under consideration would establish 
a transparent process across all FS regions.

Compliance With Executive Orders 12866, 13563, 12988, 13132, the 
Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory 
Flexibility Act (5.U.S.C. 601-612) Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
proposed rule is a significant regulatory action for purposes of 
Executive Order 12866. Accordingly, the SBA's Regulatory Impact 
Analysis can be found below. This is not a major rule, however, under 
the Congressional Review Act, 5 U.S.C. 80, et seq.

Regulatory Impact Analysis

1. Is there a need for this regulatory action?

    The proposed rule furthers statutory intent that small business 
concerns receive a fair proportion of the total sales of Government 
property. See Section 2(a) of the Small Business Act (15 U.S.C. 
631(a)); Section 15(a) of the Small Business Act (15 U.S.C. 644(a)).
    Because of the locations and sparse number of the remaining 
sawmills, current appraisal points used for assessing hauling costs may 
have prevented many small sawmills from bidding on set-aside timber 
sales, since fuel costs for transporting the timber from the forest to 
the processing location may negate the profit margin of the purchase. 
As such, the proposal to appraise set-aside haul costs to the nearest 
small business mill is necessary to accurately reflect the costs to 
eligible bidders.
    As noted above, SBA is also considering a potential policy change, 
but not proposing in this rule, to include the stewardship sawtimber 
volume (from both the IRTC and IRSC contracts) for the calculation of 
the small business fair proportion market share of timber program 
sales. To assess the trends on timber program l and stewardship timber 
sales and impacts to small businesses from such a policy change, SBA 
conducted multiple analyses with the limited data available. The 
results showed that timber program set-aside sales have declined since 
stewardship contracting began and that each FS region has steadily 
increased the availability of stewardship contracting during the period 
from 2004 through 2014. In addition, in several FS regions, especially 
those where timber sold through stewardship contracting is large 
relative to total timber sold, and in aggregate (i.e., all regions 
combined) the percentage of timber purchased by small businesses is 
lower under the stewardship program than under the timber program. 
Thus, the failure to include the volume of sawtimber sold through 
stewardship contracting could overstate or understate the small 
business market share for set-aside sales under the timber program. The 
available data indicates that, with the omission of the stewardship 
sawtimber, small business market shares could be understated for 
regions where small mills dominate the stewardship market and 
overstated for regions where large businesses dominate that market. 
Further, including the stewardship sawtimber volume could more 
accurately reflect small business participation rates for purposes of 
calculating the set-aside trigger point in the timber program, 
regardless of the direction of the impact on small businesses. While 
SBA is not proposing in this rule to include the stewardship sawtimber 
volume in the small business fair proportion or market share 
calculation, the Agency is seeking

[[Page 66213]]

public comment on impacts of this potential policy change in the 
future.

2. What are the potential benefits and costs of this regulatory action?

    SBA's proposal to appraise small business set-aside timber sales to 
the nearest small business mill would enable small businesses to comply 
with existing laws affecting set-aside timber sales while promoting an 
atmosphere more conducive for them to participate in the overall FS 
timber market. Using the appraisal data received from FS, SBA estimated 
total sales to be about 2,900 for FY 2009-2014, of which 86% were sales 
to small businesses. Using the same data, excluding special salvage 
timber set-aside sales, SBA identified 156 small business set-aside 
sales (or 5.3% of all sales and 6.2% of all small business sales) that 
were appraised to a large business mill. A regional breakdown of these 
data is provided below in Table 9, below. Based on the data obtained 
from SBA's Timber Sales System (TSS), SBA estimated total average 
receipts FS received for FY 2002-2014 for all Regions to estimate the 
cost (i.e., receipt loss) to FS from the SBA's proposed change.
    The FS conducted an econometric study to assess the impacts of 
SBA's proposal to appraise hauling costs of all set-aside timber sales 
to the nearest small mill and potential policy change to include the 
stewardship sawtimber volume in the small business fair proportion or 
market share calculation. Specifically, FS estimated a stumpage 
equation for each FS region outside of Region 10 (Alaska) with a bid 
premium (i.e., difference between bid price paid and reserve/minimum 
bid price set by FS) as a function of a number of variables, including 
the number of bidders, total haul miles, logging costs, total volume 
harvested, time trend, and a series of dummy variables indicating 
whether the sale was a small business set-aside sale, a salvage sale, 
or a stewardship sale. These results are provided in Table 8, below.
    As can be seen from the results in Table 8, the estimated equations 
explained about 35% of total variation in bid premiums for Regions 1, 
3, and 5, followed by 16% for Region 6 and less than 10% for remaining 
affected FS regions. Thus, the results suggest that several other 
relevant factors may have been needed to explain the variation in bid 
premiums.

                           Table 8--Stumpage Price Equations Estimated for Regions 1 to 9 by Forest Service Dependent Variable
                                [Bid premium, a difference in the winning stumpage price minus the reserve price ($/CCF)]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                            Regions                             Region  1  Region  2  Region  3  Region  4  Region  5  Region  6  Region  8   Region  9
--------------------------------------------------------------------------------------------------------------------------------------------------------
Independent Variables.........................................                                     Parameter Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Intercept.....................................................   * -15.41     100.19      -0.02     -28.19  ** -15.74  ** -30.67     -78.19       807.06
Lumber Price Index............................................    ** 0.07      -0.14       0.00       0.17     * 0.02       0.06  .........  ...........
Hardwood Price Index..........................................  .........  .........  .........  .........  .........  .........       0.09        -4.22
Softwood Price Index..........................................  .........  .........  .........  .........  .........  .........       0.24         -1.7
Number of Bidders.............................................    ** 8.54        6.6    ** 4.66   ** 12.97   ** 10.67    ** 9.79   ** 18.99      * 70.01
Total Volume Harvested (1,000 CCF)............................      -0.58      -0.65      -0.20   ** -1.59       0.15   ** -0.58    ** -5.7   ** -117.93
Logging Costs ($/CCF).........................................  .........      -0.59       0.00    * -0.16  .........     * 0.06    ** 0.21        -4.55
Contract Costs ($/CCF)........................................       0.19       0.29       0.06       0.02  .........      -0.08   ** -2.18        -0.56
Distance to the Nearest Mill (miles)..........................      -0.02       0.35      0.004      -0.01   ** -0.04   ** -0.06      -0.02  ...........
Hauling Costs ($/CCF).........................................  .........  .........  .........  .........  .........  .........  .........         2.89
Logging Index.................................................    * -2.38  .........  .........  .........  .........  .........  .........  ...........
Sealed Bid Dummy (0, 1).......................................       0.84      29.59      -2.58     -12.43    ** 5.35    ** 7.52    * 28.44    ** 153.32
Set-Aside Dummy (0, 1)........................................   ** -7.88      -5.87  .........     -12.84      -1.04    * -4.77  ** -12.29   ** -131.51
Salvage Sale Dummy (0,1)......................................       0.75       1.77       0.11       7.94    ** 6.48    ** 6.26  ** -25.66     * 175.88
Stewardship Dummy (0,1).......................................      -1.38      -2.75    * -3.05     -14.97     * 5.75     * 5.44       8.96        90.06
Time Trend....................................................      -0.31      -5.32      -0.01      2.011      -0.42       0.46       1.73        14.38
R2............................................................       0.38       0.04       0.37       0.06       0.36       0.17       0.09         0.03
R2-Adjusted...................................................       0.37       0.01       0.34       0.03       0.35       0.16       0.08         0.02
Mean of Dependent Variable....................................      29.85      20.16       3.70      23.55      16.83      22.62      34.92       168.38
No. of Observations...........................................        554        627        245        487        973      2,117      2,627        1,883
No. of Observations Used......................................        544        480        210        364        727      1,731      2,273        1,628
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: USDA Forest Service Econometric Study.
* Significant at the 5% level.
** Significant at the 1% level.
Note: The significance levels are based on the Heteroscedasticity consistent standard errors. The USDA/FS results didn't include Region 10 (Alaska).
  Region 7 was eliminated in 1965 as part of re-designation of FS regions.

Impact of SBA's Proposal To Appraise Any Small Business Set Aside 
Timber Sale to the Nearest Small Business Mill

    To assess the impact of changing the appraisal point for the small 
business set-aside sales to the nearest small business mill, SBA 
analyzed the appraisal data provided by FS and timber sales data from 
TSS. Specifically, SBA received eight different tables from FS with 
appraisal data for Regions 1 through 9 (the data did not include Region 
10). Each table included the appraisal point for each sale during 
fiscal years 2009-2015, by region. SBA merged the eight tables into 
one, and then cleaned and reformatted several variables. For example, 
the numerical value for distance to the nearest small mill was cleaned 
by taking out the character values (e.g. ``mi.'' = miles). Likewise, 
the number and size of bidders were separated or reformatted as 
characters (type of the bidder such as small non-manufacturer, small 
manufacturer, etc.) or number of bidders, as appropriate. For example, 
if the original variable included 1-SN and 4-SM in one cell, then one 
variable was created for SN (small non-manufacturer) and another 
variable for SM (small manufacturer) and 1 was assigned to the former 
and 4 to the latter. The cleaned data were then filtered to identify 
all small business set-aside sales (i.e., set aside = Yes) that were 
appraised to a large mill (i.e., appraisal point = LM (LM = Large mill/
manufacturer)), because these are the cases that will be

[[Page 66214]]

impacted by the SBA's proposal. When compared with the TSS data, the FS 
appraisal data for fiscal year 2015 were found to be incomplete and was 
not included in the analysis.
    As shown in Table 9 (below), the results from the FS appraisal data 
indicate that the SBA's proposal to appraise the small business set-
aside sales to the nearest small business mill would impact 5.3% of all 
sales and 6.2%of all small business sales. On an annual basis, the 
proposed change would benefit approximately 65-70 small businesses that 
participate in set-aside timber sales.

   Table 9--Count of Total and Set-Aside Sales and Average Number of Bidders Participating in Set-Aside Sales Appraised to a Large Mill, FY 2009-2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Total number of sales                   Set-asides appraised to a large mill
                                                          ----------------------------------------------------------------------------------------------
                                                                                                                                            Average
                       FS Region *                                                                                                         historical
                                                              All sales **      Sales to small     Count of sales      Share of all      participation/
                                                                                  businesses                            sales  (%)     number of bidders
                                                                                                                                            affected
--------------------------------------------------------------------------------------------------------------------------------------------------------
1........................................................                159                129                 12                7.5                4.8
2........................................................                256                238                  2                0.8                0.3
3........................................................                 42                 42                  0                0.0                  0
4........................................................                112                110                  1                0.9                  1
5........................................................                195                146                 32               16.4               10.7
6........................................................                397                292                 41               10.3                 18
8........................................................                858                772                 41                4.8                 16
9........................................................                897                787                 27                3.0               17.2
                                                          ----------------------------------------------------------------------------------------------
    Total................................................              2,916              2,516                156                5.3               68.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Region 10 (Alaska) was not included in the FS appraisal data and Region 7 was eliminated in 1965 as part of re-designation of FS regions.
** Includes sales for which size/type of the purchaser was missing but excludes sales for which region was not specified. Salvage timber sales were also
  excluded.
Source: FS appraisal data and SBA calculations.

    Using the FS appraisal data, SBA was also able to estimate distance 
to the nearest small mill from the nearest large mill for each set 
aside sale that was appraised to a large mill and some key summary 
statistics for the same. These results are provided in Table 10, below. 
The median distance to the nearest small mill is about 62 miles and the 
mean distance about 66 miles. This analysis does not reflect the more 
appropriate analysis of the distance from the sale to the nearest mill 
and small mill, for which data were not readily available.

      Table 10--Summary Statistics of Distance Between the Nearest Small Mills and the Current Large Mill Appraisal Points (in miles), FY 2009-2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              First                       Third
                Region *                    quartile       Median       quartile        Mean        Standard       Minimum       Maximum      Number of
                                              (25%)         (50%)         (75%)                     deviation                               observations
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................          37.0          42.0          65.0          52.8          29.1            22           108            12
2.......................................         132.0         132.0         132.0         132.0           0.0           132           132             2
                                         ---------------------------------------------------------------------------------------------------------------
3.......................................                              (no Region 3 set-aside sales appraised to a large mill)
                                         ---------------------------------------------------------------------------------------------------------------
4.......................................           6.0           6.0           6.0           6.0           0.0             6             6             1
5.......................................          89.0         101.0         136.0         108.6          54.0             1           195            32
6.......................................          30.0          65.0          90.0          66.5          44.6             0           163            41
8.......................................          30.0          97.0          97.0          63.9          34.8            10            97            41
9.......................................          10.0          15.0          25.0          22.2          18.3             5            70            27
Overall.................................          23.5          62.2          97.0          66.2          48.2             0           195           156
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Region 10 was not included in the FS appraisal data and Region 7 was eliminated in 1965 as part of re-designation of FS regions.
Source: FS appraisal data and SBA calculations.

    With respect to the impacts of the proposed change on bid/stumpage 
price and on FS receipts from timber sales, FS econometric/stumpage 
equations included two variables related to hauling costs, namely 
distance to the nearest mill (for Regions 1 through 8) and total 
hauling costs ( for Region 9) (see Table 8). While FS, based on its 
conceptual analysis of relationships among reserve price, bid price, 
bid premium and hauling costs, expected these variables to have a 
negative impact on bid premium, the results were rather mixed. 
Specifically, the estimated coefficients associated with distance to 
the nearest mill were negative for Regions 1, 4, 5, 6, and 8, and 
positive for Regions 2 and 3. The estimated coefficient for hauling 
costs was also positive for Region 9. Among the regions with a negative 
coefficient for distance to the nearest mill, the coefficient was 
significant only for Regions 5 and 6.
    Amid these results, FS concluded that, conceptually, both FS 
receipts and money flowing into the trust funds from timber receipts 
will decrease under the SBA's proposal to appraise the set-aside timber 
sales to the nearest small mill, but without information on the number 
of set-aside sales that would be affected and additional hauling costs 
incurred in each affected sale, it is not possible to

[[Page 66215]]

quantify the financial impacts. However, SBA was able to fill these 
gaps in the FS analysis by estimating cost (receipts loss) to FS from 
the SBA's proposal to change the appraisal point for set-aside sales to 
the nearest mill by combining the results from the FS appraisal data 
(i.e., number of set-aside sales affected and distance from the current 
appraisal point to the nearest small business mill for those sales), FS 
econometric results (i.e., the estimated coefficients associated with 
distance to the nearest mill and hauling costs), and TSS timber sales 
data. This analysis is done only for Regions 5 and 6 because these are 
the only two regions where the estimated coefficient for the distance 
to the nearest mill was significant and had the FS expected negative 
sign.
    Accordingly, SBA estimates cost or receipt loss to FS due to the 
proposed change to use the nearest small business mill to appraise the 
set aside sales as follows:

    Receipt loss = regression coefficient for distance to the 
nearest mill (Table 8) x median distance to the nearest small mill 
(in miles) (Table 10) x number of set-asides appraised to a large 
mill (Table 9) x average volume of set-aside sale (CCF) from TSS.

    The average volume of set-aside sales was based on the FY 2009-2014 
data from TSS. Accordingly, receipt loss for Region 6 is estimated to 
be about $1.07 million (-0.057 x 65 x 41 x 6,979 = -1,066,439), which 
is about 0.9 percent of total FS timber receipts for Region 6, 
estimated at about $124 million (i.e., total volume times average bid 
price) for FY 2009-2014. Similarly, for Region 5, receipt loss is 
estimated at about $0.91 million (-0.045 x 101 x 32 x 6,261 = -
908,634), which is about 2.4 percent of total FS timber receipts for 
Region 5, estimated at about 38 million (i.e., total volume times 
average bid price) for FY 2009-2014. These receipts losses to the FS 
are benefits to small businesses in the form of lowered hauling costs 
to transport their set-aside timber purchases to a small mill. With 
lower hauling costs to small businesses, they are likely to bid more 
for the set-aside timber sales, which would offset some of the receipts 
losses to the FS due to the proposed change.
    FS expressed concerns that by limiting the receipt impact 
assessment to only Regions 5 and 6, SBA's regulatory impact analysis of 
the proposed change is incomplete. FS argued that the two regions 
examined are not representative of all regions and the results cannot 
be generalized across the country. As shown in Table 8 (above), the FS 
econometric results do not support a similar analysis for all affected 
FS regions. For example, the estimated coefficients for distance to the 
nearest mill (Regions 2 and 3) and hauling costs (Region 9) were 
positive, although not significant. Additionally, there were no set-
aside sales in Region 3 that were appraised to a large mill. Thus, the 
proposed change would have no impact in Region 3. Using a positive 
coefficient for Region 2 would yield a counter-intuitive result of 
positive receipt impact to FS from the SBA's proposal to appraise the 
hauling costs for set-aside sales to the nearest small mill, which 
would make no sense. The same is also true for Region 9. Additionally, 
SBA has no data to convert the mileage to hauling costs to estimate the 
impact in Region 9. Similarly, the relationships between bid premiums 
and the mileage to the nearest mill were not significant for Regions 1, 
4 and 8, although they had expected negative signs. The impact 
estimates based on these results would not mean much on a statistical 
sense. Given the lack of alternative data to assess the FS receipt 
impacts from the SBA's proposal for regions for which estimated 
relationships between bid premium and the distance or hauling costs and 
were either not significant or had opposite signs, SBA's regulatory 
impact analysis is limited to Regions 5 and 6 only.
    While SBA agrees with FS that every region is different, but 
because Regions 5 and 6 together account for nearly half (47%) of all 
set-aside sales and two-thirds (67%) of timber volume appraised to a 
large mill in all FS regions (excluding unaffected Region 3), the 
results based on these two regions provide fairly robust indications on 
the magnitude of impacts the proposed change might have across other 
regions, as well as the overall FS market.
    With respect to benefits to small businesses from the proposed 
change, as shown in Table 9 (above), based on the historical data, 
about 65-70 firms (68 to be exact) would benefit from the SBA's 
proposal to appraise all set-aside timber sales to the nearest small 
mill. This figure is likely to be higher because some previous set-
aside sales that received no bids from small businesses and were 
subsequently re-offered as full and open sales may become economically 
attractive for small businesses to bid when they are appraised to the 
nearest small mill. The SBA's proposal would benefit small businesses 
by lowering costs in hauling the set-aside timber purchases to the 
nearest mill
    SBA believes that these positive impacts to small businesses 
justify some losses to FS receipts (0.9% in Region 6 and 2.4% in Region 
5) under the proposed change. SBA notes that it did not evaluate the 
impacts reductions in receipts may have on the Forest Service's forest 
management and restoration goals or on payments made to counties for 
schools, roads, community wildfire protection planning or other 
purposes as authorized.
    The main purpose of the SBA's proposal to appraise the set-aside 
sale to the nearest small business mill is to more accurately reflect 
the hauling cost to eligible small business bidders. Based on the 
historical data, up to 65-70 small business bidders will benefit from 
this proposed change. As discussed above, SBA expects more small 
businesses to participate in the timber set-aside program under the 
proposed change as some small firms that do not bid for set-aside sales 
appraised to a large business mill currently may decide to participate. 
SBA believes that the number of set-aside sales that receive no bid 
from small businesses and become full and open sales will decrease, 
thereby increasing the number of sales to small businesses. These all 
will help small businesses keep their business economically viable and 
to support or create jobs in their communities. Small business 
employees receive and spend wages within the communities and taxes they 
pay to local and state governments. These effects, although difficult 
to quantify, will further offset the impacts of decreases in flows of 
money to trust funds due to declines in FS timber receipts.
    Overall, the proposed change to appraise the small business set-
aside timber sales to the nearest small mill is consistent with SBA's 
statutory mandate to assist small businesses.

Impacts of A Potential Policy Change Under Consideration To Include the 
Stewardship Sawtimber Volume in the Calculation of the Small Business 
``Fair Proportion'' To Establish Small Business Set-Aside Sales Under 
the Timber Program

    A possible regulatory action to include the stewardship sawtimber 
volume in the calculation of small business fair market share could 
provide transparency to the process of determining whether or not small 
businesses are receiving the statutorily mandated fair proportion of 
timber sale contracts offered by FS. It could provide a market share 
that would more accurately reflect the small business participation in 
the government owned timber market and provide the public with more 
accurate information on functioning of the market. However, at this 
time, based on the currently available data, SBA's analysis indicates

[[Page 66216]]

this policy option could have disparate impacts to small timber 
businesses both within and across regions. Based on the data and cross-
tabulations provided by the FS, stewardship sales account for 
approximately one-third of total timber sold by the FS. As shown in 
Table 4 (earlier), the FS analysis suggests that, compared to timber 
program volumes, small businesses acquired a larger percentage of 
stewardship timber volume in Regions 2, 4, 8 and 9, where stewardship 
volumes are quite minimal relative to total timber volumes sold. 
However, small businesses received a lower percentage of stewardship 
timber sales in Regions 1, 5, and 6 where stewardship sales are 
generally fairly large relative to total sales. As discussed above, 
when all regions are combined, the small business share was 
substantially lower at about 62% under stewardship contracting, as 
compared to nearly 72% under the timber program.
    In addition, in considering the possibility of including the 
stewardship sawtimber volume in the calculation of small business fair 
proportion used for determining small business set-aside sales within 
the timber program market, SBA also re-computed the latest five-year 
small business market share used to trigger a small business set aside 
sale by including the stewardship sawtimber volume. (Every five years 
base small business market shares are re-computed by including the 
timber sales data for the previous five years and remain valid until 
the next re-computation.) The re-computation results are shown in Table 
11. As can be seen from the table, the inclusion of the stewardship 
sawtimber in calculation would result in an increase to the recomputed 
small market share in eight (12) market areas, a decrease in eleven 
(14) market areas, and no change in the remaining 113 market areas. The 
increase in the small business share would range from 1% to 39% and 
decrease from -1% to -22%. If the recent trend continues, it is 
possible that with the inclusion of the stewardship sawtimber volume 
the future small business market shares could be lower or higher in 
those or more market areas.
    Region 10 (Alaska) has an agreement with SBA that small businesses 
will have a market share of at least 50%. The current market share was 
determined, via the 5-year re-computation process in agreement with 
SBA, to be 50% of the planned sale volume for the Region. Over the 
previous five-year period 100% of both timber and stewardship sales 
went to small businesses in Region 10. As shown in Table 11, with the 
inclusion of the stewardship timber volume, an 80% market share would 
be achievable in Region 10. The Region would have to consult with 
interested parties, provide notice, and revise the existing agreement 
with SBA to allow for inclusion of 80% of the Region's planned sale 
volume in the market (see FSH 2409.18, 91.21.). All re-computed shares 
reflect the limitations on share movement for the five-year period, 
except Regions 8 & 9 which do not have limitations on share movement. 
All shares are limited in movement to no lower than one-half the 
original base share. Eighty percent is the maximum small business share 
utilized on any market area, meaning that at least 20% of timber sales 
have to go to large businesses.

            Table 11--Five-Year Small Business Market Share Comparisons 2010-2015, Impacted Market Areas With and Without Stewardship Timber
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            Recomputed      Recomputed    Change in market share if stewardship included
                                                           Current five     share (most        share     -----------------------------------------------
              Region                     Market area      year share (%)   recent years)    stewardship
                                                                                (%)        included (%)    No change (%)   Increase (%)    Decrease (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.................................  Beaverhead-Deerlodge              49              41              41               0  ..............  ..............
                                    Bitterroot..........              80              80              80               0  ..............  ..............
                                    Clearwater..........              74              80              67  ..............  ..............             -13
                                    Custer..............              62              62              56  ..............  ..............              -6
                                    Flathead............              60              64              63  ..............  ..............              -1
                                    Gallatin............              44              34              34               0  ..............  ..............
                                    Helena..............              56              50              50               0  ..............  ..............
                                    Kootenai............              55              60              60               0  ..............  ..............
                                    Lewis and Clark.....              56              50              50               0  ..............  ..............
                                    Lolo................              56              62              62               0  ..............  ..............
                                    Nez Perce...........              40              31              30  ..............  ..............              -1
                                    Coeur D Alene.......              14              13              13               0
                                    Kaniksu.............              13              14              12  ..............  ..............              -2
                                    St. Joe.............              51              46              46               0  ..............  ..............
2.................................  Arapaho Roosevelt...              80              80              80               0  ..............  ..............
                                    Bighorn.............              72              65              65               0  ..............  ..............
                                    Black Hills.........              80              80              80               0  ..............  ..............
                                    GM UNC GUNN.........              80              80              80               0  ..............  ..............
                                    Medicine Bow........              80              80              80               0  ..............  ..............
                                    Pike San Isabel.....              80              80              80               0  ..............  ..............
                                    Rio Grande..........              80              80              80               0  ..............  ..............
                                    Routt...............              80              80              80               0  ..............  ..............
                                    San Juan............              80              72              80  ..............               8  ..............
                                    Shoshone*...........              29              31              31               0  ..............  ..............
                                    White River.........              80              80              80               0  ..............  ..............
3.................................  Apache..............              80              80              80               0  ..............  ..............
                                    Carson..............              80              80              80               0  ..............  ..............
                                    Cibola..............              73              80              80               0  ..............  ..............
                                    Coconino............              80              80              80               0  ..............  ..............
                                    Coronado **.........              71              71              71               0  ..............  ..............
                                    Gila................              55              61              61               0  ..............  ..............
                                    Kaibab North........              56              62              62               0  ..............  ..............
                                    Kaibab South........              80              80              80               0  ..............  ..............
                                    Lincoln.............              80              80              80               0  ..............  ..............
                                    Prescott............              80              80              80               0  ..............  ..............
                                    Santa Fe............              56              62              62               0  ..............  ..............
                                    Sitgreaves..........              80              80              80               0  ..............  ..............
                                    Tonto...............              70              77              77               0  ..............  ..............
4.................................  Ashley..............              80              80              80               0  ..............  ..............

[[Page 66217]]

 
                                    Boise...............              55              61              58  ..............  ..............              -3
                                    Bridger Teton.......              56              62              62               0  ..............  ..............
                                    Caribou.............              80              80              80               0  ..............  ..............
                                    Dixie...............              80              80              80               0  ..............  ..............
                                    Fishlake............              80              80              80               0  ..............  ..............
                                    Manti La Sal........              80              80              80               0  ..............  ..............
                                    Payette.............              63              69              67  ..............  ..............              -2
                                    Salmon Challis......              72              79              79               0  ..............  ..............
                                    Sawtooth............              63              69              69               0  ..............  ..............
                                    Targhee **..........              57              57              57               0  ..............  ..............
                                    Toiyabe **..........              58              58              58               0  ..............  ..............
                                    Uinta...............              80              80              80               0  ..............  ..............
                                    Wasatch Cache.......              80              80              80               0  ..............  ..............
5.................................  Eldorado............              60              54              54               0  ..............  ..............
                                    Inyo **.............              66              66              66               0  ..............  ..............
                                    Klamath.............              49              39              42  ..............               3  ..............
                                    Lassen..............              29              39              39               0  ..............  ..............
                                    Mendocino...........              48              38              48  ..............              10  ..............
                                    Modoc...............              80              72              72               0  ..............  ..............
                                    Plumas..............              20              18              18               0  ..............  ..............
                                    Sequoia.............              80              80              80               0  ..............  ..............
                                    Shasta..............              30              30              31  ..............               1  ..............
                                    Trinity.............              67              74              74               0  ..............  ..............
                                    Sierra..............              80              80              80               0  ..............  ..............
                                    Gasquet.............              80              80              80               0  ..............  ..............
                                    Six Rivers Other....              67              60              60               0  ..............  ..............
                                    Stanislaus..........              20              10              10               0  ..............  ..............
                                    Tahoe...............              22              20              20               0  ..............  ..............
6.................................  Colville............              70              77              77               0  ..............  ..............
                                    Deschutes...........              23              33              33               0  ..............  ..............
                                    Fremont Klamath.....              34              44              24  ..............  ..............             -20
                                    Gifford Pinchot                   62              60              64  ..............               4  ..............
                                     North.
                                    Gifford Pinchot                   72              79              79               0  ..............  ..............
                                     South.
                                    Malheur.............              80              80              80               0  ..............  ..............
                                    Mt Hood.............              80              72              72               0  ..............  ..............
                                    Ochoco Prineville...              67              69              71  ..............               2  ..............
                                    Okanogan............              51              46              46               0  ..............  ..............
                                    Puget Sound.........              57              51              51               0  ..............  ..............
                                    Rogue River.........              34              31              31               0  ..............  ..............
                                    Siskiyou East.......              55              49              49               0  ..............  ..............
                                    Siskiyou West.......              80              73              73               0  ..............  ..............
                                    Siuslaw.............              40              50              50               0  ..............  ..............
                                    Umatilla North......              47              37              37               0  ..............  ..............
                                    Umatilla South......              56              62              62               0  ..............  ..............
                                    Umpqua North........              63              69              69               0  ..............  ..............
                                    Umpqua South........              45              40              40               0  ..............  ..............
                                    Wallowa Whitman.....              59              53              53               0  ..............  ..............
                                    Wenatchee...........              45              55              55               0  ..............  ..............
                                    Willamette Middle...              72              79              79               0  ..............  ..............
                                    Willamette North....              71              78              78               0  ..............  ..............
                                    Willamette South....              80              79              79               0  ..............  ..............
                                    Winema..............              40              31              31               0  ..............  ..............
8.................................  Alabama North.......              80              80              80               0  ..............  ..............
                                    Alabama South.......              80              80              80               0  ..............  ..............
                                    Andrew Pickens......              77              65              43  ..............  ..............             -22
                                    Bienville...........              80              80              80               0  ..............  ..............
                                    Chattahoochee.......              74              63              66  ..............               3  ..............
                                    Croatan.............              80              80              80               0  ..............  ..............
                                    Davy Crockett.......              80              25              64  ..............              39  ..............
                                    Delta...............              80              80              80               0  ..............  ..............
                                    Desoto..............              64              68              71  ..............  ..............  ..............
                                    Enoree..............              59              57              55  ..............  ..............              -2
                                    Florida Forests.....              79              80              80               0  ..............  ..............
                                    Francis Marion *....              26              39              39               0  ..............  ..............
                                    George Washington...              80              80              80               0  ..............  ..............
                                    Holly Springs.......              80              80              80               0  ..............  ..............
                                    Homochitto..........              80              80              80               0  ..............  ..............
                                    Jefferson *.........              80              61              61               0  ..............  ..............
                                    Kisatchie...........              40              41              38  ..............  ..............              -3
                                    Kentucky North......              80              80              80               0  ..............  ..............
                                    Kentucky South......              80              80              80               0  ..............  ..............
                                    Land Between the                  80              80              80               0  ..............  ..............
                                     Lakes.
                                    Long Cane...........              80              80              80               0  ..............  ..............
                                    Nantahala...........              80              80              80               0  ..............  ..............
                                    Oconee..............              80              80              80               0  ..............  ..............
                                    Ouachita............              62              47              43  ..............  ..............              -4

[[Page 66218]]

 
                                    Ozark...............              65              69              70  ..............               1  ..............
                                    Pisgah..............              80              80              80               0  ..............  ..............
                                    Sam Houston.........              80              80              80               0  ..............  ..............
                                    Saint Francis.......              80              80              80               0  ..............  ..............
                                    Tennessee North.....              80              80              80               0  ..............  ..............
                                    Tennessee South.....              71              80              80               0  ..............  ..............
                                    Tombigbee...........              80              80              80               0  ..............  ..............
                                    Texas East Side.....              49              27              47  ..............              20  ..............
                                    Uwharrie............              80              80              80               0  ..............  ..............
9.................................  Alleghany...........              80              80              80               0  ..............  ..............
                                    Chequamegon.........              80              80              80               0  ..............  ..............
                                    Chippewa............              80              80              80               0  ..............  ..............
                                    Green Mountain......              80              80              80               0  ..............  ..............
                                    Hiawatha............              80              80              80               0  ..............  ..............
                                    Huron Manistee......              80              80              80               0  ..............  ..............
                                    Mark Twain..........              80              80              80               0  ..............  ..............
                                    Monongahela.........              66              76              55  ..............  ..............             -21
                                    Nicolet.............              80              80              80               0  ..............  ..............
                                    Ottawa..............              80              80              80               0  ..............  ..............
                                    Shawnee.............              37              80              80               0  ..............  ..............
                                    Superior............              75              69              68  ..............  ..............              -1
                                    Wayne Hoosier.......              77              80              80               0  ..............  ..............
                                    White Mountain......              80              80              80               0  ..............  ..............
10................................  Tongass.............              50              50              80  ..............              30  ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Indicates market areas with no stewardship sales and ** denotes market areas with no SBA's timber program or stewardship sales.
Region 7 was eliminated in 1965 as part of re-designation of FS regions.
The table doesn't include the Chugach Market Area in Region 10 (Alaska).

    The FS econometric results showed a significant positive 
relationship between stewardship sales and bid premiums in Regions 5 
and 6, a significant negative relationship in Region 3, and those 
relationships were not significant in other regions. Based on these 
results, FS argued that in Regions 5 and 6 where bid premiums are 
significantly higher for stewardship sales than for timber program 
sales, stewardship contracting will have a positive impact on retained 
receipts, land management activities and receipts to the treasury. 
Similarly, in Region 3 where the results showed a significant negative 
relationship between stewardship sales and bid premiums, FS believed 
that stewardship contracting will have a negative impact on retained 
receipts, land management activities and receipts to the treasury. 
Since SBA is not currently considering to subject stewardship contracts 
to set-aside sales for small business nor to reduce stewardship 
contracting as a result of any change in the small business market 
share by including the stewardship sawtimber in the calculation, SBA 
expects very little or no impact on FS receipts because of this 
possible change under consideration. The current analysis indicates 
including the stewardship sawtimber volume could either benefit small 
businesses by triggering additional set-aside sales within the timber 
program when the overall small business market share falls below the 
certain level or could lead to fewer small business set-aside sales 
than under the current policy of calculating fair proportion based only 
on the timber program volume. Due to the lack of data, it is difficult 
to estimate the number of additional or reduced set-aside sales that 
would be triggered or disappear, or the number of small businesses that 
would benefit or be harmed from this possible policy change.
    In its response to the ANPRM questions and impacts of the SBA's 
proposed changes, FS noted that although historical shares of timber 
awarded to small businesses under the timber sales program and total 
sales including stewardship sales are similar, this could change if 
stewardship sales increase significantly as a proportion of total 
timber sales. Independent of small business impacts, the inclusion of 
the stewardship sawtimber, which accounts for one-third of the total 
timber sales, could provide a more accurate representation of what 
proportion of FS timber is acquired by small businesses. This could not 
only provide more transparency of the FS timber program, but also more 
accurate assessment of if small businesses are getting a statutorily 
mandated fair proportion of Government timber sales.

3. What are the alternatives to this proposed rule?

    Besides the proposal to change the appraisal of the hauling costs 
on set-aside timber sales, SBA is also requesting comment on various 
alternatives to this proposal, as discussed in this proposed rule. SBA 
invites comments on these alternatives as well as suggestions for other 
alternatives to this proposed change.
    Regarding appraising haul costs for set-aside sales, SBA considered 
imposing haul cost adjustments for non-manufacturers. Because both 
manufacturers and non-manufacturers must agree to manufacture at least 
70% of the sawtimber purchased through a set-aside sale at a small 
mill, SBA does not believe additional adjustments for non-manufacturers 
are warranted.
    SBA also considered waiving the 30/70 rule if no small mills are 
located within a reasonable distance of a set-aside sale. Such an 
alternative would allow small businesses to participate in the set-
aside timber sales without requiring them to look for and use small 
mills. Although this approach would not increase hauling costs (and 
hence decrease receipts to the FS), since small businesses would not 
have to seek out and use small mills located further away, it could 
lead to inconsistent results. What might not be considered a 
``reasonable distance'' for one sale might be so considered for 
another.

[[Page 66219]]

    Instead of appraising 100% of the hauling to the nearest small 
business mill, SBA also considered appraising, when the nearest mill is 
a large business, 70% of the haul costs to the nearest small mill and 
30% of the haul costs to the nearest large mill. The FS also suggested 
this as an alternative to SBA's proposal to avoid overstating the haul 
costs when the purchaser sells 30% of the sawtimber to the nearest 
largest mill. This alternative may accurately reflect the true costs to 
haul the timber if every winning bidder always sells 30% of sawtimber 
to the nearest large mill and 70% to the nearest small mill. However, 
SBA's reviews of all set-aside sales as well as those appraised to the 
nearest large mill do not support this. Majority of small manufacturers 
that purchase timber under the FS set-aside sales either use 100% of 
the purchase themselves or sell 100% to another small mill. More 
importantly, even a large proportion of non-manufacturer purchasers 
(i.e., loggers) also sell 100% of set-aside to the nearest mill. For 
example, of 156 set-aside sales that were appraised to the nearest 
large mill during FY 2009-2014, 95 were acquired by small non-
manufacturers of which 38 (or 40%) sold 100% of timber to a small mill. 
Unless the FS is certain that the purchaser is going to sell 30% of 
sawtimber to the nearest large mill and 70% to the nearest small mill, 
the application of the 30/70 appraisal alternative will always lead to 
understatement of the hauling costs to the eligible bidders. This 
approach will also be complicated to implement.
    SBA also considered appraising to the nearest small mill only when 
that mill is located no more than 60 miles from the large mill which 
would be used as the appraisal point under the current rules. Data 
suggests that 62 miles is the median distance between a small mill and 
the large mill NFS used to appraise the historical set-aside sales (see 
Table 10, above). Historical sales data suggests that appraising to the 
nearest small mill only when that mill is located no more than 60 miles 
from the current appraisal point would affect 2.7% of set-aside sales 
and benefit approximately 35 small businesses annually (see Table 12). 
The estimated revenue losses to NFS will be reduced to about $0.53 
million (or 0.4% of total) in Region 6 and $0.15 million (0.4% of 
total) in Region 5 if the appraisal is done to the nearest mill that is 
within 60 miles.

  Table 12--Count of Sales and Average Number of Bidders Participating in Set-Aside Sales Where a Small Mill (SM) Is Located Within Sixty Miles of the
                                                      Large Mill Appraisal Point (AP), FY 2009-2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           Set-asides appraised to a large mill
                                                       --------------------------------------------------------------------------
         FS region *             Total count of sales                                                        Average historical
                                       included          Count of sales where a    Share of total sales   participation/number of
                                                        SM is <60 miles from AP            (%)                bidders affected
---------------------------------------------------------------------------------------------------------------------------------
1............................                      159                        8                      5.0                      2.3
2............................                      256                        0                      0.0                        0
3............................                       42                        0                      0.0                        0
4............................                      112                        1                      0.9                      0.7
5............................                      195                        6                      3.1                      1.8
6............................                      397                       18                      4.5                      7.2
8............................                      858                       20                      2.3                      7.7
9............................                      897                       24                      2.7                     15.3
                              --------------------------------------------------------------------------------------------------------------------------
    Total....................                    2,916                       77                      2.6                     35.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Region 7 was eliminated in 1965 as part of re-designation of FS regions and Region 10 was not included in the FS appraisal data.
Source: FS appraisal data and SBA calculations.

    SBA did not propose this approach in the proposed regulatory text 
as the required step of determining whether a small mill is located 
within 60 miles of the nearest large mill could unnecessarily 
complicate the process. This approach would impact fewer set-aside 
sales, but it would also benefit fewer small businesses. Overall, the 
proposed change to appraise the hauling costs for the set-aside timber 
sales to the nearest small mill is consistent with SBA's statutory 
mandate to assist small businesses.
    With respect to a potential policy amendment to include the 
stewardship sawtimber volume in the small business market share 
calculation, SBA considered including stewardship sawtimber only in 
those market areas where small businesses are particularly likely to be 
underrepresented if the stewardship sawtimber volume is excluded. 
Specifically, SBA is considering including the stewardship sawtimber 
volume only in market areas where small businesses purchase a large 
percentage of stewardship timber volume or where the stewardship timber 
volume represents a high percentage of Overall timber volume. However, 
the purpose of such a possible regulatory amendment is to more 
transparently and accurately reflect small business participation for 
purposes of calculating small business market share for set-aside 
triggers. SBA believes that it is necessary for fairness across the 
country to have a consistent policy that is not subject to 
interpretation. While SBA cannot estimate with certainty the actual 
outcome of the gains and losses among small and large businesses, it 
can identify several probable impacts. The historical data shows that 
the inclusion of IRTC and IRSC stewardship sawtimber volume could have 
a substantial negative or positive impact in the computation of small 
business market share in many of the 139 active market areas. SBA 
invites comments and data on how such a policy change would impact 
small businesses, the stumpage prices, number of set-aside sales, and 
FS receipts. SBA also welcomes comments on any potential impacts of 
reduced receipts to county payment programs or other areas affecting 
small business economic development.

Executive Order 13563

    SBA has conducted significant outreach to the affected public for 
many years. Between 1996 and 2002, SBA visited a number of small mills 
throughout the country to discuss the impact of stewardship contracting 
on the timber program and their ongoing operations. During this time 
period, SBA was also contacted by a small business timber association 
regarding the impact of stewardship contracting

[[Page 66220]]

on small mills located in Western states. During the 2000 and 2005 re-
computations, SBA and FS discussed the impacts of the stewardship 
program on small business market shares and the possibility of 
including the stewardship sawtimber volume in the five-year re-
computation of the small business fair proportion. In 2006, FS issued a 
proposed policy directive to include stewardship contracting sawtimber 
volume in the calculation of small business market shares. At the 2010 
re-computation, SBA and FS again discussed the topic of including 
stewardship sawtimber volume in the calculation. SBA continued to meet 
with small mills regarding the impact of stewardship contracting 
between 2005 and 2012. In 2010, SBA held a ``town hall meeting'' with 
small mills to discuss the impacts of stewardship contracting. In 2012, 
small business timber groups submitted complaints to SBA's Ombudsman 
and Office of Advocacy regarding FS' failure to finalize the proposed 
policy directive to include stewardship sawtimber volume in the small 
business market share calculations. In 2013, SBA began discussions with 
FS regarding the current proposed rulemaking which resulted in the 2014 
publication of the ANPRM. SBA received 842 comments in response to the 
ANPRM. During the comment review process, SBA again met with industry 
stakeholders regarding ongoing impacts of stewardship contracting and 
the current method of appraising small business set-aside sales.

Executive Order 12988

    For purposes of Executive Order 12988, SBA has drafted this 
proposed rule, to the extent practicable, in accordance with the 
standards set forth in sections 3(a) and 3(b)(2) of that Executive 
Order, to minimize litigation, eliminate ambiguity, and reduce burden. 
This rule has no preemptive or retroactive effect.

Executive Order 13132

    For the purpose of Executive Order 13132, SBA has determined that 
this proposed rule will not have substantial direct effects on the 
States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. Therefore, SBA has determined that this 
proposed rule has no federalism implications warranting preparation of 
a federalism assessment.

Paperwork Reduction Act

    For purposes of the Paperwork Reduction Act, 44 U.S.C. Chapter 35, 
SBA has determined that this proposed rule would not impose new 
reporting requirements. Stewardship sales will be tracked and recorded 
using the same method currently set forth in the Forest Service Manual 
(FSM 2400)--Commercial Timber Sales Manual (FSM 2430) and the Forest 
Service Handbook (FSH)--Timber Sale Preparation Handbook (FSH 2409.18). 
FS does not currently make any collections related to tracking this 
data and no additional information will be collected. The difference 
would be that the stewardship sawtimber volume would be included in the 
calculation. The appraisal point calculation performed by the FS will 
also be conducted using the same methodology with the exception of the 
mill location used in set-aside sales.

Regulatory Flexibility Act, 5 U.S.C. 601-612

    According to the Regulatory Flexibility Act (RFA), 5 U.S.C. 601, 
when an agency issues a rulemaking, it must prepare a regulatory 
flexibility analysis to address the impact of the rule on small 
entities. In accordance with this requirement, SBA has prepared this 
Initial Regulatory Flexibility Analysis addressing the impact of this 
proposed rule and alternatives, including a possible policy change 
under consideration.

1. What is the need for and objective of this proposed rule?

    The proposal to appraise set-aside haul costs to the nearest small 
mill is necessary to accurately reflect the costs to eligible bidders.

2. What is the legal basis for this proposed rule?

    Section 2(a) of the Small Business Act (15 U.S.C. 631(a)) provides 
that it is the declared policy of the Congress that the Government 
should aid, counsel, assist, and protect the interests of small 
business concerns in order to ensure that a fair proportion of the 
total sales of Government property be made to such enterprises. Section 
15(a) of the Small Business Act (15 U.S.C. 644(a)) further provides 
that small business concerns shall receive any contract for the sale of 
Government property where it is in the interest of ensuring that a fair 
proportion of the total sales of Government property be made to small 
business concerns.

3. What is SBA's description and estimate of the number of small 
entities to which the rule will apply?

    SBA estimates there are approximately 362 small business firms that 
may benefit from this rule. SBA estimates these firms will benefit to 
the extent small business timber sale set-aside bid prices are 
calculated using the actual hauling costs the bidders will incur. 
Approximately 5.3% of sales would be impacted, benefiting 65-70 small 
businesses. No large business would be impacted as they are not 
eligible to participate in small business set-aside timber sales.

4. What are the projected reporting, recordkeeping, Paperwork Reduction 
Act, and other compliance requirements?

    SBA has determined that this rule does not impose additional 
reporting or recordkeeping requirements. Stewardship sales will be 
tracked and recorded using the same method currently set forth in the 
Forest Service Manual (FSM 2400)--Commercial Timber Sales Manual (FSM 
2430) and the Forest Service Handbook (FSH)--Timber Sale Preparation 
Handbook (FSH 2409.18). FS does not currently make any collections 
related to tracking this data and no additional information will be 
collected. The appraisal point calculation performed by the FS will be 
conducted using the same methodology with the exception of the mill 
location used in set-aside sales.

5. What relevant federal rules may duplicate, overlap, or conflict with 
this rule?

    We are not aware of any rules that duplicate, overlap or conflict 
with this rule. The FS Timber Sale Preparation Handbook would conflict 
with the proposed rule, if adopted as proposed. Concomitant with the 
SBA's rule, the FS would revise its directives, including FSH 2409.18.

6. What significant alternatives did SBA consider that accomplish the 
stated objectives and minimize significant economic impact on small 
entities?

    Regarding appraising haul costs, SBA considered imposing haul cost 
adjustments for non-manufacturers. Because both manufacturers and non-
manufacturers must agree to manufacture at least 70% of the sawtimber 
purchased through a set-aside sale at a small mill, SBA does not 
believe additional adjustments for non-manufacturers are warranted. SBA 
also considered waiving the 30/70 rule if no small mills are located 
within a reasonable distance of the sale. Such an

[[Page 66221]]

alternative would allow small businesses to participate in set-aside 
timber sales without requiring them to look for and use small mills. 
Although this approach would not increase hauling costs (and hence not 
increase the cost to the Government), since small businesses would not 
have to seek out and use small mills located further away, it could 
lead to inconsistent results. What might not be considered a 
``reasonable distance'' for one sale might be so considered for another 
sale. Moreover, without specific data as to what hauling distance leads 
to a sales price that is not fair and reasonable to the Government, 
this approach could be challenged as being arbitrary.
    In addition, with respect to the 30/70 rule, instead of appraising 
100% of the hauling to the nearest small mill, SBA also considered 
appraising, when the nearest mill is a large business, 70% of the haul 
costs to small mills and 30% of the haul costs to large mills. Although 
this approach may accurately reflect the true costs to haul the timber, 
SBA felt that it could unnecessarily complicate the process.
    SBA also considered appraising to the nearest small mill only when 
that mill is located no more than 60 miles from the large mill which 
would be used as the appraisal point under the current rules. The 
median distance between a small mill and the large mill FS used to 
appraise historical set-aside sales is about 62 miles (see Table 10). 
Historical sales data suggests that appraising to the nearest small 
mill only when that mill is located no more than 60 miles from the 
current appraisal point would affect 2.7% of set-aside sales and 
benefit approximately 35 small businesses annually (see Table 10). SBA 
did not adopt this approach in the proposed regulatory text as the 
required step of determining whether a small mill is located within 60 
miles of the nearest large mill could unnecessarily complicate the 
process. This approach would impact fewer set-aside sales, but it would 
also benefit fewer small businesses. Overall, the proposed change tis 
consistent with SBA's statutory mandate to assist small businesses.
    As an alternative to a potential policy change, although not 
included in this proposed rule, to include the stewardship sawtimber 
volume in the small business market share calculation, SBA also is also 
considering to include the stewardship sawtimber volume in that 
calculation only in those market areas where small business 
participation is particularly likely to be underrepresented if 
stewardship sawtimber volume is excluded. Specifically, SBA is 
considering whether to include the stewardship sawtimber volume only in 
market areas where small businesses purchase a large percentage of 
stewardship contracting timber volume or where stewardship contracting 
timber volume represents a high percentage of overall timber volume. 
However, the purpose of such a regulatory amendment is to more 
accurately reflect small business participation rates for purposes of 
calculating the set-aside trigger point.

List of Subjects in 13 CFR Part 121

    Administrative practice and procedure, Reporting and recordkeeping 
requirements, Small businesses.

    For the reasons stated in the preamble, SBA proposes to amend part 
121 of title 13 of the Code of Federal Regulations as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

0
1. The authority citation for part 121 continues to read as follows:

    Authority:  15 U.S.C. 632, 634(b)(6), 662, and 694a(9).

0
2. Amend Sec.  121.506 by redesignating paragraphs (a) through (e), as 
paragraphs (b) through (f) respectively, adding new paragraph (a), and 
adding paragraphs (g), and (h).
    The additions read as follows:


Sec.  121.506  What definitions are important for sales or leases of 
Government-owned timber?

    (a) Computation of market share is the small business market share, 
expressed as a percentage for a small business timber sale market area 
based on the purchase by small business in the timber sale program 
market over the preceding 5-year period. The computation is done every 
five years by the U.S. Forest Service in collaboration with the SBA.
* * * * *
    (g) Small business market share is the calculated share of 
sawtimber that small businesses are expected to purchase within a 
market area, expressed as a whole percent.
    (h) Small business timber sale market areas are physical locations 
throughout the United States including National Forests used in the 
administration of the Timber Sale Set-Aside program.
0
3. Amend Sec.  121.507 by adding paragraph (d) to read as follows:


Sec.  121.507  What are the size standards and other requirements for 
the purchase of Government-owned timber (other than Special Salvage 
Timber)?

* * * * *
    (d) In setting minimum bids for small business timber sale set-
asides, the appraisal point to calculate the cost of transportation and 
hauling shall be the nearest small business manufacturing facility 
where the raw materials may be legally processed as determined by the 
U.S. Forest Service.

    Dated: September 14, 2016.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2016-22861 Filed 9-26-16; 8:45 am]
 BILLING CODE 8025-01-P