Extension of Certain Timber Sale Contracts; Finding of Substantial Overriding Public Interest, 18888-18891 [2024-05286]

Agencies

• DEPARTMENT OF AGRICULTURE
• Forest Service

[Federal Register Volume 89, Number 52 (Friday, March 15, 2024)]
[Notices]
[Pages 18888-18891]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-05286]


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DEPARTMENT OF AGRICULTURE

Forest Service


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

AGENCY: Forest Service, Agriculture (USDA).

ACTION: Notice of rate redeterminations and contract extensions.

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SUMMARY: The Chief of the Forest Service, Department of Agriculture, 
has determined that it is in the substantial overriding public interest 
(SOPI) to redetermine pulpwood rates and extend up to two years certain 
National Forest System timber sales and sale of property stewardship 
contracts. This finding applies to timber sale and sale of property 
stewardship contracts that were awarded before March 13, 2024, and, 
upon award, to contracts with a bid opening prior to March 13, 2024, 
subject to specified exceptions. Contracts with 20 percent or more of 
the included product listed as pulpwood with required removal will 
qualify for a pulpwood rate redetermination and may qualify for an 
extension under this SOPI finding. The SOPI determination is due to a 
combination of factors impacting the national economy and the pulp, 
paper, and chips markets. The intended effect of pulpwood rate 
redeterminations and extensions of certain timber and sale of property 
contracts is to allow timber purchasers and contractors time to 
navigate through the market conditions; to minimize contract defaults, 
mill closures, and bankruptcies; to sustain employment opportunities, 
and to minimize the

[[Page 18889]]

time-consuming and often difficult process of collecting default 
damages. Without a vibrant forest products industry, the Forest Service 
cannot manage the land to meet the multiple forest management and 
restoration objectives nationwide as intended and funded by Congress.

DATES: The SOPI determination was made on March 8, 2024, by the Chief 
of the Forest Service, Department of Agriculture.

FOR FURTHER INFORMATION CONTACT: Kraig Kidwell, Contracts and 
Appraisals Group Lead, at 541-961-2614 or by email at 
[email protected], or Mike Spisak, Assistant Director Forest 
Management, at 910-975-0114 or by email at [email protected]; 
1400 Independence Ave. SW, Mailstop 1103, Washington, DC 20250-1103. 
Individuals who use telecommunications devices for the hearing impaired 
may call 711 to reach the Telecommunications Relay Service, 24 hours a 
day, every day of the year, including holidays.

SUPPLEMENTARY INFORMATION: The Forest Service sells timber and forest 
products from National Forest System lands to individuals and companies 
pursuant to the National Forest Management Act of 1976, 16 U.S.C. 472a 
(NFMA); the Stewardship End Result Contracting Projects Act, 16 U.S.C. 
6591c; and implementing regulations in 36 CFR part 223. Each sale is 
formalized by execution of a contract for the sale of property between 
the timber purchaser or stewardship contractor and the Forest Service. 
The contract sets forth the terms of the sale including such matters as 
the estimated volume of timber to be removed, the period for removal, 
price to be paid to the Government, and road construction and logging 
requirements. The average sale of property contract period is 
approximately 3 to 4 years, although some contracts have terms up to 10 
years. The contract term is established by the Forest Service based on 
the estimated time an average prudent timber contractor would need to 
mobilize and complete the timber harvest under the conditions of the 
contract. Paragraph 14(c) of NFMA (16 U.S.C. 472a(c)) provides that the 
Secretary of Agriculture shall not extend any timber sale contract 
period with an original term of 2 years or more unless the Secretary 
finds that the purchaser has diligently performed in accordance with an 
approved plan of operations, or that the ``substantial overriding 
public interest'' justifies the extension. This authority is delegated 
to the Chief of the Forest Service through Forest Service Manuals 
2404.11 and 2453.17, referencing 36 CFR 223.32, and 36 CFR 223.31.

Background

    When members of the timber industry must decide whether to harvest 
timber during severely depressed markets and times of high inflation, 
or risk defaulting contracts, such decisions can and have led to 
bankruptcies, loss of infrastructure, and loss of jobs. This adversely 
affects stability in rural communities and the future management of 
National Forests as important opportunities and outlets for material 
disposal are lost. Providing additional contract time during 
significant market downturns allows timber purchasers additional 
flexibility to navigate the crisis and sustain long-term business 
viability.
    On December 7, 1990, the Forest Service published a final rule (55 
FR 50643) establishing procedures in 36 CFR 223.52 for extending 
contract termination dates in response to adverse conditions in timber 
markets. These procedures, known as Market Related Contract Term 
Additions (MRCTA), authorize extensions of timber contracts when 
qualifying market conditions are met. Subsequent amendments have 
provided that the total contract term may be extended up to 10 years as 
the result of MRCTA when specified criteria are met. When the MRCTA 
procedures were established, experience indicated that the type and 
magnitude of lumber market declines that would trigger market related 
contract term additions generally coincide with low numbers of housing 
starts and substantial economic dislocation in the wood products 
industry. MRCTA procedures were adopted by the Forest Service to avert 
contract defaults, mill closures, and associated impacts to dependent 
communities when there is a drastic decline in wood product prices (36 
CFR 223.52).
    In promulgating the MRCTA rule, the Department determined that a 
drastic reduction in wood product prices can result in a substantial 
overriding public interest sufficient to justify a contract term 
extension for existing contracts, as authorized by NFMA (16 U.S.C. 
472a(c)) and existing regulations at 36 CFR 223.115(b). Most Forest 
Service timber sale contracts over 1-year in length include MRCTA 
procedures. Salvage sales and sales of products not covered in a Bureau 
of Labor Statistics producer price index (PPI) used to determine when 
MRCTA triggers are examples of contracts that do not include a MRCTA 
provision.

Market Conditions

    The U.S. pulp and paper industry accounts for upwards of 30 percent 
of the global pulp and paper production (https://www.fortunebusinessinsights.com/north-america-pulp-and-paper-market-106617), producing 46.66 million metric tons of pulp for paper in 2022 
(https://www.statista.com/statistics/1276346/annual-pulp-production-united-states/). Globally, consumption of pulp for paper has tripled 
since the 1960s with 197.17 million metric tons of consumption in 2022, 
although several notable drops in consumption having occurred and 
recovered through this period (https://www.statista.com/statistics/1177457/consumption-of-pulp-worldwide/). There is a corresponding 
increase in the global consumption of paper and paperboard, estimated 
at 414.19 million metric tons and almost a 75 percent increase from 
1990 levels (https://www.statista.com/statistics/270319/consumption-of-paper-and-cardboard-since-2006/). Although global consumption has 
increased, domestically the long-term trends show a 30 percent decline 
in use of paper and paperboard since 2000, with consumption dropping 
from 93.4 million metric tons to 65.76 million metric tons in 2022 
(https://www.statista.com/statistics/252710/total-us-consumption-of-paper-and-board-since-2001/).
    During the same period, the PCU3211133211135 producer price index 
(PPI) used to value pulp and paper has continued to trend upwards with 
only a few significant drops in the market that initiated market-
related contract term additions or emergency rate redeterminations on 
Forest Service contracts, most recently during the 2009-2013 period. 
See PPI industry data for Sawmills-Wood chips, excluding field chips, 
not seasonally adjusted from the U.S. Bureau of Labor Statistics at 
https://data.bls.gov/cgi-bin/dsrv?pc. Following the COVID-19 pandemic, 
increases in paper use combined with the slow downsizing of the pulp 
and paper industry over time through mill closures and reductions in 
output have helped maintain the producer price index at high values. 
The preliminary January 2024 PCU3211133211135 producer price index from 
the U.S. Bureau of Labor Statistics is currently 143.926, down slightly 
from 20-year highs.
    The three Bureau of Labor Statistics producer price indices the 
Forest Service currently uses to gauge most market conditions include 
Hardwood Lumber 0812, Softwood Lumber 0811,

[[Page 18890]]

and Chips (not field chips) PCU3211133211135, per 36 CFR 223.52. 
However, these indices are not able to address all forest products and 
market conditions. For example, biomass material, which is a large 
component of many stewardship contracts, is not covered by these 
indices. Because the indices are national in scope, they may fail to 
address drastic declines in local markets or products and, more 
importantly at this time, local and regional markets affected by mill 
closures, raw material delivery quotas, and reductions in finished 
product outputs at facilities.
    As one measure of the overall timber and forest products market, 
beginning in the fourth quarter of 2021, the Softwood Lumber producer 
price index declined enough for applicable contracts to qualify for 
relief under Market Related Contract Term Addition (MRCTA) provisions. 
This trend has continued, with contracts based in the Softwood Lumber 
PPI qualifying for MRCTA in 9 of the last 12 consecutive quarters. In 
addition, contracts based in the 0811 Softwood Lumber PPI and awarded 
in 19 of the previous 40 months have triggered for emergency rate 
redeterminations, with many contracts triggering more than once. A 
purchaser may apply for an emergency rate redetermination if the 
producer price index identified in the contract has declined by 25 
percent since the award date or last rate redetermination.
    A similar downward trend has occurred in the Hardwood Lumber PPI 
beginning in the second quarter of 2018, but contracts did not begin to 
qualify for MRCTA until September of 2022. Since then, the Hardwood 
Lumber PPI has qualified for MRCTA in six consecutive quarters. In 
addition to the MRCTA, the Hardwood Lumber PPI met the criteria for 
emergency rate redeterminations for nine consecutive months in late 
2021 into 2022. The hardwood market has stabilized somewhat since and 
not triggered additional emergency rate redeterminations, although 
contracts are still qualifying for the MRCTA through the most recent 
calendar quarter.
    The last qualifying quarter for MRCTA with the PCU3211133211135 
producer price index was 2013 and the last qualifying month for an 
emergency rate redetermination was in 2012. Due to consistent reduction 
in domestic paper usage and an increase in recycling, pulp and paper 
producers appear to be ``right sizing'' with mill closures and output 
reductions to keep the market resilient. The recent mill closures, and 
delivery quotas due to the subsequent raw material supply surplus, 
appears to reflect the continuous decline in pulp and paper consumption 
over the past 20 plus years and accelerated by inflationary pressures. 
Paper mills that also have historically used large quantities of new 
pulp fiber are now sourcing more from cheaper recycled material and 
very low-cost mill residuals. As noted, the gradual downsizing of the 
industry combined with post-pandemic increases in packaging and 
shipping paper has helped maintain the producer price index and 
finished goods markets while reducing raw material intake. This SOPI 
will provide a rate redetermination to offset the post-pandemic 
inflation costs, provide time for qualifying purchasers and contractors 
whose operations are disrupted by mill closures and delivery quotas, 
and allow time for raw material supplies to stabilize.

Rate Redeterminations and Contract Extensions

    Pursuant to this SOPI, and as discussed herein, contracts with 20 
percent or more of the Included Timber in A(T)2 identified as 
``pulpwood'' at award or included through modification or agreement and 
appraised with product codes 02, 08, and 14, will qualify for pulpwood 
rate redetermination and may qualify for an extension under this SOPI 
finding. Extensions will be granted upon written request of the 
contract holder, except under the following conditions: (1) the 
contract holder's request includes timber and forest products in urgent 
need of removal due to forest health conditions or to mitigate a 
significant wildfire threat to a community, municipal watershed, or 
other critical public resource, or (2) included timber is designated by 
diameter and a delay in harvesting may change the treatment required 
under the contract because of trees growing into or outside of the 
specified diameter range(s). Contracts that are in breach will not 
qualify for relief until such breach is remedied. The percentage of 
included product and percentage of the contract completion is 
determined by the Forest Service as of the date the written request is 
received by the Contracting Officer. Relief will be provided to 
qualifying contracts in the manner described below.
    Contracts that have removed 75 percent or more of all included 
volume. These contracts may receive a rate redetermination for the 
pulpwood product only. Rates will not be adjusted upward, only downward 
if a rate redetermination shows a decrease. Rates cannot be 
redetermined below base rates and base rates will not be adjusted. No 
additional time will be added to these contracts under this SOPI. 
Contract term extensions may be granted upon the written request of the 
purchaser and at the discretion of the Contracting Officer in contracts 
that contain provisions for contract term extension.
    Contracts that have removed 50 percent or more and less than 75 
percent of all included volume. These contracts may receive a rate 
redetermination for the pulpwood product only. Rates will not be 
adjusted upward, only downward if a rate redetermination shows a 
decrease. Rates cannot be redetermined below base rates and base rates 
will not be adjusted. Contract termination dates may be extended up to 
one year from the current termination date. Downpayment amounts will be 
recalculated, and periodic payments will be extended an equal amount of 
time. Timber sale contracts may be extended beyond the 10-year contract 
term limitation with this SOPI determination. Future Market Related 
Contract Term Additions may be granted following contract procedures, 
except that contracts will not qualify for Additions if they are 
extended beyond a 10-year contract term under the SOPI, pursuant to 36 
CFR 223.52.
    Contracts that have removed less than 50 percent of all included 
volume. These contracts may receive a rate redetermination for the 
pulpwood product only. Rates will not be adjusted upward, only downward 
if rate redetermination shows a decrease. Rates cannot be redetermined 
below base rates and base rates will not be adjusted. Contract 
termination dates may be extended up to two years from the current 
termination date. Downpayment amounts will be recalculated, and 
periodic payments will be extended an equal amount of time. Contracts 
can be extended beyond the 10-year contract term limitation with this 
SOPI determination. Future Market Related Contract Term Additions may 
be granted following contract procedures, except that contracts will 
not qualify for Additions if they are extended beyond a 10-year 
contract term under the SOPI, pursuant to 36 CFR 223.52.
    Contracts that have received Diligent Performance Extensions in the 
previous 12 months will have the extension time granted under this 
SOPI, if any, reduced by the length of time granted for the Diligent 
Performance Extension. Integrated Resource Timber Contracts may require 
modification to mandatory stewardship projects if the rate 
redetermination reduces current contract value below that needed to pay 
for the projects. If the rate redetermination results in a deficit 
appraisal on the pulpwood product, the

[[Page 18891]]

deficit will not be offset with positive value species and the rates 
for pulpwood will be base rates with no change to rates for positive 
value species.

Chief's Determination of Substantial Overriding Public Interest

    The Government benefits if timber contract defaults, mill closures, 
and bankruptcies can be avoided by granting rate redeterminations and 
extensions. The forest products industry is critical to addressing the 
wildfire crisis and meeting forest management and climate change 
objectives nationally, while supporting hundreds of thousands of 
meaningful jobs throughout the country. Having numerous economically 
viable timber purchasers increases competition for National Forest 
System timber contracts, results in higher prices paid for such timber, 
and allows the Forest Service to provide a continuous supply of timber 
to the public in accordance with the Organic Administration Act. In 
addition, by extending contracts and avoiding defaults, closures, and 
bankruptcies, the Government avoids the difficult, lengthy, expensive, 
and sometimes impossible process of collecting default damages.
    By preventing defaults, better utilization of various forest 
resources (consistent with the provisions of the Multiple-Use 
Sustained-Yield Act of 1960) will result if contracts can be extended 
beyond 10 years because of this finding. Therefore, pursuant to 16 
U.S.C. 472a(c), and subject to specific conditions and exceptions, I 
have determined that it is in the substantial overriding public 
interest to redetermine pulpwood rates and extend, up to two years, 
certain National Forest System timber sale and sale of property 
stewardship contracts that were awarded before March 13, 2024, or had a 
bid opening date prior to March 13, 2024, but have not yet been 
awarded.
    Total contract length may exceed 10 years because of an extension 
under this SOPI determination. Downpayment amounts will be recalculated 
and any periodic payment due dates that have not been reached, as of 
the date the Contracting Officer receives a written request for a SOPI 
extension, shall be adjusted one day for each day of additional 
contract time granted.
    To receive an extension and periodic payment deferral pursuant to 
this SOPI, purchasers must make a written request and agree to release 
the Forest Service from all claims and liability during the extension 
period if a contract extended pursuant to this finding is suspended, 
modified, or terminated in the future. The Forest Service shall 
continue to monitor market conditions to determine if additional relief 
measures may be needed in the future.

    Dated: March 8, 2024.
Randy Moore,
Chief, Forest Service.
[FR Doc. 2024-05286 Filed 3-14-24; 8:45 am]
BILLING CODE 3411-15-P