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CHAPTER 60 - UNCOMPLETED TIMBER SALE CONTRACTS
61 - INTRODUCTION.
There may be damages incurred by the government whenever contracts are (1) uncompleted by
the expiration date, (2) repudiated or abandoned by the Purchaser, or (3) canceled for breach. As
a result of "Failure to Cut" provisions of the timber sale contract forms, an analysis must be
made to determine whether the action of the purchaser has damaged the government.
This chapter describes the actions necessary on the part of the Forest Service as a result of an
uncompleted contract and the procedures to determine damages.
62 - ADMINISTRATIVE ACTIONS.
There are actions which must be taken by the Contracting Officer (CO) when it appears there is a
possibility of a contract terminating uncompleted. Some of these actions of the CO require
action on the part of the purchaser. Additional actions are required of the CO at the contract
termination date.
62.1 - Actions Prior to Contract Expiration.
Expiration of an uncompleted timber sale contract frustrates the original intent of both the
purchaser and the Government.
One of the best ways to reduce the possibility of contract default is by increased contact between
the CO and the purchaser during the latter part of the contract period.
If possible, contact the purchaser before the last year's operations start. If the contract provides
for a plan of operations, review the plan and modify if necessary. Particular care should be given
to the plan if the sale was made after July 1, 1978. One of the extension criteria for such sales is
that operations to date be in substantial compliance with the approved plan of operations.
If the purchaser cannot be contacted prior to start of the last year's operations, the CO should
write to inform the purchaser of the remaining contract period as early in the last year as
possible.
The purchaser should provide enough specific information during these contracts for the CO to
determine if it is realistic to conclude that the sale will be completed prior to the termination
date. If the purchaser's schedule does not realistically provide for completion of the sale on time,
the CO should inform the purchaser of the requirements which have to be met prior to any
extension. An operating schedule should be requested from the purchaser. Authority for such a
request is as follows: 2400-6 and 2400-6T Contracts--B6.31 and BT6.31--Operating Schedule.
Forest Service approval of the annual operating schedule is not required in the 2400-6 or 24006T contracts. However, review of these schedules with the purchasers can help identify sales
which may not be completed within the present contract period.
The 2400-3 contract does not have a specific provision for an operating schedule. This form of
contract is ordinarily not used for sales long enough to require an operating plan. Informal
communications are necessary.
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When the termination date of a contract is imminent and the contract is not completed, both
parties must make decisions relating to extension. The Forest Service must decide if it is willing
to extend the contract. If the decision is not to extend, the purchaser should be notified in
writing, by certified mail, return receipt requested, setting forth reasons for such decision.
Whenever possible, this notice should be given in sufficient time to allow the purchaser to
complete the sale within the designated operating season. It should be given whether or not
extension is requested by the purchaser. If the volume remaining is substantial, this notification
may need to be given a considerable time prior to the termination date.
If the Forest Service decides that an extension may be granted under certain terms, the purchaser
should be given notice that an application for extension will be considered. Although it is not
required, it would be advantageous to the Forest Service and the purchaser if two letters as
described below were sent to the purchaser.
The first, mailed approximately 90 days before the termination date, shall remind the purchaser
of the impending termination date. In reply to this letter, the purchaser, if requesting an
extension, must include the operating plans and schedules discussed previously. If, after
receiving the purchaser's application and considering the operating plans and schedules, the
Forest Service decides to approve the extension, a rate redetermination must be made in order to
determine the stumpage rates for the extension and the contract conditions that must be modified.
Send the second letter by certified mail in time to allow the purchaser 30 days to consider the
stumpage rates and other terms under which the Forest Service shall grant an extension. It must
be absolutely clear in this letter that granting the extension is contingent upon acceptance of the
redetermined stumpage rates and other modifications deemed necessary by the Forest Service to
justify granting the extension (FSH 2409.15).
If there is a question as to whether the purchaser would accept a certified letter or if no contact
with the Purchaser can be established, send by both certified and regular (normal) mail
procedures. If the regular delivered letter is not returned, then you could assume that the
purchaser has received the letter.
Surety should get copies of these letters.
Surety shall be advised in advance of any anticipated default. Timely notifications, such as
copies of corrective letters to the purchaser, will keep the surety informed and strengthen the
demands of the Government for payment or specific performance if the purchaser defaults (FSH
6509.11k, section 81.7).
Once it is determined that a timber sale contract will probably expire uncompleted, any request
by the purchaser for a refund of payments or bond reductions under the following contract
authorities will be referred to the Regional Forester for technical advice.
Contract Form |
Contract Provision
|
FS-2400-3
| No Standard Provision for Refunds
2400-6(T)
| B(T)4.24 Refund After Scaling Completed
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2400-6(T)
| B(T)9.1 Bond Reduction
If contacts with the purchaser indicate that it is desirable to extend the timber sale contract, yet
the purchaser returns the extension agreement indicating that it was signed under protest, return
the extension agreement to the purchaser as unacceptable. Give the purchaser 15 days to return
the extension agreement without objections or protest (FSH 2409.15, section 32.8). If this time
allowance lasts beyond the contract termination date, the contract should be conditionally
extended to provide the purchaser the 15 days to consider the extension. The conditional
extension should only last long enough to provide the purchaser the 15 days. Longer conditional
extensions to provide the purchaser more time to consider whether or not an extension is desired
would disrupt timely resource management and are not compatible with timber sale contract
administration standards.
62.2 - Action on Timber Sales Which Expired Prior to Completion.
Following is a checklist of major steps in administration of a timber sale contract which expires
uncompleted. Failure to follow these steps does not necessarily prejudice the management of the
area, but omission of these steps could increase the chance of damage to the public.
Deviations from these procedures should be approved by the Regional Forester.
[ ] Make every effort to Notify purchaser of default.
[ ] Notify surety of default.
[ ] Evaluate conditions on the ground.
[ ] Arrange for completion of any work on the sale area which must be
accomplished before the probable date for reselling the remaining timber.
[ ] Do not close the original sale until all of the contractual obligations have been
fulfilled.
[ ] Appraise remaining timber based upon terms of the original contract and
appraisal information as of the termination date of the contract.
[ ] Do not refund any deposits until contract obligations are completed.
[ ] Try to collect estimated amount of damages from the purchaser. Base
collections on sales sold after March 1, 1979, on a Contracting Officer's
decision.
[ ] If purchaser does not settle obligations, make demand upon surety for
completion of contract.
[ ] Reoffer all remaining timber under terms of the original contract within 6
months of default.
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[ ] Do not reoffer sales made under the "old" procedures (prior to April 1982)
under the "new" procedures. See item number 12 of code 63.
[ ] Include required bidding restrictions in advertisements, prospectus, and bid
for resale of remaining timber.
[ ] Use the same bidding method for the resale as for the original sale.
[ ] Retain SBA status of resale, if possible, see section 65.4, paragraph 2.
1. Contracting Officer should consult with the Director, Timber Management, and if
necessary, the Regional Forester who may consult with the Regional Attorney when:
a. Cancellation action is contemplated.
b. Expiration of an uncompleted contract is determined.
c. Purchaser requests a refund of payments or bond reduction, after it is determined
that a timber sale contract will probably expire uncompleted.
d. Using the bid premium received on a portion of the timber reoffered to assess
damages on the portion unoffered.
e. Delaying the reoffering of remaining timber for more than 6 months.
2. Damage appraisals for expired uncompleted contracts are to be approved by the
Regional Forester and Office of the General Counsel when:
a. Over $2,000 of purchasers funds on deposit are needed to complete work or settle
damage claims.
b. Contract value is $10,000 or more.
c. Timber is not reoffered.
d. Timber is partially reoffered.
e. Timber is reoffered under different conditions.
f. Appraised value at termination exceeds the maximum potential damages.
Forests should plan for a 2-week turn around time for RO review. The Forest shall submit one
copy of the damage package to the Regional Office.
3. All actions involving cancellation for breach or abandonment, must be approved by
the Regional Forester and the Regional Attorney before the CO closes the sale.
Include the following items in the file for Regional Forester review:
a. Copy of the contract.
b. Appraisal at time of termination.
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c. Appraisal done for resale.
d. Original appraisal (R3-FS-2400-17).
e. Calculation of maximum potential damages and the amount, if any.
f. All correspondence.
g. Reports, fully discussing each item of damage sustained and the method of
appraisal used.
When voluntary payment is not made, all cases submitted to the Regional Forester for collection
action will include the above, plus:
h. Statement of purchaser's ability to pay.
i. Proof of effort made to collect damages. Normally, three demand letters should be
sent to purchaser (30 days apart) via certified mail, return receipt requested.
j. Letter of demand to surety.
k. Other pertinent data.
62.3 - Action at Contract Termination.
Once a contract has been defaulted, surety must be notified promptly. This includes surety for
both the performance and payment guarantees. The purchaser shall also be informed.
Conditions on the timber sale area must also be evaluated. See section 63 for a listing of the
kinds of damage to include. The evaluation is based on a comparison of the current contract
value and the appraised value as of termination date, or with the actual resale value of the
remaining timber plus the cost of resale adjusted for changed conditions.
1. Evaluation When Timber is Resold. A narrative is required for all uncompleted
contracts. The narrative report must be submitted to the Regional Forester for review when any
of the following apply:
a. Timber is sold under different sale conditions regardless of value.
b. Only part of the remaining timber is resold.
The report shall be reviewed by the Forest supervisor when the sale is resold under the same
conditions.
The damage report may be delayed if resale will be accomplished within 6 months of sale
termination. If the resale is delayed, the circumstances contributing to the delay will be outlined
in the report. The report must include the following items:
a. Copy of complete original and resale contracts.
b. Original appraisal.
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c. Appraisal at termination date under original conditions (section 65.2; FSH
2409.18, section 47.1; and FSM 2453.5).
d. Appraisal for resale under changed conditions (section 65.4; FSH 2409.18, section
47.1; and FSM 2453.5).
e. Statement on conditions of resale, including effect of any changes on sale value.
Refer to FSH 2409.18, section 47.1.
f. Calculations of damages using the section 65.5 format.
2. Evaluation When Timber is Not Resold. Send a narrative for Regional Forester's
approval and consultation with the Regional Attorney when any remaining timber is not resold.
The report will include the following:
a. Copy of original contract.
b. Original appraisal with form R3-FS-2400-17.
c. Appraisal as of termination date including the form R3-FS-2400-17.
d. Calculation of normal overbid.
e. Basis for decision not to resale remaining timber.
f. Calculations of damages or refund (section 65.5 format).
Send the report to the RO within 3 months of expiration.
62.4 - Flow Chart of Procedures. The flow chart in exhibit 01 shows the procedures involved in
administering damage cases.
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62.4 - Exhibit 01
Flow Chart of Procedures for Uncompleted Contracts
Uncompleted Contract
Reappraise using
data in effect at
time of expiration.
Does resale value
equal or exceed max.
potential damage?
Yes
Close case.
No Damages.
Process any refund.
No
Will remaining
timber be reoffered?
Yes
Will remaining
timber be reoffered
under original TSC
conditions?
No
Document reasons for
not reoffering and
submit to RO and OGC
within 3 months of
expiration
Yes
Reappraise using
current data procedures and
readvertise.
No
Redesign Sale
and TSC
Determine appropriate
resale value sec. 65.4.
Submit to RO and
OGC for review
within 3 months of
expiration prior to
Does resale value equal
or exceed max. potential
damages?
Proposed redesign
approved?
Yes
Appraise and advertise.
No
Proceed as
directed.
Yes
Close sale.
No damages.
Process any
No
Collection action
initiated by Forest
Supervisor
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refund due.
Determine appropriate
resale value sec. 65.4.
Submit to RO, TM and OGC for Review
62.4 - Exhibit 01--Continued
Does resale value after
adjustments for changes
equal or exceed max.
potential damages?
Yes
Close sale.
No damages, process
any refund due.
No
Collection action
initiated by Forest
Supervisor. Demand
letter Certified Mail
Return Receipt Requested.
Full payment made
within 30-calendar days.
Yes
Close sale.
Partial payment
received
Total damages
$400 or less
final settlement by Forest
Determine satisfactory
settlement. Close sale.
No
No payment received.
Send demand to Surety
and offset cash on hand
including cash in lieu
of bond.
\
/
\
Total damages
\
over $400.
\
Submit to RF
Full payment made
for settlement
within 30 days.
\
|
Yes
No
Close
Partial or no
sale.
payment received.
|
Recommend to RF
to remove surety
from acceptable
list. Request RO
assistance to
collect over $400
FS settle if
damages less than
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$400.
63 - TYPES OF DAMAGES.
The more common kinds of damages are:
1. Merchantable timber cut and not paid for. Determine the amount and value by species
of (1) designated trees, (2) undesignated trees. Section B3.46 of the 2400-6 and BT3.45 of the
2400-6T contracts provides authorization for purchaser's payment of liquidated damages for the
cutting of undesignated timber. Determine the amount due and show separately from the
stumpage value.
2. Designated trees left uncut. Determine amount and value by species of designated
timber left on portions of the sale area which have been logged. Do not include volumes in
occasional trees left for reasons permitted by the contract and for which charges would not have
been made in the normal course of sale administration (B(T)6.4).
Damages resulting from the physical presence of uncut trees (as opposed to loss of stumpage)
should also be determined and shown separately from stumpage.
3. Merchantable material wasted in abandoned logs and in top and stumps. Determine
amount and value by species. Do not include volumes of incidental material, leaving of which
was justified under existing sale conditions, or material authorized to be left.
If the contract does not provide for payment for designated timber cut but not removed, damages
shall include the cost of removing or otherwise disposing of wasted material as well as the
stumpage value.
4. Parts of sale area left uncut, whether timber is marked or unmarked. Determine
amount and value, by species, particularly with reference to any reduction in value due to the
purchaser removing timber of better quality or accessibility than the average for the entire sale
area, and in reducing the volume to be cut below that suitable for economical operation.
5. Young growth and standing trees which have been killed or seriously injured.
Determine amount and value by species.
6. Slash, snags, refuse left on the sale area, or uncompleted erosion control measures.
Determine cost of disposition. This may be completed by the purchaser, surety, Forest Service,
or required of the resale purchaser.
7. Failure to clean up camp area, sawmill sites, landings, in accordance with the terms of
the contract. Determine cost of disposition.
8. Forest Service expenditures necessary because of failure of the purchaser to require
employees to prevent or fight fires.
9. Damage to improvements not repaired. Estimate the cost of the repairs.
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10. Unacceptable damage to stream and stream environment from excessive
accumulation of slash and logging debris. Determine cost of channel clearing and disposition of
debris. In addition, determination must be made as to what environmental concerns must be
corrected immediately.
11. Any other damage directly attributable to a violation of the sale contract.
12. For sales sold after April 15, 1982 and which include provision C(T)9.4 (4/82), there
may be damages in addition to the 11 above:
a. Cost of resale or reoffering.
b. Any increase in purchaser credit limit allowance for unconstructed specified road
facilities which are needed to harvest the remaining uncut volume. Such increases are
limited to costs for constructing the road to the same standard and specifications
required by the original contract.
c. The Government's loss caused by the delay in receipt of stumpage payments. Such
loss will be measured by interest at the current rate being paid for borrowing by the
United States (as calculated and published by the Treasury Department in TFRM 68020-20) on the unpaid contract value at termination date. Interest will be charged
for the total number of months, or portions thereof, from termination date until
midpoint of the contract resale period, less any time in excess of 1 year needed to
make the resale.
d. Any increase in reforestation costs, including site preparation, seeding and
planting caused by purchaser's failure to harvest included timber by termination date.
64 - SETTLEMENT OF DAMAGES.
Process Government claims against the purchaser for breach of contract under one of the
following authorities:
1. Claims Collection Act - For contracts awarded prior to March 1, 1979, process
according to FSH 6509.11h, unless the purchaser elects to proceed under the Contract Disputes
Act. Purchasers must be advised of their right to elect to proceed under the Contract Disputes
Act. They may do so by either paying the bill and filing a claim for refund with the CO or
requesting a Contracting Officer's Decision on the billing. The Government's claim for damages
is initiated when the Forest Service decides that damages are due.
2. Contract Disputes Act - For contracts awarded on or after March 1, 1979, process
according to provisions of the Contract Disputes Act of 1978 (FSM 2454.1). The Government's
claim for damages is initiated when the CO decides that the Government has a claim.
The purchaser has avenues of appeal concerning the claim for damages. The purchaser is liable
for the Government's claim unless the Board of Contract Appeals or the courts decide otherwise,
and the purchaser is liable for the claims while these bodies are reviewing the appeal. The
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possibility of a future appeal, or the existence of an appeal, does not lessen the purchaser's, or the
surety's liability.
It should be noted that the dollar amount owed on one sale may be acquired from another one of
the purchaser's sales either on the Forest or within the Region.
When you go to the other sale(s) for offset collection, you may set up a process of further
defaults on the other sale(s).
65 - DETERMINATION OF DAMAGES.
Damages to the Government will be appraised with utmost care and impartiality and no item will
be included
which cannot be supported. The appraisal is only one part of the damage report. Reports should
fully discuss each item of damage, the provision of the contract violated, the amount of damage
sustained and the method of appraisal used. The cost of making the resale, if timber is resold, is
to be documented and included in damages to the Government. The purchaser is responsible for
resale costs even if other damages are determined to be negative.
Appraisals of merchantable timber will be made in accordance with standard appraisal practices
and instructions in effect on termination date of the sale (FSM 2453.5 and FSH 2409.18, section
47.1).
65.1 - Calculation of Potential Damages.
Damage appraisals must be completed so as to provide a firm defensible position should any part
of the appraisal be questioned. No item or cost will be included that cannot be supported. Being
able to justify all items or costs becomes difficult when remaining timber is reoffered under
changed or delayed conditions. Under these situations, it may be necessary to delete certain
items normally included in calculating damages.
For example, if the prescribed treatment is changed, the remarking may include: original trees,
new trees, and/or deleting some original trees.
Unless there is a sound basis to determine what portion of the remarking costs involved
remarking original trees, the entire remarking cost may have to be excluded.
1. Volume and Contract Value of Remaining Timber. Include the following material:
a. All remaining designated volume that is operable.
b. All remaining inoperable material for which previous deposits were not made.
Normally limited to nondesignated volume cut but not removed and uncut designated
volume covered by a payment bond.
Any inoperable volume remaining, which has not been reported as cut on the Statement of
Account, should be reported as cut provided unencumbered deposits are available.
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Do not include volume from occasional trees left for reasons permitted under terms of the timber
sale contract. This volume should be reported as cut.
2. Liquidated Damages. Liquidated damages will not be applicable to material
(designated and not designated) that is operable and included in the reappraisal (item 1 above).
3. Road Recovery Cost. When a small business purchaser requests Forest Service
specified road construction and subsequently defaults, the road recovery costs are not considered
potential damages. Do not use road recovery cost or specified road cost in determining current
contract rates and subsequent appraisals.
65.11 - Resale Costs.
Only those costs directly applicable to resale of timber may be included. Costs incurred in
establishing amount of damages are not includable as resale costs.
Examples of includable and nonincludable resale costs are as follows:
1. Includable resale costs.
a. Recruising (only material included in original sale).
b. Remarking (up to normal marking costs - original trees or volume).
c. Remarking boundaries.
d. Cost of appraisal and completing new contract.
e. Advertisement.
2. Nonincludable resale costs (these actions are necessary but not chargeable as
damages).
a. Making penalty scale.
b. Marking done only to establish damages.
c. Sale inspection to determine extent of damages.
d. Making damage appraisal.
e. Redesigning sale to meet new standards.
Resale costs are included as potential damages when determining the total amount of damages
due the government. If the resale value is greater than the total damages, including resale costs,
no damages are due the government. The purchaser is not billed for resale costs in this situation.
If the total damages, including resale costs, are greater than the resale value, the purchaser is
billed for the difference. However, the receipts cannot be used as reimbursement for resale costs
incurred.
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65.12 - Remaining Work.
Remaining work should appear in calculation of potential damages only after all logical means of
getting the work accomplished have been exhausted. Cost of work to be accomplished by the
resale Purchaser will not be included under remaining work. This cost is allowed in the
reappraisal.
Priorities for completing remaining work are as follows:
1. By Purchaser.
2. By Forest Service using Purchaser's unencumbered deposits.
3. By surety.
4. By resale Purchaser if logical and work is nonurgent.
5. Include in potential damages and accomplished with damage deposits (if available). If
there are no damages, use appropriated funds. Limited to nonurgent work that cannot be
accomplished by any of above.
65.13 - Appraisal of Unmerchantable Young Growth.
The appraisal procedures for determining damage resulting from the Purchaser's impact on
unmerchantable young growth is found in chapters 40 and 50.
65.2 - Appraisal at the Time of Termination.
The first step in determining damages is to: appraise the remaining timber using standard Forest
Service methods in effect at termination, under the original contract terms and conditions. This
will involve a transaction evidence appraisal using the appraisal bulletin in effect on the
termination date. The completion of all uncompleted work required of the original purchaser or
made necessary by purchaser's operation will be computed separately from the appraisal for the
remaining timber. It may be included in the resale appraisal.
If the original contract was modified, the terms of the modified contract will be the basis for the
appraisal. Termination, in a damage appraisal, is the date of the latest termination date for
extension, or adjustment of termination date, whichever is later.
If an adjusted date of termination falls on a date during a calendar year quarter, current contract
rates must be adjusted to the end of the quarter, according to the stumpage rate adjustment
formula specified by the timber sale contract.
When the appraised value is equal to or greater than current contract value, there will be no
damages on remaining timber regardless of how the timber is subsequently offered and what
value is received. There may be other damages, including the cost of resale.
65.21 - Changes in Appraisal Methodology.
It is possible a damage appraisal, when remaining timber is to be reoffered, might have the added
complication of a change in appraisal methodology. When the timber is reoffered under
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different appraisal methodology, use the same comparison procedure described for timber
reoffered under different conditions in section 65.4. However, the difference between the
appraisals will be used for damage determinations whether it is a decrease or increase. The
intent is to obtain a fair market value of the timber at termination.
A damage appraisal which involves a contract originally sold using a residual value (RV)
appraisal presents a unique methodology change when the current appraisal method is
transaction evidence (TE). Two conditions may exist that will require different appraisal
processes.
The two conditions are:
Original Appraisal
Contract Terminates under
Resale under
1
RV
RV (+Bid History)
TE
2
RV
TE
TE
Condition 1 - The original appraisal was made using RV and the contract terminates under an
RV appraisal premise but the resale is delayed and appraised using TE. The appraisal at
termination must be completed under an RV appraisal premise using appraisal information in
effect on the termination date. The RV appraisal will be adjusted by computing the bid history
by species on the Forest during the eight quarters preceding the termination date. The average
overbid for each species or species group will be added to the total value at termination to make
the RV appraisal comparable to a TE appraisal.
Condition 2 - The original appraisal was made using RV and the contract terminates under a TE
appraisal premise and the resale appraisal is under TE. In this condition, the appraisal at
termination and the appraisal for resale both use TE.
When this condition occurs and the resale involves different conditions, as described in
paragraph 3 of section 65.4, the following appraisal data is applicable to completing a TE
appraisal for timber remaining at termination date to reflect the original sale terms:
1. Base Period Price - Will be determined using the bid history for the prior four quarters
from form R3-FS-2400-17 data. Refer to the appraisal bulletin in effect.
2. Base Haul Cost - Same as base period price. Refer to the appraisal bulletin in effect.
3. Sale Haul Cost - Use the haul cost from the original appraisal.
4. Base Road Maintenance Cost - Same as base period price. Refer to the appraisal
bulletin in effect.
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5. Sale Road Maintenance Cost - Use the road maintenance cost from the original
appraisal.
6. Base Slash Cost - Same as base period price. Refer to the appraisal bulletin in effect.
7. Sale Slash Cost - Use the slash cost from the original appraisal.
8. Cable Base Cost - Same as base period price. Refer to the appraisal bulletin in effect.
9. Sale Cable Cost - Use the cable cost from the original appraisal.
10. Quality Adjustment - Determine using the TE quality adjustment by rerunning the
original cruise.
11. Market Adjustment - Refer to the appraisal bulletin in effect.
12. Rollback - The rollback factor will be applied to determine the indicated advertised
rates to reoffer the remaining volume. If no bids are received, the predicated value (without the
rollback factor applied) will be used to determine damages.
65.3 - Resale of Timber.
Timber remaining from an uncompleted expired timber sale contract shall be promptly reoffered
under original sale conditions except when unacceptable environmental or resource damage is
likely to occur (FSM 2453.53). Remaining timber should be reoffered within 6 months of the
expiration date except the following:
1. When it has been determined not to reoffer remaining timber to prevent unacceptable
environmental or resource damage.
2. When remaining timber will be reoffered under different conditions and the changes
will make it impractical to complete the sale package within the 6-month period.
Remaining timber not reoffered under original sale conditions within 6 months of the expiration
date will be the exception rather than the rule and requires Regional Forester approval.
65.4 - Estimating Resale Value.
When the appraisal value is less than current contract value, determination of resale value, and
hence damages, will depend on how the timber is reoffered.
Variations and/or specific procedures for four of the most common situations are discussed and
illustrated below. There may be sales involving unusual circumstances that will require other
procedures. Those cases should be reviewed with the RO before proceeding with damage
appraisal.
Resale value of remaining timber should be established by promptly reoffering remaining
volume under original sale conditions and markets existing at time of sale expiration. Stumpage
values, actual or estimated, established under above stated conditions will become minimum
resale value. When remaining timber is not reoffered, reoffered under different conditions or
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partially reoffered, resale value will be established to reflect any decrease in total appraised value
and/or anticipated bid premiums as a result of not reoffering remaining timber promptly under
original contract conditions.
1. Timber Not Reoffered For Sale. For sales which are not reoffered, the appraised value
of the remaining timber (FSM 2453.53) will be established using appraisal data and procedures
in effect at time of termination. The predicted bidvalue in TE includes the predicted overbid
from offerings during the previous four quarters.
Damage calculations for 2400-6(T) contracts sold after April 1982, which include C(T)9.4
Failure to Cut (4/82), must also include the damages specified in that provision.
Damage determinations for small offerings sold under the FS-2400-4 permit or the FS-2400-3,
Timber Sale Contract, which expire uncompleted shall be made using the same procedures as
FS-2400-6T, Timber Sale Contract, unless the FS-2400-4 permit contains the notation, "This sale
is final and not subject to refund".
When a timber sale contract has expired, leaving designated and included timber uncut and this
uncut area is being reclassified to eliminate future timber harvest, as in wilderness or natural
areas, the sale may be closed without damage if all other contractual requirements have been
met.
2. Timber Reoffered Under Original Terms. When remaining timber is offered,
advertised rates will be established using appraisal data and procedures in effect at time of
advertisement. Remaining timber will not be reoffered at current contract rates.
When remaining timber is promptly reoffered after expiration date, only one appraisal is
necessary. If the reoffering sells, bid value becomes resale value. If the reoffering does not sell,
advertised value becomes resale value.
If the reoffering is delayed and there is a change in appraisal data (market change) between
expiration date and reoffering date, two appraisals will be required. The first appraisal will
reflect appraised value at time of sale expiration. The second appraisal will establish appraised
value at time of reoffering. When appraised value at time of reoffering is less than appraised
value at expiration date, the appraised value at expiration will remain the resale value.
The cost of resale will include all costs associated with the collection of data, reappraisal,
advertisement, and award, if any.
Timber remaining from contracts which did not include the timber sale procedures published
April 15, 1982, in the Federal Register will not be resold under the new procedures unless the
remaining timber comprises less than 50 percent of the new sale. These procedures included
provisions for downpayment, mid-point payment, purchaser costs for delays due to extension of
contract, and additional damages due the Government due to failure to cut. Defaulted timber
shall not be combined with other timber except in extraordinary circumstances.
A decision to reoffer the timber remaining from an uncompleted contract under different terms
from the original contract, to reoffer the remaining timber in more than one sale, or to include
additional timber in the resale of the remaining timber must be approved by the Regional
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Forester prior to implementation. The only exception is that timber remaining from expired
small business set-aside sales does not have to be reoffered as a set-aside sale. However, if it is
at all possible, the set-aside status should not be changed in the resale. Bidding on resales should
follow normal procedures and use the same bidding methods under which the timber was
originally purchased. The procedure for resales of timber within sustained-yield units is given in
FSH 2409.18, section 56.73. The procedure for bidding on resale of an uncompleted contract is
in FSH 2409.18, section 56.7.
Resale value will be the highest of:
a. Bid value increased, when appropriate, by amount that appraised value at
expiration exceed appraised value at time of reoffering (the appraised value at
termination).
b. Appraised value at expiration plus anticipated overbid at expiration. Anticipated
overbid is included in the predicted bid value of a TE appraisal.
c. Appraised value at expiration plus actual bid premium.
3. Timber Reoffered Under Different Conditions. When remaining timber is reoffered,
but under different conditions (contractual requirements) from original sale, it may be
appropriate to adjust the resale value to reflect the effect the changes had on stumpage value.
This will require two appraisals. The first appraisal will reflect original sale terms using
appraisal data and procedures in effect at expiration date. The second appraisal will reflect the
new terms using appraisal data and procedures in effect at time of reoffering.
If changed conditions result in reducing the value of remaining timber, the difference will be
used to reduce any damages.
If changed conditions result in an increase in value of remaining timber, damages would be
computed as in item 2 above.
Resale value will be the highest of:
a. Bid value increased, when appropriate, for changes in market and sale conditions.
b. Appraised value at expiration, under original sale conditions, increased by
anticipated overbid at time of expiration.
4. Timber Reoffered Partially. Reoffering only a portion of remaining timber and/or
including timber that was not in the original sale offering complicates the determination of
damages. The appraised or bid value of reoffered timber may not be as good an indicator of
damages as when the entire remaining volume is reoffered. A careful analysis of partial
offerings is necessary to develop defensible procedures used to determine damages. Partial
reofferings may involve delays which bring market changes into the picture, and further
complicate the process of determining damages. Partial reofferings should be made only when
necessary to prevent unacceptable environmental damages.
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Uncut timber, which will not be resold because of resource management considerations, will not
be included in damage assessments. (Court of Claims No. 305-78, May 22, 1981).
Procedures for determining resale value are similar to those used for timber reoffered under
different conditions as discussed in item 3 above. Some additional steps or procedures may be
necessary.
65.41 - Examples of Resale Value Calculations.
The examples in exhibits 01 through 04 illustrate how the procedures used to determine resale
values (exhibits 01 and 02) and amount of damages (exhibits 03 and 04) are affected by:
a. Not reoffering remaining timber.
b. Timing of the reoffering (prompt or delayed).
c. Conditions under which the remaining timber is reoffered: N
(1) Original versus new sale terms or requirements.
(2) All remaining timber versus a portion of remaining timber.
(3) Market changes (prompt versus delayed reoffering).
d. Old versus new (pre or post 4/82) timber sale procedures.
Exhibit 01 shows the steps involved in determining resale value for a sale under seven different
circumstances. All the remaining timber is either not reoffered or reoffered under original and
new sale terms.
Exhibit 02 takes the three examples (resales 3, 5 and 7) from exhibit 01 to illustrate how offering
only part of the remaining timber affects the procedure for determining resale value.
Exhibit 03, using seven examples from exhibits 01 and 02, illustrates procedures for calculating
damages under the old (pre 4/82) timber sale damage procedures.
Exhibit 04 uses examples 2 and 6 from exhibit 01 to illustrate calculation of damages under the
new (post 4/82 timber sale damage procedures.
The procedures used to calculate resale values in exhibits 01 and 02 are applicable to contracts
sold under both the old and new timber sale procedures.
Procedures illustrated in exhibits 01 and 02 will not be applicable when it becomes necessary to
reoffer a sale due to the high bidder failing to execute the timber sale contract. Failure to execute
timber sale contract would result in high bidder forfeiting the bid guarantee.
65.41 - EXHIBITS 01-04 ARE SEPARATE DOCUMENTS
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65.5 - Calculation of Damages.
Damage calculations shall be summarized and displayed as shown in exhibit 01. If the timber is
reoffered under different conditions and more detail is needed, use the exhibits in section 65.41.
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65.5 - Exhibit 01
Calculation of Damages
Volume
Value
A. Calculation of Potential Damages.
1. Volume and contract value, remaining timber
a. On area not cut over
b. On area cut over
(1) Designated
(a) Cut, not removed
(b) Not cut
(2) Material wasted
Total remaining timber
2. Liquidated damages
3. Cost of resale
4. Cost of completing contractual requirements
5. Interest on remaining Contract Value
6. Other damages (list by item)
7. Less effective unused purchaser credit
8. Maximum potential damages
(
_
)
(
(
)
)
B. Calculation of Resale Value.
1. Appraised value at termination
2. Actual bid value of resale
3. Resale value 1/
(
)
C. Calculation of Damages.
1. Maximum potential damages (A8)
2. Resale value (B3) 1/
3. Damages (1 minus 2)
4. Unobligated cash on hand
5. Additional due from purchaser
6. Refund due purchaser
1/ (If not reoffered use appraisal value (B1) plus representative overbid)
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66 - MITIGATION OF DAMAGES.
Damages, other than loss of stumpage value, caused by expiration of uncompleted contracts can
be mitigated by completion of the original purchaser's obligations. Remaining work may be
completed by (1) the defaulter; (2) Forest Service, using defaulter's deposits, forfeited bonds
including payments made by sureties, appropriated funds, or a combination of such funds; (3)
surety; or (4) purchaser of the resale. The approach or combination of approaches to be used
shall depend upon the attitude and ability of the defaulter; the kind, amount, and urgency of the
work; and the schedule for reoffering the timber. A third party agreement is not needed for
surety to complete the contract.
Except for the work that logically should be deferred and accomplished in conjunction with the
harvest of remaining timber, the defaulted purchaser should be notified of the remaining work
and requested to do it as set forth in the settlement provision of the timber sale contract. If the
purchaser refuses, any unencumbered deposits on hand should be used in the manner authorized
by the contract. This does not include a performance bond if it is not cash. Deposits include any
cash deposited into the Timber Sale Statement of Account, such as advanced deposits for
stumpage, extra scaling services, or erosion control services. Work remaining after all available
deposits are used may be accomplished in several ways (section 65.4).
If work must be done promptly to avoid damage, such as may be the case where the rainy season
is at hand and erosion control structures are needed, any available appropriated funds which may
be expended properly for the purpose shall be used. If damage is not imminent and an
unacceptable delay in the planned reoffering will not result, surety may be requested to do the
work. Otherwise, any nonurgent work may be required of the resale purchaser (FSM 2453.51).
Surety should be notified of the status of the sale.
Unused effective purchaser credit remaining at the time of termination of the uncompleted
contract may be used to mitigate damages as follows:
1. Effective purchaser credit earned under a contract which is subsequently defaulted,
may be used to mitigate the damages caused by the purchaser's failure to cut included timber on
that sale. If any purchaser credit earned on such a contract has been transferred to other
contracts, it may be returned to the originating contract to mitigate damages. In accordance with
C(T)4.211#, the returned purchaser credit must be replaced by cash payments to the other
contracts involved.
2. Except for the amount used to mitigate default damages on that sale, unused effective
purchaser credit earned on a contract that subsequently is defaulted becomes ineffective at the
time of default.
3. Purchaser credit transferred from a contract that is subsequently defaulted shall either
be returned to the originating contract to mitigate damages or be replaced by cash payment.
4. If transferred-out purchaser credit has been used to mitigate default damages on the
receiving sale, and the originating contract is subsequently defaulted, C(T)4.211# requires that
the now-ineffective purchaser credit be replaced by cash payment. The cash payment shall be
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made to the originating sale as the result of a Government claim under C(T)4.211#. The claim is
separate from any damage due the Government caused by the purchaser's failure to cut included
timber, and must be resolved before the contract may be closed.
5. Effective purchaser credit may be transferred from an originating sale, even if it
appears that the originating sale may be defaulted.
6. Effective purchaser credit may be transferred to a defaulted contract to mitigate default
damages.
7. Effective purchaser credit earned on a defaulted contract will be used to mitigate
default damages before transferred-in purchaser credit is used.
These policies apply to timber sales that have expired uncompleted, have been abandoned or
repudiated by the purchaser, or have been canceled by the Forest Service because of a contract
breach by the purchaser. They apply within the framework of the provisions of the National
Forest Roads and Trails Act, as amended (Title 16, United States Code, section 543-548).
Contracting Officers shall consider all factors affecting a particular sale, or group of sales, in
determining how these policies apply to individual situations.
67 - COLLECTION OF DAMAGES.
The collection of damages caused by expiration of a timber sale contract is not a process to
penalize the defaulter. It is a process to minimize the monetary penalties to the public caused by
the failure to perform before expiration of the contract.
The Forest Service does not have the authority to waive the collection of these damage
payments. Once it has been determined that damages have occurred, and the amount of damages
estimated, collection action will start. Initial billing for damages caused by loss of stumpage
value of the remaining timber does not have to wait until the remaining timber is resold.
Collection efforts can start once the damage has been estimated. The estimate will be on the
comparison if the current contract value at termination with the appraised value at termination
for form 2400-6(T) contracts. The billing for this collection should indicate that the billing is for
the estimated amount of damages. Pursuant to the Contract Disputes Act, the CO shall issue a
written decision claiming these damages on sales made subsequent to March 1, 1979.
If possible, completion of contract obligations and collection of damages will be by voluntary
settlement from the defaulter.
A timber sale contract is not discharged by reason of death of the purchaser. When an individual
purchaser dies prior to completion of a timber sale contract, the purchaser's estate remains
responsible for completing performance of the contract. This may be done by the executor or
administrator or, when the deceased purchaser's estate is so small that under the local law no
executor or administrator need be appointed, the contract may be completed by the person
succeeding the estate.
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Damages from breach or noncompletion of the contract or permit is money due the Government,
and an amount sufficient to cover such damages shall be retained out of deposited money which
would otherwise be refunded.
Prior to the time all contract requirements have been met, refund should not be made without
first obtaining consent of surety, unless such consent is specifically waived by the terms of the
contract.
Collection of damages on contracts made prior to March 1, 1979, will be under the terms of the
Claims Collection Act (FSH 6509.11h). Collection of damages on sales made on or after March
1, 1979, will be under the terms of the Contracts Disputes Act (FSM 2454.1).
67.1 - Processing Demands Against Surety.
If the principal of the uncompleted timber sale contract fails to fulfill the requirements of the
contract, the CO (FSH 6509.11k, section 81.7) must bill the principal of damages requesting
payment within 15 calendar days. Send a copy of the demand letter to the surety.
If the principal refuses to pay the damages, the CO must immediately bill the surety requesting
payment within 30 days or within the time specified in the bond instrument.
A total of three progressively stronger written demands on surety, at not more than 30-day
intervals should normally be made. The CO should send the first two demands. The Regional
Director of Fiscal and Accounting Services, as coordinated with the Director of Timber
Management, should send the third demand. If the response to the first or second demand
indicates that a further demand would be futile and the surety's response does not require
rebuttal, the case file should be forwarded by the CO to the appropriate Regional Staff for
processing through the Washington Office. Once elevated to the RO, the case should be
coordinated with the Regional Claims Officer (Regional Director, F&AS).
The first demand should inform the surety of: (a) the basis of the claim; (b) the standards for
assessing interest; (c) the date by which payment is to be made; (d) that failure to pay may lead
to revocation of its certificate of authority to do business with the Government.
The second and third demands should include the added interest. The third demand should also
state that if payment is not received by the due date, the claim will be forwarded to the Secretary
of Agriculture for action as provided in 31 CFR 223.18.
All correspondence with the surety must be sent by certified mail with return receipt requested.
If the surety makes payment in full amount of the demand, or performs the remainder of the
work, and final review shows that all items of damage have been covered and all contract terms
have been met, the surety will be given a release and claim cancellation which should be in the
following form:
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Date
Receive of (Name of Surety)
, herein after called Company,
dollars ($
) , this being the amount which has been determined by
Contracting
Officer, Region
, Forest Service, United States Department of Agriculture, to be the damage
which the United States has suffered through failure to (List items of damage), and the other
obligations assumed but not completed by (Name of purchaser) under contract No.
,
executed (Date) , for performance of which the aforesaid Company became surety on its bond
No. . Operations under the contract, except as covered by the aforesaid payment have been
completed, and in view of the payment the claim heretofore made against the Company under
such bond has been cancelled and the case has been closed on the Forest Service records.
FOREST SERVICE, U.S. DEPARTMENT OF AGRICULTURE
BY
Contracting Officer
A timber sale contract will not be closed until all the purchaser's contractual obligations have
been completed.
Once the obligations have been completed and the performance or payment guarantee is no
longer necessary, the purchaser will be notified by letter that the sale is closed. No other
comment will be made with respect to release of the surety from liability. A copy of the letter
sent to the purchaser should be sent to the surety.
An appropriate statement to use is:
Operations under Contract No.
executed on (Date) by
(Purchaser's Name) and the Forest Service in which a surety bond was issued in the amount of
$
by
on (Date) have been completed and the file has been closed on our
records.
67.2 - Processing Revocation Requests in Accordance with 31 CFR 223.18.
The Region should forward three copies of the case file to the Washington Office, Director of
Fiscal and Accounting Management, under the 6500 file designation, if the surety does not make
payment by the stated due date in the third demand. These cases will be forwarded to the
Department of Treasury through the Office of the General Counsel and Office of Finance and
Management for action as provided in 31 CFR 223.18.
The case files forwarded to the Washington Office must include:
1. A copy of the bond.
2. A summary of the basis of the claim against the purchaser and surety; a chronological
resume of efforts to obtain payment; a statement of the reason(s) given for nonpayment; and a
statement of the Region's view on the case.
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3. A copy of each demand letter and surety's reply.
4. A copy of memoranda of telephone conversations with surety.
Be aware that certain sureties are contesting the propriety of the above action on the grounds that
sureties should not be required to honor their bond obligations before the principal has exhausted
all appeal rights. This argument may well have to be decided in the courts. Until such time, the
Forest Service is required to aggressively pursue collection from sureties.