[Federal Register Volume 61, Number 251 (Monday, December 30, 1996)]
[Proposed Rules]
[Pages 68690-68695]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32937]


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DEPARTMENT OF AGRICULTURE

Forest Service

36 CFR Part 223


Disposal of National Forest Timber; Cancellation of Timber Sale 
Contracts

RIN 0596-AB21
AGENCY: Forest Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would revise the existing rules on 
cancellation of timber sale contracts, permits, and other such 
instruments authorizing the sale or harvest of timber or other forest 
products to clarify when, why, and by whom contracts may be cancelled, 
to remove redundant provisions, and to provide a new formula for 
compensation when the government must cancel timber sale contracts. 
This proposed rule also would limit financial liability of the United 
States on certain contracts, remove cancellation limits applicable to 
the length of the contract term, and define the contractual terms 
``purchaser'', ``modification'', ``partial cancellation'', and 
``cancellation''. The proposed rule would also require that all sales 
are to be laid out in identifiable units. These changes are necessary 
because the Forest Service is unable to continue bearing most of the 
financial risk and burden of contract cancellation arising from 
compliance with increasingly complex and rigorously enforced 
environmental laws and regulations. This proposed rule would reasonably 
reallocate risk between the Government and private parties, thereby 
protecting the U.S. taxpayer from unreasonable and excessive financial 
damages arising from cancellation of timber sale contracts and other 
such instruments.

DATES: Comments must be received in writing by February 13, 1997.

ADDRESSES: Send written comments to Director, Timber Management Staff 
(2400), Forest Service, USDA, P.O. Box 96090, Washington, DC 20090-
6090.
    The public may inspect comments received on this proposed rule in 
the Office of the Director, Wing 3NW, Auditors Building, 201 14th 
Street, SW, Washington, DC 20250. Parities wishing to view comments are 
encouraged to call ahead (202-205-0893) to facilitate entry into the 
building.

FOR FURTHER INFORMATION CONTACT:
Rex Baumback, Timber Management Staff, (202) 205-0855.

SUPPLEMENTARY INFORMATION: The rules at Title 36, Code of Federal 
Regulations (CFR), part 223 govern the sale of National Forest System 
timber. Section 223.30 provides that each timber sale contract will be 
consistent with plans, environmental standards, and other management 
requirements. Section 223.30 sets forth specific management 
requirements for timber sales contracts in addition to general 
compliance with environmental standards and resource management plans, 
for example, fire protection and suppression, minimizing increases in 
erosion, regeneration of timber, and so forth. Sections 223.40 and 
223.116 set out the current bases for cancellation of timber sale 
contracts by either the Government or the purchaser and prescribe the 
amount of damages, if any, in the event of cancellation.
    Section 223.40 requires that timber sale contracts, permits, and 
other such instruments with terms longer than 2 years provide for 
cancellation when necessary to prevent serious environmental damage or 
when they are significantly inconsistent with land management plans 
adopted or revised in accordance with section 6 of the Forest and 
Rangeland Renewable Resources Act of 1974, as amended (16 U.S.C. 1601, 
et seq.) and 36 CFR part 219--Planning.
    Section 223.116 provides that timber sale contracts and permits may 
be cancelled based on specifically listed conditions. This section also 
authorizes the Chief of the Forest Service to cancel contracts and 
places limitations on the re-delegation of cancellation authority to 
Regional Foresters.

Background

    Under existing regulations, purchasers may request cancellation of 
contracts if, as a result of catastrophic damage caused by forces 
beyond the control of the purchaser, the value of the remaining timber 
is materially diminished. The Government may cancel contracts under any 
of the following conditions: (1) By mutual agreement with the purchaser 
when such action is to the advantage of the United States or not 
prejudicial to its interests; (2) for purchaser's violation of contract 
terms; (3) for purchaser's conviction of violation of criminal statutes 
or for violation of civil standards, orders, permits, or other 
regulations, issued by a Federal agency, State agency, or political 
subdivision thereof, for the protection of environmental quality, on 
National Forest System land, unless compliance with such laws or 
regulations would preclude performance of other contractual 
requirements; and (4) upon determination by the Chief of the Forest 
Service that operations under the contract would result in serious 
environmental degradation or resource damage.
    Unlike government-wide rules governing procurement contracts, the 
existing cancellation regulation places an inappropriate amount of the 
financial liability on the Forest Service when the agency must, for 
reasons of public policy or statutory direction, cancel a timber sale 
contract or permit. In an effort to address this issue, the agency 
published a proposed rule to revise its rules on cancellation of timber 
sale contracts, permits, and other such instruments in the Federal 
Register on August 31, 1990, at 55 FR 35683-35686. No public comment 
was received as a result of this publication. After subsequent review 
of the cancellation regulation, the agency identified additional 
changes that are needed but that were not included in the proposed 
rule. Therefore, the agency is publishing a new proposed rule and 
inviting public comments.
    The need for the revised contract cancellation procedures and 
expanded use of identifiable units for all forest product sales arises 
from the changing circumstances over the last two decades surrounding 
forest product sales and the increasing likelihood that a forest 
product sales may have to be changed in order to comply with the law. 
Consequently, the Federal manager must have contractual flexibility in 
order to maintain compliance with the law within reasonable economic 
limits.
    Under the existing regulation when a sale is cancelled, the Forest 
Service pays a purchaser's out-of-pocket costs for a purchaser's 
operations up to the date of cancellation. The Forest Service also 
compensates the purchaser for the presumptive increased cost of 
acquiring comparable timber to replace the timber lost through 
cancellation, without regard to whether the purchaser actually 
purchases replacement timber. By holding inventory in a rising market, 
a purchaser generally earns a profit under the existing rules. In a 
falling market, the current rule shields the purchaser from loss that 
otherwise would be incurred if the contract had not been cancelled by 
the Forest Service.
    Given the inability of the Forest Service to predict or control the 
need to adjust management practices to respond

[[Page 68691]]

to environmental statutes or other requirements, it is no longer 
appropriate for the Forest Service to guarantee purchasers a 
replacement supply of timber or to assure them a margin of profit in 
the event of cancellation. Moreover, this policy is very costly to the 
taxpayer. For example, in addition to paying out-of-pocket expenses, 
the Forest Service has already had to pay approximately $9 million to 
cover purchaser's replacement timber costs that resulted primarily from 
contract cancellations or partial contract cancellations in Arizona and 
New Mexico to protect the Mexican spotted owl and northern goshawk. 
There is also $57 million in unresolved lawsuits and contract claims 
related to contract cancellation. Further, this amount of potential 
liability does not include potential damages that may result from 
cancellation of the 77 timber sales involved in the Silver v. Thomas 
(CIV-94-1610-PHX-CAM) injunction in Arizona and New Mexico or the 
Section 318 timber sales that are the subject of the Rescissions Act 
and related litigation in Oregon and Washington.
    By statute, the agency is required to pay from available 
appropriations any timber contract claim that arises from a dispute 
with a purchaser (41 U.S.C. 612(c)). Because cancellation costs come 
out of the agency's current budget, providing for lost profits 
adversely affects all Forest Service operations, including other timber 
operations and non-timber programs. If timber is to be sold, neither 
the Forest Service nor the taxpayer can justify assuming risks of this 
magnitude. The benefits and burdens must be shared by all users, 
purchasers and the general public alike. Furthermore, as a practical 
matter, the agency is not appropriated enough funds to provide for 
replacement compensation for all the timber sales that may need to be 
cancelled, in whole or in part, in order to comply with environmental 
laws. Accordingly, although cancellation of contracts by the Forest 
Service remains in the public interest, the Forest Service has 
concluded that it is no longer in the public interest for the agency to 
bear more than out-of-pocket expenses in these instances, nor is it 
fiscally feasible, given the increasing uncertainty surrounding 
National Forest System timber sales.
    This uncertainty is caused by several factors. Developing case law 
on environmental and related statutes and regulations, such as the 
Endangered Species Act, the Clean Water Act, and the Clean Air Act, in 
conjunction with increasing amounts of new information on the 
environmental effects and resource impacts of various activities on 
National Forest System land has led to constantly changing and more 
rigorous management requirements. The uncertainty surrounding timber 
sales is compounded by a growing competition and public concern for the 
National Forests' limited resources. For example, the Forest Service 
may be forced to cancel or substantially modify existing timber sale 
contracts and permits if the Fish and Wildlife Service, an agency of 
the Department of the Interior, lists an animal or plant species as a 
threatened species under the Endangered Species Act. Specifically, in 
response to the listing of the red-cockaded woodpecker as an endangered 
species under the Endangered Species Act in 1973 and subsequent 
discovery of new information in 1989, the Forest Service was required 
to reevaluate its management practices throughout the woodpecker's 
range on National Forests in the South. This re-evaluation resulted in 
modification and cancellation of several existing timber sale 
contracts.
    In addition, the Forest Service has recently been judicially 
compelled to cancel or modify additional timber sale contracts in order 
to protect the Mexican spotted owl and marbled murrelet, which are both 
listed as a threatened species under the Endangered Species Act. This 
has also happened with the northern spotted owl. Further, there are 
proposals that the Fish and Wildlife Service list the goshawk, other 
owl species, and some species of Pacific salmon under the Endangered 
Species Act.
    Modification or cancellation of existing legal contractual 
obligations is not limited, however, to efforts to comply with the 
Endangered Species Act. In one case, the activities of a private 
landowner upstream from a National Forest resulted in stream sediment 
loading to such a level that sale activities on adjoining National 
Forest land would have violated the Clean Water Act. As a result, the 
Forest Service had to alter its timber harvesting plans for the area 
adjacent to that stream. If timber sales had been under contract within 
the area adjacent to that stream, contract cancellation and payment of 
compensation to the purchaser would have been required to avoid 
violations of the Clean Water Act.
    The Forest Service takes every precaution before authorizing a 
particular activity on National Forest System lands to ensure that its 
authorization conforms with existing laws and with existing conditions 
on the ground at the time of the authorization. However, when deciding 
to go forward with such projects, the Forest Service must plan for 
potential intervening events and circumstances. Given the increasing 
pressures on forest resources from a variety of sources, it is 
essential that Forest Service officials have flexibility to adjust 
management activities on National Forest System lands and associated 
contractual arrangements without incurring enormous financial 
liability. Reasonable limits to the Government's exposure to financial 
liability and burden of risk in the event of such adjustments are 
imperative to protect the public's financial interests. Without 
reasonable limits to such exposure, spiraling costs to the Forest 
Service could seriously reduce future timber sale offerings.

Provisions of the Proposed Rule

Section 223.30

    To accomplish the needed changes, the agency proposes to revise 36 
CFR 223.30 to include a new paragraph (g) which would provide that all 
timber sale contracts, permits, and other such instruments authorizing 
the sale or harvest of timber or other forest products must identify 
subdivision(s), payment unit(s), cutting unit(s), clearcutting unit(s), 
understory harvest unit(s), individual tree marked area(s), or harvest 
unit(s) within a designated sale area boundary. Under this revision, 
the District Ranger or other Forest Service official responsible for 
sale layout would be required to consider, among others, the following 
factors when determining whether or not the sale area is to be divided 
into more than one unit: Type of forest product; type of sale; acreage; 
volume; topography; density of product within the area; value of the 
sale; and management needs. Sales that are divided into two or more 
harvest units are divisible.
    This provision would extend the harvest unit layout concept that is 
now used only in timber sale contracts using FS Form 2400-6 to all 
other contract forms, permits, and other such instruments authorizing 
the sale or harvest of timber or other forest products. Under this 
provision, all timber sale instruments which may reasonably be divided 
into two or more units would be treated similarly for purposes of 
modification, partial cancellation, or cancellation. This revision 
would add uniformity to the timber administration process and also 
extend the application of damage limiting provisions to all forest 
product sale instruments.
    To accommodate this new paragraph (g), existing paragraphs (g) and 
(h) would be designated as paragraphs (h) and (i) respectively.

[[Page 68692]]

Section 223.40

    Section 223.40 would be revised to require that all contracts, 
permits, and other such instruments authorizing the harvest of trees or 
other forest products provide for cancellation. The current requirement 
that only contracts two years in length or longer contain a provision 
for cancellation would be removed. No current basis supports a 
different standard of liability for short term contract than for 
contracts with terms of two (2) or more years.
    This proposed revision would also eliminate potential confusion in 
the use of the terms ``cancellation'' and ``termination.'' This 
proposed rule would define these terms as synonymous when used in 
timber sale contracts, permits, or other such instruments. The proposed 
rule would also revise the title of Sec. 223.40 to read ``Cancellation 
procedures.'' Further, the proposed revision would restructure 
Sec. 223.40 to include the provisions currently found in Sec. 223.116, 
thus incorporating all of the requirements relating to cancellation of 
contracts, permits, and other such instruments into one section and, 
thereby eliminating the redundancy and confusion of having two separate 
sections on cancellation. Section 223.116 would be removed in its 
entirety.
    The proposed rule would also substantially revise the existing 
provisions of Sec. 223.40 and Sec. 223.116. First, a new paragraph (a) 
would define ``purchaser'' for purposes of this section as a holder of 
a National Forest System timber sale contract, permit, or other such 
instrument authorizing the sale and harvest of forest products. The new 
paragraph (a) of the proposed rule would also define the terms 
``partial cancellation'' of a timber sale contract. This definition is 
included in response to a recent court decision, Stone Forest 
Industries v. United States, 973 F.2d 1548 (Fed. Cir. 1992), in which 
the court found that the timber sale contract was not divisible. 
``Partial cancellation'' would be defined as the elimination of one or 
more, but not all, of the identifiable harvest units from a timber sale 
contract and is based upon the divisibility of the timber sale contract 
into units. Thus, this regulation would incorporate the concept of 
divisibility, which would be adopted in 36 CFR 223.30, and, thereby, 
would eliminate any ambiguity regarding the ability of the Forest 
Service to partially cancel a contract. Partial cancellation would 
afford the Forest Service flexibility in today's uncertain climate by 
allowing as much of a timber sale to be harvested as is legally 
allowable while avoiding a breach of contract as a whole.
    Additionlly, the terms ``modification'' and ``cancellation'' would 
be defined to eliminate any confusion that might arise as to their 
meaning in relation to partial cancellation and use in executing timber 
sale contract changes. Modification would be defined as the elimination 
of a portion but not all of a harvest unit or units. The timber sale 
contract provides for rate redetermination in the event of unilateral 
modification. Cancellation is defined as the cancellation or 
termination of contract requirement(s) for removal of the remaining 
timber or other forest products from all of the identifiable harvest 
units under the timber sale contract, permit, or other timber sale 
instrument.
    Mutual modifications and cancellations as provided in the current 
regulation at 36 CFR 223.112 and 36 CFR 223.116(2) would also be 
provided for in this proposed regulation at 223.40(c)(2). Compensation 
for a mutually agreed upon contract change would be provided for in the 
mutual agreement between the parties. Mutual agreements between the 
Forest Service and a purchaser can only be made if the agreement is to 
the advantage of the United States or not prejudicial to its interests.
    Proposed paragraph (b) is a revision and expansion of provisions 
presently in 36 CFR 223.40 and 36 CFR 223.116 and would limit to the 
Chief the authority to cancel a timber sale contract, permit, or other 
such instrument based upon a determination by the Chief that continued 
operations under such contracts will result in the violation of a 
statute or regulation or will unreasonably conflict with management of 
other forest resources. Proposed paragraph (b)(1) would authorize the 
cancellation or partial cancellation of a timber sale by the Chief 
before operations result in a situation where a Federal statute or 
regulation would be violated, thereby giving the Forest Service the 
authority to pro-actively manage and avoid environmental crises. Causes 
for cancellation or partial cancellation under proposed paragraph 
(b)(1) would include, for example, the need to prevent inconsistencies 
with approved land and resource management plans adopted pursuant to 36 
CFR part 219; damage to cultural resources; and unacceptable adverse 
impacts to Federally-listed threatened or endangered species. Proposed 
paragraph (b)(2) would provide for the cancellation or partial 
cancellation of a timber sale contract, permit, or other such 
instrument by the Chief, upon determination by the Chief that operation 
of the sale may unreasonably conflict with the management of other 
forest resources. For example, (b)(2) would provide for cancellation or 
partial cancellation in order to prevent unreasonable conflict with 
sensitive species listed by Regional Foresters pursuant to the Forest 
Service Mutual Chapter 2670 or published in the Federal Register.
    Paragraph (c) of proposed Sec. 223.40 would set forth the 
conditions under which a contract, permit, or other such instrument for 
removal of National Forest System timber or other forest products may 
be cancelled. Existing paragraphs (a)(1)-(a)(3) of Sec. 223.116 would 
become paragraphs (c)(1), (c)(2), and (c)(3) of Sec. 223.40 and remain 
substantially the same. Both paragraphs (b) and (c) of revised 
Sec. 223.40 would require the cancellation decisions to be based upon 
an administrative record.
    Paragraph (c)(1) would provide for cancellation by the Government 
in the event of a material breach of continued violation of the terms 
of the contract, permit, or other such instrument. This is consistent 
with the principle of law that failure to perform a material element of 
the contract constitutes a breach and merits cancellation of the 
contract. It also establishes that continued, intentional violation of 
the contract which prevents timely performance may merit cancellation 
of the contract.
    Paragraph (c)(2) would slightly revise text now in 
Sec. 223.116(a)(2) by adding the phrases, ``for reasons other than 
those listed in this section,'' and would provide that a contract may 
be cancelled in whole or in part by mutual agreement upon application 
of the purchaser or at the request of the Government with consent of 
the purchaser. The proposed paragraph (c)(2) would limit mutual 
cancellation or partial cancellation to cases in which it is determined 
to be in the best interests of the United States.
    Paragraph (c)(3) would incorporate and revise existing 
Sec. 223.116(a)(3) and provide that, upon application of the purchaser 
or upon notice by the Forest Service, the contract may be cancelled in 
whole or in part if the value of the timber remaining to be cut is 
diminished materially because of catastrophic damage caused by forces 
beyond the control of the purchaser or the Forest Service. This 
proposed provision would change the current rule by also authorizing 
the Forest Service to cancel a contract in the event of catastrophic 
damage. Since the very nature of damage resulting from a catastrophe 
can adversely affect the Government to the same extent as the

[[Page 68693]]

purchaser, logic and equity demand that the Government should have the 
ability to cancel in whole or in part the contract, permit, or other 
such instrument under these circumstances.
    Paragraphs (c)(4) and (c)(5) would incorporate and revise existing 
Sec. 223.116(a)(4). The two causes for cancellation that are presently 
combined in paragraph (a)(4) would be divided into separate paragraphs 
to clarify and distinguish between the judicial and administrative 
causes that may result in cancellation. Paragraph (c)(4) would clarify 
that contracts, permits, or other such instruments authorizing the 
harvesting of trees or other forest products may be cancelled upon any 
conviction of a purchaser for violation of a Federal or State criminal 
statute, when such violation is in any way connected with obtaining, 
attempting to obtain, selling, trading, or processing public timber, or 
obtaining, attempting to obtain, or performing a public contract or 
subcontract.
    Paragraph (c)(5) would permit cancellation of timber sale 
contracts, permits, or other such instruments authorizing the 
harvesting of trees or other forest products upon the conviction of the 
purchaser for a violation of civil standards, orders, permits, or other 
regulations written for the protection of the environment.
    Cancellation under paragraphs (c)(4) or (c)(5) would be an 
administrative action intended to ensure that the Government does 
business only with reasonable parties, that is, parties who possess a 
satisfactory record of integrity and business ethics.
    A new proposed paragraph (c)(6) would provide the authority to 
cancel or partially cancel a contract, permit, or other such instrument 
authorizing the harvesting of trees or other forest products as a 
result of a court order or court approved settlement agreement. This 
proposed paragraph also would permit cancellation even though a sale 
contract, permit, or other such instrument is not specifically named in 
an order or settlement agreement if the Forest Service determines that 
the order or settlement agreement would be applicable to the conditions 
existing on the area governed by the contract, permit, or other such 
instrument. This paragraph is necessary for the Government to properly 
and efficiently respond to litigation over National Forest management 
and competing resource uses and would remove any ambiguity or potential 
misinterpretation over the agency's cancellation authority in light of 
court orders or court approved settlements.
    Paragraph (d) of the proposed rule would provide that any timber 
sale contract, permit, or any other such instrument for the sale or 
harvest of timber or forest products containing individually 
identifiable harvest units may be partially cancelled without the 
Forest Service incurring liability for the entire contract. Paragraph 
(d) would also provide that when a timber sale is partially cancelled, 
a duty to perform the remaining portion of the contract continues with 
the purchaser, in most cases.
    The present method for determining reasonable compensation to the 
purchaser is described at Secs. 223.40 and 223.116(a)(5). Proposed 
223.40(e) would provide the basis for determining compensation, if any, 
in the event a contract is cancelled for any reason. Proposed paragraph 
(e)(1)(i) provides that limited compensation, in the form of out-of-
pocket expenses, would be provided when contracts, permits, or other 
such instruments are cancelled or partially cancelled pursuant to 
paragraphs (b)(1), (b)(2), or (c)(6), except where the Forest Service 
finds the purchaser contributed to the reason(s) for cancellation. 
These provisions allow the Government to cancel or partially cancel 
contracts, permits, or other such instruments in order to, among other 
things, comply with a court order, federal statute or regulation, or 
avoid adverse conflicts with other environmental resources. Out-of-
pocket expenses are a fair way of allocating part of the risk 
associated with these cancellations or partial cancellations. Proposed 
paragraph (e)(1) would limit out-of-pocket expense to unrecovered costs 
actually paid out and arising from acquiring and performing the 
contract, and would expressly exclude attorney's fees, unrealized or 
lost profits, replacement cost of timber, or any other anticipatory 
losses by the purchaser.
    Proposed paragraph (e)(1)(i) provides an exception to the payment 
of out-of-pocket expenses in situations where fairness dictates that 
the purchaser absorb their own expenses. Specifically, the exception 
excludes compensation in situations where the purchaser contributes to 
the cancellation reason(s) such as the violation of a statute. In most 
cases, such a situation would be treated as a breach or as another 
cancellation reason included under proposed paragraph (e)(1)(ii). 
Consequently, the (e)(1)(i) exception to the payment of out-of-pocket 
expenses is intended to apply only where no other cancellation reason 
is applicable. This exception would also exclude compensation in 
situations where either the purchaser or both the purchaser and the 
Government may be responsible for the cancellation reason(s).
    Proposed paragraph (e)(1)(ii) would provide that no compensation 
would be given for cancellations or partial cancellations pursuant to 
paragraphs (c)(1), (3), (4), or (5). Compensation would be 
inappropriate for contracts, permits, or other such instruments 
cancelled pursuant to paragraphs (c)(1), (4), or (5) because the 
cancellation would be the result of a purchaser's failure to 
satisfactorily perform a contract, permit, or other such instrument or 
the result of a purchaser's failure to comply with appropriate law, 
orders, rules, regulations, or standards. It would also be unreasonable 
for the Government to compensate such a purchaser for unrecovered costs 
when the cancellation results from a purchaser's own bad faith acts.
    Furthermore, compensation for a cancellation or partial 
cancellation involving a catastrophe pursuant to proposed paragraph 
(c)(3) would also be inappropriate. The purchaser has the option under 
the terms of a timber sale contract for a contract modification and 
rate redetermination as well as the option to request that a contract 
be cancelled. If it is in the purchaser's best interest to request a 
cancellation, the Government should not be obligated to do more than 
cancel the contract, permit, or other such instrument and accept the 
return of damaged and/or devalued timber. Likewise, if the Government 
elects to cancel or partially cancel a contract as a result of a 
catastrophic event, equitable treatment of both parties to the contract 
would dictate there be no compensation given.
    Cancellations or partial cancellations pursuant to proposed 
paragraph (c)(2) would be the result of a request for cancellation or 
partial cancellations originating from either the purchaser or the 
Government and would require the consent and agreement of the other 
party. The agreement reached between the parties may or may not include 
a financial settlement as part of the terms of the agreement. Proposed 
paragraph (e)(2) permits but does not require compensation for the 
purchaser. To require compensation for the purchaser would unfairly 
restrict the bargaining position of the Government when a contract, 
permit, or other such instrument is cancelled or partially cancelled by 
written mutual agreement.

Section 223.116

    The procedure that has been in place for determining the value of 
comparable replacement timber, based on timber sold within the past 6 
months on the same National Forest (Sec. 223.40 and

[[Page 68694]]

Sec. 223.116 (a)(5)), is often difficult and not workable. This method 
fails to provide the necessary flexibility to deal with different 
circumstances faced in individual timber sale cancellations or partial 
cancellations. Additionally, comparable replacement timber is becoming 
increasingly expensive and exposes the Forest Service and the taxpayer 
to excessive liability. Further, there is no assurance that there will 
be comparable sales sold within the 6 months prior to the cancellation 
or partial cancellation. Therefore, the proposal does not retain the 
current procedures.
    Finally, paragraph (b) of Sec. 223.116 would be replaced because it 
is redundant. The Secretary of Agriculture has delegated full authority 
to the Chief to administer the National Forest System timber sale 
program (7 CFR 2.42). The Chief delegates his authorities to lower 
level officials or reserves authority through the Forest Service Manual 
except as otherwise noted in the regulations at part 223.

Environmental Impact

    This proposed rule would establish uniform criteria to be 
considered when a timber sale contract, permit, or other such 
instrument authorizing the sale or harvest of timber or other forest 
products must be cancelled or partially cancelled. Section 31.1b-2 of 
the Forest Service Handbook 1909.15 (57 FR 43180; September 18, 1992) 
excludes from documentation in an environmental assessment or impact 
statement ``rules, regulations, or policies to establish Service-wide 
administrative procedures, program processes, or instructions.'' 
Paragraph d of Section 31.1b further excludes ``proposing changes in 
contract terms and conditions or terms and conditions of special use 
authorizations.'' The agency's preliminary assessment is that this rule 
falls within this category of actions and that no extraordinary 
circumstances exist which would require preparation of an environmental 
assessment or environmental impact statement. A final determination 
will be made upon adoption of the final rule.

Controlling Paperwork Burdens on the Public

    This rule does not require any recordkeeping or reporting 
requirements or other information collection requirements as defined in 
5 CFR part 1320 not already approved for use and, therefore, imposes no 
additional paperwork burden on the public. Accordingly, the review 
provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501, et 
seq.) and implementing regulations at 5 CFR part 1320 do not apply.

No Takings Implications

    This proposed rule has been analyzed in accordance with the 
principles and criteria contained in Executive Order 12630. It has been 
determined that the proposed rule does not pose a risk of a taking of 
Constitutionally-protected private property because these proposed 
regulations apply to the discretionary use of Federally owned land.

Unfunded Mandates Reform

    Pursuant to Title II of this Unfunded Mandates Reform Act of 1995, 
which the President signed into law on March 22, 1995, the Department 
has assessed the effects of this rule on State, local, and tribal 
governments and the private sector. This rule does not compel the 
expenditure of $100 million or more by any State, local, or tribal 
governments or anyone in the private sector. Therefore, a statement 
under section 202 of the Act is not required.

Regulatory Impact

    This proposed rule was reviewed under USDA procedures and 
determined to be a significant rule under Executive Order 12866 on 
Regulatory Planning and Review because of the expected strong public 
interest in the proposed rule. Accordingly, this proposed rule is 
subject to OMB review under Executive Order 12866. However, this 
proposed rule will not have an annual effect of $100 million or more on 
the economy, or substantially increase prices or costs for consumers, 
individual industries, Federal, State or local governments, or 
geographic regions. Furthermore, it will not have significant adverse 
effects on competition, employment, investment, productivity, 
innovation, or on the ability of United States-based enterprises to 
compete with foreign-based enterprises in domestic or export markets. 
This proposed rule will not limit the amount of National Forest System 
timber to be offered for sale or restrict competition for such timber. 
Rather, this proposed rule would remove the unreasonable degree of 
financial risk currently borne by the Federal Government in the event 
of timber sale contract cancellation and thus limit the Federal 
financial liability to reasonable risks.
    In addition, this proposed rule has been considered in light of the 
Regulatory Flexibility Act (5 U.S.C. 601, et seq.), and it has been 
determined that this action will not have a significant economic impact 
on a substantial number of small entities as defined by that act.

Civil Justice Reform Act

    This proposed rule has been reviewed under Executive Order 12778, 
Civil Justice Reform. If this proposed rule were adopted, (1) all State 
and local laws and regulations that are in conflict with this proposed 
rule or which would impede its full implementation would be preempted; 
(2) the proposed rule may be given retroactive effect on existing 
contracts that contain limiting compensation provisions; and (3) it 
would not require administrative proceedings before parties may file 
suit in court challenging its provisions.

List of Subjects in 36 CFR Part 223

    Exports, Government contracts, National forests, Reporting 
requirements, and Timber sales.

    Therefore, for the reasons set forth in the preamble, part 223 of 
chapter II of title 36 of the Code of Federal Regulations is proposed 
to be amended as follows:

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

    1. The authority citation for part 223 continues to read as 
follows:

    Authority: 90 Stat. 2958, 16 U.S.C. 472a; 98 Stat. 2213, 16 
U.S.C. 618, unless otherwise noted.

Subpart B--Timber Sale Contracts

    2. Amend Sec. 223.30 by redesignating paragraphs (g) and (h) as 
paragraphs (h) and (i) respectively and adding new paragraph (g) to 
read as follows:


Sec. 223.30  Consistency with plans, environmental standards, and other 
management requirements.

* * * * *
    (g) Identification and designation of individually separable 
subdivision(s), payment unit(s), cutting unit(s), clearcutting unit(s), 
understory harvest unit(s), overstory harvest unit(s), individual tree 
marked area(s), or harvest unit(s) within a designated sale area 
boundary. Whenever reasonably feasible, the District Ranger or other 
Forest Service official responsible for sale layout shall divide the 
sale or permit area into two or more units, thereby making the contract 
divisible.
* * * * *
    3. Revise Sec. 223.40 to read as follows:


Sec. 223.40  Cancellation procedures.

    Timber sale contracts, permits, and other such instruments 
authorizing the harvesting of trees or other forest products, shall 
provide for cancellation

[[Page 68695]]

of partial cancellation for the reasons specified in paragraph (b) and 
(c) of this section. For the purposes of this section, the terms 
``cancellation'' and ``termination'' as used in this section and in 
timber sale contracts, permits, and other such instruments are 
synonymous and may be used interchangeably.
    (a) Definitions. The following definitions apply to the provisions 
of this section.
    (1) Purchaser means, for the purpose of this section, any holder of 
a National Forest System timber sale contract, permit, or other such 
instrument authorizing the harvest of timber or other forest products.
    (2) Partial Cancellation means the elimination of one or more, but 
not all, of the identifiable harvest units from a timber sale contract, 
permit, or other such instrument.
    (3) Modification means the elimination of a portion of, but not all 
of, an identifiable harvest unit or units from a timber sale contract, 
permit, or other such instrument.
    (4) Cancellation means the termination of contract requirement(s) 
for the removal of the remaining timber or other forest products from 
all of the identifiable harvest units of a timber sale contract, 
permit, or other such instrument.
    (b) Cancellation actions reserved to the Chief. Based upon review 
of the administrative record, the Chief of the Forest Service shall 
cancel or partially cancel any timber sale contract, permit, and other 
such instrument authorizing the sale and harvest of trees or other 
forest products upon a determination that one or both of the following:
    (1) Continued operation of the timber sale contract, permit, or 
other such instrument will result in the violation of a Federal statute 
or regulation; and/or
    (2) Continued operation of the timber sale contract, permit, or 
other such instrument will unreasonably conflict with the management of 
other forest resources.
    (c) Other cancellation actions. Based upon review of the 
administrative record, the Chief of the Forest Service, or other Forest 
Service official to whom such authority is delegated, may cancel or 
partially cancel, timber sale contracts, permits, or other such 
instruments authorizing the sale and harvest of trees or other forest 
products for any of the following reasons:
    (1) For material breach or continued violation of their terms.
    (2) Upon application or with the consent of the purchaser, for 
reasons other than those listed in this section, when such action is of 
advantage to the United States or not prejudicial to its interests.
    (3) Upon application of the purchaser or by notice of the Forest 
Service, when catastrophic damage caused by forces beyond the control 
of either the purchaser or the Forest Service materially diminishes the 
value of the timber remaining to be cut because of substantial damage 
to the timber itself or because of physical change in the sale area or 
access to the timber.
    (4) For a conviction of a purchaser for violation of any Federal or 
State criminal statute, when such violation is in any way connected 
with obtaining, attempting to obtain, selling, trading, or processing 
public timber, or obtaining, attempting to obtain, or performing a 
public contract or subcontract.
    (5) Upon final agency or judicial determination of a purchaser's 
violation of civil standards, orders, permits, or other regulations for 
the protection of environmental quality issued by a Federal agency, 
State agency, or political subdivision thereof, in the conduct of 
operations under such regulations on National Forest System land.
    (6) To comply with a Federal court order or a court approved 
settlement agreement, regardless of whether the sale is named in such 
an order, upon determination by the Forest Service that the order 
applies to the conditions existing on the sale.
    (d) Partial Cancellation. Any timber sale contract, permit, or 
other such instrument for the sale or harvest of timber or forest 
products that contains individually identifiable harvest units may be 
partially cancelled without the Forest Service incurring liability for 
breach of the entire contract. When a timber sale is partially 
cancelled, a purchaser retains the duty to perform the remaining 
portions of the contract, unless, based upon evidence provided by the 
purchaser, the Contracting Officer determines that it would be 
uneconomical for the purchaser to perform the remaining portion of the 
contract.
    (e) Compensation. (1) In the event of cancellation or partial 
cancellation by the Government of a contract, permit, or other such 
instrument under paragraphs (b) and (c) of this section, compensation, 
if any, is to be determined as follows:
    (i) If the cancellation or partial cancellation is made pursuant to 
paragraph (b)(1), (b)(2), or (c)(6) of this section, the purchaser may 
receive compensation for out-of-pocket expenses, except where the 
Forest Service finds the purchaser contributed to the reason(s) for 
cancellation. Out-of-pocket expenses include only unrecovered costs 
arising from acquiring and performing the contract prior to 
cancellation. Out-of-pocket expenses do not include attorney's fees, 
lost profits, replacement cost of timber, or any other anticipatory 
losses by the purchaser. All such expense claims must be submitted, 
along with supporting documentation, to the Contracting Officer, 
pursuant to the Contract Disputes Act of 1978 (41 U.S.C. 605).
    (ii) If the cancellation or partial cancellation is made pursuant 
to paragraphs (c)(1), (3), (4), or (5) of this section, the purchaser 
shall not receive any compensation.
    (2) If the cancellation or partial cancellation by the government 
is made pursuant to paragraph (c)(2) of this section, compensation to 
either party will be determined subject to such terms as may be 
included in a written mutual agreement between the parties.


Sec. 223.116  [Removed]

    4. Remove Sec. 223.116 in its entirety.

    Dated: May 3, 1996.
David G. Unger,
Associate Chief.

    Editiorial Note: This document was received in the Office of the 
Federal Register on December 23, 1996.
[FR Doc. 96-32937 Filed 12-27-96; 8:45 am]
BILLING CODE 3410-11-M