[Federal Register Volume 73, Number 210 (Wednesday, October 29, 2008)]
[Proposed Rules]
[Pages 64288-64293]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-25799]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF AGRICULTURE

Forest Service

36 CFR Part 223

RIN 0596-AC80


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

AGENCY: Forest Service, USDA.

ACTION: Proposed rule; request for comments.

-----------------------------------------------------------------------

SUMMARY: The Forest Service is proposing to amend the Downpayment rule 
and the Periodic payments rule to reflect changes in contracting 
procedures adopted in the April 2004 and June 2006 timber sale 
contracts. These changes reflect stewardship contracting authorities, 
and reflect changes in forest products markets since these rules were 
adopted in 1991. The proposed changes also would remove obsolete 
references and procedures; make downpayments and periodic payments 
optional for stewardship contracts; allow downpayment and periodic 
payment amounts to be recalculated when contracts receive a rate 
redetermination; revise the procedure for releasing the downpayment; 
and would allow downpayments to be temporarily reduced when Forest 
Service authorizes certain additions of contract time.
    The intended effect of this proposed rule is to protect the 
Government's financial security while providing financial relief to 
timber purchasers during periods when forest products prices 
drastically decline or purchasers receive additional contract time for 
periods when they are not expected to operate.

DATES: Comments must be received in writing by December 29, 2008.

ADDRESSES: Mail written comments to the Director of Forest Management, 
MAIL STOP 1105, Forest Service, USDA, 1400 Independence Avenue, SW., 
Washington, DC 20250-1105; via e-mail to [email protected]; or via 
facsimile to (202) 205-1045. All comments, including names and 
addresses when provided, are placed in the record and are available for 
public inspection and copying. The public may inspect comments received 
on this proposed rule in the office of the Director of Forest 
Management, Third Floor, Northwest Wing, Yates Building, 201 14th 
Street, SW., Washington, DC. Visitors are encouraged to call ahead to 
(202) 205-0893 to facilitate entry into the building.

FOR FURTHER INFORMATION CONTACT: Lathrop Smith, Forest Management, 
(202) 205-0858.

SUPPLEMENTARY INFORMATION:

Background

    The current downpayment regulation (36 CFR 223.49) and periodic 
payments regulation (36 CFR 223.50) were adopted on July 31, 1991, (56 
FR 36099) to protect the Government's financial interests, reduce 
speculative bidding, encourage purchasers to harvest timber in a timely 
manner and to comply with section 2d of the Federal Timber Contract 
Payment Modification Act (Pub. L. 98-478, 98 Stat 2213; 16 U.S.C. 618) 
(Buy-out Act).\1\
---------------------------------------------------------------------------

    \1\ Section 2(d) provides that ``[e]ffective January 1, 1985, in 
any contract for the sale of timber from the National Forests, the 
Secretary of Agriculture shall require a cash down-payment at the 
time the contract is executed and periodic payments to be made over 
the remaining period of the contract.''
---------------------------------------------------------------------------

    Under the current downpayment regulations, a purchaser must deposit 
cash in the timber sale account at the time of sale award equal to 10 
percent of the total advertised value of the sale plus 20 percent of 
the bid premium. This cash is held by the Forest Service and cannot be 
used by the purchaser for any other purpose until (1) on scaled sales 
stumpage representing 25 percent of the total bid value has been 
charged and paid for, or (2) on tree measurement sales until stumpage 
value representing 25 percent of the total bid value is shown on the 
timber sale statement of account to have been cut, removed, and paid 
for (36 CFR 223.49(d)).
    Under the current periodic payments regulation, periodic payments 
are ``amounts specified in the contract that a purchaser must pay by 
the periodic payment determination date(s) unless reduced by amounts 
paid as stumpage for volume removed.'' (36 CFR 223.50(a)(4)). The 
initial periodic payment is equal to 35 percent of the total contract 
value or 50 percent of the bid premium, whichever is greater. Where an 
additional periodic payment is required by the contract, the payment 
will equal 75 percent of the total contract value. The amount of the 
periodic payment(s) will be reduced if the payment would result in the 
purchaser's credit balance for timber charges exceeding the current 
contract value. (36 CFR 223.50(c)).

Proposed Amendments to the Downpayment Requirements

    The following changes are proposed. Sections 223.49 and 223.50 will 
be reformatted accordingly.
    1. In Sec.  223.49(a)(2), the definition for ineffective purchaser 
credit would be removed. Section 329 of the Department of the Interior 
and Related Agencies Appropriations Act, 1999 (as contained in section 
101(e) of division A of Public Law 105-277; 16 U.S.C. 535a) directed, 
among other things, that the procedure known as ``purchaser credit'' be 
eliminated no later than April 1, 1999. The use of purchaser credit was 
discontinued in timber sales advertised after March 31, 1999 by making 
changes in timber sale contract provisions (File code 2450 letter to 
Regional Foresters dated February 19, 1999). As of March 30, 2008, only 
$6,000 worth of ineffective purchaser credit was being used to cover 
downpayment requirements. Because no additional purchaser credit is 
being earned, references to ineffective purchaser credit in the 
downpayment regulation are obsolete and unnecessary.
    2. In Sec.  223.49(b), the option of using effective purchaser 
credit would be eliminated for the same reasons cited above, and to 
make downpayments for stewardship contracts optional. Section 323 of 
the Department of the Interior and Related Agencies Appropriations Act, 
2003 (as contained in division F of Pub. L. 108-7; 16 U.S.C. 2104 Note) 
(Stewardship Contracting Act),

[[Page 64289]]

authorizes the Forest Service, until September 30, 2013, to enter into 
stewardship contracting projects for up to 10 years with private 
persons or public or private entities, by contract or by agreement, to 
perform services to achieve land management goals for the national 
forests or public lands that meet local and rural community needs. In 
addition to other items, the Stewardship Contracting Act authorizes the 
Forest Service to apply the value of timber or other forest products 
removed under a stewardship project as an offset against the cost of 
service work performed under the contract or agreement.
    On October 5, 2004, the Forest Service implemented interim 
Integrated Resource Timber Contracts FS-2400-13 and FS-2400-13T for use 
in stewardship end result contracting. The Forest Service awards 
stewardship contracts on the basis of best value as described in the 
Federal Acquisition Regulations. (FSH 2409.19, chapter 60). Awarding 
stewardship contracts on a best value basis virtually eliminates the 
potential for speculative bidding because factors other than price are 
used to determine best value.
    Further, offsetting the value of timber against the cost of service 
work within a stewardship contract accomplishes the dual functions of 
providing financial security to the Government and establishing 
incentive for the contractor to harvest timber and perform the service 
work in a timely manner. In addition, the government's financial 
security is safeguarded on most stewardship contracts without a 
downpayment. Specifically, the government's risk of financial loss is 
minimized if the contractor performs the service work before harvesting 
timber. Alternatively, the contractor must pay in advance for any 
timber cut prior to performing service work. For these reasons, the 
Forest Service has adopted the policy that most stewardship contracts 
do not need a downpayment.
    However, there can be exceptions. For example, if the value of the 
timber greatly exceeded the costs of the services, a downpayment may be 
needed to encourage the contractor to harvest the timber in a timely 
manner. Forest Service Handbook (FSH) 2409.19, chapter 60, currently 
requires the contracting officer to determine what bonds will be 
required for individual stewardship contracts. That chapter will be 
amended to include determining whether a downpayment should be required 
on a stewardship contract.
    3. In Sec.  223.49(c) the obsolete references to converting units 
of measure other than board feet to board feet would be deleted, and a 
requirement would be added to include recalculating the amount of the 
downpayment when stumpage rates are redetermined. The downpayment 
amount is calculated as a percentage of sale value without regard to 
unit of measure for the timber. Timber sale contracts contain 
procedures to redetermine stumpage rates for (1) Environmental 
modification, (2) catastrophic damage, (3) market change that occurs 
after Forest Service orders a suspension or delay, and (4) a market 
change emergency rate redetermination. None of these stumpage rate 
redetermination procedures includes a process for concurrently 
recalculating the amount of the downpayment or periodic payments. The 
amount of cash deemed necessary to protect the Government's financial 
security and encourage purchasers to harvest timber in a timely manner 
is based on a percentage the contract's value at time of award. 
Therefore, when the contract value changes substantially as a result of 
a stumpage rate redetermination, the downpayment and periodic payments 
should also be recalculated commensurate with the change in sale value. 
The Government's financial security is maintained because it retains 
the same percentage of total contract value before and after the rates 
are redetermined.
    4. Section 223.49(d) would be amended to clarify when the 
downpayment can be released. In Sec.  223.49(d), purchasers of scaled 
sales cannot apply the amount deposited as a downpayment to cover other 
obligations on the sale until 25 percent of the total bid value of the 
sale has been charged and paid for; on tree measurement sales, the 
purchaser cannot apply the downpayment to cover other obligations until 
stumpage value representing 25 percent of the total bid value of the 
sale shown on the timber sale statement of account to have been cut, 
removed and paid for. On sales subject to stumpage rate adjustment, 
prices can decline so much that the amount of the downpayment can 
exceed the value of timber remaining to be harvested without triggering 
the release of the downpayment. For example: Sale A contains 4000 ccf 
of timber advertised at $50/ccf and bid up to $70/ccf for a total sale 
bid value of $280,000. Pursuant to Sec.  223.49(c) the downpayment 
amount is $36,000 and pursuant to Sec.  223.49(d), $70,000 of timber 
must be charged and paid for before the purchaser can apply the amount 
deposited as the downpayment to cover other obligations on the sale. As 
a result of stumpage rate adjustments in a rapidly declining market 
current contract rates de-escalate to $14/ccf for a total contract 
value of $56,000. The purchaser harvests 2000 ccf at $14/ccf and pays 
$28,000. The Forest Service is still holding the $36,000 downpayment 
even though it is greater than the $28,000 remaining value of the sale.
    The Forest Service never intended to hold a downpayment greater 
than the value of timber remaining to be harvested which is evidenced 
by the following: (1) Sec.  223.49(d), which specifies that for lump 
sum sales the downpayment may be applied to payment for release of the 
single payment unit, and (2) Sec.  223.49(h), which authorizes release 
of the downpayment for sales subject to the additional downpayment 
requirement in Sec.  223.49(g) when the value of timber remaining to be 
harvested is equal to or less than the amount of the downpayment. The 
amendment to Sec.  223.49(d) will allow a downpayment to be released 
when it equals or exceeds the value of timber remaining to be 
harvested. Section 223.49(d)(1) would be added to address the procedure 
on scaled sales and Sec.  223.49(d)(2) would be added to address the 
procedure on tree measurement sales.
    5. Amend Sec.  223.49(g) to allow the downpayment amount on 
contracts subject to Sec.  223.49(e)'s higher downpayment requirement 
to be recalculated when stumpage rates are redetermined for the same 
reasons cited in the description of changes for Sec.  223.49(c).
    6. Remove Sec.  223.49(g)(1) to eliminate the obsolete reference to 
ineffective purchaser credit.
    7. Remove Sec.  223.49(g)(2) to eliminate obsolete references to 
converting units of measure other than board feet to board feet for the 
same reasons cited in the description of changes for Sec.  
223.49(a)(2).
    8. Add Sec.  223.49(k) to allow a temporary reduction of 
downpayments. Timber sales on contract forms dated April 2004 and later 
contain provisions for temporarily reducing the amount of the 
downpayment when Forest Service orders a delay or interruption of the 
contract for 30 days or more when the contract would be operating but 
for the order. That procedure went through a public review process in 
2004 (69 FR 25367), and is included in the proposed Sec.  223.49(k). 
This amendment proposes expanding that procedure to include when a 
purchaser's scheduled operations are delayed or interrupted for 30 
consecutive days or more for any of the following reasons: (1) Forest 
Service

[[Page 64290]]

requests or orders purchaser to delay or interrupt operations for 
reasons other than breach; (2) a contract term addition pursuant to 
purchaser shifting operations to a sale designated by the Forest 
Service as in urgent need of harvesting; or (3) an extension of the 
contract term authorized upon a determination of substantial overriding 
public interest (SOPI), including a market-related contract term 
addition (MRCTA), or urgent removal contract term extension under 36 
CFR 223.53. During the qualifying period of delay, interruption, or 
extension, the downpayment may be reduced to $1000 or two (2) percent 
of the downpayment amount stated in the contract, whichever is greater. 
Upon purchaser's receipt of the bill for collection and written notice 
from the contracting officer that the basis for the delay or 
interruption no longer exists, the purchaser shall restore the 
downpayment to the full amount stated in the contract within 15 days 
after the date the bill for collection is issued. Purchaser shall not 
conduct operations until the downpayment amount stated in the contract 
is fully restored.
    Under normal market conditions, purchasers have an incentive to 
harvest enough timber to release the downpayment; that is not always 
the case when forest products markets have drastically declined. 
Although the Forest Service does not require purchasers to operate 
sales receiving additional time pursuant to a SOPI, the current 
regulation requires purchasers to maintain their full downpayment 
during a SOPI extension. Requiring purchasers to maintain their full 
cash downpayment as an inducement to operate a sale receiving 
additional time pursuant to a SOPI, or because the Forest Service 
requested or authorized a purchaser to harvest other timber in more 
urgent need of harvesting is unnecessary. In addition, the Forest 
Service does not believe that the temporary downpayment reductions 
allowed by Sec.  223.49(k) will impact the regulation's effectiveness 
in reducing speculative bidding.
    Further, the Forest Service has determined that the benefits of 
temporarily reducing downpayments under Sec.  223.49(k) outweigh the 
potential increased risks to the government's financial security. 
First, the Forest Service believes that temporarily reducing 
downpayments on sales that the Agency requested or ordered be 
interrupted or delayed minimizes the Agency's potential financial 
liability under the contract. Second, allowing purchasers to 
temporarily reduce downpayments when they shift their operations to 
other timber designated as in urgent need of harvesting may result in 
purchasers buying urgent need timber that otherwise would not be sold. 
Finally, allowing purchasers to temporarily reduce downpayments on 
contracts extended by a SOPI determination may help purchasers and the 
Forest Service meet the challenges associated with drastic declines in 
forest products markets, which have become apparent during the current 
prolonged softwood and hardwood lumber market declines. Following is an 
example showing how both parties can benefit from a temporary reduction 
in downpayment on sales receiving a SOPI extension pursuant to the 
MRCTA regulation.
    When a purchaser harvests a sale, the downpayment is released and 
the purchaser receives revenue from selling or processing the timber. 
The purchaser uses some of that cash to cover the bid guarantee and 
downpayment on a new sale that will be operated in the future. 
Presently that cash flow is interrupted when harvesting activities are 
put on hold because the sale is receiving MRCTA to allow time for 
market conditions to improve. The cash tied up covering the downpayment 
and lack of revenue being generated from the inactive sale dries up the 
cash needed to buy a new sale. This leads to the Government not 
receiving a bid on a new sale that is offered at prices reflecting the 
depressed market. The purchaser can't operate the high priced sale 
receiving MRCTA without suffering losses and can't afford to buy a new 
less expensive sale that could be operated. With its revenue stream 
broken, the purchaser starts laying off workers and has logging 
equipment repossessed as payments fall behind. By the time market 
conditions improve the purchaser has lost the ability to complete the 
sale that had received the MRCTA and defaults. Defaults are costly for 
the Government to process and often lead to loss of industry 
infrastructure needed to accomplish forest management objectives in a 
cost effective manner and industry infrastructure needed for dependent 
communities. The Government can apply the downpayment it is still 
holding towards default damages but the purchaser is now gone and not 
available to buy and harvest future sales. But the current depressed 
market conditions aren't affecting just one purchaser; they are 
affecting virtually all purchasers. While many purchasers will be able 
hold on until market conditions improve, many will not. As those 
numbers increase, there will be an increase in the number of sales not 
receiving any bids. The costs of completing forest management work such 
as treating fuels in a Wildland Urban Interface area will increase if 
that work has to be performed with a service contract that generates no 
offsetting revenue to the Government. Temporarily reducing downpayments 
as proposed will help a purchaser's cash flow and potentially head off 
the drastic economic chain of events described above. This won't 
prevent all purchasers from failing or prevent all contracts from 
defaulting during drastic market declines. But, the amount of financial 
security the Government may forgo by temporarily reducing downpayments 
on contracts that ultimately default will be more than offset by the 
economic benefits derived from the increased number of contracts that 
don't default because of helping purchasers with their cash flow.

Proposed Amendments to the Periodic Payment Requirements

    1. Section 223.50(b) would be amended to clarify that periodic 
payments are not required for stewardship contracts for the same 
reasons that downpayments are not required for stewardship contracts.
    2. Section 223.50(f) would be amended to remove obsolete contract 
modification procedures and add procedures for recalculating the amount 
of the periodic payment(s) following a rate redetermination authorized 
under the contract. The obsolete procedures being removed required 
purchasers of pre-1991 contracts to make a written request by December 
31, 1991, to receive market-related contract term additions. The 
addition of procedures for recalculating the amount of the periodic 
payment(s) following a rate redetermination are for the same reasons as 
cited for Sec.  223.49(c) above.

Conclusion

    The proposed rule will modify the downpayment regulation (36 CFR 
223.49) and the periodic payments regulation (36 CFR 223.50) to provide 
financial relief to timber purchasers during times of significant 
market declines. The small amount of financial security the Government 
may forgo by temporarily reducing downpayments on contracts that 
ultimately default will be more than offset by the economic benefits 
derived from the increased number of contracts that don't default 
because of helping purchasers with their cash flow.
    The proposed rule will add flexibility to the regulations on 
downpayment and periodic payments for stewardship sales

[[Page 64291]]

consistent with existing Forest Service policy. Finally, the proposed 
rule will eliminate out of date references to purchaser credit and to 
modifying contracts awarded prior to July 1, 1991.

Regulatory Certifications

Regulatory Impact

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

Regulatory Flexibility Act

    This proposed rule has been considered in light of the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.), and it is hereby certified that 
this rule will not have a significant economic impact on a substantial 
number of small entities. This rule makes only technical administrative 
changes to existing regulations affecting the administration of 
commercial timber sales on National Forest System land. The proposed 
rule imposes minimal additional requirements on all timber purchasers 
while providing economic relief from current market conditions. The 
information required is easily within the capability of small entities 
to produce.

Unfunded Mandates Reform

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

Environmental Impact

    This proposed rule establishes uniform criteria to be followed when 
consideration is being given to temporarily reduce or change the 
downpayment requirements on a timber sale. Downpayments in timber sales 
have been required for many years and this requirement remains. Only 
the amount of downpayment is being revised and will be controlled at 
the local level by the Timber Sale Contracting Officer. Section 31.12 
of Forest Service Handbook 1909.15 (February 15, 2007) excludes from 
documentation in an environmental assessment or impact statement 
``rules, regulations, or policies to establish Service-wide 
administrative procedures, program processes, or instructions'' that do 
not significantly affect the quality of the human environment. 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. The intent of this proposed rule is to 
provide authority to allow for changes in the downpayment requirements 
while maintaining financial protection to the Government.

No Takings Implications

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

Civil Justice Reform Act

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

Controlling Paperwork Burdens on the Public

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

List of Subjects in 36 CFR Part 223

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

    For the reasons set forth in the preamble, the Forest Service 
proposes to amend Part 223 of Title 36 of the Code of Federal 
Regulations 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, 104 Stat. 714-726, 16 U.S.C. 620-620j, unless otherwise 
noted.

Subpart B--[Amended]

    2. Revise Sec.  223.49 to read as follows:


Sec.  223.49  Downpayments.

    (a) For the purposes of this section, the terms listed in this 
paragraph shall have the following meaning:
    (1) Total bid value is the sum of the products obtained by 
multiplying the rate the purchaser bid for each species by the 
estimated volume listed in the contract.
    (2) Bid premium is the amount in excess of the advertised value 
that a purchaser bids for timber offered.
    (3) Lump sum timber sales are premeasured sales where the entire 
value of the sale is paid in one payment at time of release for 
cutting.
    (4) Affiliate. Concerns or individuals are affiliates if directly 
or indirectly, either one controls or has the power to control the 
other, or a third party controls or has the power to control both. In 
determining whether or not affiliation exists, the Forest Service shall 
consider all appropriate factors, including, but not limited to, common 
ownership, common management, and contractual relationships.
    (b) Timber sale contracts shall include provisions that require 
purchasers to make a downpayment in cash at the time a timber sale 
contract is executed, except that a downpayment is not required for 
stewardship contracts unless the contracting officer determines that a 
downpayment is needed to ensure the Government's financial security.
    (c) The minimum downpayment shall be equivalent to 10 percent of 
the total advertised value of each sale, plus 20 percent of the bid 
premium, except in those geographic areas where the Chief of the Forest 
Service determines that it

[[Page 64292]]

is necessary to increase the amount of the downpayment in order to 
deter speculation. The amount of the downpayment shall be redetermined 
when contract rates for timber are redetermined under the terms of the 
contract for:
    (1) Environmental modification,
    (2) Catastrophic damage,
    (3) Market change, or
    (4) An emergency rate redetermination.
    For the purpose of recalculating the minimum downpayment, total 
advertised value shall be replaced with total redetermined value.
    (d) A purchaser cannot apply the amount deposited as a downpayment 
to cover other obligations due on that sale until:
    (1) On scaled sales stumpage value representing 25 percent of the 
total bid value of the sale has been charged and paid for, or the 
estimated value of unscaled timber is equal to or less than the amount 
of the downpayment; or
    (2) On tree measurement sales stumpage value representing 25 
percent of the total bid value of the sale is shown on the timber sale 
statement of account to have been cut, removed, and paid for, or the 
estimated value of timber remaining to be cut, removed and paid for as 
shown on the timber sale statement of account is equal to or less than 
the amount of the downpayment, except that on lump sum sales, the 
downpayment amount may be applied to payment for release of the single 
payment unit.
    (e) A purchaser or any affiliate of that purchaser awarded a Forest 
Service timber sale contract must meet the additional downpayment 
requirements of paragraph (g) of this section under the following 
circumstances:
    (1) The purchaser or its affiliate after September 29, 1988, has 
failed to perform in accordance with the terms of a Forest Service or 
Bureau of Land Management timber sale contract which results in 
notification by a Contracting Officer that a contract has expired 
uncompleted or is terminated for cause; and
    (2) The estimated value of the unscaled timber on scaled sales, or 
the estimated value of the timber outstanding on tree measurement 
sales, included in those terminated or expired contracts exceeds 
$100,000, and
    (3) Unpaid damages claimed by the Government remain outstanding 
prior to award of the new sale at issue and corrective action has not 
been taken to avoid future deficient performance.
    (f) A subsequent final determination by the Contracting Officer or 
by a court of competent jurisdiction that a contract was improperly 
classified under the criteria in paragraph (e) of this section will 
result in the refund or credit of any unobligated portion of the amount 
of downpayment exceeding that required by paragraphs (c) and (d) of 
this section and the limitations of paragraph (h) of this section on 
application of downpayment shall no longer apply.
    (g) Notwithstanding the provisions of paragraphs (c) and (d) of 
this section, a purchaser meeting the criteria of paragraph (e) of this 
section must make a minimum downpayment equal to 20 percent of the 
total advertised value of that sale, plus 40 percent of the total bid 
premium. This higher downpayment requirement applies throughout the 
National Forest System, except in those areas where the Chief of the 
Forest Service determines, before advertisement of the sale, that 
another downpayment rate is necessary to achieve the management 
objectives of the National Forest System. The amount of the downpayment 
shall be redetermined in accordance with this paragraph when contract 
rates for timber are redetermined under the terms of the contract for:
    (1) Environmental modification,
    (2) Catastrophic damage,
    (3) Market change, or
    (4) An emergency rate redetermination.
    For the purpose of redetermining the downpayment total advertised 
value shall be replaced with total redetermined value.
    (h) A purchaser subject to the additional downpayment requirements 
of paragraph (g) of this section cannot apply the amount deposited as a 
downpayment to other uses until:
    (1) On scaled sales, the estimated value of the unscaled timber is 
equal to or less than the amount of the downpayment; or
    (2) On tree measurement sales, the estimated value remaining to be 
cut and removed as shown on the timber sale statement of account is 
equal to or less than the amount of the downpayment.
    (i) For the purpose of releasing funds deposited as downpayment by 
a purchaser subject to paragraph (f) of this section, the Forest 
Service shall compute the estimated value of timber as follows:
    (1) On scaled sales, the estimated value of the unscaled timber is 
the sum of the products obtained by multiplying the current contract 
rate for each species by the difference between the advertised volume 
and the volume that has been scaled of that species.
    (2) On tree measurement sales, the estimated value of the timber 
outstanding (that not shown on the timber sale statement of account as 
cut and removed) is the sum of the products obtained by multiplying the 
current contract rate for each species by the difference between the 
advertised volume and the volume that has been shown on the timber sale 
statement to have been cut and removed of the species. The current 
contract rate for each species is that specified in each Forest Service 
timber sale contract.
    (j) In order to deter speculation, the Chief of the Forest Service 
may increase the period for retention of the downpayment for future 
contracts subject to such criteria as the Chief may adopt after giving 
the public notice and opportunity to comment.
    (k) The Forest Service may temporarily reduce the downpayment when 
a purchaser's scheduled operations are delayed, interrupted, or 
extended for 30 or more consecutive days for any of the following 
reasons:
    (1) Forest Service requests or orders purchaser to delay or 
interrupt operations for reasons other than breach;
    (2) A contract term addition pursuant to purchaser shifting 
operations to a sale designated by the Forest Service as in urgent need 
of harvesting; or
    (3) An extension of the contract term authorized upon a 
determination of substantial overriding public interest, including a 
market-related contract term addition, or an urgent removal contract 
term extension under 36 CFR 223.53.
    (l) During the qualifying period of delay, interruption, or 
extension that meets the conditions of paragraph (k) of this section, 
the Forest Service may reduce the downpayment to $1000 or two (2) 
percent of the downpayment amount stated in the contract, whichever is 
greater. Upon purchaser's receipt of the bill for collection, and 
written notice from the contracting officer that the basis for the 
delay, interruption, or extension no longer exists, the purchaser must 
restore the downpayment to the full amount stated in the contract 
within 15 days after the date the bill for collection is issued. 
Purchaser shall not conduct operations until the downpayment amount 
stated in the contract is fully restored.
    3. In Sec.  223.50 revise paragraphs (b) introductory text and (f), 
and add a new paragraph (b)(3) to read as follows:


Sec.  223.50  Periodic payments.

* * * * *
    (b) Except for lump sum sales each timber sale contract of more 
than one full normal operating season shall provide for periodic 
payments. The number of periodic payments required will be dependent 
upon the number of

[[Page 64293]]

normal operating seasons within the contract, but shall not exceed two 
such payments during the course of the contract. Periodic payments must 
be made by the periodic payment determination date, except that the 
amount of the periodic payment shall be reduced to the extent that 
timber has been removed and paid for by the periodic payment 
determination date. Should the payment fall due on a date other than 
normal billing dates, the contract shall provide that the payment date 
will be extended to coincide with the next timber sale statement of 
account billing date.
* * * * *
    (3) Notwithstanding paragraph (b) of this section, periodic 
payments are not required for stewardship contracts unless the 
contracting officer determines that periodic payments are needed to 
ensure the government's financial security.
* * * * *
    (f) The amount of any periodic payment(s) not yet reached shall be 
revised when rates are redetermined under the terms of the contract. 
The revised periodic payment amounts shall be based on a recalculated 
total contract value using the same procedures described in paragraphs 
(c) and (d) of this section . The recalculated total contract value is 
the current contract value following the rate redetermination plus:
    (1) The total value of timber scaled prior to establishing 
redetermined rates in a scale sale, or
    (2) The total value of timber shown on the timber sale statement of 
account as having been cut, removed and paid for in a tree measurement 
sale.

    Dated: October 23, 2008.
Abigail R. Kimball,
Chief, Forest Service.
[FR Doc. E8-25799 Filed 10-27-08; 11:15 am]
BILLING CODE 3410-11-P