TITLE: B-310081; B-310275; B-310290; B-310370; B-310370.2; B-310371; B-310373; B-310467; B-310470, Poston Logging; Shasta Green, Inc; Sierra Cedar Products; Trinity River Lumber Company; Freres Lumber Co., Inc., November 13, 2007
BNUMBER: B-310081; B-310275; B-310290; B-310370; B-310370.2; B-310371; B-310373; B-310467; B-310470
DATE: November 13, 2007
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B-310081; B-310275; B-310290; B-310370; B-310370.2; B-310371; B-310373; B-310467; B-310470, Poston Logging; Shasta Green, Inc; Sierra Cedar Products; Trinity River Lumber Company; Freres Lumber Co., Inc., November 13, 2007
Decision
Matter of: Poston Logging; Shasta Green, Inc; Sierra Cedar Products;
Trinity River Lumber Company; Freres Lumber Co., Inc.
File: B-310081; B-310275; B-310290; B-310370; B-310370.2; B-310371;
B-310373; B-310467; B-310470
Date: November 13, 2007
Brian W. Craver, Esq., for Poston Logging; Diane Franklin, Shasta Green,
Inc.; Tony Sims, Sierra Cedar Products; Dee Sanders, Trinity River Lumber
Company; and Robert Freres, Jr., Freres Lumber Co., Inc., the protesters.
Lori Polin Jones, United States Department of Agriculture, and Kenneth
Dodds, Esq., Small Business Administration, for the agencies.
Sharon L. Larkin, Esq., and James A. Spangenberg., Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
Forest Service was not required by any law or regulation to consider
resale limitations applicable to small business timber purchasers under
small business set-asides in preparing the appraisals for those sales; the
clear purpose of the appraisal requirements in the National Forest
Management Act, 16 U.S.C. sect. 472a(a) (2000), is to ensure that the
public receives fair value from the sale of timber and does not require a
separate or different appraisal method for small business set-aside timber
sales in order to encourage small business sales.
DECISION
Poston Logging, Shasta Green, Inc., Sierra Cedar Products, Trinity River
Lumber Company, and Freres Lumber Co., Inc., protest the terms of eight
Forest Service timber sales, all set aside for small businesses, under
sale Nos. 54344, 53612, 54345, 30406, 30408, 20185, 07004, and 00082. The
protesters contend that the agency included erroneous timber values in the
sale prospectuses in violation of statute, regulation, and policy.[1]
We deny the protest.
The Forest Service, in conjunction with the Small Business Administration
(SBA), has established the Timber Sale Set-Aside Program in order to
ensure that small business timber purchasers have an opportunity to
purchase a "fair portion of the sale of timber from the National Forests."
55 Fed. Reg. 30485, 30486 (1990). The Timber Sale Set-Aside Program is
conducted in accordance with published policies and procedures set forth
in the Forest Service Handbook (FSH), see FSH 2409.18, ch. 90,[2] and
includes a requirement that small business purchasers under a set-aside
sale cannot "deliver more than 30 percent of advertised sawtimber volume
(30% Rule) to processing facilities that are other than small
business."[3] Id. sect. 92.51.
As indicated, the eight sales here were set aside for small businesses.
Each prospectus specified the location of the timber, the estimated volume
of each of the various varieties of timber to be sold, and the minimum
acceptable bid rate for each variety of timber. These bid rates
represented the "appraised value" or "fair market value" of the timber. 36
C.F.R. sections 223.60, 223.61, 223.63 (2007). The prospectuses also
included the "30% Rule" restriction on resale of the timber.
As specified in the prospectuses, each company's bid was required to be
for at least the appraised value because, as discussed more fully below,
the Forest Service is prohibited from selling the timber for less than the
appraised value. National Forest Management Act (NFMA), 16 U.S.C.
sect. 472a(a) (2000); 36 C.F.R sect. 223.61. To determine the appraised or
fair market value as required by the NFMA, the use of any particular
appraisal method is not required; the discretion to establish such method
rests with the Forest Service. 36 C.F.R. sect. 223.60. The appraisal
methods used by the Forest Service are published in the FSH (at
FSH 2409.18, ch. 40) and include the "transaction evidence appraisal"
method, which, since 1996, has been the primary appraisal method used by
the Forest Service. Agency Report (B-310081) at 6; FSH 2409.18, ch. 40
sect. 45.12. According to the FSH, the transaction evidence appraisal
method "is designed to estimate fair market value of timber based on bid
rates of past timber sale transactions," using sales data from competitive
sales over a period of time. FSH 2409.18, ch. 40 sect. 45.3. With the
transaction evidence method, the agency measures the fair market value
based on an "appraisal or marketing point," which the handbook states is
the "most advantageous location from the transportation standpoint [which
includes] identify[ing] the marketing location that will develop the
highest appraised or advertised rate." Id. sect. 45.11. The "most
advantageous appraisal point" must be a location "where the manufacturing
facility is capable of processing the end product that is being appraised"
without regard to whether the timber sale is to be set-aside for small
businesses. Id.; see, e.g., Pacific Southwest Region Timber Appraisal
Handbook 2409.22, ch. 48 sect. 48.16.1(d).
In computing the appraised value, the Forest Service considered the costs
of selling the timber, including hauling costs, to the processing mill
capable of processing the timber that was closest to the sale location.
For each of these sales, the closest processing mill was a large business.
The parties agree that small business processing mills were located at
further distances away from the sale locations and that considering the
higher hauling costs associated with the greater distances would have
resulted in a reduction of the appraised, or fair market, value of the
timber.
The protesters contend that considering the costs of processing the timber
at large business mills in conducting each appraisal "inflated" the
appraised value because this analysis does not take into account that the
small business processing mills are located farther away from the sale
location than the large business mills, and therefore small businesses
would have higher hauling costs than were accounted for in the appraisal.
The protesters argue that because the timber sales were set aside for
small businesses, and small businesses are prohibited from reselling more
than 30 percent of the timber to large businesses, the Forest Service's
use of the estimated costs based on the use of large business mills for
more than 30 percent of the timber volume in developing the appraisal was
improper. The protesters argue that the agency's use of large business
data for all of the timber volume constitutes a violation of the Small
Business Act, the NFMA, implementing regulations, and Forest Service
policies.
The Timber Sale Set-Aside Program implements a longstanding Memorandum of
Understanding (MOU) between the SBA and the Forest Service.[4] This
agreement implements the policies of the Small Business Act as stated in
15 U.S.C. sect. 631(a), which provides:
It is the declared policy of the Congress that the Government should
aid, counsel, assist, and protect, insofar as it possible, the interests
of small-business concerns in order to preserve free competitive
enterprise . . . to insure that a fair proportion of the total sales of
Government property be made to [small businesses].
However, because the Program is established by agreement, the
implementation of the program, specifically, determining whether a
particular sale should be set aside for small business, is discretionary
with the Forest Service and is not governed by the Small Business Act, the
NFMA, or any other regulation. Accordingly, we have found that the FSH
provisions relating to set-aside decisions represent Forest Service policy
not subject to our Office's review. Riley Creek Lumber Co., B-295322, Jan.
13, 2005, 2005 CPD para. 15 at 2; Tricon Timber, Inc., B-241065, B-242174,
Jan. 15, 1991, 91-1 CPD para. 37 at 3.
With regard to asserted Small Business Act violations, the protesters have
not cited to any provision of the Small Business Act or its implementing
regulations that would govern the establishment of appraised values for
timber sales under the Timber Sale Set-Aside Program. While Shasta Green
contends that 15 U.S.C. sect. 631(a) (quoted above) requires the Forest
Service to use an appraisal method that encourages small business
participation, this statutory provision is merely a statement of policy;
it does not place any limitations on how the Forest Service should conduct
its appraisals as Shasta Green contends. The protesters cite also to 15
U.S.C sect. 644(e)(1), which involves procurement strategies and bundling
(not sales), and 13 C.F.R. sect. 121.507(a)(4), which defines small
business size standards for timber purchasers and restricts designated
small businesses from reselling more than 30 percent of the purchased
timber to large businesses; neither applies to the appraisal issue
presented here.
As to the NFMA, that Act authorizes the Forest Service, under rules and
regulations prescribed by the Secretary of Agriculture, to sell "at not
less than appraised value, trees, portions of trees, or forest products
located on National Forest System lands." 16 U.S.C. sect. 472a(a); 36
C.F.R sect. 223.60. This requirement for an appraisal is to ensure that
the public receives fair value from the sale of timber. American Forest
Prods. Co., AGBCA No. 79-170-1, Oct. 18, 1984, 85-1 BCA para. 17,720 at
88,459. Contrary to the protesters' arguments, neither the NFMA,
implementing regulations, nor Forest Service policies require that
appraisals take into account that a particular acquisition is set aside
for small businesses.[5] Thus, the Forest Service was not required by the
NFMA or its implementing regulations to create a separate or different
appraisal method for small business set-aside timber sales in order to
encourage small business sales.[6]
The protest is denied.
Gary L. Kepplinger
General Counsel
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[1] As a general rule, our Office does not have jurisdiction over timber
sale protests because they are not procurements for property or services.
See 31 U.S.C. sect. 3551(1)(a) (2000). However, we will consider protests
concerning sales by a federal agency if the agency has agreed in writing
to have protests decided by our Office. 4 C.F.R. sect. 21.13(a) (2007).
The Forest Service has agreed to have protests concerning timber sales
decided by our Office. Delta Timber Co., B-290710, Sept. 6, 2002, 2002 CPD
para. 161 at 1 n.1.
[2] Citations in this decision refer to the Forest Service National
Headquarters FSH unless otherwise noted. The Forest Service has also
published regional amendments to this FSH, which are specific to a
particular timber region. However, the regional amendments pertaining to
timber sale appraisals do not significantly differ from the national FSH
provisions, or the differences are not pertinent here.
[3] The SBA has defined a small business for timber sales to include a
requirement that the small business agree that it will not sell more than
30 percent of the timber to other than a concern that qualified as a small
business. 13 C.F.R. sect. 121.507(a)(4)(i) (2007). The SBA has issued no
other regulations directly pertinent to the Timber Sale Set-Aside Program.
[4] Shasta Green has provided a copy of the MOU dated December 29, 1971.
[5] Although 36 C.F.R. sect. 223.60 addresses appraisal methods, that
provision conspicuously omits any reference to small business
considerations in computing fair market value. In this regard, the
regulation states only that "[p]ertinent factors" the agency could
consider in making its appraisal
include, but are not limited to, prices paid and valuations established
for comparable timber, selling value of products produced, estimated
operating costs, operating difficulties, and quality of timber.
Considerations and valuations may recognize and adjust for factors which
are not normal market influences.
36 C.F.R. sect. 223.60. Although the SBA (which our Office requested
comments from) argues that the mention of "estimated operation costs,"
"operating difficulties," and "not normal market influences" contemplates
consideration of the fact that small business set-asides could impact
appraisal value, we note that, even if the SBA is correct, such
considerations are permissive and not mandatory.
[6] In so finding, we have considered the various other alleged violations
of statute, regulation, and policy cited by the protesters and find those
arguments to be without merit.