B-173590, AUG 26, 1974

B-173590, AUG 26, 1974

1. AGENCY'S PROPOSED MODIFICATION OF TIMBER SALE CONTRACT IS LEGALLY ALLOWABLE BECAUSE PORTION CALLING FOR INCREASED THINNING OF TREES BY CONTRACTOR WOULD RESULT IN GOVERNMENT RECEIVING BENEFIT IN RETURN - REMUNERATION FOR EXTRA PULPWOOD SOLD. 2. GAO, WHILE FINDING THAT LEGAL CONSIDERATION DOES EXIST FOR PROPOSED MODIFICATION OF TIMBER SALE CONTRACT, QUESTIONS MAGNITUDE OF BENEFIT TO GOVERNMENT FROM EXTRA PULPWOOD THINNING WHEN WEIGHED AGAINST THE PROBABLE COSTS TO GOVERNMENT OF BINDING ITSELF TO SELL CERTAIN TIMBER FOR PULP WHEN SAME TIMBER HAS POTENTIALLY HIGHER VALUE AS SAW TIMBER. GAO THEREFORE SUGGESTS THAT FOREST SERVICE REEXAMINE ADVISABILITY OF ENTERING INTO MODIFICATION.

SOUTHWEST LUMBER MILLS, INC. (REQUEST FOR ADVANCE DECISION BY SECRETARY OF AGRICULTURE):

THE COLORADO PLATEAU PULP TIMBER SALE WAS PURCHASED BY SOUTHWEST LUMBER MILLS, INC. (NOW KNOWN AS SOUTHWEST FOREST INDUSTRIES, INC.) (SOUTHWEST), IN 1959 (PRELIMINARY AWARD WAS 1957).

THE TIMBER SALE, SCHEDULED TO TERMINATE IN MARCH OF 1989, INCLUDED AN ESTIMATED 6 MILLION CORDS OF PULPWOOD IN A NUMBER OF NATIONAL FORESTS IN THE COLORADO PLATEAU REGION. UNDER THE TERMS OF THE CONTRACT SOUTHWEST WAS REQUIRED TO BUILD AND OPERATE A PULPMILL, WHICH IT HAS DONE.

THE TIMBER SOLD BY THE GOVERNMENT TO SOUTHWEST WAS INTENDED TO BE TAKEN BY THINNING EXISTING TIMBER STANDS. THESE THINNINGS, IT WAS HOPED, WOULD (1) OPTIMIZE THE GROWTH OF POLE SIZE STANDS BY REMOVING EXCESS, DISEASED AND/OR INFESTED TREES, AND (2) PROVIDE RAW MATERIAL FOR THE PULPMILL.

SECTION 3B-1 OF THE CONTRACT STATES THAT:

"LIVE OR DEAD TREES WILL BE DESIGNATED FOR CUTTING WHICH ARE MERCHANTABLE FOR PULPWOOD BUT WHICH DO NOT HAVE A HIGHER STUMPAGE VALUE FOR SAWLOGS OR POLES AND WHICH EITHER (1) ARE INFESTED WITH INSECTS, HEAVILY INFECTED WITH MISTLETOE OR OTHERWISE OF POOR RISK, OR (2) SHOULD BE REMOVED TO ACCOMPLISH THINNING TO IMPROVE THE GROWTH AND QUALITY OF THE RESIDUAL GROWING STOCK. THE OBJECTIVE OF THINNING WILL BE TO LEAVE A GOOD THRIFTY STAND AS WELL SPACED AS POSSIBLE WITH AT LEAST 80 SQUARE FEET OF BASAL AREA PER ACRE IN THE PINE TYPE AND 90 SQUARE FEET OF BASAL AREA PER ACRE IN THE SPRUCE AND MIXED CONIFER TYPES."

THE AGENCY HAS CONCLUDED THAT THE RELATIVE STUMPAGE VALUES (PULPWOOD V. SAWLOGS OR POLES) WAS TO BE REDETERMINED EVERY 5 YEARS. IN VIEW OF THE TREMENDOUS RECENT YEAR INCREASES IN THE VALUE OF LUMBER PRODUCING SAWLOGS, THE MOST RECENT VALUE DETERMINATION (1968) STATED THAT THOSE TREES WITH A DIAMETER BREAST HIGH (DBH) (4.5 FEET ABOVE THE GROUND) OF 12 TO 16 INCHES, WHICH HAD PREVIOUSLY BEEN DESIGNATED FOR PULPWOOD, WERE NOW TO BE SOLD AS SAWLOGS.

THIS NEW DESIGNATION SERIOUSLY RESTRICTED SOUTHWEST'S SUPPLY OF RAW MATERIAL FOR ITS GROUNDWOOD (NEWSPRINT) OPERATIONS.

THE AGENCY HAS PROPOSED A MODIFICATION TO THE CONTRACT WHICH ESSENTIALLY WOULD PROTECT SOUTHWEST'S PRIME SOURCE OF RAW MATERIAL FROM FURTHER REDUCTION. THE PROPOSED MODIFICATION WOULD ELIMINATE ANY COMPARABLE CONSIDERATION OF THE VALUE (PULPWOOD V. SAWLOGS OR POLES) OF TREES UNDER 12-INCH DBH. THE ONLY CRITERIA WHICH WOULD BE UTILIZED IN DESIGNATING SUCH TREES FOR PULPWOOD WOULD BE:

(1) THAT THE TREES BE REMOVED TO LEAVE ROOM FOR REMAINING TREES, OR

(2) THAT THE TREES BE INFESTED, OR

(3) THAT THE TREES BE OTHERWISE POOR RISKS.

MOREOVER, THE PROPOSED MODIFICATION WOULD ELIMINATE A PROVISION GOVERNING THE MINIMUM VOLUME OF TREES WHICH MUST BE LEFT STANDING AFTER THINNING OPERATIONS (THIS IS A SO-CALLED DECREASE IN BASAL AREA). THIS CHANGE WOULD PERMIT THE CONTRACTOR TO CUT MORE TREES IN A GIVEN AREA THAN WERE ORIGINALLY PROVIDED FOR UNDER THE CONTRACT, THUS INCREASING SOUTHWEST'S PULPWOOD SUPPLY.

WE BELIEVE THAT THE PROPOSED MODIFICATION IS SUPPORTED BY LEGAL CONSIDERATION SINCE THE GOVERNMENT WILL RECEIVE A TANGIBLE BENEFIT IN RETURN FOR THE DECREASE IN BASAL AREA (INCREASING THINNING) IN THE FORM OF CONTRACT PAYMENTS FOR ADDITIONAL PULPWOOD HARVESTED. HENCE, FROM A STRICT LEGAL STANDPOINT, WE CANNOT OBJECT TO THE PROPOSED MODIFICATION. HOWEVER, WHETHER THIS INCREASED THINNING WILL RESULT IN A LONG-RUN MAXIMIZATION OF BENEFITS TO THE GOVERNMENT IS PROBLEMATICAL AND IS A QUESTION ULTIMATELY GOING TO THE PROPER MANAGEMENT OF THE NATIONAL FORESTS INVOLVED. QUESTION MAY BE RAISED REGARDING THE MAGNITUDE OF THE BENEFITS TO BE RECEIVED (REMUNERATION FROM ANY EXTRA PULPWOOD HARVESTING AND A MAXIMIZATION OF TOTAL FOREST YIELD THROUGH IMPROVEMENT OF TIMBER STANDS BY PROPER THINNING) WHEN WEIGHED AGAINST THE PROBABLE COSTS TO THE GOVERNMENT, BOTH MONETARY AND OTHERWISE, OF BINDING ITSELF UNTIL 1989 TO SELL TIMBER UNDER 12 INCHES IN DIAMETER AS PULPWOOD TO BE MADE INTO PAPER PRODUCTS SINCE IT MAY BE SUBSTANTIALLY MORE BENEFICIAL TO HARVEST SUCH TIMBER AT POTENTIALLY HIGHER PRICES AS NEW TIMBER.

WE THEREFORE SUGGEST THAT THE FOREST SERVICE REEXAINE, NOT ONLY THE BARE LEGALITY OF THE PROPOSED ACTION, BUT ALSO THE ADVISABILITY, FROM A LONG- RANGE POLICY STANDPOINT, OF EXECUTING THE MODIFICATION.