Timber Sale Contract Defaults:

Forest Service Needs to Strengthen Its Performance Bond and Contract Provisions

RCED-94-5: Published: Oct 28, 1993. Publicly Released: Nov 9, 1993.

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Pursuant to a congressional request, GAO reviewed the Forest Service's timber sales contracts, focusing on the Forest Service's: (1) collection of damages owed to the government for defaults on timber sale contracts that occurred between January 1, 1982, and March 31, 1993, and the reasons for any delays in collection; and (2) measures to protect the government from future losses as a result of contract defaults.

GAO found that: (1) the Forest Service has collected $42.2 million in damages resulting from timber sales contract defaults between January 1, 1982, and March 31, 1993; (2) the Forest Service has determined that 45 percent of the total is uncollectible primarily due to purchasers' bankruptcies and deaths; (3) as of March 31, 1993, 41 percent of the assessed damages were still in process; (4) continuing litigation has delayed collection of damages and performance bonds; (5) the Forest Service has taken some steps to protect the government against future defaults by revising timber sale contract provisions and other administrative procedures; (6) the Forest Service has implemented a 10-percent minimum down payment requirement and raised the dollar limit on performance bonds to a $500,000 maximum; (7) timber sale contract defaults have declined since 1988, but it is not clear whether the decline is due solely to the new contract provisions; and (8) additional protective measures include longer retention of down payments until the contract is substantially completed and clarification of performance bond liability provisions.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: This recommendation is closed because the nature of the Forest Service's timber sales program has changed significantly since the early 1990s, and that the Forest Service believes that past changes to the timber sales contract sufficiently addressed the intent of the recommendation without needing to revise the bond form.

    Recommendation: The Secretary of Agriculture should direct the Chief of the Forest Service to continue to develop and implement, as soon as possible, a performance bond that clearly states that the surety company is liable for damages at the time of default and for interest, penalties, and administrative costs on delinquent debts from the time the default occurs.

    Agency Affected: Department of Agriculture

 

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