Forest Service:

Factors Affecting Bids on Timber Sales

RCED-97-175R: Published: Jun 17, 1997. Publicly Released: Jun 17, 1997.

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Pursuant to a congressional request, GAO provided information on the factors that affect bid premiums for the Forest Service's timber sales, focusing on: (1) identifying what the key factors are related to bid premiums in these sales; (2) determining what effects the key factors have on bid premiums; (3) determining if there are any regional differences in the key factors; and (4) determining what other factors could affect bid premiums that might not be evident in the Forest Service's timber sales reports.

GAO noted that: (1) GAO found three factors that were significantly and positively related to higher bid premiums (the amount that the winning bidder paid over the appraised price); (2) one of these factors, the use of sealed bids could have increased timber sales receipts by $56 million if it had occurred in place of some oral auctions; (3) the number of bidders per sale has a significant relationship with bid premiums; (4) Regions 5 (Pacific Southwest) and 6 (Pacific Northwest) had the highest number of bidders per sale and had the highest bid premiums; (5) Region 5 averaged about 2.97 bidders per sale and had a bid ratio of about 1.70; (6) Region 6 averaged about 3.05 bidders per sale and had a bid ratio of about 1.68; (7) Regions 3 (Southwestern) and 4 (Intermountain) were among the three regions that averaged less than 2 bidders per sale and had the lowest bid premiums; (8) Region 3 averaged about 1.59 bidders per sale and a bid ratio of about 1.17; (9) Region 4 averaged about 1.78 bidders per sale and a bid ratio of about 1.17; (10) since the number of bidders was a key factor associated with higher bid premiums, GAO examined the factors that increased the number of bidders; (11) one factor, the amount by which the estimated price of the timber being offered for sale is reduced (known as the rollback), was significantly related to the number of bidders; (12) the sealed bid auction method was significantly related to higher bid premiums; (13) in sales in which there is only one bidder (29.4 percent of the sale analyzed), the bid ratio is 1.01 for oral auction sales compared with 1.14 for sealed bid sales; (14) if the oral auction, single-bidder sales had been sealed bid sales, GAO estimates that revenues from these sales could have been $56 million higher; (15) salvage sales, which generally contain dead or dying trees, appear to have a significant relationship with bid premiums; (16) however, that occurs, in part, because some regions reduce the estimated value of salvage timber by a greater amount than normal when determining the appraised price in order to spur sales; (17) the factors that related to more bidders and higher bid premiums varied across regions; (18) GAO spoke with Forest Service headquarters, regional, and forest-level personnel, industry sources, and timber experts to obtain their views on other possible factors not included in timber sale reports that might affect bid premiums and the number of bidders; and (19) they identified three major areas: (a) species protection and changes in forest management philosophy; (b) concentration in the timber industry; and (c) use of the transaction evidence appraisal method.

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