Timber Management:

Opportunities to Limit Future Liability for Suspended or Canceled Timber Sale Contracts

RCED-97-14: Published: Oct 31, 1996. Publicly Released: Nov 13, 1996.

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James E. Wells, Jr
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Pursuant to a congressional request, GAO reviewed the federal government's liability when the Forest Service and the Bureau of Land Management (BLM) suspend or cancel timber sale contracts to protect threatened or endangered species, focusing on what: (1) amounts and types of damages have been awarded to purchasers and how the Forest Service and BLM paid for the damages; (2) amounts and types of claims are pending against the Forest Service and BLM, and how the agencies expect to pay these claims; and (3) actions the Forest Service and BLM are taking to minimize the future liability arising from suspended or cancelled timber sale contracts.

GAO found that: (1) from October 1992 through June 1996, the Forest Service and BLM paid more than $6.6 million in claims for 49 contracts that were suspended or cancelled to protect threatened or endangered species; (2) the agencies have paid purchasers for the value of replacement timber, interest, lost profits, and unrecovered costs; (3) the Forest Service paid damages of almost $6.5 million from its appropriations and BLM settled its single claim by modifying another contract held by the purchaser to reduce the amount paid to the government for purchased timber without changing the original volume of timber to be harvested; (4) as of October 1996, the Forest Service had 73 pending claims with potential damages of about $61 million, but it could incur at least an additional $198 million in damages; (5) BLM had one pending claim for almost $2.2 million, but it could incur between $35 million and $40 million more in potential future liability; (6) uncertainty arises from the agencies' inability to predict the outcome of ongoing and future litigation that could result in the award of more or less in damages than the purchasers claim, the results of countersuits that could be filed by the Forest Service and BLM, or the success of the agencies' efforts to offer replacement timber or other settlements in lieu of paying damages; (7) Forest Service officials stated that the Service may not have the funds to pay for pending and future claims without additional congressional funding; (8) according to a BLM official, if purchasers sought and were awarded damages, the agency would first attempt to reduce the price of existing contracts to offset damages; and (9) BLM has repeatedly revised its timber sale contract to minimize its liability when it must suspend or cancel a timber sale contract to protect threatened and endangered species, but the Forest Service has not finalized either new regulations or a new timber sale contract that would limit the government's liability on cancelled timber sale contracts and redistribute the risk between the Forest Service and the purchaser.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: On December 30, 1996, the Forest Service published a Notice of Proposed Rulemaking for its timber sale contract cancellation regulations. The regulations have been with the Department of Agriculture for approval since late 1997. The Department has not approved the release of the proposed timber sale contract revision for public comment. The Department has been reviewing the revised timber sale contract since late 1997 and has delayed its release for political reasons. After almost 2 years, it appears unlikely that the Department will finalize either the regulations or contract.

    Recommendation: The Secretary of Agriculture should direct the Chief of the Forest Service to expeditiously release for public comment proposed regulations for cancelling timber sale contracts and a revised timber sale contract.

    Agency Affected: Department of Agriculture


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