Timber Sale Contract Defaults

The Forest Service has assessed damages totaling about $302 million against purchasers who defaulted in timber sale contracts between January 1982 and March 1993. The Forest Service has collected about $42 million, or 14 percent, of this amount and has determined that about $136 million is uncollectible for a variety of reasons, such as the bankruptcy or the death of the purchaser. Continuing litigation has been the main reason for the delays in the final disposition of the remaining $124 million, most of which is owed by 14 timber purchasers. When many of these defaulted contracts were awarded, the Forest Service had few safeguards in place to protect the government against losses from defaults. Since then, the Forest Service has begun requiring purchasers to make down payments and has raised the dollar limit on the performance bond that purchasers must provide. In addition, the Forest Service is considering retaining the down payments until the contracts are substantially complete and clarifying the liability provisions in a new performance bond--measures that GAO strongly supports.

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.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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