Various Actions That Occurred Around 1990 Have Resulted in Federal Liability

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 canceled to protect threatened or endangered species. The agencies have paid the purchasers for the value of replacement timber, interest, lost profits, and unrecovered costs incurred under the contracts. BLM settled its claim of almost $228,000 (plus interest) by modifying another contract held by the purchaser to reduce the amount paid to the government without changing the original volume to be harvested. The outcome of ongoing and future litigation is unpredictable and could result in the award of more or less in damages than the purchasers claim. Also uncertain are the results of countersuits that could be filed by the Forest Service or BLM, the success of the agencies’ offers to replace timber in lieu of paying damages, and the settlement of claims that have not yet been filed. Claims pending against the Forest Service and BLM for contracts suspended or canceled to protect threatened or endangered species totaled almost $61 million and about $2.2 million, respectively, as of October 1996. Funding for Pending and Future Settlements May Be a Problem

According to Forest Service officials, the agency may not have the funds to settle pending and future claims. As of October 1, 1996, BLM had one claim pending for almost $2.2 million. Therefore, if the purchasers were successful in their claims, BLM would first determine whether the purchasers had other contracts with the agency and, if so, attempt to negotiate a settlement that would modify existing contracts to reduce the price by the damages awarded without changing the original amount of timber to be harvested. The Forest Service has not finalized either document. BLM uses a formula to determine the government’s liability. Conclusions

BLM has suspended or canceled significantly fewer timber sale contracts than the Forest Service, and BLM has consistently taken actions to protect itself from the damages that could arise from suspending or canceling timber sale contracts to protect threatened or endangered species. Objectives, Scope, and Methodology

The Chairman, Subcommittee on Forests and Public Land Management, Senate Committee on Energy and Natural Resources, asked us to determine (1) the amounts and types of damages awarded to purchasers whose timber sale contracts have been suspended or canceled and the ways the agencies have paid the damages, (2) the amounts and types of claims pending against the Forest Service and Bureau of Land Management (BLM) and the sources of funds from which the agencies expect to pay the claims, and (3) the actions that the Forest Service and BLM are taking to minimize the future liability arising from suspended or canceled timber sale contracts. The draft regulations are aimed at reducing the Forest Service’s liability for canceled timber sales and the draft timber sale contract would assign risk differently between the Forest Service and purchasers.
Why GAO Did This Study

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.

What GAO Found

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.