instances excessively high bid prices result from "preclusive" or "desperation" bidding. The actual market value of Government timber is more closely reflected by prices received in competitive bid sales. The joint committee also concludes that many of the noncompetitive sales of public timber result in the purchaser receiving timber at far less than its true value. Examples of such situations are sales under the cooperative agreement with the Simpson Logging Co. and to companies such as Pope & Talbot, and the Willamette Valley Lumber Co. which regularly buy Federal timber without competition, as well as long-term sales on Indian reservations.

The agencies are required to sell timber at not less than the appraised value. They interpret this to mean current fair market value. The agencies are not required to make a predetermined allowance for profit and risk in computing fair market value. They are required to advertise all but the smallest sales, but they are not required to announce the minimum price acceptable to the Government.

RECOMMENDATIONS

K-1. The Forest Service, through its research facilities, should initiate development of log measurement tables for uniform Federal use which will provide more meaningful information on the average amounts of various forest products that may be produced from logs of different sizes.

K-2. In offering timber for sale, the agencies should make available equally to all potential bidders data relating to the volume of timber by species, timber quality, road construction engineering data, and road-use fees.

K-3. The agencies should compute an appraised price consistent with the fair market value of timber, as established by competitive. bids for comparable timber.

K-4. As a means of obtaining a price more closely approximating actual market value, the agencies should explore the feasibility of not announcing appraised prices of timber offered for sale.

K-5. In areas where the agencies' operations overlap, they should establish a centralized system for gathering, analyzing, and disseminating information on the cost of logging and manufacturing forest products and on the selling prices of such products. These data should then be made available to all segments of the timber industry as well as to Government and private appraisers.

RESPONSE BY THE DEPARTMENT OF AGRICULTURE Recommendation K-1

Practically all Forest Service scaling in board-feet is done by the Scribner Decimal C log rule. The international log rule, which generally indicates lumber content of logs more accurately than the Scribner rule, is also used by the Forest Service. However, the international rule is used and accepted by the forest products industries to only a minor degree, primarily in the Northeastern States. It is not used on the Pacific coast.

The actual outturn of lumber deviates from the amounts shown by the log rule depending on such factors as size of log, products cut and manufacturing efficiency. The extent of such deviation, termed overrun or underrun, is best determined through mill scale studies in which lumber outturn by individual logs is compared -to their scaled volume.

The Forest Service has been conducting mill scale studies for many years, but more frequent and thorough mill scale and related types of studies are needed to provide accurate adjustment factors to apply to log scale for each significantly

different condition. These adjustment factors are an essential part of timber appraisals.

Existing board-foot log rules are now so thoroughly established in industrial practice and industrial cost accounting that there would be difficulty in displacing them by a new unit or method of measurement however logical or desirable it may be. Introduction of a new standard or method of measurement would add confusion to the present situation unless there was reasonable acceptance of the new procedure by the forest-products industry. We are aware of no interest on the part of industry for a new unit of measure. It is significant that the committees received no testimony on this point at any of their hearings on the west coast.

Recommendation K-2

The provisions in the Forest Service Manual in respect to availability of appraisal record includes (7 FSM 203.36):

"Information as to estimate of timber volume and quality, as well as engineering estimate of cost of development, or other major items pertaining to sales being advertised or prepared, will be available to all prospective bidders on request. All information of this character will be furnished only with a clear understanding that the Forest Service will not be responsible for the accuracy of such estimates."

Volume estimate by species is a part of the regular advertising form used by the Forest Service. Estimates of timber quality, brief description of unusual features, estimated cost of road construction and road-use fee rates (when involved) are customarily stated in the prospectus which is issued in connection with timber offering.

Recommendation K-3

Determination of appraised prices consistent with fair market value of timber, as established by competitive bids for comparable timber, is virtually the same as the principle used in appraising national-forest stumpage. In the use and interpretation of this principle, there appear to be differences in emphasis between that which has been used by the Forest Service and that which the committee may feel should have been used. These differences in interpretation are primarily in respect to the weight which should be given to some types of extremely high bids which have been received in recent years. This matter is continuously under study and will be so studied in the future. Recommendation K-4

The practice of advertising acceptable stumpage rates is well established. The Department of Agriculture feels that unless there is a clear need to do otherwise, this practice should be continued.

There is now widespread knowledge on the part of national-forest timber purchasers of Forest Service appraisal procedures, the cost and selling value data, and profit margin levels currently being used. With that and the information on timber volumes, timber quality and estimated road costs which, as pointed out in the statement on recommendation K-2, is being made available when timber is advertised, any reasonably informed potential bidder can make his own estimate of the Forest Service appraised price. Such estimates would be sufficiently accurate to render the withholding of this information of no significance in obtaining more bids at rates above the appraised rates. We believe refusal to disclose Forest Service appraised rates would prove to be only a source of minor irritation with timber purchaser groups.

Recommendation K-5

Coordination among Government agencies in obtaining appraisal data is desirable but not, in the opinion of the Department of Agriculture, to the point of establishment of specialized cost-gathering service units. Instead, logging engineers and timber appraisers of each agency should participate in obtaining cost data in order to interpret and apply it. In the Pacific Northwest, collection and analysis of appraisal data has been coordinated over the last several years by an interagency committee.

If appraisal data are made available to all segments of the timber industry, as well as to private appraisers, it has for all practical purposes the same status as being published. A timber appraiser must unavoidably work with confidential data obtained from company records. The essential information will not be available from company records if the concerns know that such data will be published or made available to others outside the Government service. We know

of no instance where the Government compiles and publicly distributes detailed information on costs and selling values comparable to the details which are essential for accurate appraisals of public timber. Undoubtedly, the forest-products industries would resist making their records available for this purpose to the point where the excellent relations the Forest Service has built up over many years with its purchasers to get the facts upon which to make realistic appraisals would be jeopardized.

RESPONSE BY THE DEPARTMENT OF THE INTERIOR

Recommendation K-1

As this recommendation does not apply to this Department, we have no comment.

Recommendation K-2

The Department is in general agreement with this recommendation.

The Bureau of Land Management as a matter of regular business practice has been making available to all prospective bidders all pertinent data regarding volume and quality of timber and estimated costs of logging and access for each and every sale offering. Annual timber sale plans and individual sale offerings are widely publicized through newspapers and other media, including mailing lista and office contacts.

The Bureau of Indian Affairs' practice has been in harmony with the committee's recommendation, as evidenced by a statement in all timber sale advertisements that information regarding the sale which is not included in the advertisement may be obtained from the Superintendent or other named officials of the Bureau.

Recommendation K-3

The Department is in general agreement with the intent of this recommendation but believes that strict compliance with the method of establishing the fair market price as set forth in the recommendation is not always desirable.

The Bureau of Land Management is of the opinion that their economic appraisal technique complies with the intent of the recommendation for determining appraised prices consistent with fair market values.

Appraised prices for Bureau of Land Management timber are geared to a percentage of the conversion return which is derived by the difference between production costs of the manufactured product and the sale price of that product. At times of keen market competition, bid prices have exceeded appraised prices by a considerable amount. At other times there is close correlation between appraised prices and bid prices.

Production costs of lumber are obtained by making detailed time studies of all phases of the production process from standing tree to manufactured lumber. During the past 2 years these time studies have been extended to include the manufacture of plywood as well as lumber. Product prices are published regularly in trade journals and are readily available for every product and grade.

Stumpage prices are based on the production costs of operators of average efficiency and the product prices obtainable by the same class of operators. This policy neither subsidizes the inefficient operator nor penalizes the most efficient. With respect to the Bureau of Indian Affairs, this recommendation is, in part, similar to recommendation No. 4 (a), section F, of this report. The discussion at that point is applicable to this recommendation.

The Bureau believes stumpage values paid to the Indians have been just and adequate in the light of timber conditions and market demands. The history of many timber sales reveals that the prices established by competitive bidding have been something more than the "fair market value of the timber." Competitively bid established prices may well be inflated by transfusion into that price of values that actually belong to other timber stands or by other conditions or resources of the purchaser.

Recommendation K-4

This recommendation appears to be inconsistent with certain other committee recommendations which emphasize a desire for maximum competition. The Department is not in favor of this recommendation.

The Bureau of Land Management doubts the effectiveness of offering timber for sale without announcing minimum acceptable prices. It is difficult for the Bureau to see how the recommended practice could be more effective than the present practice in obtaining prices more closely approximating actual market value.

The Bureau assumes that this recommendation would contemplate continuance of fair market appraisals and acceptance of no bid less than fair market value. With this assumption, the Bureau believes the recommended practice, while reducing the number of no-bid offerings, would create the necessity of rejecting many one-bid offerings, and possibly some multiple-bid offerings, because of being less than the minimum acceptable price. By process of repeated test bidding, interested persons would ascertain the minimum acceptable price. In oral auction of Bureau of Land Management timber, the sales officer would be forced to reveal his minimum acceptable price. In addition, the amount of ineffective advertising and subsequent 90-day sales would almost certainly show a large increase.

This recommendation finds a counterpart in Bureau of Indian Affairs policy governing the sale of trust lands. In those sales the offering is made without naming a minimum acceptable price. If one or more bids are received at or above the Bureau's appraisal of the land value, the highest bid may be accepted. A bid below the appraised value may be accepted in some circumstances. The Bureau of Indian Affairs has considered making an experimental offering of timber without announcing the appraised prices. Among the difficulties foreseen in applying this recommendation are (a) the recommendation is contrary to the committee's recommendation No. 2, section K, which favors making detailed information available to all potential bidders; (b) naming the minimum price sometimes encourages bidding that would otherwise not be received; and (c) bidding by species would cause an involvement because acceptable bids might not be received for some species and might for others.

In the sale of Indian timber, Indian consent is obtained, and this consent includes naming of the minimum acceptable price. In the case of tribal timber, particularly, consultations with the Indians are at business committees or tribal council meetings which are open to all members of the tribe and, often, nonmembers as well. Complaints might easily be registered, which would be impossible to refute, that some potential bidders were able to obtain information regarding the minimum acceptable price through their contacts with members of the tribe, and would thus have an advantage over other bidders without such connections.

Recommendation K-5

The Department qualifies its agreement to this recommendation with respect to unrestricted availability of information and the centralized system for collecting, analyzing, and disseminating information.

While a coordinated method of obtaining basic data is desirable between the three major Federal timber agencies, the Department questions whether the information assembled should be made available without restriction to all segments of the timber industry. Much of the data assembled would be based on information received in confidence from cooperative mill operators. Usually cooperation is given only on condition that the data collected in their particular mills will receive confidential treatment. It should be divulged only in such a way as to respect the confidence under which it was obtained. Data should be assembled and consolidated by logging engineers and other appraisal personnel who are best qualified to analyze and apply the data.

The Bureau of Land Management, Bureau of Indian Affairs, and the United States Forest Service have had, for a number of years, an interagency timber appraisal committee in the Pacific Northwest engaged in developing standardized techniques for the collection of basic timber appraisal data. This data has been applied to volume and quality determination in standing timber, to various phases of logging and manufacturing cost determinations, and to the volume and value of manufactured products made by purchasers. Policies regarding such matters are coordinated in an interagency committee representing the same three Federal agencies in Washington, D. C.

On December 12, 1957, representatives of the Department and the Bureau of Indian Affairs met with representatives of the General Accounting Office to discuss a recommendation in Senate Report No. 971, 85th Congress, 1st session, to the effect that this Department should consult with an obtain the advice of the Comptroller General on accounting procedures and systems that will best portray the situation relative to the value of forest products and the cost of manufacture. It was agreed that the General Accounting Office would act as consultant in devising methods for assembling and recording cost and sales data. It was agreed that the Bureau of Indian Affairs would have to determine the type of information required, as well as the objectives desired, since this is of a technical nature. It was also agreed that the General Accounting Office would help to devise methods for compiling and tabulating the data in its most useful form.

The offices of the General Accounting Office and the Bureau of Indian Affairs in Portland, Oreg., were informed of this meeting and were asked to carry on under the agreement. It is hoped that this assistance from the General Accounting Office will be helpful to the interagency committee in Portland that is working on the general subject of uniformity in accumulation of material for stumpage appraisal purposes.

In April 1958 the Forest Service held a meeting of its timber valuation personnel from several regions in Portland, Oreg., to discuss questions of mutual interest. Representatives of the Bureau of Land Management and the Bureau of Indian Affairs were invited to attend the final day of this meeting.

All of these actions are directed toward the objective of broadening the base of information available to all agencies with respect to all matters affecting the stumpage value.

L. BIDDING METHODS

FINDINGS AND CONCLUSIONS

The agencies use two bidding methods-oral auction and sealed bids.

The joint committee believes that the agencies in exercising discretionary authority to select the method of bidding, should give primary consideration to first, an opportunity for all qualified bidders to participate; and, second keeping freezeout or preclusive bidding opportunities at a minimum. The best policy is one which provides a climate for healthy competition.

From the standpoint of the Federal agencies, the discretion allowed them creates a responsibility to conduct the bidding in the public interest. Regular reviews of the results of bidding are necessary in order that the effect of the type of bidding used can be evaluated.

Generally speaking, the sealed bid method minimizes the opportunity for preclusive bidding and for collusion. It also prevents excessive bidding which goes far beyond the value of the timber, and provides for greater participation by the management of companies in the formulation of bidding policy.

Negotiated sales should be resorted to only when extraordinary circumstances so require. Negotiation of price imposes severe responsibilities on the personnel of the agencies. Public business can best be conducted by being openly conducted. Agencies can avoid charges of favoritism by making minimum use of negotiated sales.

RECOMMENDATIONS

L-1. The agencies should use the competitive-bid method to the greatest extent possible. Methods of advertisement should be designed to provide wide notice to all prospective bidders.

L-2. Preference should be given to the use of sealed bids rather than oral auction in order to maximize the opportunity for all potential bidders to participate and at the same time minimize the opportunity for preclusive bidding.

L-3. The agencies should carefully review those situations where one-bid offers predominate, to determine whether this may be due to the method of bidding or to some other factor. We recommend the agencies place more emphasis on critical examinations of present bid methods in order to promote maximum opportunities for competition.