A Survey of Innovative Contracting for Quality Jobs and Ecosystem

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mind and need adaptation to implement new management objectives. The Forest Service in conjunction with nongovernmental organizations and rural com- munities has begun to experiment with new ways to shape contracts that meet the goals of ecological and community well-being. Innovations began in the mid-1990s in ranger districts and national forests. Specifically, innovators began to think about con- tracting new types of work, bundling tasks, trading goods for services, creating end- results contracts, and inserting new skills and knowledge requirements. This study: "Identifies and defines innovative contract mechanisms and components that have been tried over the past several years in Oregon, Washington, and northern California. "Offers project profiles to illustrate how these mechanisms have been developed and used in practice. "Considers how these mechanisms affect ecosystem management (especially ecological restoration and quality jobs) and administrative efficiency. This study considers contracting efforts that sought to increase the ability of the Forest Service to implement the multiple goals of ecosystem management, especially ecologi- cal restoration and fostering quality jobs in rural forest communities. The study de- scribes nine contracting innovations based on 32 telephone interviews and review of contracts and other documents about contracting innovation. It presents definitions of key contract components and approaches such as bundling, best value, requests for proposal, and HUB zone set-asides. In addition, it distinguishes between timber sales and service contracts and discusses contracts that combine procurement of services and disposal of timber. The study profiles the contracting innovations of nine examples: 1.Antelope Pilot Project (Winema National Forest) 2.Starkey Fuel Reduction (Wallowa-Whitman National Forest) 3.Forks Demo Fuel Reduction Project (Malheur National Forest) 4.Grassy Flats Stewardship Project (Shasta-Trinity National Forest) Abstract Executive Summary Introduction Purpose of This Report Method and Approach ii 5.Black Pine Lake Campground Vegetation Management (Okanogan National Forest) 6.Littlehorn Wild Sheep Habitat Restoration (Colville National Forest) 7.Willamette Province Workforce Partnership (Willamette and Siuslaw National Forests with Eugene and Salem Districts, BLM) 8.Baker City Watershed Rehabilitation (Wallowa-Whitman National Forest) 9.Prescribed Burning and Thinning (Wallowa-Whitman National Forest) Four of the nine examples were designated as National Stewardship Pilot Projects by the Forest Service, which offered them special authorities such as exchanging goods for services and designation by description, whereas the remaining projects used exist- ing authorities. The study reveals several common characteristics of innovative contracting efforts in the region: "Nearly all contracting efforts faced institutional barriers that hampered innovation. "Several mechanisms expand the capacity of the Forest Service to undertake eco- logical restoration, especially service contract with an embedded timber sale, goods for services, and best-value criteria. "Nearly all projects identified mechanisms that could reduce administrative costs. "Only a few projects considered economic benefit directly, but contractors generally benefited from new contract structures, especially those that combined several tasks to take place on the same plot of ground. The projects faced considerable institutional barriers, but when Forest Service staff and their community partners worked through these barriers, they reported that many of the innovations improved ecosystem management, administrative efficiency, and quality jobs, and many planned to use the mechanisms again. Institutional barriers 4Whether projects were designated as national pilots or used existing authorities, the innovative efforts faced many of the same institutional barriers: "Lack of interdepartmental communication, especially between planning, timber, and procurement staffs, sometimes led to confusion and conflict. "Innovators at the district or forest level frequently experienced resistance from superiors at the forest, regional, or Washington Office levels. High-level administra- tors were slow to provide clear support and authority to innovate and use particular mechanisms. "Staffing in the Forest Service decreased faster than the agency 9s workload, which appeared to lower morale and burn out staff. Staff said that they did not have time to complete their work, much less innovate. "Constant and repeated personnel turnover combined with slow replacement procedures increased the workload of would-be innovators and led to institutional memory loss. Several projects lost all but one or two staff members in less than a year. "Projects depended on a few committed staff who knew their jobs well, were creative thinkers, and were committed to making improvements. Summary of Key Findings Barriers and Opportunities iii "Ecosystem management and quality jobs innovations suffered from lack of adequate funding for project implementation and staffing, thus creating incentives to develop innovations that decreased administrative costs, sometimes at the expense of creat- ing quality jobs. "Many projects did not include biological and socioeconomic monitoring, and those that did rarely included information that could be used to directly measure the eco- nomic impacts created by the projects. Opportunities for ecosystem management 4Four mechanisms 4service contract with an embedded timber sale, bundling, best-value evaluation criteria, and end-results contracts 4appear to have had a direct impact on the Forest Service 9s ability to imple- ment ecosystem management. "The service contract with an embedded timber sale makes thinning for fuel reduction viable in a wider variety of circumstances and appears to reduce the environmental impacts of thinning activities. "When bundling tasks on the same ground and at the same time, environmental and aesthetic impacts could be reduced by minimizing the people and equipment mov- ing in and out of a worksite. "Best-value contracting may facilitate high-quality ecosystem management by elimi- nating firms that have performed poor work in the past and creating incentives to perform high-quality work. "End-results contracts that require the contractor to create a particular biological condition rather than work from a narrow prescription provide the contractor with the flexibility to tailor the work to the ecological needs of the site. The remainder of the contracting mechanisms reviewed here, such as commercial items, HUB zone set-asides, etc., appear to be neutral with respect to ecosystem man- agement. Financial efficiencies 4 In addition to ecological improvements, several mechanisms appear to lower administrative costs compared to more traditional contracts. Contract innovations, such as indefinite delivery-indefinite quantity (IDIQ), bundling, and timber sales embedded in a service contract, that combine several tasks into one contract appear to reduce contract development and administration costs by decreasing the number of contracts the procurement staff must advertise and administer. "Bundling, the service contract with an embedded timber sale, and the goods- for-services contract also may reduce the costs associated with mobilizing equip- ment and completing the prescribed activities. "Goods for services appears to offer a second savings because the timber revenue is applied directly to the cost of the service work. "Designation by description also promises savings in timber sale contract prepara- tion. "Some cost savings have the potential to negatively affect ecosystem management and quality jobs if taken to an extreme. iv Quality Jobs 4 The Ecosystem Workforce Program at the University of Oregon defines quality jobs to include (1) high wages and benefits, (2) healthy and safe workplaces, (3) long duration, and (4) skill standards. In addition, rural community advocates argue that communities located near national forests should benefit economically from federal land restoration. 1.Wages and benefits 4Although the evidence is inconclusive, goods for services may have increased wage rates owing to the contract structure, because including road work and logging in a service contract makes them subject to federal minimum wages. 2.Safety and health 4No information was available about worker safety and health. 3.Contract duration 4In general, the duration of contracts in this study was longer than is current Forest Service practice. Contractors, especially those who specialize in labor-intensive work, said that these contracts were much longer than normal and that contractors preferred them because they provided flexibility and stability. 4.Skill standards 4Although generally without formal skill standards, the solicitations in the study considered contractor skills through best-value evaluation criteria. However, the consideration of skill and past performance relative to price varied considerably. Some contractors preferred the best-value contracts because they performed high-quality work, had good reputations, and wanted to be rewarded, but some contractors worried that cgood ol 9 boy d systems might develop. 5.Local benefit 4In this study, local capture of contracts was fairly high compared to standard contracting 4about 75 percent. Forest Service outreach and prebid meetings may have been factors in attracting local bidders. The HUB zone set- asides also may increase capture by disadvantaged rural communities. Despite the difficulty that innovators faced when creating these contracts, several of the mechanisms seem to improve ecosystem management, provide local economic ben- efit, and increase administrative efficiencies. For example, well-structured bundled and IDIQ contracts can increase flexibility and stability for both the Forest Service and con- tractors. Goods-for-service contracts and timber sales embedded in service contracts allow fire hazard reduction in new areas and provide diversification for logging firms. Best-value contracting using evaluation criteria that reward high-quality work and a skilled workforce can help the Forest Service meet multiple objectives including quality jobs and improved ecological conditions. Along with these revealing opportunities, this study offers some cautions. First, the quest for administrative efficiency sometimes obscured the goals of ecosystem man- agement and quality jobs. Second, limited data collection and monitoring will make determining the long-term biological and economic effects of these and other contract innovations difficult. Finally, although many of these contracts worked just as innova- tors had hoped, institutional structures inside the agency appear to be inhibiting innova- tion and slowing progress. Conclusion v 1 Introduction 1Origins of Contracting Innovation 1Purpose of This Report 2Definitions 2Methods 3Limits of the Focus on Contracting 3Organization of This Report 3 Innovative Mechanisms 4Procurement Methods 5Disposal of Timber 6Linked and Hybrid Service Contracts and Timber Sales 7Contracting Structures and Components 8Set-Asides 9 Project Profiles 9Antelope Pilot Project 13Starkey Fuel Reduction 16Forks Demo Fuel Reduction Project 16Grassy Flats Stewardship Project 18Black Pine Lake Campground Vegetation Management 19Littlehorn Wild Sheep Habitat Restoration 21Willamette Province Workforce Partnership 24Baker City Watershed Rehabilitation 25Prescribed Burning and Thinning 25 Opportunities for Innovation 25Institutional Barriers 27Ecosystem Management 28Financial Efficiencies 29Quality Jobs 33 Conclusion 33 Acknowledgments 34 Acronyms 34 Metric Equivalents 34 References Table of Contents Thispagehasbeenleftblankintentionally. Documentcontinuesonnextpage. 1 The simultaneous downsizing of federal land management agencies, the shift toward ecosystem-based management, and renewed attention to rural community well-being have spurred reform of service and timber sale contracting in the USDA Forest Service. The rise of ecosystem-based management has shifted the type of work that the Forest Service seeks to accomplish. But, because of downsizing, the Forest Service has often not had the in-house personnel to perform such tasks. For rural communities, down- sizing has greatly decreased the number of seasonal and permanent Forest Service jobs available to residents. Reduced federal timber harvests and increased harvest and milling mechanization also have reduced the number of jobs available in the private forestry sector, especially in isolated rural communities. Traditional service and timber sale contracts have often not met the needs of rural com- munities or federal land management agencies. Traditional service contracts were fre- quently inaccessible to small businesses and sole proprietors living in rural communi- ties. In at least some isolated rural communities, locals were awarded a low percentage of the contracts. For example, between 1994 and 1999, Lake County, Oregon, firms cap- tured 20 percent of the contract value awarded by the Fremont National Forest and less than 1 percent of the contract value from the Lakeview District of the USDI Bureau of Land Management (BLM) (Kauffman 2001). Similarly, in Trinity County, California, local contractors obtained only 3 percent of the value of reforestation contracts and 7 percent of the value of timber sales from 1991 through 1996 from the Shasta-Trinity National For- est (Danks and Jungwirth 1999). In addition, traditional contracting mechanisms have sometimes provided limited flexibility for meeting ecological objectives. Contracting mechanisms were created with an indus- trial forestry model in mind and need adaptation to implement new management objec- tives. Traditional service contracts, for example, frequently included only a single task even when multiple tasks were to occur on the same site. Similarly, work that involved the removal of commercially-valued timber was separated from postsale tasks, thus re- quiring multiple entries to the site. Moreover, in the past, much of the work involving re- moval of trees was done for economic reasons. Currently, federal land managers are directed to manage for ecological objectives (e.g., USDA Forest Service 2001, USDA and USDI 1994), which frequently requires funding beyond what will be returned from selling timber. Facing these economic and managerial dilemmas, the Forest Service in conjunction with nongovernmental organizations and rural communities has begun to experiment with new ways to shape contracts that simultaneously meet the dual goals of ecological and com- munity well-being. Innovations began in the mid-1990s in ranger districts and national forests. Innovators began to think about contracting new types of work, bundling tasks, trading goods for services, creating end-results contracts, inserting new skills and knowl- edge requirements, and using commercial items contracts. Personnel from the district level to the Washington Office are now experimenting with these and other forms of con- tracting. This study seeks to: "Identify and define the innovative contract mechanisms and components that have been tried over the past several years in Oregon, Washington, and northern California. "Offer detailed project profiles to illustrate how these mechanisms have been developed and used in practice, and the challenges and opportunities that innovators faced. Introduction Origins of Contracting Innovation Purpose of This Report 2 "Consider how these mechanisms affect ecosystem management (especially ecological benefit and quality jobs) and administrative efficiency. Ecosystem management 4 Ecosystem management is defined in many ways (Grumbine 1997, 1994). However, the mission of the Forest Service since 1992 has been to implement cecosystem management d (Natural Resources Law Center 1998, Thomas 1997). Ecosystem management moves away from the industrial forestry model that had dominated the federal land management from World War II until the beginning of the Clinton Administration (see also Hirt 1994). Ecosystem management involves the inte- gration of ecological, social, and economic systems. Ecologically, this implies attention to landscape-level process in planning stages and to restoration in implementation. Al- though driven by ecological objectives, ecosystem management also attends to eco- nomic and social needs. For the Forest Service, this has included developing partner- ships and considering how management can positively affect the rural communities lo- cated near national forests. Quality jobs 4 As suggested above, ecosystem management for the Forest Service includes providing benefit to rural communities and creating quality jobs. For example, the USDA Forest Service, Pacific Northwest Region (2001: 21) argues that the out- comes of ecosystem management should include: Promotion of strong partnerships; . . . quality jobs [that] are created and measured by duration, pay, and benefits; local skills and abilities [that] are utilized to the extent available and practical; economic benefits [that] are re- tained in the community (to the extent possible) . . . Requirements and authority to pursue these outcomes lie in a number of different laws, regulations, and directives. Specific language in the national fire plan and county pay- ments legislation, and various congressional appropriations provide different authorities to the Forest Service to consider community benefits and quality jobs during management, as do various regional memorandums of understanding and interagency letters. For ex- ample, a joint letter from the Oregon Governor, the State Director of the BLM, and the Regional Forester directs staffs to: . . . work with your partners in your local jurisdiction or agency to promote the creation of high quality natural resource jobs for local workers. . . We request that all line officers in procurement and management actions will support the goal that by the year 2002 all procurement and management actions will in- corporate local social and economic needs. . . (Kitzhaber et al. 1998 as quoted in USDA Forest Service 2001: 14). A quality job includes high wages, benefits, health and safety, and job durability. In addition, a quality job allows someone to work near home (Ecosystem Workforce Pro- gram 2001, Gray et al. 2001, Kauffman 2001, Mitsos 1996). Innovative contracting 4 For the purposes of this paper, an innovative contract is any procurement contract, timber sale, or combined contract that uses traditional contract- ing mechanisms in a new way or creates new mechanisms for implementing ecosys- tem management, including providing quality jobs or rural community benefit. This study considers contracts that sought to improve the ability to implement ecosys- tem management, including fostering quality jobs in rural forest communities. Because there is no central list from which to choose innovative contracts, cases to profile were identified by asking people inside and outside the Forest Service who they knew of that was doing innovative work. When interviewed, people were asked to identify others to Definitions Methods 3 talk to about their project and other innovations around the region. Based on these sug- gestions, this document profiles nine projects that involved contracts by the Forest Ser- vice or the Forest Service and BLM combined that were awarded or advertised prior to October 1, 2000. The study includes projects from Oregon, Washington, and northern California. To gather information about particular contracts, 32 telephone interviews were conducted with Forest Service staff (primarily planning and procurement), community activists, and contractors. In addition, contract solicitations were examined along with briefing papers and other documents written by Forest Service or nongovernmental organization staffs on particular projects and the process of stewardship contracting more generally. Because this study examines contracting, it has the potential to neglect other factors that influence success or failure of ecosystem management and quality job planning and implementation. This is particularly true for ecologically-driven management, where goal setting and planning at the landscape scale are particularly important. Similarly, fostering economic development requires attention to more than how work is structured. Some might well argue that contracting is the last step and that procurement officers can only put up projects that are as good as the project planners can create. This is true and an important limit of the focus on contracting. It is also true, however, that be- cause traditional procurement and timber sale mechanisms were created with industrial production goals in mind, they merit attention as the Forest Service shifts to ecosystem management. This document defines the various mechanisms with which innovators have been experi- menting and presents nine project profiles that provide detailed description of selected innovative efforts. It examines how particular mechanisms have improved the Forest Service 9s ability to implement ecosystem management, quality jobs, and administrative efficiencies. A companion piece entitled cInnovative Contracting: Tips for Rural Communi- ties and Local Agency Partners d is available from the Ecosystem Workforce Program, University of Oregon. This section provides definitions of selected components of service procurement and forest products disposal processes with attention to those areas where innovation has been focused. These definitions are drawn from interviews and written interpretation and not from laws, court cases, or the Code of Federal Regulations (CFR), etc. unless cited. The details of many of these terms are contested in important ways and continue to evolve. In particular, government personnel disagree about how much flexibility is afforded to them by existing laws and regulations. Some innovators reviewed laws such as the National Forest Management Act (NFMA), court decisions, and CFR to determine where the lines between law, regulation, and discretion lie. Useful sources in this regard include Blue Mountains Demonstration Area (2001), Contracting Task Force (2001), Monismith (2000), Ringgold (1998), and USDA Forest Service (2001). Readers con- cerned with the legal specifics should consult federal code, public laws, the Office of General Council, case law, and the Forest Service Manual. Congress has passed laws prescribing the ways that federal agencies procure services and dispose of federal property. Historically, the processes of selling timber and pur- chasing goods and services have been entirely separate. The laws governing them are completely different as are the staff that perform these tasks. The laws governing the sale of timber are located primarily in Title 36 of the CFR along with most of the regula- tions governing the Forest Service. The regulations governing the purchase of goods Limits of the Focus on Contracting Organization of This Report Innovative Mechanisms 4 and services 4including, for example, tree planting, thinning, culvert replacement 4are governed by separate titles that apply to the entire federal government. Although these regulations are also part of the CFR, they are more commonly known as the Federal Acquisition Regulations (FAR). For our purposes, the FAR offer three main mechanisms for soliciting bids for goods and services. These are invitation for bid, request for quote, and the request for proposal. In addition, the CFR offers several mechanisms for disposing of federal property (timber) 4 primarily administrative use and the timber sale. Invitation for bid (IFB) 4 When the Forest Service uses an IFB, the agency solicits price offers for services or supplies, and the firms provide the agency with sealed bids. The Forest Service picks the lowest priced bid from among the qualified bidders. Tradi- tionally, the Forest Service has used the IFB (sealed bid) as their primary means of soliciting contractors. For the agencies and bidders, this system was simple and re- quired a minimum of preparation. It tended to provide the agencies with the lowest short-term cost for work. However, it provided little flexibility to agency personnel to refuse a bid from a contractor who did minimally acceptable work, and it provided no mechanism to reward high-quality work. Prior to the mid-1990s, the Forest Service was required to use the IFB for all contracts over $25,000 when not using the request for proposal. However, acquisition reforms of the 1990s encouraged agencies to use other methods to procure work, including the request for proposal and request for quote. Request for proposal (RFP) and request for quote (RFQ) 4 As they are commonly used by the Forest Service, the RFP and the RFQ are similar tools. The RFQ is gener- ally used for small, relatively simple projects, whereas the RFP is generally used for larger and more complex projects. The Forest Service may use the RFQ for procure- ment with an estimated value less than $100,000, or less than $5 million if the good or service is considered a commercial item (see below). An RFP is used for projects esti- mated to cost more than $100,000 unless a sealed bid or commercial items contract is used. The formats of the RFP and RFQ differ, with the RFQ being much simpler. In addi- tion, the advertising requirements for an RFQ are less stringent than for an RFP. Under some circumstances, a contracting officer may solicit offers orally for an RFQ by tele- phone, whereas an RFP requires a more formal proposal. Commercial items 4 Commercial items are goods and services that can be purchased on the open market. When a service is available on the open market, a contracting officer may use a commercial item contract 4essentially an RFQ 4for contracts with estimated values up to $1 million. Best value to the government 4 One of the key features of both the RFP and the RPQ is that the federal government may consider factors other than price when award- ing the contract. Whereas a sealed bid considers only price, with RFP or RFQ, the con- tracting officer considers the cbest value to the government d when making an award. When national forests offer an RFP or RFQ, they can evaluate responses based on criteria that are identified in advance and reflect management goals and objectives. For example, in addition to price, the contractor 9s technical proposal, use of removed mate- rial, past performance, and contractor experience are frequently included as evaluation criteria in the projects examined in this study. When submitting an offer, a contractor provides not only a price but also a written proposal that responds to the request for information in the contract solicitation. Procurement Methods 5 To evaluate proposals, but generally not quotes, the Forest Service creates a team that rates each proposal based on the criteria laid out in the solicitation. The team is usually made up of people who planned the project and a contracting officer. The team evaluates the proposals and makes recommendations to the contracting officer. During this pro- cess, they may consider information that they know about the contractors 9 past perfor- mance. If proposals need clarification, the contracting officer may contact the bidders to get more information. The contracting officer also has the authority to negotiate with the bidders on particular parts of the project. Proposals and prices may change in the course of the negotiation. The original proposal and the components that changed through the negotiation process become part of the final contract. Once the contracting officer and team are satisfied, the contracting officer decides which offer to accept. The opportunity to award based on best value to the government applies only to procure- ment and not to timber sales, which must be awarded based on price when being sold competitively. However, the Stewardship Demonstration Pilot Program grants authority to a small number of specific pilot projects to consider best value to the government when selling timber. As suggested above, different laws govern the disposal of timber (for sale or free) and the purchase of goods and services. Although we think primarily of the timber sale, the Forest Service may give away timber or sell at a low cost under certain circumstances. Trees for firewood is perhaps the best-known example of this. For our purposes, ad- ministrative use and the timber sale are defined below. Administrative use 4 One of the instances in which the Forest Service may dispose of timber at little or no charge is for cadministrative use. d As stated in 36 CFR 223.2, cTrees, portions of trees, or other forest products in any amount on National Forest System lands may be disposed of for administrative use, by sale or without charge , as may be most advantageous to the United States. . . d (emphasis added). The regula- tion goes on to limit the administrative use to five circumstances, including cFor dis- posal when removal is desirable to protect or enhance multiple-use values in a particular area d (36 CFR 223.2). Although infrequently used, these clauses allow the Forest Service to give away timber when the objectives are related to cmultiple use d rather than timber extraction. Timber sale 4 The primary federal property that the Forest Service sells is timber. The NFMA governs the details of selling timber from national forest lands. The Forest Serv- ice sells timber primarily through the bid or a fixed-price contract. Whenever the Forest Service has a project with an appraised value over $10,000, the Forest Service must ad- vertise the timber sale and then offer it through a sealed or open bid. However, national forests cmay sell without further advertisement, at not less than appraised value, any timber previously advertised for competitive bid but not sold because of lack of bids. . . d (36 CFR 223.85). When a timber sale has an appraised value less than $10,000 or did not attract bidders, the Forest Service can offer the sale at a fixed price. The price is the greater of the appraised value or what is known as a cbase rate. d Base rates are rates below which a national forest may not sell timber. The base rate differs by national forest and tree species. These fixed-price sales are known as premeasured or 2400-3T sales. The 2400-3T timber sale contracts have been an important innovative tool in recent years. Some national forests have linked the 2400-3T timber sale to a service contract to undertake the work that involves the removal of timber but does not contain enough value to attract purchasers. Disposal of Timber 6 In recent years, there has been much debate and reexamination of what types of activi- ties can be included in a timber sale because the purpose of the timber sale has shifted from being primarily an end goal to being one of many tools for achieving ecological goals. As this change has occurred, Forest Service personnel have disagreed about the amount and kinds of trees that can be included in a timber sale. Some personnel argue that, Through the discretion granted by the NFMA, Forest Service managers may determine the appropriate mix of economically viable and non-viable forest products in a timber sale contract in order to accomplish land management objectives identified in the environmental analysis (Monismith 2000). The Contracting Task Force (2001) drew a similar conclusion. Although the Forest Service may include a variety of material in a timber sale to meet management objectives when selling timber via bid, the Forest Service is required to choose the highest bidder, except under a narrow set of circumstances, such as pur- chaser debarment. Unlike procurement using the RFP or RFQ, the Forest Service may not consider the best overall value to the government (factors such as logging skills or attention to environmental damage), only the price offered by potential purchasers. Service contract with an embedded timber sale 4 As vegetation management has shifted from timber production to ecosystem management, projects that generate eco- nomic value for the government have become increasingly rare. Often, silvicultural restoration projects contain some timber that could be sold to a mill once it was re- moved from the woods, but this income would not pay the full cost of the project. With a service contract with an embedded timber sale, the successful bidder of the service contract is required to execute the timber sale. More simply, the successful bidder completes a service contract and pays for the removed material at base rates. Generally, an RFP is used to select the contractor by using best-value evaluation. The contract is structured primarily as a procurement instrument, not a timber sale. To use the tool, the timber that is to be removed must have an appraised value less than $10,000 or have failed to sell through the open bid process (Contracting Task Force 2001). Goods for services 4 Generally, the federal government is prohibited from trading goods for services. Exchanging something of commercial value for services that augment appropriated funds is not permitted. A good is can asset of the federal govern- ment that has economic value, i.e., something that the public is willing to pay for d (USDA Forest Service 2001: 55). However, the Forest Service Pacific Northwest Region inter- prets that, If a commercial product does not have economic value, i.e., cannot be reason- ably sold since the cost of operation exceeds the economic value (a negative appraisal and clearly no market value based on market experience and condi- tions), the agency can provide removal rights to any successful bidder [of a service contract]. Often if not most times, providing removal rights will reduce the costs of the bid on the service portion of the contract since while the com- mercial product has a negative appraisal, it does have some form of commer- cial value to the contractor. The fact that it reduces the costs does not constitute augmentation of appropriations since it is not trading cgoods d for services (USDA Forest Service 2001: 57). Linked and Hybrid Service Contracts and Timber Sales 7 If the project or a subset of it could be packaged as a viable timber sale, then combining it with service work would constitute a trade of goods for services and would not be per- mitted under normal circumstances. In 1999, Congress gave the Forest Service the opportunity to designate 28 national stew- ardship pilot projects to test new contracting authorities, and in 2000, Congress autho- rized 28 more. Several of these pilot projects were granted the authority to exchange goods for services. In these instances, the contracts included commercially valued tim- ber and work that the Forest Service would normally have to pay for. In the contract, the Forest Service exchanged goods (timber) for services (other restoration work). The Forest Service can structure contracts and the work they contain in various ways. Many of the innovative contracts in this study include two or more of the components defined here. Bundled contracts 4 Bundled contracts combine into a single contract several work tasks that have been traditionally issued separately. The Small Business Reauthoriza- tion Act of 1997 directs agencies to cavoid unnecessary and unjustified bundling of contract requirements that precludes small business participation in procurement as prime contractors d (15 USC 631). However, the Forest Service may design and pack- age work to meet management objectives. This might include combining different types of work that occur in a single area when the purpose is to reduce impact of multiple entries. It might also involve work across larger areas to create longer duration con- tracts for small businesses and workers or to create administrative efficiencies. Indefinite delivery-indefinite quantity (IDIQ) 4 Traditionally, Forest Service contracts were written for a specified amount of work to be accomplished in a specified amount of time for a specified amount of money. In an IDIQ contract, the agency offers a con- tract that contains a minimum and maximum amount of work that the contractor will be asked to perform. The contractor submits a per-unit (often per-acre) bid based on sample units (acres) that the Forest Service wants to treat. When signing a contract, the government and the contractor commit to a minimum amount of work and a con- tract start and end date. The government then issues task orders to request work dur- ing that time period. Multiple-award IDIQ solicitations 4 The multiple-award IDIQ is similar to a normal IDIQ except that it awards the work to several different contractors based on a single solicitation; i.e., each awardee will get a minimum amount of work at their proposed prices. Services are purchased by using a task order rather than new contract. Performance-based, end results 4 Performance-based, end-results contracts focus on the desired outcome rather than the way the contractor is required to achieve those re- sults. The contract financially rewards the contractor based on the extent to which the firm achieved the end result, not whether the firm used a particular method or prescrip- tion to get to that result. Designation by description 4 In service contracts, the Forest Service commonly des- ignates a work to be performed by description rather than marking every action to be taken. For example, in a precommercial thinning project, the Forest Service may de- scribe the types of trees to be cut. For example, a contract may specify: cut all trees less than 6 inches diameter at breast height (d.b.h.), leave trees between 6 and 12 inches at 18-foot spacings, and leave all trees more than 12 inches. However, the NFMA says that the Forest Service, not the purchaser, shall designate the timber that it sells. Consequently, the Forest Service cannot give a timber sale purchaser discretion about Contracting Structures and Components 8 which merchantable trees to harvest. With the increasing emphasis on harvesting small- diameter trees, tree marking has become expensive both in labor and paint. Some man- agement units have sought ways to designate commercial timber for harvest by descrip- tion rather than marking so that the purchaser does have discretion about which trees to cut. In general, rules governing procurement are designed to provide fair access to govern- ment contracts and the lowest price to the government by maximizing competition. There are several exceptions to the principle of free and open competition, however, that are designed to provide economic benefits to certain types of firms. The largest of these is the small-business set-aside program. Additional set-asides are permitted for qualified small firms owned by people from disadvantaged groups and firms located in economically distressed areas. The Small Business Administration coordinates all of these set-aside programs as well as several others not discussed here. Although not a set-aside program, appropriations legislation passed by Congress for Fiscal Year 2001 permitted the Forest Service to target certain funds to small and micro firms and not- for-profit organizations that hire and train local workers. Small business set-asides 4 With a few exceptions, the federal government is required to set aside for small businesses nearly all contracts that a small business could per- form, and the Forest Service sets aside most of its contracts for small businesses. Gen- erally, small forestry services businesses are defined as having less than $5 million dollars in annual revenue. In heavy construction work such as road building, small busi- nesses are defined as having less than $27.5 million in annual revenue (USDC Bureau of the Census 2001). Generally, in the Pacific Northwest, forest contracting firms are well below these minimums. Disadvantaged business [8(a)] set-asides 4 In addition to general small business set- asides, the Forest Service may restrict the bidding pool to qualified disadvantaged firms, so-called 8(a) firms. To qualify for this program, the business owner must be from a tradi- tionally disadvantaged group such as African Americans, Native Americans, Hispanics, or some Asian Americans; own the company; have limited net worth; and be growing the company (Small Business Administration 2001b). Historically underutilized business (HUB) zones 4 In 1997, Congress directed the Small Business Administration to identify HUB zones. These zones are Indian reserva- tions, impoverished rural counties, and qualified urban census tracts. Rural counties qualify as HUB zones when they have a median household income less than 80 percent of the statewide average or have an unemployment rate greater than 140 percent of the statewide average. To qualify as a HUB zone firm, a business must have its primary office in a HUB zone, and 35 percent of its employees must live in a HUB zone. Once signed up for the program, firms are eligible for federal contracts that are set aside for HUB zone firms. Federal agencies, including the Forest Service can offer three types of HUB zone set- aside contracts. A contracting officer must restrict competition to HUB zone firms if the contract has an estimated value of over $100,000 and the contracting officer expects that he or she will get at least two qualified HUB zone bids and that the contract can be awarded at a fair market price. A contracting officer may award a sole-source HUB zone contract if he or she does not believe that two or more qualified bidders will sub- mit offers and believes that a contract can be awarded at a fair market price. Finally, a contract can be awarded with a price evaluation preference. That is, a contracting officer can hold a full and open competition, and the HUB zone or small business offer Set-Asides 9 will be considered lower than a non-HUB zone/nonsmall-business offer as long as it is not more than 10 percent higher (Small Business Administration 2001a). National fire plan funding 4 In 2000, Congress passed legislation that, among other things, provided the Forest Service the authority to offer preference to local firms when awarding contracts funded with emergency fuel hazard reduction dollars. Although not a traditional set-aside, this law gave the Forest Service the authority to direct work to local private and nonprofit and cooperative entities, small businesses or micro-busi- nesses, or cother entities that will hire or train a significant percentage of local people to complete such contracts d (U.S. House of Representatives 2000: 89). Nine examples of innovative contracts from across the Pacific Northwest Region and northern California describe various mechanisms and suggest how they can be used in practice. In addition, the project profiles reveal some of the barriers to innovation. Tables 1 and 2 provide an overview of the project profiles and the mechanisms they used. Innovative mechanisms 4 Goods for services, designation by description, best value, sale by acre rather than volume of removed trees. Project development 4 The 1,664-acre Antelope Pilot Project is located within a 2,700-acre block of old-growth ponderosa pine near the eastern boundary of Crater Lake National Park in south-central Oregon on the Chemult Ranger District, Winema National Forest. The ecological purpose of the project was to reduce fire hazard, en- hance old-growth communities, and improve big game forage while maintaining soil productivity in an old-growth ponderosa pine stand. The project planners decided to accomplish these objectives through a single-entry, small-diameter thinning. The project also sought to identify local opportunities for marketing and utilization of small- diameter material and develop a contract to make the removal of small-diameter mate- rial possible. Project planners applied for Stewardship Pilot Project status and obtained it for a two- phase project. In the first phase, the Winema National Forest hired a consulting firm 4 Mason, Bruce, and Girard, Inc. 1 4to act as a conduit to the public, and explore opportunities for marketing and processing of small-diameter ponderosa pine. The con- sultant led an integrated team of private and public personnel that examined market trends and researched products and processes, contract types, and procedures. In the second phase, the Chemult Ranger District created and implemented a contract to allow the thinning and removal of small-diameter ponderosa and lodgepole pine (maxi- mum of 12-inch diameter at breast height within the dripline of ponderosa pine greater than 15 inches in diameter and a maximum of 9 inches in open-grown areas) down to 2 feet in height. The intent was to reduce the existing ladder fuels in an old-growth pon- derosa pine stand and reduce the potential of stand-replacement fires and also to protect the adjacent Crater Lake National Park lands. Contract development 4 The Antelope Pilot Project harvest contract had several innova- tive components. First, to minimize thinning costs, project planners created a goods-for- services contract in which the Forest Service traded commercial timber for thinning services. The project 9s stewardship pilot status made the goods-for-services provision possible. Second, to lower project preparation costs, project planners designated Project Profiles Antelope Pilot Project 1 The use of trade or firm names in this publication is for reader information only and does not imply endorsement by the U.S. Department of Agriculture of any product or service. 10 Table 1 4Location, solicitation mechanism, duration, and contract value of case studies StewardshipSolicitation Project nameNational forestRanger districtService contract valuepilotmechanismDurationStatus a DollarsMonths Antelope Pilot ProjectWinemaChemult42,282YesRFP28Underway b Baker City Watershed RehabilitationWallowa-WhitmanBaker1,453,125YesRFP26Completed Black Pine Lake CampgroundOkanoganMethow Valley25,000RFQ6Completed Forks Demo Fuel Reduction ProjectMalheurPrairie City37,000RFQ13Underway Grassy Flats Stewardship ProjectShasta-TrinityHayforkNAYesRFPUnknownNot let Littlehorn Wild Sheep Habitat RestorationColvilleRepublic309,615YesRFP50Underway Prescribed Burning and ThinningWallowa-WhitmanForest-wideIDIQ c RFP36Underway Starkey Fuel ReductionWallowa-WhitmanLa Grande600,534RFP39Underway Willamette Province Workforce PartnershipWillamette d Multiple10,253-125,846RRFQ1-36Ongoing NA = Not applicable. IDIQ = Indefinite delivery-indefinite quantity. RFQ = Request for quotation. RFP = Request for proposal. a As of July 1, 2001. b Contract implementation underway. c Minimum = $167,000 and maximum = $1,163,000. d Contracts also included work from the Siuslaw National Forest, and the Salem and Eugene Districts of the Bureau of Land Managem ent. 11 Table 2 4Innovative contracting mechanisms Service contract with anService contractNon- Goods forembeddedwith removalDesignation byMultiyearPerformanceEndCommercialtraditional Project Nameservices timber sale rights descriptionBundling contracting based resultIDIQgoods tasks Antelope Pilot ProjectXXX Baker City Watershed RehabilitationXXX Black Pine Lake CampgroundXX Forks Demo Fuel Reduction ProjectX Grassy Flats Stewardship ProjectXX Littlehorn Wild Sheep Habitat RestorationXXXXXXX Prescribed Burning and ThinningXXX Starkey Fuel ReductionXX Willamette Province Workforce PartnershipXXXX IDIQ = Indefinite delivery-indefinite quantity. 12 the timber to be harvested by description. Third, project planners gave the bidders flexibility in harvesting methods but required that they describe their harvest plan in detail. Finally, the contract required that the successful bidder report cost and income information to the Forest Service to help evaluate the economic impacts of the contract. To reduce thinning costs and create a contract that could meet all management objec- tives with a single entry, project planners combined contract language from timber sale and service contracts, an opportunity afforded to them by the national pilot project designation. Project planners reduced sale preparation costs by designating the trees by description rather than individually marking each tree to be harvested. This reduced cost in both time and paint. Because the Forest Service is required to designate which trees a pur- chaser may cut, the challenge was to create a mechanism that did not give the pur- chaser discretion and ensured that the prescription had been followed in the absence of the traditional paint mark at the base of the tree. To enable harvest to be evaluated, a project planner created the ccut stump diameter. d The contract solicitation defines a cut stump diameter (CSD) as the diameter of a tree or stump 2 inches above the ground on the uphill side. The planners correlated CSD with the more traditional d.b.h. for ponderosa pine, the dominant species in the stands. Writing the prescription using cut stump diameters enabled the Forest Service to measure stumps to ensure that only the prescribed trees had been cut. With these terms and measurements in place, project planners wrote the harvest prescription based on the CSD instead of the d.b.h. The prescription was straightforward, required the removal of certain trees, and did not provide the contractor with much room for interpretation. Another process used to reduce sale preparation costs was to sell the contract by the acre rather than by a standard volume of product such as board or cubic foot. This allowed the Forest Service to provide a rough estimate of volume and place the re- sponsibility to calculate volume on the potential purchasers. This eliminated the need for the standard method of volume calculations by cruising the material on a stand-by- stand basis. The project sought to remove small-diameter material economically. A required report was to include information about logging costs broken down by equipment, labor and labor overhead, haul, general and administrative overhead, and road maintenance. In addition, the contractor was required to report the income received from the removed material broken down by payment unit and three diameter classes. Finally, the contrac- tor had to calculate per-acre production rates listed by diameter class and payment unit. Some potential bidders were concerned about revealing information about their logging operations and profitability. Ultimately, the Forest Service argued that it needed this information to evaluate the viability of the contracting experiment. Solicitation and award 4 The Winema National Forest sent out a request for propos- als to solicit bids and planned to award the contract based on the best value to the gov- ernment. The RFP asked that bidders describe how they would harvest the material, identify their work schedule, and describe how they would report economic information about the project. In addition, the solicitations also requested information about the bidder 9s experience so that the Forest Service could evaluate their past performance. After releasing the solicitation, the project planners held a presale meeting and field trip but did not offer training about how to respond to a request for proposal. In retrospect, some staff thought that they should have offered training because the bidders were logging firms who were largely unfamiliar with requests for proposals. 13 The forest received five diverse proposals with widely ranging prices. Some staff felt that the proposals did not provide enough information about what the contractors planned to do. Although at least one person wanted to accept proposals immediately, the project planner insisted that they ask the contractors to clarify their proposals, es- pecially to provide more information about the costs and income associated with imple- menting the project. Forest staff provided the bidders with more guidance about how to write a proposal, and bidders provided more information. Using these revised propos- als, the evaluation team chose a logging firm from Winchester, Oregon, about 100 miles from the project site. Bidders had the option to propose that the government pay the contractor or that the contractor pay the government. The winning bidder proposed that the government pay him about $24 per acre or about $42,300. Although the project team eventually agreed to focus on obtaining the best value and soliciting proposals that met land management objectives, timber sale staff, project planners, and contracting officers sometimes disagreed during contracting develop- ment and solicitation in part because staff were unsure about the procedures of other departments. Implementation 4 According to one project planner, con the ground, the project went better than envisioned. We accomplished all that we wanted to and more. d The suc- cessful bidder purchased a cut-to-length harvester to cut the larger trees and a for- warder. The harvester felled trees, delimbed them, cut them to length, and left the trees on the ground for the forwarder to pick up. The contractor also leased a forwarder with an Eco-Track system on the rear wheels to minimize soil compaction while increasing trac- tion. Very small stems were felled by hand because it was more cost effective. In addi- tion, trees close to the diameter limit were marked by hand to ensure that the equipment operator did not make mistakes. Although the harvester could have made this calcula- tion, hand marking was more efficient, provided for a more expeditious cut-to-length pro- cessing, and ensured less damage to the residual stand. Monitoring 4 The Forest Service has developed a multiparty monitoring team that is monitoring costs associated with logging and removal of material including labor, equip- ment, and overhead costs, and income. The contract requires that the contractor report this information to the Forest Service. Innovative mechanisms 4 Service contract with an embedded timber sale. Project origins and development 4 During the 1980s, the La Grande Ranger District of the Wallowa-Whitman National Forest suffered a spruce budworm infestation, and in some stands close to 95 percent of the white fir died. The district harvested some of the die-off before it decayed. However, after 3 to 5 years, most of the timber had decayed to the point where a timber sale was no longer economically viable. This was the case in the Starkey Experimental Forest and Range. The experimental forest had not been harvested because the scientists did not want to upset their controlled research, which was primarily about interactions among elk, deer, and cattle. However, over time, the tree mortality and downed material became so dense that the scientists worried that a stand- replacement wildfire might destroy their research entirely. In the late 1990s, the ranger district and the Pacific Northwest Research Station began a project to remove dead and down woody material from 1,782 acres in the experimental forest. The goals of the project were to reduce the risk of wildfire that would damage natural resources and re- search facilities, allow for the reintroduction of fire, not disrupt research, and monitor fuels reduction. Starkey Fuel Reduction 14 The scientists and district employees planned a treatment together. In addition, scien- tists created a set of studies to examine the reaction of deer, elk, and bats to the treat- ments. Project planning largely occurred in-house, although the Governor 9s Citizen Panel of the Blue Mountains Demonstration Area visited the site and reviewed the project. Contract development 4 Initially, the district staff proposed one large timber sale. How- ever, it was appraised at a value of negative $700,000 and therefore was unlikely to sell. Using a traditional procurement approach, planners estimated that it would require $1,500 per acre or $3 million to complete, not calculating any possible income from the sale of timber. Three million dollars was well beyond the funding available at the forest level. A contracting officer from another forest suggested that they separate the work into a service contract and an associated timber sale. This contracting officer had learned about this approach at a meeting on contracting innovations hosted by the Collabora- tive Learning Circle (Ashland, OR) and the Watershed Research and Training Center (Hayfork, CA). Starkey Project participants turned to the draft Contracting Task Force Report (Contracting Task Force 2001) for assistance on how to create a service con- tract with an embedded timber sale. However, the contracting officers and timber sale planners were not comfortable with the task force report, especially because the Chief of the Forest Service had not yet signed it. Rather than following the task force report completely, the contracting officers and timber sale planners examined original legislation 4especially NFMA 4and case law to deter- mine what could be included in a timber sale and what belonged in a service contract. Reviewing laws and legal precedents in combination with discussions with the USDA Office of General Council proved to be useful for settling issues such as, cDoes the For- est Service have the authority to include forest products in a timber sale contract when those products are not commercially viable? d Project planners needed to understand how much nonsawtimber they could include and still have a timber sale. This was particularly important because the Starkey project had only 3 million board feet of sawtimber but 11 to 12 million board feet of nonsawtimber. They found that the case law allowed for con- siderable flexibility about the silvicultural work that could be included in a timber sale. One of the timber sale planners documented their research and logic (Monismith 2000). As a result of these investigations, the contracting officers and project planners sepa- rated areas into timber sales that could be sold, and created a timber sale that included all the remaining sawtimber and as much of the nonsawtimber as possible without cre- ating a wildly negative sale. In the end, the timber sale was appraised at negative $30,000, well below the positive $10,000 limit allowed for a noncompetitive timber sale. The remaining nonsaw logs were placed in a service contract along with other tasks such as slash disposal. The successful bidder on the service contract was required to purchase the timber sale at base rates and execute the sale. Because the Forest Service requires that timber be sold at an artificial minimum, the timber was sold to the successful service contract bidder at approximately $59,000 despite the negative $30,000 appraisal. The Contracting Task Force (2001) recommended that the service contract contain most of the provisions and that the timber sale be skeletal. However, because of regional-level concerns that a four-page timber sale contract would not provide the federal government with adequate legal recourse, project planners agreed to repeat many of the requirements of the service contract in the timber sale. 15 When the Wallowa-Whitman National Forest originally let the contract, it contained bid items for thinning and roadwork. The staff subsequently worked with the Department of Labor and determined that the road work was not subject to Davis-Bacon wages but rather was cincidental to the service contract work and therefore can be included in the service contract wage rates d (USDA Forest Service 2000). The forest deleted the sepa- rate bid items and included that work in the total acreage price. Solicitation and award 4 The contracting officers used a request for proposal with best- value provisions to obtain bids. To obtain the quality of proposals they wanted, planners cspent a lot of time refining the process early, before we put the contract out to bid. d They wanted to keep the solicitation simple. As one person put it, We asked contractors to tell us about systems but we don 9t want them to have to hire a professional forester to lay out a stand. We asked contractors to pro- vide a general statement of equipment that they are going to use and a se- quence of operations and then [we could] weigh it against all others. We tried to take the complexity out. That way we were able to look at past per- formance, experience, operations plan, and scheduling. The team evaluating the proposal included a contracting officer, two timber sale plan- ners, and two fire staff members. Except for the contracting officer, the team had little experience with service contracts. According to the people I interviewed, they experi- enced difficulties moving between the timber sale and the service contract. They agreed, however, that their combined experience improved the evaluation. The contracting officer knew that the firms who were likely to bid on the project would be traditional timber sale purchasers, not service contractors. To ensure they received high-quality responses to their request for proposal, the contracting officer held a prebid meeting, which several contractors attended. The contracting officer explained the con- tract in detail and talked about how to write a proposal. In addition, the contracting officer and potential bidders took a field trip to the project site. By all accounts, this approach led to good proposals, although the bidders 9 prices differed considerably. The contracting officer 9s experience and ability to communicate matter-of-factly created confidence among the potential bidders and led to good proposals. The contracting officer had the team members rank the proposals based on past perfor- mance, technical proposal, material, and utilization before letting them see the price. He believed that seeing the price would affect how the team evaluated the other criteria. The team reviewed the technical proposal, past performance, and price and then selected a contractor from Baker City for a price of $600,534. Implementation 4 The forest awarded the contract just prior to the end of fiscal year 2000 and implementation began in summer 2001. This project raises some of the chal- lenges surrounding the implementation of the service contract with an embedded tim- ber sale. Because the time scheduled for the harvest was important to the researchers, the Forest Service contract limited the flexibility compared to a traditional timber sale and gave more credit to proposals that promised to complete the project in a shorter period. In addition, a service contract with an embedded timber sale does not include price adjustment clauses that are found in traditional timber sales. Consequently, al- though the Forest Service considered this primarily a service contract, the contractor was still dependent on timber and fiber markets to recoup costs. Yet, the contractor was more vulnerable to price fluctuations than is normally the case in traditional timber 16 sales. In the summer of 2001, the low price for chip material was slowing implementation because the contractor suddenly had to find new markets for chips as well as shift from chipping on site to hauling whole logs to a chipping facility. Monitoring 4 The scientists working at the Starkey Experimental Forest are analyzing the effects of the project on deer, elk, and bats. Innovative mechanism 4 Service contract with an embedded timber sale. Project development 4 The Forks Demo Fuel Reduction

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