What this chapter covers:
This chapter addresses the design of forest contracts in detail. It also discusses issues of contract administration. Subsequent chapters will deal with forest pricing and revenue collection, the process of awarding contracts, contract monitoring and supervision, and contract compliance and enforcement.
The primary focus in this chapter is on forest utilization contracts, contracts in which governments sell rights to forest resource extraction and utilization. The terms and conditions of forest utilization contracts are important and complex; they can have significant impact on how forests are used and managed. The focus of the chapter also includes forest utilization contracts that involve forest management obligations. However, much of the discussion of contract design and administration will also apply to goods and services procurement contracts, under which the government buys forest management and forest administration goods and services. Many forest management, forest administration supervision and monitoring services can be contracted out.
The chapter begins with land use planning. Land use planning is seen as an important first step in allocating public forest areas among timber production, non-timber production, preservation, biodiversity and other forest uses. Next, the six key requirements of contractual arrangements are introduced: technical, development, administrative, legal, risk and financial, and interpretative requirements. The process of designing forest utilization contracts is discussed in some detail, including contract components and the steps in contract design and development.
Not many countries, either developed or developing, implement land use planning of their forest lands. It is technically challenging and often politically difficult, but it is an important prerequisite in development of contractual arrangements.
Before establishing forest contracts, it is important to define boundaries of the permanent forest areas, including areas to be managed for production forests (for timber and non-timber forest products), protection forests, watershed management, recreation and ecotourism, biodiversity and the diversity of other forest uses. The areas to which the contracts will apply must be defined explicitly within the contracts and the locations and planned forest uses should be consistent with a forest land use plan, and with other forest uses. The contract area must not be encumbered by other land ownership or land use restrictions. The area must not conflict with other land uses, ecological reserves, protection areas, parks or park reserves. If forest contractual arrangements are to work and are to achieve sustainable forest management, land ownership uncertainties must be settled. The area must be free of any private land ownership claims, and aboriginal or other land claims must be resolved.
Without a forest land use plan, land ownership uncertainties will remain, and conflicts among competing users and uses will arise. Poor land use decisions in land use allocation can lead to damage or destruction of unique and critical forest resources, ecosystems and human cultures.
To ensure that the structure and design of forest contracts are comprehensive, it is useful to identify key sets of requirements for a complete contract. These are:
The first five key requirements involve both field and office activities along with associated review, reporting and submission duties or obligations. The sixth requirement defines and interprets the terms and conditions included in the contracts, and the procedures for establishing a common understanding between the parties of the meaning and intentions of the contract. These six requirements apply equally to forest utilization contracts and to goods and services procurement contracts. However, in the present discussion the focus is on forest utilization contracts, and on forest management contracts that grant utilization rights, but require provision of forest management services. A summary of these six requirements and their major components is presented in Table 7.1.
Contracts contain a set of technical specifications that detail the conditions, performance requirements, indicators and standards that make up the obligations and responsibilities of each party. This applies to both forest utilization contracts and goods and services procurement contracts. In procurement contracts for, say, forest inventory, the contract will specify the area, mapping requirements and specifications, survey methods and intensity, species and other characteristics to be measured, sampling intensity, data analysis required, the form for presentation of results, and maps and other outputs to be delivered. Examples of technical specifications in a forest utilization contract might include: pre-contract exploration requirements, management plan requirements, resource supply planning, development plans, annual work plans, protection plans and procedures and monitoring activities. In forest management agreements involving both forest utilization and the provision of forest management services, similar technical specifications for the methods to be used and the desired inputs and outputs from the process would be stated.
This section provides a statement of the contractor’s obligations with respect to the rights of people living in or near the forest contract area including aboriginal people and their rights. It also specifies the legal context regarding employment and investment in the country.
This section of the contract would also include sub-sections describing the rights and commitments to establish and operate a wood processing facility, requirements to continue operating processing facilities, and provisions for the establishment or expansion of wood conversion facilities.
The contract may include requirements for the licensee to employ personnel with professional and technical knowledge in forest management and in other aspects of the organization.
The administrative requirements and clauses outline the authority of the government and contractor’s personnel, the standards of conduct of the contractor, the technical, financial and environmental inspection and auditing procedures, the format and schedule of reporting procedures, the procedures for making changes to contract terms and conditions, dispute settlement procedures, as well as conditions and procedures for terminating the contract. These clauses provide the basis for contract monitoring and supervision, and inspection and enforcement of the contract’s terms and conditions. They establish the requirements for the working relationships between the government and the contractor. The contract may also specify the appointment of persons to act as representatives of the contractor and the government.
Table 7.1: The six key requirements of forest contracts, and the objectives and components within each
Key requirements |
Objective of each |
Components within each |
Technical requirements |
Outline the methods to be used and the desired inputs and outputs required |
Pre-contract exploration Management plan Resource supply planning Development plan Annual work-plans Protection Monitoring |
Development requirements |
Stipulation of economic development investment employment and sustainability conditions associated with the forest contract |
Investment requirements Employment requirements Financing local operations Sustainability, environmental and social impact assessment |
Administrative requirements |
Obligations and details of the process for review of plans Procedures for reporting Procedures for supervision, monitoring, enforcement and auditing |
Obtaining approval for technical plans Guidelines for feedback and instruction from government Rights of inspection Annual report requirements |
Legal requirements |
Legal provisions which govern and make the contract legitimate, binding settlement of disputes, changes in laws and regulations, subcontracting, force majeure, termination |
Boundaries of the concession Property rights granted Detailed map Grants of rights and terms Liability and indemnity Termination and surrender Notice section |
Risk and financial requirements |
Deposit requirements and financial obligations of parties |
Contract prices and fees Deposit requirements Warranty and liability Damage deposits Forest levies and special fees Stumpage and other forest fees Taxes |
Interpretative requirements |
Definitions to aid in the interpretation of a contract |
Glossary of terms and procedures for interpretation notice section |
A variety of strictly legal provisions must be included in any contract to ensure that the contract and associated documents have legitimate legal standing. These include the obvious basic information, such as the legal name, status and addresses of both the contractor and the government minister or representatives. The exact location of the boundaries of the area in question must be specified using standard reference points. A detailed map of the area should also be referred to and attached. Other legal requirements in the contract include the relevant legislation affecting the contract, the granting of rights and other terms and conditions, including time deadlines, liability and indemnity issues, termination conditions, surrender and notification requirements.
This major heading includes requirements for security deposits to ensure the performance and obligations under the agreement. Also contained in this section are surety bonds to hold the contract, special damage deposits, special fees or charges for a range of operations, including forest protection, reforestation and contracting procedures, and any other fees and performance requirements.
The deposit requirements often demand the contractor to maintain performance deposits with the government, as security for the contractor’s performance of their obligations under the contract. These deposits may be required either in cash or in negotiable securities. If the licensee fails to pay money owing to the government, or fails to perform his/her obligations under the contract, and after notice has been given, the government may take from the deposit an amount equal to the money that the contractor failed to pay, or an amount sufficient to cover costs incurred in remedying the contractor’s failure to perform their obligations. There may also be surety bond requirements, specifying the bonding requirements of the grantee.
A clause in the contract may also require a special deposit if operations under the contract are likely to cause damage to third party persons or property. If damage or injury results and the contractor fails to pay damages, the government may use the special deposit to indemnify such persons or property.
Clauses specifying stumpage charges on forest products, area fees, other fees and levies detail the fees to be paid, how they should be paid, and the remedies for the government if the contractor fails to pay the charges owing. Clauses in this section will also specify how fees are adjusted over time, the conditions under which they are changed or reassessed, and when they are adjusted, changed or reassessed. Forest fees are discussed in more detail in Chapter 8.
Many controversies and contract performance failures result from misinterpretations and disagreements over the written words of the contract, their meaning and interpretation. Thus, it is important to establish clear definitions and interpretations of words, clauses and conditions in the contract, and to use these consistently throughout the contract. Clarity of definition, and consistency in use of terms avoids problems associated with interpretation of the contract by either party (government or contractor).
The process of designing forest utilization and forest management contracts incorporates the six dimensions discussed above into a number of key components. Some of the more important components include forest management, environmental management, social and development plans. The following sections outline these plans and other key components of the contract development process and of the final contract.
The first technical requirement for any contract is the development of sufficient information on the potential contract area, the forest, non-forest and environmental resources, the human communities, existing uses and users, as well as other social, legal, physical and administrative data. This background information is needed for development of a comprehensive management plan and other associated planning documents, and to ensure financial, environmental and social viability of the proposed development as well as the contract.
In some cases this information may be available from existing records of various government agencies. In other cases, independent studies will need to be conducted to collect the required data. The carrying out of scoping studies provides information for use in contract design. It will also provide basic information for interested potential bidders, and feasibility studies by the interested companies. Availability of this information will encourage more bidders, and reduce uncertainty among them, leading to higher bids on forest utilization contracts, or to lower prices on goods and services procurement contracts.
If government has sufficient financial and human resources, it may undertake the studies itself. If the forest agency does not have the capacity to do the scoping studies - a common problem in many developing countries - the government may tender separate contracts for the scoping studies. Alternatively, the exploration process may be included as part of the contract itself and left up to the successful contractor. However, this is not recommended, as it puts the government at a great disadvantage when it comes to contract appraisal, establishing forest fees, evaluating bids and negotiating contracts. However, if this alternative is chosen, the government should require that all information collected by the contractor be made available to the government agency. Verification of the quality of the data collected by the contractor will be essential.
The following list of general information and scoping data to be collected is neither detailed nor exhaustive. Data and informational requirements will vary among countries, and among different forests. Where data or information are lacking, the scoping studies should identify deficiencies and provide for subsequent data collection.
Once the scoping studies are complete, the scoping report provides the basis for planning subsequent inventory and data collection needed for the development of the management plans, and a prospectus for the design of a detailed contract. The scoping report also identifies the types of expertise needed for additional and subsequent data collection and analysis.
The management plan is a self-contained separate but integral part of the contract. It is included usually as an attachment, technical annex or schedule. The contract document should stipulate how government will review the management plan, the duration of the management plan, and when the revision and review process will take place.
The management plan section of the contract document should indicate what is required of the contractor for an acceptable forest management plan. This specific section of the contract should include the following:
Once the information is collected, the management plan will describe how, where, when, and in what volume forest harvesting will take place, what steps are taken to ensure that other forest values are protected, and what management methods will be used to ensure that sustainable forest practices are employed
Ideally the management plan should be completed before the contract is signed, so that a contract may be properly designed to implement the plan. But normally, in practice, it is developed and approved after the contract is signed, but before harvesting is allowed to start.
Either the government or the contractor may be given responsibility for the development of the management plan. This depends on government’s philosophy about the sharing of management duties. Normally, on large-scale, long-term contracts, the contractor is assigned responsibility for this task. Annual workplans (discussed below) are not approved until government has approved an acceptable management plan.
Some of the major components within a typical management plan are outlined in the following sub-sections, but described in greater detail in a number of publications, such as FAO Forestry Paper 135 Guidelines for the management of tropical forests (Armitage, 1998). The list is neither detailed nor exhaustive, as the items will vary from country to country and with the types of forest. A summary checklist may be found in Appendix A, at the end of the chapter.
1. Forest inventory of timber resources
Inventory information on the commercial timber resources is required in order to determine what management systems can be used, what harvest levels are sustainable, and to assess the economic feasibility of managing the resource. Normally, minimum levels of inventory intensity and/or precision are specified in the contract document under the management plan heading.
Forest inventory design and implementation is beyond the scope of this publication. Inventory design and implementation is covered extensively in a variety of books, texts and manuals. Examples include the FAO Manual of forestry inventory (FAO, 1981) (a few others are mentioned in the references at the end of this chapter).
Inventories of timber resources not covered in the contract, and of non-timber forest products, should also be completed. These need not be of the same level of precision as for the target timber resources. However, a basic idea of their potential should be obtainable and documented. Potential conflicts with access and extraction of the timber resources covered by the contract should also be identified.
2. Non-timber and environmental resource inventories
Non-timber and environmental resources should also be catalogued and inventoried. These include fruits, nuts, other foods, medicinal plants, wildlife, archaeological sites, amenity values (nature, scenery), environmental quality values (air, water, soil), ecological values (biodiversity, endangered species) and public use values (recreation, ecotourism and other tourism).
Inventory information on these resources is important in order to determine the management systems to be used, sustainable harvest levels, and to assess the economic feasibility of managing the resources. Ideally, baseline data for the size and distribution of plant and animal populations, especially endangered or species at risk, should be collected. However, this can be a large and time-consuming task. Some balance of priorities will have to be made and specified in the contract.
In cases where other contract holders are operating in the area, the management plan should specify measures that the contractor will employ to identify and consult with those other users. Such uses may pertain to non-timber forest products, traditional use by aboriginal or other forest communities, outdoor recreation and ecotourism, heritage, cultural and sacred sites, etc. Detailed maps showing locations of such uses may be necessary.
These non-timber and environmental values are important because together they expand the total value of the forest and the range of choices to consider in making decisions about the protection, use and management of public forest lands. These values may be catalogued through properly designed user surveys. Many of them may be quantified using methodologies developed in a number of studies. For a survey of methods applicable to forests and forestry valuation case studies, see Bishop (1999).
3. Transportation systems
The management plan should also provide details of all transportation systems that will be constructed and used. In most cases the primary transportation network will consist of roads of varying standards, although it may include rivers and waterways. The transportation plan should identify existing roads, those to be constructed, those needed exclusively for forest access, those that will become part of the public road system, those which are needed for long-term management of the forests, and those which are for protection.
Sections of the management plan will outline construction and maintenance schedules. They will also cover how the contractor will build and maintain drainage systems, including culverts and ditches, minimize surface erosion and ensure roads are safe for harvesting or other industrial purposes. Roads should meet environmental standards to avoid erosion and siltation of streams, and be kept at minimum distances from streams. Bridges and stream crossings should meet environmental standards to avoid stream damage, sediment and other pollution. In areas of public use, details of a traffic control plan should be provided. A road deactivation plan should also be included, and must specify operations required to stabilize the roads and restore and maintain the natural drainage at each location. Finally, ownership of road infrastructure such as bridges and culverts and other improvements should be specified.
4. Other infrastructure
Construction and maintenance of other infrastructure required for access, transport and storage of raw materials and/or processed goods should be explained. These may include camps, garages and maintenance facilities, fuel storage tanks, docks, storage yards, loading facilities, power generation, power and pipelines, and airstrips. Maps showing the location of all facilities should accompany the plan. Clear justification should be provided for each installation. These should be located away from streams, waterways and wetlands and meet environmental requirements. Risks to safety or the environment from facilities or materials used or stored should be documented, and protection and clean-up procedures specified. As with roads and bridges, ownership should be established and documented. Finally, provisions for disassembly and site restoration should be specified.
5. Forest management objectives and silviculture systems
The management plan should also contain a statement of management objectives and the silviculture systems to be applied. Forest management objectives may cover a wide range of issues including short- and long-term sustainable harvest rates, maintenance and enhancement of forest productivity, renewal of harvested areas, forest protection and public participation procedures. A statement of objectives should also pertain to employment of people living in or near the contract area, including local communities.
The management plans should contain a set of detailed silvicultural prescriptions to be followed to achieve the stated forest management objectives. Prescriptions should be written in simple terms, and in easy-to-follow formats, to ensure comprehension and effective execution.
Fire prevention and suppression requirements are spelled out under these provisions. These include the requirement for a fire protection plan and the contractor’s obligations under such an approved plan. An efficient fire prevention and suppression plan will require the necessary infrastructure, equipment, manpower and training. The plan should include the following measures:
Details of how the forest resources will be managed should be provided, with additional details in the annual work-plans. Details on the forest types and conditions under which each silvicultural system will be applied should be described. Methods for regeneration should be stated.
The main activities required for resource management should also be described. This should include at a minimum: harvesting methods (for details see Model code of forest harvesting practice, Dykstra and Heinrich, FAO, 1996), road construction methods, tending of immature stands or populations, vegetation control, and control of pests. Any intended use of chemicals (herbicides, pesticides, etc.) should be explained, including health and environmental safety provisions. Additional details on these topics will be included in annual work plans.
Whether the forest contract is area based or quantity based, the contract document must specify the volumes and species (and perhaps also sizes and qualities) to be harvested. For simple permits with short terms (such as annual firewood cutting permit) the permit would state the total quantity to be removed. For other, longer-term contracts, when the contract spans a number of years, the allowable annual or seasonal harvest must be stated.
These quantities should be based on a resource supply analysis. Ideally the analysis should be done prior to signing the contract, and based on the forest inventory data collected and compiled during the exploration stage. However, this information is usually not available at the signing of the contract. In such cases, provisions may be made in the contract for completion of the supply study within a stated period of time, and for establishment of the harvest volumes under the contract.
Completion of the supply analysis study must be carried out by one or other of the parties. If the contractor does the supply analysis, the contract must specify the methods to be employed in the analysis and provisions made for the independent audit of the methods and results. Davis and Johnson (1987) as well as FAO Forestry Paper 135 (Armitage, 1998) review methods for the analysis of long-term timber supply.
This plan details the proposed location and scheduling of development activities within the contract area. This would include the location and scheduling of resource harvesting and road construction and deactivation activities. Like the management plan, the development plan is a self-contained and integral part of the contract itself, but it is prepared as an attached annex or a schedule. The contract document should stipulate the content and duration of the development plan, as well as how it is to be reviewed and approved by government. Development plans are usually the responsibility of the contractor. The development plan should include the following items:
Ideally, the development plan should be completed before the contract is signed, so that the contract may be properly designed to implement the plan. Alternatively, completion of the development plan may be required in the contract, to be completed later by a specified date and incorporated into the contract as an attachment or an annex.
Annual work-plans must conform to the terms of the overall utilization agreement and conditions of the contract, as well as laws and regulations governing timber and non-timber harvesting, environmental management, health and safety, etc. Annual work-plans require the contractor to provide a greater level of detail for the harvesting area. Following approval of the annual work-plan, cutting permits are issued for those areas authorized for harvesting. A cutting permit or cutting plan authorizes the harvesting of timber in accordance with the provisions of the cutting permit from cutting blocks located within the contract area (see, for example, Armitage, 1998, 182 pp., 190 pp., Annex 6).
Under the utilization agreement heading within the contract, the cutting permit requirements and the details required are specified. Common requirements include:
An annual report from the contractor provides a summary of the contractor’s activities over the previous year, covering management of the contract area and fulfilment of the obligations under the contract. It describes the contractor’s accomplishment of the stipulations and conditions of the contract, the annual work-plan and the cutting permits over the reporting period (usually the year). It also reports the contractor’s achievements in meeting the forest management objectives, including objectives for employment, financial performance, timber utilization, silvicultural management, environmental protection, etc.
This annual report should also highlight the major initiatives planned for the following year, and be available to all interested groups and individuals. It will also serve as the starting point for supervision and inspection, and for monitoring and/or auditing of contract performance (discussed in Chapter 10) (See also Armitage, 1998, 224 pp., Annex 14).
In the previous sections the major components that form the technical annexes of the forest utilization contract have been outlined (the management plan, the development plan, and the annual work-plan). The next stage in the design of forest utilization contracts is to systematically identify and organize the terms of contract in a logical structure. The terms and conditions to be included are determined by three main criteria:
A checklist of the components within each of the pre-contract plans and the forest utilization contract itself is found in Appendix A, at the end of this chapter.
Introductory legal information at the beginning of the contract includes name, legal status and full addresses of both the government representative and the contractor, the exact location and legal description of the contract area and boundaries, relevant legislation, the Grants of Rights, and the terms and conditions of the contract. A detailed map of the area should also be attached showing the boundaries and using standard reference points.
1. Relevant legislation
This often includes a list of laws, decrees and regulations in accordance with which the licence is granted.
2. Grant of rights and obligations, terms and conditions
This section of the contract document grants explicit rights of use to the contractor for specific uses, rights to enter and use the designated forest area, and imposes explicit obligations on the contractor to manage the area. This section provides clear descriptions and details of the resources that may be harvested and removed (species, sizes, locations, etc.).
Other types of rights and requirements included under this heading are the rights of use by others in the contract area. Other users of the forest may include aboriginal peoples, local communities, and other resource users with licences for other resources (fuelwood, charcoal, wildlife, game, fish, fruits, nuts and other foods, etc.).
The section also provides right of access to the grantor - the government forest agency and contract administrator - to inspect all activities of the contractor (and sub-contractors) to ensure that activities are being carried out in accordance with the contract, applicable laws and regulations. The section should also provide access to records and documents of the contractor (and sub-contractors) and to timber production records and all other information regarding forest operations.
Immediately following “Rights granted” is a section on “Rights withheld” which specifies restrictions of exploitation within the granted area. Such restrictions may pertain to certain species, particular qualities (such as sawlogs or veneer logs), customary rights, particular environmentally sensitive areas and protected areas.
The terms and conditions required of the management plan are specified in this section of the contract. This section should state the amount of resources that may be removed in total, over a period as well as annually, along with any restrictions that apply to variations in the amount harvested. This protects government from speculation by forest contractors holding timber without intending to utilize it. Normally the contract document itself will only summarize the forest management conditions and refer to the technical annex for the specific detailed management plan’s terms and conditions.
An important forest management activity in public forest lands is protection. This refers to various forest protection requirements including fire, environmental, protected areas, insects and other pathogens, etc.
1. Environmental protection
This includes guidelines for protecting environmental features such as water quality, wetlands, biodiversity, soils, stream banks, fish and wildlife habitat, other plant communities, and environmentally sensitive areas. Some of these issues may also be dealt with in the Stand Management Prescriptions (SMP) developed by the contractor, as well as in the cutting permits.
2. Protected areas
This section includes lists of cultural, ecological, scientific or archaeological features in the contract area that are considered to be significant and to be protected from resource utilization impacts. The contractor is obliged to submit a plan to protect areas adjacent to or within the contract area.
Policies to protect environmentally sensitive areas can involve local populations from the area and surrounding areas in the management of the protected areas. Therefore, a statement on how local communities are to be involved in management of protected areas should be included in any overall government protection strategy and in the contract documents.
Employment and investment issues are key aspects of the development plan. A checklist containing elements within the development plan is found in Appendix A.
1. Employment
This section covers employment and economic opportunities for people living in or near the contract area. These may also be specified in investment legislation of the country as conditions that investors must fulfil for investment approval.
Employment provisions may include conditions on employment of nationals in technical, non-technical, professional and managerial positions.
This section should also specify the technical forest administration that the contractor will utilize, including employment of both professional and technical forestry staff.
2. Investment requirements
This section specifies minimum investment levels in infrastructure, roads, processing plants, etc. that are required under the contract. The section would include a detailed investment schedule, or grantees to submit an investment plan within a specified time.
This section includes provisions for supervision, monitoring and enforcement of the contract, and of the contractor’s performance according to the stated management objectives, options and prescriptions within the management and development plans.
The section also specifies the role of both the government and contractor, as well as any third parties in supervision, monitoring and enforcement. This will include important on-the-ground inspections to monitor performance. Once operations begin, the annual reports provide one of the starting points for on-the-ground supervision, monitoring and evaluating of performance.
This section lays out the fees to be paid for timber and other fees, along with details of the warranty requirements. Forest fees may be specified in a separate schedule. Methods for adjustment of fees for inflation and/or changing resource values must be specified, along with the conditions and procedures for, and timing of, the reassessment of fees.
Most agreements require the contractor to maintain on deposit with the government a prescribed amount in cash or negotiable securities as security for the contractor’s performance and obligations under the contract, for payment of fees on timber cut and forest management performance. If the contractor fails to pay money owing to the government, or fails to perform the obligations under the contract, the government may take an amount equal to the money the contractor failed to pay, or an amount sufficient to cover costs of remedying the contractor’s failure.
The contract may also specify surety bond requirements. This provision specifies the bonding requirements of the grantee. The contract may specify a special deposit if any operation carried out by the contractor is likely to cause damage to persons or property from the licensee. Then if damage or injury results, and the contractor licensee fails to pay damages, the government can use the special deposit to cover the damage.
The review section of the contract sets out procedures for review of the management plan and other documents. It describes the procedures and steps for approval of the plans, and the steps to be taken if the plans are not approved and require revision.
This section of the contract outlines the rights of inspection by the government agency, or its agent, and procedures that the contractor must observe. For example, the section may specify that the contractor will:
This section outlines the contractor’s responsibilities for their activities and transactions. It specifies that the government will accept no liability towards third parties for actions of the contractor, the contractor’s representatives, employees and labour force. It also specifies that the contractor will indemnify the government against all claims, demands, suits, actions, costs and expenses suffered by the government as a result of the contractor’s omissions or those of their representatives.
The section also specifies the contractor’s responsibility for maintenance of roads, bridges, buildings, logging camps, etc.
In this section the conditions under which the contract may be cancelled or surrendered are specified. Contracts may be cancelled for a major breach, such as failure to start operations within a specified period of time, failure to construct the required manufacturing facilities, failure to perform forest management, or other failures to comply with contract terms. The language in this clause must provide precise details on the acts, lack of reporting or submission, or other contract violations that would be sufficient cause for termination.
The section also specifies the conditions under which the contract is surrendered, the liabilities for surrender, and the procedures for surrender.
Notice refers to the way in which the two parties inform each other about reporting schedules, payment of fees and other levies, payment of penalties, notice of breach, or cancellation of contract. This section also provides information on the way in which either signatory responds when notice is given.
This section provides specific items, not covered in the previous sections, which either party may wish to have included in the contract. Examples might include:
A glossary of terms is included for clarification of the meaning of terms. This may be placed either at the beginning or end of the contract.
When the duration of the forest utilization contract is longer than ten years, additional clauses and requirements will be needed to ensure long-term planning and sustainable development and management of forest resources. First, a long-term forest management plan and long-term timber supply plan will be required to plan the operations, forest management and forest renewal for the entire contract area. Second, the contract will need to include provisions for modification of the contract as a result of changing conditions, or conditions that could not be anticipated at the initial signing of the contract. Provisions and procedures for a reappraisal and necessary modifications to bring the contract up to date with current resource and environmental standards will need to be added. Provisions for modification of the area, revision of boundaries, or withdrawal of parts of the area for other uses, should all be included in the contract. Provision for modifying the method by which stumpage fees, area fees and other levies are determined, or revised, should be included.
Renewal provisions and procedures for renewal will need to be included. Renewal should be subject to a forest management and environmental management review, perhaps including an independent audit.
Resource utilization contracts with short terms may be simpler. For example, for a one-year timber sale of a specific tract of timber, or a short-term sale covering one or two hundred hectares, a forest management plan will not be required in most cases. Annual reporting is unnecessary. However, a road construction permit and a work-plan may still be required.
These examples illustrate a few of the variations in contract terms required to suit differing lengths of tenure and other conditions. The government agencies involved in drafting the contract will need to design contracts of varying duration to fit the circumstances.
This section brings together the issues, ideas and points developed in the previous sections in a sequence of steps to follow in designing and implementing forest utilization contracts. The section covers the major steps and identifies key decision points in the process. A checklist of contract design components and requirements is given in Appendix A, at the end of the chapter.
Step 1: | Ensure that the contract area is consistent with overall land use plans and land uses, and that the area is not encumbered by other land ownership conflicts or land claims |
A key first step is to ensure that the proposed forest utilization contract is consistent with an overall land use plan. It is important to ensure that the proposed forest contract area is not encumbered by other land ownership, land uses or land claims.
Although not many countries have comprehensive land use plans in place before making forest allocation decisions, a land use plan and land use planning can help to make better land use decisions and avoid future problems. Developing land use plans is a large undertaking. It is challenging to balance the different land uses and interests, many of them politically charged. Ideally, at least a preliminary land use plan should be developed, and be in place before proceeding with forest utilization contracts for the area. Once land ownership issues are settled, and a land use plan is developed, the areas available for contractual arrangements can then be decided, and the types of contractual arrangements for each specific area agreed.
Decision 1: | What areas will be included and what kind of contractual arrangements will be used for the proposed area? |
Step 2: | Conduct preliminary scoping studies of the area |
A preliminary evaluation of the potential forest contract area is necessary to determine the forest resources, environmental resources, other resources, and characteristics of the area. These preliminary scoping studies provide enough information to evaluate at minimum cost the feasibility of the proposed forest contract and potential contract bidder interest.
Step 3: | Determine the interest of contractors and bidders in the area |
Once the scoping studies of the area have been completed, the government agency can assess the market interest of contractors in the proposed contract area. This step may save further costly work if there is no interest. It also helps in determining the extent of interest, and how contract negotiations or bidding should be conducted. Market interest can be assessed through an informal survey of prospective bidders, through formal national or international advertising, by contacting forest sector groups, etc. A request for preliminary letters of interest provides a concrete indication of interest.
Decision 2: | Is there enough interest to justify additional exploration and appraisal? |
Has any interest been shown in the area? How many potential and serious contractors might bid for the contract? If there is not enough interest, no additional further costs need be incurred in further studies or analyses. If there is much interest, evidenced by letters of interest from reputable parties, government may continue the contracting process.
Decision 3: | Who will conduct the more detailed appraisal and scoping studies? |
If there is enough interest to justify continuing, more detailed appraisals and scoping studies will need to be conducted. The components of scoping studies are found in Appendix A, at the end of the chapter. A decision must be made on who will conduct the scoping studies. Is government able to conduct these internally? Does government have the capacity to undertake the scoping studies? Will it contract them out to third parties through procurement contracts? Issues of cost, time and expertise need to be considered. The detailed scoping studies may be included in the contract itself, but this is not preferred. However, this leaves the government in a very weak bargaining position with potential contractors.
Step 4: | Obtain a market value appraisal of the contract area |
The market value appraisal is another important step in the process of awarding a contract. For negotiation or bidding, more information available to the government and to prospective contractors will increase the number of interested parties, decrease the risk in bidding, and therefore increase the amount bidders are willing to pay. Government must also determine its minimum or reserve price, the price below which it is unwilling to sign. Determining the market value will assist in setting the government’s minimum or reserve price.
Decision 4: | What forest fees and levies will be charged? How will fees or levies be collected? |
Before any contract is negotiated or offered for sale, the structure and type of forest fee must be decided. What other forest fees and levies will be charged? Are forest fees to be charged on the volumes of timber cut, on the area of the contract, or on both? How will the level of fees be determined? Will bidding for the contracts be on the level of fees? Will bidding be based on bonus bids? How will fees be adjusted or revised? How will fees or levies be collected? This information will have to be included in any requests for bids, or in negotiations with potential contractors, so that bidders may evaluate the costs involved in the contract. Issues related to forest fees and other forest levies are discussed in Chapter 8.
Step 5: | Assess the capacity of government to administer and manage the contracts. Consider contracting out studies where government does not have the capacity |
Which elements of the contract development process can the government do? Which aspects of the contract administration, review, enforcement and monitoring operations are required once a particular form of contract is signed? What current and planned human resource and administrative requirements are needed to administer a contract properly? What are the costs of administering and managing the contract? Is the government able to carry out these roles? If not, who will be responsible for doing so? This capacity assessment should be carried out before resource contracts can be tendered or negotiated.
Decision 5: | What supervision, monitoring and enforcement activities can government do? What activities can be contracted out? |
Once a capacity assessment is conducted, the government must determine the contract administration, supervision, monitoring and enforcement requirements that it will conduct and which requirements need to be contracted out.
Step 6: | Solicit proposals, enter into negotiations, or solicit bids |
This step will depend on which form of contract letting is selected. Proposals may be solicited from interested parties. If competitive bidding is chosen, bidding procedures will need to be designed and then bids solicited from interested parties. Negotiation and bidding procedures are discussed in Chapter 9.
Decision 6: | How will the contract be awarded? |
Will contracts be awarded through sole-sourcing, competitive negotiation or competitive bidding? These issues are discussed in Chapter 9. If there are very few interested parties, competitive negotiation may be preferred to competitive bidding. The expressions of interest and the market value analysis will help in assessing the numbers of potential bidders and deciding on the method of sale. The choice of contract letting should be based on which form will achieve the best price.
Step 7: | Evaluate submitted bids or proposals |
Under competitive bidding, the bids will be evaluated based on criteria available to the bidders prior to submission of their bids. If the proposal or bid exceeds the government’s minimum or reserve price, the contract is awarded to the highest bidder, based on price and other criteria established beforehand and known to bidders. If the bids are too low, below the minimum price, the government should reject the bids and consider re-offering the contract.
Decision 7: | Make an award or reject all offers? |
The award of the contract is announced to all parties and made public.
Step 8: | Contract is drafted and signed |
The elements of the contract described throughout this chapter should form the basis of the final contract.
Decision 8: | Will management and development plans be required before or after contract is signed? |
The management and development plans are required and become legal parts of the forest utilization contract. They may be required to be completed before the contract is signed, or may be permitted to be completed following signature, but by a specified deadline date. The amount of work required to develop these plans is significant. If they are required before awarding the contract, this might deter potential bidders. If the management and development plans are deferred until after a contract is signed, then a deadline must be set for their completion and submission. The plans are then reviewed by government and approved, or sent back for revisions. Once the plans are reviewed and approved, and the work-plans completed and approved, then the contractor may proceed with harvesting.
Step 9: | All details of contract are carried out by both parties |
Supervision, monitoring, review and enforcement will be carried out as stipulated in the terms of agreement of the contract. These are discussed in detail in Chapter 10.
V.L. & McLean, R.A. 1974. Design of experiments: a realistic approach. Statistics, textbooks and monographs, Vol. 5. New York, Marcell Dekker, Inc. 418 pp.
Ian. 1998. Guidelines for the management of tropical forests. FAO Forestry Paper 135. Rome. 293 pp.
Joshua T. (ed.). 1999. Valuing forests: a review of methods and applications in developing countries. International Institute for Environment and Development (IIED), London. 163 pp.
L.S. & Johnson, K.N. 1987. Forest management. New York, McGraw-Hill. 790 pp.
1981. Manual of forest inventory. FAO Forestry Paper 27. Rome.
1989. Review of forest management systems of tropical Asia. FAO Forestry Paper 89, Rome. 228 pp.
B., Miller, C.I. & Beers, T.W. 1982. Forest mensuration. New York, John Wiley & Sons, 402 pp.
F. 1977. Forest utilization contracts on public land. FAO Forestry Paper 1. Rome. 197 pp.
Appendix A: Contract design checklist
Legal and administrative authorities
Commercial resource uses
Accessibility
Social and environmental concerns
Information sources
Commercial resource inventory
Non-commercial resource inventories
Transportation system
Resource management
Other components
Access
Sensitive areas
Processing facilities
Staffing
Introductory legal provisions
Relevant legislation
Grants of rights and terms
Resource management
Protection
Development
Employment
Investment levels
Monitoring
Financial and deposits
Review strategy
Technical auditing procedures
Liability and indemnity
Termination and surrender
Notice
Glossary
