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Two Trees Forestry
167 Main St.
P.O. Box 356
Winthrop, ME 04364
V: (207) 377-7196
F: (207) 377-7198 harold@twotreesforestry.com

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Friday, February 21 2014

Bidding timber - when does it work?

It may come as a surprise to some landowners, that I recommend soliciting multiple bids for timber in only about ten percent of the harvests that I conduct. A well-organized auction that draws many fiercely competitive and high-quality logging companies can certainly benefit the landowner whose timber is being sold. But all the planets have to be aligned for that to happen.

As a consulting forester, I strive each day to meet landowner objectives on land that I don't own. As a means to that end, I often help owners sell timber, a process that involves selecting a logger, who ideally is available soon, skilled, able to pay high stumpage rates, and perhaps willing to help with some extras like road work and felling dead/leaning lawn trees. But that does not automatically mean I seek competitive bids from many loggers.

Most often, given a landowner's unique and varied interests, I find it best to match the contractor, with his equipment setup, and the landowner and then negotiate the best stumpage rates that I can. So when does it make sense to bid timber?

From my experience as both a bidder and auctioneer I know that competing for projects invariably puts downward pressure on what I offer to charge for my services, and frequently results in loggers bidding rates higher than what I'd been able to negotiate with them. However, bidding only works in some situations, most notably when the projects are attractive to a number of contractors. Bidding stumpage also requires much more of my time, so on smaller jobs the marginal return doesn't cover my added costs. Because the bidding process generally encourages interested contractors to research or negotiate unique markets, formulate a bidding strategy, and participate in the often lengthy process, they tend to be willing to invest fully only in large volume, wet season, or high profile projects. Landowners whose projects include such attributes can often leverage them for significant financial gains that others can't. For example, we auctioned 35 acres of firewood and pine pulpwood for the Augusta Sanitary District, at rates 25% higher than the average because the woodlot sat atop a gravel deposit on an unposted road and could thus be worked during mud season; Don and Willie Cole of Sidney worked every day that spring and did not create a single rut. Similarly, another successful bidder, Central Maine Logging of West Paris, anticipated media coverage for their work on noteworthy projects, specifically those owned by the Small Woodland Owners Association of Maine, and were rewarded with coverage in its newsletter and an article in the Kennebec Journal. So bidding can work advantageously both ways, though it can be risky for both as well.

However before going further let me describe a recent stumpage sealed bid auction, to illustrate the process. The Town of Litchfield's forestry plan scheduled a harvest on its 40-acre Oak Hill property, and its Select Board members wanted the timber sold by bid. The proposed contract stipulated that the successful contractor would submit a refundable performance deposit and then be allowed up to six months to complete the job, which included installing a temporary entrance culvert and clearing and grubbing out a yard. No credit was to be given for the necessary excavation; loggers were expected to absorb that expense or reduce their offered stumpage rates. The trees to be cut were popple and others that I had marked with blue paint. To initiate the process, I invited 25 loggers, who I'd worked with or knew by reputation, to an on-site public showing. Contractors who showed up were given copies of the proposed contract, a map of the property, and a bid form. Later, 13 loggers presented sealed bids, though five to eight offers is more typical.

The contractors offered stumpage rates for the various products to be cut. I estimated a value for each bid based on my volume estimates. For example, if the bidder offered $15/ton for the estimated harvest volume of 300 tons of popple groundwood, I assigned a value of $4,500 ($15/ton X 300 tons) to that portion of his offer. After multiplying all the rates by the associated volumes I summed each subtotal to arrive at a total value. I used those values to compare and rank the offers. As was expected the sums mimicked a bell-shaped curve with a few high, a few low, but most offers clustered around the average. I then focused my review on the high bids, figuring to present all the offers to the Select Board, but including a final recommendation based on all variables, including price, logger skill and reputation, compliance with contract stipulations for insurance and liability protections, and any intangibles that I knew/learned about the contractors. Fortunately, I had a personal working knowledge of each of the top five contractors, though I hadn't worked with one of them in nearly 20 years, so visited several of his recent logging jobs to verify his ability to avoid damage to residual trees, keep slash close to the ground, and manage ground conditions to minimize ruts. At the next Board meeting town officials discussed the process, offers, and comparative abilities before accepting my recommendation and signing a contract with Richard Taylor, who was the top bidder by value and, in a nice circumstance, a Litchfield resident also. Shortly thereafter Taylor installed a used culvert and cleared and stumped the yard with his mini-excavator, before beginning to harvest the marked trees. He pays stumpage weekly and is off to an excellent start. I expect he will finish that way as well.

However, I can also tell stories when the top bidder, me, vastly under estimated the time required to prepare a management plan, and failed to cover my costs. Similarly, I've supervised auctioned timber sales when the logger bid higher than he was able to operate and ultimately defaulted on the contract because of late payments. Other times the landowners were disappointed with the bid winner, because though they received top dollar for their wood and the logger met the letter of the contract, the woodlot ultimately had a rougher look then the landowners had hoped for.

As I said before, selling timber or services by sealed bid is not common, but makes good sense in certain situations. Personally, I enjoy formulating creative proposals; I enjoy vying against my peers; I enjoy winning. I also enjoy watching loggers compete with each other, because invariably our clients end up with quite desirable offers, including high stumpage rates, discounted excavation costs, and excellent contractors. With few exceptions, the contractors with whom I've worked with most during the last 25 years all introduced themselves to me by first winning a bid. The best seem to enjoy competing.