Timber principals squeezing contractors - AFCA 2007

The following paragraphs are taken directly from the Australian Forest Contracters Association February 2007 Newsletter.
Five questions from the URS Forestry, Forest Contractor Information Survey, prepared for DAFF, are answered:

• Most contracts include a “force majeure” clause and contract principals typically construe the term in its widest possible form.
• As little as 10% of all contracts are properly negotiated … and … are heavily tilted in favour of the principals.
• Of six legal proceedings issued by contractors three found in favour of contractors, two of whom were never to cut another tree for the ‘offending principal.” Of the other three, one went bankrupt and the other two are eagerly awaiting an exit opportunity.

(Request for Proposal (RFP) process)

• The RFP process matches the best ideas with the cheapest rates and the first proponent to agree the low rates ends up with the job.
• In the most recent tender/RFP conducted by a major processor the six proponents “short listed” were assembled and told to reduce their submitted rates by about 25% if they were to stay “in the mix”.
• Many of the current tenders/RFP “peg” the rates ... with the effect being that sawlog users pay a higher rate and effectively subsidise profits of both growers and pulpwood customers. This is neither (1) fair nor: (2) transparent - despite claims by the contract principals.
• Many of the incumbent contractors are forced to “bid for their survival.”
• Some forest owners have yet to learn that there is no such thing as a “sustainable over cut”.
• The “new” buzzword – OPTIMISATION – has seen the practice emerge whereby forest owners want to optimise the bush
• Pulpwood, instead of being viewed as a “by-product”, now has to justify itself as a profitable product in its own right.
• Some contract principals are reluctant to pass on the full extent of fuel surcharges that they themselves can charge their customers.
• With mechanism, 80% of contractor numbers do 20% of the volume.
• Most contractors survive on “over quota” and when that is lost – or reversed – they don’t last long.
• The practice of “decimation” … is rife in the industry with no less than five contractors being specifically targeted in the last three major RFP processes undertaken in the past twelve months.
• One contract principal/manager has gone on public record to say that unless he has at least one contractor falling over every five years then his rates are not keen enough.
• New players enter the industry using either second hand gear or with payment terms that far exceed the useful economic life of the gear. When financial problems are encountered the contractor is then “propped” by the principal.
• We have here in Australia, the lowest stumpage, harvest and haul rates in the western world but the dearest milling costs and – despite that - some of the highest processing returns in the world.

Well! Principals without principles and the environment is the scapegoat.