Chapter 2 - Nature of Operations
Overview of the Industry
This MSSP Guide is designed to assist examiners in completing
examinations of reforestation contractors. A contractor working in the
reforestation industry may secure service contracts, (pre- commercial
thinning and tree planting contracts) from a Federal agency, a State
agency, from private companies, or other contractors. Keep in mind that
State and Federal agencies issue several types of service contracts;
examples are fire fighting, cone collection, tree netting, tree shading,
gopher baiting, etc. At this time it does not appear that the
reforestation-station contractors bid for service contracts other than
tree planting and tree thinning. However, no industry is stagnant and this
may be something that contractors may expand into in the near future as
they develop expertise in the reforestation industry. Since the most
predominant type of service contract issued by the Federal and State
agencies are pre-commercial thinning and tree planting contracts, the
scope of this Guide has been limited to reforestation contracts
only.
Federal and State Agencies Issuing Reforestation Contracts
The following Federal and State agencies have the authority to solicit individuals to do pre-commercial thinning and tree planting:
1. The Bureau of Land Management (BLM)
2. The U.S. Department of Agriculture Forest Service
3. The Small Business Administration Section 8A Program (the Small Business Administration under Federal Equal Opportunity regulations are set up to award, to qualified section 8A contractors, 10 percent of all Forest Service and BLM contracts. They do not monitor the contracts or make payments. The Forest Service or BLM continues to perform these services).
4. State agencies, such as The Oregon Department of Agriculture Forest Service and Oregon Department of General Services.
(Refer to Exhibit 2-1 for addresses of the Federal Agencies listed above. Addresses for areas not mentioned in this exhibit can be obtained by calling the Federal and State agencies in your area.)
Private Companies Issuing Reforestation Contracts
There are many private companies involved in producing timber products who may issue tree planting or tree thinning contracts, (that is, lumbermills, sawmills, veneer plants, plywood plants, and in some instances logging companies). Private companies issue tree planting or thinning contacts to either replant or maintain their own timber lands or to comply with the terms of a Federal or State contract. Certain states have legal requirements requiring all forest lands be replanted; these laws may cover both public and private lands. Private companies who purchase timber stands from Federal and State agencies agree to replant the land after harvesting the timber. There is a pattern of these private contractors employing the reforestation contractors on a regular basis.
Copies of contracts issued by private companies were requested; a review of these private contracts did not reveal any significant differences from those issued by the Federal and State agencies. The contracts reviewed by the group were written agreements between the company and the contractor and specify that the reforestation contractors will follow the applicable State and Federal laws while they are engaged to plant trees or for tree thinning.
Types of Contracts
This report concentrates on the requirements of securing contracts from
the Federal and State agencies for two reasons: First, there are more
contracts issued by the State and Federal agencies than by private
companies. And secondly, it is more difficult to obtain information from
private companies since this information is not public record as is the
case with the Federal and State agencies.
Federal procurement regulations allow Federal agencies to solicit bids
from prospective contractors for three major types of contracts: Service,
supply, and construction. As previously mentioned, only service contracts
are discussed since pre-commercial thinning contracts and tree planting
contracts fall in this area.
Services are considered to be work that requires the direct engagement of the contractor's labor with the goal of performing an identifiable task rather than to furnish an end item of supply. This would include tree planting, tree thinning, cone collection, brush piling, etc. However, the term "service" excludes work done by the construction trades. (The group members have not researched either construction or supply contracts).
The State and Federal agencies have further divided thinning contracts into: 1) pre-commercial thinning contracts and 2) commercial thinning contracts. It becomes important to understand the difference between the two types of thinning contracts since it will enable you to be more successful in obtaining third party information. Probably the most important thing to remember is that these contracts do not fall under the same Federal Regulations nor will one contractor be qualified to work both types of contracts.
Precommercial thinning contracts are issued by the Forest Service to thin young forests (10 to 20 years of age). The young forests are thinned to cull undesirable trees, (such as oak, pine, and damaged firs) to give the remaining trees more room to grow.
Commercial thinning contracts, on the other hand, are issued by the Forest Service to selectively harvest mature trees. The Forest Service negotiates commercial contracts have certain lands selectively harvested versus clear cut, as in the case of standing timber sales. Commercial thinning contracts are not considered to be reforestation contracts.
General Requirements for State and Federal Agencies
Pre-commercial thinning contracts or tree planting contracts fall under State and Federal regulations. To illustrate, in the State of Oregon, to become a prime contractor the individual must provide the following:
1. A valid Farm/Labor Contractor's License (applies in Oregon; check to see if there are similar requirements in your state).
2. Verification of Worker's Compensation coverage.
3. A Bid Bond or Performance Bond.
4. Agreement, under penalties of perjury, to follow all State and Federal labor laws.
Federal and State contracts are guided by a series of laws and are enforced by several agencies. The Bureau of Land Management, the U.S. Department of Agriculture Forest Service, the Small Business Administration Section 8A Program, and the Oregon Department of Agriculture Forest Service enforce the operational aspects of the contracts guided by various Federal procurement regulations. Other Federal agencies, such as the Department of Labor and the Immigration & Naturalization Service, enforce regulations in relation to wages and the legal status of workers. State agencies are also involved. The state of Oregon's Bureau of Labor & Industry and the Department of Insurance and Finance enforce or monitor regulations governing licensing and Worker's Compensation coverage.
State of Oregon - Bureau of Labor and Industries - Wage and Hour Division - Oregon Farm/Labor Contractor's License
All solicitations for reforestation contracts (including, but not limited to, tree planting, brush clearing, and pre-commercial tree thinning, prescribed burn services, or contracts for cultivation of a crop) will contain the requirement for the Farm/Labor Contractor's Certification of Registration. A Notice to Proceed will not be issued without positive proof of the certification. Application for registration numbers would be made to the Department of Labor office.
The contractors are required to provide a bond before a Farm/Labor Contractor's License will be issued and provide a certificate of worker's compensation coverage. The cost of the license is $100.
Beginning July 1989, Wage and Hour Division is requiring a $10,000 bond, up from $5,000, and the contractors must take an examination before their license will be renewed. The examination pertains to the laws in various areas, (such as Worker's Compensation, Occupational Safety and Health Administration, Wage & Hour, and Forestry).
Once the contractor has received a license and begins working reforestation contracts, he or she must file a certified payroll every 35 days with the Bureau of Labor and Industries, Wage and Hour Division (BOLI). The certified payrolls will list employee names, their gross wages, and the amount withheld for taxes.
BOLI uses the certified payrolls as a measurement device to determine whether or not contractors are complying with State wage and hour laws. BOLI is looking for contractors who do not pay wages, since the failure to pay wages is grounds for withdrawing the Farm/Labor Contractor's License. All records maintained by BOLI are public. BOLI has changed the expiration date of the Farm/Labor Contractor's License to spread their workload. In prior years all licenses expired on January 31. Currently, the expiration date is determined as follows:
1. The date of incorporation is the renewal date for all corporations.
2. The date of birth of the oldest partner will be the renewal date of the partnership.
All partners in a partnership must now have a $10,000 bond. A lessor aggregate bond can be negotiated if the contractor has a clean record. The contractors are allowed a 25-percent reduction in the aggregate amount due each year their record stays clean. The minimum bond they would be required to provide would be $10,000 or 25 percent of the total aggregate, whichever is larger.
Example 1
The partnership has five partners. The total bonding due would be: 5 x $10,000 or $50,000. With a clean record it would be reduced to: $50,000 x 75 percent or $37,500. The next year with a clean record it would be reduced to: $50,000 x 50 percent or $25,000. The next year with a clean record it would be reduced to: $50,000 x 25 percent or $12,500. This would the lowest amount the partnership would be allowed to pay. If 25 percent of the aggregate had equalled less than $10,000 then the partnership would be required to pay $10,00.
A corporation will have to provide a bond for the majority shareholder and any other active stockholder in the corporation. The same rules apply to the aggregation and reduction as with partnerships.
The prime contractors and all first-tier subcontractors shall be required to obtain and maintain a Farm/Labor Contractor's License. Contractors not having a current license will be required to furnish evidence of having obtained such license within 10 days after receipt of written notification of the contract award. Failure to obtain, keep, or maintain a current license during the term of this contract or the extension thereof shall be basis for termination or default.
Contractors living in Oregon may bid and receive contracts in other states, (that is, Northern California, Washington, Idaho, etc.). Oregon contractors are not required to have or maintain an Oregon Farm/Labor Contractor's License to work contracts outside of Oregon. However, Oregon contractors who have lost their license normally will continue working in the industry although they now are required to work outside of Oregon.
The Forest Service, the Small Business Administration, and the Bureau of Land Management do not have the authority to ensure that the first-tier subcontractors have a valid license. This causes concern because it allows the prime contractors to use unlicensed subcontractors. The system is not failproof and Oregon contractors can find ways of hiring unlicensed contractors within the law. You could find an Oregon contractor paying subcontractor payments to a first-tier subcontractor who lives in Oregon but does not have a license. For example, a first-tier sub-contractor, whose tax home is in Oregon, works for a Oregon contractor in California. Whether or not the Federal agencies are able to enforce the licensing requirement at the first-tier subcontractor level depends on their working relationship with the prime contractor.
Another important point to remember is that the State of Oregon, Bureau of Labor & Industries, Wage and Hour Division has no authority to enforce the hourly wage rates set by the U.S. Department of Labor. The State of Oregon has no set amount that must be paid to reforestation workers, with the exception of the minimum hourly wage rate. According to BOLI, they have tried to set a standard of $6 to $7 per hour for employees in this industry.
Workers' Compensation Carrier - SAIF Corporation
According to the terms of the Federal and State pre-commercial thinning contracts and the tree planting contracts, all prime contractors must carry worker's compensation on their employees. SAIF requires that the prime contractor carry worker's compensation coverage regardless of whether or not their subcontractors are covered.
SAIF is only one of the companies providing worker's compensation in
the State of Oregon. There are approximately 250 worker's compensation
insurance companies covering the state. There are six large companies. The
three main ones which would probably cover contractors in the
reforestation industry are: SAIF, Liberty Northwest, and Employers of
Wausau.
The Oregon Worker's Compensation rates range from $51 to $34 per every $100 of payroll. This amount varies by year and will go up or down depending on the contractor's work record. According to SAIF, they have had instances where contractors in the assigned risk pool will pay $100 for every $100 of payroll.
If you want to check to see if a contractor is currently covered by SAIF you can call (503) 373-8000. SAIF is authorized to release some information without a subpoena. They can tell us if a contractor is insured, how much the contractor has paid in insurance premiums, how many days were worked, and the amount of payroll reported. We can subpoena their audit reports, correspondence or any claims filed against a contractor.
State of Oregon - Worker's Compensation
The Department of Insurance and Finance maintains a listing of employers who currently have worker's compensation as well as their coverage history. You can call the Employer Index at (503) 378-5540 to find out if any employer is currently covered, if they had coverage in prior years, and when their coverage was terminated. The Department of Insurance and Finance will only have information on employers who are required to have coverage. Employers are required to carry worker's compensation if they pay an employee $200 per month.
Reforestation contractors frequently change their business names and the registrants of the business. There could be several reasons why the contractors change the business name or registrants, including attempts to circumvent payment of Worker's Compensation. In Oregon, wage payments made to the owners of the business, (that is, the partners in a partnership, or officers of a corporation) are exempt from worker's compensation coverage.
The Department of Insurance and Finance can tell you if an individual or a business is registered with them as a partnership, corporation, or a sole proprietor. This information may be helpful in determining whether or not all required returns were filed.
The files kept by the Department of Insurance and Finance are public records. However, the Department will not have a file on an employer unless there has been a complaint filed against him or her. If an employee makes a complaint against an employer, Worker's Compensation will send out a Field Investigator.
Worker's Compensation is not concerned about the subcontractor issue
because they can hold the prime contractor liable. In fact, they can go
back to any State agency or private company who offered the contract, if
the prime contractor did not provide worker's compensation. This has been
true since 1979. As of July 1989, Worker's Compensation can now go back to
any entity who issued the contract with the exception of the Federal
Government.
Oregon contractors working in Washington must carry Washington worker's
compensation if: 1) the contract exceeds 30 days, or 2) they hire
Washington residents.
State Regulatory and Licensing Offices
The following is a list of state regulatory and licensing offices from which third party information can be obtained.
OREGON STATE WASHINGTON STATE
1. Register Business/Incorporate/Assume Business Name:
Secretary of State Dept. Licensing Services
Corporate Division 405 Black Lake Blvd.
158 12th Street, NE Olympia, WA 98504
Salem, OR 97310-0210 PH: (206) 753-4401
PH: (503) 378-4166
2. Tax Records:
Department of Revenue Department of Revenue
966 Central Street, NE Mail Stop AX-02
Salem, OR 97301 Olympia, WA 98504
PH: (503) 945-8091 PH: (206) 753-5525
3. Compensation Insurance:
Dept. of Insurance & Finance Dept. of Labor & Industry
Worker's Compensation Division 905 Plum Street, SE
21 Labor & Industries Bldg. Olympia, WA 89504
Salem, OR 97301 PH: (206) 956-4817
PH: 1-(800) 452-0288
4. Farm/Forest Labor Contractor License:
Bureau of Labor & Industry Dept. of Labor & Industry
Wage & Hour Division ESAC Division
Licensing Unit 925 Plum Street, SE
1400 SW 5th, Room 305 Olympia, WA 98504
Portland, OR 97201 PH: (206) 956-5315
PH: (503) 731-4074
State of Oregon
Bureau of Labor and Industries
3865 Wolverine NE, Rm. E-1
Salem, OR 97303
PH: (503) 378-3292
Bonding Requirements
Contractors are required to provide bid bonds and performance bonds in
certain instances. The bond can be either a surety bond underwritten by a
bonding company or the individual can put up cash or other liquid assets
such as stocks and securities. The cash or other liquid assets would be
placed in a escrow account and would be available for payment of any
unpaid wages due the employees. The interest income earned from the escrow
account belongs to the contractor. The performance bond is held in escrow
for 150 days after the job is complete. If no complaints are filed, the
bond is released.
Currently, Federal agencies are only requiring bonding on service
contracts and tree planting contracts over $25,000. The State of Oregon
requires a bid bond on all bids over $15,000.
Laws Administered by U.S. Department of Labor
The contractors are expected to comply with a number of laws that are administered by the Department of Labor in the performance of a Federal contract. The following is a brief explanation of the more common laws with which contractors are expected to comply during the performance of the contracts:
1. Service Contract Act of 1965, as amended: Wages Rates and Fringe
Benefits for Service Employees.
This law is applicable to employees working on Federal contracts which are
principally for services, as follows:
Contracts over $2,500 -- Payment of not less than wage rates and fringe benefits found by the Department of Labor to be prevailing in the locality or, in certain cases, wages rates, and fringe benefits contained in a predecessor contractor's collective bargaining agreement as provided in a wage determination, included in the contract. This law also contains record keeping and safety and health requirements. Exhibit 2-2 contains a copy of a Wage Determination letter which is enclosed in each contract solicitation package.
Contracts of $2,500 or less -- Payment of not less than the minimum wage provided in Section 6(a)(1) of the Fair Labor Standards Act.
Administered by: Employment Standards Administration, Wage-Hour Division (Safety and Health provisions are administered by the Occupational Safety and Health Administration (OSHA)).
2. Contact Work Hours and Safety Standards Act: Overtime Pay: Safety and Health Requirements.
This law and its implementing regulations require that all laborers and
mechanics employed by contractors or subcontractors in the performance of
most Federal service contracts exceeding $2,500 be paid overtime
compensation at a rate of not less than one and one- half times their
basic rate of pay for all hours worked in excess of 40 in a work week. The
act also includes safety and health provisions.
Administered by: Employment Standards Administration, Wage-Hour Division
(Safety and Health provisions are administered by the Occupational Safety
and Health Administration (OSHA)).
3. Migrant and Seasonal Agricultural Worker Protection Act: Labor Standards Protection for Migrant and Seasonal Agricultural Workers.
This law requires farm labor and forestry contractors, agricultural
employers, and agricultural associations to observe certain labor
standards when employing migrant and seasonal agricultural workers, unless
exemptions apply. Only farm labor and forestry contractors are required to
register with the Department of Labor. Worker protection includes: Vehicle
and housing safety requirements; disclosure of wages, hours, and working
conditions, maintenance of prescribed records; and itemized information
concerning pay and withholding from earnings.
Administered by: Employment Standards Administration, Wage-Hour
Division.
4. Federal Labor Law Enforcement: For information on any of the previously listed laws administered by the U.S. Department of Labor, you can contact the offices listed below:
PORTLAND AREA SEATTLE AREA U.S.
Department of Labor U.S. Department Labor
ESA, Wage-Hour Division ESA, Wage-Hour Division
540 New Federal Building Room 1060
1220 SW Third Avenue Federal Office
Portland, Oregon 97204 909 First Avenue
PH: (503) 326-3052 Seattle, Washington
PH: (206) 442-4482
Exhibit 2-1 - Addresses of Federal Agencies [Exhibit omitted]
Exhibit 2-2 - Wage Determination Letter [Exhibit omitted]