23 



for the difference between the contract price of timber and the mar- 

 ket value regardless of whether the contract is modified, canceled 

 or partially canceled for environmental reasons. 



The Chiefs interpretation is consistent with the regulation gov- 

 erning compensation for cancellation of contracts. And although 

 later contract clauses have attempted to limit the compensation, 

 those clauses aren't consistent with the governing regulation, so 

 the Department of Agriculture has attempted to change the regula- 

 tion. And, several years ago they proposed to change the regulation 

 governing the compensation of timber purchasers for protection of 

 threatened, endangered species and the environment. The U.S.D.A 

 wrote that the difference between the government's liability under 

 the current regulation and its liability calculated using the method 

 in their proposed regulation is approximately $300 million. 



Consistent with the regulation 



The Chairman. Scott, how much more time do you need? 



Mr. HORNGREN. I am — I can wrap up here. All Ineed 



The Chairman. Wrap it up and then Mr. Crapo is going to ask 

 some questions. 



Mr. HoRNGREN. OK. Just to summarize, there has been Claims 

 Court and Board of Contract appeals cases that are consistent with 

 those regulations. And in conclusion, Federal timber purchasers 

 will successfully rely on this new Supreme Court Winstar case in 

 their claims against the government for breach of contract when 

 the government's regulatory actions reduce or eliminate timber 

 from their sales. And I would be happy to answer any questions. 



[Statement of Scott Horngren may be found at end of hearing.] 



The Chairman. Mr. Crapo, you are up to ask him a question. I 

 will be right back. 



Mr. Crapo. Thank you, Mr. Chairman. Mr. Horngren, can you 

 first tell me, have you ever worked for the Alaska Pulp Corpora- 

 tion? 



Mr. Horngren. No, I have not. 



Mr. Crapo. Have you ever worked for the Ketchikan Pulp Cor- 

 poration? 



Mr. Horngren. No, I have not. 



Mr. Crapo. And I assume that means you are not working for 

 either of them now? 



Mr. Horngren. That is correct 



Mr. Crapo. And I know that you have gotten through with us 

 what you think the Winstar case held. How is that applicable to 

 the contract changes ordered by the Tongass Timber Reform Act? 



Mr. Horngren. I think it is applicable here because the Supreme 

 Court held that an act will not be a public and general sovereign 

 act if it has the substantial effect of releasing the government from 

 its contractual obligations. And we heard testimony and discussion 

 earlier today at this hearing that one of the major motivations and 

 effects of the Act was to get the government out of a contract that 

 they thought wasn't financially attractive. And if that in fact is the 

 substantial effect of the legislation, which is clearly what TTRA 

 was designed to do, then it will not survive the sovereign acts de- 

 fense. 



