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With lumber demand being poor, many licensees have slowed or stopped their mills, resulting in decreased work for harvesting contractors. How does a contractor know if it is cutting its entitlement under its Bill 13 Replaceable Contract?

The answer to this question begins with an examination of the contract itself. Particularly, the contract will state the amount of work that the licensee is to supply the contractor each year. Usually this is found in a schedule attached to the end of the contract.

Amounts of work can be described in two ways. In my experience, it is more common to describe the volume of work as a percentage of the total amount harvested under a forest licence. For example, words such as “16% of the timber harvested under Licence A123456” would describe this situation. This type of contract is called a “Volume Dependant Contract”.

When times are good, contractors do well when the amount of work is expressed this way. When times are bad, however, a contractor will suffer. 16% of nothing is nothing.

A contractor concerned whether it is receiving sufficient volume needs to determine how much timber has been harvested under the licence to which its contract applies. Fortunately, contractors now have access on the internet to the Harvest Billing System which can be found at https://www15.for.gov.bc.ca/hbs/home.jsp. Armed with that information, the contractor can take the total volume harvested under a licence, multiply it by the percentage set out in the contract, and compare that with the volume which the contractor has actually harvested.

Less frequently, volumes will be expressed simply as a number of cubic meters to be harvested per year, for example “50,000m3 per annum”. This is called a “Volume Independent Contract”. It becomes more difficult for the licensee to comply with this type of contract when its operations are slow.

Before I go on, let me first say that it is necessary, in either type of contract, to first decide what the “year” is. In many cases the year begins on April 1st and ends on March 31st. Sometimes the year is on a calendar year basis, and sometimes it is on some other basis. Some contracts specifically define what a “year” is in them. Some do not, in which case it becomes more difficult to determine what the year means. I am inclined to say, in those situations, that one looks at the date at the top of the contract and concludes that each year begins on that date.

In terms of providing work under Replaceable Contracts, licensees have two obligations that are existing at the same time—the annual obligation and the five year obligation.

The annual obligation is to provide, in each year of the contract, the amount of work stated in the contract. While that may sound simple enough, there is an important qualification to that requirement found in the regulation. Particularly, for bona fide business and operating reasons, a licensee may in any one-year fall short of providing that work. In other words, the licensee must be acting in good faith when it decides to give a contractor less than the annual entitlement. An interesting question, and one that is subject of debate amongst lawyers in the industry, is whether a poor log price is sufficient to satisfy the bona fide requirement.

At the same time, the licensee has an obligation to make sure, over a five year period, that the contractor receives at least 95% of its total entitlement, as set out in the contract, over that five years. The licensee must comply with this 95% requirement. There can be no excuses. The concept of the bona fide business and operating reasons does not apply to the five year assessment.

In calculating the five year assessment, one must first determine when exactly that five year period begins and ends. This five year period is described in the regulation as the “amount of work compliance period”. Sometimes the contract will specifically state what this period is. If it doesn’t, then one needs to look at the forest licence to which the contract pertains, as the five year cut control period in the licence will dictate the five year period in the contract.

Obviously, a contractor that is in the early years of a five year contract may find itself not knowing whether there will be compliance with the five year requirement. At that point in time, the contractor can only concern itself with the ongoing annual obligation, and whether that is being met.

On top of all this, I want to remind contractors that changes to the regulation in 2004 allow licensees to provide contractors with private wood, such as BC timber sales, in substitution for replaceable volume under the forest licence. Remember that the licensee, if it intends to do this, must notify the contractor of that fact at the commencement of that harvest. It cannot wait until many months or years later, and then attempt to retroactively deem that volume to be replaceable.

These are difficult times, and contractors should be aware of their entitlements as they move through these times. It is much easier to bring to a licensee’s attention its work shortfall while that is occurring, than it is to wait until the year is over and then attempt a claim for monetary compensation through the dispute resolution process.

John Drayton is a Kamloops lawyer practicing in the areas of motor transport and forestry law.