[Senate Hearing 108-562]
[From the U.S. Government Publishing Office]
S. Hrg. 108-562
NATIONAL PARK SERVICE
CONCESSIONS PROGRAM
=======================================================================
HEARING
before the
SUBCOMMITTEE ON NATIONAL PARKS
of the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
to
REVIEW THE NATIONAL PARK SERVICE CONCESSIONS PROGRAM, INCLUDING
IMPLEMENTATION OF THE NATIONAL PARK SERVICE CONCESSIONS MANAGEMENT
IMPROVEMENT ACT OF 1998
__________
APRIL 8, 2004
Printed for the use of the
Committee on Energy and Natural Resources
_________
U.S. GOVERNMENT PRINTING OFFICE
95-296 WASHINGTON : 2004
_________________________________________________________________
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
PETE V. DOMENICI, New Mexico, Chairman
DON NICKLES, Oklahoma JEFF BINGAMAN, New Mexico
LARRY E. CRAIG, Idaho DANIEL K. AKAKA, Hawaii
BEN NIGHTHORSE CAMPBELL, Colorado BYRON L. DORGAN, North Dakota
CRAIG THOMAS, Wyoming BOB GRAHAM, Florida
LAMAR ALEXANDER, Tennessee RON WYDEN, Oregon
LISA MURKOWSKI, Alaska TIM JOHNSON, South Dakota
JAMES M. TALENT, Missouri MARY L. LANDRIEU, Louisiana
CONRAD BURNS, Montana EVAN BAYH, Indiana
GORDON SMITH, Oregon DIANNE FEINSTEIN, California
JIM BUNNING, Kentucky CHARLES E. SCHUMER, New York
JON KYL, Arizona MARIA CANTWELL, Washington
Alex Flint, Staff Director
Judith K. Pensabene, Chief Counsel
Robert M. Simon, Democratic Staff Director
Sam E. Fowler, Democratic Chief Counsel
------
Subcommittee on National Parks
CRAIG THOMAS, Wyoming Chairman
DON NICKLES, Oklahoma Vice Chairman
BEN NIGHTHORSE CAMPBELL, Colorado DANIEL K. AKAKA, Hawaii
LAMAR ALEXANDER, Tennessee BYRON L. DORGAN, North Carolina
CONRAD BURNS, Montana BOB GRAHAM, Florida
GORDON SMITH, Oregon MARY L. LANDRIEU, Louisiana
JON KYL, Arizona EVAN BAYH, Indiana
CHARLES E. SCHUMER, New York
Pete V. Domenici and Jeff Bingaman are Ex Officio Members of the
Subcommittee
Thomas Lillie, Professional Staff Member
David Brooks, Democratic Senior Counsel
C O N T E N T S
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STATEMENTS
Page
Jones, A. Durand, Deputy Director, National Park Service,
accompanied by Curt Cornelssen, Director, Hospitality Division,
PricewaterhouseCoopers......................................... 4
Naille, Richard Allen, II, Chairperson, National Park Service
Concessions Management Advisory Board, Flagstaff, AZ........... 20
Verkamp, Susie, President, Verkamp's, Inc., El Prado, NM......... 33
Welch, Michael F., National Parks Hospitality Association and
Vice President, Finance, Xanterra Parks and Resorts;
Spokesperson, National Park Hospitality Association, Aurora, CO 25
White, Janet, President, White Sands Concessions, White Sands, NM 31
Thomas, Hon. Craig, U.S. Senator from Wyoming.................... 1
APPENDIXES
Appendix I
Responses to additional questions................................ 43
Appendix II
Additional material submitted for the record..................... 53
NATIONAL PARK SERVICE
CONCESSIONS PROGRAM
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THURSDAY, APRIL 8, 2004
U.S. Senate,
Subcommittee on National Parks,
Committee on Energy and Natural Resources,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:30 p.m. in
room SD-366, Dirksen Senate Office Building, Hon. Craig Thomas
presiding.
OPENING STATEMENT OF HON. CRAIG THOMAS,
U.S. SENATOR FROM WYOMING
Senator Thomas. I think we'll go ahead and begin.
Unfortunately, or fortunately, we're going to have a vote here
in about 15 minutes, so we'll have to take a little break. But,
in any event, we may as well get started and see what we can
do.
Certainly, first of all, I want to welcome all of you here,
particularly our witnesses, for today's National Parks
Subcommittee hearing. The purpose is to conduct an oversight
over the National Park Service concession program. We, of
course, have been working on this for a good, long time, back
in our bill in 1998, and so on, and certainly concessions are
very important, not only to visitors, but also to the Park
Service and so on.
So, in 1998, we passed the Park Service Concession
Management Improvement Act to make--hopefully, to make those
programs more businesslike and to bring business operations
into it. Our intent was to improve the efficiency and the
effectiveness of the concessions, while improving, of course,
the quality of the visitor service, which is the basic thrust.
National Park Service and concessioners have worked
together to achieve the goal, but we're not quite there, and
we'd like to talk a little bit about where we are, how we get
further, and what the problems seem to be in getting there. We
need to look at the May 2000 Park Service regulations and find
out what's working, what needs improvement. For example, the
50-percent rule is a disincentive to performing routine
maintenance. If it is, we need to take a look at that. We also
need to determine if the threshold level for preferential right
of renewal is correct; apparently set, I think, at $500,000.
Some believe raising the threshold will create a more equitable
playing field for smaller businesses; however, raising it too
much, of course, would reduce the healthy competition, which is
put into the 1998 Act.
In addition to addressing incentives for maintenance and
preferential right of renewal, the purpose of this hearing is
to assess how well we're meeting the original goals, any
disparity between the act and the May 20 regulations, the
status of recommendations made by the Concession Management
Advisory Board, the process for evaluating possessory interest,
and the number and types of concessions awarded since passage
of the 1998 Act, applying the portions of the Federal
acquisition regulations to the FAR National Park Service
concession contracts. So these are some of the things that we
are interested in talking about, and certainly appreciate your
being here to talk about them, as well.
So, as I said, we'll have to take a little break here soon,
but, nevertheless, we can start. So Mr. Jones and Mr.
Cornelssen, welcome.
Mr. Jones, if you'd like to go ahead, why, we can get
started.
[The prepared statement of Senator Thomas follows:]
Prepared Statement of Hon. Craig Thomas, U.S. Senator
From Wyoming
I would like to welcome our witnesses and guests to today's hearing
on issues concerning the management and operation of concessions by the
National Park Service.
The management and operation of concession facilities within units
of our National Park System affords us an opportunity to provide and
utilize innovative, creative, and contemporary management methods in
the way we do business with the private sector, and at the same time
serve our park visitors.
Working with private sector businesses is not a bad proposition,
nor is it a necessary evil, as a number of folks within the bureaucracy
claim. It is quite the opposite! It should be a fundamental commonplace
way of operating, managing, and providing quality services to our
visitors. The private sector is positioned and tasked to supplement and
enhance those services offered by the federal government. The private
sector is also in a unique position to contribute a wide array of
knowledge, skills, abilities and expertise to assist us; to maintain,
operate and manage a variety of park facilities successfully, with a
responsible financial return to individual parks, the Park Service and
the American taxpayer.
Unfortunately, it appears in places we have gotten bogged down in
process.
Out of the almost 50 larger contracts that gross over $3 million,
only six have been awarded since the Omnibus Parks bill was signed into
law. There are approximately 8 of these contracts in the pipeline, but
they have been subject to the review process for so long, the financial
information may no longer be valid; they may need to be revised before
a prospectus can be issued, in some cases an 8 month process.
In the interim, extensions are issued on a year to year basis, no
facility investments have taken place, and the infrastructure continues
to deteriorate significantly. In addition, there is apparently a lack
of communication with the incumbent concessionaires regarding the
current status of these contracts. This is not the way to manage
contracts.
According to a recent news story, there was a prospectus issued for
a southwestern park where approximately 15 companies expressed
interest, but no one actually bid or responded. Apparently the
conditions and terms of the prospectus did not provide the incentive to
match the investment required. Unfortunately, this is not the first
time this has occurred. It is also important to note, that although no
one responded, those companies still spent a considerable amount of
money to determine the viability of the contract.
it's not all bad . . .
I am glad to report that it's not all bad. I am very pleased with
the work accomplished to date by the Concessions Advisory Board, under
Chairman Allen Naille. They have done a great job tackling the issues
of depreciation for wear and tear; cross collateralization; sale
approval; the fifty percent investment level, and pricing which have
been on the table since the first rules and regulations were
promulgated.
All of these matters are better settled in a conference room rather
than a court room. It is my hope that upon receipt of the Advisory
Board's recommendations the Park Service will move forward with an
interim rule, while they proceed on the two-year journey to obtain a
final rule. It is time to get on with changes that will place us more
on course with efficient private sector practices.
When we passed concession reform, I assumed the Park Service would
adopt the best management and contracting practices available to them.
I understand the Federal Acquisition Regulations (commonly known as
FAR) do not apply in every instance, to concession contracts. However,
there are aspects of FAR which would work well suited for the award of
concession contracts. The issue of using basic business practices and
proven methods is something the Park Service has simply not captured or
fully utilized. We are not taking advantage of opportunities to issue
prospectuses and contracts that will encourage effective and productive
partnerships. The true losers because of this failure are our parks and
the visiting public.
Under FAR if you surpass the criteria in the performance of a
contract, you often get rewarded for such accomplishments. More
importantly, upon the reward of a contract, the agency presents an
extensive explanation of why one contractor was chosen over another
contractor. Such a program, according to the Department of Defense,
contributes to better responses, increased competition, and savings to
the government and taxpayer in future contracts. It is a winning
solution, there is no down side. The limited use of FAR has been
ignored to the detriment of the overall concession program. Keeping
interested concessionaires in the dark about what the Park Service is
looking for inhibits all future bidders. Why is there such resistance
for using a proven government process like FAR?
It is my hope that the Advisory Board would address the use of FAR
in their future deliberations, and I encourage the NPS to rethink their
position on this issue before the Advisory Board's recommendations are
made on this topic.
Last, but not least, on October 22, 2003 I sent a TWO PAGE letter
to Director Mainella requesting some answers concerning concessions
management and in particular the case of a new contract in Yellowstone
National Park.
In March I received a response.
To my right is that response--a multi-volume collection--worthy of
special recognition by this committee for its sheer size.
Unfortunately, in terms of being responsive to my inquiry--the
content does not match its mass. This may be hard for the public to
understand--it certainly was to me--but your document is incomplete and
actually raises more questions than it answers.
I'm left to draw one of two conclusions:
One, my questions were not sufficiently focused enough for the Park
Service to answer directly. Or two, the Park Service chose not to
answer the questions I posed. Either way, I will give the agency
another opportunity to satisfy my request completely.
What we do know from the response is that a contract in Yosemite
National Park was extended for three years as a result of negotiations
on a concession contract in Yellowstone National Park. While the law
does not specifically preclude such transactions, there are many who
would disagree with the broad interpretation of the Secretary's
authority to change the terms and conditions of an existing contract.
This scenario raises a number of important and distressing questions
that need to be answered so that they aren't repeated in future
contracts.
Actions taken by the NPS seem to ignore the existing law which
provides that 80% of concession fees generated will remain in the park
unit. In this case the extension has a definitive value which will not
be realized by the park in which the contract was extended.
Today, under NPS current rules and regulations, cross-
collateralization by concessionaires is prohibited. Yet, the NPS has
used a form of cross-collateralization in the contract under
discussion.
It also appears the NPS failed to extend the new contract terms to
the limit allowed by law and then set a franchise fee at 3.5%. The
extension of contract terms and a lower franchise fee, if any at all,
could have possibly negated the loss of fees to the second park. In
addition, it appears a case could be made that the taxpayer may be
subsidizing a concessionaire under this complicated and unusual
process. I can guarantee no one involved in the original negotiations
on concession reform ever envisioned such a scenario.
I can only imagine what the responses to the prospectus would have
actually been had the opportunity for an extension of another contract
been on the table.
It is not my job to beat you up, I do not like or take any pleasure
in such activities. However, as the author of the concessions reform
law, I will hold you accountable. As I already stated, I have a number
of other questions which may be the subject of another hearing. Today,
I am going to revise and refine my request to the Director and
Secretary to narrow the scope of my inquiry in order to bring this
issue to a proper and appropriate conclusion. I trust the response to
my request will be timely and complete.
I apologize to my colleagues for an unusual lengthy opening
statement, but I believe the circumstances dictate we highlight these
issues first. Thank you.
STATEMENT OF A. DURAND JONES, DEPUTY DIRECTOR,
NATIONAL PARK SERVICE, ACCOMPANIED BY CURT CORNELSSEN,
DIRECTOR, HOSPITALITY DIVISION, PRICEWATERHOUSECOOPERS
Mr. Jones. Thank you, Mr. Chairman.
As you stated, the concessions program in the act is
definitely a work in progress, and I think we have made some
good accomplishments to date, but we definitely have a ways to
go. And I'm happy to be here today.
I also have with me Curt Cornelssen, with the firm of
PricewaterhouseCoopers, who is one of our private-sector
consultants in the concessions program, and he's available to
answer questions you may have for him, as well.
As usual, I will try to highlight my testimony, and ask
that the entire testimony be submitted for the record.
Mr. Chairman, thank you for the opportunity to update you
on the ongoing efforts in implementing the National Park
Service Concessions Management Act. We are pleased to report on
specific issues you have raised with us, including our success
in recent contracting actions, the makeup and work of the Park
Service Concessions Management Advisory Board, the process for
evaluating possessory interests, and the transition to
leasehold surrender interests.
The National Park Service concessions program administers
590 concession contracts in 126 parks. These contracts generate
over $800 million in annual revenues. Since the passage of the
act in 1998, we have issued 106 concession prospectuses seeking
competitive offers, and awarded 255 new contracts under that.
And as a point of explanation, the reason for that is, for
example, IN awarding the snowmobile contracts at Yellowstone,
or horse concessions at Rocky Mountain--we'll issue one
prospectus and may award as many as a dozen different contracts
under the one prospectus.
We still have approximately 256 contracts under temporary
extensions, but we anticipate having 78 prospectuses issued
this year, covering an additional 118 other contracts.
Of the 599 concession contracts in 126 parks, 52 currently
gross above $3 million. These relatively high-dollar contracts
represent over 80 percent of the more than $800 million value
in gross revenue, and we do have a couple of charts that
illustrate these things that staff will be showing as I run
through this.
As a result of a competitive contracting action recently
taken, we now have four professional firms under our
indefinite-delivery/indefinite-quantities contracting authority
to provide us professional assistance, and that level of
professional assistance will vary with the nature of the
complexity of a given contract. Mr. Cornelssen, as I mentioned,
is with PricewaterhouseCoopers, is one of those four firms.
The National Park Service is focused on developing
professional and competitive prospectus documents that
represent the business opportunities for visitor services that
exist in the national parks.
One of the key elements in the bill, which is new in our
concessions management, is the role of the Concessions
Management Advisory Board, which we have been actually very
pleased to see, and we've enjoyed our working relationship with
them, because they provide an excellent forum for discussing
many issues and, as we're starting to see, I think, resolution
of many issues.
The advisory board is composed of seven non-Federal
individuals appointed by the Secretary of the Interior, none of
whom have a current business interest in a Park Service
concession. The professional expertise of each member of the
board is described in the statute.
Key issues the advisory board continues to advise us on
include issues like the evaluation of the rate-approval
program, the Native American Handicraft Sales program. We're
currently working with them on the leasehold surrender
interest, possessory interest determinations, assignments,
sales, transfers, encumbrances/cross-collateralization issues.
And we expect on many new issues in the future, including some
of the ones you've identified, to seek their help in finding
resolution of these issues. We have found their advice to be
excellent and, as I said, they provide a wonderful forum for
discussing and resolving complex issues.
Concerning the process for evaluating possessory interest
and transition from possessory interest to leasehold surrender
interest--possessory interest was the term used in concession
contracts issued under the 1966 statute to provide a
contractual right of compensation to park concessionaires for
improvements to facilities they acquired or constructed for use
by their businesses. The 1998 statute introduced the concept of
leasehold surrender interest, to provide a contractual right of
compensation for capital improvements made by concessionaires
under a concessions contract.
One of the challenges we currently have, as you know, Mr.
Chairman, is the process of going from the current possessory
interest to the new concept of leasehold surrender interest.
Recently, several concessionaires have requested negotiation
with the National Park Service to determine possessory interest
value prior to the release of a prospectus. And I know this has
been an issue with you, and it has been a huge issue with us,
and I want to say, very firmly, we support this process as a
way to resolve issues of possessory interest with incumbent
concessionaires. That is the ideal way to go and, I think, it
can resolve lots of issues that otherwise wouldn't get resolved
if we do not have agreement. It is a process that provides more
certainty for both the National Park Service and the current
concessionaire, and helps provide a clearer offer in the
prospectus.
Now, it also has the potential of saving considerable time
and money for both the concessionaire and the Park Service by
avoiding what has turned out to be very costly and time-
consuming arbitrations, with unpredictable outcomes for all
parties.
Concerning leasehold surrender interest, we are continuing
to focus on the importance of not only establishing initial LSI
value, but also tracking the value through the term of the
contract. This will, among other things, probably involve some
management revisions, including possible changes to the so-
called 50-percent rule. This rule is codified in current Code
of Federal Regulations 36 CFR.
Subsequent litigation on the final regulations that we
issued upheld the current definition in regulation; however, we
have agreed to administratively review this rule to determine
ways in which it can be revised to accomplish the broader
intent of providing for reasonable compensation and LSI value
at the end of the contract term, while maintaining the
competitiveness of future contracts.
And I also agree with your comments, Mr. Chairman, that the
rule needs to be looked at to see if we can make sure that
we're providing fair treatment to concessionaires, but also
getting the improvements we definitely need for the visiting
public in these facilities.
Working with the advisory board, an LSI work group was
established to look at this issue, along with several other
regulatory issues we agreed to meet on. This work group, made
up of representatives of large and small concessionaires,
interest groups, and key congressional staff, has met four
times in the last 16 months to help clarify the LSI value
through the contract term. This goal is to provide an approach
consistent with a law that is fair, simple, and clear to
administer, and can be applied consistently with certainty
through the term of the contract.
Although LSI is not a concept found in the private sector,
its resulting value would essentially be equivalent to debt
owed the concessionaire by the National Park Service. In short,
the United States is ultimately deferring debt contractually
owed to a third party; thus, it's an issue we must take very
seriously, and be very thorough with, in our analysis.
Consequently, developing a sound method to monitor capital
improvements, as well as preventative maintenance, in order to
be able to clearly define LSI throughout the contract term is
critical for both the concessionaire and the Park Service.
It's also our understanding that the work group plans to
make its final recommendations on their ideas of regulatory
changes in the near future. Once the full board has taken
action, we will evaluate that recommendation and move
expeditiously with regulatory policy or programmatic changes to
implement it.
Other issues being addressed by the work group are cross-
collateralization, where a concessionaire could pledge
collateral from one contract for a loan to pay for capital
projects in another park. Again, these are regulations that we
agree need to be looked at, and we're working through the
advisory board to develop new proposals for public review and
comment.
Now, preferential renewal--this is my last point--all
incumbents with a satisfactory rating, grossing no more than
$500,000 annually, and all outfitters and guides with a
satisfactory rating, continue to enjoy a preference in renewal
of their contracts if they were responsive to the requirements
of a prospectus and are willing to meet the terms of a better
offer, if submitted.
While concessionaires in this category may account for over
80 percent of the total contracts, all of these operations
combined account for less than 6 percent of the total gross
revenue of all of Park Service concessions. We believe that the
preferential renewal exception in the law, as written, creates
a reasonable balance between providing for competition and
assuring that visitor services are provided in all of our park
areas where these services are necessary and appropriate.
At this point, I will conclude my statement, Mr. Chairman,
and thank you for giving me the time. I'll be available to
answer any questions you have.
[The prepared statement of Mr. Jones follows:]
Prepared Statement of A. Durand Jones, Deputy Director,
National Park Service
Mr. Chairman, thank you for the opportunity to update you on the
ongoing efforts and accomplishments by the National Park Service (NPS)
in implementing the National Park Service Concession Management
Improvement Act, Title IV of the National Parks Omnibus Management Act
of 1998 (Public Law 105-391). We are pleased to report on specific
issues you asked about, including our success in recent contracting
actions; the makeup and work of the National Park Service Concessions
Management Advisory Board; the process for valuing possessory interest
and the transition to leasehold surrender interest; incentives for
preventive maintenance; management issues relating to regulations and
any needed regulatory changes; and the issue of preferential renewal of
concession contracts.
contract actions since passage of 1998 law
The National Park Service concession program administers 590
concession contracts in 126 parks. These contracts generate over $818
million in annual revenues. Since the passage of P.L. 105-391, we have
issued 106 concession prospectuses seeking competitive offers, and
awarded 255 new contracts. Of these new contracts, 229 (90 percent)
have been competitively awarded to incumbent concessioners. We still
have approximately 256 contracts under temporary extensions, but we
anticipate having 78 prospectuses issued this year covering 118 of
these extended and other contracts.
We continue to make progress towards replacing the number of
expired and expiring contracts with new competitive opportunities and
contract awards under the terms of P.L. 105-391. Shortly after
enactment, the NPS contracted with professional firms in the financial
and hospitality industry to provide us with a review of the NPS
concession program, among other assistance. We have since divided
concession contracts into two categories: those with gross receipts
totaling over $3 million annually, and those with less than $3 million.
Of the 590 concession contracts in 126 parks, approximately 52
currently gross above $3 million. These relatively high-dollar
contracts represent about 80 percent of the more than $818 million
concession revenues generated annually service-wide. Due to the
complexity of these over-$3 million operations, NPS has by policy
required that all prospectuses developed for soliciting new contracts
be prepared with the assistance of our outside contracting firms.
As the result of a competitive contracting action recently taken,
we now have four professional firms under our Indefinite Delivery/
Indefinite Quantities (IDIQ) contracting authority that are available
to us for professional assistance--not only for the over-$3 million
category, but for all contracting actions. Working with these firms
(PricewaterhouseCoopers, Economic Research Associates, Booz Allen
Hamilton, and Dombush Associates) and their subcontractors, the NPS has
focused on developing professional and competitive prospectus documents
that present the business opportunities for visitor services that exist
in the national parks. All contracting actions over $3 million receive
both regional and Washington office approval before their release. Of
the 52 operations currently grossing over $3 million in revenues, five
are operating under newly awarded contracts, 17 have not yet reached
their original expiration date, and 30 are currently operating under
contractual or regulatory extensions (that is, their original
expiration date has passed). To date, we have awarded five of these
contracts, at Crater Lake, Glen Canyon, Denali, Glacier Bay, and
Yellowstone. We have released prospectuses for two others--Mount
Rushmore and Carlsbad--and we anticipate releasing eight additional
prospectuses this year at Lake Mead, Death Valley, Olympic, Golden
Gate, Grand Tetons, and Rocky Mountain. Finally, preparation has begun
this year under the new IDIQ contracting authority for the development
of seven prospectuses proposed for release in FY 2005.
composition and role of the advisory board
P.L. 105-391 established the National Park Service Concessions
Management Advisory Board. The role of the Advisory Board is to advise
the Secretary and the National Park Service on matters relating to the
management of concessions, including policies and procedures, and ways
to make National Park Service concession programs more cost-effective,
efficient, and less burdensome. The Board also makes recommendations to
the Secretary regarding the timeliness of reviews of concessioner rates
and charges to the public; the nature and scope of products that
qualify as Indian, Alaska Native, and native Hawaiian handicrafts; and
the allocation of concession fees.
The Advisory Board is comprised of seven non-Federal individuals
appointed by the Secretary of the Interior, none of whom have a current
business interest in any NPS concession. The statute specifies that
appointees represent various aspects of the concessions industry or
have a particular expertise related to concessions.
Key issues that the Advisory Board continues to advise us on are:
(1) The concessioner evaluation and rate approval programs;
(2) The Indian, Alaska Native, and Native Hawaiian handicrafts
program, including the development of handicraft regulations (which
were published in the Federal Register on March 25, 2004, for public
comment);
(3) Leasehold surrender interest;
(4) Assignments, sales and transfers; and
(5) Encumbrances/cross-collateralization issues.
Accomplishments of the Advisory Board to date include:
Recommended the establishment of, and subsequently
participated as members in, an evaluation and rate approval
task force to review the rate approval process;
Established a native handicraft work group that made
recommendations for the recently published proposed rulemaking
regarding native handicrafts;
Recommended the need for ongoing asset management support,
which has resulted in the establishment of a permanent asset
manager position in the concessions program;
Supported implementation of training programs, including the
contract with Northern Arizona University for hospitality
certification,-as well as training programs for prospectus
development offered to the public;
Established a work group to look at regulatory and process
issues regarding the tracking of leasehold surrender interest,
cross-collateralization of contracts, and other program issues,
in order to make a recommendation from the Advisory Board to
the National Park Service;
Established a work group to review comments received by the
National Park Service on proposed regulations regarding
commercial use authorizations (CUAs); and
Assisted in the simplification of the contract language for
small concession contracts (Category III contracts).
The Advisory Board meets three times annually. Its next meeting
will be early this summer (2004). As in the past, the Advisory Board
will hold all but one of its public meetings in the field so smaller
concessioners and others will have a better opportunity to attend. Once
a year it meets here in Washington, D.C., which occurred this year in
early March.
process for valuing possessory interest/transition from possessory
interest to leasehold surrender interest
Possessory interest (PI) was the term used in concession contracts
issued under the previous concession law, P.L. 89-249, to provide a
contractual right of compensation to park concessioners for
improvements to facilities they acquired or constructed for use by
their businesses. Individual contract language defines the method by
which PI is valued, and provides for a value determination process
similar to arbitration--in most cases binding, but in some cases
advisory to the Secretary of the Interior--to settle differences either
between the previous concessioner and a new concessioner, or between
the United States and the new concessioner.
P.L. 105-391 introduced the concept of leasehold surrender interest
(LSI) to provide a contractual right of compensation for capital
improvements made by concessioners under a concessions contract. The
value of LSI in a capital improvement is the amount equal to the
initial value of the construction cost of the capital improvement,
adjusted by changes in the Consumer Price Index, minus depreciation of
the capital improvement. In a ``Special Rule for Existing Possessory
Interest,'' P.L. 105-391 also provided that a concessioner that
obtained a PI under the terms of a concessions contract is entitled to
receive compensation for such PI improvements as provided in the
concessions contract. This amount carries over into a new concession
contract as the initial value of such LSI.
In practice, we have seen both binding value determination
processes and negotiations between the current and new concessioner
establish the ending PI value (and, hence, the initial LSI value). For
example, binding value determination processes were used at Grand
Canyon and Yellowstone, and the negotiations between a current and new
concessioner were used at Crater Lake. Both processes required NPS
review and approval pursuant to regulations.
Recently, several concessioners have requested a negotiation with
the NPS to determine PI value prior to the release of a prospectus. One
successful negotiation was recently completed for Trail Ridge Store at
Rocky Mountain National Park. Several others are in process. The NPS is
looking at requests for similar mutual negotiations in other areas.
Although existing concession contracts do not provide for the NPS to
require negotiations, we can choose to enter into such negotiations if
requested by the current concessioner.
We are supportive of this process whenever possible. It helps to
provide more certainty for both the NPS and current concessioner, and
helps provide a clearer offer in the prospectus. It also has the
potential of saving time and money for both the concessioner and the
NPS by avoiding costly and time-consuming arbitrations with
unpredictable outcomes.
The NPS has been successful in negotiating with a current
concessioner on the value of PI in the following cases: Katmailand at
Katmai; Glacier Bay Park Concessions; Estey Corporation at Oregon Caves
and at Crater Lake; Marinas of the Future, Franca Foods, and Jamaica
Bay Riding Academy, all at Gateway; Trail Ridge at Rocky Mountain;
Grand Teton Lodge; Carlsbad Caverns; and Death Valley. Other
negotiations have been requested by concessioners, but have not yet
been consummated.
leasehold surrender interest
The NPS is continuing to focus on the importance of not only
establishing initial LSI value, but also tracking the value of LSI
through the term of the contract. This will, among other things,
probably involve some management revisions, including possible changes
in the so-called 50 percent rule. This rule, codified in regulations at
36 CFR Sec. 51.51 states, in part, that ``Major Rehabilitation means a
planned, comprehensive rehabilitation of an existing structure . . .
the construction cost of which exceeds fifty percent of the pre-
rehabilitation value of the structure.''
Although subsequent litigation on the final regulations upheld this
definition, the NPS has agreed to administratively review this rule to
determine ways in which it can be revised to accomplish the broader
intent of providing for reasonable compensation in LSI value at the end
of the contract term, while maintaining the competitiveness of future
contracts.
P.L. 105-391 provides for LSI when a concessioner ``constructs'' a
capital improvement. It defines capital improvement as ``a structure,
fixture, or non-removable equipment.'' The law does not suggest that
the repair or maintenance of an existing structure results in LSI.
However, in developing the ``50 percent rule'', the NPS considered that
providing LSI for the major rehabilitation of an existing structure is
permissible, and considered that such major rehabilitation is
tantamount to the construction of a new structure in which LSI may be
obtained. However, the National Park Service has agreed to look at
better ways to credit and depreciate capital improvements to better
define over the term of a concession contract the value of LSI.
Working with the Advisory Board, an LSI work group was established
to look at this issue, along with several other regulatory issues that
the NPS agreed to meet on. This work group, made up of representatives
from both large and small concessioners, key interest groups, and key
Congressional staff, has met four times in the past 16 months in part
to help define clarity in LSI value assignment through the contract
term. The goal is to provide an approach consistent with law that is
fair, clear and simple to administer, and able to be applied
consistently and with certainty through the term of a concession
contract.
Although LSI is not a concept found in the private sector, its
resulting value would be.essentially equivalent to debt owed the
concessioner by the NPS. In short, the United States is ultimately
deferring debt contractually owed to a third party. Although LSI value,
by contract terms, will most often be acquired by any subsequent new
concessioner to a contract, nonetheless, LSI represents an obligation
of the United States to provide compensation to a concessioner.
Consequently, developing a sound method to monitor capital
improvements, as well as preventive maintenance, in order to be able to
define clearly LSI value throughout the contract term, is critical for
both the concessioner and the NPS.
The LSI work group agreed on draft recommendations in 2003, but
upon preparation of the final recommendation package, one of the group
members expressed new concerns regarding the agreement. Consequently,
the Advisory Board asked that the work group meet again to address
these concerns. It is our understanding that the work group plans to
make its final recommendation to the Advisory Board in the near future.
Once the full board has taken final action, the NPS will evaluate the
recommendation and, if it is accepted, determine what programmatic,
policy, or regulatory changes would be required to implement it.
Contractually requiring sound preventative maintenance and repair
practices, as well as addressing the construction cost of capital
improvements, keeps park assets and facilities in good condition, helps
provide better visitor services, and contributes towards keeping a
concession operation competitive for future contracts. The duties of
the newly created permanent asset manager will include coordinating a
``centralized, real-time'' system using the NPS asset management system
to oversee a concessioner's contractual responsibilities and track the
conditions of concessioner-managed assets.
management challenges identified/regulation changes
Other issues being addressed by the work group are cross-
collateralization (to allow for a concessioner to pledge collateral
from one contract for a loan to pay for capital projects in another
park), and sale and transfer of contracts (regarding the level at which
the NPS needs to approve transfers, particularly upstream ownership in
corporate reorganizations). In both of these cases, we recognize the
need to simplify and expedite the review process. The focus of our
review is on the aspects of a transaction that would have managerial
and financial implications on the underlying operation, the effect or
impact a transaction would have on providing quality visitor services,
the protection of park resources, and the fiduciary responsibility and
accountability of the NPS for concession operations and government
assets.
Transition issues between a current and new concessioner, mostly
operational in nature, also take resources and careful timing to avoid
the interruption of quality visitor services. With the assistance of
our outside contractors, and working with current NPS concessioners, we
have been looking at actions we can initiate to ease any future
transitions between concessioners in those instances where an incumbent
concessioner either chooses not to bid, or is not chosen as the new
concessioner. We are attempting to allow sufficient time between the
selection of a new concessioner and the award of a new contract to
allow time for these transition issues to be settled. This requires
careful timing of the release of a prospectus prior to an expected
award date. As each new contract is issued, we are reviewing ``lessons
learned'' to the preparation of future contracting actions.
preferential renewal
P.L. 103-391 placed an emphasis on competition for concessions
contracts in our national parks. We believe having competition in the
renewal of these contracts has been and continues to be a healthy step,
and one that benefits the concessioner, the visitor, and the NPS.
However, all incumbents with a satisfactory rating grossing no more
than $500,000 annually, and all outfitters and guides with a
satisfactory rating (of which 21 gross more than $500,000) continue to
enjoy a preference in the renewal of their contracts, if they are
responsive to the requirements of a prospectus and are willing to meet
the terms of a better offer if submitted. While concessioners in this
category may account for over 80 percent of the total NPS contracts,
all of these operations combined account for less than 6 percent of the
total gross revenues of all NPS concessioners. We believe that the
preferential renewal exception in the law as written creates a
reasonable balance between providing for competition and assuring that
visitor services are provided in all of our park areas where these
services are necessary and appropriate.
Mr. Chairman, that concludes my statement. I would be happy to
respond to any questions you or the other members of the subcommittee
may have.
Senator Thomas. Mr. Cornelssen, do you have a statement?
Mr. Cornelssen. No, sir. I'll just--I'll be available to
answer any questions you may have, Mr. Chairman.
Senator Thomas. Well, maybe the thing to do is to have a
little recess, and I'll be right back after voting.
[Recess.]
Senator Thomas. Thank you for waiting. Darn voting is
always interrupting what we're doing around here.
[Laughter.]
Senator Thomas. In any event, thank you very much for your
statement.
You indicated, I think, that you anticipate doing eight
additional concessions this year.
Mr. Jones. Yes, sir.
Senator Thomas. You only did four or five since the law was
passed. How do you propose eight in the remaining time?
Mr. Jones. Well, of course, since the law was passed, it
took us 18 months to develop the regulations, and then we went
through a period of litigation that delayed jump-starting the
process. But we actually have lots of contracts in process. We
see no problems--most of those eight are very close to being
issued any time now.
They've been in the works for everywhere from 1 to 2 years.
We also, at this point, look very good, as far as getting
hopefully all, but, if not, almost all, of the backlog of
contracts done by the end of next year.
Senator Thomas. That will be an increased time.
Mr. Jones. Yes.
Senator Thomas. Less than you've been doing it in the past.
I'm talking about the large contracts.
Mr. Jones. Yes, the large contracts, but also the small
ones, as well. As I mentioned earlier, it's definitely a
learning process--as we go through each one, we do an internal
review. We've also, in some contracts, already--especially
smaller contracts--gone through one process of streamlining,
how we award them and what's required of concessionaires. And
so it will continue to evolve as we are----
Senator Thomas. How long have you had these eight contracts
under review?
Mr. Jones. The eight contracts, the concept of review--I
would prefer to say ``development,'' because it's eight
different answers, because some of the contracts--like at Grand
Canyon and Yellowstone, where we literally have hundreds of old
buildings that require condition assessments and appraisals to
resolve possessory interest issues--that is a process, in
itself, that can take months. Once all the data comes into
Washington from our consultants, the review process, depending
on the contract, usually takes between 2 and 6 months.
Senator Thomas. Who does the--you talked about consultants;
who actually does the evaluations and the appraisals and so on?
Mr. Jones. The appraisals are done through subcontractors.
Let me actually turn to Mr. Cornelssen, because we're not
doing the appraisals in-house as a government appraisal. We're
contracting through private firms and our consultants to do
them for us.
Mr. Cornelssen. Yes, Mr. Chairman. We actually----
PricewaterhouseCoopers has been helping the Park Service,
sort of, as a--I guess I would say, as a prime contractor to
put together the--do the due diligence and to put together the
whole package for the prospectus.
And, actually, what Mr. Jones was indicating is correct. In
the case of Yellowstone, for instance, on the condition
assessments, because of the seasonal nature of the operation
there, in fact, it took years, not even just months, to get the
condition assessments done, because it's hard to condition-
assess assets while there are visitors staying in those assets,
and, of course, that's when you can get to them. So it's--some
of these contracts have taken quite a long time.
Mr. Jones. And if I could quickly just supplement his
comment by also pointing out that the process that we have had
to go through now is not indicative of how it should go in the
next round, when the current contracts are up. And by that, I
mean the process of converting from possessory interest to
leaseholder surrender interest is probably the most time-
consuming element, especially where there are lots of
structures that have to be evaluated. But that is a one-time
snapshot as to where we are now, we'll do the conversion, and
then have a process in place so it should be much easier when
the next round of contracts is up, in 10 or 15 years.
Senator Thomas. Is there an acceptable agreement on the
values before the prospectus is let out?
Mr. Jones. There should be. And as we have discussed
together on numerous occasions, we have had a couple of
instances that have gone to arbitration. We have, since then,
put the word out to concessionaires that we are open and
willing to negotiate possessory interest, because there is no
doubt it is the--I think, the ideal situation for all parties
to have a known situation, which means a resolved issue. In the
last few months, we have had several successful ones--Jackson
Lake Lodge, Trail Ridge Store, Rocky Mountain National Park,
with----
Senator Thomas. Jackson Lake Lodge isn't completed, though,
is it?
Mr. Jones. The agreement on possessory interest is totally
resolved. We have reached agreement. We have signed a contract
amendment on that value. That prospectus had been put on hold
to give us time to try to resolve it before we issued the
prospectus. Now that it's resolved, the prospectus will be out
shortly.
Senator Thomas. I guess I don't quite understand that. The
prospectus ought to go out to prospective bidders; did it not?
Mr. Jones. Yes.
Senator Thomas. Well, you've already made an agreement with
the purchaser, and now you're coming up with the prospectus.
Mr. Jones. Oh, the agreement was on the value of the
possessory interest.
Senator Thomas. I understand. That's the problem, though,
isn't it? If you're going to bid--if all of us in this room are
going to bid on something in the prospectus, we need to know
the value before we do it, don't we?
Mr. Jones. Yes, and that's what we did.
Senator Thomas. Yes, but that isn't what you've done in the
past.
Mr. Jones. No, and I agree. Now, ultimately, the decision
as to whether we reach agreement with a concessionaire on
possessory interest is somewhat up to the concessionaire.
We have put the word out that we agree we are willing and
should negotiate those before we do a prospectus, but a
concessionaire has a legal right, under the old term of the old
contracts--and many times I'm talking about contracts issued in
the 1960's--that if they wish to, they may go to arbitration.
We cannot impose negotiation on them. We are willing to do it.
Now----
Senator Thomas. I don't understand that at all. You're
talking now to the owner, and to establish that value, you have
to have that done before the rest of us bid, or we don't know
what we're going to have to pay.
Mr. Jones. I agree with that, Senator.
Senator Thomas. But then how can you go to a prospectus
unless you've already gotten to that agreement?
Mr. Jones. If we are trying to get to that agreement now--
--and that is a change from how we were doing things a couple
of years ago----
Senator Thomas. I hope so.
Mr. Jones [continuing]. And so we're headed in the right
direction.
But, on the other hand, agreement involves agreement by two
parties. I cannot make a concessionaire reach an agreement with
us. So under the current law, and under their current old
contracts, ultimately it's their decision if they wish to
negotiate with us or go to arbitration. We would prefer to
negotiate----
Senator Thomas. I'm not talking about that. I'm talking
about when you do it. You can't go in and go ahead and put out
the prospectus and get the bids and get the sale, and then come
back again under arbitration and have to change it, and have to
change the fees and everything else.
Mr. Jones. Well, one of the----
Senator Thomas. We've been through that before, and I wrote
you a letter about that and asked for some information.
Mr. Jones. Yes, sir.
Senator Thomas. The information I got is over there in that
box. You see all those things? Which isn't exactly what I had
in mind, but I think it's very important, and that's part of
the problem we've had with trying to get moving on Jackson Lake
Lodge; they don't want to get into the Hamilton Stores thing
again.
Mr. Jones. I agree. And, in fact, I do think that that is a
success story. One of the challenges we have right now,
however, is that a concessionaire, up until a new contract
award, is under no requirement to tell us what they think their
possessory interest is. So we may know. And if we know, and
they would like to negotiate with us, we would be happy to
resolve it.
Senator Thomas. You're the one that decides what it is,
right?
Mr. Jones. We have an opinion. But under the contract, we
are not always the one that decides.
Senator Thomas. Who decides?
Mr. Jones. If a concessionaire chooses to go to binding
arbitration a three-judge panel decides.
Senator Thomas. Absolutely. That's right. But the
concessionaire doesn't decide.
Mr. Jones. No.
Senator Thomas. Okay. So you have a process that you can go
through. And I guess the question is, What's the sequence of
this thing that makes it work properly? I hope you're in that
sequence now.
Mr. Jones. I believe we are. What makes it work properly
is--what you have said, Senator--as we are getting the
condition assessments done from Pricewaterhouse and our other
consultants, we develop our opinion of what we think the
possessory interest is. The ideal sequence that we totally
agree with is when we sit down with the incumbent
concessionaire, find out what their opinion is, and discuss
what the differences are and see if we can reach complete
agreement, which we did in Jackson Lake Lodge, for example. And
then we issue the prospectus. There is no doubt that that is
the ideal way for it to work.
Senator Thomas. Well, it hasn't always worked that way, so
we need to make sure that it does.
There are 30 park operations that are under various
extensions. How are you going to address those?
Mr. Jones. We do expect to be able to have those, if not
all, substantially done by the next year, and so of the 30
different contracts under extensions that you referred to, it's
really 30 different answers as to when each one expires, but
we're hoping to get them done before the expiration of their
extensions.
Senator Thomas. Does the Park Service consider franchise
fees an important criteria in selecting the concessionaires?
Mr. Jones. The franchise fees are one of the criteria.
Pursuant to the statute, it is not--and we agree with that--it
is not to be ranked as high as the other four primary criteria.
So, for example, in a prospectus there can be points awarded
for everywhere from five to seven different criteria. Those
points total everywhere from 25 to 27 points. A franchise fee
is four out of those 27. So it is important, but it is
definitely not the deciding criteria. We certainly have awarded
contracts where the person who bids the highest franchise fee
is not the winner of the contract. So that is not the primary
criteria.
Senator Thomas. So you have different franchise fees for
different concessionaires.
Mr. Jones. Pursuant to the statute, we set a minimum
required franchise fee under the prospectus to be considered a
responsive bid. And bidders are allowed to bid that up, if you
will, at their choice. And that is one of the criteria, along
with economically sound businesses. Are they able to perform?
What's their previous experience and ability of running
businesses of this nature, and their ability to protect park
resources and proposals they may submit on environmental
management systems?
Senator Thomas. Just--this is kind of theoretical, I
guess--the franchise fee has a great deal to do with the
revenue that comes to the park.
Mr. Jones. Yes, sir.
Senator Thomas. If someone was not a business that's
suitable and doesn't meet these other criteria, why would you
consider them as a franchise, as one of the contestants?
Mr. Jones. I'm sorry, I didn't----
Senator Thomas. You're saying things like not being able to
have a profitable business, not being financially sound, and so
on.
Mr. Jones. Yes.
Senator Thomas. If that's the case, why would you even
consider them as the concessionaire?
Mr. Jones. If a firm does not meet one of the criteria--
say, they do not have--demonstrate the capital resources to be
able to perform the requirements of the contract, that would be
considered a nonresponsive bid, and they would not be
considered.
Senator Thomas. It's a little puzzling to me. Then why do
you charge franchise fees?
Mr. Jones. Well, we set the minimum franchise fee----
Senator Thomas. I know. But in fairness, it seems like most
people would expect the same franchise fee, wouldn't you think?
Mr. Jones. The businesses are not all the same.
Senator Thomas. Well, of course they're not, but the larger
ones, the ones that are over $3 million are pretty much the
same.
Mr. Jones. I would respectfully disagree with that, and I
would cite a couple of examples, some of them from your part of
the world, places like Glacier and Yellowstone with very short
seasons. They are very different than a park like the Grand
Canyon that is a year-round operation, or a park like
Everglades that's a year-round operation. So there are--because
of either remoteness or, especially looking at places like
Alaska, incredibly short seasons--substantial differences from
business to business. Also, we have to assess the economic
ability for a concessionaire to perform concession operations--
and, again, Yellowstone is a wonderful example, where they have
this wonderful, but huge, complex of very old structures to
maintain, which is a challenge for a concessionaire, and
certainly a more costly place to do business than a concession
with brand-new facilities that would be much more efficient to
maintain. And those are factors that affect franchise fees.
Senator Thomas. Those facilities belong to the park.
Mr. Jones. Yes, sir.
Senator Thomas. It's a little different.
We'll hear, from today's witnesses, some of them, about the
sheer amount of paperwork in the small business concessions and
so on, the extraordinary expense that goes with the renewal
process. What do you think about that, and what are you doing
to lighten that----
Mr. Jones. About a year ago, we, for the very smallest
concessionaires, developed a streamlined process that reduced
the amount of paperwork. We think, for many of the smaller
concessionaires, we still need to do more in that area, and
that's one of those issues that we are going to be talking with
our advisory board to get some guidance as to how to do it.
Certainly, I would agree with the concern that we should not
have the smallest concessionaires go through the same burden
that the very large concessionaires have to go through.
Senator Thomas. I would think so.
Most of these contracts that you have are the small
contracts.
Mr. Jones. Very much so, yes, sir.
Senator Thomas. What do you think about that $500,000
limitation or level? Do you think that ought to be expanded
somewhat?
Mr. Jones. No, Senator. We think the $500,000 cap makes
sense, we think it works. We think that--you know, right now,
90 percent of the concession contracts we've awarded to date
are going to incumbent concessionaires. We think the basic
concept of the act, which has, for larger concessionaires,
competition, we're seeing, we think, very good-quality bids,
very thoughtful bids that, in the end, are going to be
providing better services for the public. So we think it's a
process that does work, and think the $500,000 cap is the
correct one.
Senator Thomas. How long has that been that way?
Mr. Jones. It was part of the 1998 statute.
Senator Thomas. You mentioned several times the--getting
your advisory committee's involvement. How long has that been
in place?
Mr. Jones. It was provided for in the statute, so they have
been in place--in fact, I have to turn to Allen Naille.
When were you first established?
Mr. Naille. 1999.
Mr. Jones. 1999, after the regulations were developed. And
we have been throwing a variety of issues--I believe he is one
of your witnesses today, and can talk in more details--but it's
a process we're very excited about and we think works and has
tremendous potential.
An example I would throw out is one of the issues we're
looking at, how to amend the regulations, the advisory board is
a very useful tool as a forum to discuss issues since they are
a FACA--Federal Advisory Board Committee Act--sanctioned
organization, so they are allowed to bring in concessionaires
to bring individual specific opinions to the process, which
makes it work much better.
Senator Thomas. So it's 4 years, and you haven't gotten the
regulations yet in place.
Mr. Jones. The original regulations were in place, have
been challenged in court, and we have prevailed in court.
However, we do agree that some of the regulations need to
be changed. We've been working with the advisory board in, for
example, changing the 50-percent rule and seeking their advice
on that. We, frankly, thought we had agreement last June as to
what a package should look like. That turned out to be a false
hope, because we were ready last summer to begin work on the
formal regulations. The advisory board is continuing their
work, and we are expecting and hoping for them to get some
recommendations to us very soon.
Senator Thomas. It just, I guess, seems like it takes an
awfully long time to make some changes. The changes, many of
them, have not ever been made yet, since the 1998 law, and
that's 5 years.
Mr. Jones. Yes, sir.
Senator Thomas. It's not a brand-new issue, either. You
know? Doing leasing, doing concessions basically is done much
in the private sector. How many people in the Park Service do
you have with a business background?
Mr. Jones. Not enough. We are, in that area, doing two
things. For example, when I was at Rocky Mountain National
Park, as the superintendent, and the job of the concession
specialist of that park was open, I actually recruited and
hired a new graduate, who had just received her MBA degree, and
she's one of the rising stars in the concessions program
nationally. Other parks, like Grand Canyon and Golden Gate,
have followed a similar path.
For our existing workforce--and, again, this is a place
where the advisory board has been very helpful to us--we have
established a concessions training program for our existing
employees, through Northern Arizona University, where employees
can do a 2-year training program to develop their skills and
improve their knowledge and abilities to work and understand
business issues. Some of it's on campus, some of it is done
through the Internet and remote learning. And that's a step
that we're very encouraged is helping to improve the skill
level of our employees.
Senator Thomas. You mentioned employees in the park level.
What about at the Park Service level, at the top? Who do you
have--it would seem to me that that's where you would start,
with people that are into this kind of business experience.
Mr. Jones. I completely agree with you, Senator. The
position of the head of our concessions program, Cindy Orlando,
just recently left and has moved to Hawaii as superintendent of
Hawaii Volcanoes. We're in the process now of recruiting to
fill that job. A major criteria that we're looking for in
candidates is a business or hospitality or hotel or restaurant
background that can help us in that area.
Senator Thomas. Okay.
Mr. Cornelssen, you, in your business, of course, work with
businesses.
Mr. Cornelssen. Yes, sir.
Senator Thomas. And what's your impression of how your
advice and your counsel being put into place in the Park
Service? Now, if this is a tough question for you to answer,
you'll have to say, ``Oh, yes.''
[Laughter.]
Senator Thomas. But it seems like there's quite a little
bit of agency bureaucratic resistance to doing what logically
is done in the private sector.
Mr. Cornelssen. Well, I think that the goals and objectives
obviously are different in the Park Service than they are in,
for example, the industry I work in, the hospitality industry.
We're very much focused on bottom line and return on
investment. The Park Service, obviously, the mission is a
little different than that. Although, certainly when it comes
to looking at concessions, the business aspects are important
to the Park Service, in terms of quality operation and quality
services for the visitor.
I would say that change is coming. It may not come as fast
as maybe I would like it or others would like it, but we have
seen a lot of change, both cultural change and actual process
change, within the Park Service. And I think one of the things
that early on we were successful doing with the Park Service is
to create, sort of, a corporateness when it came to these large
contracts, to say, for the large contracts, that those really
have to be managed on a more corporate basis; and that, for the
smaller contracts, those need to more simplified. And I think
that approach is philosophically ingrained within the Park
Service at this point. You'll hear people in the Park Service
talk about the ``big 50,'' which are the largest 50 contracts,
plus or minus maybe two or three. I think that's a significant
change.
And I think the other thing that has happened as you--and I
would ask you to quiz the concessionaires on this--is, as you
see the new prospectuses coming out I think you see a much more
businesslike document and a much more businesslike process than
what was perhaps done in the past.
Senator Thomas. What do you consider to be the largest
single issue facing the concessions program?
Mr. Cornelssen. I would say--if you had asked me, you know,
2 or 3 years ago, I might have said contracting, but I think
the train has left the station on that, and it is moving; and I
know it's been slow, but there has been a lot of change in that
area. But really contract oversight. Once the new contracts and
the procedures are in place, it's on the ground where the
rubber meets the road, ensuring that the expertise and the
support is there, that's necessary to, day to day, provide the
asset management and the contract oversight at the park level.
And I think that's probably the biggest issue facing the agency
right now in concessions.
Senator Thomas. Mr. Jones, the Congress has suggested the
Park Service adopt portions of the Federal Acquisition
Regulations that pertain in how and why one bidder should be
selected over another. Why doesn't the Park Service involve
themselves in that FAR regulation?
Mr. Jones. If I can separate your question into two issues,
it has been our position, the position of the Justice
Department, and certainly consistent with the input we've
received from the Congress, that the FAR rules do not apply to
concessions contracting. Separating that issue, however, there
are concepts and ideas that are in the FAR process--for
example, notifying the bidders after an award is done as to why
we selected the bidders, so that all the bidders can learn from
the process--I think, is a concept that we agree with. And so
what we're looking at is what ideas and thoughts and processes
that we've learned from FAR that could be applied to the
concessions program. We think some of these can be done by
policy; others might require regulatory changes.
Senator Thomas. What do you think about the FAR program?
Mr. Cornelssen. Again, I'd have to say I'm not an expert on
the FAR, but I think in terms of what Mr. Jones has indicated,
in terms of some of the concepts of the FAR, in terms of how
the selection debriefing process works and those types of
things, might be good concepts that would be applicable to Park
Service concession contracts.
Senator Thomas. What is your role? How do you participate
in this thing?
Mr. Cornelssen. We have, kind of--we actually have two
different contracts with the Park Service. It's a two-tiered
role. One contract, which Mr. Jones alluded to, is our contract
where we actually get involved in helping to structure each
individual concession contract, park by park.
The other contract we have is more of a corporate business
advisory contract, where we're helping to provide process
change and corporate policies--not policy, maybe--corporate
procedures, business procedures. And a sort of a two-tier
process. It's change at the corporate level and change at the
contract-by-contract level. You can see immediate progress when
you're talking about dealing at the park level, where you're
working on a specific contract. At the corporate level, it
takes more time, because literally it has to--you know, you're
creating a whole new programmatic change for the agency. But
that's really been our role for the past 2 or 3 years. And our
contracts were just renewed within the past year.
Senator Thomas. What do you think about the roll-out
provision, as prescribed in FAR, that permits the public and
the concessionaires the opportunity to learn more about the
bids to better meet the standards.
Mr. Jones. The concept of getting concessioners and bidders
feedback, I think, is an excellent one that we need to look at,
and we need to have some provision for.
Similarly, I think one of the issues we need to take a
serious look at is having a better and clearer process for
someone who did not receive the winning bid to appeal that
decision. And so those are two concepts that are embedded in
FAR that we are looking at, and we agree something needs to be
done, and it's something we'll be talking with Mr. Naille, and
his advisory board, about in the very near future.
Senator Thomas. Well, that's good. I hope you can get the
advisory committee more involved more quickly. That's what
they're for, is to bring in its expertise from the business
community. And, quite frankly, it shouldn't take 5 or 6 years
to be able to respond to some of those things. And if the
advisory committee can't move faster than that, that's also a
problem. And then once you get it, then it has to move, I
think, as well.
If I sound a little impatient, I think I am, because there
ought to be changes that could happen. The things you're doing
are not terribly unique to the business community. And that, of
course, was the reason that we had an advisory committee, to be
able to use the expertise of these people to participate. And I
know you'll say you are, but it has taken an awfully long time
to have much impact. Would you disagree with that?
Mr. Jones. Actually, I completely agree with you, it's
taken far too long.
Senator Thomas. So it's--I guess that's--you know, there's
a lot of things to talk about. And I appreciate what you do,
and I know it's difficult. But I do think we need to take a
look at the smaller concessionaires, having a little less
paperwork, a little less regulation for those people to go
into. They act like--at least tell me they have about as much
work to do as the larger ones, in terms of the paperwork.
That's too bad. I think we also need to continue to move toward
the business approach to--this is a business, a big business,
and should be handled in a businesslike way. And I know that's
your goal.
Mr. Jones. It is our goal, Senator.
Senator Thomas. And I appreciate your doing that. So we
need to stay in touch. And, frankly, just as aside, when we ask
a question about something, we don't need to get 50 pounds of
papers, because that doesn't answer the question. We need to
have the question answered. And so we'll be following up the
letter that we talked about, because there was some bad
experience in the Yellowstone operation, and some things were
done there that I just--it's difficult to imagine they could
be, in terms of the fees, in terms of the time, in terms of the
changes that were made there. And so I presume that we won't
expect that to happen anymore.
Mr. Jones. Well, I think across the board, Senator, what
we're trying to do in the whole process, for example, of now
going to negotiations with the concessionaires on possessory
interest, is really something that has evolved in the aftermath
of what we learned from Yellowstone. And so we certainly have
had some missteps on occasion, but I would agree--and I hope I
understand your question--that we need to learn from our
experiences, and not just stay stuck in one particular mode of
operation. We need to continue to grow. And I totally agree we
need to be much more businesslike in how we address some of
these issues.
Senator Thomas. Well, we look forward to working with you
and helping you move in that direction, and I thank both of
you.
We'll have our second panel now, Mr. Allen Naille, chairman
of the Concession Management Advisory Board, from Flagstaff,
Arizona; Mr. Mike Welch, who is Xanterra--I can't say that
since you changed your name--Parks and--Hospitality
Association; Janet White, who's president of the White Sands
Concessions, from New Mexico; and Susie Verkamp, president,
Verkamp's, in New Mexico.
Okay, Mr. Naille, can we start with you?
Mr. Naille. Yes, sir.
Senator Thomas. Oh, by the way, all of your statements will
be complete in the record, and if you want to kind of summarize
them, why, that would be great.
STATEMENT OF RICHARD ALLEN NAILLE, II, CHAIRPERSON, NATIONAL
PARK SERVICE CONCESSIONS MANAGEMENT
ADVISORY BOARD, FLAGSTAFF, AZ
Mr. Naille. Thank you, Mr. Chairman.
My name is Allen Naille, and I am the chairperson for the
National Park Service Concession Management Advisory Board, and
I ask that my written statement be put into the record.
Senator Thomas. It will be.
Mr. Naille. I should also mention that, among other things,
I also chair the Grand Canyon National Park Foundation, and
was, for 25 years, the CEO and president of Fred Harvey,
otherwise known as AMFAC, now known as Xanterra Corporation.
Senator Thomas. Great.
Mr. Naille. I'll skip through the intro part of my talk and
go straight to some recommendations that this board has given
to the Park Service. We have met 11 times over the years in
official capacity. That information is available in full
minutes and summarized statements. I would also say that
working groups have been formed from day one on various topics,
and they have met probably 20 times over that same amount of
time. Some of those work groups have dealt with small contract
issues, Native American handicraft issues, LSI issues, and we
continue to put working groups together as part of this
advisory board to basically cut to the chase on various issues
that we and the Park Service and the congressional staff feel
appropriate.
Five recommendations that I am bringing forward today to
just let you know that we have worked on over the last few
years. Numerous recommendations have been made over that time
period, but these were the more important ones. One was to
establish a non-appropriated fund instrumentality, or a NAFI.
And it was our desire to take franchise-fee money and--that is
set aside for in-park use, and use that money in a NAFI program
so they can earn interest and develop a more focused or
advanced form of funding source for the Park Service.
This, interestingly, was done as part of a original search
by the board and recommendations that we received from Congress
on looking at asset management, and looked at the Department of
Defense and its asset management operations, and came up with
this as a side piece that we still think is valuable. We've
talked to the Park Service about doing experimental projects in
this. And while that has not been done, we still have hopes
that it--maybe this summer, we'll get one of these projects off
and running in the field to see where--to see how it can work,
because it works very well for the Department of Defense.
Another one is to adopt a corporate strategy for NPS
concession contracts. You've heard a lot of discussion already
this morning, so I think I'll skip through that. I feel that
the Park Service is moving in a positive direction on working
on contracts. I think if there's any kind of a serious problem,
it's that it gets caught up in its own bureaucracy, maybe,
because it just takes too long once it gets started. I think
you alluded to that, sir. And I think that once this backlog is
out of the way, and at least there is a forward motion on it,
that in the future these contracts should roll over with a
little more consistency. And I also would say, with the
expertise that Pricewaterhouse has brought in setting up the
contract program for the Park Service, it should work smoothly.
A third area of recommendation was the establishment of an
associate director for partnerships and business practices.
This recommendation calls for the creation of a concession
program position requiring an individual with proven and
significant private-sector hospitality-oriented asset
management and financial management expertise and experience.
The current concession program management function is folded
into the associate director; administration, business practice,
and work force development position, which is overloaded with
responsibility and does not require private-sector hospitality
asset-management experience.
The fourth major recommendation that we made refers to
accountability, and that is that we feel that there is so much
decentralization in the Park Service that the superintendent is
in control of their particular unit, and we feel that, in many
cases, that superintendent is not qualified to oversee the
concession-management program that's totally under their
control. And it is our suggestion that those superintendents go
through a very extensive training program in the hospitality
concession-management program, so that they know what they're
managing. And they also would pick up what we consider to be a
stepchild function of the concession-management role, and put
more emphasis on that role, along with law enforcement
interpretation and other issues of resource management in the
park.
The last major area that we made recommendations on is the
creation of a concession-management rate-approval procedure.
The first part of this is to set standards. The second part is
to develop a user guide. And the third part of that is to run a
program using tested programs, such as the Park Service's Core
Menu process. All of these enable a speedy concession-
management operation on the part of the Park Service approval
process so that things move in a timely fashion, and the
concessionaire isn't waiting to find out what their rates are
going to be for next year, or even during the year.
The Park Service has many things at its disposal that they
can run these programs with, and they are working through
Pricewaterhouse right at the moment on a very extensive
standards program. And once that's in place, that not only
helps the Park Service, but I think that'll be a great boon to
the visitor to the parks, also. They'll know what they're
getting into on arrival.
I would like to switch focus now to the working group on
LSI, since we've talked about that this morning. And I need to
make some clarifications, in that the first time we were asked
to take a look at the LSI issue was January of last year. A
working group was put together, and I personally led that
working group. You've already heard that it was made up of
people from the Park Service, from the concession world,
congressional staffers were involved, and continue to be
involved, both from the House and the Senate, in that working
group. I, personally, think that's been one of the more
effective working groups that we've had. And hopefully when we
finalize the issues on this, regulations will change.
You need to know that there have been some problems, in
that we thought, in June, which I considered 6 months not too
bad in completing the task, that we had a finalization to the
issues on changing the regulations; except that, at that time,
I thought we were going to do a director's orders, and now
we're going to do a full regulation change. Issues like you
talked about, sir, on the 50-percent rule, we've worked on
that. Those issues are going to go away, and we will make these
changes.
We also had everything--all of the issues that I felt were
brought to our attention by the concessionaires and by the Park
Service had reached agreement in June, except for depreciation.
And the whole depreciation issue was worked on during the
summer. And actually, at our meetings in Florida this fall, I--
when the final program on depreciation was presented, I had
some concerns about that, and felt that probably the
concessionaires weren't going to be too excited about where
that was going at the time, so I asked for comments from
concessionaires to be sent back in 2 weeks, and it basically
took about 4 months before we got those comments back.
So the working group met again in early March, and we went
through depreciation, once again, and clarified all the
previous issues under LSI that we had differences of opinions,
and cleared all of that up. We are now working on a final
depreciation program, and that should finalize everything ready
for board recommendation to the Park Service, and change in
regulations. So that should all be taken care of soon.
And we will--because of our public-meeting requirements,
we've been trying to find an avenue where we can do this by
some semblance of a conference call, and I think we have found
a solution to that problem. So we will--it is my desire to get
this cleaned up before the summer begins.
[The prepared statement of Mr. Naille follows:]
Prepared Statement of Richard Allen Naille, II, Chairperson, National
Park Service Concessions Management Advisory Board
Mr. Chairman and Members of the Committee, I appreciate the
opportunity to testify before you today regarding the National Park
Service Concessions Program. My name is Allen Naille, and I am the
Chairperson of the NPS Concessions Management Advisory Board.
The NPS Concession Management Advisory Board was originally
chartered on November 13, 1999. The Board's purpose is to advise the
Secretary of the Interior and the National Park Service on matters
relating to management of concessions in the National Park System. The
Board's areas of responsibility center on policies and procedures
intended to improve NPS Concession Program standards. efficiency, and
costeffectiveness. Since its inception, the Board has met a total of 11
times, and has made progress in a variety of concession-related areas.
The Board's seven members are appointed by the Secretary of the
Interior, may not be employed by the Federal Government or a
concessioner. may not have an interest in a NPS concession operation.
and should represent various components of the NPS concessions
industry. A Board membership list has been attached as an exhibit to
this testimony.
Over the next few minutes, I would like to outline the major
recommendations that the Board has made over the past three years. I
will then focus on the Board's working group on leasehold surrender
interest. Lastly. I will provide the Committee with suggestions for
improving the effectiveness of the Board.
Each year, the Board presents a report summarizing its
recommendations to the Secretary of the Interior. Rather than attempt
to address all of our reports over the past 11 meetings. I would like
to focus on five specific recommendations. These include:
1. Establishment of a Non-Appropriated Fund Instrumentality (``NAFI'').
This recommendation calls for the implementation of new tools and
procedures to account and manage concession franchise fee funds. The
Department of Defense and other Federal agencies currently use NAFIs to
provide efficient revenue management and a mechanism for front-funding
major capital projects. Since its very first meeting in 2000, the Board
has recommended implementation of a three-year pilot study to test the
NAFI concept for use in the NPS.
2. Adopt a corporate strategy for NPS concession contracts.
This recommendation calls for:
a. Execution of the concession contract rollover strategy developed
by NPS business advisor, PricewaterhouseCoopers LLP;
b. Expanded use of contract expertise to assist NPS in effectively
negotiating and administering concession contracts;
c. Implementation of a corporate approach on major concession
contracts and a more decentralized approach on smaller contracts.
3. Establishment of an Associate Director for Partnerships and Business
Practices.
This recommendation calls for the creation of a Concession Program
position requiring an individual with proven and significant private-
sector, hospitality-oriented asset management and financial management
expertise and experience. This individual will allow the NPS Concession
Program to more effectively carry out its fiscal and program
responsibilities. and be on an equal playing field with concessioners.
The current Concession Program management function is folded into the
Associate Director--Administration, Business Practices. and Workforce
Development position. which is overloaded with responsibility and does
not require private-sector hospitality asset management experience.
4. Place full responsibility for park concession management directly on
park superintendents.
This recommendation calls for full superintendent accountability
for park concession operations. Superintendents should be provided with
comprehensive concession-related training opportunities. Further, park
superintendent concession management performance should be measured
using guest input surveys, concessioner input, and site inspection
teams to evaluate the quality of concessioner products, services, and
facilities.
5. Creation of concession management rate approval procedures.
This recommendation calls for the assessment of relationships
between asset classifications and rate approvals, the determination of
best practices for rate approval. and development of standards and rate
approval recommendations. In essence, the NPS should develop a ``user
guide'' for Park visitors, which should detail all concession assets at
each Park and inform visitors of the assets, amenities, and level of
quality. In addition, expanded use of the tested Core Menu Pricing
concept in concession restaurant operations is recommended, as is
development and testing of a Core Menu Pricing concept for retail and
lodging operations.
While the Concession Program has made significant progress in many
of these areas, much work remains. The Concession Management Advisory
Board urges the National Park Service to seriously consider
implementation of the Board's past recommendations. and continues to
work toward the development of new recommendations.
Next. I'd like to focus on the Board's involvement in a working
group to address concessioner investments in real property, and the
related security interests provided by the Law.
A Concession Management Advisory Board Working Group was
established in January of 2003 to provide a forum for discussion of the
issues surrounding the management and crediting of leasehold surrender
interest or LSI, Comprised of Board members, NPS employees,
representatives of the concessioner community, the NPS' business
advisor, PricewaterhouseCoopers LLP, and senior Congressional staff,
the LSI Working Group was able to:
Develop private sector ``best practice corollaries'' for NPS
asset management and facility investments;
Propose several options for the treatment of LSI crediting
and management of depreciation; and,
Provide recommendations related to LSI crediting and the
associated management of physical depreciation.
As I understand it. The Board's final recommendation will be
incorporated into a document that will serve to amend the existing NPS
Regulations. Upon approval, these new regulations will be incorporated
into all new concession contracts, ensuring a higher standard of NPS
asset management.
The LSI Working Group is one example of how the Concession
Management Advisory Board has positively impacted the National Park
Service, its assets, and, ultimately, its visitors.
Lastly, I'd like to address some ways that the Board could more
effectively assist the NPS in enhancing its Concessions Program.
First, much of the emphasis over the past three years has been
focused on the rollover of concession contracts. While the board
recognizes the importance of continuing this effort, we also have a
growing concern about the need for more effective contract oversight.
known in the private sector as (hospitality) asset management. More
specifically. through our deliberations on LSI, we realized that the
NPS is ill-equipped to handle the, complexity associated with effective
financial, operational. and facility-related contract oversight. The
board feels that we can add significant value in assisting the NPS to
enhance its capabilities in this area.
Secondly, as I understand it, per Public Law 105-391, the NPS is
required to provide Congress with a report regarding LSI in 2005; and
the LSI issue will subsequently be revisited in 2007. The Board feels
it can assist the NPS and the concession community in these endeavors.
Lastly, on a more specific note, the Board would like to request a
more official relationship with the NPS outside business advisor. While
we have had informal access to these professionals in the past. we
would like express authorization from the NPS.
The Board intends to continue to positively affect the NPS
Concession Program. thereby helping to preserve some of our Nation's
most treasured places for generations to come.
Mr. Chairman, thank you once again for the opportunity to testify.
I would be happy to answer any questions that you or the Committee
members may have.
Senator Thomas. Good. Fine, sir. Thank you very much.
Mr. Welch.
STATEMENT OF MICHAEL F. WELCH, NATIONAL PARK
HOSPITALITY ASSOCIATION AND VICE PRESIDENT,
FINANCE, XANTERRA PARKS & RESORTS
Mr. Welch. Mr. Chairman, my name is Mike Welch, and I am
pleased to be here, part of your oversight hearing on
concession issues facing our national parks. Thank you for
submitting my written testimony for the record.
Senator Thomas. You bet.
Mr. Welch. As a representative of the National Park
Hospitality Association that represents most of the visitor
services provided by the private sector in our national parks,
I have a keen interest in improving the regulations and
processes that govern our national park businesses.
I am the chief financial officer of Xanterra Parks and
Resorts, which operates both large and small concession
businesses throughout the National Park System. I am also a
certified public accountant. I have been a member of the
working group that Director Mainella established over a year
ago to explore possible solutions to the problems
concessionaires have voiced concerning the existing
regulations.
The three key areas I would like to address today are, one,
the cooperative and productive atmosphere in which these issues
are being addressed; two, leasehold surrender interests and the
correct method of measuring depreciation; and, three, cross-
collateralization of multiple concession contracts as security
for a single loan.
First, I would like to commend the cooperative process that
has been underway to solve the problems we've been discussing.
As we talked earlier, there was much disagreement after the
regulations were published that resulted in very expensive and
time-consuming litigation. But in early 2003, Director Mainella
established a cooperative and productive atmosphere to resolve
the remaining issues by establishing the working group we've
heard about that included all the key constituencies. This has
been extremely productive.
Second, one of the key issues when valuing a leasehold
surrender interest at contract termination is the method of
measuring depreciation. As outlined in the statute, NPHA
believes that the correct way to measure depreciation is to
assess the degree of physical deterioration or physical
improvement which occurs during the contract term. By doing
this, those who employ good maintenance practices are rewarded
with an increase in their leasehold surrender interest value,
and those who perform poor maintenance practices are penalized
in their LSI value.
There has been much discussion during the working-group
meetings over an NPS proposal that an alternative method of
measuring depreciation should be used. This has been termed
``scheduled depreciation.'' Under this method, each component
of each building would be assigned an estimated useful life
when that component is placed in service. Then each year, an
element of each component would be deemed to depreciate so
that, at the end of the scheduled life of each component, it
would have no LSI value, even though the asset might still be
functioning well and providing service.
Our policy concern with this approach, aside from the fact
that we don't believe it is consistent with the statute, is
that it does not provide any incentive for concessioners to
take good care of park facilities, since the LSI value of each
component will be zero at the end of its scheduled life,
regardless of whether the concessionaire performed effective
maintenance practices or performed no maintenance at all.
Finally, another provision of the regulations that is
proving to be extremely cumbersome, and not in keeping with
normal business practices, concerns the ability of
concessionaires with multiple concession contracts to bundle
them together in order to secure a single loan. This process of
spreading the costs of financing and the risks associated with
a single loan across multiple concession contracts is called
``cross-collateralization.'' It is common throughout the
business community and was permitted under the previous
statute. However, the regulations now appear to prevent this,
even though we have agreed with the NPS and its advisors in our
working-group discussions that this is a normal business
practice and a desirable method to lower the cost of financing,
thereby allowing concessionaires more funds to invest in park
facilities or pay higher franchise fees. The inability to
cross-collateralize concession contracts is preventing my
company from executing a successful and desirable refinancing
at this very time.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Welch follows:]
Prepared Statement of Michael F. Welch, National Park Hospitality
Association, and Vice President, Finance, Xanterra Parks & Resorts
Mr. Chairman, I am pleased to have been invited to your important
oversight hearing on concession issues facing our National Parks. I
hereby submit my written testimony for the record. As a representative
of the National Park Hospitality Association (``NPHA'') that represents
most of the visitor services provided by the private sector in our
national parks, I have a keen interest in improving the regulations and
processes that govern our National Park concession businesses.
I am the chief financial officer of Xanterra Parks & Resorts, which
operates both large and small commercial enterprises that benefit park
visitors. I am also a Certified Public Accountant. I have been a member
of the working group that Director Mainella established over a year ago
to explore possible solutions to the problems concessioners have voiced
concerning the existing Regulations. Having lived and worked in
Yosemite National Park for over 15 years while serving as the chief
financial officer for the primary concessioner there, I have developed
a personal sense of the necessary balance between preservation and use,
the composition and importance of park communities, and what makes our
National Parks special.
i. introduction
The primary purpose of participation in these hearings is to bring
the Committee up-to-date on efforts to reconcile problems that have
emerged in the wake of the passage of the National Parks Omnibus
Management Act of 1998 (the ``1998 Act''). Although generally these
relate to the regulations and form contracts that the National Park
Service (``NPS'') has promulgated to interpret and implement the 1998
Act, there are other important issues that deal with the administration
of concessions contracts generally that should be brought to your
attention and are identified below.
The regulations (the ``Regulations'') are embodied in 36 C.F.R.
Part 51, and the three separate form contracts that the NPS has drafted
(the ``Standard Contracts'') were adopted by the agency and published
in the federal register on May 4, 2000, and July 19, 2000. To the best
of our knowledge, one of the Standard Contract forms has formed the
basis for each prospectus issued by the NPS under the 1998 Act.
It is no secret that the debate leading up to the passage of the
1998 Act was spirited. For our industry these debates amounted to
nothing less than a battle for the survival of a viable concession
program in the parks. Although much of the debate centered on whether
concessioners who had faithfully performed under their prior contracts
should be entitled to retain the preferential renewal rights they
enjoyed under the application of the prior law, many other issues had a
potentially devastating impact on the ability of concessioners to earn
a reasonable return on their operations and investments. Some, we felt,
would force many prospective bidders for contracts, including
incumbents, to examine whether they could undertake the potential risks
inherent in bidding on a concession opportunity. These risks could
impair their non-concession businesses, to the extent the NPS sought
rights that went beyond the contracts, or could simply arise from the
uncertainty associated with ambiguous regulations and contract terms.
The result was that the 1998 Act included compromises on many of these
issues.
The central trade-off that resulted in administration and
concession industry support for Sen. Thomas' bill, and its ultimate
passage, concerned the decision to terminate the preferential right of
renewal for larger contracts, but preserve (in modified form) the right
of the concessioner to receive a modest positive return on its invested
capital by replacing the previous concept of possessory interest with a
new valuation formula called leasehold surrender interest (``LSI'').
LSI was designed to fix the compensation for the concessioner's
investment in park improvements at cost as adjusted for changes in the
consumer price index (``CPI'') and changes in physical depreciation,
thereby decreasing the uncertainty and potential for disputes
concerning the valuation of these interests. Although Sen. Thomas moved
a long way toward the position of the prior administration and sponsors
of competing legislation in crafting the final compromise, the
resulting Regulations and Standard Contracts contain restrictions on
concession contracts and concessioners that the prior administration
had argued for in the debates, but were excluded from the actual
statute.
As a consequence, there remain provisions of these important
documents that are not in accordance with either the explicit
provisions or the intent of the 1998 Act. The NPHA and certain of our
members found it necessary to challenge some of these provisions in
court, resulting in over 2 years of expensive litigation that
culminated in a Supreme Court argument on one issue. Although the
decisions of the courts and certain representations of the NPS made
during the proceedings have clarified some of the matters challenged by
the NPHA, other matters in dispute were not decided by the courts,
either because the courts did not find them ``ripe'' for review, or
because the NPHA did not raise them in the litigation due to their
sheer number. Now that the litigation has concluded, it is appropriate
to complete the remaining task of aligning the NPS regulations and
contracting procedures with the court decisions and the intent of
Congress in passing the 1998 Act.
It is both evident and noteworthy that the NPHA and its members
enjoy a much better relationship with the NPS since Fran Mainella has
assumed the Director's role and assembled her staff. It has been
refreshing for our members to hear that public access to our parks and
the provision of quality services to park visitors is a priority of the
NPS and that the NPS considers its partnership with concessioners to be
among its most important strategic relationships. It is also a positive
step that the NPS has engaged professional consultants (e.g.
PricewaterhouseCoopers) to help in assessing its business
relationships. While the NPS has an impressive staff dedicated to the
protection of park resources, many--including members of this
subcommittee and the NPS itself--have acknowledged that not all NPS
concession employees have the necessary business and financial
backgrounds to adequately deal with the agency's commercial
relationships.
The NPHA is confident that Director Mainella and other senior NPS
leaders are committed as a matter of policy to attempt to solve the
problems created by the Regulations and Standard Contracts.In that
regard, through the auspices of a task force assembled by the National
Park Service Concessions Management Advisory Board (the ``Board''),
there have been five ``working group'' meetings and several LSI
subcommittee meetings among various constituencies to identify some of
the more important issues and try to devise a framework for resolving
them.
Although the NPHA has participated in these meetings with the goal
of achieving reasonable regulations, in the final analysis, solutions
need to be crafted that comply with the law, create reasonable
certainty among concessioners, reflect standard business practices,
encourage the improvement of visitor services (including operations and
facilities), increase administrative efficiency, and reduce bureaucracy
and wasteful disputes between the government and its contractors. We
believe that the senior levels of the NPS embrace these goals as well.
Unfortunately, we believe that some of the proposed solutions do
not achieve these goals. Because of this, we are continuing to identify
problems in the process. In that regard, the encouragement of this
subcommittee to address these issues promptly, and to facilitate
legislative fixes where the regulatory and contracting process has
failed, would be most welcome. We regard achieving these important
solutions quickly as critical to the success of the NPS and its
concession program. We believe the collaborative process initiated by
Director Mainella is the appropriate vehicle for finalizing these
regulatory changes in the near future.
ii. key challenges
A. As indicated above, several of the issues that were the subject
of litigation between NPS and NPHA were not fully resolved by the
courts. Accordingly, Director Mainella is working with NPHA and other
interested parties to attempt to cooperatively resolve these issues and
others of importance. The key areas currently being discussed are: (a)
award and measurement of leasehold surrender interests; (b) cross-
collateralization of concessioner financing arrangements across
multiple contracts; (c) NPS oversight of transactions that affect the
ownership of companies that hold concession contracts(as opposed to
transactions that only involve the concession contracts themselves);
and (d) improvement and simplification of the rate approval process.
B. Leasehold Surrender Interests (``LSI'')
The key element of these discussions, and that of greatest interest
to both NPS and concessioners,is how LSI is handled under 1998 Act
contracts. As you know, LSI was conceived in order to provide
concessioners with investment protection in concession facilities and
thus attract bidders to National Park contract opportunities. However,
concessioners believe there are several critical areas where changes to
existing regulations and contract provisions are necessary. Because all
the provisions of the Regulations relating to LSI are interconnected,
we believe a significant number of those Regulations require revisions
to conform them to the law (including but not limited to the matters
resolved in the litigation) and improve the administration of
concession contracts in this area. Conforming changes would also need
to be made to the Standard Contract forms.
The primary LSI-related issues are:
a. Definition of Capital Improvements, including the 50%
rule
While certain sections of the Regulations correctly call for
Generally Accepted Accounting Principles (``GAAP'') to be used as the
benchmark to determine whether capital costs should be accorded LSI
treatment, there are provisions in Sec. Sec. 51.51 that are contrary to
GAAP, such as the rejection of building materials for capital
improvement eligibility except (1) when initially installed as part of
a structure or (2) when the ``50% Rule'' is met. Thus, for example, the
conversion of a dormitory to guest lodging, though potentially costing
millions of dollars, would not necessarily be considered a capital
improvement eligible for LSI treatment. In that case, only if the
conversion cost represented at least 50% of the pre-conversion
replacement cost value would LSI treatment be accorded to the
conversion. This limitation,not found in the 1998 Act, has been termed
the ``50% Rule''. Thus, common and sorely needed renovations,
rehabilitations, and other capital improvement projects in our National
Parks often would not qualify for LSI treatment under the existing
regulations and standard contract provisions even though we believe the
1998 Act intended that they should qualify for LSI treatment.
Fortunately, the discussions of the task force convened by the Board
indicate that both NPS and the concessioners are in agreement that the
50% Rule should be eliminated.
b. Prevailing cost ceiling
The Regulations also purport to restrict the LSI values to
``amounts that are no higher than those prevailing in the locality of
the project'', which is not a requirement of the 1998 Act. This means
the NPS could set LSI values on the basis of lower construction costs
in metropolitan communities outside the National Parks, even though the
cost of construction in remote park areas is generally much higher.
NPHA believes the litigation established that this limitation only
pertains to a comparison with other in-park projects, which of course
are already subject to strict regulation by the NPS. Thus the
limitation in the Regulations appears moot. Since concessioners have no
incentive to ``overpay'' for a project in the hopes of receiving LSI
that will only grow by CPI, this restriction will only serve to impose
a needless administrative burden for each project and could create
confusion and disagreement between the parties. It should be
eliminated.
c. LSI consistency and problem resolution
In our on-going discussions, NPS has stated that there should only
be occasional or isolated instances where an LSI determination needs to
occur. On the other hand, NPHA believes these instances will occur on a
more routine basis as capital investment generally occurs throughout a
contract term. Since a consistent approach across all contracts would
be desirable, NPHA believes that a framework should be set up to
resolve these instances simply and efficiently. Possibly a nationally
recognized accounting firm such as Price-waterhouseCoopers, acting both
in a dual role as NPS' asset manager and as an independent financial
expert, could serve to confirm that the costs presented by the
concessioners are correctly capitalized under GAAP and thus entitled to
LSI. These checks could be performed on an annual basis or, to save
costs and maximize efficiency, only at times when the NPS disagrees
with a concessioner's treatment of a specific item. This process could
lead to long-term consistency and stability so that both NPS and
concessioners would benefit from having a simple set of procedures that
would be used to evaluate these critical on-going decisions for both
parties.
d. Measurement of Depreciation
Just like the preceding 1965 statute, the 1998 Act requires that,
when measuring the depreciation related to a capital improvement for
which LSI was awarded, a physical standard of depreciation be used. In
other words, it requires measurement of the observed deterioration of
the facilities during the contract term. In contrast, much discussion
within the working group has centered on an NPS proposal that a
``scheduled'' form of depreciation be the measurement tool.
Conceptually, this means an amortizing schedule similar to what is used
for tax or financial reporting purposes. The NPS proposal is that each
and every asset be broken down into its individual components at the
time it is placed in service and an estimated useful life assigned to
each component for purposes of ``counting depreciation in the LSI
calculation. Besides being extremely cumbersome and therefore costly,
this method would lead to a substantially different result than the
statute requires. This same distinction formed the basis of the debate
in Congress over possessory interest that was resolved when Sen. Thomas
incorporated a concept that included physical depreciation, in the same
manner as the prior law, as a portion of the LSI formula. The NPHA
strongly objects to scheduled depreciation on several grounds.
1. First and foremost, changing the LSI formula from physical
depreciation to scheduled depreciation would generally have a
significant and negative impact to the return on investment that
concessioners would receive. This formula constitutes a critical
consideration for concessioners in the bidding process, particularly
for ``capital-hungry'' parks. Since businesses require minimum market
returns to be attracted to concession opportunities, lowering the
compensation received at the end of a contract would likely require a
significant reduction, or even elimination of, franchise fees to the
government and over time probably require more government
appropriations to directly fund park facilities. None of these impacts
appear to be in the best interests of the United States or the visiting
public.
2. Second, scheduled depreciation doesn't provide an incentive to
the concessioner to maintain the asset in good physical condition.
Since under this scenario the asset will become fully depreciated at
the end of a specific period of time (the ``scheduled'' life) no matter
how well (or how poorly) the concessioner takes care of the asset
during its service life, the concessioner will watch its LSI value
march downward toward zero irrespective of the level of care devoted to
it. NPHA considers this to bean unwise policy since, at a time when
there is so much written about the condition of our National Park
facilities, we should be trying to upgrade the condition of the assets
by providing incentives for concessioners to maintain them in top-notch
condition. If two concessioners spend the same amount of money to place
an asset into service, but one spends its maintenance funds throughout
the contract term to keep the asset is good physical condition while
the other concessioner spends little or no money to maintain the asset,
both concessioners will wind up with little or no LSI value at the end
of the ``scheduled'' life of the asset. However, the first concessioner
will have spent significant maintenance funds so that the asset can
continue to fulfill its function in providing services to park visitors
while the second concessioner has ``milked'' the system and left the
NPS with a run-down asset worth little or no value. Unfortunately, the
second type of concessioner is likely to become more prevalent
throughout the parks since they can purportedly afford to bid higher
franchise fees.
3. Third, estimating a useful life when an asset is placed in
service will almost always turn out to be wrong. This result will be
compounded when trying to estimate the service life of each individual
component that makes up the overall asset. These variances are caused
by weather conditions, materials that last longer (or shorter) than the
manufacturer or engineering estimates, preventative maintenance
procedures performed (or not performed) over the useful life by the
owner/operator, and normal human error. Therefore, it seems futile to
think that one can accurately estimate the useful life of an asset and
all of its components within acceptable bounds of precision for
purposes of a contractual LSI measurement, even if it were in
accordance with the law. The concept of ``scheduled physical
depreciation'' is inherently contradictory.
4. Fourth, there is a major administrative burden associated with a
scheduled depreciation framework that will also lead to increased costs
for both concessioners and the NPS, a burden that we believe will not
translate to improved facilities or services in the parks.
Providing concessioners with an economic incentive to maintain and
upgrade park facilities over the contract term is desirable. This can
be accomplished, as Congress intended, by using physical depreciation
at the end of the contract as the measurement basis for determining LSI
value.
C. Cross-collateralization of Concession Contracts
1. Cross-collateralization means the use of multiple assets or
contracts to provide security for a single or separate loans made by a
single lender for the purchase or other investment in (or to provide
working capital for) those or other assets. It reduces a borrower's
financing costs through the more efficient use of assets by allowing a
lender to diversify its collateral and reduce its risk.
2. NPHA, NPS, and PricewaterhouseCoopers have had many discussions
over the financial benefit to the concession system of allowing
concessioners with multiple contracts to finance them through a
``bundled'' approach, thereby lowering the cost of borrowing to the
concessioners. All parties appear to be in agreement that this is
desirable. However, although not prohibited by the 1998 Act, NPHA
believes that Section 51.87 of the Regulations and its tight
restrictions on the use of proceeds from loans secured by LSI may
prevent this. NPS originally proposed issuing a Director's Order that
would clarify that this is permissible, but since the Regulations would
override this Order and likely render it invalid, NPHA believes this
should be clarified and memorialized in an amended Regulation. The
amended Regulation should eliminate restrictions on the use of proceeds
from a loan secured by LSI.
D. Shareholder Level Transactions
1. This issue is also of critical importance to any concessioner
that is part of an affiliated group of companies, or that engages in
businesses other than National Park concessions.
2. Although it may be understandable for the NPS to want as broad
approval rights as possible over transactions involving changes in
ownership of concessioners and their owners, Congress recognized that
regulating shareholder behavior would reduce bidding interest and
create substantial risks to affiliated organizations. Thus the 1998 Act
regulates only the movement and encumbrances of contracts themselves,
but not shareholder behavior. NPS and NPHA have been working to clarify
under what conditions approval by NPS is necessary. There is agreement
that clarification is advisable and the NPHA is optimistic that the NPS
will ultimately agree on a solution that complies with the law.
Again,NPS originally proposed to clarify this guidance through a
Director's Order, whereas the NPHA believes that the Regulations need
to be amended to remove the sections that exceed the scope of NPS
authority under the 1998 Act.
E. Rate Simplification
1. The statute requires that the rate approval process ``shall be
as prompt and as unburdensome to the concessioner as possible''. Some
progress is being made in this area, most notably the food service core
menu'' concept. This concept provides that a key list of items should
be included in a concessioner's menu and reviewed by NPS to ensure that
they are priced appropriately. For all other menu offerings, the
concessioner would have the flexibility to design the offering and
establish a reasonable price. This would allow for more variety and
innovation in menus since there would be no administrative overhead
outside the core menu requirements.
2. Simplification is underway in pricing retail products through a
2-year test period of an ``open market declaration'' concept. This
greatly minimizes NPS review of pricing for gift and souvenir products
by relying on market conditions to establish prices (versus the
previously required percentage markup method that varied for each class
of merchandise). It also simplifies the process for tracking freight
costs and allows concessioners to use industry-standard merchandise
pricing techniques. Traditional NPS pricing reviews are still completed
for grocery and convenience items.
3. Very preliminary discussions have begun on how this ``core''
concept might be applied to lodging, but nothing firm has been
determined. The NPHA has long argued that the current ``comparability''
approach could be dramatically improved. If a ``core'' concept can be
implemented that would permit non-core lodging units to better reflect
market conditions, both the NPS and concessioners would benefit, and
bureaucracy can be virtually eliminated in this contentious area.
NPHA wants to ensure that the changes to the Regulations or the
Standard Contracts discussed above are made in a clear, permanent, and
enforceable manner through modification of the Regulations and Standard
Contract language, rather than through a less permanent solution such
as a Director's Order. Employing a Director's Order in the face of
published Regulations that reach an inconsistent result would at best
create ambiguity and confusion, but would more likely be invalid as
being a policy position that is inconsistent with the published
regulations. Moreover, a Director's Order can be easily modified by the
NPS without notice and formal rulemaking and thus may only be a
temporary accommodation. Since our membership and their banks could not
fully rely upon a Director's Order in the face of contrary regulations
and standard form contracts, this could not be a permanent
solution.However, a Director's Order might be used as a very short-term
temporary solution if there were a full commitment on the part of the
NPS to quickly implement the permanent solutions via
regulation.Although the NPHA acknowledges that modification of the
Regulations will entail additional time and effort, it is critical that
the published Regulations in the Code of Federal Regulations are clear,
workable, well-reasoned, and in compliance with the law. Therefore, we
are opposed to efforts to solve any of these issues through Director's
Orders where they have already been addressed by the Regulations.
There are other improvements that could be made to the Regulations
and the Standard Contracts to resolve inconsistencies with the law,
ambiguities in the language, or unnecessary administrative
requirements. Although not addressed here or currently under discussion
with the NPS, addressing these could further enhance the NPS concession
program and attract more competitors for concession opportunities.
Thank you for the opportunity to participate in this important
hearing.
Senator Thomas. Thank you, sir.
Ms. White.
STATEMENT OF JANET WHITE, PRESIDENT, WHITE SANDS CONCESSIONS,
WHITE SANDS, NM
Ms. White. Thank you, Mr. Chairman. I appreciate the
opportunity to testify before your committee today.
My name is Janet T. White. I am the president and co-owner
of White Sands Concessions at White Sands National Monument,
New Mexico. I am here to testify on behalf of myself and other
small single-operation concessionaires as to the effects of
P.L. 105-391, known as the National Parks Omnibus Management
Act of 1998. I will refer to it as ``the '98 Act'' or ``this
act.''
I started at White Sands Gift Shop 23 years ago as a sales
clerk. I worked my way up to manager, and purchased this
business in 1998, 1 month before this act was passed. Section
403 of this act states, in paragraph 1, ``Such competitive
process shall include simplified procedures for small,
individually owned concession contracts.''
Small, single-operation concessions, such as mine, which
grosses around $650,000, do not have in-house attorneys, staff
accountants, in-house environmental management experts, nor do
we have employees who can respond to the onerous, paper-
generating requirements found in our current prospectus.
There is, I believe, a whole new industry of former
National Park Service employees and consultants who are willing
to assist small, single-operation concessions prepare responses
to their prospectuses for a fee or for a percentage of the
business. Fees I have been quoted are far beyond my ability to
afford, and that is not right. It is not right to have to pay
to be able to respond to a National Park Service prospectus.
There are no simplified procedures for me, or for other
small, single-operation businesses, as are called for in the
act. This would appear to be in violation of section 403 and is
an issue that I call on this committee to address. What I have,
as a small, single-operation concessionaire, is experience.
Twenty-three years of proudly providing excellent service and
interpretation of White Sands has earned my satisfactory
ratings and compliments of visitors and the National Park
Service. I believe that you are aware that the Park Service can
remove an unsatisfactory concessionaire anytime they choose. My
health and safety ratings are admirable.
Now along comes the National Park Service with a desire to
change the use of my operation into National Park Service
administrative offices, and require me to build a new
concession in which to operate. The Park Service is using this
act to eliminate those of us who cannot ante up new buildings
because the Park Service wants office space and doesn't want to
pay for it out of their budget.
The Park Service has used this act as a shield to exclude
me from the section 106 process required by the National
Historic Preservation Act. This act, the '98 Act, ``embolds''
the National Park Service to create a pay-to-play system. Some
of the prospectuses generated after the '98 Act are so
expensive that no one bids on them, even if they benefit from
the economies of scale, unlike small, single-operation
concessions.
The prospectus generated for White Sands National Monument
should have been entitled ``Small Business Need Not Apply,''
because of the capital improvements, plus the demolition costs,
plus the money necessary to prepare a responsive bid make it
impossible for me to compete. This is wholly contrary to the
'98 Act. I am certain the authors of the '98 Act did not
anticipate that Park Service units would use this act to
eliminate small, single-operation concessions by burying them
under voluminous prospectuses that require voluminous
responses.
I am also positive this act did not anticipate that
National Park Service, lacking in general management plans,
environmental management plans, commercial services plans,
would go against their own controlling documents--or master
plans, in our case--in order to try and convert concessions
into their offices.
In 1996, the superintendent wanted to use a 1987 concession
addition for a Park Service theater. He implemented a capital
account wherein White Sands Concessions deposited franchise
fees to help pay for future concession improvements.
In 2000, his successor had a different idea. He did not
want to change the footprint of the buildings in the White
Sands Historic District. He required that we turn over the
capital account moneys to the Park Service to be used for other
projects.
In 2002, the next superintendent had the most radical idea
yet. After all the capital account moneys were spent--and on
what, we are not sure--he implemented this prospectus, which
includes a new concession and tearing down the 1987 concession
addition the Park Service coveted for their theater in 1996.
One could get whiplash from the opposing views of
successive superintendents. It is impossible to make plans
essential to small business based on the Park Service's ever-
changing ideas.
Had these superintendents followed the master plan or
produced a general management plan, perhaps I would be able to
compete. But because of the lack of following planning
documents and laws, such as NEPA, section 106 of the National
Historic Preservation Act, I am prohibited from fair
competition.
The '98 Act was enacted to ensure competition and
diversity, and not place small, single-operation concessions on
the fast track to the endangered species list. This committee
has the power to enforce section 403 of this act, whereby the
process shall include simplified procedures for small,
individually owned contracts. I implore this Committee to take
action on section 403 before it is too late.
Another urgent appeal to this subcommittee is that parks
not in compliance with 1978 National Parks and Recreation Act
be required to obey that law prior to the issuance of any
concession's prospectus. If they do not obey the 1978 Act, a
law requiring parks to have plans, the result is chaos, waste,
and abuse. The human toll exacted by the National Park Service
actions as a result of their misuse of this act is
unconscionable.
Thank you to all those who wrote to their Senators and
Congressmen asking that this day happened. Thank you, again,
Mr. Chairman, for giving me the opportunity to tell my story. I
will answer any of your questions, because, in the allotted
time, I could only cover the tip of the iceberg.
Senator Thomas. Thank you very much.
Ms. Verkamp.
STATEMENT OF SUSIE VERKAMP, PRESIDENT,
VERKAMP'S, INC., EL PRADO, NM
Ms. Verkamp. Thank you, Mr. Chairman and members of the
committee. I really appreciate the opportunity to come here
today and your willingness to provide oversight and attention
to our concerns.
I did submit a longer testimony, which I would like
entered.
Senator Thomas. It will be in the record.
Ms. Verkamp. Thank you.
My name is Susie Verkamp, and I am president of Verkamp's.
We are the oldest continuously run family operated
concession in the National Park System. Our business is a gift
shop on the South Rim of the Grand Canyon, located in a
building which my grandfather built in 1906, and it was also
the place where I was born and raised.
Over the past century, we've maintained the highest level
of service to the visiting public, while providing high-quality
Native American handicrafts and souvenirs.
I'm testifying today on behalf of my family, but also other
small concessionaires.
I'd like to focus my remarks on three main areas in regard
to the '98 Act, issues of fairness, inconsistencies, and also
the potential loss of one historic legacy of the national
parks, which is the small, locally-owned, family-operated
concession.
We have a well-proven history of positive collaboration
with the Park Service. We've worked with 25 different
superintendents, and have seen the coming and going of 15
National Park Service directors. Really, we'd like to continue
that for another century, if possible.
From our point of view, unfortunately we know that the
intention of the act was just to improve some of the abuses
that occurred here and there, and, you know, to solve some
problems that existed. But from our point of view, there's
been, sort of, a widening gap between the original positive
intent of the act and some of the actual implementation.
For example, one of the intentions was to increase
competition. But the bidding process discriminates against
small operators. I'd like to--I can sort of reiterate what
Janet said, is that the process just requires enormous amounts
of time, money, and effort, which we have to manage along
with--juggling that with the everyday business of our
operations--keeps us in a prolonged sense of uncertainty.
Because the process has been, sort of, plugged up and slow,
we've been operating on short-term extensions now for 7 years.
And it really is difficult to plan, you know, for the future of
your business if you don't even really know if you're going to
have one.
I think another challenge that's been really significant is
that the requirements and the definition of the selection
factors and the format of the prospectus are constantly
changing, so we're--we sort of have a moving target, in terms
of how we prepare to respond. And we really have to track and
respond to all these details, because many of the bids have
been decided over very minute differences between the bidders.
So it's not something we can just hope that we're going to be
able to respond to well.
Another one of the goals of the acts, as I understand it,
was to increase revenues. We currently pay almost double the
franchise fee of our competitors within the park, but we can
imagine a scenario in which this competitor offers a higher fee
than us and wins the contract, even though consideration of the
fee is supposed to, by the law, be subordinate to other
factors, such as environmental stewardship. They could then
turn around, in the next contract negotiation, and roll our
operation into their overall fee, and the result would be that
the park would receive less, not more, income than they
currently receive from us. Not to mention that the higher-
percentage fees established during this extra legal bidding
wars significantly impact our right to a reasonable profit.
We're very concerned about the role that the fee has played in
some of the other parks.
We also feel that we're subject to regulations that really
should apply only to much larger operations. You know, we
basically have one main building; it's an historic structure.
We're very committed to maintaining it. And we even
participated in a complete renovation back in 1989, right after
we signed a 10-year contract, in order to really bring that
building back to its historic condition.
We recently learned that there could be a very complex
computerized maintenance management system put in place. And
while we realize that has value for managing the whole system,
it could well be overkill for us, and buying the software
necessary to implement that could be a big expense. So there's
these constantly changing potential requirements.
I think the other main concern is that there's been a lot
of inconsistency. In different regions, different parks have
gone about developing the prospectuses in different ways, and
that's--I'd like to reinforce. I think Chairman Naille
addressed that also, the issue of inconsistency.
And, finally, I guess the very last thing is just that I
feel that there really is the potential loss here of, you know,
kind of a unique American institution, which is the small,
family owned operation. We're really involved in our community.
Our history is interwoven with the history of the region, and
there's a lot of contributions that we make to the local
economy, including local jobs, well-paying, you know, good
jobs. And we feel like this could be lost if we were out-
competed and a larger corporate entity were--replaced us.
Thank you.
[The prepared statement of Ms. Verkamp follows:]
Prepared Statement of Susie Verkamp, President,
Verkamp's, Inc., El Prado, NM
Thank you, Mr. Chairman and members of the committee. I truly
appreciate the opportunity to testify before you today.
My name is Susie Verkamp. I am President of Verkamp's, Inc., the
oldest continuously run family-owned concession operation in the
National Park system. Our business is a gift shop on the South Rim of
the Grand Canyon, located in a building which was built by my
grandfather in 1906--13 years before the area became a National Park.
Over the past century we have maintained the highest level of service
to the visiting public while providing high quality Native American
crafts and souvenirs for sale.
I am here on behalf of my family and other small, family-owned,
single site concessioners to testify about the effects on us of Public
Law 105-391 (the ``1998 Act'') and to explain why the earned
preferential right of renewal that was eliminated by the 1998 Act
should be restored to small concessioners.
I was born and raised in Grand Canyon, living in our family
residence above the store. Needless to say, I have a great love for the
Canyon, a firm commitment to its protection and preservation, and a
growing awareness of what a privilege it has been for our family to
live and work there for nearly a century. Our pioneer family history is
completely interwoven with the economic, social and cultural history of
northern Arizona and Grand Canyon National Park. We are one of the
cultural resources the park professes to protect, and yet, we are at
great risk of extinction.
We have a well proven history of collaborative partnership with the
Park Service. Our family has witnessed the coming and going of fifteen
National Park Service directors and twenty-five park superintendents.
We have managed to survive and flourish through depressions,
recessions, world wars and the constantly changing American political
landscape.
Over the years, we have responded to, and been compliant with, a
myriad of legal, legislative, administrative, and regulatory
requirements and constraints. But I can honestly state that we have
never felt more at risk of losing our livelihood and the opportunity to
serve the public than we do today.
The last of our five long term contracts was signed under the
conditions of the 1965 National Park Concessions Policy Act, Public Law
89-249 and expired on December 31, 1997. We have been operating under
short term extensions of that contract for the past seven years. The
1965 Act stated that ``the Secretary . . . shall take such action as
may be appropriate to encourage and enable private persons and
corporations . . . to provide and operate facilities and services which
he deems desirable for the accommodation of visitors.'' But these days
we are feeling not encouraged and enabled, but rather, dis-couraged and
dis-abled, and that is why I am here before you today.
My grandfather began his business under an arrangement with the
U.S. Forest Service, when Grand Canyon was still a Forest Reserve,
created in 1893. The Forest Service was issuing permits rather freely
during that time and competition was unregulated. The Yellowstone Act
of 1872 also allowed the leasing of parcels of land, but after the
National Park Service was established in 1916, the first director
Stephen Mather and his assistant Horace Albright decided that such
unrestrained competition did not enhance, but actually reduced the
pleasure of the visitor's experience of the parks.
To avoid the destruction of the parks caused by the allocation of
too much land and unrestrained competition, they introduced the concept
of an authorized prime concessioner and promoted the concept of the
preferential right of renewal. In addition to Stephen Mather and Horace
Albright, other visionary park service leaders, numerous review
commissions, citizen advisory panels and departmental policy studies
recognized the destructive affects of too much unregulated competition
in the newly developing national parks and determined that continuity
and quality of service would be best served by concessioners with an
established record of satisfactory performance.
Thus, there is a certain irony that the preferential right of
renewal was taken away in the 1998 Act with the expressed purpose of
increasing competition and improving the quality of services, when the
visionary founders of the National Park Service themselves saw certain
dangers inherent in such a free for all approach. Indeed, the
preferential right was not something cooked up by profit hungry
concessioners or designed to eliminate fair competition, but rather, a
way of insuring the best possible services from experienced providers.
We believe that the original intent of the preference right is
consistent with the goal stated in the first line of the 1998 Act: ``to
provide for improved management and increased accountability''. The
Act, according to my understanding, also sought to professionalize
procedures, increase competition, address maintenance backlogs, and
raise revenues.
From our point of view, there is a widening gap between the
original intent of the 1998 Act and its actual implementation in the
nation's parks. For example, one of the stated intents of the 1998 Act
was to increase competition for concessions contracts and improve
visitor services. But because the bidding process created under the Act
so clearly discriminates against small operators, the end result likely
will be the gobbling up of small businesses by a few large corporate
entities that will essentially have a monopoly on park concessions.
Another goal was to increase revenue to the parks. We currently pay
almost double the franchise fee of our competitors within the park. We
can imagine a scenario in which this competitor offers a higher fee
than us and wins the contract, even though consideration of the fee is
supposed to be subordinate to other factors, such as environmental
stewardship of the park's resources. They could then turn around in
their next contract negotiation and roll our operation into their
overall fee. The result would be that the park would receive less, not
more, income than they currently receive from us. Not to mention the
fact that higher percentage fees established during the extralegal
bidding wars significantly impact our right to a reasonable profit.
Additionally, while the Act sought to improve visitor services, the
legal and administrative quagmire created by the new law and constantly
changing regulations have placed significant burdens on small
concessioners, which have impacted their ability to provide quality
services.
For example, the numerous and varying regulations have caused
ongoing delays in the issuance of prospectuses. We have been operating
on extensions for seven years. As any business person can tell you, it
is very difficult to plan for your future when you are not even sure if
there will be one. The level of stress and uncertainty this creates for
ourselves, our employees, our vendors, and even our communities should
not be ignored.
It is almost impossible to anticipate the exact requirements or
format that will appear in a prospectus. There has been a great deal of
inconsistency in how the 1998 Act and the bidding process have been
implemented in different parks and different parts of the country. The
current process, rather than being clear and predictable, has become
more like a park by park version of ``let's make a deal.''
Moreover, the complexity of the bidding process requires enormous
amounts of time, money and effort. Unlike large corporations who have
entire departments dedicated to financial analysis, environmental
management, legal research, and marketing/prospectus response, we have
to juggle the day to day maintenance of our operations with all the
demands of the bidding process. We have been told for the past three
years that our prospectus will be out within months, but we are still
waiting. We fear that the prospectus will appear in the midst of our
busy season. Our appraisals and financial analyses have to be
constantly updated. We struggle with decisions over maintenance
projects, not knowing if we will be able to recover our costs should we
fail to win a contract.
Another major difficulty in preparing to respond to the
prospectuses is that the requirements, definitions of selection factors
and format are constantly changing, often in response to private
contractors who advise park officials, yet stand to gain from the
changes. Much of this maneuvering goes on behind the scene,
unofficially, without public knowledge.
For example, even though we are a small organization, environmental
ethics have always been an integral part of our philosophy and actions.
Over the last several years we have spent large amounts of staff time
in formalizing our environmental programs and bringing them to the
highest certifiable standards, at significant expense and with great
pride at what we have accomplished. And yet only last month I was told
by a person with decision-making authority from the national
concessions office that the international certification which we have
worked so hard to accomplish ``may not be necessary''. This in spite of
the fact that the international certification (known as ISO14001) we
have achieved is being adopted by most Federal agencies in response to
Presidential Executive Order 13148.
If we had been discouraged from pursuing the highest measurable
standards, and been outbid by a large corporation who had such a system
in place, we could have been at risk when our response was evaluated.
This is a very significant issue because one third of the points to be
earned in a response are related to environmental issues, and many bids
have been decided on minute differences between bidders. Evaluations of
responses to the requirements are very subjective and based on the
interpretation of the reviewers. It should be noted that a private
consulting firm, who has developed their own certification process as
an alternative to the ISO14001 process and marketed it to national
concessions staff will provide guidance to the evaluation committees.
In addition to constantly changing regulations, we also are subject
to regulations that should only apply to much larger operators. For
example, we recently learned that the NPS is using a computerized
maintenance management system for their inventory of park buildings.
While we see the value of such a system for managing the system as a
whole, we are worried that this could translate into a prospectus
requirement that we purchase and use software costing thousands of
dollars. Our building is on the National Historic Register, and it was
also our family home. We did not need a computerized system or a
capital project requirement to completely restore the building in 1989,
at our own cost, shortly after our last 10 year contract was signed.
None of this restoration was aimed at enhancing sales or increasing our
leasehold surrender interest but was directed at preserving our history
through careful replication of structural details. These regulations
impose a significant financial burden on small operations making it
extremely difficult to operate our businesses effectively and, at the
same time, compete with large operations that do not face similar
financial constraints.
Losing small, family-owned concessioners would result in great
disservice to the parks, park visitors, and local communities. There
are many ways in which we contribute to the well-being of our community
that will vanish should we be outbid by a large corporation.
For instance, our company employs 12 people. We have always offered
a competitive wage and benefit package, and we have always hired
locally. We did not lay off any employees during the economic aftermath
of September 11, 2001 even though our business dropped off
significantly. We shared the burden of our losses with our employees by
keeping them employed. This concern for our employees is in stark
contrast to a recent case in which a large corporation outbid a family
based operation and cut the work force by 35% within months of taking
over. Are these the desired results of increased competition?
Another example: In the 1950's my aunt worked tirelessly in
cooperation with Senator Carl Hayden to obtain legislation and funding
for a high school in the park. It is the only high school located
within park boundaries in the nation. The school relies upon county
taxes for a significant part of its budget. A recent Court of Appeals
ruling said that concessioners would no longer be required to pay
property taxes because property ownership rights are merely possessory.
Our large corporate competitor in the park has chosen to take advantage
of the ruling. This will cost the county about $580,000/year. The
company has also filed a claim to be reimbursed by the school district
for prior taxation to the tune of about $2.5 million. My siblings and I
all attended the school from first grade through graduation and feel a
strong obligation to continue supporting it. For us, there is more to
life than the bottom line.
In sum, the 1998 Act, as applied, will lead to the extinction of
small business like ours and result in a great disservice to the parks,
park visitors and local communities. Accordingly, we are asking
Congress to restore the preferential right of renewal to our small
businesses so that we may continue to provide quality services to
visitors of our nation's parks and contribute to our local communities.
Senator Thomas. Thank you very much. I appreciate all of
you being here.
Mr. Naille, what is your general impression of the
implementation and the rate of implementation, and the
willingness to implement the recommendations that come from
your group?
Mr. Naille. Mr. Chairman, I would say, for the most part,
the Park Service has been very receptive to what goes on in the
way of our recommendations. We try to run those meetings in--
what I would call an arena of communication, in that we sit at
a table in the round and we talk about ideas and concepts. And
I would tell you that it isn't like the board sits there and
comes up with ideas. The Park Service sits there and comes up
with ideas. And it's the board's desire to encourage that type
of development on the part of the Park Service, where they come
up with ideas, and they implement those ideas.
So I would, therefore, have to say, for the most part, I
think they're very positive about them. They've been resistant
to some things. The NAFI issue is one that we keep pushing, and
I doubt that we ever give up on that particular area of desire.
But, you know, you heard some today, that there is a major
problem in the Park Service, in that they don't have what I
would call the correct business expertise, internally.
To be honest with you, I think--when the public law was put
together, I think there was a desire on Congress's part to look
at an outside asset-management organization of some sort to
take over the function. And I would tell you that I have major
problems with that, being involved with Park Service activities
from the other side, the hotel side of it, for almost 30 years
of my life. The Park Service has a mission that's different
than any other organization in the Government, and that's to
preserve and protect. And I would question an outside
organization taking over.
However, what we, as a board, have found over the last few
years is, organizations--and the bidding process holds, but
I'll just say that Pricewaterhouse is an organization that they
hired, and they bring tremendous business expertise to the Park
Service that's missing, internally.
And the desire on the part of the Park Service to utilize
that avenue, I think, is all important.
Senator Thomas. Okay. Well, I don't think there's
overwhelming interest in having outside management of the whole
proposition, because there are differences, but I think there
is a strong feeling that this is a business function within the
parks, and needs to be managed in a businesslike way.
Mr. Naille. Exactly.
Senator Thomas. And the park has to be receptive to doing
that.
Mr. Welch, the depreciation thing you talked about.
Mr. Welch. Yes.
Senator Thomas. I guess that the fact is--why does it
take--it takes 50 percent of the value of refurbishing in order
to get some depreciation benefits, is that it?
Mr. Welch. The 50-percent rule.
Senator Thomas. Yes.
Mr. Welch. Well, the 50-percent rule is separate from the
depreciation argument; but the 50-percent rule, as it currently
is stated in regulations, says that if you don't spend at least
50 percent of the replacement cost of the building, then you're
not entitled to leasehold surrender interest.
So you could spend 40 percent--that might be a million or
two-million dollars--but you would not be awarded leasehold
surrender interest in that case.
Senator Thomas. It basically has to do with depreciation,
then, doesn't it? Values.
Mr. Welch. Yes, the net number is definitely the result of
both the initial leasehold surrender interest and the ultimate
depreciation.
Senator Thomas. Tell me a little about the cross-----
Mr. Welch. Collateralization?
Senator Thomas [continuing]. Collateralization.
Mr. Welch. Yes.
Senator Thomas. I presume that originally it was designed
to limit the amount of activities one company could have in the
total Park Service. Is that true?
Mr. Welch. Not that I'm aware of, but--I couldn't say what
the original intent necessarily was. But I think the intent was
to not expose, overly expose, one park at the expense of either
another park building-improvement program or a non-national
park building program, because many of the companies that
operate in the national parks have non-national park interests,
as well. And, generally, those companies are not going to have
loans specifically related to just a single-park contract or
just their national park operations; they're going to go to a
lender or a group of lenders and get an overall consolidated
loan that would be partially secured by park assets and
partially secured by non-park assets, which is typical.
Senator Thomas. Yes. I think there are people who believe
that if there wasn't some limitation, that you'd end up over--
after all, with one concessionaire having all the major--I
don't know that that's the relationship. That's interesting.
Ms. White, what would you think--now, is part of your
problem because you exceed the $500,000 gross?
Ms. White. That's part of it, Senator Thomas.
Senator Thomas. I mean, are you treated differently than if
you had less than $500,000?
Ms. White. Well, this prospectus would witness to the fact
that it's very time-consuming--the expertise involved in order
to respond to this, is--it's just daunting.
Senator Thomas. Somebody help me with that. Is this
different than if it were below $500,000?
Mr. Naille. Yes.
Senator Thomas. So you don't fall in the category of----
Ms. White. I'm at $650,000. I am $150,000 above.
Senator Thomas. I see, okay.
So you, then, are dealing with the same sort of regulations
and so on as a $3 million operation.
Ms. White. Right.
Senator Thomas. I see.
Ms. White. And I am a small, single-location operation. And
the law, itself, talked about a simplified version to respond.
And if this is simplified----
Senator Thomas. What would be your suggestion as to how it
should be changed?
Ms. White. Let me ask you a question, first, if I may, sir.
What should be changed? Are you talking about the process or
the----
Senator Thomas. Your situation. What would you see that
ought to be changed to eliminate or reduce your problem?
Ms. White. Okay. My first suggestion would be that--in my
particular case, that the park come in compliance, and have a
plan that they're going to follow. What I testified to, this
going back and forth, is very detrimental to a small business.
Senator Thomas. So consistency over time.
Ms. White. Consistency by having a general management plan.
Those plans are--I believe, are there for a reason, and it's to
keep the park on a pathway so that the resources are protected,
and not getting off on tangents and empire-building that can
occur. You have a plan, and one superintendent starts it, then
the next guy will follow up until it's finished, and so on.
It's just common sense. So I would say, have plans. Require
that these plans be in place before the Park Service can put
out a prospectus. That way, anybody who bids, they're all on
the same page, we're all headed in the same direction.
Senator Thomas. Okay. Sounds good.
Ms. White. I have a whole laundry list. Is that enough?
Senator Thomas. You can submit it in your statement.
Ms. White. Okay. Be happy to.
Senator Thomas. Ms. Verkamp, what would be your suggestion?
Now, I understand you're probably the same situation, you're
over the $500,000, but still relatively small.
Ms. Verkamp. Well, I think this hearing is a positive
development, because I think one of the things that I have felt
has been really needed all along is some oversight as to what
has occurred since the law was in place. So I would hope that
continuing oversight would continue. I'm not sure whether it's
possible to raise that threshold on the preferential right, but
I find that there are some ironies, as I pointed out in my
statement, that the preferential right in the early days of the
park, was put in place to--by some of the early leaders, Mather
and Albright, to discourage what they saw as the negative
effects of unregulated competition. Then there's an irony that
the law was put in place to encourage competition, and yet the
end result may be different. So I'm not sure--of course, we'd
like to see that threshold raised, and I'm not sure if it's
possible for there to be regulatory reform without that
occurring, because then it would come into conflict with the
actual statute.
I think the issue of consistency is very important, because
the Park Service has said, over and over, they want a system
that's fair, simple, consistent, and I think that's really not
what we have in place now.
Senator Thomas. So consistency under several
superintendents and so on would be good.
Ms. Verkamp. Right. And I think the issue--one of the
issues that--where there's a little bit of a discrimination
against us, I think, is that we just have one site, and we
can't--you know, whereas the issues of cross-collateralization
and stuff may be--that's a large concern for some of the larger
operators. For us, we don't really have that advantage to take
a loss on our business outside the park and maybe use the
collateral here for something else. We just have that one site,
that one operation that our livelihood depends on. We lose
that, we lose it all.
Senator Thomas. I understand.
Mr. Naille, have you all ever talked about this $500,000
limit? As time goes by, should that be changed, or is that an
issue?
Mr. Naille. The only thing we ever talked about was
reviewing the contract for the $500,000 or less, which I'm
going to--I can't remember--ten pages, something like that, a
lot smaller than this document. So that's part of the issue on
it. Whether or not that should be changed, I heard Randy Jones'
comments, and I have heard the statement that maybe we should
go to two million or something like that on a concept. I don't
know what that magic number is.
You know, if you get to two million, is somebody going to
want it at three million? I don't honestly know where to draw
the line, myself. The ones that hurt are like Ms. White's, that
is so close over the threshold there, that it's almost--I knew
when she held that book up--I thought, ``Oh, wow.''
Senator Thomas. Well, it is kind of difficult, because, on
the one hand, obviously you want to treat those smaller ones
differently; on the other hand, this is--the parks are public
arenas, and when you get into meaningful businesses, why,
people ought to have an opportunity to deal with it. It isn't
somebody's----
Mr. Naille. I might add, sir, that we have not looked at
numbers of contracts in those dollar ranges. I assume that the
Park Service has, and that would be one way to analyze it, is
to look how many are in that basic range, and work that number
backward from that.
Senator Thomas. There might also be a way to reduce the
paperwork without that.
Well, I appreciate your being here. As I said, all of us,
and, I guess, I particularly am interested in the concession
aspect of the parks, and--because they are an important part of
it. But we do need to continue to work at it, and I appreciate
your input and thank you all for being here. If you have any
other suggestions, please let us know.
The committee's adjourned.
[Whereupon, at 4:10 p.m., the hearing was adjourned.]
APPENDIXES
----------
Appendix I
Responses to Additional Questions
----------
White Sands Concessions, Inc.,
Alamagordo, NM, April 21, 2004.
Hon. Craig Thomas,
Chairman, Subcommittee on National Parks, Committee on Energy and
Natural Resources, U.S. Senate, Washington, DC.
Dear Senator Thomas: Thank you for the opportunity to answer the
follow-up questions you sent. I was grateful to get the opportunity to
testify before your subcommittee hearing and I thank you for your
courtesy and your interest in my plight.
I would like to make you aware that the response to the prospectus
released for White Sands National Monument is due June 18, 2004. I have
very little time left as a concessionaire. The current prospectus
requires capital investments of over $550,000, money I do not have and
cannot get. The capital investment in this prospectus essentially
provides office space for the National Park Service. It is a huge,
unnecessary undertaking which does not comply with the park's planning
documents.
As a small concessionaire that grosses about $650,000, I cannot
compete for my business.
That said, I will be glad to answer your specific questions.
Question 1 asked at what level should the preferential right of
first refusal (PRFR) be set.
My answer is $3,000,000. Here is why. That is the level the NPS
chooses to use outside consultants in preparing a prospectus. In a way,
however, that question is a little difficult because ANY raising of
that level would cover us, whether $1,000,000, $2,000,000 or
$5,000,000.
I feel compelled to add, that in my case, even if I had PRFR I
still could not match this specific prospectus because the NPS chose to
load it up with ``goodies'', or what a PricewaterhouseCoopers
representative termed ``wish list items'', referring to what
superintendents want built by concessionaires that have nothing to do
with concessions.
So, raising that level MAY deter the NPS from producing
prospectuses that the incumbent cannot afford, or it may not. Either
way, it is too late for me unless the subcommittee can help me.
Question 2(a). I would wish that the NPS be required to follow
THEIR own rules for concessions. Again, in my case, the NPS came up
with new capital improvements that violate their own planning document,
the 1976 Final Master Plan. They also, in my opinion, did not follow
the letter and spirit of NEPA. The NPS Director's Order 12 requires
that that NEPA be followed. In my case, I do not believe it was.
Since 1990 or so, White Sands National Monument has a sad history
of skipping the NEPA process. They take a piece-meal approach on all
their projects, whether concession-related or not. That is a real
concern for me because the latest scheme is about to put me out of
business.
I would also ask that when the NPS begins a Capital Account (CA)
for Concession Improvements, as White Sands National Monument (WSNM)
did, they be required to follow through and use the money for its
intended purpose.
In my case, a CA was set up in 1996 through 2001, through which I
kept up my end by contributing to the CA. In 2001 superintendent did
not want new construction in the upcoming prospectus. I was told to
turn those monies over, which I did. Then, in 2002, yet another
superintendent came up with the current prospectus which I have
described to you.
This one is double the original cost estimations and of course,
those CA monies are no longer available for me or any concessionaire to
use. So, I would ask that the NPS not be allowed to pull this kind of
switch-a-roo on concessionaires.
Had the NPS kept its word, perhaps I would be able to compete for
this current prospectus. But, with the CA monies long spent on other
things by the NPS, I cannot compete.
As I mentioned, WSNM has a history of doing such things. In 1997,
WSNM had the approval to build a modular office building that was
temporary. They created a categorical exclusion (CE) document for this
1997 building because it was termed a temporary building. However, with
that CE, WSNM built a permanent office building so large in scale that
it was repeatedly criticized by a NPS report called a Cultural
Landscape Inventory. Clearly, the NPS and WSNM should have done an
Environmental Impact Statement for their 1997 Administration building.
Yet, they did not.
That is just one example of bending the rules, skirting around the
laws that takes place here.
I just feel like the NPS should have to follow their own planning
documents, or change them as the 1978 National Parks and Recreation Act
requires. As you know, that Act requires all NPS units to have an up-
to-date General Management Plan (GMP).
So, I ask that your committee, in its oversight capacity, see if
the NPS is doing what it is supposed to regarding these capital
improvements. I know I have the proof that they are not.
Part (b) of question 2 is easy to answer. If that PRFR is raised to
some number, the incumbent concessionaire still has to be deemed
satisfactory by the NPS. Also, all of those covered would be single
location small businesses, like mine. All of us put service first. It
is our livelihood, it is our life. To do otherwise would hurt our
business.
In fact, the time and money required to prepare a prospectus
response is the biggest barrier to good service I can think of I am not
an absentee owner. I watch the day-to-day operations of my business
first-hand. The huge prospectus and huge required response would do
more damage than anything. The man-hours involved would require me to
spend less time in the store and more time on the computer.
Customer service will be aided by owners spending time running
their business rather than spending time trying to defend it from the
burdensome process now in place.
I cannot tell you the heartache I have suffered over that last year
and a half over this NPS fiasco. I have still, in the midst of all
this, put customers first. However, the level of exhaustion I have as a
result of this process has taken a mighty toll.
Again, thank you for this chance to convey my answers and share my
concerns. It is clear that the NPS does not consider mine to be a small
business. The prospectus issued on February 18, 2004, and due on June
18, 2004, should have been entitled ``Small Business Need Not Apply''.
The phone book sized document, not including two CD-ROMs, amounts to a
small business disqualifier.
Sincerly,
Janet T. White,
President.
______
Responses of Michael F. Welch to Questions From Senate Committee on
Energy and Natural Resources
Question 1. The National Park Hospitality Association and several
concessioners have reported disparities between the 1998 Act and the
May 2000 Park Service Regulations. For that reason, they have asked
that the regulations be changed.
Question 1a. What do you consider the most obvious disparity
between the law and the regulations?
Answer. We have identified many disparities between the 1998 Act
and how it is being administered through the Regulations and Contract
forms. It is important to recognize that many of the provisions
interact with each other and thus changes to one section would in many
cases necessitate changes to others. Although we hope that all
disparities are ultimately addressed, we believe there are three
critical issues that most affect the concessions program.
1. The first critical issue relates to encumbering leasehold
surrender interests and ensuring that concessioners can access the
financial markets for loans at a reasonable cost. For example, Section
405 (a) (2) of the statute states ``A leasehold surrender interest may
be pledged as security for financing of a capital improvement or the
acquisition of a concessions contract when approved by the Secretary
pursuant to this title''. Section 51.87 of the regulations adds the
qualifier, that the LSI to be encumbered be ``in the applicable park
area''. This restriction, found in the regulations, but not the
statute, will have a chilling effect on competition if not revised.
First, a concessioner with operations in several parks is
prohibited under the current rule from wrapping all of its LSI into a
single collateral package. Creating separate loans for each park
secured by each park's LSI will significantly raise financing costs,
and therefore lower the amount a concessioner is able to bid to renew
its existing contracts. Second, lenders won't finance the buyout of new
contracts on the basis of prospective LSI alone, but they also require
historical financial results. Since these are rarely available to
anyone but the incumbent, cross-collateralization is essential to
securing contingent financing for new contracts. My company has spent
literally millions of dollars on legal fees trying to structure a debt
agreement that complies with the current regulations. We remain hopeful
that we can gain National Park Service approval in the very near
future.
2. The second critical issue concerns the identification of
expenditures that are entitled to Leasehold Surrender Interest and the
measurement of Leasehold Surrender Interest value. To summarize, we
believe the 1998 Act clearly provides that all capital improvement
expenditures made to park facilities by concessioners are entitled to
LSI credit. As you know, virtually all businesses identify capital
costs by reference to Generally Accepted Accounting Principles
(``GAAP''). However, the NPS has interpreted the language governing LSI
credit far differently. Based on our discussions in the ``working
group'' so far, this could result in a very labor intensive and costly
tracking method. The purpose of creating LSI was to simplify how credit
was to be given for making capital commitments in the parks and reduce
the potential for disputes. Instead, the Regulations make the system
much more complicated and increase the potential for disputes. I have
included edited excerpts from my written testimony submitted at the
hearing below.
The primary LSI-related issues are:
a. Definition of Capital Improvements, including the 50% rule
While certain sections of the Regulations correctly take their
guidance from GAAP as the benchmark to determine whether capital costs
should be accorded LSI treatment, there are provisions in Section 51.51
that are contrary to GAAP, such as the rejection of building materials
for capital improvement eligibility except (1) when initially installed
as part of a structure or (2) when the ``50% Rule'' is met. Thus, for
example, the conversion of a dormitory to guest lodging, though
potentially costing millions of dollars, would not necessarily be
considered a capital improvement eligible for LSI treatment. In that
case, only if the conversion cost represented at least 50% of the pre-
conversion replacement cost value would LSI treatment be accorded to
the conversion. This limitation, not found in the 1998 Act, has been
termed the ``50% Rule''. Thus, common--and sorely needed--renovations,
rehabilitations, and other capital improvement projects in our national
parks often would not qualify for LSI treatment under the existing
regulations and standard contract provisions even though we believe the
1998 Act intended that they should qualify for LSI treatment.
b. Prevailing cost ceiling
The Regulations also purport to restrict the LSI values to
``amounts that are no higher than those prevailing in the locality of
the project'', which is not a requirement of the 1998 Act. This means
the NPS could set LSI values on the basis of lower construction costs
in metropolitan communities outside the national parks, even though the
cost of construction in remote park areas is generally much higher.
NPHA believes the litigation established that this limitation only
pertains to a comparison with other in-park projects, which of course
are already subject to strict regulation by the NPS. Thus the
limitation in the Regulations appears moot. Since concessioners have no
incentive to ``overpay'' for a project in the hopes of receiving LSI
that will only grow by CPI, this restriction will only serve to impose
a needless administrative burden for each project and could create
confusion and disagreement between the parties. It should be
eliminated.
c. LSI consistency and problem resolution
In our on-going discussions, NPS has stated that there should only
be occasional or isolated instances where an LSI determination needs
to, occur. On the other hand, NPHA believes these instances will occur
on a more routine basis as capital investment generally occurs
throughout a contract term. Since a consistent approach across all
contracts would be desirable, NPHA believes that a framework should be
set up to resolve these instances simply and efficiently. Possibly a
nationally recognized accounting firm such as PricewaterhouseCoopers,
acting both in a dual role as NPS' asset manager and as an independent
financial expert, could serve to confirm that the costs presented by
the concessioners are correctly capitalized under GAAP and thus
entitled to LSI. These checks could be performed on an annual basis or,
to save costs and maximize efficiency, only at times when the NPS
disagrees with a concessioner's treatment of a specific item. This
process could lead to long-term consistency and stability so that both
NPS and concessioners would benefit from having a simple set of
procedures that would be used to evaluate these critical on-going
decisions for both parties.
d. Measurement of Depreciation
Just like the preceding 1965 statute, the 1998 Act requires that,
when measuring the depreciation related to a capital improvement for
which LSI was awarded, a physical standard of depreciation be used. In
other words, it requires measurement of the observed deterioration of
the facilities during the contract term. In contrast, much discussion
within the working group has centered on an NPS proposal that a
``scheduled'' form of depreciation be the measurement tool.
Conceptually, this means an amortizing schedule similar to what is used
for tax or financial reporting purposes. The NPS proposal is that each
and every asset be broken down into its individual components at the
time it is placed in service and an estimated useful life assigned to
each component for purposes of ``counting'' depreciation in the LSI
calculation. Besides being extremely cumbersome and therefore costly,
this method would lead to a substantially different result than the
statute requires. This same distinction formed the basis of the debate
in Congress over possessory interest that was resolved when Sen. Thomas
incorporated a concept that included physical depreciation, in the same
manner as the prior law, as a portion of the LSI formula. The NPHA
strongly objects to scheduled depreciation on several grounds.
First and foremost, changing the LSI formula from physical
depreciation to scheduled depreciation would generally have a
significant and negative impact to the return on investment
that concessioners would receive. This formula constitutes a
critical consideration for concessioners in the bidding
process, particularly for ``capital-hungry'' parks. Since
businesses require minimum market returns to be attracted to
concession opportunities, lowering the compensation received at
the end of a contract would likely require a significant
reduction, or even elimination of, franchise fees to the
government and over time probably require more government
appropriations to directly fund park facilities. None of these
impacts appear to be in the best interests of the United States
or the visiting public.
Second, scheduled depreciation doesn't provide an incentive
to the concessioner to maintain the asset in good physical
condition. Since under this scenario the asset will become
fully depreciated at the end of a specific period of time (the
``scheduled'' life) no matter how well (or how poorly) the
concessioner takes care of the asset during its service life,
the concessioner will watch its LSI value march downward toward
zero irrespective of the level of care devoted to it. NPHA
considers this to be an unwise policy since, at a time when
there is so much written about the condition of our national
park facilities, we should be trying to upgrade the condition
of the assets by providing incentives for concessioners to
maintain them in top-notch condition. If two concessioners
spend the same amount of money to place an asset into service,
but one spends its maintenance funds throughout the contract
term to keep the asset in good physical condition while the
other concessioner spends little or no money to maintain the
asset, both concessioners will wind up with little or no LSI
value at the end of the ``scheduled'' life of the asset.
However, the first concessioner will have spent significant
maintenance funds so that the asset can continue to fulfill its
function in providing services to park visitors while the
second concessioner has ``milked'' the system and left the NPS
with a run-down asset with little or no value. Unfortunately,
the second type of concessioner is likely to become more
prevalent throughout the parks since they can bid higher
franchise fees than more responsible operators.
Third, estimating a useful life when an asset is placed in
service will almost always turn out to be wrong. This result
will be compounded when trying to estimate the service life of
each individual component that makes up the overall asset.
These variances are caused by weather conditions, materials
that last longer (or shorter) than the manufacturer or
engineering estimates, preventative maintenance procedures
performed (or not performed) over the useful life by the owner/
operator, and normal human error. Therefore, it seems futile to
think that one can accurately estimate the useful life of all
the components of an asset within acceptable bounds of
precision for purposes of a contractual LSI measurement, even
if it were in accordance with the law. The concept of
``scheduled physical depreciation'' is inherently
contradictory.
Fourth, there is a major administrative burden associated
with a scheduled depreciation framework that will also lead to
increased costs for both concessioners and the NPS, a burden
that we believe will not translate to improved facilities or
services in the parks.
We strongly believe that depreciation can be measured in a fair
and straight-forward manner without unneeded procedural steps.
In particular, as noted above concerning the administrative
burden associated with attempting to measure scheduled
depreciation using a component-by-component basis would be just
as burdensome to do so when measuring physical depreciation.
Instead, the evaluation should look at the level of physical
depreciation of each building or other improvement as a whole
as compared to the level of physical depreciation at the
beginning of the contract to determine the amount of
depreciation deduction to be taken. Providing concessioners
with an economic incentive to maintain and upgrade park
facilities over the contract term is desirable. This must be
accomplished, as Congress intended, by using physical
depreciation at the end of the contract as the measurement
basis for determining LSI value. However, once that conclusion
is reached, it is equally critical to focus on how physical
depreciation will be determined for purposes of arriving at an
LSI value at the end of each contract. It is relatively simple
(even though appraisals would still be required) to measure
physical depreciation on a building level basis since the
initial cost of acquisition at contract inception can be
readily allocated among buildings and other improvements, but
would be much more difficult and costly to allocate among the
myriad of building components. We encourage the NPS to follow
the more straightforward and efficient method of a ``unit by
unit'' assessment as was done under prior law, rather than the
needlessly complicated ``component by component'' approach.
3. The third item of critical importance concerns NPS approval of
shareholder transactions. This issue is also of critical importance to
any concessioner that is part of an affiliated group of companies, or
that engages in businesses other than national park concessions.
Although it may be understandable for the NPS to want as broad
approval rights as possible over transactions involving changes in
ownership of concessioners and their owners, Congress recognized that
regulating shareholder behavior would reduce bidding interest and
create substantial risks to affiliated organizations. Thus the 1998 Act
regulates only the movement and encumbrances of contracts themselves,
but not shareholder behavior.
Question 1b. Have you expressed your concerns to the Concessions
Management Advisory Board and the National Park Service?
Answer. Yes, we have. In addition, when Director Mainella
established the ``working group'' during early 2003 to address the most
critical difficulties concessioners have voiced concerning the
Regulations, she included in this group members of the Concessions
Management Advisory Board, including Chairman Naille, as well as
appropriate members of the senior NPS staff.
The discussions of the working group indicate that both NPS and the
concessioners are in agreement that the ``50% Rule'' will be
eliminated.
NPS and the working group have also been working to clarify under
what conditions approval of shareholder transactions by NPS is
necessary. There is agreement that clarification is advisable and we
are optimistic that the NPS will ultimately agree on a solution that
complies with the law. NPS originally proposed to clarify this guidance
through a Director's Order, whereas we believe that the Regulations
need to be amended to remove the sections that exceed the scope of NPS
authority under the 1998 Act.
Question 1c. Has any progress been made in the past year to address
these concerns?
Answer. Although we have had some productive discussions within the
working group and believe that some of the key issues can potentially
be resolved by this group, we have not yet reached agreement on any of
the key issues identified above.
Question 2. What are the two or three most important skills for an
NPS Concessions Program manager to possess?
Answer. Because the Concessions Program Manager only has an
indirect reporting relationship with field level staff, success
requires considerable skill at building relationships. We also believe
that this person must share the NPS' commitment to a strong private
concessions program within the parks where concessioners are regarded
as business partners for the public benefit.
A degree of business acumen is essential to understanding, and
therefore being able to manage, private enterprises in the national
parks. In particular, in an environment where the government is looking
to the private concessioners to invest in park facilities and maintain
them for the public benefit, it is imperative that a Concessions
Program Manager has a basic understanding of accounting principles and
a firm understanding of how investment decisions are made (including
the importance of return on investment), as well as how businesses
attract capital from the financial markets to make those investments
possible.
The financial consultants that NPS has engaged to help with the
concession bid process and other matters bring specialized expertise
(some more so than others), but in general not much experience with
national parks. Financial skills would therefore be very useful to a
Concessions Program Manager to effectively evaluate the consultants'
work.
Question 3. In what key areas has the NPS been successful in
implementing the 1998 Act? In what areas has the agency been
unsuccessful in this regard?
Answer. NPS has placed a great deal of emphasis on promoting
environmental best practices in concession operations. Although my
company, and others, embraced recycling and similar measures early on,
there's no doubt that many concessioners are now focused on integrating
environmental protection into every aspect of their business.
We also think progress has been made toward simplifying the pricing
function as required by the 1998 Act, by taking a variety of goods and
services out of the traditional comparability analysis. This includes
the ``core menu'' concept for food and beverage items and the ``open
market declaration'' concept for retail items. More work can and should
be done in this arena to simplify the lodging rate approvals.
We believe the 1998 Act was designed to increase competition in the
National Park system, while still treating previous and future
investments made by concessioners in park facilities in a manner that
can provide a concessioner with a modest return on those investments.
To date, our experience in trying to apply the Regulations to real-
world situations has been inefficient, expensive, and not in accordance
with normal business practices. We would like to see the Regulations
and standard contract language rewritten in the near future so they
conform to the 1998 Act.
______
Responses of Richard Allen Naille, II to Questions From Senate
Committee on Energy and Natural Resources
Question 1. Since being chartered in 2000, the Concessions
Management Advisory Board (``CMAB'') has met eight times and issued two
annual reports containing recommendations for improving concession
management.
Question 1a. Has the National Park Service (``NPS'') implemented
any of your recommendations for improving the concessions program?
Answer. Respectfully, I must tell you that the CMAB has met a total
of 11 times since its inception. Four of these meetings were held in
Washington, DC. The remaining seven were held in the field (at or near
an NPS unit). In addition, we have issued three reports, each of which
includes minutes from each CMAB meeting and an executive summary of the
year's CMAB activities and recommendations.
The NPS is presently working on all of our recommendations except
two: Associate Director of Partnerships and Business Practices, and a
pilot version of a Non-Appropriated Fund Instrumentality (``NAFI''),
which is considered a best practice within the federal government for
managing fee- and concession-related revenue. We do hope for a positive
move on the NAFI concept in the near future.
Question 1b. Following implementation, did the recommendations
produce the desired results?
Answer. Results have been slow but positive. The best part is that
the NPS is moving forward. The inclusion of PricewaterhouseCoopers
(``PwC'') has been a significant positive step.
Question 2. What do you consider the single greatest issue facing
the National Park Service Concession Program (``NPSCP'')?
Answer. The single greatest issue facing the NPSCP is the lack of
internal management accountability from superintendents to concession
chiefs. There is too much decentralization down to the superintendents,
who do not seem to honor previous superintendents' agreements, GMPs,
etc.
This problem is endemic to many government organizations, and is
not new to the NPS. It has been a problem for at least 20-30 years.
Constant movement of superintendents has resulted in inconsistent
follow-through on projects and programs. In addition, new
superintendents do not always adhere to policies and procedures
developed by their predecessors.
Further, superintendents and local park concession management
personnel really have no concrete reporting relationship to the Chief
of Concessions in Washington, D.C. Things only happen when there is a
``friendship'' between the parties. In a business organizational
structure, there are straight-line and dotted-line reporting
relationships; and corporate offices set rules for the field. Within
the NPS, the opposite appears to be true.
Part of our intention for the creation of the Associate Director of
Partnerships and Business Practices was to provide the NPS with someone
that would spearhead the development of new and proper business
practices for the agency. The person chosen to fill this position would
have substantial private-sector management experience, and would help
the NPS to internalize asset and contract management expertise.
In addition, other federal government organizations such as the
Department of Defense have effectively used the NAFI to establish a
virtual corporate structure for the management and accounting of non-
appropriated fund revenues.
However, the NPS has chosen not to create the Associate Director of
Partnerships and Business Practices position. They have also not yet
moved ahead with a pilot NAFI. Both of these initiatives would help
improve the NPSCP oversight issue. Therefore, the lack of
accountability within the NPSCP will remain the program's greatest
issue for the foreseeable future.
______
Responses of Susie Verkamp to Questions From Senator Thomas
Queston 1. Ms. Verkamp, you mentioned several instances in which
your smaller business can offer benefits to the park visitor that
larger companies cannot. Aside from increasing the $500,000 threshold
for preferential right of renewal, what other suggestions would you
make for ensuring the ``value added'' of the small concessioner is
adequately reflected in the prospectus and review process?
Answer. There should be some way to reflect and give credit in the
prospectus and review process for the role that small park
concessioners play in the life of the park community itself and in the
surrounding local economy. Many local concessioners are highly valued
and respected members of the community, serving on school boards,
donating to charities, participating in service organizations, and most
importantly, providing an historical continuity that cannot be provided
by the NPS staff, who by their nature as civil servants move into and
out of different parks as their career paths dictate. Local history and
local culture and local aesthetics are best shared with visitors by
``locals''.
Large corporate concessioners generally have no historical ties to
the parks and, therefore, can offer no history to visitors of the
parks. Additionally, large corporate concessioners frequently lack ties
to local business communities. Consequently, large operations tend to
hire seasonal employees who are offered no continuity or benefits,
which makes it difficult to attract and retain qualified, experienced
employees to provide visitor services. Some account should be made for
decisions made on factors other than the bottom line.
To ensure that the ``value added'' by the small concessioner is
adequately reflected in the prospectus and review process, I suggest
adding several evaluation criteria that specifically address the
potential bidders' relation to the local economy and community, the
longevity of staff, improvements to the park property over and above
those required by the prior contracts, and comments from visitors
regarding the service received. In addition, the NPS should consider
the bidders' capability to interpret the park's culture and history,
particularly in light of the fact that a majority of visitors to the
parks currently identify their main interests as history and culture.
When people visit the national parks they are looking for an
experience that is different from a trip to their local shopping mall.
They enjoy the unique historic and aesthetic qualities of the parks.
While it is hard to quantify the ``character'' of the parks that makes
them such a beloved part of the American cultural experience, a process
that doesn't take these intangible qualities into account could to lead
to the ``Walmart-ization'' of our national parks.
Question 2. If the threshold for the preferential right of renewal
were raised to $6 million, a fraction of the existing 600+
concessioners would be required to compete for contracts. What
incentives would there be for companies, with a preferential right of
renewal, to provide the highest quality possible in visitor services?
Answer. The most obvious incentive is that our operations represent
our livelihood. If we don't do the best possible job, we lose customers
and the good reputation we have worked so hard to earn. Providing the
highest quality visitor services is, quite simply, good for business.
Moreover, as long term residents of our local communities, we do not
want to lose the respect of our friends and neighbors by running a
shoddy operation. It is hard to quantify the pride and commitment to
excellence that many small operators have, but the annual evaluations
performed by the NIPS provide clear evidence of a job well done. (Or
not, as the case may be.)
In addition to earning a profit and maintaining a good business
reputation, small concessioners must provide quality services or risk
losing their contract. The NPS has always had the authority to
terminate unsatisfactory concessioners, including concessioners with a
preferential right of renewal. Thus, all concessioners, including
concessioners with a preference right, must continue to provide
satisfactory services.
Further, because concessioners must earn the preference by
providing quality services, the preferential right of renewal in and of
itself creates an incentive to provide high quality services. Only
concessioners with satisfactory records are given the opportunity to
match the terms and conditions of the best competing proposal.
Without this preference, concessioners are faced with uncertainty
as to whether they will be awarded the contract the next term and,
therefore, tend to forgo investing in costly improvements that could
improve visitor experience for fear of losing the contract the next
term and, in turn, losing their investment. Without some assurance of
continuity, the incentive to maximize services beyond what is required
by the contract is seriously threatened and visitor services and
facilities will progressively erode. Thus, the question should be what
incentive is there for companies without a preferential right to
provide the highest quality possible in visitor services?
When a concessioner does a great job, it enhances its profits,
which in turn enhances the park's revenues through increased franchise
fees. Increased park revenues enhance the park's ultimate goal of
maximizing visitors' experience and enjoyment. Creating a stable and
predictable business environment as well as clear guidelines for
operating our business, will enable us to do our jobs well and
ultimately enhance visitors' enjoyment of the park.
Question 3. Would a standard format for proposals, with limits on
the number of pages, number of illustrations or a standardized format
for financial reporting, result in a more equitable bidding process?
What suggestions do you have for making the bidding or proposal process
more equitable between large and small concessions?
Answer. I am not sure if standardization is as important as are
clarity, consistency, objectivity and transparency in the entire
bidding process. Rather than developing a standardized prospectus for
all parks, I believe that, in some cases, tailoring the prospectus to
the specific site may be in the best interest of the park, the
concessioner and the public.
As I stated in my written testimony, the guidelines and criteria
used in the bidding process have been a constantly changing target. The
reasons for these changes are difficult to discern and often appear to
be the result of personal or political agendas. As we are discovering
from past competitions, the NPS does not have a quantifiable evaluation
process. It is very subjective and often shaped to support a desired
outcome. We have seen this most recently in the Jamaica Bay competition
and the final decision of the GAO. If a quality incumbent loses because
of an overly subjective evaluation process and for no other reason, it
is ultimately the public's loss.
Proper oversight, well-structured contracts, and clearly stated
expectations from both the NPS and the concessioner are the best tools
for ensuring quality services. Unless there are clear guidelines, the
responsibility for deficient visitor services must be shared with the
local park staff, who have oversight authority over all concessions
contracts. In many instances, small operators have been operating on
one year extensions for decades, with no annual evaluations and no
ongoing, interactive support from their local park officials. We cannot
read the minds of NPS officials. If the NPS and the concessioners are
truly equal partners in providing quality visitor services, then they
must communicate effectively and both act to address problems before
they get out of hand. The overly complicated and costly bidding process
mandated by the law is not the answer to improving services where they
have fallen below acceptable standards.
In addition to changing guidelines, small concessioners are placed
at a competitive disadvantage due to the cost associated with
responding to a prospectus. In many instances, small concessioners are
discouraged from bidding when competing with large corporations. There
are several examples of factors that contribute to excessive costs to
small concessioners.
For example, concessioners earning at least $1 million are required
to submit audited prospective financial statements by an independent
accounting firm. The cost to obtain an independent audit has increased
significantly over the years and is prohibitive for small
concessioners. This additional cost must be passed on to the visitor by
increased rates. Accordingly, I believe that the threshold for the
audit requirement should be increased from $1 million to $4 million and
should also be indexed to an annual consumer price index (CPI).
Another example of overly burdensome costs is the requirement for a
formal environmental plan. In fact, preparing a formal environmental
plan often requires hiring a professional to write the plan, another
cost which can be prohibitive to a small concessioner. Moreover, no
matter what the format of the prospectus, it is hard for small
concessioners to compete with large companies with dedicated proposal
writers, marketing departments, and environmental staff. Accordingly, I
would strongly recommend greater oversight on the role of support
contractors in developing criteria, particularly in the environmental
area. The standards of expectation of environmental management, in
particular, should be subjected to peer review and objective discussion
and compared to standards adopted by most other federal agencies.
In addition to having more money to pay dedicated proposal writers,
marketing departments and environmental staff, large concessioners also
have more money to offer the NIPS in franchise fees. The present
bidding process encourages franchise fee bidding and should be
eliminated because it serves no public interest. The only result is the
placing of small concessioners at the mercy of wealthy corporations or
conglomerates, some of whom are willing to purchase a small
concessioner even if they know it will lose money in the short term.
The franchise fee should be set by the park prior to issuing the
prospectus so that the concessioner can prepare its budget and proposal
based on a set fee.
Another problem incurred by small concessioners is unanticipated
costs. We are incurring costs that were not predicted when we signed
contracts under the law that protected our preferential right to
renewal. For example, if I am not planning to put my business on the
open market, there is no need to spend tens of thousands of dollars to
have an appraisal done. An appraisal is only necessary if I am placed
in the position of having to negotiate my leasehold surrender interest
with another party. However, under the current NPS policy, I must pay
for an appraisal even though there is no need for one. These
unanticipated and unnecessary costs and complications discriminate
against incumbent small concessioners because they were not known at
the time we signed our contracts and make it nearly impossible to plan
and effectively operate our businesses.
The lack of clarity, predictability and objectivity in the current
prospectus process is costly to both potential bidders and the NPS. To
fully appreciate the scale of this problem, I think it would be very
instructive to quantify the amount of money and staff time that small
concessioners have had to spend preparing for this process. I would
also strongly recommend an accounting of the immense resources that the
NPS has spent on this process. For example, I have heard that the NPS
recently spent $300,000 developing one prospectus for one operation
that grosses under $3 million annually. Wouldn't it have been more cost
effective to just renegotiate a well structured contract for higher
franchise fees, increased capital outlays and better environmental
standards, if that was the desired outcome?
Question 4. Do you feel that you have been well represented by the
Concessions Management Advisory Board? What suggestions would you make
for improving the Board?
Answer. Because the industry representatives on the board are from
large corporations, they have very different experiences and concerns
than the small concessioners. There are some issues in which small and
large concessioners have a common interest and others in which our
perspectives and concerns are very different. For example, the board
has focused a great deal of attention on the issue of cross-
collateralization. For those of us having small, single site operations
cross-collateralization is not a particularly significant issue. In
fact, because it is a potential benefit that we are not able to take
advantage of, it could be seen as discriminatory. Having large
concessioners in key positions allows them the opportunity to shape
outcomes for their strategic purposes.
That being said, I have appreciated the openness of the meetings
and the tone which has been set by the chairman. Because it is
prohibitive for small companies without huge travel budgets to attend
meetings at great distances, it has been helpful to have the meetings
coincide with the NPHA meetings. However, 1 believe that greater
efforts could be made to get input from small concessioners when
specific issues are to be discussed and decided upon.
Additionally, the minutes of the board meetings have not been made
available until months after the meeting, and they have been somewhat
difficult to obtain. This is unfortunate because they often explain
developments that are critical to preparing for the competitive bidding
process.
To help elevate small concessioners' representation by the Board, I
suggest that small concession representatives be added to the working
groups, where much of the creative problem solving and decision making
are taking place. I also suggest that a working group be established to
look into inconsistencies and discrepancies in how the bidding process
has been implemented in different localities.
Appendix II
Additional Material Submitted for the Record
----------
Response of John Turney, Cavern Supplies, to Testimony of A. Durand
Jones, Deputy Director, National Park Service
In response to comments made by Mr. A Durand Jones, Deputy
Director, National Park Service to the Senate Subcommittee on
National Parks of the Committee on Energy and National
Resources on April 8, 2004 regarding the status of the National
Park Service Concessions Management Program that were
misleading, I feel that it is important for the members of this
Committee to understand the truth.
Mr. Jones stated that ``[o]f the 52 operations currently
grossing over $3 million in revenues, five are operating under
newly awarded contracts, 17 have not yet reached their original
expiration date, and 30 are currently operating under
contractual or regulatory extensions (that is, their original
operating date has passed). To date, we have awarded five of
these contracts, at Greater Lake, Glen Canyon, Denali, Glacier
Bay, and Yellowstone. We have released prospectuses for two
others--Mount Rushmore and Carlsbad.''* He failed to mention
that Carlsbad Caverns Concession Contract is less than $3
million and with the statement he made above indicates that
Carlsbad is in the over $5 million group of 52 operations. He
also failed to mention that the prospectus issued was called
back within about a month because it contained points that were
not legal and were contrary to the law. He also failed to
mention that the second prospectus was issued and there were no
bidders because of the requirements that were placed on the
concessionaire. He failed to mention that a third prospectus
for the Caverns has not been issued as yet, therefore his
statement concerning releasing a viable prospectus and
misleading the committee into believing that Carlsbad has a
workable prospectus is not true. Mr. Jones' statement makes it
sound like a contract will be issued soon, and that is not
true, at least until the new third prospectus is issued that is
acceptable to the bidding concerns.
---------------------------------------------------------------------------
* This quote is taken from Mr. Jones' written statement to the
subcommittee.
---------------------------------------------------------------------------
It appears that the passage of P.L. 105-391, the National
Park Service has taken the stand that the concessionaires can
fund many of the projects that they can not or are not willing
to fund themselves. In our situation at the Caverns, the Park
Superintendent could not control her staff during their breaks,
so her solution to the problem was to issue a memo stating that
no Park Service employee is allow to go to the concession
restaurant for their breaks. As a further control measure, in
the remodeling of the Visitor Center, she has taken all of the
storage space and some space used for merchandising and
restaurant seating to be converted into a break room for the
Park Service. This will keep the employees out of the public
eyes and will have a very bad negative effect on the areas of
the concessionaire. No storage, no access to the Gift Shop
except through the kitchen and seating area of the restaurant.
Asking the concessionaire to invest $3.28 million in remodeling
the building that will not be a workable building makes little
to no sense at all. As long as the concessionaire owned the
building, Park Service could not do what they wanted, so they
bought out the possessory interest in the building so they
could do what they wanted to do. Destroy the usefulness of the
building because they could not control their employee and they
needed additional space on the visitor center side and could
not work it into what space they had felt. With them putting
their break room in the concessions building, it is easier to
use the franchise money that the park has kept to on such
things as air condition and heating, which they plan us use in
the entire visitor center complex.
The Park Services lack of knowledge of the business world
is shown in their proposing the increase of the franchise fee
increases in the first contract prospectus, from 6.5% to 15% to
25% as your gross sales go up does not indicate a understanding
on how to operate a successful business, especially with a 15
year contract. When the second prospectus was issued the term
of the contract was 10 years with the franchise fee from 10% to
15% to 25% as your gross sales go up, also does not indicate
business knowledge, only greed on the part of the Park Service.
There are also some three-quarters of a million dollars of
hidden cost in the prospectus that are not included in the
$3.28 million, plus the purchase of the possessory interest of
the current concessionaire. Total figure will be $4.3 million
at least, but nothing is said that a large part of that
investment will not qualify for Leasehold surrender interest.
Mr. Jones' comment concerning the Advisory Boards meetings
being held where the smaller concessionaires can attend is
stretching the truth somewhat. On at least 2, possibly 3
different times the Advisory Board scheduled a meeting the
following week after the National Park Hospitality Association
Meeting. This was very convenient and plans were make to attend
their meetings, only to have their meeting canceled at the last
moment and rescheduled at a later date. Travel funds are not as
readily available to the small Concessioner as they are to the
Park Service.
As the new law became more and more entrenched, it was
evident that the Park Service had to do something to make the
pill not so bitter. They began to mislead the concessionaire as
to what would be expected. We were told early on that the
contract would be a status-quo contract. When the planning was
completed and the money spent on preparing for the ``Status-
quo'' contract, were we ever surprised when almost $4 million
had to be spent to keep the facility. I cannot help but wonder
what it would cost if it were not a ``Status-quo'' contract?
Because of the Park Services desire to implement the new
law and take away our preference in renewal, even though we
have it in writing from the Regional Director, we have been
under extensions now for 13-14 years. We have not been able to
retain our key employee because of the uncertainty of year to
year extensions. We have not been able to invest in the
business like we would like because again of the uncertainty of
the contract.
The new law and the way Park Service has interpreted it has
just about ruined our future and has limited our ability to
provide the visitor services that were contracted to do.
Because of their greed and unwillingness to serve the visitors,
two of our contractual rights were taken away without even a
good reason being given. One day we were told that we would no
longer provide those services. No amendment, no reduction in
franchise fee, no nothing, just you will not offer those
services again. Now they are trying to remove the Underground
lunchroom from the Caverns by circumventing the law and reduce
the activity so much that sales will be reduced by 80% or so
and it will not be profitable to operate the facility, a
facility that the public wants and has expressed their wishes
more than once,but those wished have fallen on deaf ears.
------
Prepared Statement of the Small Concessions Coalition
restoring the right of preference to small concessioners
introduction
For over 50 years, performing concessioners could earn a
preferential right to renew their concessions contracts\1\ by providing
quality services to National Park visitors. In 1998, Congress limited
this right to ``small'' concessioners (grossing less than $500,000
annually) or those providing guide and outfitting services (regardless
of income). It was thought that limiting the preference right would
spur competition leading to better visitor services. But from an on-
the-ground perspective that has not been the case. Instead, the threat
of takeovers and the burden of a paperwork-laden prospectus process are
creating instability and apprehension diminishing the quality of
visitor services provided by many smaller concessioners. Accordingly,
the concerned concessioners recommend that Congress change the
threshold to restore the earned preference to ``small businesses'' as
defined by the Small Business Act, 15 U.S.C. Sec. Sec. 631-657, Pub.L.
85-536 (i.e., $6 million).
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\1\ Concessions contracts are issued by the National Park Service
(``Park Service'') and authorize concessioners to provide
accommodations, facilities, and services to visitors to the National
Park System.
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background
Approximately 600 concessioners hold an estimated 640 contracts to
provide services in the National Park System. These concessioners fall
into three categories.
One group consists of large operators, some of which are
subsidiaries of national corporations. Of these large concessioners,
there are approximately 17 companies that hold 28 concessions contracts
exceeding $6 million in annual revenue. Four of these companies also
hold another 23 contracts of lesser value. These large concessioners,
who pay approximately 90 percent of the fees generated by the program,
would remain ineligible for the preference if the threshold were
increased to $6 million. This group of large concessioners is
collectively referred to as the ``big 50.''
A second group consists of the smallest businesses. This group
constitutes the majority of concessioners that gross less than $500,000
annually and have retained the preference.
The final group consists of approximately 60 concessioners that
fall into the ``in-between'' category: not part of the big 50, but have
revenues greater than $500,000. These are the concessioners defined as
``small businesses'' by the Small Business Administration (``SBA'') and
that would have their preferential right of renewal restored if the
threshold is changed to reflect SBA standards. This group of
concessioners is collectively referred to as the ``Small
Concessioners.''
Historically, the Park Service granted performing concessioners a
preferential right to renew their concessions permits. See National
Park Service Concessions Policy Act of 1965, 16 U.S.C. Sec. 20 (``1965
Act''), Pub. L. 89-249. This so-called ``preferential right of
renewal'' or ``preference'' granted incumbent concessioners with
satisfactory past performance the opportunity to match the terms and
conditions of the best competing proposal. Accordingly, the preference
provided a critical incentive for concessioners to provide quality
visitor services. Additionally, the preference offered stability and
continuity to performing concessioners and facilitated long-term
planning and investment, which improved the quality of visitor
services. Absent the preference, incumbent concessioners, even those
providing quality services, faced extreme uncertainty as to whether
they would hold the contract the next contract term.
Leading up to 1998, there had been some noteworthy cases involving
big 50 contracts where poor services were provided and the financial
return to the Park Service was minimal (e.g., approximately one percent
return on a $50 million contract). Furthermore, prospective new
concessioners were reluctant to incur the costs associated with
submitting a competing bid proposal for these very large contracts
knowing that the existing concessioners would likely retain the
contract by matching the terms of a proposal.
In 1998, Congress reacted by amending the Concessions Act to
improve visitor services and increase the financial return on
concessions. See National Park Service Concessions Management
Improvement Act of 1998 (``1998 Act''), 16 U.S.C. Sec. Sec. 5951-5963,
and Title IV of the National Parks Omnibus Management Act of 1998, Pub.
L. 105-391. Congress eliminated the preferential right of renewal for
many concessioners and implemented a revamped competitive selection
system that included a franchise fee bidding component.
The selection process begins with the Park Service issuing a
prospectus inviting proposals for the contract. 36 C.F.R. Sec. 51.4.
The Director then identifies a ``best'' proposal based on specified
criteria. Each criterion is scored and the proposal with the highest
cumulative point score is designated as the ``best.'' Secondary
selection factors also may be considered which include protection,
conservation and preservation of park resources and minority
employment.
All concessioners must submit bids under this system; however, the
1998 Act allows performing concessioners providing outfitter and guide
services and those with annual gross revenues of less than $500,000 to
match the best competing proposal. By restricting the preference,
Congress sought to encourage possible new concessioners to bid on
existing contracts, which (in theory) would increase competition and
improve the quality of services. While Congress recognized the need to
provide some degree of continuity to small businesses, the $500,000
threshold took the earned preference from many small concessioners that
also need the assurance of reasonable continuity.
preferential right should be restored to concessioners with annual
gross receipts of $6 million or less
Increasing the threshold is consistent with the goals of the 1998
Act. Congress's explanation for limiting the preference is found in
each committee report from both the House and Senate:
The Committee considers it appropriate to extend a statutory
preference in renewal to these two categories of concessioners.
With respect to outfitter and guide concessioners, it is
important to encourage the continuity of concessioner
operations because of the need to encourage the retention of
the highly skilled guides needed to provide a safe and
enjoyable experience to back-country visitors in need of expert
assistance. With respect to concessioners where the
concessioner contract is expected to gross less than $500,000,
the committee considers that encouragement of operations of
concessioners with this modest level of revenue is appropriate
and that, in light of the small investment generally necessary
to make a proposal for such a business, there will be an
adequate level of competition for such a concession contract
even under the preference of renewal. Senate Report 105-202
(June 5, 1998); House Report 105-767 (October 2, 1998).
This rationale should extend to ``small'' concessioners as defined
by the SBA. For instance, competition will likely continue for
contracts valued between $500,000 and $6 million. There are major
differences in costs associated with bid preparation and buyout of
leasehold surrender interests on big 50 contracts compared to the
others. The lower costs related to contracts under $6 million will
assure a level of competition consistent with Congressional intent.
Additionally, the need for continuity of concessioner operations is
fully applicable to most small business concessioners.
Increasing the threshold to $6 million is also consistent with the
Department Pot Commerce, U.S. Small Business Administration
classification for small businesses in the service industry and many of
the justifications for assisting small businesses apply here. See 36
C.F.R. Sec. 121.201. The Small Business Act states:
The essence of the American economic system of private
enterprise is free competition. Only through full and free
competition can free markets, free entry into business, and
opportunities for the expression and growth of personal
initiative and individual judgment be assured. The preservation
and expansion of such competition is basic not only to the
economic well-being but to the security of this Nation. Such
security and well-being cannot be realized unless the actual
and potential capacity of small business is encouraged and
developed. It is the declared policy of the Congress that the
Government should aid, counsel, assist, and protect, insofar as
is possible, the interests of small-business concerns in order
to preserve free competitive enterprise, to insure that a fair
proportion of the total purchases and contracts or subcontracts
for property and services for the Government (including but not
limited to contracts or subcontracts for maintenance, repair,
and construction) be placed with small-business enterprises, to
insure that a fair proportion of the total sales of Government
property be made to such enterprises, and to maintain and
strengthen the overall economy of the Nation. 15 U.S.C.
Sec. 631.
The Small Business Act further sets forth Congress's small business
economic policy as follows:
For the purpose of preserving and promoting a competitive free
enterprise economic system, Congress hereby declares that it is
the continuing policy and responsibility of the Federal
Government to use all practical means and to take such actions
as are necessary, consistent with its needs and obligations and
other essential considerations of national policy, to implement
and coordinate all Federal department, agency, and
instrumentality policies, programs, and activities in order to:
foster the economic interests of small businesses; insure a
competitive economic climate conducive to the development,
growth and expansion of small businesses; establish incentives
to assure that adequate capital and other resources at
competitive prices are available to small businesses; reduce
the concentration of economic resources and expand competition;
and provide an opportunity for entrepreneurship, inventiveness,
and the creation and growth of small businesses. 15 U.S.C.
Sec. 631a.
As further explained below, concessioners classified as small
businesses under the SBA should receive similar support from the
government in order to compete effectively. Moreover, restoring the
preferential right to performing Small Concessioners will improve the
quality of visitor services in the parks.
increasing the threshold to $6 million would improve competition
Congress's decision to eliminate the preferential right of renewal
for SBA-defined Small Concessioners places these small enterprises at a
substantial competitive disadvantage inconsistent with Congressional
policy to increase competition. By only protecting the very smallest
operations, Small Concessioners (usually family and local enterprises)
are left to compete with large, sophisticated national corporations.
Thus, rather than increase the pool of qualified concessioners, the
1998 system reduces the supply of concessioners to only the very
smallest and very largest operators. Failure to restore the preference
to the 60 Small Concessioners assures that the 17 companies currently
holding the big 50 contracts will soon hold 110 contracts. Such
concentration of the largest contracts does not enhance competition,
but creates the opposite result.
One competitive advantage larger concessioners have over Small
Concessioners is their ability to acquire contracts held by incumbent
concessioners based on revenue generated from their multiple
operations. Small Concessioners often are dependent on the tourism
market from year to year and do not typically possess other holdings
that spread their risks. In contrast, large concessioners are not as
financially dependent on the revenues generated by an individual
concessions opportunity. A loss in one concessions operation does not
have as significant an impact on larger operations concessioners with
multiple and diversified operations. Thus, large concessions operators
may take on a contract, even if it will incur a loss initially, because
the company's other operations carry it through losing years. Small
Concessioners do not have this luxury and cannot operate at a loss or
break-even point just to acquire the contract.
Further, because the cost to prepare a proposal is fixed despite
the disparity of revenue generated among concessioners, the proposal
cost represents a larger proportionate share of costs to Small
Concessioners as compared to the large national entities. Requiring
Small Concessioners to spend a disproportionate share of their
resources to compete with the larger concessioners places Small
Concessioners at a substantial competitive disadvantage. Consequently,
the ``cost to compete'' is driving up Small Concessioners' costs and
driving down their revenues at a more significant rate than the larger
concessioners.
Additionally, the franchise fee factor places Small Concessioners
at a competitive disadvantage. In the 1998 Act, Congress reacted to a
few high profile cases where very large concessioners were paying
absolutely minimal fees. Congress sought to increase the government's
return by allowing a measure of fee bidding, especially for the big
contracts that generate the majority of revenue to the government.
Initially, the franchise fee factor was intended to serve as a tie-
breaker when opposing bids were otherwise evenly scored. Based on
concerns that the tie-breaking concept might lead to franchise fee
bidding, the Park Service removed the tie-breaking concept from the
final rule, but retained the franchise fee consideration as one of the
scored criteria. See 65 Fed. Reg. 20641 (April 17, 2000). Congress also
added language to clarify that the primary purpose of the 1998 Act is
to improve visitor services and park resources, not solely to generate
more revenue to the government.\2\
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\2\ Consideration of revenue to the United States in this
determination and in scoring proposals under principal selection factor
five will be subordinate to the objectives of protecting, conserving,
and preserving the resources of the park area and of providing
necessary and appropriate visitor services to the public at reasonable
rates. 36 C.F.R. Sec. 51.16.
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Despite Congress's attempt to prevent fee bidding, fee bidding has
occurred. While the larger concessioners can afford to pay higher
franchise fees to the government in order to secure their bids, Small
Concessioners simply do not have the resources to successfully compete
in fee bidding and, therefore, are at a competitive disadvantage.
Squeezing smaller qualified concessioners out of the market for the
sake of increasing government's revenues is inconsistent with the 1998
Act's purposes. It tilts the scales to national corporations able to be
the highest bidders. Restoring the preference to SBA-defined small
businesses will help level the playing field in this area.
Moreover, restoring the preference to Small Concessioners will have
a minimal impact on revenue collection. Based on Park Service financial
reports, in 2003 all concessioners paid approximately $25.1 million in
fees. The Park Service estimates that the big 50 group was responsible
for approximately 90 percent of those fees. Further, that amount does
not include the $25-$30 million in special accounts (facility
construction, etc., in lieu of fees) the government receives primarily
from the big 50. Thus, restoring the preference to Small Concessioners
would not adversely impact Congress's fee collection goal.
increasing the threshold would improve the quality of visitor services
In the 1998 Act, Congress identifies competition as a means of
improving visitor services. Restoring the right of preference to Small
Concessioners would advance this quality of services goal.
First, most Small Concessioners have a vested interest in the well-
being of the parks in which they operate and, therefore, are more
likely to provide quality services. Small Concessioners are typically
local family-owned businesses that have provided quality services to
visitors of our nation's parks for many years. In some cases, the
operation pre-dated the park's establishment and, consequently,
constitutes a significant historical aspect of the park. Additionally,
in marked contrast to the big 50, most Small Concessioners consist of
only one local business. These family enterprises contribute
substantially to their local communities and are frequently a vital
part of rural economies. Small Concessioners also recognize that they
must operate in an environmentally sound fashion to make the parks a
pleasant place to visit.
Second, restoring the preference to Small Concessioners would
improve visitor services because only concessioners that have performed
satisfactorily under their previous contract earn the preference. See
16 U.S.C. Sec. 5952; Pub. L. 105-391 Sec. 403; 36 C.F.R. Sec. 51.42. If
concessioners do not perform and provide quality services, they do not
earn the chance to match the best competing offer. The preferential
right of renewal offers a substantial ``carrot'' to Small Concessioners
to provide quality services so that they may earn the preference the
next contract term. On the other hand, a system without this preference
offers no incentive to provide quality services, especially when
concessioners know it confers no benefits at the time of renewal. The
current system encourages small concessioners to obtain a contract,
make money and get out. The lack of the earned preference is a
particular disincentive near the end of a contract. Small concessioners
are unable to make capital investments in facilities and maintenance
since they may not be able to recover those costs. The presence of the
renewal right provides the incentive and assures continuing investment
in quality visitor facilities.
Third, restoring the preference to Small Concessioners would allow
more continuity, which experience demonstrates leads to better
services. Restoring the preference would extend a measure of security
to Small Concessioners allowing them to engage in long-term business
planning and providing an incentive to make visitor beneficial
investments throughout their contract terms--investments they are
unlikely to make, especially in the final years of their contracts.
Additionally, restoring the preference would help Small Concessioners
retain qualified employees because of the assurances that their
positions will continue.
Lack of continuity, on the other hand, is inefficient and adversely
affects visitor services. Whether turnovers in concessions contracts
has increased significantly since 1998 has yet to be determined;
however, what is known is that when a turnover occurs, the contract
award is either contested in a lawsuit or subjected to Congressional
review. Visitor services are impaired by the uncertainty created as to
which concessioner will be providing services the next term.
summary
Restoring the preference to Small Concessioners is consistent with
the goals Congress articulated in the 1998 Act. Restoring the
preference would provide performing Small Concessioners an opportunity
to compete in the selection process on a level playing field, which
would promote competition at all levels, not just among the smallest
and largest operators. Restoring the preference would also provide the
assurance of continuity Small Concessioners need in order to operate
effectively, which in turn, will lead to improved visitor services.
Accordingly, Congress should increase the threshold for the preference
right consistent with the SBA standard for small businesses.