79–010

Calendar No. 926

106TH CONGRESS REPORT

2d Session " ! SENATE 106–477

FORT SUMTER NATIONAL MONUMENT CONCESSIONS

OCTOBER, 3 (legislative day, SEPTEMBER 22), 2000.—Ordered to be printed

Mr. MURKOWSKI, from the Committee on Energy and Natural

Resources, submitted the following

REPORT

[To accompany S. 2331]

The Committee on Energy and Natural Resources, to which was

referred the bill (S. 2331) to direct the Secretary of the Interior to

recalculate the franchise fee owed by Ford Sumter Tours, Inc., a

concessioner providing service to Fort Sumter National Monument,

South Carolina, having considered the same, reports favorably

thereon with an amendment and an amendment to the title and

recommends that the bill, as amended, do pass.

The amendments are as follows:

1. Strike out all after the enacting clause and insert in lieu

thereof the following:

SECTION 1. ARBITRATION REQUIREMENT.

The Secretary of the Interior (in this Act referred to as the ‘Secretary’) shall, upon

the request of Fort Sumter Tours, Inc. (in this Act referred to as the ‘Concessioner’),

agree to binding arbitration to determine the franchise fee payable under the contract executed on June 13, 1986 by the Concessioner and the National Park Service,

under which the Concessioner provides passenger boat service to Fort Sumter National Monument in Charleston Harbor, South Carolina (in this Act referred to as

‘the Contract’).

SEC. 2. APPOINTMENT OF THE ARBITRATOR.

(a) MUTUAL AGREEMENT.—Not later than 90 days after the date of enactment of

this Act, The Secretary and the Concessioner shall jointly select a single arbitrator

to conduct the arbitration under this Act.

(b) FAILURE TO AGREE.—If the Secretary and the Concessioner are unable to agree

on the selection of a single arbitrator within 90 days after the date of enactment

of this Act, within 30 days thereafter the Secretary and the Concessioner shall each

select an arbitrator, the two arbitrators selected by the Secretary and the Concessioner shall jointly select a third arbitrator, and the three arbitrators shall jointly

conduct the arbitration.

(c) QUALIFICATIONS.—Any arbitrator selected under either subsection (a) or subsection (b) shall be a neutral who meets the criteria of section 573 of title 5, United

States Code.

2

(d) PAYMENT OF EXPENSES.—The Secretary and Concessioner shall share equally

the expenses of the arbitration.

(e) DEFINTION.—As used in this Act, the term ‘‘arbitrator’’ either a single arbitrator selected under subsection (a) or a three-member panel of arbitrators selected

under subsection (b).

SEC. 3. SCOPE OF THE ARBITRATION.

(a) SOLE ISSUE TO BE DECIDED.—The arbitrator shall determine—

(1) the appropriate amount of the franchise fee under the Contract for the period from June 13, 1991 through December 31, 2000 in accordance with the

terms of the Contract; and

(2) any interest or penalties on the amount owed under paragraph (1).

(b) DE NOVO DECISION.—The arbitrator shall not be bound by any prior determination of the appropriate amount of the fee by the Secretary.

(c) BASIS FOR DECISION.—The arbitrator shall determine the appropriate amount

of the fee based upon the law in effect on the effective date of the Contract and the

terms of section 9 of the Contract.

SEC. 4. EFFECT OF DECISION.

(a) RETROACTIVE EFFECT.—The amount of the fee determined by the arbitrator

under section 3(a) shall be retroactive to June 13, 1991.

(b) NO FURTHER REVIEW.—Notwithstanding subchapter IV of title 5, United

States Code (commonly known as the Administrative Dispute Resolution Act), the

decision of the arbitrator shall be final and conclusive upon the Secretary and the

Concessioner and shall not be subject to judicial review.

SEC. 5. GENERAL AUTHORITY.

Except to the extent inconsistent with this Act, the arbitration under this Act

shall be conducted in accordance with subchapter IV of title 5, United States Code.

SEC. 6. ENFORCEMENT.

A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate

under this Act, or by any unreasonable delay in the appointment of the arbitrator

or the conduct of the arbitration, may petition the United States District Court for

the District of South Carolina or the United States District Court for the District

of Columbia for an order directing that the arbitration proceed in the manner provided by this Act.’’.

2. Amend the title so as to read: ‘‘To require the Secretary of the

Interior to submit the dispute over the franchise fee owed by Fort

Sumter Tours, Inc. to binding arbitration.’’.

PURPOSE OF THE MEASURE

The purpose of S. 2331 is to direct the Secretary of the Interior

to submit a dispute between the National Park Service and Fort

Sumter Tours, Inc. to binding arbitration to determine the appropriate concession franchise fee at Fort Sumter National Monument.

BACKGROUND AND NEED

Fort Sumter Tours, Inc. (FST) is a privately owned and operated

business that provides boat transportation services at Fort Sumter

National Monument under the terms of a concessions contract with

the National Park Service. The contract, which was signed in 1986

and for a period of 15 years, provides FST the exclusive right to

transport visitors by boat to Fort Sumter National Monument. The

franchise fee for the first five years of the contract was set at 4.25

percent of FST’s gross annual receipts.

Consistent with the Concessions Policy Act of 1965 (the law in

effect when the contract was entered into), the contract contained

a provision allowing the National Park Service to reconsider the

franchise fee every five years to determine whether the fee reflected the probable value of the contract. In 1991, the franchise fee

analysis performed by the National Park Service determined that

the fee should be increased to 12 percent. In 1992, the National

3

Park Service notified FST that it intended to increase the fee and

that the concessioner had a contractual right to seek advisory arbitration.

In response, Fort Sumter Tours filed suit against the National

Park Service in Federal District Court in 1993, on the basis that

it believed the Park Service did not have the right to unilaterally

increase the franchise fee. After failing to win its claim in the

United States District Court for the District of South Carolina, FST

appealed to the U.S. Court of Appeals for the Fourth Circuit, but

again did not prevail. Fort Sumter Tours Inc. also filed suit against

the National Park Service in the U.S. District Court for the District

of Columbia. That court also ruled in favor of the Park Service, and

the decision was affirmed by the U.S. Court of Appeals for the District of Columbia. In 1996, the Supreme Court rejected FST’s attempt to seek a review of the decision of the lower courts decisions

in favor of the National Park Service.

Notwithstanding its setbacks in court, Fort Sumter Tours, Inc.

believes that the decision by the National Park Service to increase

the franchise fee was based on flawed decisions and data. FST contends that the National Park Service is trying to charge on a punitive franchise fee based on: (1) unjustified changes to FST’s audited

financial statements; (2) unreliable industry statistical data; (3) a

refusal to engage in substantive discussions about the fairness of

the fee increase; and (4) a refusal to allow independent review of

the merits of the fee increase.

LEGISLATIVE HISTORY

S. 2331 was introduced by Senator Hollings on March 30, 2000.

The Subcommittee on National Parks, Historic Preservation and

Recreation held a hearing on S. 2331 on July 13, 2000. At the business meeting on September 20, 2000, the Committee on Energy

and Natural Resources ordered S. 2331, as amended, favorably reported.

COMMITTEE RECOMMENDATION

The Committee on Energy and Natural Resources, in open business session on September 20, 2000, by a majority voice vote of a

quorum present, recommends that the Senate pass S. 2331, if

amended as described herein.

COMMITTEE AMENDMENT

During the consideration of S. 2331, the Committee adopted an

amendment in the nature of a substitute and an amendment to the

title. The substitute amendment removed a provision in the bill as

introduced that would have required the Secretary of the Interior

to recalculate the franchise fee as the initial step in resolving the

dispute. It also removed a provision that would have required the

Federal Government to compensate Fort Sumter Tours, Inc. for attorneys fees and other costs associated with all proceedings involving the dispute if Fort Sumter tours, Inc. is the prevailing party

in arbitration. Finally, the amendment removed a provision that

would have prohibited the Secretary from advertising or accepting

bids for the passenger boat service at Fort Sumter, and required

4

that Fort Sumter Tours, Inc. be offered annual extensions of the

current concessions contract until the dispute is resolved.

SECTION-BY-SECTION ANALYSIS

Section 1 requires the Secretary of the Interior (Secretary), at the

request of Fort Sumter Tours, Inc. (Concessioner), to agree to binding arbitration to resolve the franchise fee dispute pursuant to the

contract under which the Concessioner provides passenger boat

service at Fort Sumter National Monument.

Section 2 describes the procedures concerning the selection of an

arbitrator and requires the Secretary and the Concessioner to

share equally in the expenses of the arbitration.

Section 3 describes the scope of the arbitration and requires the

arbitrator to determine the appropriate franchise fee based on the

terms of the contract and the law that was in effect at the time

the contract was signed.

Section 4 requires that the fee established by the arbitrator will

be retroactive to June 13, 1991, and that the decision will be final

and not subject to review.

Section 5 requires that the arbitration be conducted in accordance with the Administrative Dispute Resolution Act, except to the

extent that it is inconsistent with this Act.

Section 6 allows either party, if aggrieved by the failure, neglect,

or refusal of the other party to arbitrate, to petition the U.S. District Court for the District of South Carolina or for the District of

Columbia for an order directing that the arbitration proceed.

COST AND BUDGETARY CONSIDERATIONS

The following estimate of the cost of this measure has been provided by the Congressional Budget Office:

U.S. CONGRESS,

CONGRESSIONAL BUDGET OFFICE,

Washington, DC, October 2, 2000.

Hon. FRANK H. MURKOWSKI,

Chairman, Committee on Energy and Natural Resources,

U.S. Senate, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for S. 2331, a bill to require the

Secretary of the Interior to submit the dispute over the franchise

fee owed by Fort Sumter Tours, Inc. to binding arbitration.

If you wish further details on this estimate, we will be pleased

to provide them. The CBO staff contact is Deborah Reis.

Sincerely,

BARRY B. ANDERSON

(For Dan L. Crippen, Director).

Enclosure.

CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

S. 2331—A bill to require the Secretary of the Interior to submit the

dispute over the franchise fee owed by Fort Sumter Tours, Inc.

to binding arbitration

S. 2331 would require the National Park Service (NPS) to have

the franchise fee that it charges to Fort Sumter Tours, Inc. (FST)

5

determined by binding arbitration. (FST is a concessioner providing

transportation to visitors at Fort Sumter National Monument.) The

arbitrator would determine the appropriate fee applicable to the

period between June 13, 1991, and December 31, 2000, including

possible interest and penalties.

CBO cannot estimate the budgetary impact of S. 2331 because it

would depend on the outcome of a legal proceeding that has not yet

occurred. We expect that the arbitrator would choose a franchise

fee of between 4.25 percent (which is what the company currently

pays the NPS) and 12 percent (which is the adjusted rate established by the agency in 1991).

Under the higher rate of 12 percent, the federal government could receive about $3 million in fees, interest, and penalties owed

by FST since 1991. This amount could be collected—and spent—in

the absence of legislation because the NPS has recently begun administrative action to collect it. If the lower rate would be chosen

by an arbitration, the government would lose the $3 million owed

to it, reducing both offsetting receipts and direct spending by that

amount in fiscal year 2001 or 2002.

What would happen to annual franchise fees after arbitration is

also uncertain, CBO expects that by the time an arbitration decision would be reached, the FST concession contract will be expired.

Annual offsetting receipts (and associated direct spending) from

franchise fees after 2001 would depend on the outcome of competitive bidding for the concession.

S. 2331 could affect offsetting receipts (a credit against direct

spending) and the spending of those receipts; therefore, pay-as-yougo procedures would apply. CBO estimates, however, that because

the NPS would probably have been allowed to spend the amounts

that it would have received in the absence of arbitration, the loss

of any such amounts would have no net impact on the federal

budget.

The bill contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act and would

impose no costs on state, local, or tribal governments.

The CBO staff contact for this estimate is Deborah Reis. The estimate was approved by Peter H. Fontaine, Deputy Assistant Director for Budget Analysis.

REGULATORY IMPACT EVALUATION

In compliance with paragraph 11(b) of rule XXVI of the Standing

Rules of the Senate, the Committee makes the following evaluation

of the regulatory impact which would be incurred in carrying out

S. 2331. The bill is not a regulatory measure in the sense of imposing Government-established standards or significant economic responsibilities on private individuals and businesses.

No personal information would be collected in administering the

program. Therefore, there would be no impact on personal privacy.

Little, if any, additional paperwork would result from the enactment of S. 2331, as ordered reported.

EXECUTIVE COMMUNICATIONS

On July 17, 2000, the Committee on Energy and Natural Resources requested legislative reports from the Department of the

Interior and the Office of Management and Budget setting forth

6

Executive agency recommendations on S. 2331. These reports had

not been received at the time the report on S. 2331 was filed. When

the reports become available, the Chairman will request that they

be printed in the Congressional Record for the advice of the Senate.

The testimony provided by the National Park Service at the Subcommittee hearing follows:

STATEMENT OF DENIS P. GALVIN, NATIONAL PARK SERVICE, DEPARTMENT OF THE INTERIOR

Thank you for the opportunity to present the position of

the Department of the Interior on S. 2331, a bill to direct

the Secretary of the Interior to recalculate the franchise

fee owed by Fort Sumter Tours, Inc., a concessioner providing service to Fort Sumter National Monument in

South Carolina.

The Department of the Interior strongly opposes S. 2331

and the Secretary would recommend that the President

veto this bill if passed by Congress.

S. 2331 would require the Secretary of the Interior to recalculate the fees owed by Fort Sumter Tours pursuant to

its concesssions contract with the National Park Service. If

the recalculated fee is unacceptable to Fort Sumter Tours,

it would have the right to go through a binding arbitration

process with the Secretary to determine the appropriate

fee. The arbitrators would be prohibited from taking into

account any previous judicial decisions on this issue, and

Fort Sumter Tours would be entitled to collect attorneys

fees for the legal expenses it has incurred litigating

against the government.

S. 2331 is essentially a private relief bill that would undermine the authority of the federal judiciary by nullifying

the decisions of five courts over the past seven years that

have ruled against Fort Sumter Tours. In addition, S. 2331

would demean a fundamental principle that underlies

these decisions—the importance of living up to one’s contractual responsibilities. Fort Sumter Tours presently owes over $2,200,000 in

fees, penalties and interest to the National Park Service

under the contract that it entered into in 1986. This debt

has been accumulating since 1991. When this contract was

signed, it called for Fort Sumter Tours to pay a 4.25 percent franchise fee of gross annual receipts to the government in exchange for the exclusive right to transport visitors by boat to Fort Sumter National Monument. This fee

was not set through an unfettered competitive process, as

the law under which this contract was executed, the Concessions Policy Act of 1965 (repealed in 1998), contained

provisions that discouraged outside businesses from applying for concessions contracts. The Concessions Policy Act

balanced these anti-competitive provisions with a provision

that required NPS to review the franchise fee under every

contract every five years to determine whether it reflected

the probable value of the contract. This fee reconsideration

provision is reflected in section 9(e) of the standard concessions contract. Section 9(e) of the contract also provides for

7

an arbitration process to resolve disputes over the adjusted

fee.

Fort Sumter Tours agreed to these terms when it entered into its contract in 1986. A franchise fee analysis

performed in 1991 showed that the probable value of the

privileges under the Fort Sumter contract warranted a fee

of 12 percent, and that with a 12 percent fee Fort Sumter

Tours would have a reasonable opportunity for profit. This

analysis, like the type of analysis NPS performs under

every concessions contract, compared the financial records

and the business opportunity of Fort Sumter Tours, to

those of similarly situated businesses, using industry statistics. Analyses have been performed on other contracts

that involve services similar to those provided by Fort

Sumter Tours. NPS financial analyses have resulted in

fees of 12 percent and 13 percent for operators in Golden

Gate National Recreation Area and the Statue of Liberty

that transport park visitors by boat to park sites. These

concessions operate profitably, and have not contested

their fees.

In 1992, NPS notified Fort Sumter Tours that it was reconsidering its fee of 4.25 percent, and of its contractual

right to seek advisory arbitration over the reconsidered

fee. NPS also offered to discuss its financial analysis of the

contract with Fort Sumter Tours with the intent that the

parties could reach agreement over the fee. Fort Sumter

Tours rejected these offers and opted instead to ignore the

dispute resolution process it had agreed to in the contract

and sued the National Park Service in Federal Court.

Since Fort Sumter Tours first filed suit against the National Park Service in 1993, the four courts have examined

its claims, the United States District Court for the District

of South Carolina, the United States Court of Appeals for

the Fourth Circuit, the United States District Court for

the District of Columbia, and the United States Court of

Appeals for the District of Columbia, have found that the

National Park Service acted appropriately in instituting a

12 percent fee under the Fort Sumter Tours contract. In

addition, in 1996, the United States Supreme Court rejected Fort Sumter Tours attempt to seek Supreme Court

review of the decision of the U.S. Court of Appeals for the

Fourth Circuit. Despite these defeats, Fort Sumter Tours

has continued to refuse to pay its contractually obligated

franchise fee, and is seeking through S. 2331, to nullify

these judicial decisions.

These decisions have been based on substantive, rather

than procedural grounds. One of the primary issues before

each court involved the principle that parties to a contract

should be bound by the terms of their agreement. By signing its concessions contract, Fort Sumter Tours agreed to

the dispute resolution process of Section 9(e), thereby committing itself to a process involving negotiation and, if necessary, advisory arbitration, to resolve any disputes relating to the fee. Fort Sumter Tours made a legal and business decision that it would not engage in this process. This

8

is a matter of substance, rather than procedure, as the dispute resolution language was a substantive part of the

Fort Sumter contract. As the Court of Appeals for the District of Columbia recently stated: ‘‘Fort Sumter Tours

chose to ignore the contractual requirements and went directly to the courts. Like the District Court, we find the

contract unambiguous and plaintiff’s failure to abide by its

terms fatal to its cause.’’

Fort Sumter Tours is the only concessioner out of more

than 600 that has refused to abide by section 9(e) of the

concessions contract. Of the concessioners that have contested franchise fee reconsideration, all but three came to

agreement with NPS without employing the arbitration

procedures of section 9(e). The three concessioners that

could not reach agreement with NPS by negotiation, successfully utilized the section 9(e) advisory arbitration process to resolve the dispute. While this process did result in

an increased fee in each of these instances, each of these

concessioners continues to operate profitably.

The extraordinary degree of harmony between NPS and

its concessioners that is reflected by a track record that

shows very few fee disputes is understandable, given the

benefits that businesses receive in operating under a NPS

concessions contract. As is the case under the Fort Sumter

Tours concessions contract, the overwhelming majority of

these businesses are given the exclusive opportunity to

serve a market that is often captive and must use the

services of a given concessioner. The beneficial nature of

the opportunities presented by these contracts has been

commented on extensively in at least 5 studies conducted

by the GAO and the Inspector General’s office of the Department of the Interior over the past 10 years. These

studies have concluded as a general rule that the NPS

charges fees that are far lower than the market value of

their corresponding contracts. It is therefore not surprising

that there is no shortage of businesses that wish to apply

for concessions contracts, and that the overwhelming majority of concessioners strive to abide by the terms of their

contracts, including the advisory arbitration process in section 9(e).

The courts have looked closely at the substance of how

NPS arrived at its fee. Both the district and appellate

courts have found the Secretary’s decision to be proper,

and the subsequent court opinions have supported the

finding of the first court that reviewed this matter, the

United States District Court for the District of South Carolina, which stated, ‘‘the resulting franchise fee is not excessive as to preclude a reasonable opportunity for profit.’’

These courts have noted that the provision that allows

NPS to review fees during the course of a contract is not

unfair, since NPS’s fee must, as a matter of law, allow a

concessioner a reasonable opportunity for profit.

We understand that it has been reported to the committee that the National Park Service took into account

non-concession revenue when calculating the profit that

9

Fort Sumter Tours makes under this contract. We have

stated that on page 2 of the 1992 NPS franchise fee analysis, non-concession income was included in the initial determination of the minimum and maximum franchise fee.

However, as we have also stated, this inclusion was a

harmless oversight that had no impact on the franchise fee

determination. Again, the courts fully reviewed the reconsideration of the franchise fee and determined that we

acted reasonably in setting this fee. Fort Sumpter Tours

has had countless opportunities to convince the courts that

this information warranted the reversal of NPS’s fee determination. They have been unsuccessful at every turn.

S. 2331 would also require the taxpayer to reimburse

Fort Sumter Tours for the expenses it has incurred in litigation against the government. This is extremely unfair to

the taxpayer, as current law grants prevailing parties

against the United States the opportunity to be reimbursed for reasonable attorney fees. However, in this case,

the legislation would grant attorneys fees to an individual

who did not prevail in any of the five courts that reviewed

this concessioner’s claims.

In addition, there is no guarantee that S. 2331 would

satisfy Fort Sumter Tours. If the Secretary prevailed in

the binding arbitration under S. 2331—that is, if the panel

established a franchise fee of 12%—Fort Sumter Tours

would still have the right to appeal this decision to a federal judge.

Moreover, subsection 1(d) of S. 2331 would prevent the

National Park Service from awarding a new contract for

the tour boat services at Fort Sumter Park National Monument until this matter was completely resolved and no

longer subject to appeal. The present contract for these

services expires on December 31, 2000. We expect to issue

a prospectus for this contract prior to the end of this year.

The language in subsection 1(d) would put this process on

hold for an indefinite time period, as the appeal process

could run for a considerable length of time—as long as 8

years if the present appeals process is an accurate indicator. This would prevent the National Park Service from

advertising the contract to the business community, and

seeking a fee that represents the true market value of the

contract. In fact, as we fully expect that the market will

determine a fee for this contract that is substantially equal

to or greater than the fee that is in dispute under the

present contract, any effort to freeze the fee during a pending arbitration and its subsequent appeal process could

shortchange the taxpayer out of a just return under the

contract. It would also prevent other businesses, several of

which have already expressed interest in the new contract,

from applying for this lucrative opportunity. As a government contract, this opportunity should be available

through a fair competitive process to the tax-paying business community at large, rather than frozen for the benefit

of one business until the appeals process runs its course.

10

There is no question that the dispute between Fort Sumter Tours and the United States Government involves an

amount of money—approximately $2,200,000—that is considered significant by the concessioner and the NPS. But

beyond the financial obligation, enactment of S. 2331

would send a message that no legal dispute with the

United States Government is over, even if all judicial remedies have been exhausted. S. 2331 would also send a message that demeans the importance of requiring parties to

live up to their obligations under commercial contracts, a

principle that underlies each of the court decisions that

has gone against Fort Sumter Tours. It is with these premises in mind that we would recommend that the President

veto this bill if it is passed by Congress.

I would also like to note, in closing, that the NPS has

attempted to settle this dispute with Fort Sumter Tours on

several occasions, and, through the Department of Justice,

remains open to any reasonable settlement offer from Fort

Sumter Tours.

This concludes my testimony. I would be happy to answer any of your questions.

CHANGES IN EXISTING LAW

In compliance with paragraph 12 of rule XXVI of the Standing

Rules of the Senate, the Committee notes that no changes in existing law are made by the bill S. 2331, as ordered reported.

Æ