[Senate Report 106-477]
[From the U.S. Government Publishing Office]
Calendar No. 926
106th Congress Report
SENATE
2d Session 106-477
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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
R E P O R T
[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.
(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 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 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) 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-you-go 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 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 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 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 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.
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.