[Federal Register Volume 77, Number 7 (Wednesday, January 11, 2012)]
[Notices]
[Pages 1723-1725]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-279]


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DEPARTMENT OF THE INTERIOR

National Park Service


Proposed Concession Contract for Shenandoah National Park--
Alternative Formula for Calculating Leasehold Surrender Interest

AGENCY: National Park Service, Interior.

ACTION: Notice.

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SUMMARY: The National Park Service invites public comments on a 
proposed alternative formula for the value of leasehold surrender 
interest to be included in its proposed ten-year concession contract 
for Shenandoah National Park. The contract will cover operation of the 
lodging, food and beverage, retail sales, gasoline, and horseback 
riding operations at the Park.

DATES: Public comments will be accepted on or before February 10, 2012.

ADDRESSES: Send comments to Ms. Jo A. Pendry, Chief, Commercial 
Services Program, National Park Service, 1201 Eye Street NW., 11th 
Floor, Washington, DC 20005 or via email at [email protected] or via 
fax at (202) 371-2090.

FOR FURTHER INFORMATION CONTACT: Jo A. Pendry, (202) 513-7156.

SUPPLEMENTARY INFORMATION: 
    The National Park Service will be soliciting proposals for 
operation of the lodging, food and beverage, retail sales, gasoline, 
and horseback riding operations at Shenandoah National Park in 2012. 
The new contract is intended to be for a term of 10 years and will 
include an alternative formula for calculating leaseholder surrender 
interest. In this notice, we are soliciting comments on our use of this 
alternative formula. While we aren't required by law to solicit 
comments on this alternative formula, we are providing an opportunity 
for public comment because this is only the second time that we have 
proposed using an alternative LSI formula.
    Leasehold surrender interest (LSI) is the interest in real property 
improvements that a concessioner provides under an NPS concession 
contract. Public Law 105-391 of 1998 (the 1998 Act) established the 
standard LSI valuation formula. The formula is generally as follows:
     The initial construction cost of the related capital 
improvement.
     adjusted by the percentage increase or decrease in the 
Consumer Price Index (CPI).
     less physical depreciation of the related capital 
improvement.
The 1998 Act also allows alternative LSI-value formulas for contracts 
with an LSI value over $10 million. Because the new contract for 
Shenandoah National Park will exceed $10 million, we are proposing to 
use an alternative LSI formula. Under our proposed alternative formula, 
the LSI value of all eligible capital improvements will be depreciated 
annually, in equal portions, on a forty (40) year, straight-line basis 
during the contract's 10-year term.

We Have Made Two Determinations

    We have determined, subject to consideration of public comments, 
that:
     The proposed alternative LSI formula, in comparison to the 
standard LSI formula, is necessary to provide a fair return to the 
Government and to foster competition for the new contract by providing 
a reasonable opportunity for profit to the new concessioner.

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     The proposed alternative LSI formula is consistent with 
the objectives of the 1998 Act, particularly, as discussed below, with 
respect to the fair return it will provide to the Government and the 
new concessioner and the enhanced competition it will foster.
The 1998 Act does not require these determinations and this Federal 
Register notice for alternative LSI formulas (such as the one we 
propose) that are based on annual straight line depreciation of the 
initial value as provided under 1998 Federal income tax laws and 
regulations. However, because this is only the second time that we have 
proposed using an alternative LSI formula, we have made these 
determinations and are publishing this notice to solicit public 
comment.
    If we adopt the alternative LSI formula, it will apply only to the 
new contract, SHEN001-13. We have made no decision to apply the 
proposed LSI formula or any other LSI alternative to future concession 
contracts. If we consider using an alternative LSI formula for any 
other contracts, we will ask for public comments if required or 
appropriate.

First Determination: Fair Return to the Government

    We have determined, subject to consideration of public comments, 
that the proposed alternative LSI formula is necessary to provide a 
fair return to the Government, as well as helping to provide a fair 
return to the new concessioner.
    We consider that ``fair return'' to the Government includes the 
requirement of the 1998 Act that we include in concession contracts a 
franchise fee payable to the Government that is based upon 
consideration of the probable value to the concessioner of the 
privileges granted by the contract. However, under the standard LSI 
formula, the amount of money that we would pay (directly or indirectly) 
for LSI as of the expiration of the new contract is inevitably 
speculative as of the time of contract solicitation, contract award, 
and during the contract term. This is because we and prospective 
concessioners must estimate in advance the future CPI rate, the amount 
of depreciation that will occur over the term of the contract, and the 
cost to cure the depreciation.
    Thus, if we use the standard LSI formula to establish the required 
minimum franchise fee for the new contract, that fee will reflect 
speculative estimates of CPI and depreciation rates over the term of 
the contract. Likewise, when a prospective concessioner offers to meet 
or exceed the minimum franchise fee that we would establish under the 
standard LSI formula, this business decision relies on speculative 
estimates of future CPI and depreciation rates. A more dependable LSI 
value will allow us to better project the long-term cost of the 
concessioner's investment and to calculate a franchise fee that 
provides a fair return.
    For these reasons, we consider it necessary to include the proposed 
alternative LSI formula in the new contract in order to provide a fair 
return to the Government.

Second Determination: Fostering Competition

    Elimination of the speculative nature of LSI value by using the 
proposed LSI formula is also considered necessary to foster competition 
for the new contract by providing a reasonable opportunity for the 
concessioner to make a profit under the new contract. This is because 
prospective concessioners will know with a high degree of certainty 
(subject only to estimates of the value of any new capital improvements 
constructed or installed during the term of the contract) how much 
money they will be paid for initial LSI upon the expiration of the new 
contract. The proposed LSI formula eliminates speculation regarding CPI 
and depreciation required under the standard LSI formula. The resulting 
lower risk and greater certainty in the business opportunity provides 
the concessioner reasonable opportunity for profit under the terms of 
the new contract. It should also encourage businesses to apply for the 
new contract, thereby fostering competition.
    Private firms not familiar with the NPS concession program have 
indicated that the complexities and uncertainty of the standard LSI 
formula have deterred them from submitting offers for concessions. We 
believe that using the proposed alternative LSI formula in the new 
contract will foster competition by providing interested entities with 
a reasonable opportunity for profit that, with respect to LSI, is 
assured, understandable, and more comparable to practices in the 
private sector.
    In addition, the estimated lower LSI payment under the alternative 
formula (as opposed to a higher estimated value provided by the 
standard LSI formula) allows us to charge a lower minimum franchise 
fee. This will ensure the concessioner greater cash flows during the 
term of the contract, in contrast to the standard LSI formula's higher 
(and uncertain) LSI payment at the expiration of the contract. Since 
many prospective concessioners will likely prefer the higher cash flows 
throughout the contract term under the proposed LSI formula, the 
alternative formula should foster competition for the new contract.
    The proposed LSI formula will also enhance competition for the 
concession contract that will succeed the new contract. This is because 
the final value of the contract's LSI should be significantly lower 
than it would be under the standard LSI formula, thereby lowering the 
amount of LSI purchase money needed by a prospective new concessioner. 
This lower entry cost should encourage competitive proposals from 
prospective concessioners.
    The proposed LSI formula should not materially affect the new 
concessioner's projected rate of return under the new contract. This is 
because, in developing the new contract's minimum franchise fee, we 
assessed projected revenues and expenses and used industry standards to 
estimate a fair return to the new concessioner. This estimate includes 
the cost of acquiring existing LSI.
    The new contract's minimum franchise fee thus reflects the 
financial consequences of the proposed LSI formula. This means that the 
estimated fair return to the new concessioner would be approximately 
the same whether the new contract included the standard LSI formula or 
the proposed LSI formula (taking into account the time value of money). 
The proposed LSI formula will not materially change the projected fair 
return to the new concessioner, but will reduce the speculative nature 
of LSI value under the standard formula. With respect to the rate of 
return, the impact of the use of the proposed LSI formula is neutral, 
but not adverse, to the requirement of fostering competition.

Public Availability of Further Information

    Complete details and further explanation of the proposed LSI 
formula will be in the proposed prospectus for the new contract that is 
publically available at http://www.nps.gov/commercialservices. In the 
interest of time, we may issue a prospectus for the new contract in 
FedBizOpp.gov that incorporates the proposed LSI formula. If 
consideration of public comments in response to this notice causes us 
to alter the proposed alternative LSI formula, we will amend the 
prospectus accordingly (through publication in FedBizOpp.gov) before 
the deadline for submission of proposals.
    We invite your comments and will consider all comments that we 
receive by the deadline in the DATES section of this notice.
    Before including your address, phone number, email address, or 
other identifying information in your

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comment, you should be aware that your entire comment--including your 
personal identifying information--may be made publicly available at any 
time. While you can ask us in your comment to withhold your personal 
identifying information from public review, we cannot guarantee that we 
will be able to do so.

Peggy O'Dell,
Deputy Director, Operations.
[FR Doc. 2012-279 Filed 1-10-12; 8:45 am]
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