On May 22, 2012, NPS issued a prospectus for a proposed 20-year Concession Contract to operate the lodging, food and beverage, retail sales, transportation, and other services at Yellowstone National Park. For the Yellowstone Contract, capital improvements included in the initial leasehold surrender interest (LSI) value will depreciate on a 40-year straight-line schedule, so that over the full 20-year term of the Draft Contract, the initial LSI value will be reduced by fifty percent (50%).
NPS has also invited public comments on a proposed alternative formula for establishing LSI on the contract. If you would like to participate in making comments, let me know (firstname.lastname@example.org). Comments are due by June 21, 2012. The Draft Contract also has an interesting special elective franchise fee reduction/LSI buy-down provision. The clause provides that the franchise fee for a successful offeror choosing this option would be reduced by the percentage set forth by NPS in the contract (2.5%), and the amount equal to the difference between the offered franchise fee and the reduced franchise fee would be applied to buy down the ending LSI value of LSI improvements upon contract expiration or earlier termination. In other words, the additional dollar amount that the concessioner would have paid in franchise fees over the contract term (or earlier termination) had it not elected this option will be applied to buy down the ending LSI value.
Because such an approach, if elected, would increase the successful offeror's cash flow, this seems like a way for NPS to buy its way into a more competitive environment. Moreover, greater competition is also likely at the end of the 20 years since the LSI at that point should not be as big a hurdle to a new concessioner. Whether such an approach can be maintained in these times of budget crunches, however, remains to be seen.