B-121626, NOVEMBER 1, 1954, 34 COMP. GEN. 207

B-121626, NOVEMBER 1, 1954, 34 COMP. GEN. 207

CONCESSIONS - LEASES - SHASTA DAM - TERMINATION WHERE CONCESSIONAIRE AT SHASTA DAM IS REQUIRED TO PAY A MONTHLY RENTAL OF 5 PERCENT OF GROSS RECEIPTS FROM OPERATION OF CONCESSION WITH A GUARANTEED MINIMUM RENTAL, THE FACT THAT THE CONTRACT HAS BECOME UNPROFITABLE FURNISHES NO BASIS FOR TERMINATION OF THE LEASE AND THE EXECUTION OF A NEW LEASE WITHOUT COMPENSATING BENEFITS TO THE GOVERNMENT.

ACTING COMPTROLLER GENERAL WEITZEL TO THE SECRETARY OF THE INTERIOR, NOVEMBER 1, 1954:

REFERENCE IS MADE TO LETTER OF SEPTEMBER 28, 1954, FROM THE ADMINISTRATIVE ASSISTANT SECRETARY OF THE INTERIOR, REQUESTING TO BE ADVISED WHETHER THE LEASE DISCUSSED THEREIN MAY BE TERMINATED AND A NEW LEASE ENTERED INTO WHICH, WHILE COVERING THE SAME SUBJECT MATTER, WOULD PROVIDE FOR A LONGER TERM THAN THE PRESENT LEASE AT AN APPARENT LOWER REVENUE TO THE UNITED STATES.

THE LEASE WAS AWARDED FOLLOWING A SOLICITATION OF BIDS AND COVERS THE OPERATION OF A CONCESSION AT THE VISTA HOUSE, A FACILITY MAINTAINED BY THE BUREAU OF RECLAMATION AT SHASTA DAM, CENTRAL VALLEY PROJECT, CALIFORNIA, FOR THE TERM JULY 1, 1952, TO APRIL 30, 1957. THE CONCESSION IS FOR THE SALE TO THE PUBLIC OF LUNCHES, SOUVENIRS, FILM, POSTCARDS, ETC., AND UNDER THE TERMS OF THE LEASE THE CONCESSIONAIRE PAYS A MONTHLY RENTAL OF 5 PERCENT OF GROSS RECEIPTS WITH A GUARANTEED MINIMUM RENTAL OF $750 PER MONTH.

A SUMMARY OF THE SALE SHOWS THAT DURING THE FIRST FIVE MONTHS OF OPERATION GROSS SALES AMOUNTED TO $22,475.06 AND THAT DURING THE CORRESPONDING MONTHS OF 1953, THE GROSS RECEIPTS AMOUNTED TO $21,958.17. RECEIPTS SO FAR RECEIVED IN 1954 INDICATE A FURTHER DROP IN GROSS RECEIPTS. AS A CONSEQUENCE, IT IS STATED THAT THE CONCESSIONAIRE HAS HAD TO PAY THE FULL $750 PER MONTH RENTAL WHICH AMOUNTS TO APPROXIMATELY 25 PER CENT OF THE GROSS RECEIPTS. IT IS STATED THAT THE LESSEE AND BUREAU OF RECLAMATION OFFICIALS ATTRIBUTE THE DECREASE IN GROSS RECEIPTS AND THE FAILURE OF PROFITS FROM THIS VENTURE TO COME UP TO EXPECTATIONS TO TWO FACTORS. THE FIRST MENTIONED FACTOR IS THAT WHEN THE CONCESSION WAS FIRST OPENED ALL AUTOMOBILES COMING TO THE DAM WERE REQUIRED TO PARK AT THE VISTA HOUSE, BUT BEGINNING WITH MARCH 1953 THE TOP OF THE DAM WAS OPENED TO VEHICULAR TRAFFIC AND AS A RESULT MANY AUTOMOBILES NOW CROSS THE DAM WITHOUT STOPPING AT THE VISTA HOUSE. THE SECOND FACTOR IS THAT BEGINNING IN APRIL 1954, THE BUREAU BEGAN TO CHARGE A 30-CENT FEE FOR GUIDED TOURS. WHILE SUCH FEE IS RELATIVELY SMALL IT IS URGED THAT THIS DIVERSION OF SPENDING MONEY UNDOUBTEDLY HAS HAD SOME EFFECT ON SALE OF ICE CREAM, CANDY, AND SOUVENIRS.

IT IS STATED THAT AT THE TIME BIDS WERE ADVERTISED FOR THE CONCESSION, THE BUREAU DID NOT CONTEMPLATE OPENING THE DAM TO VEHICULAR TRAFFIC NOR THE CHARGING OF A FEE FOR GUIDED TOURS. CONSEQUENTLY, BIDDERS APPARENTLY DID NOT TAKE SUCH FACTORS INTO CONSIDERATION IN THE PREPARATION OF THEIR BIDS. HOWEVER, AN EXAMINATION OF THE SALES SUMMARY DOES NOT ESTABLISH THAT THE TWO MENTIONED FACTORS ARE RESPONSIBLE FOR THE FACT THAT THE SALES DID NOT REACH THE VOLUME ANTICIPATED NOR DOES IT APPEAR THAT THE REQUEST TO TERMINATE THE PRESENT LEASE IS PREDICATED ON SUCH FACTORS. IN ANY EVENT, THE GOVERNMENT WAS FULLY WITHIN ITS RIGHTS IN OPENING THE TOP OF THE DAM TO VEHICULAR TRAFFIC AND CHARGING A FEE FOR GUIDED TOURS. ON THE OTHER HAND, IT APPEARS THAT THE LOSSES INCURRED BY THE CONCESSIONAIRE, REPORTED AS BEING $150 PER MONTH, RESULTED FROM HIS HAVING OVERESTIMATED THE AMOUNT OF SALES WHICH WOULD BE MADE AT THE CONCESSION.

IT IS URGED THAT TERMINATION OF THE PRESENT LEASE WITH THE CONCURRENCE OF THE LESSEE AND THE ADVERTISEMENT FOR BIDS FOR A LEASE OF 10 YEARS' DURATION WOULD AFFORD A NUMBER OF ADVANTAGES TO THE GOVERNMENT OVER THE SITUATION EXISTING UNDER THE PRESENT LEASE. IN THIS CONNECTION IT IS POINTED OUT THAT THE OPERATION OF THE CONCESSION IS ESSENTIALLY FOR ACCOMMODATION OF THE PUBLIC RATHER THAN A MEANS TO PROVIDE REVENUE TO THE GOVERNMENT. UNLESS THE PRESENT LEASE IS TERMINATED BY MUTUAL CONSENT IT IS ANTICIPATED THAT THE CONCESSIONAIRE WILL DEFAULT AND THAT SERVICE TO THE PUBLIC WOULD BE DISRUPTED. IT IS STATED THAT, IN SUCH EVENT, OTHER BIDDERS WOULD NOT BE WILLING TO BID AS MUCH FOR THE NEW LEASE AS THE PRESENT LESSEE WHO HAS INVESTED $30,000 IN STOCK AND EQUIPMENT WHICH WOULD BE VIRTUALLY WORTHLESS OUTSIDE OF THE CONCESSION. IN VIEW OF SUCH CIRCUMSTANCES IT IS URGED THAT SUCH PROPOSED ARRANGEMENT WOULD NOT ONLY PROVIDE ASSURANCE TO THE GOVERNMENT OF A LONG-TERM OPERATION WITHOUT DISRUPTION OF SERVICE TO THE PUBLIC BUT WOULD ALSO ULTIMATELY RESULT IN MORE REVENUE TO THE GOVERNMENT THAN WOULD BE THE CASE IF THE PRESENT LEASE WERE TO BE TERMINATED BY DEFAULT, SINCE, AS MENTIONED ABOVE, THE PRESENT LESSEE WOULD UNDOUBTEDLY SUBMIT A SUBSTANTIALLY HIGHER BIG FOR A NEW LONG- TERM LEASE THAN WOULD OTHER BIDDERS.

IN THE FINAL ANALYSIS, IF EVERYTHING MATERIALIZES AS CONTEMPLATED, THE END RESULT WOULD BE A REDUCTION IN THE RENTAL OF THE PREMISES INVOLVED. IN THAT CONNECTION, IN DECISION OF APRIL 11, 1944, B-40226, TO THE THEN SECRETARY OF THE INTERIOR, IT WAS HELD THAN AN ADMINISTRATIVE REMISSION OR REDUCTION IN THE AMOUNT OF THE ANNUAL FRANCHISE FEE REQUIRED TO BE PAID UNDER AN AGREEMENT FOR THE MAINTENANCE AND OPERATION OF A MEDICAL AND HOSPITAL SERVICE IN YELLOWSTONE NATIONAL PARK WAS UNAUTHORIZED IN THE ABSENCE OF SOME COMPENSATING BENEFIT TO THE GOVERNMENT. IN SAID DECISION, IT WAS STATED:

THERE IS NO PROVISION IN THE CONTRACT INVOLVED TO THE EFFECT THAT THE CONTRACTOR MAY BE EXCUSED FROM PERFORMANCE IN THE EVENT ANTICIPATED REVENUES FAIL TO MATERIALIZE; CONSEQUENTLY, THERE IS NO LEGAL BASIS FOR RELIEVING THE CONTRACTOR FROM HIS OBLIGATIONS THEREUNDER ON THE GROUND THAT THE CONTRACT IS UNPROFITABLE. SEE COLUMBUS RAILWAY, POWER AND LIGHT CO. V. COLUMBUS, 249 U.S. 399, AND CASES THEREIN CITED. ALSO, IT IS WELL SETTLED THAT, IN THE ABSENCE OF A STATUTE SPECIFICALLY SO PROVIDING, NO OFFICER OF THE GOVERNMENT HAS AUTHORITY TO GIVE AWAY OR SURRENDER ANY RIGHT VESTED IN OR ACQUIRED BY THE GOVERNMENT UNDER A CONTRACT. SEE BRAWLEY V. UNITED STATES, 96 U.S. 168; SIMPSON V. U.S., 172 U.S. 372; PACIFIC HARDWARE CO. V. UNITED STATES, 49 C.1CLS. 327; BAUSCH AND LOMB OPTICAL CO. V. UNITED STATES, 78 C.1CLS. 584. * * *

THE LEGAL PRINCIPLES CONSIDERED AND THE CONCLUSION REACHED IN SAID DECISION APPEAR TO BE EQUALLY APPLICABLE TO THE PRESENT PROPOSAL. THE COMPENSATING BENEFITS TO BE DERIVED BY THE GOVERNMENT WARRANTING THE PROPOSED ACTION ARE STATED AS (1) UNINTERRUPTED SERVICE TO THE PUBLIC; (2) RECEIPT OF THE HIGHEST BID FROM THE PRESENT LESSEE; AND (3) A LEASE FOR A LONGER TERM. SAID BENEFITS REST UPON THE ASSUMPTION THAT THE PRESENT LESSEE WILL BE THE HIGHEST BIDDER FOR THE NEW LEASE. HOWEVER, IN THE EVENT A HIGHER BID SHOULD BE RECEIVED FROM ANOTHER BIDDER, THE BUREAU WOULD BE FACED WITH THE SAME DISRUPTION OF SERVICE AS IT WOULD IF THE PRESENT LEASE WERE TERMINATED BY DEFAULT. IN THAT EVENTUALITY, THE GOVERNMENT BY TERMINATING THE PRESENT LEASE, AS PROPOSED, WOULD SUFFER A DETRIMENT SINCE IT WOULD BE FORECLOSED FROM RECOVERING DAMAGES FROM THE LESSEE.

FURTHERMORE, THERE IS NO CERTAINTY THAT THE NEW LESSEE WOULD CARRY OUT THE FULL TERM OF THE 10-YEAR LEASE. SHOULD OTHER FACTORS DEVELOP DURING SUCH TERM RESULTING IN THE OPERATION OF THE CONCESSION AT A LOSS, THE BUREAU WOULD FIND ITSELF IN THE SAME POSITION AS AT PRESENT. IF THE PROPOSED PLAN IS CARRIED OUT, THE ONE THING CERTAIN IS THAT THE GOVERNMENT WILL SUFFER A LOSS IN RENTAL FROM THE TIME THE NEW LEASE IS ENTERED INTO UNTIL APRIL 30, 1957.

IN THE LIGHT OF THE FOREGOING, THIS OFFICE IS OF THE VIEW THAT ANY COMPENSATING BENEFIT TO THE GOVERNMENT IS SO NEBULOUS AS TO NOT WARRANT THE ACTION PROPOSED.