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20 Guidebook for Developing and Managing Airport Contracts See CRP-CD-81 (enclosed herein), Appendix to Chapter 2, Concession Agreements, for excerpts from the MSP General Terms & Conditions for Concession Agreements regarding Operator Main- tenance, Cleaning, and Distribution responsibilities and an excerpt from the PDX concession agreement for a matrix assigning maintenance responsibilities. Title to improvements at the end of a lease often remains with the airport, and agreement lan- guage should reflect this if at all possible. At the same time, airports should include language in their agreements that require a tenant to remove these improvements at the airport's request. The maintenance requirement for car rentals will depend on whether the company or the air- port constructed the improvements. The agreement should clearly state which party is responsible for interior and exterior maintenance of the facilities. The airport should have a provision stating that any improvement to the leasehold becomes the property of the airport at the termination or expiration of the agreement. 2.2.6 Recapture/Relocation of Premises Historically, when concessionaires were sometimes given exclusive rights, some were also pro- tected from recapture or relocation. While concessions revenue is important, increased airline competition has made it necessary for some airports to protect their rights to recapture space. In those circumstances, recapture and relocation provisions are essential to protect both parties. The airport should retain similar rights to relocate the car rental operations if necessary for airport expansion, security mandates, or reasonable cause with provision for relocation costs and buy- out of unamortized improvements. See CRP-CD-81 (enclosed herein), Appendix to Chapter 2, Concession Agreements, for an excerpt from the MSP Concessions General Terms & Conditions. 2.2.7 Materials Handling It should be specified whether the concessionaire or the airport is responsible for arranging for these services and which party will pay for them. For product delivery (generally applicable to ter- minal concessions), exhibits should be added to the agreement depicting acceptable truck routes, loading docks, storage locations, and acceptable routes in-terminal for product to be moved to con- cession locations. Similar detail should be added for recycling and trash removal, showing acceptable routes for these functions. Janitorial services must be addressed to first identify who is responsible for which functions. Who moves trash from concessions to dumpsters? Are there trash rooms on the con- course level for interim collection? Who moves it from there? Agreements should answer these questions to avoid misinterpretation later. See CRP-CD-81 (enclosed herein), Appendix to Chapter 2, Concession Agreements, for an excerpt from the MSP Concessions General Terms & Conditions and DFW Concessions Agree- ment Template. 2.3 Food and Beverage Concessions Additional Issues for food and beverage concessions include the following: Food service standards Approval of menus and pricing Materials handling

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Concession Agreements 21 Food safety responsibilities Pest control Maintenance of kitchen equipment Cash and credit handling Disputes with other tenants 2.3.1 Food Service Standards Food and beverage contracts are increasingly including standards that govern the level of ser- vices provided to the passengers and the operations of the facilities. Although the concessionaires are experts and need flexibility to manage their operations, based on sometimes inconsistent per- formance by airport concessionaires, many airport operators now include standards that dictate minimum levels of performance and include mechanisms for monitoring performance. See CRP-CD-81 (enclosed herein), Appendix to Chapter 2, Concession Agreements, for an excerpt from the MSP Concessions General Terms & Conditions. 2.3.2 Approval of Menus and Pricing Establishing (and approving) menus and associated pricing is challenging for food service concessions. Among the major issues to address are defining the street price, menu variability, and service standards. Airports use various approaches to establish pricing. There is even more variety in the approaches to establishing menus and permitting or declining changes to them. Some existing contracts use language to protect the airports' interest in tenants' offering menus that satisfy all potential customers. Pricing language is generally used to ensure compliance with a policy that limits pricing to cer- tain levels (e.g., street or street plus a percentage). Many of these approaches use some variation of a "market basket" approach, where specific non-airport locations of the same restaurant brand or other similar concept are used as reference points to check airport prices and ensure they com- ply. Invariably, using the phrase "street pricing" results in complications and misunderstanding if the agreement is not worded appropriately. See CRP-CD-81 (enclosed herein), Appendix to Chapter 2, Concession Agreements, for excerpts from the PHX and BNA concessions agreements regarding approvals of menus and pricing. Pricing language may also require a statement of policy on employee discounts. However, authors of food/beverage agreements should be aware that employee discounts affect other ele- ments of the agreement as follows: The practice of offering employee discounts stems from a time when almost all airport retail prices were set well above "street" level. The discounts were used to ensure that employees were not subjected to the same inflated prices as travelers. If the agreement being drafted envi- sions street pricing or similar, the need for an employee discount may be less. It is relatively common practice for sales generated with employee discounts to be excluded from gross sales when rent is calculated. On the surface, this may seem logical. However, any determination regarding the exclusion of discounted sales from rent calculations should be supported through the pro forma analysis. It is not recommended that this practice be imple- mented without that analysis. In a small sample of cases, these policies are being evaluated with regard to the possibility that airport employees may be receiving inappropriate gifts from concessionaires. The justifica- tion for the argument is that an airport employee will pay less for exactly the same good or service as a passenger will pay. The larger population of airport managers does not perceive

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22 Guidebook for Developing and Managing Airport Contracts an employee discount as inappropriate, and this Guidebook does not recommend assuming such unless the airport's policies, procedures, or overriding law/ordinance specifically state so. In addition to the information above, it is also recommended that airports consider using indices based on some variation of the Consumer Price Index (CPI) to standardize annual inflation-based price increases. 2.3.3 Materials Handling Most materials handling issues are addressed above. However, for food and beverage agree- ments, there is an additional concern to address--grease traps and removal. The language dealing with this issue does not need to be extremely complicated; however, airports are cautioned that governing environmental law is becoming increasingly stringent with regard to grease storage. Air- port managers are advised to ensure that tenants facilitate, rather than hinder, the airport's com- pliance with environmental requirements. Airports should require tenants ensure that grease traps are installed and checked and/or cleaned at least monthly in all concession locations. The agreement should mandate that if a problem devel- ops because of a clogged or under-maintained grease trap, the concessionaire shall repair, or cause to be repaired, all damages caused thereby at its sole expense. The concessionaire must agree that the airport may assess a fine for repeated instances of overflowing or malfunctioning grease traps in accordance with the agreement. See CRP-CD-81 (enclosed herein), Appendix to Chapter 2, Concession Agreements, for an excerpt from the MSP Concessions General Terms & Conditions. 2.3.4 Food Safety Responsibilities At its most basic level, a food service concession agreement should mandate the sharing of health department inspection reports with the airport, as suggested by the following language. An airport, aside from mandating compliance with all relevant rules and laws regarding health code compliance, can require compliance of its own cleanliness standards. Sample standards include the following: All areas within the tenant space shall be kept clean and well maintained. Any and all debris shall be removed from counters and tables within 2 minutes. Areas shall be kept free of unpleasant odor. Floors shall be kept free of debris and stains and shall be clean and well maintained. Carpeting shall appear vacuumed and floors shall appear washed. Entrance doors shall be free of smears, smudges, and dirt. Glass windows and display cases shall be clean and free of smudges. Any and all food being used for display purposes shall be rotated daily. Sales and cashier areas shall appear clean and organized. Tray slides (if present) shall be clean. Food trays shall be washed regularly (not just wiped down). Light fixtures and their attachments shall be kept clean and free of dust. Exhaust hoods, fans, and filters shall be appropriately maintained and cleaned. Grease traps shall be maintained and inspected for leaks regularly. Tenant waste shall be placed inside garbage compactor(s) and compacted. Delivery palettes and milk crates shall be neatly stacked and organized (while on the loading dock or outside tenant space) between deliveries. All cardboard boxes shall be broken down and placed within the designated cardboard receptacles.

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Concession Agreements 23 See CRP-CD-81 (enclosed herein), Appendix to Chapter 2, Concession Agreements, for an excerpt from the PHX Concessions Agreement. 2.3.5 Pest Control Airports should ensure that tenants are solely responsible for a pest-free environment within assigned premises by maintaining its own pest control services, in accordance with the most modern and effective control procedures. All materials used in pest control shall conform to fed- eral, state, and local laws and ordinances. All control substances utilized shall be used with all precautions to obviate the possibility of accidents to humans, domestic animals, and pets. Pests referenced should include all those typically encountered by pest control specialists in the area. Whenever the airport deems that pest control services must be provided to a building or area that includes assigned premises under the agreement, the Airport should ensure that the tenant pays for the costs of services provided. See CRP-CD-81 (enclosed herein), Appendix to Chapter 2, Concession Agreements, for an excerpt from the SFO Concessions Agreement. 2.3.6 Maintenance of Kitchen Equipment Maintenance of kitchen equipment is not a topic traditionally encountered in food service concession agreements. Typically, its maintenance is presumed to be covered in other articles related to maintenance of the assigned premises or similar. There are good examples, though, of language used to ensure adequate care of other airport facilities; this language can be used to fash- ion a clause or article that addresses the appropriate maintenance of kitchen equipment. See CRP-CD-81 (enclosed herein), Appendix to Chapter 2, Concession Agreements, for sample material from a concessions agreement. 2.3.7 Cash and Credit Handling In a world that is becoming increasingly "cashless," most airports require that all food service providers accept credit cards for goods and services. Often, small concessionaires contend that the size of their business makes it impractical to pay the fees charged by major credit cards. As discussed before, however, the Airport can use the pro forma income statement to assess the effect of these fees on the concessionaire's profitability, and determine the appropriate rent structure to ensure that credit cards are accepted. Airports typically mandate the acceptance of at least three credit cards, with MasterCard and VISA a must, and American Express strongly recommended, partic- ularly if an airport has a high percentage of business travelers. Airports should also strongly encour- age tenants to provide a "swipe and go" credit card (no signature required) service to customers. See CRP-CD-81 (enclosed herein), Appendix to Chapter 2, Concession Agreements, for an excerpt from the MSP Concessions General Terms & Conditions. 2.3.8 Disputes with Other Tenants This is a critical element to address because well-written articles and clauses in food service agreements can diffuse disagreements before they escalate and cause confusion and in-fighting that may be apparent to customers. See CRP-CD-81 (enclosed herein), Appendix to Chapter 2, Concession Agreements, for excerpts from the ELP and CHS concessions agreements regarding resolving disputes among tenants.