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This chapter presents approaches, practices, and strategies for soliciting and selecting conces- sionaires. Once the concession plan is prepared and the program is ready for implementation, selecting the best tenants may be the single most important responsibility of the concession man- ager. Following sound procurement practices can also help avoid protests and challenges to the procurement process. This chapter covers the following: â¢ Concession procurement approaches â¢ Requests for proposalsâthe standard practice â¢ Minimum qualifications â¢ Typical elements required in proposals â¢ Evaluation criteria â¢ Financial evaluation â¢ Advertising the RFP â¢ Issuing the RFP â¢ The preproposal conference â¢ The evaluation process â¢ Converting the proposal to a concession agreement â¢ Streamlining the RFP â¢ Concession workforce issues â¢ Strategies for increasing local participation â¢ Using technology to streamline the solicitation process â¢ International concession contracting practices 10.1 Concession Procurement Approaches U.S. airports and passenger terminals with few exceptions are publicly owned, and, therefore, the public procurement requirements established by the airportâs governing body must be fol- lowed. Airport authorities have adopted policies that are consistent with the specialized needs of airports. Operators of airports that are units of a city, county, or state government typically follow more general and less efficient procurement requirements that may place additional burdens on the airport operator. Nevertheless, the fundamental practices in selecting concession tenants are the same regardless of the form of governance. The competitive proposal or Request for Proposals (RFP) process is the standard industry approach for soliciting, evaluating, and selecting concessionaires. However, other approaches are also used, depending on the nature of the desired concession or service. 155 C H A P T E R 1 0 Procurement
10.1.1 Bidding to Specifications Competitive bids were, at one time, the dominant approach to concessionaire selection. After World War II, commercial airlines were flourishing and cities across the country were looking for ways to finance the construction of new airports and terminals. Today, airports have well- established credit ratings with relatively easy access to the capital markets. In the 1950s and 1960s, financing airports was more challenging. Cities and counties wanted new airports, but did not want to fund them with general revenues or bonds backed by general revenues. The financial markets often required airport sponsors to negotiate long-term lease and use agreements with their airlines and concessionaires as a means of providing guaranteed revenues to support the issuance of airport revenue bonds. As a result, concession agreements were typically awarded to companies that proposed the highest guaranteed revenues using a process called bidding to specifications, with bidders agree- ing to build and operate concessions according to detailed requirements established by the air- port sponsor. The bidder with the highest total guaranteed revenue in each year of the concession agreement was awarded the concession privilege. These exclusive long-term agreements provided guaranteed revenue to the airport enterprise at a time when airport operators needed to demonstrate financial capacity. Over time, as passen- ger traffic grew and airlines entered and left markets, it was recognized that it was the local mar- ket, and not the airlines, that drove passenger traffic demand. As a result, long-term airline agreements and concession agreements became less important. Where a single concession agreement covered a major category, the agreement was called a retail or food and beverage âmaster concessionâ agreement. At some airports, a single master concession agreement was awarded, which included both food and beverage and retail privileges. Airports where some form of master concession agreement was/is used included those serving Atlanta, Denver (Stapleton), Orlando, Philadelphia, San Francisco, Seattle-Tacoma, and Tampa, among others. The same master concessionaire has been used at Tampa International Airport since the airport opened in the early 1970s. A key complaint with exclusive long-term agreements was the quality of service. Over time, the high guaranteed revenues often resulted in high prices and poor service, and airport conces- sion programs earned deservedly poor reputations for pricing, quality, and value. It became clear that a more sophisticated approach to providing airport concessions was needed. Bidding to specifications has lost favor for food and beverage, convenience, and specialty retail. However, bidding to specifications is still used for some services, such as baggage carts and foreign currency exchange, and often for duty free privileges, where the airport operatorâs goals may be largely financial and service levels are customarily high. 10.1.2 Requests for Proposals Over time, as dissatisfaction with concession programs grew, airport operators shifted to the RFP process. The RFP process allows airport operators to assess a variety of factors in the selection of con- cessionaires and encourages proposers to consider other factors in addition to guaranteed rev- enues. Criteria are established, with proposals evaluated against the established criteria. In this way, proposals can be evaluated based on customer service, investment, brands, pricing, train- ing, service standards, and other criteria used. As experience was gained with this process, it became clear that a good concessionaire that met the criteria established in the RFP was capable of achieving higher sales than in cases where the concession privileges were awarded using a 156 Resource Manual for Airport In-Terminal Concessions
straight competitive bid. The change from the competitive bid to the RFP approach and the ris- ing expectations of airport customers and management are among the key factors that led to more competitive, sophisticated, branded, and passenger-friendly concession programs. The standard practice is to issue an RFP that is open for response to any party meeting a set of minimum qualifications stated in the RFP. Each proposerâs technical submittal and financial offer is evaluated by a selection committee and the proposer offering the best overall proposal is recommended for award. 10.1.3 Statements of Qualifications In some instances, a two-phased competitive selection process is used, in which a formal request for a Statement of Qualifications (SOQ) is issued to solicit information from potential proposers or bidders that will allow the airport operator to narrow the field of potential pro- posers or to ensure that only qualified firms compete in a competitive proposal process. The SOQ can also be used to select qualified firms for direct or competitive negotiations in instances where there are a limited number of providers or where the airport operator is open to considering alternative solutions. The SOQ will typically ask for a narrow range of information such information about the com- pany, its location, office, personnel, and capabilities; experience with similar projects; gen- eral financial information indicating, on a preliminary basis, necessary financial capacity; and demonstration that the respondent meets or exceeds the minimum qualifications to be consid- ered in the next phase of the procurement. Concession privileges are rarely awarded based on qualifications alone. 10.1.4 Direct Negotiation Another approach to awarding concession privileges, and the one that is least used, is direct negotiation. With direct negotiation, the airport operator negotiates with a single concession provider to reach agreement on contract terms. Direct negotiation is most often used when there is only a single concession provider in a cat- egory, or when the nature of the concession is unique, or when the incumbent concessionaire has made considerable, recent, unamortized capital investments. Because there is no competi- tion for the award of the privileges, direct negotiation is often avoided in favor of bidding to specifications or an RFP process. This is the case even when it is likely that only a single pro- poser will respond in order to avoid criticism that the process lacks transparency or that favoritism is involved. 10.1.5 Other Approaches In addition to the main approaches to concessionaire selection described above, other approaches are occasionally used, depending on the circumstances. These include competitive negotiations and the two-envelope approach. Competitive Negotiations Although competitive negotiations are used rarely, they can be useful for complex procure- ments or cases in which there are a small number of potential service providers. Under this approach, proposers are ranked and negotiations are conducted with the top-ranked proposers. Each proposer has the opportunity to improve their proposal, until âbest and final offersâ are received and one clear winner emerges. Procurement 157
The Two-Envelope Approach Another variation that is used occasionally combines elements of bidding to specifications with an RFP. Under this approach, technical proposals, included in the first envelope, are eval- uated against a set of established criteria. Minimum qualifications are established for consider- ation of technical proposals. Those proposals meeting the minimum qualifications and achieving a certain scoring threshold then advance to a second stage, during which their financial propos- als, contained in the second envelope, are opened. The proposer with the highest financial offer is then declared the winner. The two-envelope approach allows the airport operator to establish qualitative criteria to ensure that only those proposers meeting a certain level of qualifications and capabilities are eli- gible to have their financial offers opened. This approach is helpful in ensuring that an unqual- ified proposer does not âbuyâ the concession by submitting a financial offer that may not be sustainable over the term of the agreement or submit a financial bid that will result in unaccept- able levels of service or pricing to passengers. The two-envelope approach is still used occasionally in circumstances where local procure- ment regulations or other considerations make it difficult to differentiate between proposers. The RFP process has, at most airports, replaced the two-envelope approach. 10.2 Requests for Proposalsâthe Standard Practice The RFP is the standard practice for selecting concessionaires at airports worldwide. Figure 10-1 shows the method of awarding food and beverage and retail concessions at large, medium, and small hub airports. In the surveys conducted for this research, 80% of participants indicated that the RFP is the approach used at their airport; only one airline and two airport concession managers indicated that they issued RFPs on an invitation-only basis to a limited selection of potential proposers. Unlike bidding to specifications, which relies on one key financial variable, the RFP process allows consideration of multiple variables that may include the proposed concept, quality and amount of investment, experience and record of accomplishment of the proposer, the manage- ment and operating plan, financial ability to perform, and a financial offer. 158 Resource Manual for Airport In-Terminal Concessions Ne go ti at i on or ot her 4% RF P - in vi ta ti on on ly (l im it ed di st ri but i on) 7% Co m pet it iv e bid 4% Th ro ugh Thir d- Pa rt y De vel o per or Leas in g Ma n age r 4% RF P 80% Note: Numbers may not add to 100% due to rounding. Source: LeighFisher using data from the airport surveys conducted for ACRP Project 01-11. Figure 10-1. Method of awarding food and beverage and retail concession privileges (large, medium, and small hub U.S. airports).
Proposals received in response to an RFP are typically reviewed by a panel of evaluators, which, depending on local procurement requirements, may be called an evaluation panel, selection panel, selection committee, or other name. Evaluators, depending on local laws or ordinances, may include airport staff members, local citizens with some background in the subject matter, airport board members, employees of sister agencies, and outside experts such as consultants or staff from other airports. At some airports, concession staff may be included as evaluators, while at other air- ports, these staff members serve as nonvoting facilitators. Each airport operator has its own set of internal policies with respect to the award of conces- sion privileges. In the case of airports operated as a department of city, county, or state govern- ment, or by appointed dependent authorities of a larger unit of government, the airport operatorâs concession procurement policy is shaped by local and/or state law or ordinance. The typical sections of an RFP are shown in Table 10-1. The descriptions of âtypicalâ elements of RFPs should be considered as generalized descriptions of common industry practices that should be adapted to applicable local and/or state law. Procurement 159 1. General Description of the Business Opportunity â Airport operatorâs goals for the concession program â Schedule for the process â Pre-proposal conference â Other requirements 2. General Airport and Airline Information â Airport and service area â Airlines and the destinations they serve â Historical passenger statistics â Description of the current concession program, including space and sales 3. Detailed Description of the Business Opportunity â Locations â Packages (if more than one) â Key business terms â Airport operatorâs goals, brands, local concepts, etc. 4. Other Doing-Business Issues â Support space â Deliveries by suppliers 5. Development Requirements â Design standards/guidelines â Design review â Turnover date â Condition of space at turnover â Construction coordination â Utilities 6. Submittal Requirements â Minimum qualifications â Financial terms and variables â minimum annual guarantee (MAG), percentage rent, minimum investment requirement â Other technical information (see Table 10-2) 7. Evaluation Process â Criteria and weighting â Selection process â Interviews 8. Attachments â Draft concession agreement â Required forms â Submittal checklist â Design standards/guidelines â Lease outline drawings Table 10-1. Typical contents of a request for proposals.
10.3 Minimum Qualifications A standard practice in the award of concession privileges is to establish minimum qualifica- tions, whereby a level of experience, capability, or business volume is used as a threshold for con- sideration of bids or proposals. Minimum qualifications may include an experience element, for example, 3 to 5 years of experience operating a similar business, and a volume of past sales ele- ment, using a percentage (for example, 50%) of the expected business volume for at least 3 of the last 5 years. In some cases, airport experience may be required, such as in the award of agreements for mul- tiple concession locations. Proposal bonds, proposal guarantees, or sureties may also be required. Additional minimum qualifications are sometimes used, in the form of disqualifiers, such as not being in default under any current agreements with the airport operator, or having no lawsuits pending against the airport sponsor/operator, or no prior judgments or pending lawsuits that would, in the opinion of the airport operator, disqualify the proposer from consideration. Minimum qualifications are important in any selection process because they are objective, quantifiable, and established before the process begins. Without them, proposals from unqual- ified respondents may have to be reviewed, which increases the workload of evaluation panels, and may lead to challenges. Minimum qualifications can be helpful to potential proposers by dis- couraging unqualified proposers from spending time and money unnecessarily. 10.4 Typical Elements Required in Proposals Table 10-2 lists the typical elements required in proposals, which are discussed below. The transmittal letter is a one- or two-page letter signed by an officer of the proposer that identifies the legal entity, key contact person, addresses, telephone number, fax number, and email addresses to be used in all communications relevant to the proposer. This information ensures that all communications are forwarded to a single point of contact. Care should be taken to avoid multiple points of contactâfor example, a local manager in addition to a corporate business development executiveâas this can result in faulty notices that can put the overall process at risk. The executive summary, often page limited, describes the key elements of the proposal. Exec- utive summaries can be helpful by providing an overview of the proposal and can easily be 160 Resource Manual for Airport In-Terminal Concessions 1. Transmittal letter 2. Executive summary 3. Qualifications and experience summary 4. Concept descriptions and merchandising plan 5. Management and operating plan 6. Financial statements 7. Design submittal 8. ACDBE participants 9. Pro forma revenue and expense projections 10. Proposal form 11. Proposal bond, guarantee, or surety 12. Addenda acknowledgement form 13. Other required information 14. Submittal checklist Table 10-2. Typical elements required in proposals.
extracted to summarize the key elements of each proposal. The contents of executive summaries can be set forth in the RFP to ensure that key information is included. The qualifications and experience summary is often a detailed questionnaire that provides a structure for all proposers to use in conveying important information on the legal form of the organization, company history, domicile, ownership interests, other concession operations, financial qualifications, references, assurances on matters such as prior and current litigation, ACDBE status, prior bankruptcy filings, and other organizational issues. The concept descriptions and merchandising plan is where the proposer describes how it intends to use the concession space, the concept proposed for each location, the merchandise list or menu items or services to be offered, and why the proposer believes its proposed use is the best use of the space. The management and operating plan describes the staffing levels, key staff, employees per shift, management structure, reporting relationships, and basic procedures that will apply to the concession or service. Summaries of training and customer service programs, incentive programs, turnover statistics, and other information about the proposerâs workforce are included here. Financial statements are provided for the most recent 2 years of the entity guaranteeing the proposal terms. If a proposer is relying on the qualifications of its parent company, the financial statements of the parent company should be evaluated, and the parent company should be the party executing the concession agreement or guaranteeing the financial elements of the proposal. The design submittal typically includes the proposed layout of the space(s) with dimensions based on lease outline drawings included with the RFP; renderings of the concession exterior front; a narrative description of the design and how it meets the airport operatorâs design guidelines and supports the overall goals for the concession program; and, in some cases, printed versions of material boards for each unit. Some airport operators also require the original material boards. ACDBE participants must be identified, along with a description of the level of participation in terms of annual sales and space, and a description of the legal form of participation (e.g., joint venture or sublease) by including a copy of the proposed agreement between the proposer and the ACDBE. The RFP may also ask for particulars on the contractual relationship, such as the level of investment by the ACDBE or its role in the overall management of the joint venture. Pro forma revenue and expense projections are provided with a pro forma projection of rev- enue and expense for each concession location, usually for a minimum of 5 years or for the length of the term of the agreement, based on the requirements included in the RFP. The pro forma projection provides the airport operator with evidence that the proposer has taken into account the requirements of the RFP, the locations and size of the airportâs passenger market, and the cost of doing business. It also provides insight into how the proposer intends to operate the busi- ness and allows the different proposals to be compared in terms of labor costs, the cost of goods sold, gross margins, or other metrics. When proposers use different underlying assumptions on traffic growth and price inflation, the pro forma revenue and expense projections will be diffi- cult to compare. For this reason, it is recommended that the RFP include the airportâs passen- ger forecasts to be used by all proposers (or an assumed number of future passengers based on a reasonable metric if an official forecast does not exist). The enplaned passenger assumptions or forecast should contain a caveat that the airport operator does not warrant that the enplaned passenger levels are guaranteed and that they are provided solely for the purpose of ensuring a common basis for comparison. Stating a common, conservative inflation assumption for projecting sales can also be helpful, as would requiring that the pro forma analyses be prepared in ârealâ terms (i.e., without any under- lying inflation assumed). In this way, expense and revenue projections provided by proposers can Procurement 161
be more readily compared, which would help avoid problems should a proposerâs forecasts become an issue during the award process in the event of a protest or other event. The proposal form is a legally binding document executed by an officer of the proposing com- pany authorized to do so, which contains a clear and concise statement of the financial offer, including percentage rent, minimum guarantees, and other variable payments. The statement should track with the language in the concession agreement and the RFP. The proposal formâs purpose is to eliminate any ambiguity about future rents, fees, and charges that may be described elsewhere in the proposal. Including the proposal form as a separate form rather than within a required section of the RFP will avoid editing errors or the failure to incorporate revisions into the proposals, ensure that a corporate officer has attested to the offer, and keep it from getting lost among all the other requirements of the proposal. The proposal form should also include the proposerâs offered investment, as defined in the RFP. The proposal bond, guarantee, or surety is an amount of money, or a promise to pay money from a third party, that is forfeited if the proposer fails to execute the concession agreement. The proposal bond should be set in an amount that would compensate the airport operator for its costs resulting from delay in the award of the agreement. The addenda acknowledgement form, to be signed by the proposer, lists and certifies that each issued addendum to the RFP has been read. Other required information includes required affidavits, insurance certificates, licenses to do business, ACDBE certifications, evidence of financial capability, a sample subtenant agreement, and other information and forms specific to each airport. A submittal checklist showing the required elements of the RFP can help reduce errors and omissions in proposals. The checklist should show each required section and all required forms. 10.5 Evaluation Criteria Most airport operators use weighted evaluation criteria, which provide structure and a com- mon basis for use by all evaluators. Weighted criteria are preferred by proposers, as they provide all proposers with a common understanding of what is important to the airport operator and the relative importance of each criterion. Table 10-3 shows the percentage of airports where weighted evaluation criteria are used, based on the surveys conducted for this research. Some airport operators use unweighted criteria, leaving it to the evaluation panel to select the best proposal based on its understanding of the needs of the airport operator and the contents of the RFP. Airport operators that prefer unweighted criteria believe that they result in a greater con- sensus and eliminate second-guessing of the evaluation panelâs scoring in the event of a challenge to the recommendation to award. When unweighted criteria are used, proposals are scored in 162 Resource Manual for Airport In-Terminal Concessions Large Hubs Medium Hub s Small Hub s Yes 72 % 7 1% 45 % No 11 % 2 3% 55 % Developer or Leasing Manager selects 11 % 0 % 0 % No response 6% 6% 0% 100% 100% 100% Source: LeighFisher using data from the airport surveys conducted for ACRP Project 01-11. Table 10-3. Use of weighted evaluation criteria by hub size (food and beverage and retail concessions).
rank order by each evaluator. There is no overall structure to the ranking. Proposers argue that unweighted criteria provide little transparency, and it is impossible to know the basis for the eval- uation panelâs decision. Aligning the evaluation criteria with the goals for the concession pro- gram will eliminate confusion on the part of proposers and evaluation panel members alike. Table 10-4 shows the average weighting of evaluation criteria for large, medium, and small hub airports for each major concession category. The financial criterion (MAG and percentage rent) ranks highest in each concession category except specialty retail. 10.6 Financial Evaluation Airport operators use several approaches for structuring the financial component of propos- als. Typically, proposers will make a financial offer based on a minimum annual guarantee, per- centage rent, or a combination of the two. Some airport operators set the MAG and percentage rent and select the concessionaire based on other criteria. Table 10-5 shows the financial elements evaluated in proposals according to hub size for food and beverage and retail concessions. Procurement 163 Evaluation Criterion Food and Beverage Convenience Retail Specialty Retail Duty Free Financial (MAG/Percentage Rent) 18% 13% 22% Pro Forma/Ability to Drive Sales 15% 12% 4% 11% Strength of Brand or Concept1 4% 16% 16% 14% Design/Aesthetics1 4% 14% 7% 15% Local Brand/"Sense of Place" 8% 8% 2% 7% Experience and Quality of Past Performance 7% 7% 16% 8% Management and Operations Plan 7% 7% 2% 5% Pricing to the Customer 5% 5% 8% 7% Customer Service 5% 5% 8% 6% Local Operators 4% 4% 4% 4% Financial Ability to Perform 2% 3% 14% 2% Other Criterion 1% 1% 7% 0% Source: LeighFisher using data from the airport surveys conducted for ACRP Project 01-11. 17% Table 10-4. Weightings of evaluation criteria for each major concession category. Lar ge H ubs Me di um H ubs Sm a ll Hu bs Av er ag e La rg e, Me di um , Sm al l Hu bs FO OD AN D BEVE RA GE Both MA G an d Pe rc en t Re nt 33% 18% 55% 32% Ne it he r (fi nan ci al te rm s are fi xe d) 22% 6% 18% 15% An nu al Gu ar an te e (M AG ) 17% 41% 18% 25% Perc en ta ge Re nt 17% 6% 0% 11% No re s pon se 11% 29% 9% 17% 100% 100% 100% 100% RETAI L Both MA G an d Pe rc en t Re nt 33% 35% 55% 38% An nu al Gu ar an te e (M AG ) 28% 24% 8% 23% Perc en ta ge Re nt 17% 12% 0% 11% Ne it he r (fi nan ci al te rm s are fi xe d) 11% 6% 9% 9% No re s pon se 11% 23% 18% 19% 100% 100% 100% 100% Source: LeighFisher using data from the airport surveys conducted for ACRP Project 01-11. Table 10-5. Financial elements evaluated in proposals.
Based on the surveys conducted for this research, as shown in Table 10-5, a plurality of air- port operators and a majority of small hub airport operators ask for proposers to offer minimum annual guarantees and percentage rent. The next most commonly implemented approach is to evaluate the proposed minimum annual guarantee only. However, at large hub airports, the sec- ond most implemented approach for food/beverage concessions is to fix both the minimum rent and the percentage rent, whereas this approach ranked last for retail. If the approach in which the minimum rent and percentage rent is used, the airport operator is relying on other aspects of the proposal to provide a basis for assessing future revenue, including the pro forma sales pro- jection and the strength of the proposed brands or concepts and their ability to drive sales. By setting the financial elements, airport operators can avoid unrealistic bids, which can cause prob- lems later if the concessionaire is unable or unwilling to pay rent and then seeks to renegotiate the terms of the agreement. Evaluating proposed percentage rents can be difficult. While a higher percentage rent may be pre- ferred, the concept associated with the higher percentage rent may not be capable of generating high sales. Consider, for example, a proposer that offers a generic burger concept and offers to pay 18% of sales as rent, while another proposer offers to operate the leading national burger brand and offers 15% of sales as rent. If the generic burger concept generated $1,600,000 in sales, a proposed rent of 18% would yield $288,000 in revenue to the airport enterprise. To provide equivalent rent, the branded location would need to produce higher gross salesâ$1,920,000 Ã 15%. At this point, the evaluators need to consider the performance of the two concepts in other airport locations. If the evaluators believe that the branded concept is capable of producing gross sales greater than $1,920,000, or 20% higher than the generic concept, the airport enterprise will be financially better off with the branded concept. In this case, the information on performance at other locations showed that the branded concept clearly outperformed the generic concept, and the difference in performance would more than offset the difference in percentage rent. The branded concept also scored higher in other criteria. Guaranteed revenues can be similarly difficult to assess. Higher guaranteed rent may be less advantageous if an alternative proposal will generate greater revenue based on sales. 10.6.1 The â85% Ruleâ The risk of foregoing revenue from a MAG-based proposal is reduced when a MAG-adjustment provision is included in the concession agreement. A common practice used throughout the air- port industry is to reset the MAG each year based on 85% of the prior yearâs total payments to the airport enterprise (MAG, percentage rent, or both), with the first-year MAG acting as the baseline. 10.6.2 Weighting the Financial Element The financial offer is not the only criterion with financial implications. Other criteria also relate to the ability of the proposed concept to generate sales and revenue. These criteria include the strength of the brand or concept, product prices, and the experience of the oper- ator, particularly in operating the proposed brand or concept. In addition, the proposed design and the proposed investment in the concession unit can make a material difference in overall performance. For these reasons, it may be useful for evaluators to consider both the financial offer and the overall strength of the operator and the concept in determining which proposer would produce the highest revenue to the airport enterprise over the term of the agreement. While such an eval- uation may be partly subjective, requesting hard sales performance data for other locations can contribute to informed decision-making. 164 Resource Manual for Airport In-Terminal Concessions
10.6.3 Unrealistic Sales Projections The use of unrealistic sales and revenue projections presents a potential problem in evaluat- ing financial performance. Proposers may feel pressure to overstate expected sales to avoid appearing less competent than their competitors. In a few cases, proposers may grossly overstate sales and revenues to provide a basis for challenging the award if unsuccessful. First, the airport operator should have baseline sales and revenue projections for the conces- sion spaces being considered for award. These baseline projections should be developed during the planning phase and be based on a reasonable outcome using benchmark data. Sales and rev- enue projections should be completed using both a âtop-downâ approach, with overall projected sales and revenue per enplaned passenger in line with the benchmarks, and a âbottom-upâ analy- sis, with sales and revenue projected for each location using current performance data for the space, performance of individual units in the airport, or performance of individual units at other airports as benchmarks. As a check, the projected sales per enplaned passenger for all units should equal the overall total based on the benchmark. By establishing a baseline sales and rev- enue projection, the airport operator will have a reference point from which to assess the rea- sonableness of the proposals. Second, proposers should present data for comparable locations at other airports, including the size of the unit, sales per enplaned passenger based on exposed passengers, and sales per square foot. These data, combined with data received from other proposers, can provide an over- all set of comparables to be used in assessing performance based on the record of the proposer. Table 10-6 presents an example of weighted evaluation criteria from a large hub airport food and beverage RFP. Each criterion is listed, along with descriptors that help the evaluators under- stand the criterion. Five overall criteria are used in this example, with a total of 100 points. More criteria and more points can be used. 10.7 Advertising the RFP The airport operator has an interest in receiving as many responsive qualified proposals as possible. More competition increases the available choices for the evaluators. Therefore, it is incumbent on airport operators to inform as many potential participants as possible of upcom- ing opportunities far in advance through networking sessions, written notices, and personal con- tacts to the extent allowed. Formal proposer lists may be maintained to identify interested parties. In addition, advertising that the RFP will soon be available several weeks before issuance will generate interest and allow time for potential proposers to plan for the release of the RFP. Most airport operators will advertise in local newspapers of general circulation and busi- ness publications, as well as airport industry trade publications. Both the Airports Council International-North America (ACI-NA) and the American Association of Airport Executives (AAAE) have websites and newsletters where airports can list their business opportunities and solicitations. Some airport operators also publish notices in Airport Revenue News and other industry publications. Companies that have expressed interest in future concession opportu- nities should also be notified by regular or electronic mail. 10.8 Issuing the RFP Historically, airport operators mailed RFPs to interested parties and sometimes charged a fee for the RFP to recover copying/printing, mailing, and other administrative costs. Detailed records of who received the RFP were maintained so that addenda could be distributed to those Procurement 165
parties. Written requests for the RFP were generally required before the RFP was sent to an inter- ested party. Many airport operators have now switched over to electronic media procurement processes whereby RFPs and addenda are posted on a website and can be downloaded for free. This switch has greatly streamlined the process and made the RFPs more easily accessible to interested parties. 10.9 The Preproposal Conference Preproposal conferences provide airport staff with the opportunity to explain the RFP, the form of concession agreement, the design guidelines, airport operating characteristics, and cur- rent performance, as well as provide other information that a proposer will need to submit a fully responsive proposal. Even if most participants are familiar with this information, it is important that all potential proposers fully understand the nature of the concession opportunity. Reducing 166 Resource Manual for Airport In-Terminal Concessions Overall Mix of Brands/Concepts â Mix of brands including local brands in creating a "sense of place" â Individual concepts and suitability â Strength of brand(s) â local, regional, national â Rationale and justification for the proposed brand/concept 25 Financial Return and Investment Commitment â Financial return over the term of the concession agreement and reasonableness of the pro forma â Pro forma sales and revenue projection â first 5 years â Supporting justification for sales projection (benchmarks, performance of other businesses, rationale, etc.) â Statement of how the proposed concepts will maximize sales and revenue, including anticipated capture rate and target market â Capital investment commitment 25 Customer Service, Marketing, and Operations Plan â Training, quality assurance plan, plan for handling peak periods and increasing throughput â Customer service standards, approach to providing service during peak periods, customer feedback, complaint and resolution process, service monitoring, and quality control â Customer payment types and additional service enhancements â Management plan, including on-site management, local hiring, training, development â Merchandising and pricing plan â Sustainability plan (recycling, power conservation, use of locally produced products, etc.) â Marketing and promotions plan 20 Aesthetics and Design â Proposed design(s), incorporation of âsense of placeâ â Use of available space to maximize sales and customer service â Consistency with tenant design standards 15 Experience and Qualifications â Experience with particular brand or concept; local management; record of accomplishment; depth of experience; and support systems. â Experience, qualifications, track record of company â Previous operating experience â References â Recognition, awards, favorable reviews, honors, etc. â Demonstrated financial ability to perform 15 TOTAL POINTS 100 Table 10-6. Example of weighted evaluation criteria.
uncertainty on the part of potential proposers leads to greater competition and more robust and competitive proposals. Full disclosure of requirements and conditions also reduces the poten- tial for challenges or contests later in the process. For complex RFPs, including those with challenging design and construction requirements, making the preproposal meeting mandatory increases understanding of the opportunity, decreases questions during the process, and reduces the risk of claims or challenges after selec- tion. Site visits should also be conducted to allow potential proposers to see the spaces and understand the locations. 10.10 The Evaluation Process Members of evaluation panels have other jobs and responsibilities. The work required to eval- uate complex and comprehensive proposals can be overwhelming. Therefore, members of eval- uation panels should be appointed based on their ability to devote the time necessary for a fair evaluation. Given the extensive time and cost requirements borne by proposers, airport opera- tors owe them a fair and comprehensive evaluation. Concession managers can minimize workload and achieve more informed evaluations by implementing a number of techniques: â¢ Requiring tabs between each section of the proposal. â¢ Standardizing the format of requested tabular information to provide concise information that can more be readily understood and compared and to ensure completeness of the infor- mation requested. â¢ Aligning the major sections of proposals with the evaluation criteria and including all of the information relative to a criterion in a single section. â¢ Standardizing the underlying traffic assumptions and thereby providing a common basis for comparing sales and revenue projections, resulting in a fairer and more transparent process. (A disclosure should be included that the traffic assumptions are for purposes of eval- uating proposals only and that the airport operator does not guarantee that this level of traf- fic will actually occur.) â¢ Requiring justification and benchmarks for sales projections by reviewing the performance of similar units or programs at other airports in terms of sales per enplaned passenger exposed to the concession location as a basis for understanding the projections. Where sales projec- tions significantly exceed benchmarks, further explanation is required. â¢ Providing consultant or qualified internal staff expertise on technical matters such as review- ing financial statements to evaluate the financial strength of proposers and comparing the pro forma financial sales and revenue offers. This will help to provide a common set of data. 10.11 Converting the Proposal to a Concession Agreement A draft of the concession agreement should be included as part of the RFP. Requiring a state- ment that the proposer will execute the form of agreement as is or allowing the proposer to take exception to contract provisions in its proposal will reduce misunderstandings, allow for a fairer evaluation, and streamline the contract execution process. Material changes to contract terms after award but prior to execution can lead to legal challenges to the award process and encour- age proposers to use similar tactics in future concession solicitations. Eliminating uncertainties about the terms of the concession agreement before the deadline for proposal submission will ensure that no surprises or misunderstandings occur wherein a pro- poser would demand unforeseen changes to the concession agreement. Procurement 167
Different approaches are used to ensure that the proposer will execute an agreement that is satisfactory to the airport operator. These include the following: â¢ Requiring a statement of exceptions to the concession agreement and a precise statement of the rationale for those changes â¢ Including any proposed changes to the agreement in the evaluation and scoring of the proposal â¢ Stating that required or requested changes to the agreement will be taken into account in determining whether the airport operator will be able to negotiate a final concession agree- ment with the proposer â¢ Stating that no other changes to the concession agreement will be considered by the airport operator unless stated in the written proposal by the proposer Ample time should be allowed to resolve questions or ambiguities during the proposal phase by written addenda to the RFP. Proposers will want clarity on the RFP and concession agreement. Not all airport operators use the same practices and language in their documents, so proposers will ask for clarification if they are unsure about the meaning. 10.12 Streamlining the RFP The standard form of the RFP will evolve over time, as new policies are adopted and experi- ence is gained with its use. It is easy for RFPs to become cumbersome and difficult for proposers to understand. Revising the RFP to eliminate unnecessary requirements and redundancies can make the procurement process easier for all concerned. RFPs can be especially difficult for smaller companies that lack the resources of large national concessionaires. Specialist concessionaires may be adept at their core business, but find the vagaries of the RFP process overwhelming. Streamlining the RFP may encourage greater partic- ipation. Some suggestions for simplifying the RFP include the following: â¢ Place less emphasis on processes such as formal training programs, maintenance plans, con- struction schedules, and other housekeeping matters. In todayâs competitive environment, a concessionaire capable of operating a desirable brand or concept will operate to the brandâs standards, and the operating risk for the airport enterprise is reduced. â¢ Treat design and construction schedules as a requirement, not an element to be evaluated. In terms of the development process, it is important that the unit opens on time. Rather than evaluate detailed construction schedules prepared by proposers based on limited information for work that may begin a year later, design and construction schedule slippage can be miti- gated by inserting a penalty clause in the concession agreement that provides for liquidated damages in the event of delay in opening on time. The penalties will provide incentive for the concessionaire to meet the airport operatorâs schedule. â¢ Limit design submittals. For smaller concessionaires and local operators proposing on indi- vidual spaces or small concession packages, the requirement to produce detailed plans, ren- derings, and material boards is expensive. Experience has shown that many airport operators will require substantial changes to the proposed design regardless of the quality of the initial submission. To reduce the cost of submitting proposals, the airport operator could require the proposer to submit only a statement of design intent, that is, a narrative describing the proposed design. Where there is concern over the cost to small businesses proposing on con- cession opportunities, one possible approach is to accept archival materials showing the pro- poserâs other airport and street locations and narrative on how those designs would be adapted to the airport operatorâs design standards (if any). The risk of an unsatisfactory buildout can be mitigated by (a) requiring an investment commitment sufficient to ensure a quality design and buildout; (b) publishing standards for tenant design, materials, signage, and so forth that 168 Resource Manual for Airport In-Terminal Concessions
establish a clear baseline of what is required; and (c) establishing requirements for design review at specific stages of the design process, for instance at the 30%, 60%, and 95% design stages. By using all of these techniques, the airport operator can ensure a successful buildout without requiring all proposers to incur high submission costs. â¢ Limit the number of pages to increase focus on what is important and reduce the workload of the evaluation panel, which can be significant on major procurements. â¢ Award no points for expensive covers, dividers, and artwork. For major competitive selec- tions, large companies may spend considerable money on expensive covers, dividers, and art- work. These proposal design elements provide no additional information and can have a subliminal effect on evaluators in their objectivity regarding the contents of the proposal. â¢ Place less emphasis on the proposerâs financial size. Demonstrating the financial capacity to build and operate the concessions is relevant. Beyond a certain level, however, the proposerâs financial size becomes irrelevant. Awarding points for excess financial capacity is a hidden bias that may unfairly discriminate against smaller companies and favor larger ones when both have the financial capacity to develop and operate the concession. â¢ Require interviews rather than presentations. Many airport operators and concessionaires welcome the opportunity to discuss the proposals, ask and answer questions, and get to know one anotherâs key personnel. When airport operators require formal presentations, conces- sionaires with large business development staffs and strong presentation skills are able to spend a lot of time and money preparing impressive presentations, which may or may not have anything to do with answering the key questionâwhich proposer and concept will do the best job for the airport enterprise. Interviews can be kept simple and focused on the essen- tial questions and clarifications arising from review of the written proposals. 10.13 Concession Workforce Issues Current concession employees can be an influential stakeholder group in the concession pro- curement process. Issues important to concession employees should be considered at the airport operatorâs policy-making level, as they have the potential to shape business terms and the struc- turing of contract packages. The emphasis on these terms and packages will vary depending on local circumstances, and they may receive special attention at airports that engage concession- aires with unionized employees. Labor and employment issues are often beyond the decision-making authority of concession managers, who should consult with senior managers when developing procurement documents. Still, anticipating these stakeholder issues and understanding the effects of the policy decisions on the procurement process will help prevent unintended consequences. Two common conces- sion workforce issues are labor peace requirements and living wage policies. 10.13.1 Labor Peace Where labor unions are influential, or where the concession companies have been organized by labor unions, airport operators may require a âlabor peaceâ or âlabor harmonyâ requirement to be included in RFPs. Labor peace provisions typically require proposers to reach prior agree- ment with relevant labor organizations that, if selected, there will be no interruption of service during the term of the concession lease agreement. As a condition for this agreement, unions will ask the proposer to agree to official neutrality in any union ratification vote and obtain prior approval to use a simplified card-check election procedure in lieu of more formal rules provided for under the National Labor Relations Act. In a card-check election, employees sign a card to indicate their support for recognizing the union. Union officials can collect cards until they have a majority in favor of recognition. There is no secret ballot. By agreeing to remain neutral, the Procurement 169
employer concessionaire agrees not to campaign against the union and waives the right to demand a secret ballot as provided in the National Labor Relations Act. Concession employees have been organized at many airports. Under federal law, airport oper- ators cannot require union recognition as a condition of selection or otherwise exert influence on relations between labor and management. However, airport operators have a legitimate, legally permissible interest in assuring continuous operation of the concessions, which forms the basis for adopting labor peace or harmony provisions in RFPs. About 14% of airport operators in the surveys conducted for this research stated that a labor peace or labor harmony provision is required at their airports. 10.13.2 Living Wage Some airport operators have adopted âliving wageâ policies that apply to businesses that con- tract with the airport operator. These policies sometimes have the effect of increasing labor costs, often to or near the level of union wages. Living wage rates and union wage scales may be a sig- nificant operating cost that has implications for concessionaire financial performance and on the decision to compete for the concession privilege. Airport concession managers should understand how living wage policies and other local con- ditions, when combined with percentage rents, minimum annual guarantees, and other occu- pancy costs, affect concessionaires. High labor costs may be a factor that discourages companies from submitting concession proposals or reduces financial offers in proposals; concepts that have higher labor cost requirements may not be practical or feasible as an in-terminal concession. 10.13.3 Worker Retention Some airport operators include worker retention policies in concession agreements, which require a successor concessionaire to consider hiring employees of the outgoing concessionaire. Worker retention programs can range from voluntary efforts, such as job fairs, to mandatory requirements, with current employees guaranteed employment by the new concessionaire unless a strong, compelling reason not to do so exists. 10.14 Strategies for Increasing Local Participation Strategies for increasing local participation include the following: â¢ Streamline the RFP process. Local businesses are unlikely to be experienced in a governmen- tal procurement process and may find the learning curve steep. Simplifying the requirements and focusing on the key elements vital to the selection can encourage more participation by local businesses. â¢ Enter into licensing agreements. Many airport operators encourage experienced airport con- cessionaires to enter into licensing agreements with local businesses. Such agreements can reduce risk for both the airport operator and the local business, while providing access to pop- ular local concepts. â¢ Conduct outreach meetings. Comprehensive outreach meetings targeting local businesses, as well as other prospective concessionaires, can encourage greater participation in the RFP process. Unlike experienced airport concessionaires, local businesses may not understand the airport operating environment and constraints, such as security rules, employee badging, delivery restrictions, and peak departure periods. An outreach meeting can provide local busi- nesses with the information needed to determine whether or not competing for a concession 170 Resource Manual for Airport In-Terminal Concessions
is worth their investment in time and money. Even if the local business decides not to partic- ipate in the RFP process, it will have done so on the basis of an informed decision gained as part of the process, which will have the tangential benefit of creating goodwill for the airport in the local business community. Topics that should be discussed at concession outreach meetings include the following: â¢ Nature of the opportunity, including the airport operatorâs goals and objectives. â¢ Types of concessions sought by the airport operator. â¢ Doing business at the airport, including hours of operation, security, deliveries, support space, peak demand periods, hours of operation, pricing policy, hiring challenges, security badging requirements, employee parking, and transportation. â¢ Airline traffic, including distribution of traffic in areas throughout the terminal(s). â¢ Timing of the RFP process. â¢ Performance metrics for current concessionaires, including annual business volume, sales per enplaned passenger, and sales per square foot. â¢ Development challenges, including the permitting process and recent data on buildout costs. For businesses without airport operating experience, it will be important to understand that higher per square foot development costs are offset by higher per square foot sales than would normally be experienced in a street or mall location. â¢ The RFP requirements; some airport operators also conduct separate training sessions on how to prepare for and respond to an RFP. It can also be useful to hold a networking session in conjunction with the outreach meeting, as this allows local businesses to meet potential business partners, current concessionaires, and others with an interest in the concession program. 10.15 Using Technology to Streamline the Solicitation Process Technology has the potential to make the procurement process easier for all concerned. Some of the ways that technology can be used are the following: â¢ Electronic registration of potential proposers. Some airport operators use electronic regis- tration to allow interested parties to register their information and provide an email address for all future notifications related to the procurement. â¢ Electronic distribution of RFPs and RFQs. Placing the documents on the airport website can speed distribution of documents at little cost. Today, any potential proposer would be expected to have access to the Internet. Addenda to proposal documents can also be distrib- uted in this manner. â¢ Bulletin boards for questions and answers. Password-protected electronic bulletin boards can be used by interested parties to ask questions about the procurement and by airport staff to post answers. Such bulletin boards would allow all potential proposers easy and fast access to questions and answers (or to an addendum, if a formal response is required). â¢ Online preproposal meetings. A number of web-based services are available for conducting online meetings and providing an electronic record of participation. Interested parties would log in to a meeting using a unique password. Online meetings can save travel time and expense for all participants while ensuring that common information is provided. â¢ Electronic submission of proposals. Used extensively in the private sector, submission of pro- posal documents by email, or on CDs or DVDs, can reduce production costs, save paper, and reduce the considerable cost of handling, distributing, securing, and maintaining proposal doc- uments. Electronic copies made from the original files in Adobe portable document format Procurement 171
(.pdf) documents are far superior in quality and readability than scanned documents and are searchable by readers. Evaluators could receive electronic copies of proposals for review at home or at work. A paper original of the proposal executed by an officer of the proposer could serve as the official version of the proposal and would take precedence in the event of conflicts. 10.16 International Concession Contracting Practices The operators of airports outside the United States face issues similar to those of their U.S. counterparts in the solicitation and award of concession agreements. Practices are more similar than dissimilar. 10.16.1 Competitive Selection Competitive tendering of airport concession privileges is standard practice for airports in the United States and around the world. Most airports are owned by national, state, or local govern- ments and conduct their business on an open competitive basis pursuant to laws requiring open competition and transparency. Among privately owned airports, which are common in the European Union, Australia, New Zealand, Mexico, and many other countries, a competitive ten- der process is also the standard practice. However, privately owned airports and publicly owned corporatized airports typically have the ability to negotiate term extensions or new agreements with strong performers. For example, the operators of two major European airports interviewed for this research project reported that âa high percentageâ of agreements at one airport and up to 30% at the other were extended or renegotiated, but only for the top performers. At both pri- vately owned and corporatized airports, which have a high degree of financial oversight, greater focus is often placed on financial performance and profitability in awarding and extending con- cession agreements. 10.16.2 Duty Free Tendering When seeking proposals for duty free concessions, airport operators outside the United States are likely to ask proposers to identify the percentage rent they are willing to pay the airport enterprise by category. This approach takes into account the varying profit margins for different types of lux- ury merchandise such as perfumes and cosmetics, which have large margins, and electronics, which have smaller margins. This approach also has the effect of narrowing overall profit margins for the duty free concessionaires. 10.16.3 Duty Free Exclusive versus Nonexclusive Most airport operators will award a single large duty free concession privilege. However, oper- ators of airports with very large duty free or travel retail volumes may sometimes seek multiple operators. At Singapore Changi Airport, the concessions are separated into major categories such as liquor, cosmetics, and confectionery, and each is awarded separately. At Seoul Incheon Inter- national Airport, the duty free concession is separated into four major contracts with partial overlap on categories. At Amsterdam Airport Schiphol, several specialist concessionaires oper- ate on a duty free and tax free basis. These airports are exceptions, however, and have very high sales volumes. The vast majority of airport operators enter into a single duty free concession agreement. 172 Resource Manual for Airport In-Terminal Concessions