Airport still working to ensure competition for concessions
- forshman
- Nov 2, 2023
- 3 min read
Published in: Denver News
DENVER – The airport is working to sign new contracts and hold contractors more accountable for its concessions spaces, but one key solution intended to ensure fair competition falls short, according to a follow-up report from Denver Auditor Timothy M. O’Brien, CPA.
“I think we’re seeing some progress in the overall plan for managing airport concessions, but the choice to allow lengthy contracts with little competition remains a concern,” Auditor O’Brien said. “I am optimistic that under the new mayor and returning CEO, airport leaders will make even more changes to how they oversee concessions contracts in the future.”
In our February 2022 audit of airport concessions, we found Denver International Airport allowed some concessionaires to bypass the competitive selection process. Using a complex incentive program cost the airport significant amounts of money without any proven benefit. Additionally, some vendors’ contracts expired years ago while the businesses continued to operate their airport locations.
That audit led us to start a series of individual concessions audits, which is ongoing. The first audit was of the Etai’s Café concessions contract, and the second concessions contract audit is scheduled for release early next year.
Since the time of the original airport concessions audit, the airport took action to determine the most advantageous mix of concessions management types: a hybrid of individual contractors and some contractors overseeing groups of concessions. This was important because airport managers will now be able to make informed decisions based on strategic goals and desired outcomes.
The airport also has a plan for addressing the held-over contracts we identified in our audit, which were operating long past the original contracts’ end dates without new competitive processes. Our follow-up work showed 38 contracts that are scheduled for competitive selection. The airport plans to put out requests for proposals in phases for these concessions locations.
However, one key recommendation from the original report was not sufficiently implemented. We recommended the airport discontinue the Premium Value Concessionaire program because it risked inequity among concessionaires, it cost the airport about $500,000 every year, and it did not promote competition that might lead to better benefits for the airport.
Airport officials discontinued the program five months after our audit. However, any vendor that had already been part of the incentive program but had not negotiated and signed a new contract will still be able to do so. That means 27 concessionaires — or 18% of all concessions vendors — will still be able to get noncompetitive contracts under the discontinued program.
In 2023 airport officials replaced the Premium Value Concessionaire program with “Excellence in Service,” another incentive program that appears to be better but still has areas of concern.
Our original audit found the airport could not show a proven benefit from having any incentive program. Concessions staff at other airports told us an incentive program was not necessary because the contracts are so lucrative on their own. We are not aware of any other airport incentive program in the United States. Airport officials chose to create a new incentive program anyway.
While the new program appears to encourage better performance and while managers point to an immediate increase in enrollment in an environmental sustainability certification program as evidence of benefit, there are several continuing risks.
For example, including a three-year extension under the new voluntary program and the pandemic extension of three years all concessionaires received, some concessionaires could hold contracts for over 20 years with no competition. Additionally, the airport’s records are unclear about which vendors qualify for the program, and the amount of time included in the evaluation process could vary significantly from vendor to vendor.
The program also still lacks a method for evaluating customer service, even though the program started at the beginning of 2023.
“Having a strong system of evaluation, which incorporates customer service, maximizing revenue, and minimizing expenditures, is beneficial to all who use the airport — as well as the businesses working there,” Auditor O’Brien said. “There are many factors to consider when choosing vendors.”
Meanwhile, the airport is also still not requiring staff to keep all detailed score sheets and notes from the vendor selection process. This lack of transparency could lead to perceptions of unfairness among vendors who do not receive airport concessions contracts.
In all, the airport fully implemented three recommendations from our original airport concessions audit and only partially implemented three others.
While the airport is making changes to address some concerns related to concessions for food and beverage locations, retail shops, duty-free shops, and passenger services, we will be attentive to remaining risks as we continue our series of audits on airport concessions contracts.
News via denvergov.org
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