Airport Concessions Management

A woman stops at an Einstein Bros Bagels cart parked in one of the concessions at Denver International Airport

Objective

The objective of the audit is to assess how Denver International Airport’s concessionaire contracting practices compare to concessions contracting practices at selected comparable airports and to evaluate whether Denver International Airport’s approach is cost effective and fair.

Background

Denver International Airport’s concessions program includes businesses that sell food and beverages, retail shops, duty-free shops, and passenger services. The airport has more than 272,000 square feet of concessions space and more than 140 concessions locations across its main terminal and three concourses. The airport’s senior vice president of concessions and 11 other airport staff manage the program. This concessions team collaborates with other airport staff to procure and oversee concessionaire contracts.

 

Why this matters

Competitive selection ensures the airport receives the best value from its vendors, particularly as the airport recovers from significant revenue losses due to the COVID-19 pandemic.

Meanwhile, committing to equity and fairness in how the airport selects concessionaires — including demonstrating transparency in its scoring of prospective vendors — promotes public trust and provides businesses owned by women and people of color with more equitable opportunities to operate at the airport.

Findings

Finding 1 -   Denver International Airport Allows Some Concessionaires to Bypass the Competitive Selection Process

Denver International Airport’s Premium Value Concessions program is meant to incentivize concessionaires that airport employees believe provide the “best” value to the airport.10 But we identified several problems:

  • The program violates a city executive order by allowing select concessionaires to bypass the competitive selection process.
  • The airport pays an outside firm a significant amount of money to administer the Premium Value Concessions program even though the program offers no proven benefits to the airport.
  • The rules and regulations that govern the program are confusing and difficult to follow.

Finding 2 -  Denver International Airport Has Not Evaluated Whether It Uses the Optimal Contracting Approach for Its Overall Concessions Program

Denver International Airport’s concessions team has never analyzed how it structures the overall concessions program — particularly to identify the appropriate mix of concessionaire contracts that would most benefit the airport.

The airport developed a concessions master plan in 2019 to forecast passenger demands and future customer needs. The master plan includes important factors such as predictions of passenger counts, current and future construction projects, branding principles and concourse themes, and future development efforts.

However, airport employees developed this plan without determining the optimal mix of prime concessionaire contracts and direct contracts with individual concessionaires. The mix of concessionaires may impact profitability, customer service, and other goals important to the airport.

Finding 3 -  Some of Denver International Airport’s Concessions Contracting Practices Are Unfair

We identified practices in the airport’s concessions contracting processes that are unfair. For instance, we found the airport allows certain concessionaires to “hold over” when their contract ends and it allows them to stay in their leased concessions space indefinitely without going through the competitive selection process that other vendors must go through. This results in inequitable treatment of concessionaires at the airport.

We also found the airport destroys scoring information after a concessionaire is selected. As a result, the airport is not transparent in how it selects vendors to receive airport concessions contracts.

Recommendations

1.1 Discontinue the Premium Value Concessions Program –  Denver International Airport’s senior vice president of concessions should discontinue the Premium Value Concessions program because it violates Executive Order No. 8’s requirement for competitive selections and has no proven benefit to the airport.

Agency Response: Agree, Implementation Date – August 31, 2022

2.1 Perform a Cost-Benefit Analysis – Denver International Airport’s senior vice president of concessions should periodically assess the costs and benefits of the airport’s approach to concessionaire contracting to ensure it achieves the airport’s objectives. The assessment should evaluate potential approaches (e.g., direct contracts versus prime concessionaire contracts) in line with the specific factors for policies described in the federal “Resource Manual for Airport In- Terminal Concessions.”

Agency Response: Agree, Implementation Date – July 31, 2022 

2.2 Update the Concessions Master Plan  –  After implementing Recommendation 2.1, Denver International Airport’s senior vice president of concessions should update the airport’s concessions master plan to reflect the airport’s chosen approach to concessionaire contracting, including the reason for the chosen approach.

 Agency Response: Agree, Implementation Date – August 15, 2022 

3.1 Review Held-Over Contracts –   Denver International Airport’s senior vice president of concessions should work with the airport’s contracts director to review all contracts in holdover status — and those extended following the holdover — and assess opportunities for new procurements or new contracts, in accordance with Executive Order No. 8.

Agency Response: Agree, Implementation Date –  May 30, 2022

3.2 Establish and Enforce Policy  –  Denver International Airport’s senior vice president of concessions should work with the airport’s contracts director and legal staff to establish and enforce a policy and procedure for held-over contracts — including setting a reasonable time frame that limits the length of time contracts can remain in this status and requiring a reasonable justification for holding over a contract. Documentation of this justification should also be reviewed and approved.

Agency Response: Agree, Implementation Date –  April 15, 2022 

3.3 Revise Airport Procedures for Records Retention –  Denver International Airport’s senior vice president of business operations should revise the airport’s procedures related to selection panel score sheets and ensure airport staff retain the score sheets for seven years, in accordance with the city’s records retention schedule. This records retention should begin as soon as possible for all contract selection panel score sheets.

Agency Response: Agree, Implementation Date –  December 1, 2022 

Auditor's Letter

February 17, 2022

The objective of our audit of concessions management at Denver International Airport was to evaluate the airport’s concessionaire contracting practices and assess whether the airport’s approach is cost effective and fair. I am pleased to present the results of this audit.

The audit found the airport has not assessed how it approaches concessions contracting, and we discovered some of its practices are unfair and not transparent. The airport allows some concessionaires to bypass the competitive selection process, which violates a city executive order, and the airport does not know whether its Premium Value Concessions program yields any proven benefit. The airport is not retaining some important documents after competitive procurements for concessions contracts, and it has continued many contracts years after they expired.

The airport can improve transparency and fairness and demonstrate fiscal responsibility by evaluating its overall concessions program and discontinuing the Premium Value Concessions program. In addition, by implementing recommendations for stronger records retention and requirements for competitive contract procurement, Denver International Airport may be better equipped to increase revenue and operational efficiency, especially as the regional economy recovers from the COVID-19 pandemic.

This performance audit is authorized pursuant to the City and County of Denver Charter, Article V, Part 2, Section 1, “General Powers and Duties of Auditor.” We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

We extend our appreciation to the personnel at Denver International Airport who assisted and cooperated with us during the audit. For any questions, please feel free to contact me at 720-913-5000.

Denver Auditor,

Auditor's Signature
Timothy O'Brien, CPA

Follow-up report

A follow-up report is forthcoming. 

 

 

 

 

 

 

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AUDITOR TIMOTHY O'BRIEN, CPA
Denver Auditor


Denver Auditor´s Office

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Email: auditor@denvergov.org
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