Airport Concessions Contracting is Not Equitable
Published on February 17, 2022
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DENVER – Denver’s airport concessions contracting is not equitable, and its concessions incentive program should be ended permanently, according to this month’s audit report from Denver Auditor Timothy M. O’Brien, CPA.
“They should have grabbed hold of this a long time ago,” Auditor O’Brien said. “By leaning into the status quo, the airport is violating an executive order and possibly blocking opportunities for new vendors.”
We examined how management at Denver International Airport selects and contracts with concessionaires for food and beverage locations, retail shops, duty-free shops, and passenger services.
We found the airport allows some concessionaires to bypass the competitive selection process. This complex incentive program is costing the airport significant amounts of money without any proven benefit. Additionally, some contracts expired years ago while the businesses continued to operate their airport locations.
The airport is supposed to use a competitive bidding process called “request for proposals” to fill concessions space. Instead, some concessionaires are allowed to bypass this process as a benefit of the Premium Value Concessions program, which lets some companies negotiate their next contract directly with the airport without going through competitive selection.
Preventing other businesses from being able to compete for the profitable contracts is unfair and inequitable. Committing to equity and fairness in how the airport selects concessionaires promotes public trust and provides businesses owned by women and people of color with more equitable opportunities to operate at the airport.
The airport could also be missing out on revenue by not using competitive bidding for all contracts, and the incentive program violates Executive Order 8, which requires a competitive process for all city contracts except in specific instances. The auditee said that they believed this incentive program fell under the special circumstances in the executive order and it was approved by the airport’s CEO, City Council, and the Mayor about ten years ago.
“Denver’s airport is one of the busiest in the country,” Auditor O’Brien said. “With millions of people traveling through, these concessions contracts are highly lucrative. Businesses don’t need additional incentives to want to operate there.”
Meanwhile, the rules for determining which concessions vendors receive the highest ratings in the incentive program are complex and incomprehensible. This makes it difficult to equitably apply ratings and other program rules across all existing concessionaires at the airport.
The airport pays an outside firm about $500,000 a year — nearly a third of the entire cost of the overall concessions program — to administer the incentive program, but the airport has never evaluated whether it benefits from the program.
Our office audited the concessions program in 2014 and recommended that the airport formally assess the incentive program’s effectiveness. That evaluation never happened. As a result, we determined in this audit that it is in the airport’s best interest to discontinue the program.
We found the airport also faces a significant backlog of expired contracts with its current concessionaires.
The airport allows certain concessions to “hold over” when their contract ends. Management allows the businesses to continue operating as if they were still under their original contract, in some cases indefinitely.
Concessions contracts do have clauses allowing for holdover periods during special circumstances like extended master planning or continuing operations during emergencies. Airport officials approved a three-year holdover for all contracts set to expire during the COVID-19 pandemic.
However, we found extended holdovers were happening for years before the pandemic, some without reasonable justification and without restrictions on how long those holdovers could last.
As noted in the Figure 4 from the report, we found 40% of contracts active as of August 2021 had been in holdover status since before Dec. 31, 2019. The average length of time those contracts had been expired and in holdover status was more than five and a half years. The longest holdovers dated back more than 12 years.
Amount of Time Denver International Airport Concessionaires Were Held Over, among Concessionaires Operating as of August 2021.
This holdover process circumvents the competitive bidding process. It could also mean less revenue for the airport and fewer opportunities for other businesses. It is unfair to require some businesses to go through the competitive process while others can maintain their initial contract terms for years past their expiration.
“The airport had poor excuses for some of the unreasonable long holdovers,” Auditor O’Brien said. “It was taking advantage of exceptions meant only for emergencies and special circumstances. Then, when a real emergency hit, it fell even further behind in the procurement process.”
Because all contracts in holdover status received a three-year extension because of the pandemic, the airport will have to work on many contract procurements at the same time to get back on track.
Airport management also needs to make its competitive bidding process more transparent by not destroying proposal score sheets from the procurement process. This is another recommendation from our 2014 audit that remains a problem. By destroying the score sheets, the airport is not being transparent with the residents, community members, and business partners it serves.
Finally, managers need to formally assess the best mix of contract types for the airport’s concessions program — whether they are contracts directly with individual vendors or contracts with one entity that oversees several vendors.
The airport agreed with all our recommendations.
“I am concerned with how these problems were allowed to go on for so long,” Auditor O’Brien said. “But I do believe airport officials are receptive to making the necessary changes going forward. I look forward to seeing their progress when we follow up.”
AUDITOR TIMOTHY O'BRIEN, CPA
Denver Auditor's Office
201 W. Colfax Ave. #705 Denver, CO 80202
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