0...- Los Angeles W orld Airports

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1 _ Los Angeles W orld Airports Report to the BOARD OF AIRPORT COMMISSIONERS 0 i A AI A I Approved7: Denise, : wr, 7 Executive Assistant Airports R 'e y: D.. 1).,:owers, Deputy Executive Director r.._,-..tor y A torn- 4". AMErjr6t: (Lindsey - Executive Director, Meeting Date: CAO Review:..i':.* Reviewed for Date Capital Budget Operating Budget August 20, 2013 CEQA Procurement I Completed Pending N/A 1 1 Approval Status gy MM/ddNY Y El N NA YEINNA 1:1 Y N Y El N i:j Cond B E T ject all Proposals for the Terminal Media Operator Concession at Los Angeles International Airport Reject all proposals arising from Los Angeles World Airports' December 11, 2012 Request for Proposals for the Terminal Media Operator at Los Angeles International Airport. RECOMMENDATIONS: Management RECOMMENDS that the Board of Airport Commissioners: 1. ADOPT the Staff Report. 2. DETERMINE that this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Article II, Section 2.f of the Los Angeles City CEQA Guidelines. 3. REJECT all Proposals arising from the December 11, 2012 Request for Proposals for the Terminal Media Operator Concession at Los Angeles International Airport. Page 1

2 DISCUSSION: 1. Executive Summary Staff requests the Board of Airport Commissioners (Board) reject all proposals received in response to the December 11, 2012 Request for Proposals (the 2012 RFP) for the Los Angeles International Airport (LAX) Terminal Medial Operator (TMO) Concession. Staff will expedite issuance of a new RFP (the 2013 RFP) designed to obtain proposals equal to or exceeding the results offered in response to the 2012 RFP. 2. Prior Related Actions On October 17, 2006, the Board approved the "Exclusive Agreement Between The City of Los Angeles and JCDecaux Airport, Inc." (The JCD Advertising Agreement) to provide Airport Advertising at LAX and Ontario International Airport (ONT). On May 21, 2012, Los Angeles World Airports (LAWA) released a Request for Qualifications (RFQ) for a Terminal Media Operator at LAX. On June 4, 2012, the Board approved the First Amendment to the JCD Advertising Agreement, which among other things (1) clarified April 7, 2014 as the expiration date unless one or more of the three one-year extensions is exercised by the Executive Director (2) allowed LAWA, subject to certain notice periods, to delete from the JCD Advertising Agreement all locations in the Tom Bradley International Terminal (TBIT) Main Terminal Building, North Concourse, and South Concourse and (3) established the framework through which LAWA's plan to provide TMO Concession in the TBIT Main Terminal Building, the Bradley West Core, and the Bradley West Concourses would be undertaken while the JCD Advertising Agreement continued to be in effect in other terminals at LAX and ONT.1 On August 9, 2012, LAWA received three Statements of Qualification (SOO) in response to the RFQ. The SOQ respondents included Clear Channel Airports (Clear Channel), JCDecaux2 and Titan Outdoor and their respective teams. On September 20, 2012, an Evaluation Panel conducted interviews with each of the SOQ respondents and their teams. On October 2, 2012, LAWA issued a Notice of Intent to Short List two of the three SOQ Teams. The JCDecaux team subcontractors included Premier Partners and Time Warner. The Clear Channel team subcontractors included American Marketing Income (AMI) and Legends Sales and Marketing. The protest period began October 4, 2012, and ended October 10, LAWA received no protests in response to the Notice of Intent to shortlist Clear Channel and JCDecaux. On October 15, 2012 the Board approved the list of two Qualified Teams, thereby making Clear Channel and JCDecaux eligible to participate in the TMO RFP process. On December 11, 2012, LAWA released the 2012 TMO RFP. LAWA received proposals from both Qualified Teams prior to the proposal deadline of April 26, An Evaluation Panel interviewed each of the two proposers on May 30, In December 2008, the JCD Advertising Agreement was assigned from JCDecaux Airports, Inc. to Joint Venture for the Operation of the Advertising Concession at LAWA, LLC. 2 The JCDecaux entity proposing on the TMO Concession is not the same JCDecaux entity that currently has the JCD Airport Advertising Contract. Page 2

3 On June 6, 2013, LAWA issued a Notice of Intent to Award the TMO Concession agreement to JCDecaux to both proposers. On June 13, 2013, LAWA received a written protest from Clear Channel. Both proposers provided LAWA and the Board,with written communication regarding Clear Channel's protest. On June 18, 2013, management sought the Board's approval of the award of the TMO Concession agreement to JCDecaux. Both Clear Channel and JCDecaux presented their positions regarding the Clear Channel protest. The Board did not take action on the item at that meeting. Following the June 18, 2013 Board meeting, both proposers provided additional letters regarding Clear Channel's basis for protest. 3. Current Action On April 26, 2013, LAWA received TMO Concession proposals from each of the two Qualified Teams. An Evaluation Panel comprised of the following individuals thoroughly evaluated the proposals and conducted an interview with each proposer based on the information provided in the proposals: Chief Operating Officer; Deputy Executive Director, Commercial Development Group Chief Information Officer; Airport Executive Assistant; Director of Planning & Economic Development, Port of Los Angeles Specific evaluation criteria and associated scoring points were published in the RFP and were employed to rank the proposals received and are listed below: CRITERIA POINTS 1 Management & Staffing Plan 15 2 Operations & Maintenance Plan 20 3 Improvement Program & Financial Commitment 20 4 Adjusted Gross Revenue Forecast & Supporting Information - Sponsorship 15 5 Revenue Forecast & Supporting Information - Advertising 15 6 Financial Proposal - Sponsorship & Advertising 6A Percentage of Adjusted Gross Revenue - Sponsorship 25 6B Percentage of Gross Revenue - Advertising 25 6C TBIT Monthly Guarantee 10 6D Sponsorship Minimum Annual Guarantee 15 6E Advertising Minimum Annual Guarantee 20 7 Emerging Media Plan 20 TOTAL POINTS 200 Page 3

4 As stated in the 2012 RFP, each member of the evaluation panel scored each of the criteria listed above for each proposal received. Scoring used the "must system". Under this system, after evaluating all proposals and completing the interviews, each member of the evaluation panel must award the maximum potential points designated for each evaluation criterion to at least one proposal that best demonstrates the requirements of the category. Each evaluation panel member, however, may also award the maximum potential points to other proposal(s) that, in the opinion of the evaluation panel member, demonstrate comparable quality in the category. Each evaluation panel member's scores were totaled and then converted to a ranking of the proposals for each evaluation panel member. These individual rankings were averaged yielding the following result: Proposer Average Ranking by Evaluation Panel Members JCDecaux/Premier Partnershipsfr ime Warner 1.0 Clear Channel Airports 2.0 In addition to being ranked first by all evaluation committee members, JCDecaux received higher average scores in four of the five Financial Proposal criteria, including all three of the guaranteed revenue categories. In addition, JCDecaux received higher average scores in five of the six criteria not part of the Financial Proposal evaluation. Approval of a TMO Concession agreement would allow the successful TMO to (1) develop, maintain, and operate the Integrated Environmental Media System (IEMS) in Bradley West and certain other existing LAWA-owned media assets, (2) make investments in LAX facilities in an amount no less than $20 million, and (3) require the TMO to make investments at LAX to develop, activate and operate additional facilities/equipment designed to sell advertising and sponsorships, and develop emerging media opportunities. However, based on the risks associated with the Clear Channel protest (including but not limited to, the Government Code Section 1090 allegation, discussed below) and the potential that a new RFP process may result in higher proposed compensation to LAWA, staff is recommending the Board reject all proposals received in response to the 2012 RFP, finding this course of action to be in the best interest of the City. If the Board adopts the staff recommendation to reject all proposals, staff plans to take the following actions: LAWA will promptly issue a new RFP (the 2013 RFP), designed to both expedite completion of the competitive process and secure for LAWA results that are equal to or better than those offered in the April 26, 2013 proposals. (Among the concepts currently being considered to facilitate these objectives are consolidating the number of evaluation criteria or eliminating categories altogether where differences between the proposers appear to be less material. In addition, establishing minimum bid levels for financial criteria is also under consideration.), The 2013 RFP would provide each Qualified Team a set period of time to ask questions about the RFP, and a brief period of time to comment on an attached Draft Agreement. Page 4

5 The proposal due date would be established to maximize the probability the TMO Concession agreement will be awarded and fully executed before April 2014, for the reasons discussed below under "Fiscal & Economic Impact Statement". 4. Alternatives Considered Award the TMO Concession agreement to JCDecaux- Staff reviewed in detail those elements of Clear Channel's protest used to support the allegation "the RFP was deficient because it failed to include material information necessary for Clear Channel to submit a competitive proposal." The review by staff found (i) Clear Channel had sufficient opportunity to secure certain of the information Clear Channel identified as lacking (ii) the information included in Clear Channel's proposal evidences any lack of information did not materially affect the competitiveness of Clear Channel's proposal, (iii) only two of the 11 evaluation criteria would likely be affected by any information shortfall and (iv) had Clear Channel scored all available points in the two evaluation criteria categories possibly affected by a lack of information, Clear Channel would still have placed second behind JCDecaux. If Clear Channels' protest had identified the specific information shortfall as the only issue in its protest, staff would strongly recommend the Board award the TMO Concession agreement to JCDecaux, despite Clear Channel's protest. Staff firmly believes Clear Channel's allegations claiming procedural defects and failure to receive certain information would not result in a successful protest. However, the outcome of Clear Channel's allegation that an award of the TMO Concession agreement to JCDecaux would violate California Government Code Section 1090 is apparently less certain and, if Clear Channel were to prevail on its 1090 claim the TMO Concession agreement would be void. The risk of interrupted TMO Concession (e.g., a void contract requiring a lengthy recompeting of the TMO Concession opportunity) may have a material and, possibly, adverse effect on LAWA revenues. Therefore, staff reluctantly concludes that rejecting all proposals is the appropriate course. Moreover, rejecting all proposals would also eliminate any basis Clear Channel may have had to protest based on its non-1090 allegations. Amend and Extend the Existing JCD Advertising Agreement Inc. - With the First Amendment to the JCD Advertising Agreement in place, the JCD Advertising Agreement can be in effect through April 7, 2017 either (1) for both LAX and ONT or (2) for LAX and ONT less TBIT and Bradley West. In 2012, rather than extending the JCD Advertising Agreement, LAWA elected to re-compete the Airport Advertising opportunity to enable the TMO Concessions opportunity and enhance the scope of the Airport Advertising opportunity, (JCDecaux Airports, Inc. had proposed LAWA commence negotiations to amend and extend the JCD Advertising Agreement to achieve LAWA's service goals.). While a number of factors drove staff's decision to re-compete the opportunity, the primary reason staff believed re-competing would be more beneficial than negotiating was staff felt it had little basis for accurately understanding the revenue opportunity associated with Bradley West availability, arising from an airport-wide Page 5

6 shift to digital indoor advertising, or from enabling sponsorship through and an improved definition of the opportunity. Staff believed negotiating with this lack of knowledge would have produced a lesser financial result for LAWA than recompeting the opportunity -a belief confirmed once LAWA reviewed the April 26, 2012 proposals and the revenue potential therein. Having now received proposals for the TMO Concession, staff is expertly informed for negotiations and believes such negotiations would not impair the financial results for LAWA. However, an essential aspect of the TMO Concession opportunity is a major investment by the TMO in facilities and operations at LAX, which staff believes requires more than through 2017, the current maximum term provided by the First Amendment to the JCD Advertising Agreement. Staff believes an extension of at least four years to the JCD Advertising Agreement, and possibly longer, may be needed to secure, through negotiations, the economic value evidenced in the proposals received in response to the RFP. Given the resources invested in the TMO Concession competitive process to date, the possibility that even higher revenues could be secured through a new RFP and uncertainty as to whether staff could successfully secure the economic value evidenced in the proposals through negotiations with JCDecaux, Inc. to amend and extend the JCD Advertising Agreement, staff is not currently recommending negotiations with JCDecaux, Inc. FISCAL & ECONOMIC IMPACT STATEMENT: Staff determined the minimum revenue loss and cost increases arising from the recommendation to issue a new RFP exceeds $3 million when compared to awarding the TMO Concession agreement to JCDecaux pursuant to the proposal received on April 26, 2013 (ifone assumes zero risk to the alleged violation of California Government Code Section 1090). However, any process failure that would result in the TMO Concession agreement not being awarded and fully executed prior to April 2014, is estimated to produce a revenue loss to LAWA in excess of $15 million when compared to awarding the TMO Concession agreement to JCDecaux pursuant to the proposal (if one assumes zero risk to the alleged violation of California Government Code Section 1090). The reason for the much greater magnitude of lost LAWA revenue if the TMO Concession agreement is not awarded and executed before April 2014 is that LAWA may be required to exercise Option Year 1 of the JCD Advertising Agreement to continue to have Airport Advertising after April 7, 2014, which is a full 12 month extension. Unfortunately the JCD Advertising Agreement guarantees LAWA far less revenue than the amount that would be guaranteed under the TMO Concession agreement pursuant to the proposal from JCDecaux. To secure the minimum financial loss of $3+ million and avoid the much greater loss of $15+ million, LAWA would have to complete the competitive process, including required approvals from City Council, in less than seven months. The duration of time from the issuance of the December 11, 2012 RFP to the Notice of Intent to Award was six months. This duration excluded the typical protest adjudication period and City Council approval process. As a result, an expedited competitive process would need to be used to complete a new RFP and award before April Page 6

7 STANDARD PROVISIONS: 1. This action, as an administrative action, is exempt from the requirements of the California Environmental Quality Act (CEQA) pursuant to Article II, Section 2.f of the Los Angeles City CEQA Guidelines. 2. Actions taken on this item by the Board of Airport Commissioners will become final pursuant to the provisions of Los Angeles City Charter Section This action is not subject to the provisions of the Service Contractor Worker Retention and Living Wage Ordinances. 4. This action is not subject to the provisions of the MBE/WBEIOBE/DBE Program. 5. This action is not subject to the provisions of the Affirmative Action Program. 6. This action does not require a Business Tax Registration Certificate. 7. This action is not subject to the provisions of the Child Support Obligations Ordinance. 8. This action is not subject to the insurance requirements of the Los Angeles World Airports. 9. This action is not subject to the provisions of City Charter Section 1022 (Use of Independent Contractors). 10. This action is not subject to the provisions of the Contractor Responsibility Program. 11. This action is not subject to the provisions of the Equal Benefits Ordinance. 12. This action is not subject to the provisions of the First Source Hiring Program. 13. This action is not subject to the provisions of Bidder Contributions CEC Form 55. Page 7