Four food and beverage concession contracts for Los Angeles International (LAX) were approved this week by a city council board, but a fifth was rejected after City Attorney Carmen Trutanich concluded there was risk of a future lawsuit. In light of Tutanich’s opinion, Los Angeles World Airports Executive Director Gina Marie Lindsey last week withdrew her recommendation to award the contract for the Package 1 concessions to SSP America Inc.
The city council’s Board of Referred Powers voted 4-1 to award three contracts to Areas USA and one to !THS/Marbella Food Service Partnership, a joint venture that includes !Delaware North Travel Hospitality Services. The board did not name a winner for Package 1, which means LAX will be forced to rebid the package.
Package 1 is considered to be the most lucrative of the contracts, worth $550M to $600M over the 10-year term of the contract and accounting for about 58% of the projected revenue from food and beverage in LAX Terminals 4, 5, 7 and 8, reports said. LAX had originally recommended that SSP America be awarded the contract. Incumbent concessionaire HMSHost Corp., which was not recommended for any of the contracts, lodged a bid protest claiming conflict of interest because Smart Design Group, which has consulted with LAX on the bid process, is a consultant for SSP on some projects.
On review of the contract recommendations, Trutanich advised that an award to SSP could face legal challenges in the future due to possible conflict of interest. The opinion prompted Lindsey to retract the airport’s earlier recommendation.
“The size and scope of the services contained in Package 1 underscore the need to ensure that passengers in Terminals 4, 5, 7 and 8 have uninterrupted access to food and beverage,” Lindsey wrote in her Sept. 16 letter to the board. “We lack unambiguous, firm legal ground upon which to recommend a contract award.”
Packages 2 through 5 were also protested, but they secured the approval of the board after Trutanich opined that the contracts represented “minimal or no risk” of being nullified.
HMSHost praised the decision.
“The complete rejection of the largest food package, and the rejection of the recommended bid for the largest retail package, acknowledges the serious flaws in the process that we raised,” Susan Goyette, senior director communications-public relations, said in a statement. “We maintain that those same flaws existed in the remaining packages, as well.”
Conversely, Pat Murray, senior vice president of business development for SSP America, said the company “felt the city attorney’s ruling was too far reaching” regarding Package 1, and called the potential conflict of interest issues a “technicality.” He notes that other concessionaires have also used Smart Design in the past or currently.
“It was obviously very painful for us but prudent for the airport,” Murray says.
SSP attempted to present its position to the Board of Referred Powers at a meeting Monday but wasn’t able to sway the decision. Murray says SSP takes comfort in the fact that although other concessionaires attempted to make their own case to be awarded the contract, the board didn’t act and instead sent the issue back to LAX for rebidding.
LAX has not indicated the structure of its process going forward, nor has it given a timeframe under which Package 1 will be rebid. Murray says SSP is in the process for the long haul, but says, “We hope that it’s weeks or months and not years.”
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