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Auditor: DIA has backlog of expired concessionaire contracts and inequitable contracting process

Denver International Airport sets traffic record for January
Posted at 1:31 PM, Feb 17, 2022
and last updated 2022-02-23 14:33:02-05

DENVER — The contracts of some concessionaires at the Denver International Airport have expired and been in a holdover state for several years, allowing them to bypass the airport's competitive selection process and resulting in fewer opportunities for other businesses, according to an audit released Thursday.

Denver Auditor Timothy M. O’Brien said he examined how management at the airport selects and contracts with concessionaires, and found that airport officials allow some of them to avoid the competitive selection process. O’Brien said he also found that several contracts expired years ago, but the businesses were still operating in the airport.

According to the 42-page audit, airport officials are supposed to use a selection process called “request for proposals” to approve concessionaires to do business in the airport. This applies to food and beverage locations as well as retail shops, duty-free stores, and passenger services.

However, DIA allowed some concessionaires to get around the competitive process as a benefit of the Premium Value Concessions program. The program allows some, but not all, companies to negotiate their upcoming contracts directly with the airport, and in turn bypassing the selection process. O’Brien said this prevents other businesses from being able to compete for any profitable contracts, which is both unfair and inequitable.

“They should have grabbed hold of this a long time ago,” O’Brien said. “By leaning into the status quo, the airport is violating an executive order and possibly blocking opportunities for new vendors.”

According to the audit, the airport may be missing out on revenue by not using competitive bidding for all contracts. In addition, the incentive program violates Executive Order 8, which requires a competitive process for all city contracts except in specific instances, O'Brien said. Airport officials said they believe the program fell under special circumstances in the executive order and was approved by DIA's CEO, Denver City Council, and Denver Mayor Michael Hancock.

“Denver’s airport is one of the busiest in the country,” 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.”

O'Brien said the rules that determine which vendors get the highest ratings are complex, which makes it difficult to equitably apply ratings across all the concession businesses at the airport. The program costs the airport about $500,000 a year, but does not appear to have any proven benefit, O'Brien said.

The Denver’s Auditor Office audited the concessions program in 2014 and recommended the airport assess the incentive program, but that evaluation never happened, O'Brien said. Therefore, he is now recommending the airport discontinue the program.

Another main issue O'Brien found was the backlog of expired contracts for current concessionaires.

Management allows those businesses to continue operating as if they're still under a contract even when they're not. In some cases, this was happening indefinitely. O'Brien also found that some businesses are allowed to "hold over" at the end of their contracts. Contracts have clauses allowing this for special circumstances, and airport officials approved a three-year holdover for all contracts that were going to expire during the pandemic.

However, O'Brien said his office found that this was happening years before the pandemic and without restrictions on how long the holdovers would last. According to figures from the auditor's office, 40% of the contracts that were active in August 2021 had been in holdover status since before Dec. 31, 2019.

The average length of time those contracts had been expired was more than five and a half years. The longest holdover periods were more than 12 years long, according to the audit.

Concessionaires that stayed in the holdover process were able to circumvent the bidding process, resulting in less revenue for the airport and fewer opportunities for other businesses, O'Brien said.

"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," he said. “The airport had poor excuses for some of the unreasonably long holdovers. 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.”

The auditor’s office recommended the following actions:

  • Discontinue the Premium Value Concessions Program
  • Perform a cost-benefit analysis of the airport’s approach to concessionaire contracting
  • Update the concessions master plan
  • Review held-over contracts
  • Establish and enforce policy for held-over contracts
  • Revise airport procedures for records retention

The airport has agreed with all these recommendations.

“I am concerned with how these problems were allowed to go on for so long,” O’Brien said. “But I do believe airport officials are receptive to making the necessary changes going forward.”