A small number of business owners control a large portion of the shops and restaurants at Denver International Airport, despite the city’s goal of opening opportunities for new entrants, an audit released Thursday found.
The report, from the Denver Auditor’s Office, found that half of DIA’s food and beverage revenue is controlled by three operators. It also questioned a recent increase in the amount of space that each operator can occupy, a move that benefited the airport’s largest concessionaire.
The audit came as the Denver City Council grapples with concession contracts in another airport program that several council members fear may prevent smaller businesses from opening at DIA.
During a hearing Thursday morning, Denver’s audit committee members said issues raised in the report point to an appearance of favoritism in the concessionaire program.
“There is this sense that the people who are in (at DIA) are the people who are going to stay in. Metrics aside, you see the same names over and over again out there,” said Clay Vigoda, executive manager of government, community and prevailing wage at the auditor’s office.
DIA officials said the airport’s concessionaire program is unique in that it tries to prevent “master concessionaires,” or monopolies. The airport leases space to concessionaires directly through a competitive bidding process.
“I would like to note we are one of the only airports in the country that has a policy like this,”said Patrick Heck, DIA chief financial officer. The audit singled out a move the airport made in 2013 that raised the maximum amount of space one entity could control in any single retail or food category from 20 percent to 24 percent. This change happened just months after its largest vendor — Skyport and Affiliates — exceeded the 20 percent ceiling.
The auditors found that 73 percent of the concessionaires at DIA who responded to a survey believed this was not fair or appropriate.
“It looks very much like the cap change was to accommodate one concessionaire,” said Jeffrey Hart, audit committee member. “I would guess that most of the residents of Denver and most of the people across the country would also not think this was fair or appropriate.”
Heck said the airport raised the 20 percent cap because it was overly restrictive.
Skyport officials declined to comment.
The audit also identified what it called “inherent inequalities” in the airport’s 2-year-old premium-value concession program, which seeks to increase airport concession revenue and reward top-performing vendors by giving them a free pass on the open-bidding process.
The airport saw its highest grossing concessions revenue year in 2013 — generating $294.8 million, an increase of about 5.15 percent over 2012’s $280.4 million. But the audit committee questioned how DIA’s management can reconcile dueling philosophies: maximizing revenues while maximizing fair opportunities.
“Are we all about making money?” Vigoda asked Heck, later saying, “If this were a private-sector business, then maximum revenue is what it is all about. But this is a government entity where quality and fairness (matter).”
Heck responded that it’s a balance between the two.
Last week, City Council members raised questions about the premium-value program, saying it can conflict with the airport’s disadvantaged-businesses program for concessions.
The premium-value program is the brainchild of DIA management while the disadvantaged-business program is federally regulated and managed by the city of Denver.
The city gives DIA an overall goal for what portion of concessionaire work must go to disadvantaged businesses. It can be reached through a variety of ways, including concession ownership, suppliers and services.
City officials assign each store location with a similar goal that will then contribute to DIA’s overall goal.
The City Council is considering three seven-year contracts for renewal. All are McDonald’s restaurants managed by the same woman.
The restaurants together gross about $18 million annually, which is approximately 6 percent of the airport’s overall concession revenue. But the contracts only meet 1.27 percent of the 40 percent disadvantaged-business goal assigned them.
The operator graduated out of the disadvantaged-business program, but because of the premium-value program rules, her contracts were not put out for open bidding.
“If she didn’t earn the benefit, … had the McDonald’s locations not been eligible for the (premium-value) benefit, then, yes, we would’ve put them on the street for a competitive bidding,” said John Ackerman, DIA’s chief commercial officer.
Several City Council members voiced reservations.
“We should first celebrate this success in her ability to graduate out of the program,” said councilman Christopher Herndon.
“This gives me heartburn. … She doesn’t qualify (for the disadvantaged-business program anymore), so we just lower the bar?”
There doesn’t appear to be a way to clear the opportunity pipeline to make room for other disadvantages businesses, he said. “It sounds to me like we are saying, ‘Well, we will get it right next time.’ “
The shops previously contributed significantly to the airport’s overall disadvantaged-business goal. Now the burden of reaching the overall goal passes onto other vendors.
This seeming contradiction was something DIA officials anticipated may come up when they wrote the program’s rules. Ackerman admitted that other vendors will have to pick up the slack, but noted that most meet or exceed their goals.
Councilman Albus Brooks said the issue will come up again.
“Let’s make sure we are making room for other small businesses in the pipeline,” he said.
Kristen Leigh Painter: 303-954-1638, kpainter@ denverpost.com or twitter.com/kristenpainter
