REPORT TO COUNCIL
SUBJECT
Title
Action on Approval of Award of Agreement for the Management and Operation of the Santa Clara Convention Center
Report
EXECUTIVE SUMMARY
The City conducted a Request for Proposals Procurement Process to solicit proposals potential operators to manage the Santa Clara Convention Center as of March 18, 2019. Following a two phase evaluation process with a seven member evaluation panel, inclusive of three external convention and destination industry professionals, staff is recommending the selection of Global Spectrum L.P. dba Spectra Venue Management as the Santa Clara Convention Center operator and authorizing the City Manager to negotiate an agreement to provide services necessary to operate and manage the facility.
BACKGROUND
In 1984, the City of Santa Clara executed a Management Agreement with the Santa Clara Chamber of Commerce & Convention-Visitors Bureau (Chamber) for the management and operation of the Santa Clara Convention Center (SCCC). Through the Agreement, the Chamber has been responsible for performing services necessary to direct and manage all Convention Center operations including marketing and promoting the Center; booking of events; hiring of staff; and daily operations of the center including accounting, catering, security, janitorial, and maintenance.
In January 2017, the City engaged Jones Lang LaSalle (JLL) to research different operating and governance models as well as to develop an approach to growing high-priority conventions at SCCC.
On May 22, 2018, Council directed the City Manager and City Attorney to execute a financial and performance audit. TAP International was hired to conduct the audit that included a financial, governance, contract management, and marketing of the Santa Clara Convention Center and Santa Clara Convention and Visitors Bureau (CVB). The audit scope was focused on the state of business practices by the Chamber with respect to its management of public funds and assets and the City’s contract management practices.
On September 18, 2018, TAP International presented its audit findings to the City Council. The audit revealed failures to manage public assets with appropriate stewardship, accountability, and transparency. The audit also found that, when evaluated separately, the fiscal health of the SCCC and CVB are generally good. However, when evaluated together, there was a need to improve financial management and performance. Based on the audit findings, the Council directed the City Manager to issue a 180-day notice to terminate the Convention Center Management Agreement, while simultaneously engaging in a competitive procurement process for the management and operation of the Convention Center and take necessary actions to stabilize its operations and to minimize further impact to public resources and assets.
On September 18, 2018, the City Manager issued a termination notice for the Convention Center Management Agreement with the termination being effective on March 18, 2019. The Chamber ceased operation of the CVB in August 2018.
On October 9, 2018, the Council approved the procurement strategy for the selection of a vendor to manage the Convention Center and/or the Convention Visitors Bureau. The strategy included an overview of the Request for Proposal (RFP) as well as the approval of Process Integrity Guidelines to govern the flow of communications between staff, elected officials, and the vendor community before, during, and after the RFP process. Council approved the procurement strategy including the key components of the project scope, evaluation criterial and weights, the timeline, and the process integrity guidelines.
Complete and up-to-date information regarding the above activities, including background documents, the final audit report, news/press releases, City Council actions, public meeting agenda reports, and FAQs may be found at the link below:
<http://santaclaraca.gov/government/updates-for-santa-clara-chamber-of-commerce-and-convention-visitors-bureau-agreement>
DISCUSSION
On October 17, 2018, the City issued a Request for Proposal (RFP) to select a qualified firm to manage and operate the Santa Clara Convention Center and Convention Visitor Services. The RFP was structured to allow respondents to submit a proposal for the management and operation of the Convention Center and Convention Visitors Services (CVS), or Convention Center management and operations only. The City published the RFP using BidSync, the City’s e-procurement tool, where over 10,000 registered vendors on the system were notified. In addition, the City outreached directly to firms that are known to provide the required services, as well as firms that expressed an interest in receiving the RFP prior to its release.
A mandatory pre-proposal conference was held at the Convention Center on November 2, 2018. Four management firms were represented at the conference where the RFP process was presented, and consultant Jones Lang LaSalle (JLL) who highlighted key goals and objectives of the project scope. In addition, there was a walk- through of the Convention Center facility.
To inform the RFP process, in fall 2018 input from the community was gathered via an on-line and post card survey regarding key parameters to help guide the selection of the operator of the Convention Center. Survey feedback is summarized in Attachment 1 and was made available to proposers for their consideration when preparing their proposals.
On November 15, 2018, a Governance and Visioning Workshop was held at the Convention Center which allowed members of the public to provide input on the desirable characteristics, community benefits and economic development strategies for the Convention Center. Prospective bidders were either in attendance or were able to view the archived video of the meeting to inform proposals to the RFP and asked to respond to the discussion at the workshop as part of the proposal submission.
40 firms viewed the RFP on the BidSync system, and two proposals were received by the December 7, 2018 proposal deadline from SMG (Philadelphia, PA), and Global Spectrum L.P. dba Spectra Venue Management (Philadelphia, PA). Both proposers are nationally recognized as leading convention center managers and both have impressive portfolios of convention centers and other venues in both large and small markets throughout the country.
JLL reached out to firms recognized in the industry of having the capability of meeting the City’s requirements and firms that attended the mandatory pre-proposal conference, but elected not to submit a proposal, to understand why they did not bid. In general the reasons for not bidding were specific to the timing of the RFP and potential operational implementation and their respective business plans.
Proposal Evaluation Process - Phase 1:
As approved by Council, the evaluation process consisted of two phases. In Phase 1, the written proposals were evaluated and scored against the criteria and weights shown in Table 1 below. Firms submitting proposals earning the highest scores were invited to advance to Phase 2 of the evaluation process, where they were required to submit a financial proposal as well as participate in an oral presentation. Phase 1 scores did not carry forward to Phase 2, with 100% of the final award recommendation based on their financial proposal and oral presentation scores with each weighed at 50%.
Table 1- RFP Evaluation Weights
|
Description |
Weight |
|
|
Phase 1 |
Phase 2 |
|
Quality of Proposal |
5% |
|
|
Experience of Firm |
25% |
|
|
Experience of Team |
25% |
|
|
Technical/Project Approach |
25% |
|
|
Value added products/capabilities |
20% |
|
|
Financial Proposal incl. Management Fee, Capital Investments, and City subsidy, if any |
-- |
50% |
|
Oral Presentation |
-- |
50% |
|
Total |
100% |
100% |
A seven member evaluation team was named with both internal and external representation. Serving on the evaluation team external from the City were: Alison Best (Executive Vice President, Membership Engagement, Destinations International), Manny Gonzalez (VP & General Manager, California's Great America), and John Caldon (Director of City Hall Events, City of San Francisco). Representatives from the City serving on the evaluation panel were Walter C. Rossmann (Chief Operating Officer), Angela Kraetsch (Finance Director), Ruth Shikada (Assistant City Manager) and Craig Mobeck (Public Works Director). Prior to receiving the proposals, the evaluators were required to complete a Conflict of Interest form to ensure that there were no financial or personal conflicts that might influence their ability to fairly and objectively score the proposals.
Evaluators were required to score independently. At the conclusion of each phase of the evaluation process, the evaluators discussed their scores in a team setting that was facilitated by the City’s Procurement Manager. Evaluators were permitted to adjust their scores based on the discussion. The consulting services of JLL was utilized throughout the evaluation process to assist the evaluation team by providing information regarding the City’s requirements and summarizing key information to assist the evaluators with their scoring.
Proposal Evaluation Process - Phase 2
At the conclusion of Phase 1, the overall scores between the two proposals was very close (within 10%), and the evaluation team unanimously agreed that both proposers would advance to the second and final phase of the evaluation process. Oral presentations were conducted on January 15, 2019. The City requested key representatives from each firms: proposed General Manager for our Convention Center, Transition Team Leader, Finance Liaison, Operations Manager, and Sales and Marketing Director. In addition, each proposer was allowed to bring up to five additional representatives to participate in the presentation. Several weeks prior to the presentations, the City provided the proposers with a set of topics to address in the areas of general and City-specific marketing, transition plan, financial plan, and community benefits. Each firm had an equal amount of time to prepare and present. The oral presentation was assigned a weight of 50% of the final Phase 2 score.
Financial proposals were independently evaluated and scored by the evaluation committee against the following criteria: Financial Plan, Management Fee Proposal, Financial Resources, and Other Submissions. The financial proposal was assigned a weight of 50% of the final Phase 2 score.
Phase 2 scores are summarized in Table 2 below. Note that the scores include the detail that was evaluated for each general category.
Table 2-Phase 2 Scores
|
CRITERIA |
Spectra |
SMG |
|
Oral Presentation (50%): |
|
|
|
General Marketing |
8.8 |
8.1 |
|
Transition Plan |
8.0 |
8.6 |
|
Financial Plan |
8.3 |
8.7 |
|
Community Benefits |
9.2 |
7.6 |
|
Overall Presentation |
9.0 |
8.2 |
|
Subtotal Oral Presentation |
43.3 |
41.2 |
|
Financial Proposal (50%): |
|
|
|
Financial Plan |
11.1 |
10.3 |
|
Management Fee |
11.3 |
10.2 |
|
Financial Resources |
10.7 |
10.1 |
|
Other Submissions |
10.6 |
10.1 |
|
Subtotal Financial Proposal |
43.7 |
40.7 |
|
Final Phase 2 Score |
87.0 |
81.9 |
Based upon the scores from Phase 2, the evaluation team recommended the selection and award of contract to Spectra for the operation and management of the Santa Clara Convention Center.
Formed in 1999, Spectra is one of the largest and most respected professional venue management companies in the nation. Spectra is comprised of three main areas of expertise: venue management, food services & hospitality and partnerships. Their public sector client list includes cities, counties, and state universities. Spectra is owned by Atairos, an independent private company, and backed by Comcast Spectacor, an industry leader in sports and entertainment. The Atairos umbrella also includes an affiliation with Comcast NBC Universal providing access to advertising channels to promote events.
Summary of Oral Presentation and Financial Proposal:
It should be noted that SMG and Spectra are both national leaders in the convention center management and operations. The evaluation team scored Spectra higher and agreed that their proposed management approach and financial proposal was the best value for the City noting Spectra’s key differentiators:
• Spectra provided more detail and specific examples relative to Santa Clara and the market in general on their approach to managing SCCC as a new account in their oral presentation, which was viewed favorable and aligned with the community’s relationship with the facility.
• Spectra’s management approach was more consistent with Santa Clara’s interest for agility and flexibility.
• Spectra’s partnership with Comcast provided the City with additional tools to promote Santa Clara.
• Spectra’s proposed General Manager tentatively assigned to the City’s account was in attendance. He was an effective presenter, with industry and local market knowledge.
• Spectra researched the local market and presented plans and ideas specific to the City’s needs and requirements. Examples include:
o Cultivate local partnerships with entities such as Triton Museum and Mission College for mutual benefits such as displaying artwork throughout the Convention Center from the Triton Museum and working with Mission College’s hospitality management program.
o Promotion of specific events/markets targeted to the needs of Santa Clara’s visitor market
o A commitment to work with the City to implement short term cosmetic improvements to the Convention Center such as paint, new carpeting and possible improved/repaired signage by providing funds for capital improvements. In addition, the installation of amenities such as coffee bars to provide attendees with services and places to informally gather and socialize during events
A Best and Final Offer (BAFO) was issued on January 17, 2019 allowing proposers a final opportunity to revise their financial proposal, and propose any new innovative concepts or guarantees. In their BAFO responses, both proposers improved upon their initial financial positions by increasing their capital improvement commitments and their annual advertising investment. In addition, Spectra lowered their base management fee and agreed to take on additional risk with reduced incentives in the event their income projections are not met. The BAFO was not scored. While both proposers improved their financial positions from their original response, Spectra’s BAFO submission was more aggressive, thus improving their financial proposal position relative to SMG.
As discussed above, Spectra submitted a more aggressive financial proposal, both with their initial financial proposal submission, and best and final offer. Key attributes from each financial proposal inclusive of the BAFO results are summarized in Table 3 below:
Table 3 - Financial Offer Comparison
|
|
Spectra |
SMG* |
|
Base management fee |
$165,000 (with CPI adjustments capped at 3% annually) |
$150,000 (with CPI adjustments capped at 5% annually) |
|
Capital improvement commitment (amortized over the 15 years of the contract) |
$2 million over 15 years with $1.15M in year one |
$1.2 million over 15 years with $400K in year one |
|
Income projection at year 1 |
$2.7M |
$752K |
|
Income projection at year 5 |
$3.2M |
$1.3M |
|
Quantitative incentive fee |
Sliding scale up to 12% of revenue growth from previous year |
Capped at 70% of base management fee and based on meeting income projections. |
|
Qualitative incentive fee |
Up to $20,000. Awarded on agreed upon criteria such as Customer surveys, achievement of economic impact goals, etc. |
Capped at 30% of base management fee Awarded based on meeting agreed upon measures such as meeting customer satisfaction, desired event mix, etc. |
|
Annual $ fee cap |
$400K inclusive of base and management fees. |
$300K in year one; base fee cap adjusts annually with CPI (maximum of 5%) |
|
Management fee rebates if income projections are not met |
Up to 50% of incentive fees starting in year 2. |
None offered. |
|
Advertising commitment |
$65,000 annually/$975K over 15 years (with partner Comcast) plus discounted advertising rates |
Close to $70,000 trade show participation (year one only) |
*SMG also submitted an alternate financial proposal with a lower base fee, but higher incentives in the event that performance targets are exceeded, and a lower capital commitment. Please see Attachment 2 for more details.
Notice of Intended Award - SMG Protest
A Notice of Intended Award (NOIA) announcing the City’s recommended vendor was issued to both proposers on January 23, 2018. The RFP process included a ten day protest period which commenced with the issue of the NOIA and ends on Saturday, February 2, 2019. On February 1, 2019, the City Auditor, serving as the Protest Hearing Officer, received a protest from the law firm of Rutan & Tucker on behalf of SMG (Attachment 3). At the time of the preparation of this report, the Protest Hearing Officer is reviewing the merits of SMG’s protest. A supplemental staff report with additional details addressing the protest will be prepared for the February 5, 2019 Council meeting.
Spectra provided a list of references as part of their RFP response. These references are relevant to the Santa Clara Convention Center based on size and market, and compete against larger convention centers.
• Duke Energy Convention Center, Cincinnati, OH
• Miami Beach Convention Center, Miami Beach, FL
• Overland Park Convention Center, Overland Park, KS
• Palm Beach County Convention Center, Palm Beach FL
Spectra has been unanimously recommended by the references. Each reference had more than three years of personal experience with Spectra in their respective municipal buildings and had oversight responsibilities for the contract. (It should be noted that in all cases, Spectra’s management role at each respective location was longer than three years-). Each reference was pleased with Spectra’s work history and performance. References also positively commented on the support and the timeliness of the support the building receives from Spectra’s corporate office.
Convention and Visitor Services - Staff Recommendation:
On October 9, 2018, the Council approved the procurement strategy for the selection of a vendor to manage the Convention Center and/or the Convention Visitors Bureau. Since October 2018, the existing Tourism Improvement District (TID) reviewed and considered the TAP International audit recommendations and has worked cooperatively with the City to revamp its current structure. One of the TID’s objectives is to expand its role to not only market TID hotels but also to provide expanded level of services. Given this development, staff recommends to only award a contract for the management and operation of the Convention Center and would like to work more closely with the TID to understand the policy implications and prepare any required action for the City Council over the next months. Depending on the success of the local development of a convention visitors’ bureau type of services, staff may recommend issuing a separate RFP for the management of destination marketing services in the future.
Contract Terms, Objectives and Outcomes
In addition to documenting the terms offered by Spectra through the RFP procurement process, the City has identified key contract terms, objectives and outcomes that will form the parameters of the negotiations and basis of a final contract. The contract will document requirements of the convention center manager in the following service areas among others:
• administrative and management services;
• operating services;
• facility management services;
• fees and performance measures;
• capital investment;
• advertising and sponsorships; and,
• financial reporting
.
Additional details may be found in Attachment 4 to this memorandum.
TAP Audit Recommendations
In addition to the contract negotiation areas identified above, the contract will include terms that will allow the City to implement the recommendations identified by TAP in its September 18, 2018 performance audit to assure better accountability of operations at to build the financial performance of the Convention Center. A listing of these items, which were not included in the RFP, may be found in Attachment 5 to this memorandum. Separately, City staff continues to address the audit recommendations and reconciliation efforts.
Next Steps - Contract
As mentioned previously, the City’s termination of the management services provided by the Santa Clara Chamber of Commerce is effective as of March 17, 2019. As such, there is a need for a new operator to commence services as of March 18, 2019.
Pending Council approval of the recommended action and the conclusion of the protest, it is anticipated that negotiations will occur over a three week period allowing for staff to return to Council to consider authorizing the execution of a final agreement for the March 5 Council meeting. This will allow for a two week operation transition period. Although typical transitions occur over a 90 day or more timeframe, Spectra confirmed that they have the ability to transition over a shorter period, recognizing that longer transition periods allow for smoother transitions.
Finishing negotiations and documenting the terms of a 15 year agreement over a three week period is a very aggressive schedule. The recommended action would also authorize the City Manager to execute a temporary agreement to allow an interim arrangement to be in place with Spectra allowing a simultaneous transition to commence while the terms of the final long term agreement are being negotiated concurrently.
In the event that negotiations with Spectra Venue Management are not successful, staff will return to Council on March 5 to seek authorization to negotiate an agreement with SMG based upon the terms proposed during the RFP procurement process assuming SMG is interested. Similarly, depending on the timing of negotiating with SMG, if necessary, vis-à-vis the March 18 management transition date, the recommended action would also authorize the City Manager to execute a temporary agreement with SMG or the Chamber to allow the time necessary to negotiate a long term agreement with SMG.
Next Steps - Transition
As mentioned above, in addition to contract negotiations, a transition to a new operator will occur. The Chamber has advised that it will facilitate the transition and provide the new operator with access to records and its current employees. Spectra is preparing to engage current Convention Center employees in addition to the current Convention Center vendors/partners to discuss a transition for delivery of services. Spectra and Convention Center vendors/partners have been advised of the City’s Worker Retention Ordinance and parties are preparing for appropriate transition under its requirements. In the coming weeks there will be a tremendous effort made by all parties in an effort to transition the current operation to a new management structure with the ultimate objective of maintaining services for Convention Center clients and attendees.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of a California Environmental Quality Act (“CEQA”) pursuant to the CEQA Guidelines section 15378(a) as it has no potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment.
FISCAL IMPACT
The action being considered does not constitute a “project” within the meaning of a California Environmental Quality Act (“CEQA”) pursuant to the CEQA Guidelines section 15378(a) as it has no potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment.
COORDINATION
This report has been coordinated with the Finance Department and the City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov> or at the public information desk at any City of Santa Clara public library.
ALTERNATIVES
1. Authorize the City Manager to negotiate an agreement with Global Spectrum L.P. dba Spectra Venue Management, including options to extend the agreement, with an initial five year term ending on or about March 20, 2024 and a maximum annual compensation amount not to exceed $400,000, and subject to the annual appropriation of funds. (Attachment 6)
2. Adopt a Resolution authorizing the City Manager to negotiate and execute an Interim Management Agreement with Global Spectrum L.P. dba Spectra Venue Management, SMG, or Santa Clara Chamber of Commerce for a limited term management of the Santa Clara Convention Center to allow for the finalization and execution of a long term Management Agreement consistent with this Report. (Attachment 7)
3. Do not authorize the City Manager to commence negotiations with Global Spectrum L.P. dba Spectra Venue Management.
4. Any other action the Council deems appropriate.
RECOMMENDATION
Recommendation
Alternatives 1 and 2:
1. Adopt a Resolution authorizing the City Manager to negotiate an agreement with Global Spectrum L.P. dba Spectra Venue Management, including any options to extend the agreement, with an initial five year term ending on or about March 20, 2024 and a maximum annual compensation amount not to exceed $400,000, and subject to the annual appropriation of funds; and
2. Adopt a Resolution authorizing the City Manager to negotiate and execute an Interim Management Agreement with Global Spectrum L.P. dba Spectra Venue Management, SMG, or Santa Clara Chamber of Commerce for a limited term management of the Santa Clara Convention Center to allow for the of a long term Management Agreement.
Staff
Reviewed by: Ruth Shikada, Assistant City Manager
Approved by: Deanna J. Santana, City Manager
ATTACHMENTS
1. Community survey results as of January 28, 2019
2. SMG Financial Proposal Summary
3. Protest Letter dated February 1, 2019
4. Key Contract Negotiation Objectives
5. TAP Audit Recommendations
6. Resolution - Management Agreement
7. Resolution - Interim Management Agreement