Mark Flatten

Study says Sky Harbor has no reason to award contracts based on race or gender

Posted on June 01, 2010 | Type: Investigative Report | Author: Mark Flatten
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Racial preferences in concession contracts should be abandoned at Sky Harbor International Airport, a new study funded by the City of Phoenix concludes.

Bidding policies that favor firms owned by minorities and women should be replaced with efforts to aid all small businesses seeking contracts to operate restaurants and retail outlets at the airport, according to the disparity study that took three years to complete.

The findings mean the city will no longer require a certain percentage of food and retail concession sales go to businesses owned by women or certain minorities that are deemed “disadvantaged” in federal regulations. Instead, the city is likely to follow other recommendations to make it easier for all small businesses to compete when contracts are released for bidding, regardless of the race or gender of the owner, said Tamie Fisher, Phoenix deputy aviation director.

“The disparity study essentially said there is not enough evidence to support a race-conscious program, and the study makes a recommendation that we use race- and gender-neutral measures for future concession contracts,” Ms. Fisher said. “Our program will be shaped around the findings and recommendations of the study.”

In October 2009, the Goldwater Institute reported in “High Fliers: How Political Insiders Gained an Edge in Sky Harbor Concessions” that the racial preference program at Sky Harbor had been used to benefit a small group of political insiders with close ties to City Hall. The beneficiaries include Maricopa County Supervisor Mary Rose Wilcox, who was brought in as a partner in a Chili’s restaurant concession to meet city-imposed requirements for minority participation. Supervisor Wilcox did not take an active role in running the business, as required in federal law.

Federal regulations allow airport operators to use race and gender as factors in awarding airport contracts for food and retail operations as a last resort to remedy discrimination. However, both federal regulations and court rulings mandate that such preferences are only allowed if the airport owner can prove the discrimination cannot be eliminated through methods that do not consider race or gender.

Phoenix, which owns and operates Sky Harbor, suspended its use of racial preferences in 2006, after a federal court ruling in Washington state imposed tighter standards for such programs. But the existing concession contracts using racial preferences have been extended each year since then.

The city hired Exstare Federal Services Group to conduct the disparity study, which originally was supposed to have been completed in May 2008. Exstare’s report was issued May 21, 2010, and found a lack of evidence of ongoing discrimination to justify racial preferences.

Exstare recommended adopting a “race neutral” standard for future concession contracts. If the city accepts the recommendation, it would no longer mandate a minimum level of sales be reserved for minority-owned companies.

Companies certified as “disadvantaged” under the federal definition currently account for about 28 percent of all concession sales at Sky Harbor, according to a February 2010 report to the City Council.

Minority and woman-owned businesses face many of the same challenges in landing airport contracts as other small businesses, including difficulties in securing financing and competing with national chains, Exstare found in its study.

Exstare recommended the city stop using “master” concession contracts, which allow a single company to control all food sales within a terminal. HMS Host, a national airport concession management firm, holds the master food and beverage contract in Terminals 3 and 4 at Sky Harbor. Host brings in partners or subleases space to meet its requirement that a certain percentage of its sales must be attributable to businesses owned by minorities and women.

On May 5, 2010, the Phoenix Downtown, Aviation and Economy subcommittee, which is made up of City Council members, recommended breaking the Terminal 4 master food concession contract into two bid proposals. The current contract with Host expires May 31, 2010. It will be extended until the new contracts are awarded.

Host’s master contract for Terminal 3 is scheduled to expire in 2011 but can be extended for five years. Delaware North Companies is the master concessionaire in Terminal 2. That contract is slated to expire in 2014 but can be extended for an additional three years.

There is no Terminal 1 at Sky Harbor.

Phoenix does not have a master concession contract for retail leases, but awards them to individual businesses, a practice favored in the disparity study.

Two public hearings are scheduled in June to allow people to comment on the results of the disparity study. Ms. Fisher said new contract bidding procedures will be drafted after those hearings, and could be approved by the City Council by the end of the year.

Mark Flatten is an investigative reporter for the Goldwater Institute.

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