ABIA lounge bid spurs conversation on how Austin contracts minority-owned businesses

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AUSTIN (KXAN) — On Thursday, Austin City Council was supposed to vote on whether to give final approval on an airport lounge, but the discussion instead turned into a debate on how the city chooses companies to work with.

Ultimately, the council moved to withdraw the airport lounge item and to have it reposted at another meeting with new wording once they have had more time to learn about the issues at hand.

In March 2019, the city began accepting proposals for what’s known as a common or shared-use lounge.

ABIA previously explained to KXAN that this lounge would work similarly to ABIA’s Delta Sky Club Lounge, except that you won’t have to be a member or have a certain number of points to go in. Delta, American, and United Airlines have created lounges for their airline customers at ABIA, but the airport wants another lounge for people not on those airlines.

The proposed lounge would be around 8,000 square feet and be located on the mezzanine across from Gate 16 at ABIA’s Barbara Jordan Terminal. ABIA asked for designs that “showcase the Spirit of Austin” and also offer high-quality food, drinks, and airport amenities.

City documents show that a city evaluation team scored five different applicants who were applying to run this lounge. The team awarded the highest score to MAG US Lounge Management LLC.

The second-place bidder was Airport Lounge Development (ALD) who has been protesting the city’s scoring process ever since and asking questions about the weight the city places on working with minority-owned businesses.

The city postponed a January council vote on this item to address ALD’s protest, but ABIA told KXAN Thursday that the protest was ultimately not accepted because ALD did not meet the protest deadline.

ALD is continuing to push back against the city, imploring the council to look at this contract in a different light and claiming that the city’s bidding process puts them at a disadvantage for having 20% ownership from a minority-owned business.

There are actually federal rules on this topic, the Federal Aviation Administration has Airport Concession Disadvantaged Business Enterprise (ACDBE) standards which airport concessions are subject to. Austin also has a city plan on how to adhere to these federal regulations, setting an ACDBE goal of 11.06%.

How the five bids were evaluated by the city of Austin to choose a contractor for the airport lounge. Graph courtesy city PowerPoint.

The bidding process

City staff recommended the city contract with MAG US Lounge Management LLC who received the highest score for this lounge. MAG is expected to have a 13% ACDBE goal through contracting with its partner D&B Mitchell Group, a Dallas-based, Black-owned business.

MAG “Shared Use Lounge” at ABIA rendering. Courtesy ABIA powerpoint.

Don Mitchell, president and owner of D&B said that MAG approached his company looking for an ACDBE operator.

“They are turning total operations over to us,” Mitchell said.

Despite what ALD is claiming, Mitchell said that he prefers the current arrangement over having ownership in the lounge.

“I would rather be an operator and take a percentage of the gross [entitlements],” Mitchell said. “You’re a lot better off without the ownership because if things go bad, you get paid when you make money. We get paid off the top.”

He said this arrangement leaves his company with less liability.

Mitchell said he can understand why ALD wants to work with a smaller businessed that they can train, but thinks that undertaking would be too much for many small businesses to fully support.

“Airports, when the rubber meets the road,” Mitchell said, “they are not in the business of training, they got to operate for the sake of the traveler business of the traveler not necessarily for the business of training.”

Mitchell said he feels confident that the MAG bid will ultimately be the one the city chooses.

MAG explained that their lounges, which are in airports across the U.S. and in some airports internationally, are partnered with American Express.

MAG has also partnered with Austin business Mozart’s Coffee for this bid. A representative from Mozart’s told the council they are a minority-owned business as well.

By contrast, ALD is offering 20% equity ownership in the lounge to TES Inc., a Black-owned, Austin based business. ALD feels that giving a minority-owned business ownership in their operation should have weighted their bid higher in the city’s process.

Airport lounge. Courtesy Airport dimensions.

“We believe the solicitation was done without equity,” said Rick Garrett, Owner of TES Inc.

Garrett hopes Thursday’s council meeting prompts city leaders to, “open up the hood [of the process] because I think for years, they have allowed the airport executive team to tell them what’s right, what’s in compliance, what’s not.”

TES said they actually approached MAG to be part of their bid at the start of this process but MAG didn’t want to have an ownership partnership.

As a minority business owner, Garrett said that having ownership in an effort like this airport lounge gives him opportunities he wouldn’t have had otherwise.

“If I have ownership in this, I have say in who is hired, I have say in what vendors we choose, I have say in what menu we provide, what chefs we use, what art we provide in the lounge,” Garrett said. “Ownership means I get to get mentored by ALD and I get to understand the entire process and at the very end when you are calculating the profits and losses, I also get to share in the profits of this. So if I have a 20% equity ownership, I have the responsibilities of a 20% equity ownership, but I also share in a 20% share of the profits.”

Garrett also noted that putting together the bid for this lounge contract was expensive, his team put in around $70,000 for the proposal.

“So if it’s only about who can provide the most money, we wouldn’t spend the money to even try to compete for it,” he said. “American Express and MAG can throw out millions of dollars in rent, while minimizing their minority participation and take a bet that the city will just give them this contract based on rent.”

ALD was quick to point out they are a Texas-based company whereas MAG US is owned by Manchester Airports Group (MAG) which is the largest UK-owned airport operator,

“This is not about sour grapes,” said Ashton Cumberbatch, the legal counsel for ALD and TES, “but rather an “erroneous recommendation by [city] staff.”

“This was the first time we’ve been punished for exceeding the minority and women-owned participation and for having actual equity ownership with minority companies,” said Nancy Knipp, President for ALD.

ALD also claims that MAG did not follow FAA guidelines for minority ACDBE ownership. The city clearly thought differently because it awarded both MAG and ALD a “passing” rating on federal ACDBE standards.

City staff explained to the council that ACDBE goals can be achieved by direct ownership by a woman or minority-owned business or by working with subcontractors. The city also noted that federal rules bar them from awarding airport contracts based on whether or how much of their business is local.

Austin’s Airport Advisory Commission met several times about this contract, and on December 10, 2019, landed on a “neutral vote” on whether or not to recommend the MAG contract to the council.

After all this discussion at council Thursday, Austin Mayor Steve Alder said that the “new argument we haven’t heard before is that we should be taking into account equity ownership. ”

Council Member Ann Kitchen pointed out that it is still unclear to the council how much discretion the city has to favor minority-owned businesses in its bidding process.

Council Member Natasha Harper-Madison agrees the council needs to give this topic more consideration but added, “this is not an anomaly,” speaking of the challenges she has faced as a Black woman owning a small business in Austin.

“I appreciate that everyone is sort of on high alert at this point and recognizing that this is odd,” she said of the additional time that the council is giving to hearing this issue out.

Mandy McClendon, the Communications Manager for ABIA said it’s her understanding that if the council does not decide to award MAG this lounge contract, the city would re-do the whole process with a new request for bids.

Austin’s City Council has also recently approved a study on how the city is doing in contracting with women and minority-owned businesses.

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