Guam Airport Concession Contract Bidding Under Protest

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DFS Group alleges violations in procurement processes

By Gaynor Dumat-ol Daleno

HAGÅTÑA, Guam (Pacific Daily News, April 24, 2013) – DFS Group called for a federal investigation as it filed a protest yesterday over the procurement process that led to the selection of a South Korean competitor for the largest retail concession contract at the Guam international airport.

The winning bidder's proposal should be placed on hold to permit the U.S. Attorney's Office and relevant agencies to conduct an investigation into potential violations of United States and Guam law, DFS' protest letter states.

A Guam attorney for the winning bidder, Lotte Duty Free, Cesar Cabot, said his client followed procurement rules and law in responding to the airport's Request for Proposals (RFP).

"Lotte Duty Free has always conducted itself -- at all times -- in full compliance with Guam law and the requirements of the RFP, so we find this as a complete and utter surprise," Cabot said earlier yesterday before the details of the protest and the name of the protester became public.

The airport agency confirmed that a protest was filed, but didn't name the entity that protested.

The protester said Guam's reputation to international investors could be tarnished when fairness and transparency are in doubt.

DFS and three other international travel retailers lost to Lotte Duty Free following a procurement process marred by delays and controversy.

DFS Group's Guam presence makes it one of Guam's largest private sector employers.

"We have reviewed all available information associated with the bid process and to this point remain greatly concerned over the regularity and transparency of the process," said DFS Group Chief Operating Officer Michael Schriver in a statement from Hong Kong. "Winning and losing concessions is the nature of the airport retail business and over the past 52 years, DFS has enjoyed its share of wins and losses, however the process that has been experienced in Guam is unprecedented."

DFS Group Chairman and Chief Executive Officer Philippe Schaus joined Schriver in announcing the protest.

"We at DFS share the concern of the Guam business community that the reputation of Guam as a place to invest for business may be tarnished by these unusual proceedings, which have been largely publicized in the local press," Schriver said.

"Through this protest, we seek to ensure that the bid process be fair and transparent, and that all the rules and laws governing the process be strictly adhered to," Schriver said. "The value of transparency and an investment process that is free from undue influence is of paramount importance."

The completion of the bid process was four months longer than anticipated, DFS contends.

The Guam airport closed the bid in September last year and voted to award the contract to Lotte Duty Free two weeks ago.

'Queasy' feeling

DFS has held the concession contract for years, and as its contract was ending, the A.B. Won Pat Guam International Airport Authority opened up the next concession contract for competition.

The minimum bid was $6 million a year to lease prime international airport retail spaces for a minimum of five years and up to 10 years. Bidders needed to show annual gross sales of at least $25 million a year over five years, bid specifications show.

Just before the airport agency board on April 12 announced its selection of Lotte Duty Free, board Vice Chairman Jess Torres said he felt "queasy" about some aspects of the process. He didn't feel comfortable that the board deviated from previous practice of naming how all of the four bid competitors ranked from highest to lowest bidders.

The board also had to delay its vote on awarding the contract because two board members -- Chairman Frank Santos and member Linda Tolan -- said they each received a gift that later turned out to have originated from Lotte.

It was a "nominal" gift that Lotte had given -- through Jeju Air -- for all Guam dignitaries who joined the budget airline's Seoul-Guam inaugural flight last year. Lotte has stated in a previously issued statement it did not know that airport board members were on the trip and would end up receiving token gifts meant for Jeju Air's guests.

Shilia Duty Free, also based in South Korea, and Australian-based JR Duty Free also competed.

Airport Executive Manager Chuck Ada couldn't be reached for comment after regular work hours yesterday. Calls to his cell phone weren't answered.


DFS has been operating on a temporary month-by-month contract since its main contract expired in January this year.

The contract would allow use of more than 25,000 square feet of retail space, airport documents show. It would give the winning proposer an option to lease more space -- about 14,000 square feet -- for office and storage space at the airport terminal.

The contract would give the winning bidder exclusive right to sell luggage, handbags, purses, wallets, cosmetics, fragrances, jewelry, liquor, cigarettes, cigars, high quality apparel, home decorations and other goods at the airport terminal, the request for proposals states.

An airport review committee looked at factors such as facility design and capital investment, experience, qualifications and financial capability and management and operations plan, airport management has stated previously.

Airport board members Lucy Alcorn, Ed Untalan and Martin Gerber were the only three who could vote on the contract. They all voted to award the contract to Lotte.

A procurement protest's first step is to file a written notice with the concerned government entity. If the protester remains unsatisfied with an agency's decision, it can appeal to the Office of Public Accountability.

A protester's next stop will be the court system.

'Judicial review'

The DFS group had been protesting the actions related to the selection of Lotte since Oct. 30, 2012, according to documents sent to airport officials by the DFS Group. The documents are dated April 23.

The 2012 letter from DFS stated that facts related to the request for proposal for the concession contract "have been in contravention (of) the procedures stipulated under the RFP."

DFS contends that the airport failed to respond to that letter as well as a follow-up letter on April 11, 2013.

"Please be advised that due to the significant nature of the allegations made by the proposal protest, we reserve DFS' right to administrative and judicial review," documents state.

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