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EDITORIAL: The Gamble in Selecting a Newer Firm Versus Two Tried and True Companies

By Lou Phelps, Publisher

April 23, 2019 – As with any major contract that any city enters into, the public and the media have limited insight into all the facts surrounding contract negotiations, the review of qualifications of those submitting bids, and the often times amorphous political dynamics.  

This Thursday’s City Council decision on the selection of a firm to operate the city’s future new arena, as well as other city facilities, is mired in an expected level of lack of information.

Both sides of a contractual legal equation need and deserve certain amounts of privacy.  Private firms should not be forced to divulge all of their trade secrets, for example, as they have a right to compete in a marketplace, and if all areas of their business practices were divulged, no one credible would bid on public projects.  That’s a given.

But, it’s hard to understand how Savannah’s now outgoing City Manager Rob Hernandez has recommended a firm to undertake the massive new arena mangement project when his recommended firm failed to comply with a critical requirement of the Request for Proposals (RFP) – submission of three years’ of audited financials by a CPA firm. 

Why wasn’t The Oak View Group – Hernandez’ recommended winner in this important bid - disqualified upfront, when they failed to do so? 

Instead, when Alderman Brian Foster asked questions about why the city had not received the required audited financials, it was negotiated in an Executive Session that the Oak View Group would agree to show their financial records privately to one member of the City Council.  Foster, a former banker, agreed to participate in that meeting.  Also attending the session with OVG was the City’s Finance Director, David Maxwell, according to Foster. 

The City’s Purchasing Dept. ranked all submitted proposals, putting Oak View first, SMG second and Spectra in third place.  Oak View states that their firm was founded in 2015;   SMG was founded in 1977, 42 years ago; and Spectra (part of Cablevision/Comcast) was founded in 2000, 19 years ago.  Both SMG and Spectra submitted all required financial documentation, and both operate a long list of arenas and other public convention centers across the U.S.  They have well-documented track records.

A review of the current clients of the very new firm, Oak View Group, shows that most of the arenas or facilities they are now managing were deals they were awarded in 2017 and 2018 … some only a few months old … or projects that are still under construction.  They haven't even begun their management role.  

But, Foster states that the firm’s primary investor is the private equity firm Silver Lake, which is a “huge company and very financially stable,” and he is comfortable with the financial information he was presented by OVG.

Certainly, his opinion will hold weight with many on the City Council.

But, it’s a new company, versus two other bidders with years of history in arena management. 

The RFP issued by the City of Savannah states that “The Owner reserves the right, in its sole and absolute discretion to waive any irregularities or deficiencies in any Proposal.”  

So … the City has the legal right to make judgment calls on what’s important in reviewing submitted bids, and in making recommendation to the City Council.  But they doesn't mean that the Council members are in agreement with the City's management team.  

Foster points out that the deal the city is crafting removes the city from any risk in the operation of the arena. “It looks like a good deal to me,” he says, where OVG will pay the city $2.5 million upfront at the beginning of the five-year contract, and another $2.5 million if the contract is renewed for another five years in the future.  The city will get a share of profit, and can remove the firm for poor financial performance. 

While many in the public have focused on the building of the arena, and that cost, having a viable business plan to operate it in a sound financial matter is just as important, in our opinion.  

The current Civic Center is losing $1.5 million a year, paid for from the General Fund. 

Here’s hoping Alderman Foster is right in his assessment, if the Council moves forward with OVG.

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