|The Golf Course RFP Process|
|Written by Administrator|
|Wednesday, 01 June 2011 12:57|
A step by step guide to avoiding traps and hazards associated with producing the successful Golf Course Operating Agreement RFP
Today, a number of public agency owned golf facilities are either operating at a deficit or, if producing positive net cash, are experiencing a decline in revenues. Also, many public courses operated by a golf management company may be nearing the end of their operating agreement. In any case, municipalities and public agencies may be in the situation of either exploring the possibility of a new management company or, if the facility is operated by the agency, deciding whether or not to move from a self-operated mode to a management company operating agreement. If your agency is considering such a move, the following information will be helpful.
Sad Condition of the Golf Market
The fact that the supply of golf courses is greater than the demand should not be a surprise to anyone associated with today’s golf market. The golf publications have numerous articles describing the fact that the net number of golfers has remained stagnant for the past several years while the number of golf courses steadily grew. In addition, the recession has only exacerbated the problems. Unless your golf facility is extremely unusual, these conditions have negatively impacted you.
Recently, a long-time operator of the city-owned course was coming to the end of its operating agreement with the City of South Pasadena. The city was going to have to go out for an operating agreement RFP despite the stressed golf market conditions and the fact that a number of golf facilities had issued golf course operating agreement RFPs without receiving qualified responses.
The following describes the city’s situation, steps taken and the results of this successful RFP process:
The City of South Pasadena, owns an eighteen-hole par-3 golf course (Arroyo Seco Golf Course) in a well established area of an upper-middle class neighborhood. The course operator built the course more than fifty years ago and has operated the course under a long-term lease which has been subject to numerous extensions. The expiration of the lease is nearing and the City made a decision to bring the terms of the lease up-to-date.
New Agreement Criteria
The new lease would require an operator to contribute close to one million dollars to correct major deferred maintenance conditions and upgrade the facility to an acceptable level. This would be achieved by issuing an RFP for a new operating agreement and long-term lease. As with any public agency RFP, anyone would be allowed to submit a proposal for review and possible acceptance.
City Council Appoints Sub Committee
In order to implement the above, the City Council in November 2009, appointed a Golf Course Lease Sub Committee (“Sub Com”) to study the situation, manage the RFP process and submit to the Council a recommendation for an operator and suggested terms of an agreement. The Sub Com appointed several of its members to study the market and draft a RFP for Sub Com approval. After a number of months of sincere effort, a first draft was submitted to the Sub Com for review. Additions, subtractions and modifications were made with the most significant addition, a call for a new banquet facility to be funded, designed and constructed by the successful bidder. During the time of the second RFP revision, David Sams and Dick Thorman were invited to a Sub Com meeting to listen to the proceedings and offer suggestions.
Sub Com Draft RFP
It was quickly evident that the Sub Com had done substantial work on developing the draft RFP, including an excellent job of defining City goals and objectives. However, it was also clear that without in-depth golf industry background, assumptions regarding the golf market area and potential operator financial commitments were over-estimated. Unfortunately, this over estimation eventually voided the desire for the banquet facility and what the Sub Com might expect in terms of golf revenue. Additionally, some of the draft RFP had been taken from another agency’s golf RFP and was not suitable for use under this situation. The format needed extensive modification to eliminate repetition and produce clarity of response.
Consultant’s Reality Check
When asked for comments, Mr. Sams and Mr. Thorman provided information on what the actual market area should be and also expressed belief that operator funding of a banquet facility was unlikely in this financial market. Additionally, the Sub Com was informed that, due to the golf supply and demand situation and declining course revenues, RFPs for golf facilities were not being well received. Operating agreements that require the operator assume all financial and operating risk are difficult to obtain and negotiate in today’s market. RFP’s for management agreements where the owner (public agency) assumes all financial and operating risk and pays the operator a management fee are readily available. The Sub Com was given specific information on RFPs that received no responses and others that had received only proposals that were non-responsive. Based upon this information, the Sub Com asked Thorman and Sams if they could provide assistance in meeting City goals and objectives.
Retention of Consultants
Mr. Thorman and Mr. Sams negotiated a contract to produce the RFP, provide a list of qualified operators, market the RFP opportunity to known qualified operators, assist in the mandatory pre-bid site meeting, evaluate responses, facilitate operator site reviews, operator interviews and provide a pro forma Lease Agreement which the City Attorney could modify to meet all City requirements. Within five days of the Authorization to Proceed, Mr. Thorman and Mr. Sams began implementation of the above items.
The RFP was issued in March 2010, and three qualified responses were received. Any one of the three proposals could have been accepted and the City goals would have been met. The Sub Com appointed a Selection Committee which:
The Sub Com voted to accept the Selection Committee’s recommendation and sent the recommendation to the City Council for approval. Council approved the recommendation and authorized the City Attorney to proceed with drafting a contract for approval.
The terms of the proposal provided for an eight hundred and fifty thousand dollar ($850,000) facility investment to repair deferred maintenance and upgrade the facility to an acceptable level. A lease term of ten (10) years with two five (5) year options was approved along with the percentage rents proposed.
Critical to the success of receiving qualified submissions, whereas other golf facilities did not, was the inclusion of a Rent Credit Program designed to reimburse the operator for the amount of investment made to correct the deferred maintenance and upgrade the facility. Without this Rent Credit Program, it is most likely that no qualified response would have been received. Although the program takes away approximately 75% of rent coming to the City (for the term of the credit program), the Sub Com supported the concept as the only viable method to reach the City’s goals and objectives.
As of publication, the Lease Agreement is in the final stages of negotiation and approval and acceptance by the Council is anticipated shortly.
Required RFP Pocess Steps
The following is a list of steps required to be performed by the Consultant and the City to successfully complete the RFP process. Each step is coordinated by the Consultant with the City designated primary contact.
If your agency is contemplating, starting or in the middle of the RFP process to retain a professional management company, following the rules noted below should help you successfully complete the process;
The outcome of the golf RFP process is one that will dramatically impact your agency’s financial well being for a long period of time. It must be done with great sensitivity to the golf market and what that market can withstand in terms of rent payments, capital improvements and operating standards. If you begin right, your chances of a successful completion are high. Conversely, a faulty start will almost assure an ending which is unsatisfactory and which may lead to unnecessary costs and waste of agency assets.
|Last Updated on Thursday, 02 June 2011 09:56|