AC TRANSIT DISTRICT GM Memo No. 09-128a Board of Directors Executive Summary Meeting Date: June 10, 2009 Committees: Planning Committee Finance and Audit Committee External Affairs Committee Operations Committee Rider Complaint Committee Paratransit Committee Board of Directors Financing Corporation SUBJECT: Consider Award of Transit Advertising Contract to Titan Outdoor LLC RECOMMENDED ACTION : Information Only Briefing Item Recommended Motion Possible actions by the Board: (1) Waive the late submission of the Small Local Business Participation Form and Authorize the General Manager to Execute a Five-Year Transit Advertising Contract, with a Five-Year Extension Option, to Titan Outdoor, LLC, subject to any contract amendments; or (2) Reject the proposed award and direct staff to rebid the contract. Staff recommends the Board adopt the first alternative. Fiscal Impact: Revenue Contract with a Minimum Payment to the District of approximately $4,962,794, between July 1, 2009 and June 30, 2014. Background/Discussion: Information Since May 27, 2009 Board Meeting At the May 27, 2009 Board meeting a motion was made to continue further consideration of this item to the June 10 th Board meeting. Staff understood the delay was intended to address concerns raised by the Board, the public and to clarify comments made by Mr. Donald R. Allman, President/CEO of Titan Outdoor, LLC (Titan). First, Mr. Kevin B. Williams, on behalf of SignWorks, Inc., submitted a “RFP Protest Renewal And Appeal”. See Attachment B. In his letter Mr. Williams raised a concern regarding the delay in the receipt of the Small Local Business Participation Form and “renews his initial protest and hereby demand that the District cease and desist award of the RFP until such time as the protest is fully investigated and heard by the Board in conformity with State law.” BOARD ACTION : Approved as Recommended [ ] Other [ ] Approved with Modification(s) [ ] The above order was passed on: . Linda A. Nemeroff, District Secretary By
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AC TRANSIT DISTRICT GM Memo No. 09-128a Board of Directors Executive Summary Meeting Date: June 10, 2009
Committees: Planning Committee Finance and Audit Committee External Affairs Committee Operations Committee Rider Complaint Committee Paratransit Committee Board of Directors Financing Corporation SUBJECT: Consider Award of Transit Advertising Contract to Titan Outdoor LLC RECOMMENDED ACTION: Information Only Briefing Item Recommended Motion Possible actions by the Board:
(1) Waive the late submission of the Small Local Business Participation Form and Authorize the General Manager to Execute a Five-Year Transit Advertising Contract, with a Five-Year Extension Option, to Titan Outdoor, LLC, subject to any contract amendments; or
(2) Reject the proposed award and direct staff to rebid the contract. Staff recommends the Board adopt the first alternative. Fiscal Impact: Revenue Contract with a Minimum Payment to the District of approximately $4,962,794, between July 1, 2009 and June 30, 2014. Background/Discussion: Information Since May 27, 2009 Board Meeting At the May 27, 2009 Board meeting a motion was made to continue further consideration of this item to the June 10th Board meeting. Staff understood the delay was intended to address concerns raised by the Board, the public and to clarify comments made by Mr. Donald R. Allman, President/CEO of Titan Outdoor, LLC (Titan). First, Mr. Kevin B. Williams, on behalf of SignWorks, Inc., submitted a “RFP Protest Renewal And Appeal”. See Attachment B. In his letter Mr. Williams raised a concern regarding the delay in the receipt of the Small Local Business Participation Form and “renews his initial protest and hereby demand that the District cease and desist award of the RFP until such time as the protest is fully investigated and heard by the Board in conformity with State law.”
BOARD ACTION: Approved as Recommended [ ] Other [ ] Approved with Modification(s) [ ]
The above order was passed on: . Linda A. Nemeroff, District Secretary By
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The District staff has previously ruled against SignWorks’ protest to the content of the RFP and that matter is final. However, Mr. Williams’ concern regarding the delay in the submission of the Small Local Business Participation Form (attached as the Addendum) is presently before the Board for discussion and consideration, without the necessity of Mr. Williams’ raising the appeal in his letter. Second, there were concerns raised regarding recent articles related to the efforts by Titan to renegotiate advertising contracts it has previously entered into with other transit agencies. Although addressed at the meeting, Titan has submitted a letter (with attachments) that explains the reasons for those negotiations and their outcome to date. See Attachment C. Third, Titan has submitted a letter to the District setting forth the company’s commitment that at least thirty percent (30%) of its ancillary expenses (Controllable Expenses) will come from the use of small local businesses, particularly in the District’s service area, per Board Policy No. 351. Titan is voluntarily agreeing to the inclusion in its contract of its thirty percent (30%) commitment, as well as making good faith efforts to use small local firms within the District’s service area and to provide the District with a quarterly report of its efforts to meet its commitment. See Attachment D. Fourth, Titan is the only bidder for this contract. A question has been asked regarding what notice was provided of the existence of the RFP. Notice of the RFP was published in the Oakland Tribune on March 19 and 20, 2009 and in APTA Passenger Transport on March 18, 2009; email notices of the RFP and the addenda were sent to 923 vendors registered on the District’s procurement website, as well as to 10 nationally known advertising firms supplied by Marketing. See the documents which constitute Attachment E. The Board needs to decide what course of action it desires to take on this matter. It could waive the late filing of the Small Local Business Participation Form and award the contract to Titan, subject to amendments to the contract. These amendments would include the voluntary commitment identified in item three, above, and modification of the initial payment schedule. The latter is necessary because the thirty (30) day transition period between CBS Outdoor Advertising and Titan Outdoor has not occurred. Since there isn’t sufficient time to adequately handle the transition Titan would pay the District’s revenue share during the month of July, provided the annual guarantee in fiscal year 2009-2010 takes effect on August 1 and is prorated accordingly. This would reduce the first-year guarantee by $70,833 – from $850,000 to $779,167. The alternative action would be for the Board to reject the proposal and reissue the RFP. This action is not recommended since it is possible that there could be no proposers, or likely only one, the financial offer may not be as favorable and, in the meantime, the District would be without a significant revenue source to help address its budgetary problems.
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The Content of GM Memo No. 09-128 Considered at the May 27, 2009 Board Meeting
Transit Advertising AC Transit, like many public transport systems in North America, and internationally, contracts exclusively with a firm that specializes in selling and installing poster ads and wraps on the exterior and interior of its fleet of vehicles. The company responsible for this service solicits sales from advertising agencies and companies in major cities. Typically more than 50% of sales result from a national buy of ad space on a large group of transit vehicles in major metropolitan regions, including the Bay Area. The remaining sales are generated from purchases made by local advertisers. The firm under contract to the transit authority is the exclusive broker of space on board the authority’s vehicles. The ad agencies that purchase the space are responsible for poster design and the production of printed materials. The broker is responsible for installing and removing the posters in a timely and orderly fashion according to specific dates in an agreed upon display agreement. In return for the exclusive right to broker advertising sales on a transit authority’s vehicles, the broker makes an annual payment to the authority. Payments are usually made one of two ways, either as an agreed upon “flat fee,” or as a percentage of gross revenues (otherwise known as revenue sharing or “Rev Share”), with a floor based on an agreed upon Minimum Annual Guarantee (MAG). Percentages vary among transit operators, with those in large metropolitan areas and large fleets of vehicles receiving a higher percentage of Rev Share, than those in smaller markets managing smaller vehicle fleets. For example, in New York City, the New York Metropolitan Transit Authority (MTA) receives the largest percentage in North America — 72.5%, which is an obvious result of the MTA’s 6,000-bus fleet and the high market value of advertising in the City. From there Rev Share percentages usually vary between a low of 50% to a high of 65%. BART and Muni both receive 65%, whereas Golden Gate Transit receives 55%. Existing Agreement Since January 1, 2002, AC Transit has had a contract with Viacom Outdoor, a division of CBS, who later changed the name of the outdoor display division to “CBS Outdoor.” AC Transit has historically received a flat fee payment since before 1998. Since 2002, payments have equaled the amounts in the following table:
CBS Outdoor’s Payments Since January 1, 2002 Contract Year Annual Compensation
First Six Months of 2002 $850,000 2002/2003 $1,800,000 2003/2004 $2,000,000
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Total for 2-1/2 Years $4,650,000 2004/2005 $2,100,000 2005/2006 $2,200,000 2006/2007 $2,300,000 2007/2008 $2,400,000 2008/2009 $2,500,000
Total for 5 Years $11,500,000 During this period, AC Transit’s bus fleet was reduced by as many as 117 vehicles, from a high in 2002 of 747 buses available for advertising, to 630 presently. This large reduction in fleet size has had a significant impact on the overall value of the District’s advertising franchise.
RFP Solicitation Process On March 19, 2009, District staff issued a Request for Proposals (RFP) to solicit a new five-year contract, with an option to extend the contract for an additional five-year period. The RFP required a proposer’s fee of $250,000 as security in support of each proposal, which in the case of the successful proposer is credited toward the first year annual payment. Upon award of a contract, the security is returned to the unsuccessful proposers, if any. Prior to the receipt of submittals from potential proposers, an addendum was issued by the Purchasing Department and included, among other things, notification of the District’s Small Local Business Program (Board Policy No. 351) to encourage utilization of small local businesses in subcontracts and space for identifying those subcontracts and the percentage of work. See Attachment 1. Three minimum proposal requirements were set forth in the solicitation, to ensure that any firm submitting a proposal would be able to demonstrate a sufficient level of experience in the transit advertising industry as well as the financial wherewithal to support multi-million dollar sales and payments. The three minimum qualifications were:
1. Evidence that the proposer and its management team, and each of its subcontractors, have at least five (5) years of experience selling and displaying advertising on transit vehicles and/or transit properties in one or more major metropolitan areas.
2. Evidence that the proposer is, or has been, under contract with three (3) or more
transit agencies in which gross revenues, net of agency commissions, are in excess of Three Million dollars ($3,000,000) per year over the last three (3) years.
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3. The proposer must present evidence of having a corporate net worth of at least Ten Million dollars ($10,000,000) for each of the last three (3) years.
Given the extent of the current economic downturn, staff asked proposers to offer the District two alternative compensation packages. The District would make its selection depending on which option provided the larger revenue stream. The first option asked for annual flat-fee payments over the next ten (10) years. The second option was a direct response to the poor economy and a major change in the District’s typical compensation program requiring flat fee payments. It established a Rev Share of 65% backed up with a MAG. This option would allow the District to share higher revenues in an expanding economy, while establishing a floor – the MAG -- backed by a letter of credit in the amount of 50% of the average annual MAG. Staff evaluated both options to determine which would have the better chance to maximize District revenues over the term of the contract. The key terms and conditions of the RFP are summarized in the following table (see Attachments 1 through 3 for the complete RFP):
Option #1: Flat annual fee Option #2: Minimum Annual Guarantee or 65% of Gross Revenues net of ad agency commissions.
Fleet Size Number of buses
available for advertising
600 buses out of 635 630 buses out of 634
Term
Contract Term; Muni’s new contract is for 10 years, with a 5-year option; BART is a 10-year contract
7½-year term
Five-year term with five-year option. The District can terminate for default or convenience. If the former, the District can draw on a $500,000 Letter of Credit.
Display Rights
Exclusive right to advertise on and in the District’s fleet of buses; Certain limitations on which vehicles contractor can display
No ads permitted on Rapid buses, fuel cell buses, and gasoline hybrid bus, unless authorized by GM
Would make provisions to allow ads on BRT buses (fleet has expanded to 31 buses; 16 40 ft. and 15 60 ft.) and Dumbarton Express buses. Continue to restrict ads on fuel cell buses and gasoline hybrid bus
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Large oversized decals either wrapping the entire bus or one complete face
Full bus wraps are restricted to no more than 50 at any one time and partial bus wraps to no more than 150, unless authorized by the GM; no more than 30% of the window space shall be covered on any single side except for the rear of the bus
No change, except the GM would have the discretion to increase window coverage to 50%, providing no such covering would fully obscure the exterior visibility from the inside of the bus. GM would also have discretion to increase number of wrapped buses.
Content Prohibitions
Restrictions on content
No smoking or alcohol ads; will remove other ads at the request of GM if found to be offensive to community standards
No Change
Employee Recognition
Program
Annual cash payments and travel awards
Travel awards to Hawaii
Contractor required to donate $15,000 annually
Media Trade
Media trade allowing AC Transit to advertise on other mediums, including billboards and broadcast
$100,000 per year No Change
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In favor of AC Transit to guarantee contractor performance
50% of the average annual revenue guarantee over the existing five-year term
$500,000.
RFP Response Staff expected between two and four proposals from established advertising companies, following extensive advertising of the RFP by the Purchasing Department. In addition to the District’s current broker, CBS Outdoor, it was anticipated that Titan Outdoor would submit a proposal, and possibly Clear Channel and Lamar Advertising. Titan has the BART contract, which was awarded in 2008, and on April 29 it was awarded the Muni contract by the SF Transportation Authority, which is awaiting confirmation from the San Francisco Board of Supervisors. The Golden Gate Transit District advertising contract is held by Clear Channel.
The District received only one conforming proposal in response to the solicitation - from Titan Outdoor, LLC. CBS Outdoor prepared a Technical Proposal but did not submit a proposer’s fee, nor did they offer any financial commitments. The lack of a valid proposal from CBS Outdoor may have been prompted by the expectation that Muni would award their contract to Titan. There is an obvious marketing benefit to being able to sell national ad contracts for the Bay Area region, rather than for only one or two properties. AC Transit clearly stands to benefit from a combined sales inventory of ads on BART and Muni. Financial Proposal Titan submitted a financial offer with a base MAG of $5,034,000 over the first five years of the contract. Projected sales have been conservatively estimated by Titan at $9,951,000, and on a 65% Rev Share basis, the District would realize $6,468,000 under this sales scenario. If the economy improves substantially in the next two or three years, and Titan is able to maximize sales by the double digit percentages they have achieved in virtually all of their advertising markets prior to the downturn in the economy, the returns to the District could exceed the $2.5 million annual payment it received in the last year of its existing agreement. The proposal as presented establishes a baseline MAG, guaranteed with a $500,000 Letter of Credit that the District can draw on at any time, if the contractor is found to be in default. On the upside, if sales increase, the District’s baseline MAG will grow, but more importantly the District will share in any increase in sales at the rate of 65%.
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Small Local Business Participation (SLBE) Form At the time of the receipt of Titan’s proposal, the SLBE form was not submitted, but it is being completed and Titan has advised that they will be using SLBEs. Although the form was not completed at the time of submittal, its absence was not deemed material and it can be submitted prior to execution of the contract. (Staff has advised Titan that the form should be provided by Wednesday’s Board meeting.)
Technical Proposal and Staff Evaluation Titan’s technical proposal was evaluated by a committee of four representatives from the District’s Marketing and Finance Departments. They scored 19 out of a possible 20 points in the category of “Experience and Qualifications,” and 18 out of 20 for the quality of their proposal. In general, the Evaluation Committee was impressed with Titan’s background in transit marketing, their marketing and sales plan, their performance with other transit operators, and their commitment of resources to AC Transit’s program. Titan’s “Out-of-Home” sales are almost entirely dedicated to transit advertising, which means they are less likely to sacrifice transit sales for billboards and other competing media. They also have a command of transit advertising in the Bay Area market by holding both the BART and Muni franchises. AC Transit would benefit by being a part of this group of properties. Since 2004, Titan has obtained exclusive franchises in sixteen transit markets, representing some of the largest fleets in the industry, including the New York City MTA, BART, Muni (as of Thursday, April 29), Chicago Transit Authority, New Jersey Transit, Boston MBTA,
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Philadelphia SEPTA, Seattle Metro, Dallas DART, Los Angeles Department of Transportation, and Orange County Transit. Prior to the downturn in the economy in late 2008, they were exceeding 2007 sales among their U.S. transit agency franchises by 11% through the 3rd quarter of 2008. Titan has a strong national sales team in the largest U.S. advertising markets, including New York, Chicago, Los Angeles, Boston, Dallas, Toronto, Philadelphia, Seattle, the Bay Area, and London. And they will supplement their national program with a strong local and regional initiative. They are proposing to add a total of six new sales personnel to work exclusively on the AC Transit program, including an additional Sales Manager, an additional National Account Executive, and four additional sales executives that will work out of Titan’s Bay Area office. Additionally, they will be hiring four new employees to oversee the installation and posting functions, and they are planning to assign another employee to the East Bay to help track inventory and manage the logistics of installing and maintaining ad inventory on AC Transit’s buses A review of Titan’s financial reports through 2008 shows a company that, in spite of the recession, is well-financed and more than able to take on AC Transit’s program with the certainty of performing above the level of minimum guaranteed payments. The District will be protected with a Letter of Credit, while sharing the bulk of future sales revenue on the expectation of a stronger economy. Prior Relevant Board Actions/Policies: GM Memo 01-348, December 13, 2001 GM Memo 09-128, May 27, 2009 Attachments:
A. Addendum 1 to Transit Advertising RFP B. SignWork’s Protest Letter rec’d May 27, 2009 C. Titan Outdoor Letter of June 5, 2009 D. Titan Outdoor Letter of June 5, 2009: SLBE Information
Approved by: Rick Fernandez, General Manager Jim Gleich, Deputy General Manager Ken Scheidig, General Counsel Prepared by: Jaimie Levin, Director of Marketing Date Prepared: May 5, 2009 Revised June 4, 2009
