GUAM. DFS Group has hailed Friday’s rulings by Guam’s Superior Court voiding A.B. Won Pat International Airport Authority’s (Guam International Airport Authority/GIAA) 2012 Request for Proposals (RFP) for a speciality retailer and setting aside the award to Lotte Duty Free Guam. And in further breaking news,  GIAA said today that it has appealed the decision to the Guam Supreme Court.

DFS attorney Maurice M. Suh, of Los Angeles law firm Gibson, Dunn & Crutcher, stated: “We are very pleased that the Guam Superior Court has found that GIAA violated the Guam Procurement law in wrongfully awarding the duty free concession contract to Lotte.

“Although this is a significant step in the right direction, DFS looks forward to continuing to press its claims against both GIAA and Lotte to seek redress for misconduct and the considerable damage done to both DFS and Guam. We are confident in the rule of law in Guam, which was clearly vindicated by these decisions. This is a case about speaking truth to power, and the people of Guam are the true winners today.”

“With all due respect, GIAA strongly disagrees with Judge Barcinas’ decision,” said GIAA Executive Manager Charles H. Ada II. “The procurement for the airport speciality retail contract was an open, transparent and fair process for all the interested parties, including and most especially DFS, which was the exclusive incumbent operator at the airport for approximately 40 years. DFS, which came in third, was well aware of all the circumstances and terms it has complained to the Court about but protested only after the award to Lotte.” [Scroll down for further GIAA comment].

A Lotte Duty Free spokesman told The Moodie Davitt Report, “Lotte Duty Free has just received the Court’s decision. The decision is based on a technical argument that involves DFS and the airport and the final result is yet to be decided.

“Lotte Duty Free will continue to operate the duty free concession as usual unless the situation changes.”

As reported, Superior Court Judge Arthur Barcinas ruled on Friday that the airport authority violated Guam’s procurement law during the 2012 RFP. While setting aside the concession award to Lotte, the judge said that Lotte can remain as the duty free concessionaire until the airport chooses a new retailer.

The concession was awarded to Lotte Duty Free Guam in 2013, replacing long-time incumbent DFS Group. The result has been the subject of a bitter legal feud involving both retailers and the airport authority ever since, after DFS challenged both the RFP process and the award.

“We are confident in the rule of law in Guam, which was clearly vindicated by these decisions. This is a case about speaking truth to power, and the people of Guam are the true winners today.” – Maurice M. Suh, DFS attorney

In a press release issued hours after the decision, DFS said, “DFS is pleased to announce that the Guam Superior Court has found that the GIAA violated multiple provisions of Guam Procurement Law in awarding the duty free concession contract to Lotte and – as a result – has declared the Lotte duty free concession agreement void.

“The Hon. Arthur Barcinas of the Guam Superior Court agreed with DFS after reviewing hundreds of pages of briefs and evidence, which was followed by a week’s worth of hearings.”

Lotte Duty Free can continue to trade at the airport under its existing contract until a new concession is awarded, the judge ruled. However, the airport authority’s Supreme Court appeal means a new RFP must be put on hold.

DFS said that, after considering competing motions for summary judgment brought by both retailer and airport authority, the court ruled “entirely in DFS’s favour. Key findings, it said, included:

  • The airport authority violated Guam law by failing to administer the duty free concession RFP properly by not complying with the requirement to adopt and finalise legislatively mandated criteria governing that RFP.
  • The airport authority violated Guam law by filing an incomplete record of the documents and transcripts related to the duty free concession contract procurement, known as the “procurement record”. The authority is required by law to maintain the procurement record to ensure transparency in the process and to make it more difficult for either the authority or a bidder to act unethically.
  • The authority violated Guam law by violating the ‘automatic stay’ requirement set forth in Guam procurement law. The automatic stay rule requires GIAA to cease any actions related to the award of the RFP during the pendency of a protest. The Court found that GIAA has been in violation of this obligation for nearly five years and that everything GIAA has done regarding the airport duty free concession since April 23, 2013, including its “entering” into an agreement with Lotte for the airport duty free concession, was completely unauthorised and therefore void.
  • “The violation of this automatic stay requirement arose from GIAA’s calculated plan to deny DFS’s first protest on a Friday afternoon (17 May 2013) and enter into the Lotte contract on Saturday 18 May, 2013,” said DFS. “GIAA’s transparent and misguided strategy to wrongly install Lotte at the airport while ignoring multiple bidders’ pending protests has failed,” it added.
  • GIAA “deprived DFS and, by extension, all other unsuccessful proposers their right to a full and fair consideration of their proposals by not adopting legislatively mandated criteria, by not using the correct method of source selection and by maintaining an incomplete procurement code.”

In addition, DFS said, the Court denied all GIAA’s efforts to terminate DFS’s lawsuits with respect to earlier  allegations that Lotte gave improper gifts to GIAA board members; that Lotte was allowed to change its Minimum Annual Guarantee (MAG) after the bid submission deadline so that it would “barely beat out” DFS’s proposed MAG; that Lotte paid improper success fees to its consultants; that Lotte submitted knowing false affidavits in support of its bids; and that Lotte otherwise acted in violation of the terms of the RFP with GIAA’s full blessing. All of these, DFS claimed, constitute additional violations of Guam procurement law.

DFS’s press statement concluded: “As DFS has consistently stated since the beginning of its efforts to require the GIAA and Lotte to comply with Guam law, federal law and the terms of the RFP, DFS remains undeterred in its efforts to ensure that the GIAA and Lotte are held to account for their misconduct. DFS remains steadfast in its commitment to honesty in government.”

Guam International Airport Authority – “We strongly believe the Court got it all wrong”

The airport authority said that since the contract began on 18 May, 2013, Lotte has paid GIAA about US$70 million of the US$154 million in minimum rent that it is obliged to pay over the concession term. The retailer has also made US$23 million in capital improvements to the airport, GIAA said.

“Lotte’s minimum annual guaranteed rent is more than triple the US$5 million that DFS was obligated to pay under its previous contracts with GIAA,” the authority commented [however, DFS’s proposal in the 2012 RFP, a more valid comparison, was significantly higher than its former fee -Ed].

“Moreover, the Lotte Duty Free contract has supported a US$247 million airport bond issue, which was used to refinance debt and fund much-needed capital improvements, including the US$110 million arrivals floor project, which is now under construction.”

Charles Ada II: “If the Court’s decision were to hold, the consequences for the airport and Guam could be severe” [Photo: Guam Business Magazine]

Ada said: “GIAA’s staff, management and board have a duty to get the best deal possible for the airport and that is what happened here. The Lotte Duty Free contract is the most advantageous agreement the airport has ever had and had been the primary basis for the airport’s financial plan. We’re thankful we were able to defeat DFS’s efforts to block the Lotte Duty Free contract over four and a half years ago. Otherwise, none of the progress we have made since that time would have happened.

“We strongly believe the Court got it all wrong and all of us at GIAA stand by the integrity and fairness that was built into the speciality retail concession that played out in 2012 and 2013. We created a level playing field for the proposers and Lotte was awarded the contract because they submitted the best proposal.”

Ada continued: “Judge Barcinas agreed with DFS that GIAA used the wrong procurement process. Ironically GIAA used this same process to award DFS’s last three contracts. DFS was happy with the process when they won; they only complained when they lost.”

GIAA legal counsel Genevieve Rapadas, of Calvo Fisher & Jacob, said, “Once they learned that they had lost, DFS filed a series of untimely protests that were properly rejected by GIAA. We are surprised that the court chose to accept DFS’s excuses for not following the rules for protests in the Guam procurement law. The law imposes a strict deadline for protests to that agencies like GIAA can make a business decision in a timely manner. DFS strategically chose to ignore the law’s deadlines until they learned they had lost.”

Ms Rapadas added. “The cloud of DFS’s frivolous protests has hung over the airport for close to five years now. Finally, the Supreme Court can bring an end to an action which we believe was aimed at devaluing the airport’s duty free concession and scaring off competition.”

“I can say without hesitation that the Lotte contract is the best one the airport has ever had,” concluded Ada in a hard-hitting statement. “It’s no accident that GIAA is in such a strong financial position today. The airport is responsible for more than US$2.3 billion in economic activity on Guam. If the Court’s decision were to hold, the consequences for the airport and Guam could be severe.

“It would be tragic to have the airport’s financial integrity threatened based on an incorrect court decision for a disgruntled former vendor motivated by greed and self-interest.” – Charles Ada II

“All of us at the GIAA are proud of the agency and what we’ve been able to accomplish working together with the business and travelling community here on Guam. It would be tragic to have the airport’s financial integrity threatened based on an incorrect court decision for a disgruntled former vendor motivated by greed and self-interest.”