HomeMy WebLinkAbout6/18/2003 - STAFF REPORTS (36) TROY BUTZLAFF,
ASSISTANT CITY MANAGER
MEMORANDUM
DATE: JUNE 1 B, 2003
TO: MAYOR AND CITY COUNCIL
SUBJECT: APPROVAL OF AGREEMENT WITH SMG FOR OPERATIONS
AND MANAGEMENT OF CONVENTION CENTER
Attached, please find a tentative agreement with SMG for the management and operation of the
Convention Center. The proposed agreement is the culmination of several months of intense
negotiations between the City and SMG. Under the proposed agreement, SMG will receive a
lower management fee, but will have an opportunity to earn an incentive fee if they successfully
achieve certain performance goals as established by the agreement. The proposed fee structure
represents a 20% decrease in what the City currently pays. If SMG fails to meet the City's
performance goals, they will not be eligible for the incentive fee, which further reduces the City's
financial liability.
The incentive fee formula is divided into three components: Hotel Room Sales (60%), Financial
Performance (30%), and Customer Satisfaction(10%). The hotel room and financial
performance goals are linked. In order to qualify for the financial performance incentive, SMG
must achieve the room night goal for that year '. The customer satisfaction goal will be
measured independently from the other two goals. The City and SMG have agreed to develop
performance criteria for measuring customer satisfaction. If SMG "meets" or "exceeds" the
established performance criteria, they will be entitled to 10% of the incentive amount. This
money must be returned to the Convention Center and used as a performance-based incentive for
Convention Center employees.
Under the proposed agreement, SMG will make a $400,000 contribution to the City. There are
no restrictions on how the City can use this money and the City Council may elect to use this
'The room night goal is 60,000 rooms, increasing to 110,000 rooms in Year 5
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money for a number of purposes, including the marketing campaign for the Convention Center
expansion.
Although the City has reached agreement on the major business points, we have not been able to
draft a new contract as of the writing of this memorandum.
Staff has discussed the tentative agreement with the Convention Center Subcommittee. The
Subcommittee is recommending that the City Council approve the business transaction as set
forth in the tentative agreement.
With the expiration of the existing agreement of June 30, 2003, staff is recommending that the
City Council extend the term of the existing agreement, subject to the terms and conditions of the
tentative agreement(Term Sheet) dated June 16, 2003, by and between the City and SMG for an
additional 65 days. SMG has agreed to operate under the terms of the tentative agreement
begimiing July I". Over the next several weeks, staff will work with SMG to prepare a new
agreement for the management and operation of the Convention Center. This agreement will be
brought back to City Council for formal ratification at a future City Council meeting.
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attachments:
1) Tentative Agreement between the City of Palm Springs and SMG for the Management
of the Palm Springs Convention Center
2) Third Amendment to Management Agreement
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THIRD AMENDMENT TO MANAGEMENT AGREEMENT
This Third Amendment to Management Agreement("Third Amendment") is made
effective as of , 2003, by and between SMG, a Pennsylvania Limited
Partnership, ('Manager")and the City of Palm Springs,a California municipal corporation
("City").
RECITALS:
1. On or about April 1, 1992, Manager's predecessor in interest and the City
entered into that certain Management Agreement for the Palm Springs Convention Center,
Palm Springs, California, between the City of Palm Springs and Leisure Management
International ('Management Agreement").
2. On or about August 1, 1994, the parties entered into that certain First
Amendment to Management Agreement('First Amendment"), whereby the parties agreed
to extend the initial term of the Management Agreement to July 31, 1999,as set forth in the
First Amendment.
3. On or about April 15, 1998, the parties entered into that certain Second
Amendmentto Management Agreement('Second Amendment"),whereby the parties agreed
to an amendment extending the term of the agreement beyond that set out in the First
Amendment, and amended and further defined the duties of the parties in the management,
operation, promotion, and marketing of the "Facility."
4. The parties have been negotiating over the last several months to supercede the
Management Agreement with anew and restated agreement. The parties have developed a
"Tentative Agreement," which is attached hereto as Exhibit"A" and incorporated herein by
this reference. The parties anticipate that a new and restated agreement will not be prepared
and ready for action until September, following the Council summer recess.
5. Until the new and restated agreement is in place,the parties desire to amend the
Management Agreement to extend it, amend and further define the duties of the parties in
the management,operation,promotion and marketing of the Facility in accordance with the
provisions of the Tentative Agreement, from July 1, 2003 until the new and restated
agreement is in place.
6. Concurrently herewith, the parties are executing an Agreement for Tourism
Services ('Tourism Agreement"), wherein Manager shall provide City with services to
privatize, manage, and operate the Tourism Department of the City.
NOW,THEREFORE,for good and valuable consideration,the sufficiency of which
is hereby acknowledged,the parties hereto agree as follows:
Page 1 of 2
I. Term. The Term of the Management Agreement is extended on a month-to-month
basis until it is terminated by the parties or it has been superceded by the amended and
restated agreement, provided that from July 1, 2003, all operations shall be subject to the
Tentative Agreement as stated below.
2. Tentative Agreement. While this Tentative Agreement is in effect, and after July 1,
2003, all Manager's operations, fees and contributions shall be governed by the Tentative
Agreement. In the event of inconsistency between the Management Agreement and the
Tentative Agreement,the provisions of the Tentative Agreement shall govern. To the extent
the Tentative Agreement is a summary and lacks details, it shall be interpreted consistent
with the goals and objectives of the parties and to carry out their understanding.
3. Full Force and Effect. Except as set forth herein, the Management Agreement shall
remain unmodified and in full force and effect, until superceded by the new and restated
agreement.
IN WITNESS WHEREOF, the parties have executed and entered into this Third
Amendment as of the date first written above.
CITY OF PALM SPRINGS, a municipal
corporation
By:
City Manager
ATTEST:
SMG, a Pennsylvania Limited Partnership
By:
City Clerk Name
Title
APPROVED AS TO FORM:
City Attorney
[END OF SIGNATURES]
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TENTATIVE AGREEMENT BETWEEN CITY AND SMG FOR THE MANAGEMENT
OF THE PALM SPRINGS CONVENTION CENTER
June 16, 2003
Fee Schedules
Base Fee %Incentive Fee
Year 1 $225,000 $175,000
Year 2 $225,000 $175,000
Year $185,000 $195,000
Year 4 $188,700 (Including 2% $188,700
CPI Adjustment)
Year 5 $192,474 (Including 2% $192,474
CPI Adjustment)
*Incentive Fee Calculation
Potential incentive compensation would be broken down into the following categories:
60% Room Night Sales
Must achieve room night
goal to qualify for financial 30%Financial Performance
performance incentive.
10% Customer Satisfaction
Customer Satisfaction goal to be measured independently based on mutually acceptable
evaluation criteria as described below.
Room Night Goal (60%)
Fiscal Year Room Nights
03-04 60,000 Room Nights (Construction beginning 12/03 in FY 2003-04)
04-05 80,000 Room Nights (Construction scheduled until 3/l/05)
05-06 100,000 Room Nights
06-07 105,000 Room Nights
07-08 110,000 Room Nights
Note: Room night achievement will be calculated based on pick-up reports received from
participating hotels plus a minimum of 10% in recognition that many attendees cannot be
hacked as they will stay outside of the room block.
EXHIBIT "A" 1
Financial Performance (30%)
Fiscal Year COST GOAL*
03-04 $1,600,000
04-05 $1,500,000
05-06 $1,200,000
06-07 $1,100,000
07-08 $1,000,000
*Cost goal includes the base management fee. This portion of the incentive fee is the lesser
of 30% of the base management fee or the actual difference between the net cost goal and the
actual performance.
Customer Satisfaction (10%)
In order to ensure that the Contractor maintains the highest level of customer satisfaction,
surveys of Convention Center clients and users will be conducted on a routine basis. The
survey results will be used to determine whether the Contractor receives the 10% incentive
provided under this contract, as well as to continually monitor the quality of service and
ensure that the needs of our customers are being met. The Customer Satisfaction Survey shall
consist of two components:
1. Conduct an annual survey of all key stakeholders (i.e., group meeting hotels, Hotels of
Palm Springs, Palm Springs Desert Resorts Convention and Visitors Authority).
2. Conduct at least two (2) surveys per year consisting of at least 50% of all meeting
planners that have contracted with the Convention Center over the prior twelve (12)
month period. The purpose of this survey is to gage customer satisfaction with regards to
the Convention Center's performance in assisting these groups in soliciting,planning and
servicing their conventions.
SMG agrees to cooperate and assist City in the design of evaluation criteria for measuring
customer satisfaction. At a minimum, SMG agrees that it will "meet" or "exceed"the
evaluation criteria requirements developed by the parties in order to qualify for the 10%
incentive provided herein. Furthermore, SMG agrees to allocate any incentive amount that is
paid by City for achieving this goal directly to the Convention Center to be used as a
financial reward to employees of the Convention Center. The parties agree to mutually
develop a performance based incentive plan for employees of the Convention Center.
Contribution
The City proposes that at the time of contract signing SMG will make a$400,000
contribution to City to be used for marketing of the Convention Center expansion. The
amortization period for this contribution should not exceed five years.
2
Food and Beverage Contract
The City proposes to enter into a separate contract with Savoury's for food and beverage
services at the Convention Center. SMG agrees to manage and direct Savoury's operations
as part of this management agreement.
Agreed to and attested to as the full and complete understanding of the parties specified by
the signature of the following representatives for the City and SMG
City of Palm Springs SMG
Date: Date:
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FIRST AMENDMENT TO AGREEMENT
FOR TOURISM SERVICES
This First Amendment("First Amendment" or "Amended Agreement") is made and entered into
this 18th day of June 2003, for the purpose of amending the "Agreement for Tourism Services" (the
"Agreement") dated April 15, 1998 by and between the CITY OF PALM SPRINGS, a municipal
corporation ("City") and LMI/FIHI, Ltd., a Texas limited partnership, ("Manager").
RECITALS
A. On or about April 15, 1998, City and Manager entered into an Agreement for Tourism Services,
pursuant to which Manager agreed to organize, manage and coordinate all advertising, licensing,
promotional, marketing and public relation activities that promote the City as an attractive locale
for recreational, cultural, educational, entertainment, professional, social, corporate and other
activities.
B. On or about March 16, 2000, Manager notified City of a change of ownership interest and
requested an assignment of the Agreement to SMG, a Pennsylvania general partnership.
C. On or about April 5, 2000, the City Council approved, pursuant to Section 6.3 of the Agreement,
the transfer of ownership to SMG.
D. In transferring ownership, SMG assumed full responsibility to provide those services specified in
the Agreement.
E. The term of the Agreement was for a five (5)-year period expiring on June 30, 2003.
F. City and Manager are in the process of negotiating a new Agreement.
G. The parties do not believe that they will be able to complete their negotiations prior to the
expiration of the current Agreement.
H. City and Manager desire to amend the Agreement to extend the term for an additional ninety (90)
days to enable the parties to complete their negotiations and finalize an Agreement.
AGREEMENT
The Agreement is hereby amended as follows:
1. Section 5.3 "Term" is amended to read as follows:
"5.3 Term. The term of this Agreement shall is hereby
extended to September 30, 2003, unless earlier terminated in
accordance with Section 9.7 or 4.2 of this Agreement."
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2. Except as expressly provided herein, all other terns and conditions of the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF,the parties hereto executed this First Amendment to be effective as of
the Date first written above.
CITY OF PALM SPRINGS, a municipal corporation
By:
City Manager
ATTEST: SMG, a Pennsylvania Limited Partnership
By:
City Clerk Name
Title
APPROVED AS TO FORM:
City Attorney
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MINUTE ORDER NO.
APPROVING THE THIRD AMENDMENT TO THE
AGREEMENT FOR MANAGEMENT OF THE
CONVENTION CENTER FOR THE PURPOSE OF
EXTENDING THE TERM OF THE AGREEMENT AND
SETTING FORTH THE TERMS AND CONDITIONS
THEREOF
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I HEREBY CERTIFY that this Minute Order, approving the Third Amendment to the
Agreement for Management of the Convention Center for the purpose of extending the term
of the Agreement and setting forth the terms and conditions thereof was adopted by the City
Council of the City of Palm Springs, Califonua,in a meeting thereof held on the 181 day of
June 2003.
PATRICIA A. SANDERS
City Clerk
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MINUTE ORDER NO.
APPROVING THE FIRST AMENDMENT TO THE AGREEMENT FOR
TOURISM SERVICES FOR THE PURPOSE OF EXTENDING THE
TERM OF THAT AGREEMENT FOR NINETY (90) DAYS.
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I HEREBY CERTIFY that this Minute Order, approving the First Amendment to the Agreement
for Tourism Services for the purpose of extending the term of that agreement for ninety (90)
days was adopted by the City Council of the City of Palm Springs, California, in a meeting
thereof held on the 18th day of June 2003.
PATRICIA A. SANDERS
City Clerk