At the March 2, 2016 City Council meeting, the Council voted to table this item and directed staff to address several issues raised during the deliberation. Staff has met with the vendor to discuss Council concerns and is providing a summary along with re-submitting the agenda item for consideration.
As background, this item is a management agreement between the City and Seven Kings Management Inc., to manage personnel and other resources at the Marina. While the City will continue to incur personnel and operational costs through the reimbursement process to the Seven Kings as marina manager, the costs are expected to be reduced and the city anticipates an increase in revenue by closely examining current revenue trends and charges. This business model is consistent with the findings outlined in the report issued by a consultant hired by the City to review the overall operations of the marina and make recommendations to increase efficiency given the tremendous capital investment the City is making in the marina. The consultant indicated operating costs by a management company would remain fairly consistent but the revenue generating at the marina could be improved.
While Seven Kings will manage the marina, the City still maintains budgetary control and is simply delegating the obligation to Seven Kings Management Inc., to oversee the daily operations. The City Council will be required to approve the annual budget submitted by the management company. All monthly expenditures will be reviewed by staff for justification, and expenditures outside the approved budget and those not covered under the agreement must be approved by the City Council.
Given the background, knowledge and level of experience in the marina management industry staff expects that the City will benefit from Seven Kings' buying power of managing multiple marinas, a reduction in personnel and benefit costs and name recognition.
In an effort to address some of the concerns raised during the last meeting, staff offers the following:
1. Why is the Management Fee (5%) of all Gross Revenues? Why not Net Revenues?
Answer: During the initial negotiations, staff attempted to negotiate a percentage of net revenue and other incentive based alternatives. However, Seven Kings rejected the alternatives and requested to remain consistent with their proposal submitted during the RFP process providing for an annual management fee equal to the greater of 5% of gross revnues or $54,000. Staff engaged Seven Kings on March 7, 2016 in an effort to again negotiate a Fee Proposal based on Net Revenues plus incentives. However, as in previous negotiations, Seven Kings requested to remain consistent with their RFP proposal. Staff reviewed the proposals received from the five other companies that responded to the RFP. All RFP respondents proposed a base management fee calculated as a percentage of gross revenues. Some of the proposals did include a base fee less than 5% plus incentives based on net revenues.
2. Concern was expressed about the Seven Kings Reciprocal Dockage Strategy.
Answer: Seven Kings leases slips at their managed marinas. Under the Reciprocal Dockage Strategy, the lessee of a slip at one marina may use an available slip at another marina at no additional costs. Under this scenario, Seven Kings transfers revenue from the "donating" marina to the "receiving" marina. Seven Kings responded that they will accommodate whatever the City decides regarding the Reciprocal Dockage Strategy. Seven Kings explained that the Reciprocal Dockage Strategy is actually a strategy to generate additional revenue and traffic at the Riviera Beach Marina. The rents collected at the other location are applied to the otherwise empty slip for the days that it is utilized by the visiting boat. The perception that the visiting boat stay over is for free is not the case – their monthly slip rent is simply reallocated/ prorated to apply to the slip used at the marina being visited.
3. Clarification is desired regarding the Parking Fees & Vendor Fees.
Answer: This issue was discussed with the vendor and language was included in section 4.01 to clarify that such fees for parking and vendors only apply to the Marina waterside operations. This is consistent with revenue currently being collected by the marina during such activities.
4. What recourse does the City have if there is questionable expense submitted for reimbursement?
Answer: The agreement allows the City (Finance) to review activities in the operating account at any time and review invoices within five (5) days of receipt of monthly operating statement for discrepancies. If questions arise, the City may notify Seven Kings, in writing, disputing any such expense reimbursed beyond the scope of Section 4.03 in the agreement. The Parties will work together to resolve any dispute.
5. In an effort to acknowledge and address the need of working with the City and CRA, additional language has been added to the agreement in the Recitals Section that identifies how Seven Kings Management Inc., the City and CRA will work cooperatively towards successful completion of the marina and uplands improvement projects.
6. Concern was expressed over the banking arrangement.
Answer: Under the terms of the agreement, Seven Kings will maintain control over the bank account established to track cash transactions in accordance with this agreement. Seven Kings will control all deposits to and disbursements from the bank account. The City will have viewing rights, but will not have signature authority.
On February 3, 2015, a Request for Proposal (RFP) 490-14 was issued for the provisions of providing marina management services at the City Marina. As a result of the RFP, six (6) management firms responded and after the initial evaluation process was completed, three (3) firms were shortlisted. On May 22, 2015, the three (3) firms made oral presentations to the selection committee and the top two (2) firms were invited to make presentations to the City Council. On July 13, 2015, after evaluating both firms, the City Council voted to direct staff to start the negotiation process with Seven Kings Management, Inc. dba Loggerhead Marina for the provisions of marina management services.
The City Council directed staff to consult with an attorney with expertise in negotiating and drafting third party marina agreements. Mrs. Susan Churuti of the Law firm of Bryant Miller & Olive was selected to represent the City. Over several months, City staff, Seven Kings Management representatives and outside counsel, have met and negotiated the agreement.
On July 2015, all marina employees including the Marina Director were notified that the City Council directed staff to start to process of negotiating with Seven Kings Management, Inc. to assume the duties as third party manager for the marina. The Human Resources Department was directed to notify all marina employees and the union that represents the impacted employees of their rights pursuant to the bargaining unit agreement covering the reduction in workforce. A meeting with the union was held to outline the process of determining eligibility for various other jobs within the City for full-time employees covered under bargaining unit agreement. Full-time employees may choose to retire if eligible or accept jobs in other departments if they meet the minimum qualifications. However, all employees that do not meet the above criteria are eligible to remain on staff with Seven Kings Management for a 90 day trial period commencing May 23, 2016, as outlined in the agreement. Staff recently followed-up with all employees to ensure that all concerns were addressed.
The highlights of the Agreement are as follows:
Seven Kings will manage the Marina on behalf of City in a faithful and efficient manner consistent with the standards of operation established and set forth in the signed agreement.
Section 3.02 Personnel
Seven Kings agrees to employ, in some capacity but not necessarily at the same job or pay range, the City's employees who are, as of the Effective Date, working at the Marina and requesting to remain on staff for a ninety (90) day trial period commencing on the Commencement Date (“City Marina Employees”).
As of the Commencement Date, the City Marina Employees will be employees of Seven Kings and no longer employees of City Seven Kings shall have the authority for the supervision of all employees, for the determination of employee compensation, including any incentives, bonuses and benefits, and for the establishment of policies and procedures (including but not limited to a drug testing policy) relating to employment.
To the extent possible, subject to an applicant's qualifications and Seven Kings' reasonable discretion, Seven Kings shall attempt to hire individuals residing within the City of Riviera Beach city limits, however Seven Kings' failure or inability to hire such individuals shall not affect the terms of this Agreement or be deemed a breach of this Agreement.
Section 2.03 Maintenance and Capital Improvements
Seven Kings shall use its reasonable discretion to utilize the services of regular maintenance employees, dock hands, shared maintenance specialists and, as deemed appropriate by Seven Kings, third-party vendors to perform such maintenance at the Marina.
Seven Kings will arrange for all necessary Capital Improvements to be made to the Marina. In addition, all Capital Improvements where (A) any single expenditure is in excess of Ten Thousand Dollars ($10,000.00), and up to Twenty-Five Thousand Dollars ($25,000.00), must have the prior approval of the City Manager, or designee, and (B) any single expenditure in excess of Twenty-Five Thousand Dollars ($25,000.00) must have prior approval of the City Council (which approval in both such instances shall be deemed to have been received if the Capital Improvement is included in the current approved Operating Plan and Budget).
Section 4.01 Management Fee
(a) During the term of this agreement, the City shall pay Seven Kings an annual Management Fee for services provided by Seven Kings under this Agreement, equal to the greater of Fifty-four Thousand Dollars ($54,000) or five percent (5%) of Gross Revenues (as defined below). The “Management Fee” shall be calculated, invoiced and paid monthly based on the greater of:
(i) Four Thousand Five Hundred Dollars ($4,500.00); or
(ii) Five percent (5%) of all Gross Revenue for the Marina per month (the term “Gross Revenue” shall include but not necessarily limited to dockage rent, ship's store sales, fuel sales, vendor fees, parking fees, laundry fees, if and as such fees may be applicable to the Marina operations, and such other revenue generated at or from the operation of the Marina, but excluding security deposits and sales tax). Such payment will be calculated within a monthly report delineating the various components of revenue during the period. City understands that it shall never remit Management Fee of less than $4,500.00 per month.
(b) There shall be a True-up of the Management Fee on an annual basis.
(c) In addition to the Management Fee, City shall reimburse Seven Kings for all Reimbursable Expenses (as defined in Section 4.03) contemplated or provided for in this Agreement. Within five (5) days of receipt of such monthly operating statement setting forth the Reimbursable Expenses paid to Seven Kings as set forth herein, City may notify Seven Kings, in writing, disputing any such expense reimbursed beyond the scope of Section 4.03 below and, thereafter, the Parties shall diligently, and in good faith, work to resolve such dispute and the repayment or reallocation of any such overpayment of any Reimbursable Expense described therein.
(d) The amounts due under Subsection 4.01(a) shall be paid monthly by the City to Seven Kings within five (5) business days upon receipt of an invoice from Seven Kings for same.
Section 4.03 Reimbursable Expenses
In addition to the Management Fee, City shall reimburse Seven Kings for all expenses outlined in 4.03 of the agreement (collectively referred to as “Reimbursable Expenses”). The total operating expenses are estimated to remain at approximately $115,000 per month which is currently being expended at the Marina. Examples of the monthly operating expenses are outlined in the agreement.
Section 5.01 Term of Agreement
The Parties shall be bound by the terms and conditions of this Agreement as of the Effective Date. The services to be provided by Seven Kings under this Agreement shall commence on May 23, 2016, and shall continue until midnight, local time, on the third year anniversary of the Commencement Date.
This Agreement shall be automatically renewed for additional terms of one (1) year, up to a maximum of two (2) additional terms, on each anniversary date of the Commencement Date, unless either City or Seven Kings gives notice of termination of the Agreement. Notice of termination of the annual renewal of this Agreement shall be provided by September 30 of the year in which the then current term is to expire.
Staff recommends approval of the agreement.