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Home My WebLink AboutID-2970 City of Palo Alto (ID # 2970) City Council Informational Report Report Type: Informational Report Meeting Date: 6/25/2012 June 25, 2012 Page 1 of 5 (ID # 2970) Title: Palo Alto Golf Course Contracts Subject: Palo Alto Golf Course Contracts From: City Manager Lead Department: Community Services Recommendation Staff recommends bringing to Council in the Fall of 2012 a recommendation to renew the golf course management services agreement with Brad Lozares (Lozares) for 5 years, renegotiate the current lease for the Pro-Shop with Lozares to reduce the option period from ten (10) to five (5) years and extend the maintenance contract with Valley Crest for five additional years, all extensions to extend from April 2013 to April 2018 in lieu of issuing an RFP at this time. Background There are four separate but related contracts at the Palo Alto Golf Course: 1. Turf and Landscape Maintenance (expires April 30, 2013) - Valley Crest Golf is the service provider. 2. Golf Management Services Agreement (expires April 30, 2013) - Brad Lozares is the service provider. The management service agreement provides Golf Course and driving range management, Golf Course marshaling, Golf Course revenue collection, customer service, starting and cart rental services. 3. Pro Shop Lease (expires April 30, 2013, but there is a 10-year extension option) -Brad Lozares is the tenant, and he has orally expressed his intent to exercise the option to extend the lease until April 30, 2023. 4. Food and Beverage Lease (expires April 30, 2018) - R&T Restaurant Corporation is the tenant. June 25, 2012 Page 2 of 5 (ID # 2970) Discussion Staff from Administrative Services, Community Service, City Attorney’s Office, and City Manager’s Office have carefully considered the pros and cons of a Request for Proposal (RFP) for golf professional management services and Turf and Landscape Maintenance services and have concluded that now is not the right time to conduct the RFP process. Contract extensions with the current parties seem to be in the City’s best interest. Staff came to this conclusion for several reasons which are summarized below: 1. San Francisquito Creek Flood Management Levee Project The San Francisquito Creek flood control project presents significant unknown factors including the timing of the project, impact on the golf course operation during construction and the quality and performance of the yet to be reconfigured golf course. These unknown factors make it very difficult to prepare a clear and accurate RFP scope of services for golf professional management services and Turf and Landscape Maintenance services and consequently will be difficult to evaluate submittals to determine which is most favorable to the City. The upcoming levee capital improvement work will have a direct impact on the operation of the golf course. Depending on what configuration option the Council selects to implement, the golf course may be closed for 12 to 18 months to complete the work. The proposed levee work would directly affect the golf course and thus it could adversely affect the City’s ability to successfully conduct an RFP for management services to the extent interest in bidding on an RFP is dampened. The San Francisquito Creek Joint Powers Authority (SFJPA) believes that it will start the two-year construction process on the levee in July 2013. If the SFJPA timeline is correct, the one-year golf course construction project would also to begin in July 2013. Extending the Lozares and Valley Crest contracts beyond the construction period of the golf course reconfiguration project was recommended by the National Golf Foundation (an independent consultant who performed Financial June 25, 2012 Page 3 of 5 (ID # 2970) Pro Formas and Supporting Analysis for Reconfiguration Options concerning the reconfiguration project); as well independent golf course financial consultant, Richard Thorman and Golf Course architect Forrest Richardson who were all asked to provide a professional opinion. The consultants agree that the substantial disruption in business, the unknowns of timing and project design, and the time consuming and costly work involved to produce an RFP without proposers having all the information needed on how a new facility will cash flow, could result in the City not entering into the best possible agreement. It was recommended that the City wait until after the renovation is completed, and the improved facility has been up and running for a year before considering a substantive change in structure. If the City renegotiates the management services agreement with Lozares for another five years, we will be aware of the performance of the new golf course design, have all contracts expire concurrently, and be better prepared to negotiate a favorable management services agreement or lease that will best fit the City’s interests. Extending the golf course maintenance contract with Valley Crest for another five years will also benefit the City. The independent consultants pointed out how critical it is to have the Superintendent responsible for maintaining the course involved and present during the construction of the new course. Having the current Superintendent who knows and intimately understands the landscape of the golf course, with a vested interest in the outcome of the project on hand will be a tremendous benefit to the City. Since Valley Crest has maintained the golf course for the past two and half years significant improvements have taken place. We believe it will be important to keep them on board to continue that maintenance service through the completion of the reconfiguration construction and stabilization of a new level of business operations. The extended agreement would include adjusting service fees and scope of work to compensate for work performed during reconfiguration. Valley Crest staff is aware of sensitive wildlife habitat, wetland areas, irrigation, drainage, growing conditions, and have established good working relationships throughout the City which will all be helpful during the reconfiguration project. They have also been participants in all the meetings with the JPA and have offered us their agronomic and environmental expertise if needed. June 25, 2012 Page 4 of 5 (ID # 2970) 2. Lozares Pro Shop Lease and Management Agreement Lozares has indicated he intends to exercise the ten-year extension option on his lease for the Pro-Shop. If the City were to competitively bid the management services agreement and award the contract to a firm other than Lozares that firm would need to negotiate a sublease for a period of ten years from Lozares, or the new operator would have to work out of a mobile trailer offsite of the Golf Shop leased premises. This is very likely to be a disincentive for any third party considering a proposal for the management services agreement and would be cumbersome at best for customer service at the golf course. Staff would like to negotiate a new five-year management services agreement with Lozares in exchange for re-negotiating Lozares’ option to extend the Pro- Shop lease from ten years to five years, so both contracts concurrently expire in April 2018. This five-year management services agreement would be modified to reduce the management services fees during the duration of construction. Ideally all four golf course contracts (management services agreement, Pro- Shop, turf and landscape maintenance and food and beverage concessions) would be aligned to concurrently expire. This would create an opportunity for a comprehensive RFP to manage the entire golf course operation. The current tax exempt debt from the Certificates of Participation, that funded the 1998 Golf Course renovations, restricts the City from entering into a long- term lease agreement for a firm to manage the entire golf course operation. The tax exempt debt is set to expire in 2018, if all the golf course contracts expire at the same time; the City would have much more flexibility in issuing a comprehensive RFP to manage the golf course at that time. Extending the Lozares agreements may also benefit the City because we would have a contractor who is well-respected and trusted by the Palo Alto golf community, which may be valuable during the transition period associated with the reconfiguration and disruption during construction. June 25, 2012 Page 5 of 5 (ID # 2970) Staff believes it would be more effective to issue a comprehensive golf course RFP in 2018 when the levee work has been completed and there are no potential disputes regarding the Pro-Shop lease and management services agreement. 3. Food and Beverage Service Food and Beverage service is often a central element of a golf course operation. Since the current contract for the Bay Café expires on April 30, 2018, it would be advantageous to have the other contracts expire at the same time to attract more interest in bidding on an RFP that includes the entire golf course operation. Next Steps I will recommend that staff meet with Lozares to broach the prospects of negotiating a five-year term renewal of the management services agreement in consideration for Lozares’ agreement to extend the lease for only five years instead of ten years. The net effect will be both contracts will expire on April 30, 2018. Staff also recommends meeting with Valley Crest to negotiate a five-year term renewal of the maintenance services agreement. Estimated date when this recommendation would come to Council is Fall 2012. Prepared By: Erin Perez, Administrative Assistant Department Head: Greg Betts, Director, Community Services City Manager Approval: James Keene, City Manager