How to Select an Operator for Your Parking Facility

January, 2004

The Request For Proposals (RFP) process is used by a vast majority of public agencies and private owners when selecting a parking operator to manage a parking facility or facilities. The RFP process allows the owner to select an operator by considering a number of factors in addition to cost
Because selecting an operator through the RFP process is more complex (and can appear more subjective) than automatically selecting the operator offering the best economic package, the owner who uses the process is often suspected of showing favoritism to the winning operator. It is, therefore, the consultant's job to draft documents and advise the owner and/or selection committee throughout the process in such a manner that competing operators and the general public (in the case of public facilities) are satisfied that the selection process was fair and impartial.
Why Should Owners Be Concerned With Requirements Other Than the Best Economic Deal?
Most parking facilities managed by operators for owners serve a development or group of developments owned by the same owner. These developments are often service-oriented land uses, such as office buildings, hotels, hospitals and government buildings. It is more important to the owner that the parking facility serve tenants or customers well than it is to maximize parking profits at the expense of the development.
What should owners look for when selecting an operator, other than the management fee? The following items may not be all inclusive; however, these are the major areas of concern:
* The operator's experience in managing similar parking facilities.
Owners want an operator with experience in managing facilities similar to their own. Often the RFP calls for minimum experience in these areas as a prerequisite for submitting a proposal.
* The number of facilities managed by the operator close to the owner's facility.
Operators may possess the desired experience, but in another part of the state or the country. That experience is not always transferable from one division of a parking company to another serving different users or in different regions. Or an operator may not have an office in the city where the owner's property is located. That operator will be at a disadvantage when competing with one who manages facilities in the immediate area of the owner's facility and maintains a local office. The latter will be able to provide off-site management much more efficiently than the absentee operator.
* The operator's proposed plan for the operation of the owner's facility.
All RFPs should include a section calling for a detailed plan for managing the facility. This operating plan will generally cover hours of operation, staffing, marketing, suggested parking rates, employee training and customer service.
* The operator's proposed budget for the operation of the owner's facility.
The operator's proposed budget is an essential item in the RFP package. It lets the owner know what the operator plans to pay the facility employees and shows other direct operating costs, such as payroll taxes, workers' compensation, liability insurance, health insurance, uniforms, facility maintenance, equipment maintenance, parking tickets and supplies. Since most management agreements call for the owner to reimburse the operator for these costs, the budget should be used to determine which proposer has the best price. It should be viewed as an indicator of how well the operator understands the undertaking. Many operators attempt to use the budget to convince the owner that their service will be less expensive than their competitors'. However, once they take over the operation and find that employees need to be paid more or that they need more employees, those added costs are borne by the owner.
How Does an Owner Compare Costs?
Under a typical management agreement, the operator is paid a management fee in addition to being reimbursed for all direct operating expenses. The issue of cost certainly revolves around the amount the operator proposes as a management fee, but it does not end there.
First, most operators have one large liability insurance policy for all or most of their facilities. However, most large operators also self-insure for the first $5,000 to $50,000 of each claim. It is therefore impossible to determine the actual cost to the operator of insurance from the amount charged by the operator as an operating expense. In fact, selling liability insurance to the owner is a major profit source for most operators.
Second, workers' compensation insurance has lately become another item where it is difficult to determine the operator's true cost, thus another favorite profit source for the operator.
Third, state unemployment tax rates (SUTA) are set by the government and based on the operator's history of unemployment claims in that state. SUTA rates can vary from 0.5 percent to 6 percent of payroll based on the operator's experience rating (a discount afforded to companies that have lower than average claims over the past three years). Since this is a pass-through expense, it is more expensive to choose an operator who has a high SUTA rate.
Though cost is not the only factor, it is sufficiently important to become decisive when two or more operators are equally qualified to manage the facility. How do you determine who is the least expensive? The following formula can be used to determine the operator's real cost: Add management fee, liability insurance, workers' compensation percentage times the projected gross payroll and SUTA rate times the projected gross payroll. (Projected gross payroll should be determined by the consultant, and each operator's percentages should be multiplied by that number.)
A sample management agreement should be included as an exhibit among the RFP documents. This is the best way to ensure that operators are proposing on an "apples to apples" basis. The management agreement will explain and differentiate the following: expenses that are reimbursable by the owner; expenses that are not reimbursable by the owner; insurance limits; where the income is to be deposited (owner's account or operator's account); and reporting requirements.
Public and private processes differ slightly. In the public sector, the agency must advertise for proposers, even though it may establish reasonable minimum qualifications to participate in the RFP process. It may be advisable for public agencies to add to the process a Request For Qualifications (RFQ), whereby operators are asked to submit only their qualifications. Those respondents meeting the minimum qualifications are then invited to participate in the RFP process. This saves the selection committee and the consultant valuable time otherwise spent in reviewing proposals from operators who are not qualified. It also saves the unqualified operator valuable time spent in preparing a proposal.
In the private sector, the owner, with assistance from the consultant, will prepare a list of qualified operators from whom they would like to request proposals.
The pre-proposal meeting and walk-through are held after the operators have had a chance to review the RFP document thoroughly. Questions are solicited from the operators, and those that can be easily answered are answered at the conference; others are answered through the issuance of a written addendum. The walk-through familiarizes the operators with the facility or facilities on which they will be proposing. Questions are allowed only during the pre-proposal meeting and walk-through. This restriction ensures that no operator will have any unfair advantage by reason of unilateral conversations with the owner or the owner's consultant.
Most public agencies and many private companies select a committee to evaluate the proposals, attend finalist interviews and select the best operator. The selection committee is usually made up of people involved in overseeing the facility, but sometimes it includes people engaged in the parking business who are employed elsewhere.
The consultant assists the selection committee with the evaluation of the proposals; prepares an objective analysis of the proposals; and answers any questions the selection committee may have when it performs its own analysis. Though usually attending the interviews, most consultants prefer, or even demand, to be a non-voting committee member. In the public process, the consultant oftentimes participates in the presentation to the final decision-making body (city council, airport commission, etc.).
If the guidelines presented above are followed by the owner and consultant, everyone -- including the losing operators -- will know that the selection process was fair and impartial.

Bill Francis is a Vice President with Walker Parking Consultants. He also is a former parking operator. He can be reached at bill.francis@walkerparking.com.


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How Does the Process Work?

The selection process can be broken down into the following steps:
Choose the operators you would like to have
propose on your facility.
Mail the RFP documents to the operators.
Hold a pre-proposal meeting and walk-through.
Mail an addendum to the operators that answers questions raised in the pre-proposal meeting and walk-through.
Choose a selection committee.
Analyze the proposals.
Select a "short list" of the most qualified operators.
Conduct interviews with the short-listed finalists.
Select one operator with whom to negotiate the final terms of the agreement.