9th annual faa national...jv review process flowchart (attachment #1) 5 before monitoring a joint...

9th Annual FAA National Civil Rights Training Conference for Airports July 17-19, 2018

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Presenter

Presentation Notes

Good afternoon and welcome to the 9th Annual FAA National Civil Rights Conference for Airports.

Joint Venture Agreements – Effective Compliance Monitoring Techniques

Presented by:

Dolores Leyva, DBE/ACDBE Compliance Specialists (FAA) and

Cindy Olivares, Principal, ACC, Inc.

July 18, 2018

Presenter

Presentation Notes

During this session, we will discuss best practices for effective compliance monitoring of Airport Concession Joint Venture Agreements seeking to count ACDBE participation.

Overview

• Joint Venture Background

• Desk Audit

• Site Visit

• Findings & Follow-Up

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Presentation Notes

This presentation will provide some background information on joint ventures, the importance of contract language and general recommended timing of monitoring activities. We will share an unofficial sample letter with defined monitoring requirements. We will also discuss the various elements of a desk audit to include the recommended frequency of the review of joint venture documents, management committee meeting minutes, capital contributions, distributions, reserves, operating statements, management fees, and tax returns including the K1s. We will share unofficial sample audit checklist and report of findings. We will discuss the importance of site visits, the recommended frequency and a discussion of announced versus unannounced visits. An unofficial sample site visit form will also be discussed. We will conclude with a discussion of how findings may be presented and what types of follow-up might be necessary and sample remedies to ensure compliance.

Do you have a JV? 49 CFR part 23 defines a joint venture as:

An “association of an ACDBE firm and one or more other firms to carry out a single, for-profit business enterprise, for which the parties combine their property, capital, efforts, skills and knowledge, and in which the ACDBE is responsible for a distinct, clearly defined portion of the work of the contract and whose share in the capital contribution, control,management, risks, and profits of the joint venture are commensurate with its ownership interest.”

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Presenter

Presentation Notes

49 CFR part 23 defines a joint venture as: An “association of an ACDBE firm and one or more other firms to carry out a single, for-profit business enterprise, for which the parties combine their property, capital, efforts, skills and knowledge, and in which the ACDBE is responsible for a distinct, clearly defined portion of the work of the contract and whose share in the capital contribution, control, management, risks, and profits of the joint venture are commensurate with its ownership interest.” In order to have a joint venture for ACDBE counting purposes, there must be an entity that meets this definition. If you have an entity in which the ACDBE shares in the capital contribution but does not share in the control, management, risks, and profits, you do not have a joint venture for ACDBE participation counting purposes. If you have an ACDBE that is responsible for a distinct, clearly defined portion of the work but does not share in the capital contribution or control and management of the business, you do not have a joint venture for ACDBE participation counting purposes. Each element of the definition must apply in order to count ACDBE participation in an airport concession joint venture.

Was it approved for counting?

• JV review process

• JV meets all requirements

• ACDBE credit assigned

• Approval letter issued

JV Review Process Flowchart (Attachment #1)

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Presentation Notes

Before monitoring a joint venture, you should have a joint venture in place that has been fully reviewed and approved for counting. That means that you should have a clear understanding of: The amount and source of capital contributions Each party’s role in the overall management of the joint venture The method and timing for the calculation and distribution of profits What happens if the business incurs losses The role of each party in the business If the JV Agreement meets all the requirements, a determination regarding the ACDBE credit to be counted for the joint venture will have been determined and an approval letter may have been issued notifying the participants that the joint venture has been approved for counting, the amount of credit to be counted, and requirements for monitoring.

The Importance of Contract Language

You must include in your concession program the specific provisions to be inserted into concession agreements and management contracts setting forth the enforcement mechanisms and other means you use to ensure compliance. (§ 23.29)

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Presentation Notes

In addition to having an approved joint venture for counting purposes, appropriate contract language is necessary in order to ensure compliance. The joint venture may operate under a direct contract with the Airport or under a subcontract to a Prime concessionaire. In either case, the contract under which the joint venture operates should contain language that sets forth the enforcement mechanisms that will be used to ensure compliance, including verifying that the work committed to ACDBEs is actually performed by the ACDBE to whom the work was committed.

Sample Approval Letter with Reporting Requirements

Reporting requirements may include: – Schedule & minutes of management committee (or other governing board) meetings

– Profit and loss statements upon which distributions were determined

– Evidence of payment of distributions – JV activity reports and detailed summary of its activities – Detailed documentation of all capital contributions made to the JV (from the ACDBE joint venture partner and non-ACDBE joint venture partner)

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Presentation Notes

In addition to contract language, it is effective to include reporting requirements in the joint venture approval letter. This is a list of documents that may be reviewed in order to verify that the Joint Venture is operating in accordance with the approved agreement. Let’s talk about why we might review each of these documents. Schedule of management committee meetings – this document will provide information regarding the level of participation by the ACDBE in the overall management of the joint venture. Hopefully, the meetings are occurring at least quarterly and the ACDBE is participating in all meetings. The minutes of the management committee meetings should be reviewed periodically to determine the level of the ACDBE’s participation in the overall management of the joint venture. Profit and loss or cash flow statements will assist in verifying the amount of distributions that have or will be made to each of the parties. Documentation evidencing that distributions were actually paid out should be reviewed and verified against the amounts from the profit and loss or cash flow statements. Some airports require the ACDBE to report on its activities. This is particularly helpful when the activities involve numerous tasks that occur periodically. Documentation of capital contributions are necessary in order to ensure that the ACDBE is contributing capital in proportion to its ownership share.

Sample Approval Letter with Reporting Requirements (con’t) – Evidence of payments made against loans (if there are loans between the parties)

– Any proposed amendments to the JV Agreement for review prior to the effective date

– Changes to roles and responsibilities of the JV partners prior to their effective date

– Reconciliation of Administrative or Management Fees – Capital account activity, JV tax returns (including K1s) – Submittal of additional information as requested

Sample JV Approval Letter (Attachment #2) 8

Presenter

Presentation Notes

7) If there are loans between the parties or between one of the parties and the joint venture, documentation evidencing that payments have been made in accordance with the loan documents should be reviewed. Any amendments to the joint venture agreement should be submitted for review prior to becoming effective as any changes may affect the counting of ACDBE participation in the joint venture. Any changes to the roles and responsibilities of each party should also be submitted in advance for the same reason. In accordance with the 2008 Joint Venture Guidance, any fees charged to the joint venture by one of the parties must be a reimbursement of costs and must not represent a profit center for the party providing the service. Verification that this is the case may accomplished by requesting an annual reconciliation of fees and costs. Tax returns may be reviewed annually to verify other information that has been submitted and may also flag other issues. Capital account activity will also verify other information submitted and may flag other issues.

Timing of Monitoring Activities

• Monitoring joint venture agreements is an ongoing process throughout the life of the agreement.

• Documents submitted – quarterly/annually

• Site visits - annually

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Presentation Notes

Monitoring joint ventures can be tedious as there is a lot of documentation that requires review. It is a good practice to require reporting on a quarterly basis for documents such as management committee meeting minutes, activity reports, capital contributions, loan repayments, and distributions and annually for tax returns, capital account activity, and fee reconciliation. Changes to the agreement and/or roles and responsibilities assigned to the parties should be reviewed as they occur. It is a good practice to conduct site visits at least annually. Site visits can be announced or unannounced. Don’t forget, concession monitoring activities should be detailed in your ACDBE program document.

Desk Audit

• Review of all JV documentation

• Annual verification of ACDBE certification

• May be conducted routinely as documents are submitted or on a scheduled basis

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Presenter

Presentation Notes

Effective monitoring of joint ventures should include a review of the documentation that supports the ACDBE’s participation in the joint venture. If you are collecting information on a quarterly basis, the information may be reviewed quarterly as submitted or annually in conjunction with a site visit. It should be noted that ACDBE certification should be verified annually. The next slides will review the types of information that may be collected and reviewed.

Capital Contributions

• Initial and subsequent contributions – proportionate to ownership

• Cash contributions vs loans

• Types of documentation

• Loan repayment

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Presentation Notes

Capital contributions to the joint venture should be proportionate to ownership. In order to determine if contributions are proportionate, information about the amount contributed by each party must be collected. There may be initial and subsequent contributions depending upon the needs and timing of items, such as build-out and working capital needs. Contributions may be made by each party in cash from their own resources. In accordance with the 2008 Joint Venture guidance, in the event that the ACDBE is unable to fund its required capital contribution through its own resources or third-party sources, the non-ACDBE may loan the ACDBE a portion, generally not more than 80% - 90%, of its required capital. In the event that capital was contributed from each party’s own resources, the documentation provided may include a cancelled check or a bank transfer evidencing the contribution. In the event that a portion of the ACDBE’s capital contribution was obtained through a loan from the non-ACDBE, the loan agreement should have been reviewed and approved in conjunction with the approval of the joint venture for counting. In such a case, the portion contributed by the ACDBE should be verified through submission of a cancelled check or bank transfer and payments against the loan should be made in accordance with the loan agreement. This should be verified. Loan payments may be made through checks, bank transfers, or deductions from distributions. In any event, the amount of the payments should be in accordance with the loan agreement unless the ACDBE has elected to accelerate payments. If the repayment of the loan is through a deduction from distributions, the amounts deducted should be clear on the statement of distributions and should be in accordance with the loan document.

Schedule of Meetings/ Meeting Minutes

• Schedule of meetings indicates frequency of participation in the overall management

• Meeting minutes will provide information regarding the ACDBE's participation in decision-making and voting

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Presentation Notes

In accordance with the 2008 Joint Venture Guidance, the ACDBE must participate in the overall management or governance of the joint venture. The schedule of meetings and meeting minutes will provide some insight into how that level of participation occurs. The schedule should indicate that the meetings occur frequently enough to demonstrate meaningful participation by the ACDBE. The minutes should indicate that the ACDBE is sharing in the overall decision-making to some degree, has responsibility for decision-making for its assigned roles, and is actively participating on a regular basis.

Distributions • JV Agreement should specify the timing of distributions

• JV Agreement should specify how distributions will be calculated

• Reserves withheld, if any, should be addressed in the JV Agreement

• The calculation for the amount of distributions, if any, should be reviewed

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Presenter

Presentation Notes

If the joint venture is profitable, there will most likely be distributions made to the parties. In accordance with the 2008 Joint Venture Guidance, the accounting mechanisms to determine distributions should be reviewed during the joint venture approval process for reasonableness, therefore the method of calculating and timing of distributions will be known before monitoring begins. The monitoring process should ensure that distributions have been calculated and made in accordance with the approved agreement. The calculations should be reviewed n order to ensure that this is occurring as described in the agreement. Sometimes reserves are withheld from distributions to fund future capital needs or fund known purchases or upcoming deficiencies. If reserves are being withheld from distributions, they should be reasonable and the amount and purpose of such reserves should be explained in the Agreement. Reserves withheld must be tracked and distributed if unused.

Reserves

• Amount

• Purpose

• Use

• Final Distribution

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Presentation Notes

As previously stated, reserves are sometimes withheld from distributions in order to fund upcoming anticipated capital expenditures or other future anticipated costs or losses. The Agreement should specify how the amount of reserves is determined and what these amounts may be used for. When reserves are withheld, released, or spent, there should be an accounting. Without such an accounting, it would be difficult to reconcile distributions. For example, in the event that an operation has distributable cash of $100,000 but has agreed amongst the partners to reserve 25% of each distribution to fund an upcoming mid-term refurbishment, we would expect to see a total of $75,000 distributed amongst the partners in proportion to their ownership percentages. When the funds from the reserve were expended, we would expect to see documentation evidencing that expenditure, If, after several years, the reserve fund has accumulated $200,000 and the capital needed for the mid-term refurbishment is only $100,000, we would request information regarding the remaining balance and how/when that would be distributed. Add more info in discussion about the new fees that are popping up like royalty or licensing fee and that it doesn’t matter what they are called as long as they are for recovery and not profit.

Operating Statements • Review the operating statement to determine if there are profits or losses

• Balance the profits or cash flow to the distribution statements

• Losses as well as profits must be shared and may result in a requirement for additional capital contributions

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Presentation Notes

A review of the joint venture operating statement or cash flow statement will provide information regarding the profitability of the joint venture. If the joint venture has profits to distribute (in excess of reserve amounts), these amounts may be balanced against the distributions and any discrepancies noted for explanation by the joint venture participants. If the joint venture is experiencing losses, it is reasonable to expect that there would be a call for additional capital contributions to be made to cover the losses. This may not be the case if the losses are covered by previously withheld reserves, but should be reviewed to make a determination.

Management Fees

• Recovery of specific documented costs • Vehicle for monitoring or auditing costs • Other Names – Service Fee – Administrative Fee – Royalty Fee

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Presentation Notes

The 2008 Joint Venture Guidance provides that fees charged to the joint venture must represent a recovery of costs and not a profit center to the provider. The Guidance also provides that there must be a vehicle for monitoring and/or auditing the costs. To ensure that this is the case, the monitoring or auditing documentation may be submitted for review. These types of fees are often charged as a percentage of sales. To endure that the dollars charged represent a recovery of costs, one might require the submission of both the actual costs and the amounts charged to the joint venture for comparison. We have noticed that recently there has been a surge of fees with different names such as royalty or licensing fee. Remember that any fee regardless of its name must be a recovery of cost and not a guaranteed draw. A fee is permissible as long as it is reimbursing the prime for specific documented costs (cost recovery) associated with its participation in the JV and not draining profits prior to an ACDBE being able to share in all the profits commensurate with its ownership percentage in the joint venture.

Capital Accounts • Reviewed to verify: – Capital contributions – Earnings – Distributions – Other activity

Company XYZ Capital Account Balance 12/31/2017 Partner 1 Partner 2

Beginning Balance $1,000 $1,000 Capital Contributions $2,000 $2,000 Earnings $500 $500 Distributions $50 $150 Ending Balance $3,450 $3,350

Total $2,000 $4,000 $1,000 $200

$6,800

50%/50% 50%/50% 50%/50% 25%/75%

50.7%/49.3%

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Presentation Notes

Joint ventures structured as partnerships or LLCs will have capital accounts for each partner. The capital account of each partner will include the amount of contributed capital, earnings, distributions or withdrawals and ending balance. The capital account activity for each year will serve to verify the capital contributed, profits/losses, distributions, and ending balance of each partner. The capital accounts are a running balance and should remain in proportion to ownership if all items are shared in proportion to ownership. If the capital account ending balances are not a reflection of ownership, further investigation is needed to determine what line item caused the discrepancy.

Tax Returns/K1s

• Tax returns should be reviewed in their entirety

• K1s should be reviewed for ownership percentages, capital account activity, loans, etc.

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Presentation Notes

Tax returns can be used to verify sales, profit and loss statements, distributions, management fees, loans, etc. There are many items that may be found on the tax return that were previously not known. For example, if the Joint Venture is subleasing operations to other operators or has taken loans, the tax return will reflect this. K1s will indicate ownership of the venture by each party and include distributions. Loans and capital account activity will also be included on the K1. A balance sheet will also be found in the tax return and will include important information such as loan information and retained earnings. Tax returns prove useful to: Verify gross receipts Verify profits Review balance sheet Review loan activity Review capital accounts Review any unusual items Intercompany transfers Subcontracts to other operators

Frequency

• It is a good practice to review information submitted by the joint venture as it is submitted, often quarterly for most information and annually for tax returns, fee reconciliation, and capital accounts.

• A formal desk audit may be conducted annually in conjunction with a site visit.

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Presentation Notes

It is a good idea to review the joint venture reports as they are submitted so that issues may be addressed quickly before counting is effected. Certain information, such as tax returns, will only be available annually and may be reviewed as part of a formal annual desk audit or in conjunction with a site visit. Most joint venture participants will routinely supply the necessary information on a schedule as requested by the Airport, either quarterly or annually. A checklist of information requested/received is helpful in determining if all information has been received.

Sample Forms(Unofficial) • JV Monitoring Checklist (Attachment #3)

• JV Sample Desk Audit Review (Attachment #4)

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Presentation Notes

It is useful to use a check list for verifying that documents required for monitoring are being received as requested. This form is used simply to check off that all required documentation has been received. Once received, the information must be reviewed to verify that the joint venture is operating as anticipated based on the Agreement and meets the requirements for counting. The attached is a sample desk audit review with issues noted for follow-up and/or discussion with partners. As you can see, each document is reviewed against the Agreement and joint venture requirements.

Notification of Deficiencies

• Formal notification of issues to participants

• Response solicited from participants

• Follow-up

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Presentation Notes

The joint venture participants should be formally notified in writing of issues encountered during the desk audit and given an opportunity to respond to the issues. If deficiencies can be corrected, they should be. Sometimes it is only possible to make corrections going forward. For example, if the ACDBE has not participated in past meetings of the Management Committee, that cannot be corrected as those meetings are in the past. However, participants can provide a plan for compliance going forward. Certain deficiencies may render a joint venture not countable unless corrected. For example, if the ACDBE has not contributed any capital, even through a loan, and the non-ACDBE has contributed capital, the joint venture could not be counted as it would not meet the definition of a joint venture under the regulation. Joint ventures where significant issues have been identified require strict follow-up and resolution of issues or the Joint Venture should cease being counted towards any contract goal unless/until the issues are corrected.

Counting ACDBE Participation in a JV

23.55(d) When an ACDBE performs as a participant in a joint venture, count a portion of the gross receipts equal to the distinct, clearly defined portion of the work of the concession that the ACDBE performs with its own forces toward ACDBE goals.

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Presentation Notes

The regulation provides that when an ACDBE performs as a participant in a joint venture, one may count a portion of the gross receipts equal to the distinct, clearly defined portion of the work of the concession that the ACDBE performs with its own forces toward ACDBE goals. If a joint venture agreement has been approved for counting, the reviewer has determined that the roles and responsibilities assigned to the ACDBE appear to equal the ACDBE credit that has been assigned to that operation. Note that the term “with its own forces” may mean employees who are on the payroll of the joint venture or even the non-ACDBE as long as the ACDBE controls that employee with regard to the work assigned to the ACDBE and has the ability to hire and fire staff responsible for performing its share of the work without the approval of the non-ACDBE participant.

Site Visits • Site visits are a crucial part of joint venture compliance monitoring

• Best practice is at least annually • Should be conducted: – When the ACDBE is expected to be performing its role

– At the location where the ACDBE performs its role

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Presenter

Presentation Notes

Site visits play a very important role in the monitoring process for joint ventures and in verifying that the ACDBE is performing as anticipated. The site visit will highlight the ACDBE’s participation in the operation and if, in fact, the ACDBE is performing the role assigned to it in the Agreement. A best practice is to conduct a site visit for each joint venture at least annually. The site visit should be conducted when the ACDBE is expected to be performing its role or staff is available to verify that the ACDBE has performed its role and at a location where the ACDBE role is performed or is evident. For example, if the ACDBE firm is responsible for human resources, including hiring/firing, badging, and scheduling, it may be possible to verify the ACDBE’s role without the ACDBE’s presence by interviewing staff that should have been hired by the ACDBE firm and asking who they were hired by, who creates their schedule, and who assisted them with badging.

Site Visits Scheduled vs Unannounced

• Scheduled site visits – Beneficial when there are many questions that require additional information from participants

• Unannounced site visits – Beneficial when it appears, based on a review of the documents or through other means, that there may be issues in the ACDBE’s performance of roles/responsibilities

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Presentation Notes

Site visits can be scheduled or unannounced. Both play an important role and it is useful to alternate them. Scheduled site visits are of greatest benefit when there are many questions that require additional information from participants. A scheduled site visit provides an opportunity to collect additional documentation and clarify issues contained in the documentation. Unannounced site visits are of benefit when it appears, based on a review of the documents, that there may be issues in the ADBBE’s performance of its assigned roles/responsibilities.

Site Visits

• Joint venture assigned responsibilities are not standard between all joint ventures

• Monitoring a joint venture may require a unique approach depending on the assigned roles/responsibilities

• Forms should be tailored to the specific roles/responsibilities

Sample Site Visit (Attachment #5)

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Presentation Notes

Each joint venture may have its own unique types of participation making it difficult to create a standard, one-size-fits all, form for site visits. In some cases, the ACDBE may operate one or more individual units and in others, the ACDBE may be responsible for specific tasks within the operation. In some cases, the ACDBE may perform a large portion of its work off-site. This makes monitoring a challenge. A best practice is to create a template for each joint venture that includes the roles/responsibilities assigned to the ACDBE firm and how those roles were evaluated. Let’s take a moment to review a sample site visit. In this example, the site visit was scheduled and the ACDBE participant was interviewed. It is a best practice to interview the participants separately, otherwise, the non-ACDBE may take the lead on responding to the questions posed. In this case, the ACDBE is assigned the role of managing three of the joint venture’s locations. As the questions are asked, it becomes clear that the ACDBE is limited in terms of its ability to make decisions regarding its assigned locations and the ACDBE manager may not be reporting to the ACDBE in a way that the reviewer anticipated in assigning credit. In fact, in this case, the ACDBE manager actually reports to the Joint Venture Manager on a day-to-day basis and checks in with the ACDBE weekly. Crediting ACDBE participation based on the sales generated by the store(s) assigned to the ACDBE is appropriate when the ACDBE performs a comprehensive role in the complete operation of the units. If the ACDBE does not perform all of the roles in managing the location(s), credit for the total sales generated by the location(s) should not be counted.

Findings

• Consolidation of desk audit/site visit findings for presentation to participants

• Actions for non-compliance

Sample Letter of Findings (Attachment #6)

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Presentation Notes

Once the desk audit and site visit are complete, it is a best practice to consolidate the findings and list the issues to be addressed in a letter to the participants. The issues may include findings from both the desk audit and site visit. The letter should provide for actions that may be taken if the issues are not corrected. Some airports impose fines for delays in addressing the issues while others may deem the participants to be non-compliant and bar the firms from bidding on future opportunities at the airport until such tine as the compliance issues are resolved. The enforcement actions that may be taken should be included in your ACDBE program document.

Follow-Up

• Issues reported as resolved must be monitored to ensure the resolution of the issue is implemented effectively

• Follow-up site visits, both scheduled and unannounced should be performed as needed to ensure compliance

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Presentation Notes

It is often difficult to quickly resolve an issue that has been identified, especially if the Joint Venture has been operating for several years. Follow-up site visits, both scheduled and unannounced should be performed regularly until it is clear that the issue has been fully resolved. Depending on the severity of the issue and the progress shown through continual monitoring, it may be necessary to suspend counting until the ACDBE is performing a meaningful role. Commercially useful function is a consideration. If the ACDBE is performing an unnecessary role, the role cannot and should not be counted. In accordance with the regulation, “A DBE does not perform a commercially useful function if its role is limited to that of an extra participant in a transaction, contract, or project through which funds are passed in order to obtain the appearance of DBE participation. In determining whether a DBE is such an extra participant, you must examine similar transactions, particularly those in which DBEs do not participate.”

Non-Compliance Remedies

• Modify the JV Agreement • Address financial issues, including contributions/loans

• Lease Agreement Enforcement • Policy Enforcement

Unacceptable - ACDBE listed in the proposal cannot be terminated without verification of good cause

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Presentation Notes

In the event that the joint venture is found to be in non-compliance or is not operating as originally presented, the areas that are not in compliance must be brought into compliance in order to count the participation whether through revising the agreement or requiring compliance with the agreement as written. The agreement may be modified, however modifications must comply with the regulation and Guidance and be carefully reviewed to ensure that the modifications don’t affect the amount to be credited to ACDBE participation, especially when roles/responsibilities are modified. As with the original letter of findings, participants should be reminded during the follow-up phase of the potential penalties for non-compliance. While it may take some time to remedy issues, participants should be working diligently to reach a resolution. If it is taking months or years to see any progress towards resolution, the Airport must determine if the participants are making a good faith effort to resolve the issues and meet the participation goal that was committed to in the contract. It is important to remember that counting should not continue for joint ventures that are non-compliant. As previously mentioned, enforcement mechanisms should be included in your ACDBE Program and should be put into effect. These might include breach of contract actions including fines and termination. In addition, the Airport may have policy enforcement mechanisms that can be effective. For example, an Airport may have a policy that bars firms that are in non-compliance from proposing for new concessions. This type of policy may help to expedite the resolution of issues. Occasionally, a non-ACDBE will propose terminating an ACDBE and replacing them with a substitute ACDBE to remedy the non-compliance. An ACDBE listed in the proposal in which there is a contract goal cannot be terminated or substituted without the Airport’s written consent which shall not be granted without good cause. The non-ACDBE must follow the procedures detailed in §26.53(f) which applies to Part 23 as well.

Questions?

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We value your feedback, please take a moment to fill out the

comment card!

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ATTACHMENT #1

JOINT VENTURE REVIEW PROCESS FLOW CHART (page 1 of 3)

Receive JV agreement and JV Information Form for review

Verify ACDBE participant's certification

status

Do not approve for counting

Review agreement and other documentation

Is ACDBE certified in appropriate

trade?

Identify claimed ACDBE ownership %

Send letter to JV partners notifying them that

participation cannot be counted

No

Yes

No

Review amount and source of capital

contributions

Note: ACDBE must be certified as an ACDBE in the NAICS code for the trade to be operated by the JV (i.e., if operating a food/beverage trade, DBE must be certified as a food/beverage operator)

No

Yes - loan from non-ACDBE

In compliance

Yes - Self-financed

Are capital contributions

commensurate with ownership?

Review ACDBE participation in control of the joint venture

business


Review source of contributions - If financed by non-ACDBE, review loan agreement for compliance with guidelines

Send letter to JV partners notifying them that capital

contributions must be proportionate to ownership

interest not in compliance

Note: Review participation on management committee, items requiring unanimous consent and control of assigned role


No

Yes Note: Review overall and day-to-day management. Review restrictions, mgmt, fees, etc.

Is control by the ACDBE

commensurate with ownership?

Review ACDBE participation in

management of the joint venture


Send letter to JV partners notifying them of the issues and

informing them that participation will not be counted

given the current structure or requesting additional

information

No

Does the ACDBE participate in the

management (overall and day-to-day) commensurate

with ownership?

Yes

Do not approve for

counting

Yes

Review ACDBE participation in

risks and profits of the joint venture

Is management by the ACDBE commensurate

with ownership?

Meets basic requirements

Note: Review agreement for accounting methods, ensure no "guaranteed draw", no siphoning of profit

Send letter to JV partners notifying them of the issues and informing them that participation

will not be counted in the current structure or requesting

additional information

No Do not approve for

counting


Review ACDBE portion of the

work

Does the work assigned to the

ACDBE represent a distinct, clearly defined portion of

the work?


Send letter t providing de

issues/conce participatio counted in structure or additional i

o JV partners tails of the rns and that

n cannot be the current requesting nformation

No

Review ACDBE roles assigned in accordance with JV Guidance

Yes

Approve for counting,

assign ACDBE Credit

Send letter to JV partners notifying of participation to be counted and monitoring

procedures

ATTACHMENT #2

[Date]

[Name/Address]

Attn:

Re: Airport Concession Disadvantaged Business Enterprise (“ACDBE”) Program – Joint Venture Conditional Approval

Dear ________,

Airport for approval. – use only if final executed copy has not been received.

In accordance with 49 CFR Part 23, the FAA’s Joint Venture Guidance and the Airport’s ACDBE Program, the _________________ Airport has reviewed the proposed Joint Venture Agreement between ___________________ and _____________________ (the “____________JV” or the “Agreement”). Based upon completion of this review and subject to the conditions set forth below, we have determined that the joint venture participation of ________________ as described in the Agreement may be counted as ACDBE participation at __%. The approval is conditioned upon the _______________ JV remaining in compliance with the following requirements and demonstrating continued compliance with 49 CFR Part 23 and the FAA’s Joint Venture Guidance during the Lease term:

1) Submittal of a copy of the fully executed _____________ JV in the form submitted to the

2) Quarterly submittal of an advance schedule of management committee meetings and minutes of such management committee meetings of the ___________ JV.

3) Quarterly submittal of statements of profits and losses upon which distributions were determined and evidence of payment of distributions of the ___________ JV.

4) Quarterly submittal of joint venture activity reports by the ACDBE partner and acknowledged by the non-ACDBE partner detailing the activity of the ACDBE partner in relation to its assigned role in the operation and a detailed summary of its activities for the preceding quarter within 30 days of the end of each quarter. Please include in the activity reports any activity with regard to capital contributions, loans not already submitted for approval, loan repayments, etc.

5) Documentation of all capital contributions made by the _____________ JV (the ACDBE joint venture partner and non-ACDBE joint venture partner) including any promissory notes. The joint venture partners shall be responsible for submitting these promptly as they occur for review by the Airport.

6) Submittal of any proposed amendments to the Joint Venture Agreement to the ________ Airport for review and approval prior to its effective date.

7) Submittal of changes to roles and responsibilities of the joint venture partners prior to their effective date.

8) Annual submittal of reconciliation of Administrative or Management Fees (if any) by both parties and verification and documentation evidencing that such fees represent a recovery of costs to the provider.

9) Annual submittal of the tax returns, including K1s, filed by the _______ Joint Venture.

10) Annual submittal of capital account activity and balances for each partner in the Joint Venture.

11) Submittal of additional information related to the above in order to demonstrate compliance with 49 CFR Part 23 and the FAA’s Joint Venture Guidance as may be requested by the Airport from time to time.

Please note that the above shall be in addition to the monthly and annual certified statements of gross receipts required to be submitted in accordance with the Lease. Continued counting as ACDBE participation shall be subject to certification verification of the ACDBE partner annually in accordance with 49 CFR Part 23 and compliance in all other respects with 49 CFR Part 23. The Airport shall perform periodic on-site reviews of the joint venture in accordance with 49 CFR part 23 and the Airport’s ACDBE Program.

Thank you in advance for your prompt attention to this matter.

Sincerely,

ATTACHMENT #3

Joint Venture Monitoring Checklist Name of JV: __________________________ Date Submitted: _________

Quarter/Year: ________________________ Submitted by: ___________

Yes No N/A Capital Contributions

Yes No N/A Loan Activity (payments, new loans)

Yes No N/A Management Committee Meeting Schedule

Yes No N/A Management Committee Minutes

Yes No N/A ACDBE Activity Reports

Yes No N/A Loan Activity (payments, new loans)

Yes No N/A Distributions

Yes No N/A Reserves Withheld

Yes No N/A Operating Statements

Yes No N/A Tax Returns, including K1s

Yes No N/A Fee Reconciliation

Yes No N/A Amendments to the JV Agreement

Yes No N/A Changes in Roles/Responsibilities

Other information submitted: ___________________________________________________

ATTACHMENT #4

Joint Venture Compliance Audit Desk Audit

Date: July 1, 2018

Joint Venture: XYZ JV

Partners – XY, Inc. (“XY”) (non- ACDBE) – 70% Z LLC (“Z”) (non- ACDBE) – 30%

Quarter/Year: Q1/2018

Reviewed by: Jane Doe

1) Capital contributions

$ Partner 1 $ Partner 2 Total $ % Partner 1 % Partner 2

Capital Contributions $300,000 $700,000 $1,000,000 30.0% 70.0%

Date of Contribution 1/1/18 1/31/18

Verified yes yes

NOTES/FOLLOW-UP: Capital contributions are proportionate to ownership interest and were made via bank transfer. Documentation evidencing the transfer was supplied. There is a difference in the timing of contributions. This requires follow-up.

2) Loan Activity

NOTES/FOLLOW-UP: N/A – No loans

3) Management Committee meeting schedule

NOTES/FOLLOW-UP: Supplied schedule showing quarterly meetings for 2018 to be held within 30 days of the end of each quarter. No issues.

4) Management Committee Minutes: Dates of Meetings: 4/15/17, 7/15/17, 10/15/17, 1/15/18

NOTES/FOLLOW-UP: The Meeting Minutes indicate that the ACDBE representative was not present for 2 of the 4 meetings. The minutes of the meetings appear to be almost verbatim with just the dates and a few words changed. Follow-up with participants needed to ensure that ACDBE participates in the overall management.

5) ACDBE Activity Reports

NOTES/FOLLOW-UP: Activity reports were submitted by the ACDBE for 4/15/17, 7/15/17, 10/15/17, 1/15/18. The reports each contain 4 items as follows: Walked stores, Attended Management Committee Meetings, Reviewed Sales Report, Reported Store Maintenance needs. The ACDBE is designated the role of Operations Manager in charge of one location. Based on the reports, it is not clear that the ACDBE is performing the assigned role. In addition, the ACDBE Activity Report indicates that the ACDBE attended the Management Committee Meetings on 4/15/17 and 10/15/17. The Minutes of those meetings do not include the ACDBE as a participant. An unannounced visit will be made to determine if the ACDBE is performing its assigned role. In addition, an explanation regarding the ACDBE’s attendance at Meetings will be required.

6) Distributions

$ Partner 1 $ Partner 2 Total $ % Partner 1 % Partner 2

Distributions $30,000 $70,000 $100,000 30.0% 70.0%

Date of Distribution 6/1/18 6/1/18

Verified yes yes

NOTES/FOLLOW-UP: Distributions have been made in proportion to ownership and in accordance with the financial statements reviewed. No further issues.

7) Reserves

NOTES/FOLLOW-UP: Distribution statements indicate that 20% of profits are to be held in reserve to cover the expense of a mid-term refurbishment in year 5 of the contract. Projections indicate that the reserve to be held is not excessive based on the anticipated expense. No further issues.

8) Financial Statements

Financial Statements Partner 1 Partner 2 Total EBITDA $37,500 $87,500 $125,000 Less Reserves $7,500 $17,500 $25,000 Total Distribution $30,000 $70,000 $100,000

NOTES/FOLLOW-UP: Financial statements indicate that distributions plus reserves balance to the distributable cash.

9) Tax Returns/K1s

NOTES/FOLLOW-UP: Tax returns and K1s were reviewed in their entirety. The following items require follow-up: It appears that there is a sublease under the joint venture that is

operated by a third-party. This requires explanation. There is a non-recourse loan of $700,000 included on the K1 of the non-ACDBE. This also requires follow-up.

10) Capital Account Activity

Partner 1 Partner 2 Total %P1/%P2 Beginning Balance $0 $0 $0 Capital Contributions $300,000 $700,000 $1,000,000 30%/70% Earnings $37,500 $87,500 $125,000 30%/70% Distributions $30,000 $70,000 $100,000 30%/70% Ending Balance $307,500 $717,500 $1,025,000 30%/70%

NOTES/FOLLOW-UP: Capital accounts reflect proportionate sharing of contributions, distributions and earnings. No issues.

11) Management Fee Reconciliation

NOTES/FOLLOW-UP: Not provided. Request from both parties.

12) Amendments to the JV Agreement

NOTES/FOLLOW-UP: N/A – Participants stated that there are no amendments

13) Changes in roles/responsibilities

NOTES/FOLLOW-UP: N/A – Participants stated that there are no changes

I, Jane Doe, hereby certify that records were reviewed for the purpose of verifying ACDBE participation in the above reference concession agreement on the date indicated above.

Signature: _____________________________________________________________________

ATTACHMENT #5

Joint Venture Site Visit Report

Joint Venture: ABC Airport JV

Site Visit Date: January 2, 2018

Site Visit Type: ☒Scheduled ☐ Unscheduled

Partners: Prime, LLC (“Prime”) (non-ACDBE) – 70% ACDBE, Inc. (“ACDBE”) (certified as ACDBE - Retail NAICS 453220) – 30%

General Information: This site visit was conducted on January 2, 2018 at the Gift and News location in Terminal C, Space 108 which is designated as the location that is operated by the ACDBE participant, ACDBE, Inc.

Participants: The following persons were present: XXX of the Airport’s Office of Business Diversity, XXX of Prime, LLC, XXX of ACDBE, Inc. XXX, Consultant

ACDBE Responsibility based on the Agreement: The ACDBE is assigned to operate the locations in Terminal x, comprised of three locations. ACDBE has full responsibility for the operations, however ACDBE does not perform all purchasing or administrative duties. Additional overall duties have been assigned to compensate for the fact that the ACDBE does not perform a comprehensive role in the complete operation of the units. These activities include: human resources – recruit and conduct preliminary interview for all potential sales associates. ACDBE employs a manager who is responsible for the day-to-day supervision of the operations. Manager has been in this position for 2 years and reports to ACDBE owner.

Interview 1: ACDBE Owner

ACDBE Owner’s Description of the firms role: ACDBE owner stated that she has full responsibility for the operation of her store. The following questions and responses were recorded:

Question: Describe the staffing of your firm as it relates to this operation. Response: I employ one management employee on my payroll. My manager manages the stores, assists the human resource manager in interviewing staff for the joint venture, supervises the daily requisition of product from the warehouse depending on stock levels in the store, merchandises the store, and handles any customer service issues.

ABC Airport JV Page 2

Question: Who does your manager report to? Response: Me, owner of ACDBE, Inc.

Question: What are the store hours? Response: The stores are open from 6:00 am until 10:00 pm or when the last flight leaves, seven-days/week, 365 days/year.

Question: Since you have only one management employee, who is responsible for the store locations when your manager is off duty? Response: One of the other managers takes over or we use a lead sales associate.

Question: Who do the other managers report to? Response: The Joint Venture General Manager.

Question: Do you or your manager have the ability to hire/fire the employees working in your store? Response: We all work together to do the hiring because the employees may work at any of the stores.

Question: Do you or your manager have the ability to fire staff? Response: I have the authority to fire my manager, but because of the complex labor laws, firing is handled by the Human Resource Manager, although we have input and can write disciplinary notices for things like being late for a shift.

Question: Do you or your manager do the scheduling for your locations? Response: All of the managers get together to do the schedule because employees are shared and we don’t want to schedule employees to work in our store if they are being scheduled to work in another store, although we do have some employees who regularly work in our stores.

Question: How do you recruit employees? Response: The Human Resource Manager participates in local job fairs and also uses Indeed. I sometimes go to the job fairs to help interview.

Question: While your firm is not responsible for purchasing, you are responsible for merchandising. How is that accomplished? Response: We get a planogram from Corporate and we merchandise according to the planogram.

Question: Is that your corporate office? Response: No, Prime LLC has a staff of merchandisers and they prepare the planograms for all stores.

Question: Do you have the authority to disregard the planogram and merchandise the store based on your own plan if you so choose? Response: No. We have to follow the planogram or get approval to deviate.


Question: What percent of sales of the Joint Venture do your stores represent? Response: Approximately 30%. That’s why we were assigned these stores. They most closely align to our ownership percentage.

Question: What else are you responsible for in the Joint Venture? Response: I participate in the weekly management meetings and the quarterly Management Committee meetings.

Interview 2: ACDBE Manager: The ACDBE’s management employee was interviewed and the following questions/responses were recorded:

Question: Who do you report to on a day-to-day basis? Response: The Joint Venture General Manager.

Question: Do you report to the ACDBE owner? Response: She checks in once/week and we talk about any problems that I am having.

Question: Who covers the shift in your assigned stores when you are off duty? Response: We really work as a team here. I might handle all of the joint venture locations when I am on duty and others will do the same when they are on duty.

Question: But your focus is the three ACDBE locations? Response: Technically, yes, but it doesn’t make sense to have more managers here than are needed to run the operation so we overlap when necessary.

Question: Who hired you for this position? Response: I was employed by Prime LLC for the last 10 years and was transferred to this position two years ago. I actually just got promoted to General Manager at Prime LLC’s other Airport location so I’ll be moving in 3 weeks.

Question: Were you interviewed for this position by ACDBE owner? Response: Yes. She offered me the job and I accepted.

Question: Who does your annual performance review? Response: ACDBE owner and the Joint Venture General Manager do it together.

Summary: The site visit conducted on January 2, 2018 with ACDBE owner and ACDBE Manager, indicates that the ACDBE firm is not fully responsible for the operation of the 3 assigned units and should, therefore, not receive credit at the level of 30% which represents the ACDBE assigned unit portion of the joint venture sales. The joint venture participants will be asked to revise the roles/responsibilities to reflect the roles actually performed by the ACDBE to determine the amount of credit, if any, that should be counted for this joint venture.


I, Jane Doe, hereby certify that a site visit was conducted for the purpose of verifying ACDBE participation in the above reference concession agreement on the date indicated above.

Signature: _____________________________________________________________________

ATTACHMENT #6

[Date]

[Name] [Address]

Re: ABC JV Compliance Audit

Dear _________,

As a result of this review, we hereby request that the agreement be amended to accurately state the roles/responsibilities of the ACDBE participant in greater detail. In addition, missing documentation as described above must be submitted.

The Airport conducted a compliance review and site visit to two concessions operated by the ABC JV on July 9, 2018. Monitoring of ACDBE participation in airport concessions is required by the Federal Aviation Administration (FAA) and is an integral part of the Airport’s Airport Concessions Disadvantaged Business Enterprise (ACDBE) Program.

The purpose of the compliance review is to review documentation and to observe the operation to confirm that work committed to ACDBEs at contract award is actually performed by the ACDBEs to whom the work was committed. Airport staff has reviewed all contracts, leases, joint venture agreements, or other concession-related agreements in conjunction with the site visit for the purpose of determining compliance with the ACDBE contract requirements and the Airport’s ACDBE Program.

As a result of the site visit and documentation review, it was determined that the ACDBE participant, ACDBE, Inc. (“ACDBE”), is participating in the operation, however, it does not appear that the roles/responsibilities as stated in the agreement are fully performed by the ACDBE participant. For example, ACDBE is responsible for new product selection for their assigned locations. According to ACDBE owners of the firm, ACDBE is not responsible for that role as the products to be sold in the locations are determined by corporate in concert with any licensor of the concepts. Book product is determined by Prime corporate as are plan-o-grams for merchandise display. In addition, hiring is not performed by location as implied in the listing of responsibilities, however ACDBE does participate in the interviews for staff. The description of roles/responsibilities assigned to the ACDBE participant in the agreement do not appear to be accurate or detailed enough to make a determination regarding credit for the participation. Please note that when the FAA Joint Venture Guidance discusses assigning credit for operating a location, the description is listed as “A comprehensive role in the complete operation of a separate location” (emphasis added). That is not to say that credit cannot be assigned for operating specific roles within a location, however if the ACDBE is not performing a comprehensive role in the complete operation, it is not possible to assign credit equal to the total sales produced by the unit.

A review of the documentation submitted as part of the quarterly and annual requirements indicate that management fees paid to Prime have not been reconciled to costs and, therefore, it is unknown if the fees represent a recovery of costs. In addition, the following documents have not been provided as required: 2017 Tax Returns, 2017 Capital Account Activity, Management Committee Meeting Minutes for Quarter 4 2017.

Please supply the above items within 30 days of the date of this letter. Failure to address these deficiencies within the allocated timeframe will result in ACDBE participation not being counted for the joint venture. In the event that ACDBE participation is not able to be counted for the joint venture, the joint venture will not meet its ACDBE goal and may be considered in breach of its lease agreement and subject to penalties as described therein.

Please feel free to contact ___________ at __________ if there are any questions regarding this notice.

Regards,