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DBE/ACDBE ParticipationDBE/ACDBE Participationin Joint Venturesin Joint Ventures

The Metropolitan Washington Airports AuthorityThe Metropolitan Washington Airports Authority

19th ANNUAL BUSINESS OPPORTUNITY SEMINAR19th ANNUAL BUSINESS OPPORTUNITY SEMINAR

November 13, 2009November 13, 2009

Presented by: ACC, Inc.Presented by: ACC, Inc.

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49 CFR Parts 26 and 2349 CFR Parts 26 and 23

DOT ObjectivesDOT Objectives

–– Remedy discrimination (past and present)Remedy discrimination (past and present)–– Ensure nonEnsure non--discriminationdiscrimination–– Meet legal standardsMeet legal standards–– Improve Program AdministrationImprove Program Administration

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DBE Participation in Airport DBE Participation in Airport ConcessionsConcessions

Even before the publication of 49 CFR Part Even before the publication of 49 CFR Part 23 23 -- ““Participation by Minority Business Participation by Minority Business Enterprise in Department of Transportation Enterprise in Department of Transportation ProgramsPrograms”” in March 1980, some airports in March 1980, some airports had already implemented MBE/WBE had already implemented MBE/WBE programsprograms

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By the late 1970By the late 1970’’s and early 1980s and early 1980’’s, some s, some minority businesses had managed to enter minority businesses had managed to enter the airport concession market through local the airport concession market through local minority business programs: minority business programs: –– The The ““Newark ExperimentNewark Experiment”” provided opportunities for provided opportunities for

approximately a dozen standapproximately a dozen stand--alone businessesalone businesses–– A prime contract in Atlanta was awarded to a joint A prime contract in Atlanta was awarded to a joint

venture between a prime operator and a minorityventure between a prime operator and a minority--owned owned businessbusiness

–– A subcontract to operate food/beverage facilities was A subcontract to operate food/beverage facilities was awarded to a minority owned business at LAX awarded to a minority owned business at LAX

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At about the same time (early 80At about the same time (early 80’’s), a significant s), a significant number of contracts at the countrynumber of contracts at the country’’s busiest airports s busiest airports began to expire. By this time, airport management began to expire. By this time, airport management had a much better understanding of the value of the had a much better understanding of the value of the contracts. Most airports changed their method of contracts. Most airports changed their method of solicitation from high $ bid to proposals. Other solicitation from high $ bid to proposals. Other items, such as proposed concepts and design, items, such as proposed concepts and design, capital investment, management and operating plan capital investment, management and operating plan were considered when awarding airport concession were considered when awarding airport concession contracts.contracts.

At this time, airport concessions in most U.S. At this time, airport concessions in most U.S. airports were operated by either one prime airports were operated by either one prime concessionaire who operated all food/beverage and concessionaire who operated all food/beverage and retail concessions or two prime concessionaires, one retail concessions or two prime concessionaires, one operating all food/beverage concessions and the operating all food/beverage concessions and the other operating all retail concessions.other operating all retail concessions.

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Also, in the 1980Also, in the 1980’’s, airports began to s, airports began to implement the DOT MBE/WBE program implement the DOT MBE/WBE program in airport concessions. A pool of in airport concessions. A pool of MBE/WBE operators, experienced in MBE/WBE operators, experienced in operating airport concessions did not operating airport concessions did not exist in all geographic regions. exist in all geographic regions. Joint Joint ventures were among the first types of ventures were among the first types of arrangements to include DBE (then arrangements to include DBE (then MBE/WBE) participationMBE/WBE) participation..

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Why JVs?Why JVs?

Why were joint ventures popular Why were joint ventures popular vehicles for fulfilling MBE/WBE goals in vehicles for fulfilling MBE/WBE goals in the early years of the program?the early years of the program?–– They were They were easyeasy to implementto implement–– They were They were cheapcheap–– They were the They were the least riskyleast risky

Protection from failureProtection from failureProtection from creating competitionProtection from creating competitionControl of profitsControl of profits

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As the airport concession business continued to grow As the airport concession business continued to grow in the U.S., airport opportunities began to look in the U.S., airport opportunities began to look interesting to developers. In Europe, developers were interesting to developers. In Europe, developers were already in the business of developing retail and already in the business of developing retail and food/beverage complexes in airports.food/beverage complexes in airports.

In 1992, concessions were awarded to BAA to develop In 1992, concessions were awarded to BAA to develop their their ““AirMallAirMall”” concept. While this was not the first concept. While this was not the first developer to be awarded an airport concession developer to be awarded an airport concession management contract, the scope of their plan was management contract, the scope of their plan was unlike anything ever undertaken in a U.S. airport. unlike anything ever undertaken in a U.S. airport. They sought to transform airport concessions into They sought to transform airport concessions into retail shopping malls with nameretail shopping malls with name--brand retailers. brand retailers.

A side effect of this development was the creation of A side effect of this development was the creation of numerous small business opportunities with reduced numerous small business opportunities with reduced entry barriers.entry barriers.

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The entry of developers put added The entry of developers put added pressure on airport prime pressure on airport prime concessionaires to bring in more name concessionaires to bring in more name brand concepts in order to remain brand concepts in order to remain competitive. This has led to an competitive. This has led to an increase in opportunities for franchises increase in opportunities for franchises and standand stand--alone operations which are alone operations which are more accessible to small business more accessible to small business operators.operators.

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Airport Concession Airport Concession StructuresStructures

Today, airport concessions are operated in Today, airport concessions are operated in numerous configurations, for example:numerous configurations, for example:–– LAX concessions are primarily operated by 4 prime LAX concessions are primarily operated by 4 prime

operators: two for food/beverage, one for retail, and one for operators: two for food/beverage, one for retail, and one for duty free retail. However, the program builds in some standduty free retail. However, the program builds in some stand--alone opportunities operated by both DBE and nonalone opportunities operated by both DBE and non--DBE DBE operators, including 2 franchised fast food locations.operators, including 2 franchised fast food locations.

–– BOS concessions are managed by two developers: one for BOS concessions are managed by two developers: one for Terminals B and E, and; one for Terminals A and C.Terminals B and E, and; one for Terminals A and C.

–– DEN concessions are operated by individual standDEN concessions are operated by individual stand--alone alone concessionaires who contract directly with the airport. concessionaires who contract directly with the airport.

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ACDBE ParticipationACDBE Participation

ACDBE participation is usually ACDBE participation is usually accomplished either through:accomplished either through:–– Direct LeasesDirect Leases–– SubcontractsSubcontracts–– Joint VenturesJoint Ventures

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Direct Leases with ACDBEsDirect Leases with ACDBEs

Some airports structure their concession Some airports structure their concession programs to provide for a number of programs to provide for a number of smaller concession opportunities for smaller concession opportunities for which small businesses can compete. which small businesses can compete. While ACDBE setWhile ACDBE set--asides are not asides are not permitted under the regulation, this permitted under the regulation, this structure usually results in some level of structure usually results in some level of ACDBE participation (e.g. DEN, JWA, ACDBE participation (e.g. DEN, JWA, LAS, LAX).LAS, LAX).

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SubleasesSubleases

Frequently, airports contract with a Frequently, airports contract with a developer or prime operator who developer or prime operator who sublease selected locations to ACDBE sublease selected locations to ACDBE operators. operators.

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Joint VenturesJoint Ventures

Sometimes, concessionaires or Sometimes, concessionaires or developers sublease operations to developers sublease operations to joint ventures comprised of a nonjoint ventures comprised of a non--ACDBE and one or more ACDBEs.ACDBE and one or more ACDBEs.

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JVs v. Subleases/Direct Contracts JVs v. Subleases/Direct Contracts ––OperatorOperator’’s Perspectives Perspective

Some operators favor JVs over subleasing Some operators favor JVs over subleasing for the same reasons that JVs were initially for the same reasons that JVs were initially popular:popular:–– They are They are easiereasier to implementto implement–– They allow operators to maximize profits They allow operators to maximize profits

through leveraging fixed costs (they arethrough leveraging fixed costs (they are cheapcheap))–– They are the They are the least riskyleast risky

Protection from failureProtection from failureProtection from creating competitionProtection from creating competitionControl of profitsControl of profits

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Joint ventures v. other forms of Joint ventures v. other forms of participation participation –– Airport perspectiveAirport perspective

+ Fewer operators+ Fewer operators-- More difficult to determine the More difficult to determine the appropriate ACDBE credit to be appropriate ACDBE credit to be countedcounted-- More difficult to monitorMore difficult to monitor-- Joint ventures have resulted in more Joint ventures have resulted in more incidences of fraud than other types of incidences of fraud than other types of arrangementsarrangements

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What is the purpose of the JV What is the purpose of the JV Guidance?Guidance?

Is it to:Is it to:1)1) Make everyoneMake everyone’’s lives miserable? s lives miserable? 2)2) Throw more complications into an Throw more complications into an already complicated program?already complicated program?3)3) Create more work for everyone?Create more work for everyone?4)4) Create a job for a consultant?Create a job for a consultant?5)5) Cause tomatoes to be thrown at Cause tomatoes to be thrown at presenters at conferences? presenters at conferences?

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The Joint Venture Guidance, issued in The Joint Venture Guidance, issued in July 2007, seeks to assist Airports, July 2007, seeks to assist Airports, ACDBEs, and Concessionaires in ACDBEs, and Concessionaires in developing joint ventures that comply developing joint ventures that comply with DOT regulations. with DOT regulations.

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LA Times LA Times ––November 18, 1989November 18, 1989

Elite Group Reaped Profit of $7.3 Elite Group Reaped Profit of $7.3 Million at AirportMillion at Airport

““A Los Angeles Department Program to A Los Angeles Department Program to help minorities and women develop help minorities and women develop business skills has instead helped a business skills has instead helped a small small group with political connections to reap group with political connections to reap $7.3 million in profits for little or no $7.3 million in profits for little or no workwork…”…”

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Elite Group Reaped Profit of $7.3 Elite Group Reaped Profit of $7.3 Million at AirportMillion at Airport““The 18 minority and female partners The 18 minority and female partners have made an estimated profit of have made an estimated profit of $7.3 $7.3 million since 1986 after investing million since 1986 after investing virtually no money of their own and virtually no money of their own and performing little or no workperforming little or no work, the report , the report concluded.concluded.””

LA Times LA Times ––November 18, 1989November 18, 1989

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OIG ReportOIG ReportJune 11, 2002June 11, 2002

IntroductionIntroduction““The OIGThe OIG’’s review of the XXX agreement and s review of the XXX agreement and

associated documents found that associated documents found that four (4) four (4) DBE joint venture partners have been DBE joint venture partners have been allocated over $14 million in revenues by allocated over $14 million in revenues by XXXJV since 1995 but have not performed XXXJV since 1995 but have not performed any actual workany actual work, or provided any actual , or provided any actual services as outlined in the XXXX services as outlined in the XXXX agreement.agreement.””

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ConclusionsConclusions““In essence, the In essence, the DBE joint venture partners DBE joint venture partners

have been allocated substantial amounts of have been allocated substantial amounts of revenue from a lucrative County contract in revenue from a lucrative County contract in return for their firms being presented as return for their firms being presented as ““Disadvantaged Business EnterprisesDisadvantaged Business Enterprises”” by by XXXJV on the Duty Free Agreement rather XXXJV on the Duty Free Agreement rather than actually performing workthan actually performing work, or providing , or providing servicesservices……

OIG ReportOIG ReportJune 11, 2002June 11, 2002

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MIA probe splits police, fedsMIA probe splits police, feds““ pledged to give 35 percent of the work to two pledged to give 35 percent of the work to two

minorityminority--owned companies. Prosecutors and owned companies. Prosecutors and investigators are attempting to prove the investigators are attempting to prove the minority partnersminority partners’’ prime role was to just collect prime role was to just collect cash and curry political favorcash and curry political favor…”…”

““Authorities suspect Authorities suspect the minoritythe minority--owned owned companies did little, if any, workcompanies did little, if any, work for at least for at least several years, undermining the intent of the several years, undermining the intent of the program.program.””

The Miami Herald The Miami Herald ––January 14, 2004January 14, 2004

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Airport ConnectionsAirport Connections““[ACDBE] [ACDBE] owns shares of two contracts, one to owns shares of two contracts, one to run six bars and another to operate six newsstands, run six bars and another to operate six newsstands, though her firms have no employees, and she has though her firms have no employees, and she has had little role in the dayhad little role in the day--toto--day operationsday operations..””

““[ACDBE] was convicted May 9 of lying twice to FBI [ACDBE] was convicted May 9 of lying twice to FBI agents and has been sentenced to 5agents and has been sentenced to 5½½ months in months in

prison and fined $100,000. prison and fined $100,000. But she still collects a But she still collects a share of the proceeds from an airport bar and from share of the proceeds from an airport bar and from some of its vending machinessome of its vending machines…”…”

Philadelphia Enquirer Philadelphia Enquirer ––August 30, 2005August 30, 2005

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Airport ConnectionsAirport Connections““These and other airport deals were part of a federal program These and other airport deals were part of a federal program

that is supposed to make sure disadvantaged business that is supposed to make sure disadvantaged business owners owners –– minorities, women, disabled minorities, women, disabled –– get a fair share of get a fair share of airport contracts. airport contracts. But in practice, here and in airports But in practice, here and in airports across the country, the program has become a vehicle to across the country, the program has become a vehicle to steer business to wellsteer business to well--off people with political sway. Once off people with political sway. Once in place, these minority investors have done little besides in place, these minority investors have done little besides lend their names and money, despite federal rules requiring lend their names and money, despite federal rules requiring them to do actual workthem to do actual work, records and interviews show., records and interviews show.””

Philadelphia Enquirer Philadelphia Enquirer ––August 30, 2005August 30, 2005

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Minority Business at BWI Assessed; Minority Business at BWI Assessed; Tenant Complaints Prompt Md. Audit Tenant Complaints Prompt Md. Audit of Concessions Firmof Concessions Firm““But revenue from the business was not But revenue from the business was not

counted toward minority goals because counted toward minority goals because the joint venture XXXX formed with the joint venture XXXX formed with XXXXX was XXXXX was rejected by airport officials rejected by airport officials seven times over two yearsseven times over two years..””

Baltimore Sun Baltimore Sun ––May 20, 2007May 20, 2007

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Keep your company and your

Keep your company and your

airportairport’’s ACDBE program off

s ACDBE program off

the front page

the front page

Presented to:

By:

Date:

Federal AviationAdministrationMWAA - 19th Annual

Business Opportunity Seminar

Joint Venture Guidance for ACDBEs

Pre-Seminar WorkshopWilbur Barham, Director, FAA Office of Civil Rights

November 13, 2009

Joint Venture Guidance Federal AviationAdministrationNovember 13, 2009

Introduction & Structure

• This presentation is based on the ACDBE JV guidance approved by DOT and issued by FAA on July 17, 2008.

• The ACDBE JV guidance sets forth USDOT’s interpretation of its existing legal authorities and recommendations for carrying out the ACDBE program.

• Structure: Main document & 3 attachments.


Purpose/Necessity of this JV Guidance?

• To provide information and direction on the structure, implementation, and counting of JV arrangements in the ACDBE program.

• Airports, ACDBEs, consultants and other stakeholders are obligated to develop, approve, monitor, and count ACDBE participation.


What does Part 23 say about JVs as an option?

• Businesses must make good faith efforts to explore all available options to meet goals, including joint ventures and franchises.

• Sometimes a JV scenario may be difficult to implement, while other times , it may represent the best opportunity for implementing a workable arrangement.

• The initial determination by the airport as to the best form of business structure may reduce difficulties in counting ACDBE participation.


What is a joint venture?

• 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 shares in the capital contribution, control, management, risks, and profits of the JV are commensurate with its ownership interest


Components of a JV agreement?

• Important components that should be included in the JV agreement are: – Identification of the participants– Identification of the business enterprise – Term of the agreement – Capital contributions – Accounting methods– Management of the business– Administrative matters– Dissolution


More than one contract or business location at an airport?• A JV may have more than one contract with

a given airport or more than one business location at the airport.

• The specifics of the participation in each contract should be clearly stated in the JV agreement.


Combine their property, capital, efforts, skills and knowledge?• Each party in a JV should bring real and

substantial value to the joint venture enterprise

• The parties should contribute:– capital commensurate with their ownership interest, – knowledge and skills relative to the portion of the

JV’s business for which they are responsible, and – efforts whose value is objectively apparent and

verified by the airport.


What is “a distinct, clearly defined portion of the work of the contract”?

• “Distinct” means separate and distinguishable

• “Clearly defined” means no guesswork regarding the nature of the ACDBE’s work

• Should include an estimate of the time and resource requirements for each major task


Commensurate?

• What does “whose shares in the [1] capital contribution, [2] control, [3] management, [4] risks, and [5] profits of the joint venture are commensurate with its ownership interest” mean?

– The ACDBE’s participation in each of these five areas should be proportionate to the claimed ownership.


Factors in reviewing participation

• Capital contribution – Should be proportional and clearly specified in the JV agreement

• Control – Each JV partner should assume full responsibility for executing each element of the work assigned to it.

• Management – The ACDBE participant must share in the overall & day-to day management of the JV.

• Risks – Each must share in the risks in proportion to their ownership interest.

• Profits – Each must also share in the profits in proportion to the ownership interest.


Loans of capital from the non-ACDBE JV participant allowed if:

• Terms comparable to market conditions • Evidenced by a promissory note • Note secured by assets outside of the JV• ACDBE invests at least 10%–20% of its own

resources or through a third-party • The term is no longer than the term of the

JV contract


How to divide profits and losses?

• Proportional to interests in JV.

• No distribution of money without regard to profitability.

• No forgiveness of debt.


Are service and management fees acceptable?

• Yes, subject to some restrictions.

• The JV agreement should state that payment of management fees are dependent upon a participant’s contribution to the “indirect”management of the operation.

• The fees charged should represent a recovery of costs and not profit to the non-ACDBE.


Purchase of inventory, supplies, services, etc. from the non-ACDBE?

• The agreement can allow that the ACDBE participant or JV purchase inventory, supplies, or services from the non-ACDBE participant.

• The charges for the provision of such products and services should represent a pass-through of costs and should not be used as a method of draining profits.


How can the value of the ACDBE role be determined?

• Compare to typical business practices. • Performance at its other operations. • Develop a chart of tasks. • The value of specific tasks may vary from

operation to operation.• Would a reasonable person conclude that

the roles of each party justify the claimed ACDBE participation credit.


What does “performs with its own forces” mean?• Employed directly by the ACDBE.

• Employees of the JV entity or a non-ACDBE participant in the JV but only IF the ACDBE has the power to control those employees.

• Higher burden of proof.

• Need to show actual control


What if the level of participation by the ACDBE changes?

• If participation is less, count at less.

• If participation is more, count at originally approved level.

• If participation expected to continue at modified level, should amend JV agreement accordingly.


What monitoring should the ACDBE expect from the airport?• The airport’s formal monitoring program

should include:

– Verification of certification eligibility– Review managing entity’s meeting minutes/reports– On-site visits to the operation– Periodic interviews with the JV participants,

managers, and employees– Review of other documentation


What is included in the airport’s agreement with the JV?

• Periodic submission of reports and other forms of communications between the non-ACDBE participant and the ACDBE participant.

• Sanctions for failing to operate in accordance with the JV agreement.


What annual updates and changes are required?

• There are no annual updates required for JV agreements.

• Of course, must still submit no change affidavit regarding certification eligibility.

• Similarly, proposed material changes in the JV agreement should be submitted to the airport.


Can a JV be certified as an ACDBE?

• No. Joint venture entities are not certified as ACDBEs.

• In order to count towards ACDBE participation, one or more of the joint venture participants must be a certified ACDBE.


Does the ACDBE participant have to be certified in a specific type of work?

• Yes. ACDBE firms must be certified in the type of work to be undertaken by the JV.

• Certified firms may request that a trade be added to their certification.


Dissolution if ACDBE becomes ineligible?• Since Part 23 allows counting when you remove a

concessionaire's eligibility because of size or PNW, JV agreements should not permit the dissolution of the JV agreement in this event.

• However, if the ACDBE is decertified for reasons such as the sale of the majority interest in the company or fraud, it is reasonable to allow a provision for dissolution or the buyout of the ACDBE participant.


FAA’s External Civil Rights Website

• The ACDBE JV Guidance is posted on FAA’s Office of Civil Rights website at:

http://www.faa.gov/about/office_org/headquarters_offices/acr/bus_ent_program/dbe_program_adm/media/JVGuideFinal508.doc


Questions


The End – Thank You!!

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DBE/ACDBEDBE/ACDBEJV AgreementsJV Agreements

ACC, Inc.ACC, Inc. November 13, 2009November 13, 2009

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JV Legal StructureJV Legal Structure

Joint ventures can be structured as any type of Joint ventures can be structured as any type of legal entity:legal entity:–– PartnershipPartnership

–– CorporationCorporation

–– Limited liability companyLimited liability company

–– Other legal structureOther legal structure

Parties must be firms, not individualsParties must be firms, not individuals

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Basic ElementsBasic Elements

Most joint ventures follow a fairly standard format Most joint ventures follow a fairly standard format that includes:that includes:–– Identification of the participants and ownership Identification of the participants and ownership

share share –– Identification of the business to be undertaken Identification of the business to be undertaken

by the JV by the JV –– Term of the JV agreementTerm of the JV agreement–– Capital to be contributed by each party Capital to be contributed by each party –– Accounting methods and distribution of Accounting methods and distribution of

profits/lossesprofits/losses–– Management of the JVManagement of the JV’’s businesss business–– Administrative mattersAdministrative matters–– Dissolution Dissolution

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Review of JV AgreementReview of JV Agreement

Sometimes the agreement can be long Sometimes the agreement can be long and intimidating. Be sure to read and intimidating. Be sure to read every word, have a lawyer review it, every word, have a lawyer review it, understand each parties rights and understand each parties rights and obligations. obligations.

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Part I Part I –– General General InformationInformation

RecitalsRecitals–– The The ““whereaseswhereases”” provide background information provide background information

and reason for entering into the agreement and reason for entering into the agreement Formation and Purpose/Scope of the JVFormation and Purpose/Scope of the JV–– Establishes that the JV is being formedEstablishes that the JV is being formed–– Defines the purpose and scope of the JVDefines the purpose and scope of the JV’’s businesss business

Name and Principal OfficesName and Principal Offices–– Identifies the name of the joint venture entityIdentifies the name of the joint venture entity–– Identifies location of the JV principal offices Identifies location of the JV principal offices –– where where

books and records are kept and management resides books and records are kept and management resides

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Contracts and PropertyContracts and Property–– Establishes rules regarding contracts entered into Establishes rules regarding contracts entered into

by the JV (e.g. who can sign, name on contracts by the JV (e.g. who can sign, name on contracts shall be JV, etc.)shall be JV, etc.)

–– Establishes name in which JV property is heldEstablishes name in which JV property is held

Books and RecordsBooks and Records–– Establishes location and access for books and Establishes location and access for books and

recordsrecords

TermTerm–– Establishes term of the JVEstablishes term of the JV

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Ownership InterestsOwnership Interests–– Establishes each parties ownership Establishes each parties ownership

interest in the JVinterest in the JVScope of Joint VenturerScope of Joint Venturer’’s Authoritys Authority–– Establishes rules regarding the Establishes rules regarding the

authority of the parties to do act on authority of the parties to do act on behalf of the JV, including borrowing behalf of the JV, including borrowing money, incurring obligations, etc.money, incurring obligations, etc.

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Part II Part II -- ManagementManagement

Overall ManagementOverall ManagementManagement CommitteeManagement Committee–– # of members, # of representatives appointed by # of members, # of representatives appointed by

each partyeach party–– Responsibilities/authorityResponsibilities/authority–– Frequency of meetingFrequency of meeting–– VotingVoting

QuorumQuorumMajor DecisionsMajor DecisionsUnanimous consent itemsUnanimous consent items

JV ManagerJV ManagerRoles and responsibilities of each partyRoles and responsibilities of each party

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Part III Part III –– Capital ContributionsCapital Contributions

Initial and future capital contributions Initial and future capital contributions should be addressedshould be addressed–– Proportionate to ownership interestProportionate to ownership interest–– Source of fundsSource of funds

Cannot obtain a loan from the nonCannot obtain a loan from the non--ACDBE ACDBE partner for 100%partner for 100%Loans from the nonLoans from the non--ACDBE partner must ACDBE partner must meet requirementsmeet requirements

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Part IV Part IV –– Other SectionsOther Sections

DefaultDefault–– What constitutes defaultWhat constitutes default–– Rights upon defaultRights upon default

Distribution of ProfitsDistribution of Profits–– Method of calculationMethod of calculation–– Timing of distributionTiming of distribution

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Representations and covenantsRepresentations and covenants–– ACDBE certificationACDBE certification

MiscellaneousMiscellaneous–– Entire agreementEntire agreement–– NoticesNotices–– Etc.Etc.

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ExamplesExamples

Specific Sections of a Sample JV Specific Sections of a Sample JV AgreementAgreement

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OwnershipOwnership

Ownership Interests in Joint Ownership Interests in Joint Venture.Venture. The interests of the Joint The interests of the Joint Venturers in this Joint Venture, in all Venturers in this Joint Venture, in all assets thereof and in any profits and assets thereof and in any profits and losses or liabilities thereof, shall be as losses or liabilities thereof, shall be as follows:follows:–– NonNon--ACDBEACDBE 70%70%–– ACDBEACDBE 30%30%

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Capital ContributionsCapital Contributions

Capital Contributions.Capital Contributions.

The Joint Venturers shall make the necessary, The Joint Venturers shall make the necessary, initial and ongoing contributions to the capital of initial and ongoing contributions to the capital of the Joint Venture in proportion to their the Joint Venture in proportion to their respective ownership interests in the Joint respective ownership interests in the Joint Venture. Venture. Initial capital contributions to be made by each Initial capital contributions to be made by each party are set forth in Schedule X hereto.party are set forth in Schedule X hereto.

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In the event that ACDBE is unable to In the event that ACDBE is unable to fund its future capital obligations, fund its future capital obligations, ACDBE may borrow up to 90% of the ACDBE may borrow up to 90% of the required sums from Nonrequired sums from Non--ACDBE. Any ACDBE. Any such loan shall be evidenced by a loan such loan shall be evidenced by a loan and security agreement and by a and security agreement and by a promissory note. promissory note.

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Absent a default under the promissory notes Absent a default under the promissory notes or loan and security agreements nothing in or loan and security agreements nothing in this Agreement, the promissory notes or this Agreement, the promissory notes or loan and security agreements referred to in loan and security agreements referred to in this Section shall not be construed to this Section shall not be construed to restrict ACDBErestrict ACDBE’’s ability to control its s ability to control its business or independently perform its business or independently perform its designated role in the Joint Venture.designated role in the Joint Venture.

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ManagementManagement

Overall Management.Overall Management. The management and control of the The management and control of the Joint Venture shall be vested in the Management Committee. Joint Venture shall be vested in the Management Committee. None of the following actions shall be taken by the Joint None of the following actions shall be taken by the Joint Venture unless approved by the affirmative vote of all of the Venture unless approved by the affirmative vote of all of the Management Committee members:Management Committee members:(i)(i) Dissolution of the Joint Venture;Dissolution of the Joint Venture;(ii)(ii) Borrowing or lending funds outside the ordinary Borrowing or lending funds outside the ordinary

course of the Joint Venture business;course of the Joint Venture business;(iii)(iii) Guaranty of the debt of another individual or entity;Guaranty of the debt of another individual or entity;(iv)(iv) Entering into any agreement outside the scope of Entering into any agreement outside the scope of

the purpose of the Joint Venture;the purpose of the Joint Venture;(v)(v) Execution and delivery of the Concession Agreement Execution and delivery of the Concession Agreement

and any amendment or supplement thereto and any amendment or supplement thereto

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Management CommitteeManagement Committee

The affairs and property of the Joint Venture shall be managed, The affairs and property of the Joint Venture shall be managed, controlled and directed by a management committee controlled and directed by a management committee consisting of three members (the consisting of three members (the ““Management CommitteeManagement Committee””).).

Two members of the Management Committee shall be appointed Two members of the Management Committee shall be appointed by Nonby Non--ACDBE and one member shall be appointed by ACDBE and one member shall be appointed by ACDBE. The Management Committee shall hold a meeting to ACDBE. The Management Committee shall hold a meeting to discuss the affairs of the Joint Venture at least once per discuss the affairs of the Joint Venture at least once per calendar quarter. calendar quarter.

The Joint Venture shall prepare and maintain formal agendas and The Joint Venture shall prepare and maintain formal agendas and minutes of the meetings of the Management Committee. Each minutes of the meetings of the Management Committee. Each Joint Venturer shall be represented at each of the quarterly Joint Venturer shall be represented at each of the quarterly meetings.meetings.

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Distribution of ProfitsDistribution of Profits

The Management Committee shall The Management Committee shall maintain books and records that maintain books and records that accurately reflect the financial accurately reflect the financial condition of the Joint Venture. Such condition of the Joint Venture. Such books and records shall be prepared books and records shall be prepared using generally accepted accounting using generally accepted accounting principles. Distribution of earnings principles. Distribution of earnings shall be made quarterlyshall be made quarterly……. .

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Loss of ACDBE CertificationLoss of ACDBE Certification

ACDBE covenants that during the term ACDBE covenants that during the term of this Agreement it will maintain its of this Agreement it will maintain its certification as an ACDBE and that it certification as an ACDBE and that it shall promptly notify nonshall promptly notify non--ACDBE of ACDBE of any material change to its ACDBE any material change to its ACDBE certifications.certifications.

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Red Flag ItemsRed Flag Items

Management FeesManagement Fees–– Should represent a recovery of costsShould represent a recovery of costs–– Should not be used as a Should not be used as a ““guaranteed drawguaranteed draw””

Requirements to purchase goods or services from Requirements to purchase goods or services from one of the partnersone of the partners–– Requirements that result in controlling profits remaining Requirements that result in controlling profits remaining

for distribution are not acceptable for distribution are not acceptable ““Guaranteed drawsGuaranteed draws””–– Parties should not be entitled to a distribution of money Parties should not be entitled to a distribution of money

regardless of the profitability of the joint ventureregardless of the profitability of the joint ventureForgiveness of debtForgiveness of debt–– Not permitted under the guidanceNot permitted under the guidance

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Roles and Responsibilities of Roles and Responsibilities of the Partners the Partners --ExampleExample

The DBE shall be responsible for the following The DBE shall be responsible for the following management and administrative functions of the management and administrative functions of the Joint Venture:Joint Venture:

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Assist with developing the annual Assist with developing the annual budget of the Joint Venturebudget of the Joint Venture

Participate in building sales at the Participate in building sales at the storesstores

Participate in evaluating store Participate in evaluating store operationsoperations

Assist in managing inventory levelsAssist in managing inventory levels

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Recruit personnelRecruit personnel

Supervise employee trainingSupervise employee training

Develop and implement marketing Develop and implement marketing plans and promotional eventsplans and promotional events

Identify local minority and women Identify local minority and women vendorsvendors

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Reviewing your roleReviewing your role

Carefully read each listed responsibilityCarefully read each listed responsibilityRestate it in clear terms that are meaningful Restate it in clear terms that are meaningful to youto youAsk yourself how you will perform that Ask yourself how you will perform that functionfunctionIdentify vague descriptionsIdentify vague descriptionsIdentify issues or roles/terms that need Identify issues or roles/terms that need clarificationclarification

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Ask questions orAsk questions orrequest clarificationsrequest clarifications

You should understand:You should understand:–– Who will provide the staff to be involved in each Who will provide the staff to be involved in each

tasktask–– How many hours are anticipated for each taskHow many hours are anticipated for each task–– How much control you will have over the task How much control you will have over the task

and personnel and how that control will be and personnel and how that control will be exercised.exercised.

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““Assist withAssist with”” or or ““Participate inParticipate in””

These are red flag phrases These are red flag phrases ---- get clear get clear descriptions of your roles and descriptions of your roles and responsibilities and include them in the responsibilities and include them in the agreementagreement

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A role in the operationsA role in the operations

Responsibilities of ACDBEResponsibilities of ACDBEIn addition to its participation in the In addition to its participation in the overall management of the joint venture overall management of the joint venture through the Management Committee, through the Management Committee, ACDBE shall be responsible for the dayACDBE shall be responsible for the day--toto--day operation of location X, which is day operation of location X, which is projected to 25% of the Joint Ventureprojected to 25% of the Joint Venture’’s s total gross revenues.total gross revenues.

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Is easier, butIs easier, but……

Make sure that the description of the Make sure that the description of the role isrole isGet a clear definition for the phrase Get a clear definition for the phrase ““responsible forresponsible for””

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SamplesSamples

Attachment 2 to the ACDBE JV guidance Attachment 2 to the ACDBE JV guidance addresses more specifically how to analyze addresses more specifically how to analyze the portion of work assigned to the ACDBE.the portion of work assigned to the ACDBE.

The following 3 examples are not intended The following 3 examples are not intended as a comprehensive guide, but rather to as a comprehensive guide, but rather to indicate a potential thought process for indicate a potential thought process for analyzing participation. analyzing participation.

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Example 1Example 1

The ACDBE ownership of a retail JV is stated as The ACDBE ownership of a retail JV is stated as 20%. 20%. The ACDBE shares 20 % in the capital contribution, The ACDBE shares 20 % in the capital contribution, control, overall management, risks, and profits of control, overall management, risks, and profits of the JV. the JV. The ACDBE assigned role in the business includes The ACDBE assigned role in the business includes ““participation inparticipation in”” and and ““assistance withassistance with”” various various activities which routinely occur in the dayactivities which routinely occur in the day--toto--day day operations. operations. These roles should not be valued since the extent These roles should not be valued since the extent of this participation is unknown and is neither of this participation is unknown and is neither distinct nor clearlydistinct nor clearly--defined.defined.

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Example 1 Example 1 -- continuedcontinued

Operations(1/3 of the business effort)

Product(1/3 of the business effort)

Administration/Corp Support

(1/3 of the business effort)

Human Resources Purchasing Accounting/Payroll/ Taxes

Loss Prevention Inventory Management Legal Services

Safety/Security Pricing Business Development/ Landlord Relations

Cash Management Décor/Display Human Resources/ Training Programs

Day-to-Day Landlord Relations

Product Assortment/Menu Development

Policies/Procedures

Maintenance/Cleaning Negotiation of Special Programs, Rebates, Display Allowances, etc.

Other Corporate Support

Budgeting/Monitoring Performance

Budgeting/Monitoring Performance Budgeting/Monitoring Performance

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Now, let us assume that the ACDBE partner is also assigned Now, let us assume that the ACDBE partner is also assigned the role of finding DBE vendors to be utilized by the business the role of finding DBE vendors to be utilized by the business and recruiting minority employees. and recruiting minority employees.

These roles are activities included under broader categories These roles are activities included under broader categories --Human Resources (HR) and Purchasing. HR is only one task Human Resources (HR) and Purchasing. HR is only one task within the within the ““OperationsOperations”” category and purchasing is only one category and purchasing is only one task within the task within the ““ProductProduct”” category. In addition, it is difficult, category. In addition, it is difficult, if not impossible, to quantify the value of these tasks in termsif not impossible, to quantify the value of these tasks in termsof their impact on gross receipts. of their impact on gross receipts.

An airport would not have sufficient data to approve the JV An airport would not have sufficient data to approve the JV for counting because the portion of the work to be performed for counting because the portion of the work to be performed by the ACDBE is very difficult to quantify. The airport should,by the ACDBE is very difficult to quantify. The airport should,in this case, request that the JV participants clarify the role in this case, request that the JV participants clarify the role of of the ACDBE.the ACDBE.

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Conversely, assume that all other factors are the Conversely, assume that all other factors are the same as described above, except that the ACDBE same as described above, except that the ACDBE independently performs all functions in the independently performs all functions in the ““OperationsOperations”” category. category.

In this case, it could reasonably be determined that In this case, it could reasonably be determined that the ACDBE performs at least 33% of the work for the ACDBE performs at least 33% of the work for its 20% ownership share. However, the its 20% ownership share. However, the participation would be counted at 20%, not a participation would be counted at 20%, not a greater percentage which might be indicated by the greater percentage which might be indicated by the portion of the work performed by the ACDBE.portion of the work performed by the ACDBE.

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Example 2Example 2

A JV between a nonA JV between a non--ACDBE and an ACDBE operates ACDBE and an ACDBE operates a news/gift concession at an airport. a news/gift concession at an airport. –– The ACDBE is reported to have a 15% share in the The ACDBE is reported to have a 15% share in the

ownership of the JV. ownership of the JV. –– The ACDBE has contributed capital from its own funds. The ACDBE has contributed capital from its own funds. –– The ACDBE participates on a management committee and The ACDBE participates on a management committee and

there are a number of business decisions requiring there are a number of business decisions requiring unanimous consent. unanimous consent.

–– The ACDBEThe ACDBE’’s share of the profits and risks of the joint s share of the profits and risks of the joint venture are proportionate to its stated ownership interest. venture are proportionate to its stated ownership interest.

–– There are management fees paid to the nonThere are management fees paid to the non--ACDBE ACDBE partner, however, they are calculated as a reimbursement partner, however, they are calculated as a reimbursement of costs. of costs.

The JV agreement The JV agreement appearsappears to comply with the to comply with the regulation and this guidance. regulation and this guidance.

9494


The ACDBE is assigned the following activities:The ACDBE is assigned the following activities:–– Supervise the Manager in developing the annual budget Supervise the Manager in developing the annual budget –– Evaluate dayEvaluate day--toto--day operations and make day operations and make

recommendations recommendations –– Sourcing and recruitment of personnelSourcing and recruitment of personnel–– Supervise employee training and developmentSupervise employee training and development–– Develop marketing and promotional conceptsDevelop marketing and promotional concepts–– Assist and advise regarding the needs of the local Assist and advise regarding the needs of the local

communitycommunity–– Identify potential DBE vendorsIdentify potential DBE vendors–– Monitor store compliance with other income programsMonitor store compliance with other income programs

It is not possible to ascertain exactly what portion It is not possible to ascertain exactly what portion of the work will be performed by the ACDBE. of the work will be performed by the ACDBE.

9595


In order to assign any credit, additional information In order to assign any credit, additional information is needed as follows:is needed as follows:–– Budget Budget –– control of ACDBE?control of ACDBE?–– Evaluation Evaluation –– what happens to recommendations?what happens to recommendations?–– Recruitment Recruitment –– responsible for hiring?responsible for hiring?–– Training Training –– level of effort?level of effort?–– Marketing Marketing –– solely responsible?solely responsible?–– Community Community –– what does what does ““assistassist”” mean?mean?–– DBE Vendors DBE Vendors –– are these vendors used?are these vendors used?–– Compliance Compliance –– how is this accomplished?how is this accomplished?

Before any credit is assigned, such questions need Before any credit is assigned, such questions need to be answered and issues to be resolved. to be answered and issues to be resolved.

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Example 3 Example 3 --

A JV between a nonA JV between a non--ACDBE and an ACDBE operates a ACDBE and an ACDBE operates a food/beverage concession consisting of 8 locations. food/beverage concession consisting of 8 locations.

The ACDBE has a 35% share in the ownership of the JV. The ACDBE has a 35% share in the ownership of the JV.

The ACDBE has contributed capital obtained through a The ACDBE has contributed capital obtained through a combination of its own funds (15%) and a loan from the noncombination of its own funds (15%) and a loan from the non--ACDBE (85%). A loan agreement has not been supplied. ACDBE (85%). A loan agreement has not been supplied.

The ACDBE participates on a management committee and The ACDBE participates on a management committee and certain business decisions require unanimous consent. certain business decisions require unanimous consent.

The ACDBE shares in the profits and risks of the JV. The ACDBE shares in the profits and risks of the JV.

There are no management fees paid to either party. There are no management fees paid to either party.

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The following is the description of the ACDBE role The following is the description of the ACDBE role in the operation of the business as supplied in the in the operation of the business as supplied in the JV agreement:JV agreement:

–– primary responsibility for the operation of gourmet coffee primary responsibility for the operation of gourmet coffee locations in Terminals 1, 2 and 3locations in Terminals 1, 2 and 3

–– employ staff to manage and operate said locations in employ staff to manage and operate said locations in accordance with the lease agreement and direction accordance with the lease agreement and direction provided by the Management Committeeprovided by the Management Committee

–– attend and participate in weekly managerattend and participate in weekly manager’’s meetingss meetings–– attend and participate in monthly meetings of the attend and participate in monthly meetings of the

Management CommitteeManagement Committee

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The airport should request the following The airport should request the following information:information:

–– A copy of the proposed loan agreement A copy of the proposed loan agreement –– A clear explanation of what A clear explanation of what ““primary responsibilityprimary responsibility””

actually meansactually means–– An estimate of gross receipts to be earned by the ACDBE An estimate of gross receipts to be earned by the ACDBE

operated locations compared to total gross receiptsoperated locations compared to total gross receipts

The fact that the ACDBE firm will be assigned The fact that the ACDBE firm will be assigned specific units to operate will provide a more specific units to operate will provide a more objective basis for establishing credit. objective basis for establishing credit.

9999

JVs can provide an opportunity, but JVs can provide an opportunity, but the participants mustthe participants must……

Insist on a clear agreementInsist on a clear agreementInsist on having a real and meaningful Insist on having a real and meaningful roleroleMake sure you understand how the JV Make sure you understand how the JV will operatewill operateBe prepared for the JV to be Be prepared for the JV to be monitored on a continuing basis monitored on a continuing basis throughout the termthroughout the term

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Questions?Questions?

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