Overview
The Authority could not provide a documented performance assessment of the costs and benefits of extending its two one-year extensions of the MSA. Without documented assessment of the quality of the work, the Authority lacked the information necessary to determine whether extending the MSA was the best option.
Authoritative Guidance
According to its “Procurement Guidelines: Goods and Services,” the Authority “has elected to follow, Chapter 30B . . . of the Massachusetts General Laws.” Chapter 30B requires an assessment of the costs and benefits of exercising a contract renewal, extension, or purchase option and documentation of the findings in writing before exercising these options.
Reasons for Issue
During our audit, an Authority official stated that the Authority was not aware of the requirement to document an assessment of MGM Springfield’s performance. The Authority has not established monitoring controls to ensure that the required performance assessments are conducted.
Recommendations
- The Authority should ensure that MGM Springfield is aware of and fulfills all its responsibilities as detailed in the contract.
- The Authority should establish monitoring controls over the MMC contract to ensure that the contract administrator documents the required assessments in accordance with Authority policy.
Auditee’s Response
As noted in previous state audits (e.g., 1999, 2003), while the Authority is not subject to the requirements of Chapter 30B, based on its enabling statute, it has elected to follow them voluntarily and generally as a matter of best practice. In the case of the extension of the MGM Springfield management contract, the Authority did not prepare a report attesting to the advantageous nature of the agreement. However, there were numerous considerations, including the costs and benefits of the existing agreement with MGM Springfield, that justified the Authority’s decision to extend the MGM Springfield agreement (per the Authority’s published Request For Proposal for Management Services and subsequent Authority board vote authorization).
These financial and cost benefit factors that warranted such renewals included:
- Management Fee Waiver: Under the management agreement with MGM Springfield, the latter has agreed to waive annual management fees and related incentives. Compared to the previous management agreement, this saved the Authority $250,000 annually. Based on Authority experience and industry practice, it does not believe that any alternative management vendor team would be agreeable to matching these financial terms.
- Initial Capital Investment: Pursuant to the current agreement, the management team (Spectra and MGM) made a $200,000 up front investment in upgrades to the Mass Mutual Center’s food and beverage equipment and installations. Since the investment was amortized over five years, the election to not extend the agreement would require the Authority to compensate Spectra for the remaining portion of the investment ($80,000) that had not been fully amortized.
- Improved Venue Management: Another key consideration was the overall general improvement that the Authority realized in the management of the MassMutual Center as a direct result of a revised and stabilized organization chart and staffing plan, as well as several key vacancies being filled during the audit period.
- Financial Performance: Furthermore, as noted in this report above, the financial performance of the MassMutual Center, as demonstrated by the building’s operating coverage ratio, had shown considerable improvement, crossing the 50% mark for the first time in recent history.
- Arena Entertainment: It should also be noted that the MassMutual Center, under MGM Springfield, had hosted or was scheduled to host no less than ten premiere live entertainment events since summer 2018, at levels of notoriety and customer interest not witnessed in the market in decades. These events were secured by MGM Springfield, in agreement with larger commitments that it had made as part of its resort gaming license to the Massachusetts Gaming Commission and the City of Springfield, as it ramped up efforts to promote the City of Springfield and its venues as a live entertainment destination. Such activity increased the economic activity to Springfield and the Pioneer Valley region of Western Massachusetts by increasing hotel room nights, restaurant and meals tax, retail spending and employment.
- Re-Procurement: Equally important to the Authority was the practical challenges of re-procuring the venue management services. The Authority’s Board of Directors authorized the Executive Director to enter into an agreement for a “not to exceed period of five years“ in duration, without further board approval required, in part due to the disruptive potential presented by selecting a new management team after only three years, including turnover in key positions, a limited market of potential competitive bidders, and the associated start-up costs as well as the long transitional period that the Authority would likely bear with a new vendor.
These factors were deliberated by senior [Authority] management, which concluded that it was highly advantageous for the Authority to extend the MGM Springfield management agreement, pursuant to the Authority’s Board of Directors’ authorization. The Authority does not agree that the absence of a “written report” required under rules it voluntarily elects to follow means that it lacked the necessary information to assess MGM Springfield’s performance.
Auditor’s Reply
As noted above, Chapter 30B requires a performance assessment of the costs and benefits of exercising a contract renewal, extension, or purchase option and documentation of the findings in writing before exercising these options. Although we acknowledge that the Authority is not required to adhere to Chapter 30B, it has, through its own policies, elected to do so; therefore, it must adhere to all of the requirements of the statute, including performing and documenting a performance assessment of its contractors before renewing or extending their contracts. During our audit, we requested from the Authority a copy of the written evaluation of MGM Springfield from before its contract was extended. We were told it was the Authority’s informal practice to conduct performance assessments only for new procurements, not for contract renewals or extensions.
In its response, the Authority describes numerous factors that management had considered in deciding whether to extend this contract. The Authority further states that these considerations were deliberated on by senior management, “which concluded that it was highly advantageous” to extend this agreement. Although such deliberations may have occurred, we were not made aware of them during our audit and have not been provided with any documentation to substantiate when they occurred, what was discussed, or what was the basis of the Authority’s management decision to extend the contract. The process the Authority said it used to evaluate MGM Springfield’s performance and decide to extend the MSA may have been effective in helping senior management make an informed decision about the MSA; however, the Authority did not document a written assessment as required by Chapter 30B, so we could not determine whether the decision was reasonable.
We again urge the Authority to perform written assessments of all contracts before renewal or extension to provide evidence that a fair and equitable procurement process has been used.
| Date published: | February 16, 2021 |
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