Bidders cry foul over BIA main duty free shop tender

• Second highest offer from the first round of bidding not offered contract despite tender clauses guaranteeing the same
• New conditions included for second location disadvantages, claims operators
• Ministry says instructions to retender were from Cabinet

By Chathuri Dissanayake

A move to retender the operation of Core Category Duty Free Shops at the Bandaranaike International Airport (BIA) has been met with resistance from interested parties due to the Government’s decision to not award the contract to successful bidders during the first round of bidding.

The tender process, which was marred by confusion and controversy from its outset, saw another twist when the Ministry of Transport and Civil Aviation last week reissued tender notices for Concession space 2 available at both the arrival and departure lounges despite receiving successful offers during the first bidding process last year.

The Ministry’s tender notice last year was for the operation of two shops spaces each in the arrival and departure lounges for a five-year period, with a Request For Proposal (RFP) specifying that the selected two operators would be allocated the space based on the financial bid proposal they submitted. 

The tender announcement listed two spaces in the Departure Restricted Area Concession space 1 of 5,060 sq. ft. and Concession space 2 of 3,060 sq.ft. while the two spaces in the Arrival Restricted Area were listed as Concession space 1 with 2,646 sq. ft. and Concession space 2 with 2,665 sq. ft.

This was the first time that international competitive bids were called for by the Ministry to select the operator. Five operators submitted successful bids with Flemingo making the best offer to pay a 40% concession fee, followed by a slab offer from World Duty Free (Dufry company). Dutch company B&S and Korean company Shilla also bid for the space while Aer Rianta withdrew at the bid opening. DFS submitted a protest bid sans a financial offer. 

However, delays in the tender process and the arbitrary extension of the deadline for bidding raised serious questions regarding the tender process followed by the authorities from the beginning.

At technical evaluation stage, both World Duty Free and B&S were disqualified due to their lack of financial capacity, leaving Korean operator Shila to be the second highest bidder offering a concession fee of 34%, Somaweera said. 

However, Dufry, which bought over World Duty Free, is ranked number one in The Moodie Report on the World’s top 25 travel retailers. The technical evaluation has now been appealed through the Ministry’s Procurement Appeal Board, Daily FT learnt.

Despite the clauses in the RFP to offer the second space to the second highest bidder, the Ministry last week decided to re-tender for offers. According to Transport and Civil Aviation Secretary Nihal Somaweera, a new condition has been introduced where the minimum concession fee should be 40%. 

Interested parties find the new clause unfair as it gives an undue advantage to the first operator, Flemingo. The newly imposed minimum fee is equal to the fee that has been offered by Flemingo to operate the larger of the two spaces in the best locations in both the arrival and departure lounges.

Interested parties, who wished to remain anonymous, claimed that the authorities were trying to fix the tender process to ensure that there were no bids for the second space, which would allow them to award the contract for the second space to Flemingo.

However, Somaweera defended the decision to impose new conditions, saying it was based on instructions given by the Cabinet Procurement Committee. According to him, the Ministry was advised to negotiate with the second successful bidder during the first round of bidding to match the highest bid of 40%.

“We cannot award for anything lower now as we refused to offer the contract to Shila due to their refusal to increase the fee percentage to 40%,” Somaweera explained, defending the decision to impose a minimum concession fee.

He also argued that since the fee was based on revenue the operator would not be at a disadvantage despite the restrictions in shop space.

“There is no competitive disadvantage as they will only be paying the higher concession fee on revenue generated,” he insisted.

Meanwhile, World Duty Free, which employs about 300 individuals and has maintained a presence in the country for the last 21 years, has been given 14 days’ notice to move out.