Audit faults Md. Aviation Administration for handling of contested convenience store contract, financial record-keeping

The Maryland Aviation Administration mishandled critical aspects of a contract it awarded to operate two convenience stories near BWI Thurgood Marshall Airport, a newly-released audit has found.

The analysis, from the Maryland Office of Legislative Audits, concluded that the aviation administration did not adequately justify a modification to the contract “that significantly changed the financial terms” and removed a federal requirement on minority business participation at one site, “which may not have been in the best interest of the State.”

At the second convenience store site, auditors said, the MAA did not monitor the vendor’s compliance with the same federal contracting rules “and did not sufficiently verify the propriety of rent payments made by the vendor.”

The audit suggests there are “significant deficiencies” in the way the agency handles contracts and financial records.

“This report includes findings relating to conditions that we consider to be significant deficiencies in the design or operation of internal control that could adversely affect MAA’s ability to maintain reliable financial records, operate effectively and efficiently, and/or comply with applicable laws, rules, and regulations,” the auditors wrote. “Our report also includes findings regarding significant instances of noncompliance with applicable laws, rules, or regulations.”

The criticism came in a regularly scheduled audit on the aviation administration’s performance that covered the period from Dec. 17, 2018 to Jan. 31, 2023. And it was delivered at a time when the state has had to rebid a lucrative contract to run the concessions operation at BWI Airport amid charges of favoritism and malfeasance over the MAA’s original procurement.

The audit only tangentially addressed the controversial concessions contract, which Gov. Wes Moore (D) ordered to be reconsidered shortly after he took office. But its analysis of the convenience store procurement, which drew sharp questions from one of the companies that unsuccessfully sought the contract, as well as from a state lawmaker, was highly critical.

The strife over the convenience store contract dates back to January of 2020, when the members of the Board of Public Works at the time — Gov. Larry Hogan (R), Comptroller Peter Franchot (D) and Treasurer Nancy Kopp (D), all of whom are no longer in office — reluctantly awarded a contract at the MAA’s recommendation to an out-of-state company, PMG BWI Airport Plaza Developers LLC, for two convenience store sites near BWI airport. PMG won a 20-year deal to operate an existing gas station on the northern end of the BWI complex, and it was given a 50-year contract to build and operate a new gas station and convenience store on a vacant five-acre parcel near the BWI Amtrak station.

The procurement process eliminated all other bidders, aviation administration leaders told the Board of Public Works members at that 2020 meeting, because only PMG met a federal mandate that at least 25% of certain airport contracts meet the Airport Concessions Disadvantaged Business Enterprise (ACDBE) rule, requiring participation in the enterprise by woman-owned or racially diverse businesses.

“This is a very unique situation,” Hogan said during the Board of Public Works meeting. “Because unlike a typical state procurement, we’re dealing with federal law that required this.”

Yet a month later, according to a complaint over the contract that Baltimore-based Royal Farms filed with the Office of Legislative Audits in 2023, the aviation administration OK’d a change in the deal that no longer required PMG to hit the ACDBE participation goal, though that modification wasn’t formally ratified until a February 2021 Board of Public Works meeting. As part of that vote to alter the contract, PMG was given a different rental agreement for one of the sites and was permitted to turn part of the business over to a subcontractor, Sheetz, the convenience store and restaurant operator. Sheetz, like Royal Farms, had also wanted to bid for the original contract, but was told by MAA officials that it was ineligible because it was unable to meet the minority participation goals.

According to the new audit, investigators looked at four broad allegations that were made to the agency about improprieties in the contract. Some of these allegations the Office of Legislative Audits dismissed out of hand, including one that the aviation administration improperly rejected a vendor’s proposal because it requested a waiver of the ACDBE goal and intentionally deceived the vendor by stating the ACDBE goal was mandatory.

But other allegations drew rebukes from the auditing agency.

When it came to the February 2021 BPW vote altering the terms of the deal, “MAA did not adequately justify a contract modification that significantly changed the financial terms by lowering State revenue attainment for the entire term of the contract and removed the ACDBE requirements…Our review of the support for the modification disclosed that the changes may not have been in the best interest of the State,” the audit says.

One aspect of the revamped deal changed the way the state would collect income from the vendor, based on short-term sales projections made during the early stages of the pandemic, when airport travel plummeted. As a result, the audit concluded, the state’s projected revenues over the first five years of the contract would drop from $3.2 million to $2 million.

The audit also faulted MAA for eliminating the ACDBE requirements for part of the contract “without having documentation that it was in the best interest of the State or minority business enterprises to do so.” Aviation administration officials explained that they removed the requirements because the vendor claimed that other franchise chains were unwilling to sublet the site in part due to the minority business requirements. MAA could not provide documentation that it had evaluated the vendor’s efforts to meet the ACDBE requirements or had obtained support for the vendor’s assertions, the audit asserted.

And the auditors also found that MAA did not adequately monitor the convenience store contractor’s adherence to the minority business goals or properly demand required financial audits from the company on rent payments and revenues.

Four years after the original contract for the two convenience stores was awarded, construction on the proposed service station near the BWI train station has yet to begin.

Other concerns

The audit did touch on the major BWI concessions contract that was the source of so much controversy in 2022 and 2023, but the main complaint was that the aviation administration did not establish formal guidelines for marketing expenses incurred by its concessions management vendor, Fraport USA, to ensure the fund was used for its intended purpose.

But the audit did not address any of the concerns that prompted Moore to halt the procurement for a new long-term concessions contract at the airport and reopen the bidding process last fall. During budget hearings in the General Assembly this year, MAA Administrator Ricky Smith and Transportation Secretary Paul Wiedefeld told lawmakers that they expected the state to recommend a new concessionaire to the Board of Public Works sometime this spring. The Maryland Department of Transportation (MDOT), MAA’s parent agency, is overseeing the new procurement process this time, rather than the aviation administration.

The audit also dinged MAA for not providing adequate documentation on payments going for janitorial and shuttle bus services at BWI airport.

As is customary in probes from the Office of Legislative Audits, the aviation administration offered explanations for some of the decisions the audit criticized and discussed steps MAA would take to address the auditors’ concerns.

“We will advise MDOT regarding the results of our review of its response,” the auditors wrote at the report’s conclusion.

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