Rejected pay phone
FSH says rival given DIA job unfairly; city defends process
By John Accola, Rocky Mountain News
Friday, September 16, 2005
A Chicago company that acquired Qwest's pay phone division is suing the city of Denver, alleging city officials used "unwritten criteria" in awarding the airport's pay phone business to a rival firm.
FSH Communications made good on its threats to go to court after weeks of unsuccessfully lobbying the city to rebid the contract.
The 15-page complaint, which also names as defendants the Denver Department of Aviation and the city's Division of Small Business Opportunity, was filed in Denver District Court.
Denver City Attorney Cole Finegan insisted Thursday that the procurement process was fair despite City Auditor Dennis Gallagher's criticism that it was riddled with red flags of favored treatment to a politically connected insider.
"We look forward to resolving this matter in court," Finegan said.
Denver-based RMES Communications, a certified disadvantaged business enterprise owned by Herman Malone, was awarded the public phone contract at Denver International Airport in May even though FSH's bid provided the city with a heftier commission. The FSH contract projected an additional $1.5 million over five years.
Technically, the two rivals were 50-50 partners at the airport for nearly a year, an uneasy arrangement that started when FSH acquired Qwest Communications' 14-state pay phone business in May 2004. RMES and Qwest's predecessor, U S West, won the concessions business in 1999.
FSH, which also operates airport pay phones in the Phoenix, Seattle, Portland, Ore., and Salt Lake City airports, maintains it fulfilled all the city's requirements - including a commitment to take on a disadvantaged business partner.
Despite FSH's sweeter contract for the city, the small-business office and a hearing officer ruled FSH didn't fully comply with the disadvantaged business partner rule.
FSH's complaint, however, counters that the procurement process didn't follow the three-month selection process in the 1999 contract and was shortened to two weeks - all to favor RMES.
The lawsuit also cites a conflict of interest in the evaluation panel that ranked the bids, noting the participation of panel members Tamela Lee, director of the city's small-business office, and her brother-in-law, City Councilman Michael Hancock.
Lee "has known for over 20 years" RMES owner Malone, and typically Lee does not sit on the panel, the suit states.
The complaint said the small-business office disregarded its own rules requiring qualified bidders to show five consecutive years of "minimum gross sales of $800,000."
In its bid application, RMES showed pay phone revenues in 2003 and 2004 of $652,382 and $555,442, respectively. But the complaint asserts DIA managers Vicki Braunagel and Turner West took the position that RMES would still qualify because it could include the DIA revenues also generated by its former joint partners - Qwest and FSH.
Even if that was allowable, RMES still should have been disqualified, the complaint said. It said the joint venture in those years produced negative revenues for Qwest and FSH, both of which were "paying for the privilege of providing pay telephones at DIA."
The lawsuit said the "abuse of discretion" in awarding the May contract should be reversed. FSH is seeking a declaratory judgment that the city ruled incorrectly and must therefore re-solicit competitive bids.
The company also is seeking reimbursement of its legal costs and any lost profits, to be determined by a jury trial.
Malone's attorney, Joe Webb, could not be reached for comment late Thursday.
But Malone, a former chairman of the National Black Chamber of Commerce, said last week that FSH is unfairly trying to "leverage themselves into a contract they didn't win."
FSH - owned by three black businessmen - considered RMES as a partner for the new contract to meet the disadvantaged business rules, he said. Malone, however, said FSH was unwilling to strike a new partnership that would designate RMES as the prime contractor.
"This is Denver, not Chicago, and these guys are showing their inexperience," Malone said. "It puts me in an ironic position. I'm embarrassed they classify themselves as a minority company owned by African-Americans."