Review of Deco Bike, LLC Compliance with Subsection 10.1.3 of the Concession Agreement (Period 10-1-2015 to 9-30-2018) 9-6-2019MIAMI BEACH MEMORANDUM
City of Miam i Beach, 1700 Convention Center Drive , Miami Beach, Florida 33139, www.miamibeac hfl.gov
Office of Internal Audit
Tel : 305-673-7020
TO : Jimmy L. Morales, City Manager
VIA: Mark D. Coolidge, Interim Internal A
FROM : Jessica Romero, Auditor .:::f . Q.. L
DATE : September 6, 2019
SUBJECT: Review of Deco Bike, LLC Compliance with Subsection 1 0.1.3 of the Concession
Agreement
PERIOD: October 1, 2015-September 30, 2018 (three complete agreement years)
On July 15, 2009, the City entered into an agreement with Deco Bike, LLC (concessionaire) in
response to Request for Proposal No. 44-07/08 for the delivery and operation of a self-service
bicycle rental fleet for public use to be stationed in the public rights-of-way. The agreement
required the concessionaire to implement a program which enables the public to self-rent bicycles
from any or a number of locations and return them to another location, on a 24-hour, 365 day a
year basis.
On July 18, 2012, the Mayor and City Commission adopted Resolution No. 2012-27975 (after it
became evident to the Administration that without intervention by the City, either through a
contract term modification or additional revenue source, the program would not achieve a return
of capital or modest profit to the concessionaire or recover the City forgone parking revenues over
the long term) accepting the recommendation of the City Manager to amend the agreement,
based upon the approved terms, and authorizing the City Manager and the City Attorney's Office
to negotiate and draft amendment no. 1 to the agreement. Said amendment was executed by
the City and Deco Bike, LLC on December 16, 2013. Among other modifications, this
amendment, (1) extended the terms for an additional ten (1 0) years through September 30, 2023 ;
(2) it increased the bicycle fleet from 900 to 1,1 00; (3) permitted advertising on the bicycle basket
though a Sponsorship Program; (4) approved advertising on designated kiosks; (5) provided for
a revenue sharing provision, including a return of capital and the windfall provision; and (6) added
subsection 1 0.1.3 to the agreement (Section 13 of amendment no. 1) detailed below.
In March of 2018, the Parking Department requested that Office of Internal Audit (Internal Audit)
staff conduct an audit of the Deco Bike, LLC concession agreement. The scope of the audit was
primarily to determine whether the windfall provision had been reached as per the terms of
Sections 10 and 11 of amendment no. 1 to the concession agreement. The corresponding audit
report was issued on July 18, 2018.
On July 29, 2019, Internal Audit received an additional request from the Parking Department to
determine the concessionaire's compliance with Subsection 1 0.1 .3 of the agreement which states
"For the period commencing on October 1, 2012, and ending on September 30, 2013, the
concessionaire agrees to expend a minimum of $300, 000 on the repair and/or replacement of
bicycles. Thereafter (i.e. commencing on October 1, 2013), the concessionaire shall spend a
minimum of $300,000, annually escalated by three percent (3%), for the repair and replacement
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INTERNAL AUDIT REVIEW REPORT
Deco Bike, LLC Compliance with Subsection 1 0.1.3 of the Concession Agreement
September 6, 2019
of the bicycles serviced each year, based on a useful life expectancy of three (3) to four (4) years
per bicycle."
Internal Audit noted that the terms established in Subsection 1 0.1.3 did not specify the allowable
expenses to be included in the calculation of the annual repair and replacement of the bicycles.
Therefore, Internal Audit sought the opinion of the City Attorney's Office to interpret these terms
and to clarify which expenses should be included in the benchmark calculation (e.g. bicycle
maintenance; depreciation on the bicycles and/or kiosks; purchase and maintenance of the kiosks
used to store the bicycles until usage by customers; the purchase price, gasoline and/or repair
costs associated with the vehicles used to transport the bicycles; etc.).
An interpretation of Subsection 1 0.1.3's terms was received from the City Attorney's Office on
August 5, 2019 which stated that the terms pertain only to bicycles and not to the kiosks or other
equipment; that the costs of repair, maintenance and/or replacement of the bicycles should be
included; and lastly, that depreciation expense should be excluded. Given this information,
Internal Audit tested the concessionaire's supporting documentation concerning labor expenses
as well as the purchases of parts (including shipping fees) and bicycle replacements for the period
of October 1, 2015 through September 30, 2018 to determine whether the required benchmarks
had been met.
• Labor: The concessionaire kept City of Miami Beach payroll costs separate from those
associated with the City of Miami due to their different agreement terms. As labor was
found to be the largest expense, 100% of the corresponding transactions were reviewed
whereby Internal Audit made the determination to:
o exclude all payroll costs related to customer service, bicycle recovery agents,
technical and janitorial functions as they are not directly related to repairs and
maintenance.
o exclude fifty percent (50%) of driver payroll costs since in addition to shuttling
bicycles back and forth for maintenance, repair and/or replacement; they
simultaneously re-positioned bicycles among the various Miami Beach kiosks.
o exclude twenty five percent (25%) of the Operations Manager payroll costs since
50% of his time is dedicated to overseeing the bicycle repairs and maintenance
functions while the remaining 50% is spent supervising the drivers. Internal Audit
calculated the following to be consistent with the above exclusion: ((50% excluded
driver payroll costs x 50% of the time spent supervising the drivers) = 25%
excluded Operations Manager payroll costs).
• Bicycle Parts: The concessionaire allocates 70% of the costs for bicycle parts to the City
of Miami Beach and 30% to the City of Miami. Their logic was that bicycles used more
frequently would require additional maintenance and repairs, so the allocation percentage
was based on the concessionaire's actual bicycle rental revenues generated by each city
compared to the total.
To determine the accuracy of the Deco Bike LLC's percentage allocation of the cost of
bicycle parts, Internal Audit re-calculated the allocation for twelve (12) months within the
audit period using the concessionaire's bank statements. In doing so, it was noted that
the actual revenue percentage was higher than 70% for the City of Miami Beach so the
allocation was considered reasonable.
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INTERNAL AUDIT REVIEW REPORT
Deco Bike, LLC Compliance with Subsection 1 0.1.3 of the Concession Agreement
September 6, 2019
Lastly, a sample of more than 60% of the total amount of bicycle parts purchased each
agreement year in the general ledger was selected for analysis. No differences were
noted when these transactions were vouched to the supporting invoices and payments.
• Replacements (New Bicycles Purchased): Internal Audit reviewed supporting
documentation verifying that $1,000,000 in new bicycles were purchased during the
2014/15 agreement year (outside the stated audit period) for Miami Beach customer
usage. Due to this purchase of new bicycles, it was reasonable that the amount expended
in parts in the 2015/16 agreement year was lower than the amount expended in the
2017/18 agreement year.
Lastly, all the invoices and payments related to the $240,000 expended in new bicycles
during the 2016/17 agreement year were reviewed with no differences noted.
• Shiooina Costs: Repair parts are purchased from overseas suppliers are directly
associated with the repair and replacement of the bicycles. Internal Audit reviewed more
than 60% of each agreement years' total shipping costs and no differences were noted.
The table below summarizes Internal Audit's testing results which showed that the concessionaire
has complied with Subsection 1 0.1.3 of the agreement during October 1, 2015 through September
30, 2018 audit period.
Allowable expenses
1 Replacement Bikes
2 Bike Parts
3 Labor-Bike.· Repair & Maintenance
4 Bike Transportation (SO%)
5 Labor-Operations Manager (75%)
6 Shipping
Total
Minimum amount required to be
expended per year
Difference Over/ (Under)
2015/16
$
$ 92,170.12
$202,913.31
$ 91,502.08
$ 37,256:52
$ 5,240.05
$429,082.08
$327,818.10
101,263.98
cc: Eric Carpenter, Assistant City Manager
Saul Frances, Parking Department Director
Laura Franco-Rubines, Assistant Parking Director
Bonifacio Diaz, Owner, Deco Bike LLC
Agreement Year
2016/17 2017/18
$240,000.00 $
$ 88,749.34 $191,866.17
$252,081.88 $202,145.88
$ 72,341.37 $ 99,373.23
$ 37,592.49 ' $ 39,304.63
$ 9,075.74 ' $ 18,750.26
$699,840.83 . $551,440.18
337,652.64 $347,782.22
362,188.19 203,657.96
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