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Date:

To: Honorable Chairman Bruno A. Barreiro and Members,
Board of County Commissioners

From: George M. Burgess
County Manager

Subject: Supplement to Item 14A7 - Resolution Authorizing Execution of Amended and Restated Terminal Agreement between Miami-Dade County and Seaboard Marine, Ltd.

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On May 12, 2008, the Office of the Inspector General (“OIG”) issued a memorandum (attached) to the Mayor and the Board of County Commissioners regarding their observations, review, and comments on the proposed Amended and Restated Terminal Agreement (“Agreement”) between Miami-Dade County (“County”) and Seaboard Marine, Ltd., (“Seaboard”). In that report, the OIG expressed concerns, primarily regarding the following three issues:

1) Contract Term – ‘The OIG could not find any sound economic or financial reasons for proposing an initial term of twenty (20) years with two (2) unilateral five (5) year renewal options, making this a potentially thirty (30) year unilateral agreement.’

2) Capital Improvements – ‘The OIG is concerned that the Port of Miami (“Port”) may have committed to fund improvement projects that it may not be able to afford or be able to adequately manage and complete within the Agreement’s required time frames.’

3) Financial Terms – ‘The OIG is concerned that the Agreement’s short term revenue stream may not be sufficient to offset the Port’s current operating expenditures and debt requirements and still provide funding to support additional debt.’

These three issues have been previously addressed by the Port in a memorandum from the Port Director to the OIG dated April 25, 2008 (attached) responding to the OIG’s April 11, 2008, draft report. As explained in the Port’s response, the Agreement’s initial term of twenty (20) years, with two (2) five (5) year renewal options, is consistent within industry standards for cargo terminal operator leases - not only in Florida, but throughout the United States (attached please find a report providing brief descriptions of such leases). These long term lease agreements are necessary due to the capital-intensive nature of container yard terminal development and the need for a port to obtain a secure base upon which to finance the construction of new terminal infrastructure through future borrowings. The Agreement accomplishes this objective by encouraging the terminal operator to commit their financial and managerial resources to the overall long term development of their terminal facilities. This strategy provides financial incentives to the terminal operator as well as financial benefits to the Port.

With regard to the issue of capital improvements, as mentioned on the accompanying agenda item, these projects are typical for landlord seaports, such as the Port of Miami, and are the means by which facilities are maintained in order to attract new business. The cost of the improvements (up to a maximum of $26 million), which the County has committed to fund as part of this Agreement, represents approximately thirty-five percent (35%) of the new revenues, and ten percent (10%) of the net present value of anticipated revenue streams, that Seaboard will be paying the Port under the terms of the lease during the initial 20 year term. It is important to note that the Port, as part of the 1998 agreement with Seaboard, had committed to approximately two-thirds of these improvements but has yet to complete them. Funding for these improvement projects, which are included and funded in the Port’s Five Year Capital Improvement Program, will come from federal and state grants as well as future borrowings. The borrowed funds will be paid from the additional revenues generated as a result of this Agreement.

An additional concern to the OIG was the County’s position regarding the unilateral renewal terms of the proposed Agreement and the Port’s inability to renegotiate economic terms. This issue has been addressed by requiring Seaboard to exceed either of the performance thresholds shown on page two of the accompanying item’s County Manager’s memorandum, indicating that the Seaboard contract is still beneficial to the Port. The Port feels that these thresholds significantly protect the County during the out years of this Agreement. Furthermore, the length of this Agreement itself protects the County in the event of any significant downturn in this industry.

With respect to the criminal violation, as reported in the OIG’s May 12 memorandum and previously on its April 22 addendum (also attached), please be advised that this was a single hazardous materials (hazmat) incident which occurred in 2004, and did not involve any environmental damage to the Port. Seaboard agrees that the container, which had an incorrect manifest, was improperly handled by its dispatch department. To avoid an extended legal process, the company pled guilty in May 2005. Seaboard paid a $305,000 fine and was put on probation for a period of three years. The probation was terminated earlier than its three year term, in March 2008. Seaboard admitted their involvement in this matter and acknowledged that this incident was a learning experience for them. The experience strengthened their hazmat plan systems (containment areas, identification of situations) and training program. Seaboard currently has a hazmat plan which complies with all regulations at the local, state, federal, and international levels.

The proposed Agreement provides the Port with a steady level of income, both short and long term, and provides an incentive for Seaboard to generate business by maximizing the productive usage of its terminal facility. The Agreement provides each party with a known cost/reward point. Regardless of the volume of business, Seaboard is assured of a specific expense cost and the Port is assured of a specific future revenue stream.

I trust that this additional information will address the concerns raised in the OIG’s memorandum of May 12, 2008.




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Assistant County Manager




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