SUPPLEMENTAL MEMO

Aon Risk Services, Inc. of Northern California, in their letter dated October 30, 2003, requested the City Council not approve the recommendation from the Finance and Airport Departments to authorize the City Manager to execute an agreement with Lamberson Koster & Company a wholly owned subsidiary of Arthur J. Gallagher & Company, dba Gallagher Construction Services (“Gallagher”) to provide insurance broker services for an Owner Controlled Insurance Program for Airport Master Plan projects.

In an effort to answer the questions raised by Aon in their October 30, 2003 letter to the Mayor and City Council, a conference call was held in the afternoon of October 31, 2003. Participants in the call included representatives Aon Insurance Services (Rick Prentice and Mike Heffernan), the Director of Finance, Deputy Director and Insurance Analyst from the Debt and Risk Management Division, and the City’s OCIP consultant, Ron Rakich. This extensive conference call involved a review of the RFQ process and addressed the issues raised in Aon’s letter to the Mayor and City Council.

Subsequent to the conference call with Aon, later in the afternoon on Friday, October 31^st, the Director of Finance received an e-mail and a follow-up phone call form Rick Prentice, one of Aon’s representatives indicating, “Aon has decided not to pursue the issues as respects the airport OCIP. We appreciate your and Ron Rakich’s involvement and discussions in the process, and hope that you have a successful project.”

In an effort to provide further clarification, this memo addresses the issues and concerns raised in the letter provided to the City Council by Aon.

Request for Qualifications Process -- As discussed in the staff report dated October 18, 2003, the Request for Qualification (RFQ) process involved a review of the five responses by Finance and Airport staff and the City’s OCIP Consultant, for Airport OCIP broker services. Three finalists were invited to participate in the oral interview process given their demonstrated ability through the written proposal to service the City and specifically the airport with OCIP broker services. The proposals were evaluated and oral interviews were held as an opportunity to further evaluate each firm’s proposed level of service, proposed account manager, and fees and charges. The inter-departmental team unanimously selected Gallagher as the preferred OCIP broker based on the rating criteria and Gallagher’s service level commitment, web-based technology, creative compensation schedule and demonstrated flexibility in working with the City in the airport master plan projects, including security related projects.

Issues raised in the letter from Aon appear to focus on their belief that since they are a larger firm, they should be selected without regard to cost and flexibility.

· Cost Comparison -- Aon's quote is not lower than Gallagher's, it is higher, potentially quite higher, and not nearly as flexible. As discussed in the staff report, Gallagher provided a compensation schedule based on an annual minimum and maximum dependent upon the actual construction dollars expended during a given year. This creative compensation proposal allows the City to take advantage of a slower construction plan than originally anticipated and caps expenses if the program is more aggressive than originally contemplated.

· Timing and Broker Notification Process – Aon’s letter implies that they were unaware of the timeline for City Council approval of the selection for the Airport OCIP broker. The RFQ which was released on September 15, 2003 contained a timeline for the review and selection process which included a Council date of October 21, 2003. The RFQ submission deadline was extended one week on September 23, 2003 and during the oral interviews, each firm was given a verbal update on the schedule including the revised Council date to October 28, 2003. The attached timeline gives a summary of the timeline of the RFQ process and the notification process.

· OCIP Experience -- Aon’s letter implies that they have superior capabilities and disparages Gallagher. Gallagher's team is comprised of some of the best talent from the former Corroon & Black (later Willis-Corroon, later still Willis) construction practice and other construction-specific brokers. Corroon & Black was widely regarded as a center of excellence for construction risk management and insurance for many years. Gallagher is the third largest broker in total business as well as OCIP. Gallagher's professionalism and experience was quite apparent in the interviews.

· Airport OCIP Experience -- Although Aon can list more airports than Gallagher among its references, most of them are "national accounts." The team involved locally did not work on most of the Airport OCIP’s provided in their experience list. During the oral interview process, this question was asked and the only airports specifically mentioned with direct experience of the proposed Aon team were Oakland and Seattle. Seattle is a liability-only OCIP which is substantially different. Workers compensation is the driving force of an OCIP and not part of Seattle's program. Oakland is a project combining the port and the airport and our understanding is that most of the work done to date has been at the port.

· Location of Broker’s Offices -- Both firms have Bay Area presence and Gallagher has agreed to set up an on-site office to service this OCIP account.

The Airport OCIP interview panel consisting of Finance and Airport staff and the City’s OCIP Consultant, unanimously recommended the selection of Gallagher based on the evaluation of their written and oral presentations. In addition to costs proposal for OCIP Broker Services, the following criteria was considered: qualifications and experience of firm; qualifications of individual(s) assigned to manage the City’s account; quality of proposal; and capability of the firm.

SCOTT P. JOHNSON

Director, Finance Department

Attachment

Airport OCIP Broker Selection Process Timeline

Date	Action	Comments

09/15/03	RFQ Released Posted on Airport Web Page. Invited top brokers in OCIP to participate	Critical dates listed included *staff going to City Council on 10/21/03*
09/23/03	Deadline for written response extended 10/1/03 from original due date of 9/26/03	At the request of one of the firms the written response submission date was requested. E-mail was sent by Ron Rakich to all participants allowing for additional time. Thereby extending the original critical dates by one week
10/01/03	Written proposals due	5 Proposals received
10/03/03	RFQ responses reviewed	Firms to interview Process: AON, Gallagher, Willis Firms not selected: Near North. Marsh
10/07/03	Oral interviews held	AON, Gallagher, Willis Interview Panel: Airport staff, PB Aviation, Finance staff, OCIP consultant facilitated
10/10/03	Unanimous Interview Panel decision made recommendation to Airport OCIP Sub-committee	Interview Panel regrouped discussed reference checks and re-visited written and oral presentations. Gallagher – Recommended Broker

Date	Action	Comments
10/10/03	Selection announced to Gallagher	Airport staff, Finance staff, and OCIP Consultant
10/10/03	Draft Decision Notice letter prepared	Letters held for release until staff recommendation signed by CMO
10/13/03	Left voice mail with Ron Rakich; verbal discussion on October 16	AON’s lead contact Mike Heffernan in Los Angeles contacted Ron Rakich
10/15/03	Airport Master Plan Steering Committee	Draft City Council Memo distributed to group
10/24/04	Written Confirmation mailed	Upon receipt of signed staff memo from CMO
10/24/04 Friday	Formal “Public Information Act” records request from AON	Received from City Clerk’s Office at 4:15 PM Friday afternoon. * AON noted second request
10/27/03 Monday	AON advised documents ready for pick-up. (Met legal 10 day obligation to respond.)	Both written fax to requestor followed up by telephone notification that documents were ready for pick-up
10/28/03	AON picked up records in room 110 at approximately 11:30 AM
10/28/03	City Council Meeting

* Per correspondence from AON to City Clerk, AON stated they faxed a “Public Records Acts” request to the City Clerk’s Office on 10/17/03.