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NH delays enforcing liquor warehouse pact

New Hampshire Union Leader

March 08. 2014 11:18PM
A sign marks the entrance to Exel, the N.H. Liquor Commission's distribution center in Bow. (File)

CONCORD - In the four months since a new vendor took over warehousing and distribution for the state Liquor Commission, the commission has not enforced provisions of the warehouse contract that demand reports on performance, with financial penalties for failures.

The 20-year, $200 million pact between the NHLC and the new vendor, Exel Logistics of Westerville, Ohio, requires that each week Exel will prepare a written status report for the commission, including service failures and corrective action.

The contract also establishes four "Key Performance Indicators" and states that if the average of the contractor's daily performance over a 30-day period fails to meet the target levels, the NHLC may require the contractor to pay damages.

Those damages are defined as a percentage of Exel's daily revenue from warehouse operations, starting at 0.25 percent in November and climbing each month to 1 percent as of Feb. 1.

"The Key Performance Indicators shall apply as of Nov. 1," the contract states. Based on ballpark figures from previous years, Exel might have incurred damages in the tens of thousands of dollars.

In response to a Union Leader right-to-know request for the KPI reports and performance metrics submitted by Exel, the NHLC provided a letter stating that those contract requirements have not been enforced but that efforts are under way to begin the mandatory reporting in the near future.

"We expect that within the next 30 to 60 days, the commission will begin receiving all contract-related reporting," NHLC Chief Operating Officer Craig Bulkley wrote in response to the Union Leader request.

"The contract does call for regular reporting on specific performance indicators," he wrote. "However, the commission did not expect to receive those reports initially. We understood that the first three to six months would require more intense discussions and operational reviews until we reached a level of normalcy."

When asked whether the NHLC left money on the table by not enforcing penalties that were within its purview as of Nov. 1, Bulkley said in a later interview, "I don't see it that way."

"My feeling is this was a huge undertaking and we expected that it would take time to normalize the processes to the extent that everything was working smoothly," he said. "In 20/20 hindsight, we might have said the KPI process and some of the other issues should have been held in abeyance for three months or four months until things were normalized and they (Exel) had an opportunity to get things straight."

Bulkley said the commission made a decision to set aside the requirements, despite the "shall" language in the contract, in fairness to Exel. The company, a subsidiary of the logistics giant DHL Express, faced a daunting task, he said."This is a partner that we are in business with for the next 20 years," he said. "I don't know that it does anyone any good on Day 2 to demand things are unreachable."An official with Law Warehouses, the vendor that held the contract before Exel, said the situation "is just the latest example of many where the commission has cut a special deal with Exel.''

A limited record

The decision by the NHLC to forgo its own contract requirements leaves the state with a limited record of Exel's performance in the first tumultuous months of the transition, beyond emails and notes from telephone conversations which, according to Bulkley, were substantive and frequent.

Exel and NHLC transition teams shared a one-hour conference call every day from Nov. 1 to Jan. 31, he wrote, with frequent face-to-face meetings, as well. As of Feb. 1, the calls were reduced to twice weekly, he wrote, "because the number of outstanding issues had been reduced over the first three months of operations."

With so many conference calls, emails and meetings, the commission thought the reporting required in the contract would be overkill, Bulkley said.

The anecdotal record is replete with complaints from restaurants, distributors and other players in the wine and liquor business in the first months after the transition from Law Warehouses, which had held the contract for decades.

"Those initial growing pains have all but disappeared," said Bulkley. "Certainly from time to time, as with Law previously, we have an issue that comes up, but the issues we faced during the first months or so have been resolved."

Steve Fortune, president of Fortune Wine Brokers in Dover, confirmed that the situation has improved. Initially a vocal critic of Exel performance in the first month, he now says, "There has been a turnaround, definitely. Most importantly, the accounts that we sell to are getting their product. It's not a 100 percent, but there has been dramatic improvement since November."

Kevin Mehra, president of Latitude Beverage of Boston, one of the largest wine distributors in New England, agrees. "We lost money in November and December, and the state did also," he said. "But it seems like everything has smoothed out and the process is back to normal."

Eye on contracts

Executive Councilor Chris Pappas, D-Manchester, is in the unusual position of viewing the transition to Exel as both a licensee and as an elected official with an eye on state contracts.

As a member of the family that owns the Puritan Backroom in Manchester, Pappas saw firsthand the problems associated with the warehouse transition and agreed that "things have gotten markedly better."

He was not entirely comfortable, however, with the fact that contract provisions are being enforced selectively. The Exel contract was not subject to Executive Council review, though the state Legislature later changed the law to make sure that future NHLC contracts go before the council for approval.

"We've made it through the worst of this transition, and I would hope going forward that the NHLC would insist that Exel meets the benchmarks set forth in the contract," he said. "As a member of the Executive Council, I plan on having further conversations with the commission to ensure that Exel is holding up its end of the bargain."

Brian Law, president of Law Warehouses, the vendor before Exel, said the commission has been giving Exel special treatment all along. "The state Liquor Commission for some unknown reason has relieved Exel of its requirement to comply with the terms of their contract or pay damages as mandated by the contract if it doesn't perform," he said. "By eliminating the reporting requirement and simultaneously not requiring Exel to appear at public meetings while meeting with them behind closed doors, the commission has made it impossible for the public to determine how Exel is performing." A key part of the lawsuit Law is now pursuing against the commission claims that the NHLC continuously modified the terms of the request for proposals to benefit Exel's proposal when the contract was up for bids.

"Exel was not prepared to be ready to operate on Nov. 1, 2013, as was required of all other bidders," he said. "The commission accepted this to the benefit of Exel alone and to the detriment of New Hampshire taxpayers. This is just the latest example of many where the commission has cut a special deal with Exel that harms the state of New Hampshire."

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