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$174,000 would be comprised of a 80% fixed fee ($139,200) and the potential for a 20% incentive fee (an additional $34,800). A five (5) year agreement facilitates greater flexibility for the City and encourages the contractor to generate more revenue in order to receive their maximum management fee. The revenue the vendor generates enables the City to make annual debt service payments on the bonds sold to finance the course construction, and pay back the General Fund faster. Therefore, staff is recommending an Agreement with a five (5) year term. The recommended Operating Agreement addresses all relevant issues including staffing, payment practices, course policies /procedures, environmental permit requirements, accounting, insurance default provisions, etc. On November 12, 2009, the Parks and Recreation Commission reviewed the proposed agreement. The Commission approved the agreement and directed that staff forward it to the City Council for its final review and approval. Listed below are brief explanations of what staff considers the primary deal: Termination The City can terminate the agreement "for cause" or default at any point. In addition, the City may cancel the Agreement for no reason at the end of the third year in accordance with IRS regulations. Establishing Fees The Agreement sets the parameters for Pleasanton Golf, LLC to recommend future fee increases, including an analysis of fees at comparable golf courses. As proposed, the Parks and Recreation Commission would be empowered to set course fees. Cost Overruns Exceeding Direct Costs in any Operating Year by more than 10% (personnel; supplies and services; capital equipment, etc.), could result in a contract default by Pleasanton Golf, LLC. Though we don't anticipate a concern in this area, it is incumbent on Pleasanton Golf, LLC managers to keep Department staff apprised of any budgetary concerns and recommend potential solutions. Golf Instructors Golf instructors will serve as independent contractors and not part of the regular golf course staff. Though some employees may also teach lessons, such work must be separate from their regular schedule and assigned duties. The portion of golf lesson fees that can be paid to the golf instructors shall not exceed 80 with the remaining 20% allocated to the golf course. Management Fee Per IRS regulations, the City is limited in the fee structure and management term with Pleasanton Golf, LLC for operating and maintaining Callippe Preserve. Proposed payments are equally divided between both a "fixed" and "incentive" management fee, and are outlined below. The first year "fixed" fee is $90,000, with annual increases of approximately 4% in each subsequent year of the contract. In addition, an equal amount "incentive" fee can Page 3 of 4