City of Houston

Pappas Restaurants sues City of Houston after losing Hobby Airport contract, asks judge to void competitor’s deal

The city awarded a 10-year, $470 million concessions contract last month to a joint venture group led by a U.S. subsidiary of Spain-based Areas, ending a 20-year reign at Hobby Airport for Houston-based Pappas.

Pappasito's Hobby
Andrew Schneider/Houston Public Media
Pappasito’s Restaurant at Hobby Airport.

Pappas Restaurants, which lost a bid to continue operating concessions at Hobby Airport, is suing the City of Houston over an allegedly faulty procurement process and asking a judge to void a lucrative contract awarded to a competitor.

Houston-based Pappas leads a concessions management group called 4 Families of Hobby, which started operating at the South Houston airport in 2003. It finished a close second last month to a joint venture group led by a U.S. subsidiary of Spain-based Areas, which was awarded a 10-year, $470 million contract by the Houston City Council. The 4 Families group subsequently filed a protest with the city, which was denied earlier this month by the city's chief procurement officer, Jedediah Greenfield.

The local restaurant chain responded by filing a 269-page lawsuit Tuesday alleging that the city violated state and local procurement laws and policies, claiming the contract awarded to Areas should be voided as a result.

"On Friday, April 7th, we received the city's response to the post-award protest we filed with the procurement office," Pappas CEO Chris Pappas said in a statement. "Unfortunately, the response was conclusory at best and clearly did not take seriously our concerns that the city failed to comply with state law, city code as well as the city's own policies and procedures in this procurement."

The office of Houston Mayor Sylvester Turner did not immediately comment on the lawsuit Tuesday. A spokesperson for Areas did not immediately respond to a request for comment.

Pappas complained during the procurement process and in its lawsuit that the city solicited bids three separate times, beginning in the fall 2019, for the Hobby concessions contract that ultimately was awarded to the Areas-led group in March of this year. The Areas-led group did not finish with the highest procurement score until the final round of bidding, the lawsuit claims.

Among other allegations outlined in the lawsuit, Pappas claims its CEO received a November 2019 phone call and voicemail from William-Paul Thomas, who at the time worked as Turner's liaison to the city council, which the company said constituted a violation of a city rule that prohibits discussions between prospective vendors and most city employees during the bidding process. Thomas retired last year after pleading guilty in an unrelated federal public corruption case and admitting to participating in a conspiracy to accept a cash bribe.

"Oh, Mr. Pappas, this is William-Paul Thomas, Mayor Sylvester Turner's office," Thomas said in his voicemail, according to the lawsuit, which says Chris Pappas did not return the call. "I wanted to visit with you regarding the upcoming airport concession at Hobby Airport. Um, I have a great meeting with a couple of folks and I'm going to share with you some of the thoughts that we had going forward. Please give me a call at your convenience."

In awarding the contract to the Areas-led group, city officials cited a greater financial return for the city as being a key factor, since Areas pledged to provide the city with 22.2 percent of revenue from concession sales compared to 15.5 percent by the Pappas-led group. Pappas claimed in its lawsuit that it outperformed sales projections at Hobby by $160 million from 2010-19, resulting in an additional $25 million for the city's Airport Enterprise Fund.

Greenfield defended the city and its procurement process in an April 6 response letter to Pappas' protest, a copy of which was provided by Pappas Restaurants.

"I have reviewed this procurement thoroughly and am confident it was conducted in accordance with relevant law, ordinance, and policy," Greenfield wrote. "Consequently, I am denying your protest and your request to reevaluate the proposals. The procurement is complete."