On that fateful morning--was it only last week?--the new vice president had asked Dana to look into the issue of whether or not to contract with a foodservice management company. Given Harry's imminent retirement, now seemed to be as good a time as any to make such a change. But then Dana's mind started whirling with second thoughts. "Would a decision to contract foodservice affect current employee's jobs and earning potential? Especially Mabel, who has been the cashier forever. People just love Mabel. They come just to visit with her and hear her latest joke. It would not do my career any good to be responsible for Mabel losing her job or, worse yet, her benefits,"" Dana told himself. "Her family relies on her benefits. Besides, what are the usual terms of the foodservice contract? Would subsidy go up or down? Would a contractor be willing to participate in some of our popular traditions like the Halloween Lunchtime Costume Judging Contest? More important, how much control would the organization lost?"
Reasons to Consider Contract
The purpose of this chapter is to discuss the common advantages and disadvantages of contracting, as well present a process for assessing these advantages and disadvantages. Perhaps on of the best ways to analyze whether to contract foodservice is to look at the reasons why some organizations choose to go this route. Based on his study of foodservice trade magazines and Support Service management guides, Dana assembled the following list of reasons why certain organizations consider contract foodservice as an option.
The current program is mismanaged. Generally speaking, if the existing program is efficiently managed with few staffing problems and the facility is in good working order, organization administrators do not consider contracting out foodservice.
An organization-wide effort to downsize the workforce has resulted in a move to outsource support services and shrink expenses.
The new "state-of-the-art" kitchen that was built takes more sophisticated management skills than are available in-house. As new kitchens are constructed with ever more advanced and sophisticated preparation and delivery systems, administrators are finding that managers familiar only with traditional cook serve systems do not have the skills to manage the new systems. It is precisely for this reason that administrators need to keep abreast of emerging foodservice technology.
The foodservice concept desired by the organization lies outside the experience or vision of the existing management. Sometimes, a foodservice is still serving meat, potatoes, and gravy when customers have started going out for espresso, taco salads, or croissant sandwiches and ordering pizza or submarine sandwiches from a nearby delivery operation. Change is not easy for some foodservice directors, and these individuals often remain convinced that the way they have run their programs for 15 years will suffice for another 15.
The cost of foodservice has become more than the organization is willing/able to subsidize. In light of many organizations' efforts to decrease operating budgets, some of the built-in costs of operation have made contract feeders' fees look comparatively attractive. With their purchasing power, well-developed training programs, and existing accounting and control systems, contract management companies contend that they can provide employee meals for less money than self-operators, even if a self-operator is doing a quality job of management.
The organization's foodservice needs new equipment but cannot afford the capital expense. A contract feeder may be both wiling and able to purchase the necessary equipment for a client and amortize the cost over a given period of years. At the end of this time the equipment belongs to the client-organization.
The organization is unable to build and sustain a viable foodservice management team. Because there is no real career path for managers in a self-operated foodservice, it is sometimes difficult to retain a competent staff. Talented individuals will move on to improve their careers, leaving the company with less motivated or trained staff. There is also a tendency for those who remain, no matter how good they were initially, to become isolated in their organization and therefore lose touch with the marketplace. The best advice to a self-operated manager is to get out and stay current with the foodservice industry. Attending professional meetings and trade shows and networking not only with other managers of self-operated foodservices but also with persons from all aspects of the foodservice industry are ways to keep pace with an ever-changing profession.
Perhaps the manger of the foodservice is retiring and there is no one who appears qualified to take that individual's place. Sometimes, a very efficient and effective program will simply fall to pieces when the "indispensable manager" retires. Even though that manager may leave everything in writing, sometimes there simply isn't anyone in the organization capable of carrying on the former manager's quality of work. Occasionally, especially in isolated or rural workplaces, this situation is simply unavoidable, since really good managers usually choose to take positions in larger metropolitan or scenic areas.
The loss of one or two key individuals could, in effect, leave the administration with a major management challenge (i.e., headache). Without question, this can be the most difficult issue to analyze. An assessment has to be made as to whether the foodservice department operates via a well-defined system or by the strength and knowledge of a few key people. During this assessment, personal reputations and egos could possibly be on the line, so caution is recommended. If everything is in the head of the current management, it goes away with them. ["Hmmmmmm. I need to follow up with Harry and get those operations policies and Quality Assurance manuals he was talking to me about the other day," thought Jones.]
Differentials between the organization's wages and those paid in the private sector for comparable foodservice jobs make the cost of the program prohibitive. This is especially true when there is a desire or demand for retail concepts with the same or comparable pricing. If the wages and benefits are higher than those paid locally, it is unlikely that financial objectives will be met.
Management perceives there would be an increase in purchasing power with contractors. Sometimes this perception is valid; other times other purchasing options are open to an organization. For example, many hospitals join purchasing groups that achieve the goal of increased purchasing power without a contractor.
One institution's foodservice had the greatest purchasing volume in its locales and its prices were on a par with many contractors. However, because the institution had a central purchasing process that added a 15 percent handling charge on all purchased goods, the food cost was higher than in similar institutions. This institution benefited not from the increased purchasing power so much as from the fact that the contractor passed its purchasing prices on to the institution without the handling charges. Even with the management fee/administrative charges billed by the contractor, the department was able to achieve a net savings through contracted foodservice.
Perceived Negative Aspects
Dana mused to himself, "What about the potential downside of hiring a contractor to manage our foodservice?" By consulting his growing reference library and networking with other Support Services administrators in friendly organizations, Dana was able to complete this list of commonly perceived drawbacks to "going contract."
"Since profit is the only motive for contract feeders, they won't be willing to provide decent food and service. All they care about is their bottom line."
"Nutrition will be thrown out the window because they all try to promote fast food."
"Contractors cannot provide service as cheaply as self-operators since they cannot use student or inmate labor or commodities." (This last constraint applies to schools, colleges, and correctional institutions.)
The truth of the matter is, contract foodservice companies are interested in the bottom line. So is government these days. There is nothing wrong with making a reasonable profit; it is business taxes that help pay for government services. How good the food is under a contract feeder is quite simply a function of how good a contract and organization writes.
Most contract feeders have registered dietitians on staff who help write and evaluate the menus, which ensures appropriate nutritional standards. Again, well-defined specifications, monitored on a regular basis, will assure the contractor's adherence and performance level.
Note: Those organizations qualified to receive USDA commodity foods may allow contractors to use those foods on their behalf. In 1978 the USDA rewrote the restrictions on the use of commodities to allow contract feeders to use such products as long as they follow the rules and regulations set for institutional use. Commodity programs are closely monitored by appropriate state agencies. Administrators of foodservice in correctional facilities should be aware that there is no reason that closely supervised inmate labor cannot be used in a kitchen run by a contract management company. For programs at colleges and universities, work-study students can be employed by contractors.
Potential Negative Aspects of
So what are the real downside to contract foodservice management?
A perceived loss of control of the day-to-day operations. For some organizations, it is difficult to lose direct control. They have a tendency to want to "give direct orders" to the foodservice staff rather than working through the contract process, which usually involves addressing changes and complaints to a designated manager. This process takes more time and is frustrating to some.
Experience has shown that it is easy for an administrator to lose control of a self-operated foodservice as it is to lose control of a contractor operation. In all cases, it is imperative that someone knows enough about foodservice to administer it properly regardless of who is operating it. ["Boy," Dana said to himself. "Am I learning that one the hard way!"]
A certain amount of trauma accompanies the transition from self-operated to contract management. While and organization may think that it is ready for the transition, there are always unforeseen shocks to the organization's culture. For example, people used to walking into the kitchen to grab a cup of coffee or a cookie (whether of not it was against the policies) may no longer be able to do so. There is also the trauma that surrounds changing from subsidized self-operation to a profit and loss account. Under that scenario, the organization cannot withhold pricing increases. If prices were substantially lower than market because of the subsidy, there will undoubtedly be a price increase required to eliminate or reduce the subsidy.
A share of the income goes to the contractor. Sometimes an organization's foodservice has been losing money and a contractor is able to increase sales and effect efficiencies that result in a lower subsidy or increase in profit. At that point some memories are short, and people begin to point to the amount of money that is flowing out of the organization to the contractor. For some organizations, the contractor fee is well worth not have the day-to-day headaches. For others, the money is more important. In most cases, the amount of profit a contractor makes can be negotiated.
The organization now has to deal with an outside entity that has different goals and objectives. While not an insurmountable challenge, these different goals and objectives need to be identified and resolved if the relationship is to succeed. The process of meeting the challenge is more stressful to some organizations than others. Most contractors want to establish and maintain a long term relationship, so it is in their best interest to integrate the two.
There is the human resources issue of what will happen to an organization's employees if a decision is made to use contract foodservice. That is always a concern not just of foodservice personnel, but also the rest of the organization's community. Foodservice personnel are often highly visible, long-term members of the community and no one wants to see them harmed. Again, there are means of dealing with the issue, such a requiring that all existing employees receive a trial period with the contractor. Another solution is to offer them jobs elsewhere in the organization. They key to success is carefully thinking though the issue and its solutions early in the process.
Through the low-bid process or for other reasons, an organization may be locked into a contract with an incompatible contractor. This becomes more of a problem with government contracts than for private industry. With the Request for Proposal (RFP) process, there is more latitude to determine the quality of the proposal and the ability of an organization to implement its proposal. An RFP is a formal written process for soliciting qualified companies to submit proposals based on parameters established by the requesting organization. If price is the sole or primary determinate, then it might be called a Request for Bid (RFB). Sometimes a government agency is required to use the low-bid process and will find itself in a contract with a company that is not meeting its needs.
The challenge is the imperfect mediums of people and food, which vary too much to quantify. Foodservice is not a clearly defined "item" that can be bid. No matter how detailed the specifications, there is still the issue of whether a company can really meet the challenges of a given foodservice operation. In the low-bid process, if even one variable surfaces it is sometimes impossible to solve the challenge.
For example, a foodservice management company was awarded a contract at a psychiatric hospital based on the low-bid process. The company that won the award had other hospital foodservice accounts, and the purchasing office contended that that alone qualified them to operate foodservices at its institution. The reality was that the contractor had no experience with the special needs of a psychiatric hospital. The contractor offered the low bid based on its knowledge of staffing levels at general care hospitals, and that price did not permit adequate staffing to compensate for some of the security delays that affect a psychiatric hospital. The contractor's learning curve related to psychiatric hospital needs frustrated the institution's management. At the same time, the contractor was frustrated because its "profit" was spent on adding the necessary staffing. There was general dissatisfaction with the account on the part of both parties. However, because it was a three-year contract and there had been an investment made in the facilities by the contractor, it was nearly impossible to break the contract.
It is important to think through all these issues in advance. In some instances an organization has elected not to contract because it would be required to seek a low-bid price rather than use the RFP process formatted to select the best, most qualified company without money being the primary determinate.
In yet another instance, an organization's administrators were able to build a strong case for developing a request for proposal, rather than a request for bids. They presented their case to the state's attorney general and subsequently to the legislature to obtain an exemption from the bid process for its foodservice facilities.
ANALYZING AN INDIVIDUAL
The most important question to answer is, Who can operate foodservice at a given facility most efficiently and cost-effectively? If self-operation is working for an organization and the manager is keeping on top of industry food and marketing trends, that organization will probably not want to consider contract foodservice. If, however, there are problems and foodservice management is lagging behind the times, it is essential for responsible administrators to look at contract foodservice as an option. One thing is certain: turning over foodservice to contract management does not mean that a client-organization never needs to be concerned with its program again. The contract between an organization and a foodservice company will only be as good as the way in which it is administered (see Chapter 5).
Even with a foodservice contractor in place, most organizations will assign an administrator who will need to become knowledgeable enough about foodservice to monitor the contractor's performance. This administrator will be required to do operational audits, review and process contractor billings, handle customer and staff complaints, and perform similar duties. With this in mind, Dana Jones sat down and wrote a list of the major issues he would present to Patricia Bell to consider when deciding whether to go to a contracted foodservice. Here's what Jones' list included:
The aptitude and attitude of staff relative to the foodservice program. Please note that the same administrative/oversight requirements apply whether foodservice remains self-operational or is turned over to an outside contractor. The question Support Services administrators must answer is, Do they want to be involved in the day-to-day operations or just the policy decisions? "Hey, if we were contracted and our manager was retiring I wouldn't have to worry about it so much. I'd just tell the contractor to have someone in here six weeks before Harry leaves!"
The skills and talents of the existing staff. Professional attributes are especially critical if a foodservice has or will soon be expanded or has otherwise become more complex. "It seems to me that there are also some problems with our current operation that staff just never seems to address, " Jones thought. "Like the fact that caterings are usually late, if they arrive at all. Or what about the long lines in the cafeteria each lunch hour? Couldn't the manager/staff do something to alleviate the problems? It seems to me that they are not proactive in solving the challenges."
Labor cost. "Has our corporate effort to treat all employees equally resulted in foodservice workers receiving higher wage and benefit packages whereas their counterparts in retail foodservice do not?" Jones wondered. "If we stay self-operated, can we pay more for labor and charge less for food without incurring substantial losses? Even my understanding of economics tells me that won't work for long." Thanks to his research, Jones had learned that comparable wage scale rates can be secured from local culinary workers' unions, state employment offices, restaurant associations, or [by surveying other] similar foodservice programs. (If you choose to conduct a survey, it is important to make sure that the job titles and responsibilities of those contacted are comparable.)
Purchasing power. With the aid of local purveyors, businesses, and private and government institutions, the relative dollar volume purchasing power can be determined. It is important to verify that like-quality products are being compared. "I am sure we could serve more or better quality food for less if our purchasing power was greater," mused Jones.
Financial record keeping and performance. Sometimes the lack of past financial/operational data prevents an administration from validating improved performance levels. Organizations can rarely tailor their financial reporting system to accommodate the particular needs of an individual department such as foodservice. This sometimes results in a compilation of data that are difficult, if not impossible, to track, never mind analyze effectively. This situation is especially common institutions where more than one foodservice function exists (e.g., a hospital that has patient feeding, cafeteria, doctors' dining room, catering, and other foodservice responsibilities). The ability to reconstruct financial statements and to assign costs and/or develop productivity data that have any meaning may be difficult under these circumstances. The ultimate goal is to have the kind of data available that permit the benchmarking of an organization's foodservice against comparable operations in similar organizations
The mission of foodservice within the organization. "What is it that our organization expects foodservice to accomplish?" Dana asked himself. "To keep employees on campus? Provide meals subsidized only to the de minims level set by the Internal Revenue Service? Provide a glamorous image to assist in raising funds, selling product, or influencing high-powered visitors?" In Dana's case, the expectations are for all of the above in varying degrees. He would be interested in how Vice President Bell would perceive AU's goals for its foodservice.
Capital investment. While an organization may lack funds to make necessary capital investment, if sales potential and customer base are stable and sufficient to support current facilities, a contractor may make the capital investment and amortize it over a period of years. This issue confronts primarily local, state, and federal government more than private organizations. This type of arrangement is much more attractive to contractors if they can operate in a retail environment, such as arena concessions, public cafeterias, and similar operations. Dana knew that AU would not be interested in a direct capital investment by the contractor. He might, however, indicate to Bell that if they decided to contract they might want to have the contractor provide the smallwares or some other facet of the program as a "token" investment. Personally, he always thought people and organizations performed better if they had a financial commitment to any program.
Sitting back, Dana said to himself, "I guess the key to our situation is how I want to replace Harry. Yet even if we can replace Harry with another qualified manager, this analysis makes me see that there may be some merit to hiring a contract foodservice provider. As a result of my own self-education process, I have most of the other elements required to make this decision. I better put this data together and then call a meeting of some of the key players to go over the primary points. Whatever we do, it is becoming crystal clear that I'll still have to supervise the program."
Jones completed a discussion paper considering each of the positive and negative aspects of contracting AU's foodservice. He was ready for an audience with Bell to discuss the issue. Perhaps they would consider contracting the new operations across the freeway and continuing to operate the existing facility as a means of comparison. In that way, there would be an in-house staff in place to pick up the operations if contracting did not work for AU. And, if contracting proved to be the better option, it would be relatively easy to bring the existing cafeteria under the contract at the appropriate time.
It is acknowledged that there are many more reasons and unique situations that justify the contracting out of foodservice. The key is an analytical process for making such a decision. As many administrators will agree, it is far more difficult to return to self-operation after an outside contractor has been used. The answers are not easy and the issue must be considered carefully by each and every organization.