Maximising performance on catering contracts

Contract catering has come a long way in the last 20 years, writes Miles Quest. But concerns about the effectiveness of public procurement - and the drive for the cheapest price rather than the best value - still worry catering companies.

How has the catering contractor's remit developed in recent years?
What are the challenges of public sector procurement?

Contracting has undergone a sea change in recent years. For one thing, contractors now prefer to call it 'food and service management'. This is because it's a more accurate description of what they do.

In the latest annual survey of the industry by the British Hospitality Association, contractors recorded nearly 4,000 other services - from cleaning to housekeeping, from sterile services to grounds maintenance, from reception desks to retail shops.

Clients are now keen to bundle all the support services they need into the hands of one contractor.

This gives them one line of management with all the services under the control of one operator.

As catering is generally perceived to be the service that demands the greatest skill and expertise, clients tend to turn to the catering companies to take over other services.

This broadening of the catering contractor's remit to full FM has been a striking development in recent years but, of even greater significance, is the move towards reducing the subsidy - or removing it entirely.

Commercial savvy

It was only 25 years ago that Grandmet Catering Services (later to became Compass) took on the catering at the then-giant Austin Rover plant at Longbridge on a nil-subsidy basis - a groundbreaking move for an industry that had traditionally relied heavily on cost-plus contracts.

At the same time, it moved into commercial seven-day-per-week trading at sites such as Hamley's Store in Regent Street, London Zoo and Aston Villa Football Club.

Scenting the commercial change in the air, other contractors followed suit to such an extent that, now, nearly 70 per cent of all food and service management (FSM) contracts are either on a fixed price or on some performance guarantee basis, with a further 4 per cent being a concession or profit and loss contract.

As clients become keener to reduce - or eliminate - their subsidy, far fewer business and industry than public sector contracts remain on a cost-plus/management fee basis.

As a result, FSM companies recognise the need to move away from subsidy catering while acknowledging the opportunities offered by additional support services.

By some estimates, this is a market three times larger than the £4bn catering market.

They have also become more commercially savvy. Innovation has become a prerequisite.

They have adapted high street marketing techniques and introduced in-house brands that sell more food, more aggressively.

They understand the imperative of merchandising food and recognise the lifestyle trends that have swept over consumer eating.

The sit-down lunch of meat and two veg is fast disappearing - now grab-and-go items such as sandwiches and other snack foods take pride of place.

Large staff restaurants are being replaced by attractive, newly designed smaller outlets selling a range of snack and beverage items.

Healthier eating options are becoming increasingly important. The trend towards more casual, all-day eating will continue and menu choice will expand as casual eating becomes more popular.

Introducing these techniques, FSM companies have become sellers of food and beverage items, not producers.

In doing so, they have significantly increased customer take-up and food sales, benefiting both the customer - by offering a wider choice - and the client - by reducing the need for subsidy.

FSM companies have also been willing to make investment in client premises.

In the last four years, over £130m has been invested in client facilities, mainly in the business and industry sector - although companies approach this development with some caution.

"Clients have to recognise that Compass is not a bank," said Ian Sarson, a Compass director at a conference recently.

So Compass and others have walked away from tenders that demand too great an investment without the safety of a long-term (at least five years) contract giving them time for an adequate return.

All these trends point to one conclusion: FSM companies are more commercial than ever before. They are also more commercially minded.

As a result, major companies - Compass, Sodexo, Aramark and Elior in particular - have been giving up contracts that don't pay their way.

Last year, Compass's Scolarest Division's 10-year contract with the London Borough of Richmond was a high-profile victim, with Compass pulling out six years into the contract saying it had become uneconomic and citing lack of investment as a cause.

Other contracts have gone the same way as FSM companies take a harder-nosed look at the investment needed, the funding provided and the returns gained.

Clients looking to contract out their catering and support service requirements should bear these developments in mind.

FSM companies are eager to provide catering solutions but none is seeking to expand at any cost.

It is, however, in the area of public procurement where there is the greatest concern.

The public sector challenge

When a service company bids for a commercial contract, the process is reasonably clear. Both sides get together at the outset so that contractor and client can discuss the real objectives.

This leads to an intimate understanding of the client's needs, which, in turn, leads to an exploration of possible solutions.

In this way, real client needs are identified and a lasting partnership can be forged between all the parties that is to everyone's benefit - not least that of the customer.

Why doesn't public procurement follow the same practice of initial discussion and consultation? No one knows.

Invariably, for any major public contract, strict specifications are issued against which the contractor must tender. Few discussions are allowed.

"From the contractor's point of view", says Tony Heddon, Business Development Director, Health, Education, Defence and Government Services at Compass Group, "once the process has started, we'd like to see more opportunity to discuss with the client the options that are available to fulfil the requirements of the contract and make the response truly project-specific.”

“I'm sure this would enable the companies bidding to really demonstrate how innovative they can be - and this will obviously ensure a better service for the client.," he says.

It's an opinion widely shared by others.

When he was a consultant, John Higgs helped draw up the National Audit Office's report Smarter Food Procurement in the Public Sector, which made a wealth of recommendations.

Now Sales Director at ISS Eaton, he says that the advantage of public tenders is that they ensure a level playing field, but the disadvantage is that tendering takes twice as long to complete as a typical business and industry contract.

"Also, public sector procurement normally demands high levels of guarantees on insurance covers, with requests for either bonds or parent company guarantees which, at times, are simply just too risky and onerous for companies to accept. I'm not surprised some companies walk away from them," says Higgs.

Because a tender can take anything up to two years and, in Tony Heddon's words, "can be extraordinarily time-consuming and extremely expensive", it limits the number of opportunities that a company can realistically bid for at any one time.

"In the case of smaller companies, it may exclude them altogether, thus obviating one of the objectives of public procurement - to open the tendering process to as wide a field as possible," Heddon says.

Tim West, Chief Executive of Lexington Catering, one of the sector's smaller companies, agrees: "The tenders are obsessed with specifying everything, with reams about health and safety, not too much about food," he notes.

"Recently, we had several bid opportunities including one government agency and after a few questions to clarify the latter, I realised it would take a man-week to complete the paperwork, at a cost of about £2,000,” West says.

West concludes, “Cost was the primary driver and, again, health and safety seemed far more important than food or people. They expressed genuine dismay. There were seven other bidders, so we withdrew. So I explained that their process was inappropriate, unwieldy and we had other opportunities to progress."

The recent introduction of pre-qualification documents has also added to the tender workload. Some local authorities have introduced these to ensure that companies tendering are able to fulfil their legal obligations with regard to such areas as healthy and safety and TUPE.

"These can be a bigger document than the tender document itself and they differ from authority to authority," says Carl Morris, Sales Director for Sodexo's education sector.

"Why can't there be a standard set of criteria that apply throughout the country? This just replicates the work every time, quite unnecessarily," he says.

Clients looking for a catering service can call on the services of a catering consultant to advise them. This is something that FSM companies welcome, providing the consultant is knowledgeable - although not all of them are.

"We've had experience of good consultants who know what they're doing and others who don't. Our experience is that where an authority employs a knowledgeable and professional consultant, the outcome can be very satisfactory," says Jim Cartwright, Managing Director of Cygnet Catering, which is making inroads into the school meals market.

FSM companies believe that selecting a contractor should not just be on the result of a tender document - and the lowest price. But it often is.

Phil Hooper, Sodexo's Corporate Affairs Director and Chairman of the BHA's Food and Service Management Forum, says that all too often, due to the pressures on public finances, the cheapest bid usually wins, irrespective of the value it can provide.

He argues that the government needs to reform the procurement process so that the cross-sector departments talk to each other, gain from each other's experience, agree some common approaches, define common standards and, most important of all, create a process which is open to new thinking.

Hooper notes, "This would ensure contractors are actively encouraged to bring in new ideas that are more efficient, more imaginative and more effective than the old way of doing things. In other words, they provide solutions that give real value for money."

Other FSM companies would say amen to that. But they're not holding their breath.

Miles Quest is Editor of the British Hospitality Association's annual Food and Service Management Survey. Please visit www.bha.org.uk

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