SETTING THE TABLE FOR SUCCESS: 
A Toolkit for Increasing Local Food Purchasing by Institutional Food Service Management

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Audience

Primary Audience: Institutional staff (such as food service operators, managers of support or auxiliary services and sustainability coordinators)

Secondary Audience: Supply chain facilitators (such as consultants, nonprofit staff and technical assistance providers)

Check back for audience-specific guides that will help you navigate this toolkit! 

Register for our webinar on Tuesday, Feb. 9th at 1 pm for an orientation to this new resource > > 

Engage

Are you interested in hosting a special local food purchasing workshop for your institution or group? Do you have additional tools or resources to share? Would you like to suggest an edit to the toolkit?

CONTACT US

Table of Contents

1. Acknowledgements

2. Introduction

  • Overview of Farm to Institution New England
  • A Vision for Institutional Procurement
  • About this Toolkit

3. Institutional Purchasing 101

  • Introduction to Institutional Food Service
  • How Self-Operated Food Service Works
  • How Food Service Management Companies & Group Purchasing Works
  • How Group Purchasing Organizations Works
  • Rebates & Vendor Approval

4. Overview of Food Services Personnel by Sector

  • Hospital Procurement & Contracting Process
  • College & University Procurement & Contracting Process
  • Public K-12 School Procurement & Contracting Process
  • Request for Proposal (RFP) & Contracting Process Job Flow

5. Key Research Findings

  • Trends
  • Major Findings from Facility Comparison Research 
  • Observed Attributes of Different Types of Food Service Operations

6. Key Recommendations for the RFP & Contract Process

  • Provide clear and detailed definitions of local food so that implied, value-based attributes are made explicit and are included in procurement policies.
  • Secure a consultant for the creation of RFPs and contract negotiations for food service management.
  • Set quantitative purchasing commitments in the contract.
  • Utilize the RFP and contract process to foster supply  chain transparency and accountability in support of the facility’s values.  

7. Guidance on the BID / RFP Development

  • Develop a team and identify your values
  • Develop a Request for Proposal (RFP) and bid specification development
  • Leverage RFP components to increase local procurement
  • Evaluate RFP bidders

8. Food Service Management Company Contracts

  • Comparison of Contract Types
  • Basic Contract Components
  • Approaching a New Food Service Contract: Contract Negotiation Considerations
  • Amending Your Food Service Contract
  • Implementing Your Contract

9. Glossary of Terms

10. Appendix

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1. Acknowledgements

The Team

Coordinating Commitee

Stacia Clinton, Health Care Without Harm
Kaitlin Haskins, Farm to Institution New England
Riley Neugebauer, Farm to Institution New England
Peter Allison, Farm to Institution New England

Advisory Board

Kimberly Clark, Farm Fresh Rhode Island
Stacia Clinton, Health Care Without Harm
Lisa Damon, Mass. Farm to School
David Schwartz, Real Food Challenge
John Turenne, Sustainable Food Systems
Jennifer White, Colby-Sawyer College

Researchers

Phase 1: Jennifer Obadia, Ph.D. and John Stoddard, MS.

Phase 2: Emily Edmonds, Ph.D eligible

Participants 

We would like to acknowledge the numerous individuals who took time to speak with the research team about their work. This project would not have been possible without them. Thank you!

Reviewers

List of individuals providing comments to develop this toolkit -- coming soon!

Funding

The project was funded by the John Merck Fund, to whom we are grateful.

Resources

List of key resources -- coming soon!

Notes

FINE has made every effort to verify the accuracy of statements in this document, and we accept responsibility for any errors or omissions. If you have questions or comments on the report, please send them to info@farmtoinstitution.org.

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2. Introduction

Section Table of Contents

A. Overview of Farm to Institution New England
B. A Vision for Institutional Procurement
C. About this Toolkit


A. OVERVIEW OF Farm to Institution New England

Farm to Institution New England (FINE) is a six-state collaboration working to strengthen our regional food system by increasing the demand for and use of New England food by New England institutions such as schools, hospitals, colleges, government and corporations. FINE has strong roots in the National Farm to School Network and is actively forging connections with many other organizations, agencies, businesses and funders with similar goals. FINE partners are working to conduct research, run pilot projects and convene learning communities related to critical elements of the regional food supply chain, including production, processing, distribution and food service.

Institutional food purchasing is an area of significant interest for those advocating for stronger local food systems, because their large volume purchasing and annual spending has the potential to transform regional, even global, agricultural economies. Institutions often pool their demand in order to achieve discounted pricing via food service management companies (FSMCs) and/or group ourchasing organizations (GPOs). Therefore, shifts in contracted purchasing by FSMCs and GPOs offer an opportunity for change that is multiplied by the thousands of institutions working with these entities. As the farm to institution movement matures, advocates have realized that they must better understand the operations of these companies in order to have a significant impact on institutional procurement of regionally produced and processed foods.  

The FINE Food Service Project (FSP) conducts research and provides education, resource development and technical assistance for institutional leaders and supply chain partners in New England. Our goal is to address systemic barriers and forge innovative solutions to increase the procurement of local food at all institutions.    


B. A Vision for Institutional Procurement

The FINE Food Service Project (FSP) Advisory Board has articulated a vision for institutional food procurement businesses. Although this model may evolve in response to changes in the food system, it serves as a guide for food businesses that aggregate food and offer procurement services to institutions to evaluate their practices and a goal to align the focus of food system advocates.

An ideal institutional food procurement business model should work to de-commoditize food, returning it to its status as an essential component of thriving communities, and to support the people who work and eat within those communities. Transparency, diversity, and flexibility are essential elements in a healthy and resilient food system. When present throughout the food procurement model, we can ensure a fair distribution of power amongst stakeholders and promote equity in food access. The large product volumes demanded by institutions can offer the benefit of stability and continuity of demand for producers, but in order to achieve this vision FSMCs, GPOs, Distributors, Aggregators and/or Institutional Procurement entities need to embody certain important attributes. These attributes fall into three categories, which are described in detail below: 1) business leadership structure, 2) business financial structure, and 3) product procurement processes.

1. Business leadership structure pertains to the parties involved in key decision making, and the relative inclusion of stakeholders.

  • Business ownership and decision-making leadership consists of a diverse set of stakeholders that represent talents across the supply chain (producers, chefs, workers, eaters, management and a dedicated coordinator for local procurement and food system development).
  • A feedback process exists that empowers those outside the organization, including representatives from across institutional sectors and geographic area, to provide input in a way that holds power and maintains a process for inclusion.
  • Values-based goals are articulated and drive decision-making through a transparent process.
  • A biannual evaluation of the needs and demands of the food system is conducted to inform priorities and shift business practices accordingly.
  • Standards exist for the organization and food businesses they are contracted with, including fair wage and benefit standards and the right to bargain collectively.

2. Business financial structure pertains to the negotiating of price, contribution to market shifts and the process of establishing financial viability. In the case of the group purchasing model, this section pertains to the use of fees, volume discounts and client contract stipulations.

  • A scale of business is maintained that allows for a high level of responsiveness to changing markets and regional food system needs.
  • Profits are transparent and shared with the stakeholders.
  • The success of the business is determined collectively, with social responsibility, ecological protection, financial viability and impact on the local economy carrying equal weight.
  • Pricing of products is producer-driven, reflecting the producer needs versus the lowest purchase price, and is evaluated via an ongoing producer/supplier feedback loop.
  • Volume discount commitments are transparent and clear and are not incorporated into the product unit price.
  • All staff are provided safe and healthy working conditions and fair compensation [1].

3. Product procurement process pertains to the soliciting of bids or suppliers, criteria used to award business, level of flexibility in purchasing, product evaluation and feedback structure.  

  • The procurement process is transparent, including bid and evaluation schedule, persons involved, and product purchasing history.
  • The approval of new products and the identification of new suppliers engages locally-based stakeholders and reflects community and local food system needs.
  • Product mix and purchases allows for regular flexibility with regular opportunity for stakeholders and buyers to request and add products.
  • Advanced pre-season planning with buyers is conducted using institutional demand data.
  • Business does not require approved product use or compliance thresholds.
  • Third-party audit or certification processes evaluate suppliers based on food safety and production standards that include standards for worker health and use of inputs.
  • Standards allow for flexibility in ownership of liability including options and support for group GAP (Good Agricultural Practices) certification, institution-owned or shared liability.
  • Allows control for menu planning and development to be held by the institution.

C. About this Toolkit

FINE is interested in highlighting the opportunities and barriers to utilizing regional food within the institutional food procurement system. FINE does not hold a formal position on whether institutions should run food service operations with their own staff or outsource the services to an FSMC. This toolkit was designed to help individuals understand the process to request proposals from and negotiate contracts with food service management companies in order to maximize opportunities to incorporate regional food. However, these tools are also applicable to self-operated facilities for use in setting internal goals and contracting with group purchasing organizations or directly with suppliers.

The resources within this toolkit are the outgrowth of two phases of research and a multi-stakeholder participatory development process conducted by the FINE Food Service Project. The research in Phase 1 included a literature review and over 40 interviews with food systems advocates and FSMC staff. Phase 1 research (see research report) revealed how FSMCs operate, including a description of purchasing practices and the rebate system, how vendors become approved, and the importance of contract language in achieving desired outcomes. Phase 2 research (see research report -- coming soon!) included a baseline assessment of over 60 New England schools and an in-depth analysis of the factors that drive institutional food purchasing decisions for an additional seven New England institutions. Although not a statistically significant sample, this research sheds light on key factors facilitating or hindering local food procurement by institutions. The research and development of the toolkit was undertaken with the guidance of the seven member Advisory Board of the FINE Food Service Project and informed by a diverse set of over 100 stakeholders in the institutional food supply chain.

While this toolkit is the product of work by many committed people over many months, it is by design a work in progress. As such, it will continue to be refined and developed to include additional resources and knowledge as the New England institutional food system evolves. We welcome your suggestions for refinement and additional resources -- send your comments to kaitlin@farmtoinstitution.org.

Local vs. Regional

FINE supports the three-tiered purchasing strategy outlined by the Northeast Organic Farming Association of Vermont (NOFA-VT). This strategy places a preference on ultra-local food, but also encourages sourcing from within the states and broader region based on availability and other factors. This “as local as possible” approach to food sourcing encourages supply to grow with demand. Use of the term “regional” in this toolkit infers this three-tiered approach (local, state, regional).

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3. Institutional Purchasing 101

Section Table of Contents

A. Introduction to Institutional Food Service
B. How Self-Operated Food Service Works

    - Benefits of a Self-Operated Food Service
C. How Food Service Management Companies & Group Purchasing Works
    - Food Service Management Companies
    - Benefits of Contracting with a Food Service Management Company
    - Food Service Management Company National Purchasing
    - Menus & Purchasing at the Local Level
D. How Group Purchasing Organizations Work
E. Rebates & Vendor Approval

    - Vendor Approval
    - Basic Mechanics of the Rebate System
    - How Rebates are Established
    - Types of Rebates


A. INTRODUCTION TO INSTITUTIONAL FOOD SERVICE

Institutions provide food to their clients and stakeholders in a number of ways. Institutional food purchasing is most often categorized by sector or industry, such as child and elder care, elementary and secondary education, post-secondary education (including colleges and universities), hospitals and healthcare providers, prisons and others.

The provision of food and beverage management services at an institution includes such tasks as menu development, food procurement, negotiation of food prices, maintenance of facilities and retail spaces, providing and raising capital for infrastructure improvements, managing staff, and ensuring regulatory compliance.

Regardless of sector, most institutions purchase food using one of two approaches:

  • In-house / self-operated food service management ("self-ops")
  • Outsourced contracted food service management companies ("FSMCs")

Both self-operated institutions (self-ops) and FSMCs use a set list of vendors and products that drives the majority of what institutions may purchase. The prime or broadline vendor is the largest distributor and provider of goods, such as Sysco or U.S. Foods. Items are selected from the vast product profile of these distributors and then pricing is set through a negotiation process led by the facility itself, their group purchasing organization (GPO), or a contracted food service management company supply management department. In exchange for discounted, volume-based pricing, institutions commit to purchasing a certain percentage of their goods (often about 80%) from the approved list of products and suppliers, and purchasing from other sources is discouraged unless it is absent from the broadline vendor portfolio.  

In addition to broadline distributors, it is common for institutions to work with a handful of other local and regional suppliers, including farms, to source seasonal produce, fresh dairy items, and specialty supplies. All vendors are vetted by the FSMC, GPO or by the institution itself and are often required to provide information on their operations such as liability insurance and food safety measures such as GAP (Good Agricultural Practices) certification and/or a HAACP (Hazard Analysis and Critical Control Points) plan. These vendors are often required to have between $1 million and $7 million in liability insurance.

Evaluating the overall success of a food service program may differ based on how the facility is managed. While both self-ops and FSMCs may benchmark against the industry standards, in self-operated facilities evaluation is set internally and based solely on objectives that have been outlined by the facility itself. For facilities managed by a food service company, evaluation of the program is based upon goals outlined by both the facility and the FSMC as a separate entity. For example, an institution may not have the goal of ensuring that their contracted food service company generates a profit from operating the food services department, yet this may be a goal of the FSMC.

There are no standard means of determining the financial impact of contracting with either a GPO or a FSMC. Each contract is based on a per-meal or per-day service model. Full-service companies are paid to manage everything from labor, food costs, purchasing and recipe development to customer satisfaction, presentation, and contract compliance. These costs vary from institution to institution, as well as according to the sector in which the company operates. K-12 schools using USDA funding have strict regulations that must be enforced for agencies using those funds.


B. HOW SELF-OPERATED FOOD SERVICE WORKS

Overview

Self-operated institutions manage and regulate their own departments, including those overseeing the provision of food and beverages. Self-operated institutions generally contract with a primary distributor, much as the FSMC or GPO does, and uses their buying power to negotiate priority pricing. Through this direct relationship, they retain the ability to set the requirements for new sources of product and negotiate product pricing.

Self-operated institutions have typically chosen this route because:

  • Their administration has indicated the willingness to recruit and manage experienced food service staff;
  • They already possess the procurement systems, facilities, equipment, and square footage to support an internal food service operation; and
  • They desire full control over their profit targets, value attributes, and ability to meet client or student demands.

Self-operated departments may also be well-capitalized, allowing them to operate without the capital investments typically offered as incentives by most large food service management companies.

Benefits of a Self-Operated Food Service

Retaining control over purchasing was the most frequently-cited reason noted in this research for transitioning to self-operation. However, implementing and identifying new purchasing processes can require time, research, verification and analysis [2]. Self-operation also allows for more flexibility to set priorities beyond profit that meet consumer demands, such as those for healthy, local, organic, sustainable, or fair-trade products. In addition, self-operated facilities retain monies for unused board fees, in the case of the university or college sector, or management fees that would be paid out if contracting with a management company.

Some additional considerations for those transitioning to or maintaining self-operated institutions include the employee structure for their food service workers. Self-operated institutions take on the responsibilities of recruitment and management of staff, operational budgetary oversight, and the monitoring of performance measures, which can be time-consuming and expensive. Generally, the same performance indicators are used to measure success at self-operated institutions, although adjustments are made based on an institution’s priority-setting and goal-making processes.


C. HOW FOOD SERVICE MANAGEMENT COMPANIES & GROUP PURCHASING WORKs

Food Service Management Companies (FSMCs)

FSMCs are commercial enterprises or non-profit organizations that contract with institutions to manage their food service operations. In some parts of New England, self-operated institutional dining services are still prevalent. However, FSMCs are increasingly common at institutions in New England and around the country. The primary reasons institutions decide to work with FSMCs are that their own administration does not have the expertise or staff to manage dining services, they believe FSMCs will lead to cost savings, or an infusion of funds are needed for construction or other improvement projects. In addition, similar to GPOs, FSMCs are able to aggregate the volume from all their accounts to negotiate priority pricing from local and national suppliers who are able to meet their needs.

Benefits of Contracting with an FSMC

Food service management companies sell their services based on their expertise in the management of high-volume food service at a competitive rate. FSMCs are able to offer low costs through their affiliation with procurement organizations like group purchasing organizations (GPOs) or internal divisions often referred to as supply management. Food service management companies provide their institutional clients with a wide array of services that may include any combination of the following: recruiting and managing qualified leadership staff; developing and maintaining financial management systems; developing the menu; managing staff; procuring food; negotiating food prices with suppliers and manufacturers; maintaining retail space; providing capital for infrastructure improvement; and maintaining regulatory compliance. Some FSMCs serve all institutional sectors, while others are focused on a specific sector such as education or health care.

FSMC National Purchasing

Supply management departments are part of FSMCs that act similarly to a GPO in that they pool the demand of their clients to achieve lower pricing. However, they also link purchasing to the management of the organization by connecting their approved products to a set menu and maintaining support staff in the region. As a result, they may have a greater ability to partner with local suppliers than a GPO, which does not maintain staff in the region.

On a very basic level, FSMCs typically structure their supply management department with a national procurement director who leads a team of regional procurement directors. This team may interact with the GPO as well as regional sector vice presidents and district managers to manage the catalog of products offered to the clients and ensure compliance with purchasing requirements. Many FSMCs require products to be purchased from approved or preferred vendors. Standard contracts with FSMCs  often require 100% of food purchases be made through approved suppliers. This is often referred to as buying “on contract.” This allows the FSMC to maximize the receipt of volume discount allowances (VDAs) or rebates, negotiated with manufacturers and distributors. This negotiated pricing allows them to offer products at a lower cost to for the institutions. In return, the FSMC may offer a portion of the VDA back to the institution as well as merit increases, bonuses and other revenue-based incentives for their staff to promote on-contract purchasing.

An emerging strategy among FSMCs is to charge very low management fees to make themselves more competitive in the bidding process, thus placing greater reliance on revenue through VDAs or rebates. The negotiation of such volume discounts is standard practice in food and other industries, from manufacturing to distribution. FSMCs have noted that VDAs are “a revenue stream earned through good management practices.” Negotiated pricing allows them to offer products at a lower cost to for the institutions. In return, the FSMC may offer a portion of the VDA back to the institution as well as merit increases, bonuses and other revenue-based incentives for their staff to promote on-contract purchasing.

FSMC Menu Development & Purchasing at the Local Level

Most FSMCs have a staff of dietitians and chefs who develop and approve a national menu. This menu is crafted to meet federal guidelines for school children (in the case of schools) and other groups with special needs (such as cardiac or diabetic patients in hospitals). The menu is also developed to incorporate contracted or preferred products. There are typically minor changes at the regional level to account for variations in regional tastes. However, individual institutions are encouraged not to make significant changes to these menus. In some cases a menu may be developed at the unit or facility level, but this must be requested by the client and/or incorporated into the contract with the FSMC.

Purchasing at the unit level is tightly controlled. Most FSMCs offer a computer ordering system that shows the “preferred” or “approved” items in a clear, color-coded display, which adds efficiency to the ordering process. Unit managers are evaluated, and rewarded or disciplined, based on their adherence to the contracted items. This results in a disincentive for purchasing any off-contract items.

If account managers want to purchase an unapproved product they may choose to use a limited petty cash fund for direct purchase. If they seek to add the product to the approved product list, they must make a request to their district manager, who will communicate with the corporate office to determine if the item can be purchased. This can be a long and burdensome process for the account manager. In most cases, to gain approval the farm or food business must carry Good Agricultural Practices (GAP) certification and typically $1-$5 million in liability insurance, which is standard for wholesale food purchases. In addition, a product will usually be approved only if it does not compete with an available product from an existing approved vendor. These requirements are large barriers for most mid- and small-scale producers, inhibiting their sales to the institutional sector.


D. HOW GROUP PURCHASING ORGANIZATIONS WORK

Both FSMCs and self-operated institutions may participate in group purchasing organizations (GPOs). GPOs are independently or association-owned national or regional organizations that are pool the volume of their members to obtain savings from vendors and manufacturers. An institution that is a member of a GPO is able to achieve savings based on the volume of all the GPO’s institutional members. For example, the GPO Foodbuy negotiates prices with vendors based on the volume of the 10,000+ sites that are managed by its parent company, Compass Group North America. Group purchasing organizations most often negotiate with large national and international producers and distributors for discounted prices.

GPOs focus on selling a price point and a service, rather than specific products; their value is in the cost savings they can create for their members and the procurement services they can provide as a way to refine and ease the procurement process. The GPO business model is the most profitable in the industry, since they have very little material overhead, risks, and debts as a service for very narrow and defined market groups. Due to the GPO contract structure, pricing and demand remain relatively stable across industries.

GPOs solicit members to create enough volume to interest manufacturers, producers and distributors. They then create contracts and commitments with those clients and articulate a compliance threshold with set volume requirements. Generally, they focus on a limited number and type of products to drive high participation rates with individual suppliers, maintaining the necessary volume to achieve discounts and rebates. This negotiated pricing may make the provision of food services more affordable for the institutions. Most GPOs require an institution to be an official member in order to participate, although some GPOs will allow institutions to purchase without being a fully contracted member if they are already purchasing from a broadline or regional distributor who partners with them (such as PFG or Sysco). The terms, length, and percentage requirements of membership contracts vary significantly based on the GPO and the institutional type.

GPOs pass revenue generated through pricing negotiations on to their members depending upon the facilities’ ability to purchase within the approved product profile (considered “on-contract” purchasing). This is provided in the form of cash rebates, promotional fees, and/or private label products. The GPO  withholds a fixed percentage for their operating costs. Most often, GPOs request facilities to maintain 80% compliance with approved vendors, leaving 20% of purchases to be made with suppliers other than the GPO’s broadliner distributor so they may maximize their receipt of colume discount allowances (VDAs) or rebates negotiated with manufacturers and distributors. In some cases, a facility may have more than 20% of their budget to spend on off-contract purchases if other categories (such as materials, paper, etc.) achieve more than 80% in on-contract purchasing.


E. REBATES & VENDOR APPROVAL

Vendor Approval

There are three types of vendors: prime (otherwise known as “contracted” or “preferred”), approved, and not approved. The prime vendor carries the contracted items negotiated by the GPO or FSMC. This is typically a large distributor such as Sysco or US Foods. An approved vendor has gone through the approval process for the FSMC or GPO and may carry one or more contracted products. Purchases with approved vendors are restricted to those items. A vendor that is not approved needs to go through an approval process before selling to the FSMC or GPO facilities. The process for becoming an approved vendor varies based on the FSMC or GPO. For example, the FSMC Compass Group offers a link to a vendor application form on their website to initiate the approval process by their GPO, Foodbuy. In most cases, vendors must meet food safety requirements, such as Good Agricultural Practices (GAP) Certification by a third party auditor and/or have a HACCP plan in place depending on the operation. Liability insurance is also typically required. For example, Foodbuy requires a minimum of $5 million in liability insurance.

Basic Mechanics of the Rebate System

Rebates or volume discount agreements (VDAs) are refunds or discounts paid to FSMCs and GPOs from distributors, manufacturers and suppliers based on a predetermined volume of sales. The negotiation of volume discounts is standard practice in food and other industries, from manufacturing to distribution. This negotiated pricing allows them to offer products at a lower cost to the institutions. In return, a FSMC may offer a portion of the VDA back to the institution, as well as merit increases, bonuses and other revenue-based incentives for their staff to promote on-contract purchasing. Rebates are one of the primary ways that FSMCs maintain profitability and are rewarded for efficiency. There is little transparency in terms of the amount of rebates FSMCs receive as a result of their purchasing practices.

As a result, while a financial audit might indicate low profit margin as the unit level, the company as a whole may still maintain significant profits. A court decision in 2007 mandated that FSMCs managing public schools must pass on rebates to the institution. However, there is little oversight to ensure that this happens. Transparency in terms of the amount and type of VDA or rebate is important to standardize product pricing in the marketplace and allow for smaller scale suppliers to remain competitive in the marketplace.  

Most FSMCs and GPOs do not disclose their rebates, discounts or other credits in a proposal process unless specifically requested to do so. Even when these specific line items are requested, the reported rebates are often not specific to the institution but rather to the regional or national costs of the FSMC or GPO. This can lead to confusion within RFP or contract evaluation, especially if administrative fees and inflation costs are also included in the bid. For example, a K-12 school could be renewing a five-year-old contract tied to the consumer price index (CPI), which indicates that due to inflation the costs should go up by 10%. The bid, however, could show the same cost estimate it did five years ago, due to greater rebate or discount savings anticipated by the FSMC or GPO, which are not itemized in the bid.

The rebate system makes it difficult for smaller New England producers to become approved vendors, because their scale does not allow for the same volume discounts. Under this system, procurement is restricted to approved regional producers and limited “off-contract” purchases, which inhibits purchases from local farms and food businesses. FSMCs do have a process that institutions can use to get a new manufacturer or farmer approved. However, this process can take up to six months, puts a large paperwork burden on the farmer, requires costly insurance and certifications, and typically results in a denial if a similar item is available from an already approved vendor. This makes it extremely cumbersome for new local farmers or vendors to tap into this market. In addition, the rebate system can effect individual product pricing depending upon how the FSMC allocates the discounts. Many times, a portion of the rebates are used to subsidize a individual product pricing to the institution reflecting a disproportionately low product price that makes the FSMC more competitive when compared to self-op facilities.  

How Rebates are Established

STEP 1: Develop an Agreement. An agreement is developed between an FSMC/GPO and a distributor/supplier. The agreement sets a percentage rebate based on a specified purchase volume. To account for this volume-based rebate, distributors typically increase the base prices of the product.

STEP 2: Submit for Rebates. The FSMC submits for rebates over a specified time interval.

STEP 3: Rebate Payment. Distributors/suppliers send rebates to the FSMC’s financial department. In financial statements, rebates are not shown as income, but are subtracted from operating costs.

STEP 4: Use of Rebate Dollars. Rebate funds are an important revenue stream for FSMCs and GPOs. Often a percentage of rebate funds are provided back to the institutions.

Types of Rebates

The following rebates often come to the FSMC in aggregate and are not specified by regions or geographic location. However, most can be accounted for down to the institutional level.

  1. Distributor Rebate: This is the most common rebate. It is an agreement with the distributor for a certain percent off of total purchases. If the distributor sells a product to the company for $10 and the FSMC or GPO wants a 10% rebate, the distributor may mark up the price by that amount. In this example, the client would likely pay this inflated price. In some cases, the rebate is partially shared with the institution.
  2. Manufacturer Rebate: This is the second most common form of rebate and is done for the highest volume products. It is a deal made directly with the manufacturer or producer. A manufacturer that wants to move a high-margin product (typically a prepared food) may offer big inducements (10-20% off) to buy the product in a short time frame. The manufacturer sends the rebate to the FSMC or GPO (or to the facility in the case of self-operation) per an agreed-upon basis. This is common with large national contracts for products such as chicken, turkey and ground beef.
  3. Signing Bonuses: When a FSMC or GPO enters into a contract with a manufacturer or distributor they may receive a bonus.
  4. Growth Incentives: The distributor or manufacturer might incentivize growing the use of their products or services over time by offering monetary incentives to FSMC or GPO for increasing the purchase of a product or using their services.  
  5. Marketing Allowances: A manufacturer might give money to the FSMC in the form of marketing materials or money that the FSMC (or the facility in the case of self-operation) agrees to use to market the supplier’s product or services.

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4. Food Service Personnel

Section Table of Contents

A. Hospital Procurement & Contracting Process
    - Key Personnel at an Independently Operated (Self-Operated) Hospital
    - Key Personnel at a Hospital Managed by a Food Service Management Company
B. College & University Procurement & Contracting Process
    - Key Personnel at an Independently Operated College or University
    - Key Personnel at a College or University Managed by a Food Service Management Company 
C. Public K-12 School Procurement & Contracting Process
    - Key Personnel at an Independently Operated K-12 School
    - Key Personnel at a K-12 School Managed by a Food Service Management Company
D. Request for Proposal (RFP) & Contracting Process Job Flow


Overview

Common personnel structures in FSMCs and self-operating institutions vary at the management level, as seen in the figure below. It is important to note that each organization and institution employs slight variations in this structure.


A. HOSPITAL PROCUREMENT & CONTRACTING PROCESS

Key Personnel at an Independently Operated (Self-Operated) Hospital

  • Hospital Chief Financial Officer: A staff member of the facility whose primary responsibility is to manage the financial risks of the facility. This officer is also responsible for financial planning and record-keeping, as well as financial reporting to higher management.
  • Hospital Purchasing Manager, VP Support Service: A staff member of the facility. This position may be held by a person/office whose sole responsibility is purchasing products for the department of dining services. (Responsibilities vary depending upon size of the facility.)
  • Group Purchasing Organization (GPO) - GPO Account Manager / Field Rep: A staff member of the GPO who provides direct support on behalf of the GPO to a set of facilities or “accounts.” This person reports the percent compliance and requests for products to both the facility and the GPO leadership.
  • Broadline Distributor (Account Rep / Regional Product Category Rep): A staff member of the distributor. Account managers work with the facility to specify product, ordering, delivery, quality and ways to use the food product and may interact with the GPO to ensure products are “on-contract.”
  • Other Vendors Account Manager / Field Reps: A staff member of the vendor/company, these account managers work with the facility to specify product, ordering, delivery, quality and ways to use the food product to complement offerings available through the broadline supplier.
  • Hospital Food Service Director: A staff member of the facility, the director assumes all responsibility for that facility’s food service program. In some cases, this position may extend to include overseeing clinical nutrition staff.
  • Front Line Managers/Chefs: Staff members of the facility, they are responsible for day-to-day operational management of the cafeteria and production kitchen. They are often responsible for placing the food orders with vendors. This is sometimes done directly with the vendor or through an online ordering system that the facility’s procurement office oversees.
  • Clinical Nutrition Manager / Dietitian Staff: Staff members of the facility, the clinical nutrition staff review all patient menus for nutritional composition in accordance with the facility’s policy on standard and therapeutic diets. Changes in products or servings on patient menus often need review by nutrition staff.
  • The Sustainability Coordinator: A staff member of the facility, this position may play an important role in supporting the strategic plan for the organization by utilizing big-picture goals to set benchmarks (ex: 20% local), facilitating interdepartmental working teams that carry out the implementation and tracking of the goals, and seeking grant funding for discrete activities. However, depending upon the sustainability priorities of the facility, they may not be focused on food purchasing and may have varying degrees of involvement in purchasing and contract decisions.

Key Personnel at a Hospital Managed by a Food Service Management Company

  • Hospital Chief Financial Officer: A staff member of the facility whose primary responsibility is to manage the financial risks of the facility. This officer is also responsible for financial planning and record-keeping, as well as financial reporting to higher management. This is generally the direct report, or ‘client’ to the FSMC.
  • Hospital Legal Representative: A staff member of the facility, this person oversees the drafting and finalizing of the food service contract.
  • Hospital VP Support Services: A staff member of the facility, this person/office oversees the management of directors in food services, facilities, transport, and environmental services (housekeeping). This person may also or instead be the FSMC’s direct report/‘client’.
  • FSMC Vice President Healthcare / VP Operations: A staff member of the FSMC, this person oversees a large geographic region within the healthcare line of business (e.g., Northeast regional VP). This person oversees contract negotiations and regional purchasing compliance and reports to national leadership.
  • Regional District Managers or On-site District Managers: A staff member of the FSMC, this person oversees multiple health care accounts in a smaller geographic area within the region of the regional VP and reports to the regional VP. This person is involved in facility contract negotiations and supports the facility directors.
  • Hospital Food Service Directors: A staff member of the FSMC, the director manages the operations of that facility’s food service program. In some cases this, position may include overseeing clinical nutrition staff or multiple facilities in a health system. Reports to the district manager.
  • Clinical Nutrition Manager / Dietitian Staff: Members of the FSMC staff, they review all changes to patient menus to ensure the nutritional composition is consistent with the FSMC’s policies for standard and therapeutic diets. Changes in products or servings on patient menus often need review by nutrition staff.
  • Food Service Management Company National & Regional Procurement Team: Members of the FSMC staff, the procurement manager/team act at a higher level than regional management and in collaboration with Regional VPs. This level negotiates relationships with food brands and distributors on the national, corporate-wide level. This level also sets the criteria for purchasing compliance and tracks regional, district and account-by-account compliance.
  • Front Line Managers/Chefs: Most often staff members of the FSMC, they are responsible for day-to-day operational management of the cafeteria and production kitchen. They are often responsible for placing the food orders with vendors. This is sometimes done directly with the vendor or through an online ordering system that the facility’s procurement office oversees.
  • Broadline Distributor Account Manager and Other Vendors Account Manager / Field Reps: Members of the distributor staff, account managers work with the facility to specify product, ordering, delivery, quality and ways to use the food product and will interact with the GPO or FSMC to ensure products are “on-contract.”
  • Other Vendors Account Manager / Field Reps: Members of the vendor/company, these account managers work with the facility to specify product, ordering, delivery, quality and ways to use the food product to compliment offerings available through the broadline supplier.
  • Sustainability Coordinator: A member of the facility staff, this position may play an important role in supporting the strategic plan for their organization by utilizing big-picture goals to set benchmarks (ex: 20% local), facilitating interdepartmental working teams that carry out the implementation and tracking of the goals, and seeking grant funding for discrete activities. However, depending upon the sustainability priorities of the facility they may not be focused on food purchasing and may have varying degrees of involvement in purchasing and contract decisions.

B. COLLEGE & UNIVERSITY PROCUREMENT & CONTRACTING PROCESS

Key Personnel at an Independently Operated (Self-Operated) College or University 

  • University Chief Financial Officer / Business Manager: A member of the facility staff whose primary responsibility is to manage the financial risks of the facility. This officer is also responsible for financial planning and record-keeping, as well as financial reporting to higher management.
  • University VP of Support Services, VP for Administration, VP for Student Affairs or AVP or Director of Campus Auxiliary Operations: A member of the facility staff. The relevance of this position to the procurement and contracting process depends upon the size and organizational structure of the university. At medium to large institutions, this administrator may be the direct supervisor of the department of dining services.
  • Department of Dining Services Executive Director / Food Service Director (FSD): A staff member of the facility, this position assumes all responsibility for that university’s food service programs.
  • Department of Dining Services Purchasing Manager*: A staff member of the facility. Depending on size and organizational structure of the university, this position may be held by a person/office whose sole responsibility is purchasing products for the department of dining services.
  • Front Line Managers/Chefs: Staff members of the facility, their responsibilities include day-to-day operational management of dining hall(s), kitchens, bakeries, etc. They are also responsible for placing food orders with vendors. This is sometimes done directly with the vendor, or sometimes these purchasing orders are sent to the central department of dining purchasing manager for tallying, consolidation and review (for compliance, accuracy, etc.), and then the orders are transmitted to the vendor.
  • Broadline Distributor Account Manager and Other Vendors Account Manager / Field Reps: Members of the distributor staff, account managers work with facility staff to specify product, ordering, delivery, quality and ways to use the food product.
  • Other Vendors Account Manager / Field Reps: Staff members of the vendor/company, these account managers work with the facility to specify product, ordering, delivery, quality and ways to use the food product to complement offerings available through the broadline supplier.
  • Sustainability Coordinator: A member of the facility staff, this position may play an important role in supporting the strategic plan for their organization by utilizing big-picture goals to set benchmarks (ex: 20% local), facilitating interdepartmental working teams that carry out the implementation and tracking of the goals, and seeking grant funding for discrete activities. They also play an important role in engaging with students and connecting with faculty on campus who conduct research on the food system. They are sometimes included in the RFP committee when seeking new contracts, to ensure that sustainability criteria and concerns are reflected in the process.

*There are some universities who are members of a Group Purchasing Organization (GPO) that negotiates pricing for many of the food service needs on behalf of its collective membership. However, most often the university’s purchasing manager is responsible for negotiating purchases and in some cases, contracts from vendors and brands.

Key Personnel at a College or University Managed by a Food Service Management Company

  • University Chief Financial Officer / Business Manager: A member of the facility staff whose primary responsibility is to manage the financial risks of the facility. This officer is also responsible for financial planning and record-keeping, as well as financial reporting to higher management. This is generally the direct report, or ‘client’ to the FSMC.
  • University VP of Support Services, VP for Administration, VP for Student Affairs or AVP or Director of Campus Auxiliary Operations: A member of the facility staff. The relevance of this position to the procurement and contracting process depends upon the size and organizational structure of the university. This person may also or instead be the FSMC’s direct report/‘client’.
  • FSMC National / Regional Procurement Manager/Team: Members of the FSMC staff, the procurement manager/team act at a higher level than regional management and in collaboration with Regional VPs. This level negotiates relationships with food brands and distributors on the national, corporate-wide level. This level also sets the criteria for purchasing compliance and tracks regional, district and account-by-account compliance.
  • FSMC Regional Vice President: A staff member of the FSMC, this person oversees a large geographic region within the College & University line of business (e.g., Northeast regional VP). This person oversees contract negotiations and regional purchasing compliance and reports to national leadership.
  • FSMC District Manager: A staff member of the FSMC, this person oversees multiple college and university accounts in a smaller geographic area within the region of the regional VP and reports to the regional VP. This person is involved in facility contract negotiations and supports the facility Directors.
  • On-site FSMC Dining Services Executive Director / Food Service Director: A staff member of the FSMC, this position may be categorized as an on-site district manager, negating “FSMC District Manager” above if at a large facility. This position assumes all responsibility for the university’s food service programs.
  • FSMC On-site Purchasing Manager(s): A staff member of the facility. Depending on size and organizational structure of the facility, this position may be held by a person/office whose sole responsibility is purchasing products for the department of dining services.
  • Front Line Managers/Chefs: Often, members of the FSMC staff, their responsibilities include day-to-day operational management of dining hall(s), kitchens, bakeries, etc. They are also responsible for placing food orders with vendors. This is sometimes done directly with the vendor, or sometimes these purchasing orders are sent to the central department of dining purchasing manager for tallying, consolidation and review (for compliance, accuracy, etc.), and then the orders are transmitted to the vendor.
  • Broadline Distributor Account Manager and Other Vendors Account Manager / Field Reps: Members of the Distributor staff, Account Managers work with the university’s staff to specify product, ordering, delivery, quality and ways to use the food product.
  • Sustainability Coordinator: A member of the facility staff, this position may play an important role in supporting the strategic plan for their organization by utilizing big-picture goals to set benchmarks (ex: 20% local), facilitating interdepartmental working teams that carry out the implementation and tracking of the goals, and seeking grant funding for discrete activities. They also play an important role in engaging with students and connecting with faculty on campus who conduct research on the food system. They are sometimes included in the RFP committee when seeking new contracts, to ensure that sustainability criteria and concerns are reflected in the process.

C. PUBLIC K-12 SCHOOL PROCUREMENT & CONTRACTING PROCESS

Key Personnel at an Independently Operated (Self-Operated) K-12 School

  • School Business Officer/Chief Financial Officer: A staff member of the school system, this position is responsible for procurement compliance with local and state regulations and may be charged with overall procurement management, including managing request for proposals (RFP) and contracts for food service operations. This position may also be responsible for budgetary oversight of food service operations, although that may fall to the food service director or school nutrition director. In smaller facilities, this position can also act as direct supervisor for the food service director or school nutrition director.
  • Food Service Director/School Nutrition Director: A staff member of the school system, the director assumes all responsibility for the school district’s food service programs, including complying with USDA, state agency, and boards of health regulations.
  • School Nutritionist/Menu Planner: A staff member of the school system, this position oversees menu creation for all school cafeterias and ensures meals meet required USDA nutrition standards. In smaller districts, the responsibilities of menu planning and nutrition compliance may fall to the food service director and/or on-site kitchen managers for each school.
  • Purchasing/Procurement Manager: A staff member of the school system, this position is responsible for all food procurement through distributors, farmers and USDA commodity foods. In smaller districts, the responsibilities of procurement may fall to the food service director.
  • Kitchen Manager(s): Staff members of the school, the site/cafeteria managers are responsible for day-to-day operational management of school kitchens and cafeteria. This position may also be responsible for ordering/purchasing for their site cafeterias and possibly creating the menu for their school cafeteria. Receipts/order invoices are then sent to the food service director or school nutrition director for consolidation, payment and recording.
  • Kitchen Staff: Staff members of the school and FSMC, kitchen staff includes those who work directly in the kitchens, preparing and serving food (often FSMC employees), and aides who provide other cafeteria assistance (often school employees). Often, the on-site kitchen staff are the most visible members of the school’s food service operations.

Similar to other institutions, public school districts may belong to regional buying collaboratives or group purchasing organizations (GPOs). These GPOs negotiate pricing for many goods and services sought after by member districts and can often include the foodservice needs.

Key Personnel at a K-12 School Managed by a Food Service Management Company

  • School District Business Officer/Chief Financial Officer: A staff member of the school system, this position is responsible for managing the request for proposals (RFP) process and contracting with selected FSMC. This person is usually the direct contact with the FSMC and oversees contract compliance.
  • FSMC National / Regional Procurement Manager/Team: Staff members of the FSMC, the procurement manager/team acts at a higher level than other regional FSMC management staff. They negotiate relationships with food brands and distributors on the national, corporate-wide level. This level also sets the criteria for purchasing compliance and tracks regional, district and account-by-account performance.
  • FSMC Vice President of Operations/Regional Vice President: A staff member of the FSMC, this person oversees a large geographic region (e.g., Northeast regional VP). This person will oversee contract negotiations and regional purchasing compliance and reports directly to the national leadership.
  • FSMC District Manager/Residential Account Manager: A staff member of the FSMC, this person oversees multiple K-12 accounts in a smaller geographic area within the region of the regional VP of operations. This person is involved in facility contract negotiations and supports the facility directors.
  • On-site FSMC Food Service Director/General Manager: A staff member of the FSMC, this position assumes all responsibility for that school district’s food service programs. They are also responsible for placing the orders with vendors.
  • Nutritionist: A staff member of the FSMC, this position oversees menu creation for all school cafeterias and ensures that meals meet required USDA nutrition standards and may oversee multiple districts. This position reports to the FSMC district manager.
  • Kitchen Manager(s): These positions may be staff members of the school, but most often they are staff of the FSMC. Cafeteria/site managers are responsible for day-to-day operational management of school kitchens. They may also be responsible for ordering/purchasing for their site cafeterias and possibly creating the menu for their school cafeteria. Receipts/order invoices are then sent to the food service director or school nutrition director for consolidation, payment and recording.
  • Kitchen Staff: Staff members of the school and FSMC, kitchen staff includes those who work directly in the kitchens, preparing and serving food (often FSMC employees), and aides who providing other cafeteria assistance (often school employees). Often, the on-site kitchen staff are the most visible members of the school’s food service operations.

D. REQUEST FOR PROPOSAL (RFP) & CONTRACTING PROCESS JOB FLOW

Facilities considering outsourcing their food service operations to a management company put out an RFP for services, in accordance with local and state regulations, which is created by one or more of the following personnel:

  • Hospital: chief financial officer; legal department representative; VP of support services
  • K-12 School: district business officer; a team of representative stakeholders in the district
  • College/University: administrative and legal departments, often with assistance from a contracted outside consultant  

This team, often along with a designated search committee, reviews applications and selects the FSMC that best meets their goals. This same team then sits with the FSMC's VP of health care or VP of operations and the regional or on-site district managers to draft a contract that meets their goals, which may include the cost of services, labor/fringe and purchasing. If the contract does not include purchasing (e.g. if the facility is a member of a GPO), then the facility will continue to operate their purchasing by working through the GPO contract and secondary vendors. Unlike hospitals, it is rare that universities purchase through GPOs – even more rare when contracted with a FSMC.

If the FSMC contract does include purchasing, then the facility agrees to purchase 100% of its products through the FSMC broadline distributor and secondary vendors unless they stipulate language in their contract to allow for some direct purchasing or other alternatives. The facility then designates a staff member (see staff charts) to serve as the client or the main contact for the contracted FSMC. This staff member works with the FSMC staffed food service director and the FSMC district manager to identify products available through the FSMC vendor profile. The FSMC district manager reports to the regional VP, who works with the FSMC procurement department to ensure purchasing compliance through approved vendors.

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5. Key Research Findings

Section Table of Contents

A. Overview
B. Trends

    - Trends Relating to General Areas of Focus for Institutional Food Service
    - Trends Relating to Food Service Management Companies or Food Service Businesses
    - Trends Relating to Institutions
    - Trends Relating to General Food System Barriers
C. Major Findings from Facility Comparison Research
    - K-12 Sector-Specific Findings
    - College/University Sector-Specific Findings
    - Hospital Sector-Specific Findings
D. Observed Attributes of Different Types of Food Service Operations


A. OVERVIEW

Determining how performance indicators influence purchasing can help local and regional food advocates understand the food service management process and identify points at which their resources or advocacy might be useful. It can also provide more structure for how FSMCs and self-operated institutions interact with local food advocates. The research in Phase 1 of the FINE Food Service Project included a literature review and over 40 interviews with food systems advocates and FSMC staff. The research covered three sectors of institutional food service (health care, higher education, and elementary and secondary education). Phase 2 research (coming soon!) included a baseline assessment of over 60 New England schools and an in-depth analysis of the factors that drive institutional food purchasing decisions for an additional seven New England institutions. Although not a statistically significant sample, this research sheds light on the key factors that facilitate or hinder local food procurement by institutions.


B. TRENDS

The primary social and cultural factors affecting the New England food service industry relate to client, student, staff, and patient preferences; socioeconomic and cultural differences that affect consumption; changes in the perception of labor and benefits; and food service industry trends and changes. The following graphs show the reported level of importance of food value attributes to both institutional leadership and FSMC staff.


The following key trends emerged from the two phases of research conducted by the FINE Food Service Project (FSP):

Trends Relating to General Areas of Focus for Institutional Food Service:

  • Consumer preference drives the adoption of local, regional, and sustainable products, and those preferences vary among institutions.
  • Food comfort and familiarity with current products are the two largest obstacles to making “healthy” changes to menus. Participants from all three sectors cited this as a barrier to permanent changes in some products, including health care patrons in times of stress, first-time students in new environments, or younger customers in K-12 who are resistant to trying new foods.
  • Barriers to engaging low- to moderate-income populations in the acceptability to local, regional, and/or sustainable options included the lack of marketing options, consumer preferences, and higher price points
  • Culturally appropriate menus that meet religious, ethnic, and socioeconomic preferences are becoming important components, as ethnic group populations grow and expand from the Northeast’s metro areas into rural environments.
  • Food quality and freshness was second only to cost as the most important value attribute for research participants in all sectors, across leadership, FSMCs, and institutional directors. Bad product is a net loss for everyone, and products that have an unexpectedly short shelf life pose challenges with most inventory control, cycling, and recipe systems.

Trends Relating to FSMCs or Institutional Food Service Businesses:

  • Pay scales of public institutions depend upon the institution or FSMC wage and benefit policy. Although all are subject to federal minimum wage laws, self-operating public institutions are influenced by their own institutional wage policies, whereas when outsourced, the institution often defers to the private FSMC wage policy. 
  • Employee benefits and health insurance. Self-operating public university systems often take advantage of state employee health plans, which are considered employee-friendly, while those working for private companies may have varying levels of benefits and insurance options available.
  • The slow shift in client culture to value sourcing criteria over cost is stimulating changes to the value proposition of FSMCs and challenging the rebate and discount systems of the past 20 years. This shift away from high-volume national contracts will affect every component of the FSMC system, from how recipes are standardized, to how origins are traced, to how food is purchased, prepared, stored, sold and marketed.
  • More institutions are beginning to implement standards for labor and fringe benefits as strategies to address social justice. As a result the maintenance of food service employees by the institution will fuel larger contractual changes with FSMCs of all sizes.

Trends Relating to Institutions:

  • The recent trend of networked institutions leveraging collective buying power is a successful industry change agent. Examples of networked institutions in action:
  • More institutions are soliciting bids with smaller niche FSMCs, who have been quicker to respond to market demands for more sustainable, healthy and local products.
  • More institutions are also considering management fee contracts, rather than profit and loss contracts, as this shifts the ownership of financial implications of local and regional sourcing to the institution and eliminates the most common FSMC rebuttal to changing their sourcing.

Trends Relating to General Food System Barriers:

  • The lack of—or the lack of awareness of—pre-processing, washing, and packing facilities and certified farms and processing facilities in the region (particularly slaughterhouses for meat and poultry, washing and packing facilities for produce, and flash-freezing for season extension) was cited in every interview and every survey response as a major barrier to purchasing from local and regional suppliers.
  • The lack of an efficient regional distribution network is a significant barrier to purchasing more local and regional products, as cited by FSMCs, GPOs and direct purchasers alike. The lack of standard invoicing and contracts; unwashed or ungraded product; seasonal fluctuations; a lack of variety, consistency, and volume; and a lack of single points-of-contact were cited repeatedly as issues for all institutions.
  • Most New England farms and producers that are looking to enter into the institutional market but have yet to scale up are in need of technical assistance with food safety planning, state and federal regulation interpretation, and compliance and recordkeeping.

C. MAJOR FINDINGS FROM FACILITY COMPARISON RESEARCH

Reference Phase 2 Research (report coming soon!)

General Findings

  • No correlation was found between the type of provider and the average annual meal cost, which means that self-operated institutions can be just as fiscally efficient as contracted food service management companies.
  • Regional and local products are of more interest and importance than sustainable products to clients across all sectors at this time.
  • Self-operated institutions are 40% more likely across all sectors to purchase from local and regional sources and to use their own specific definition of local and regional products.
  • FSMC-contracted institutions who work with niche “fresh” providers are nearly as likely as self-operated institutions to purchase local and regional products.
  • Of the institutions who worked with an FSMC, almost all cited the importance of a close working relationship between the FSMC’s food service directors, district and regional sales managers, and the institution’s administrators as a key component of successful local food procurement. With or without contract-specific language that encourages sustainable or local purchasing, communication and a willingness to collaborate on the part of the FSMC and the institution create improved flexibility in procurement.
  • All sectors relied on internal tracking of local and regional sourcing with different measures due to a lack of a national standard or tracking system.
  • All sectors reported issues with appropriately marketing and promoting their efforts to provide healthy, local, regional and sustainable products; all sectors require quick-use, interchangeable, non-permanent, editable signage for such efforts.
  • Some institutions retain consultants for their knowledge of the RFP and contracting process.
  • Per the surveyed facilities, FSMCs did not disclose rebates, discounts, or credits in the proposal process unless specifically requested to do so. Those institutions that did not use consultants noted confusion around administrative fees and inflation costs outlined in the bid process.
  • Rebates and discount allowances are a main area where FSMCs and GPOs realize significant profits. In addition, overrides in health premiums, investment amortization, and in some cases, revenue from retail operations. However, the institutions surveyed supported the industry maxim that food service is a low-margin industry that faces significant revenue pressure from rising food and labor costs as well as a stable market that will not bear significant price increases.
  • Management fees paid by institutions were on average less than 0.1% of total annual sales.
  • The importance of networked institutions cannot be overstated. Some institutions lead and others follow their FSMC; but when institutions are connected, they all become leaders, with the power to leverage change in the supply chain. Many of these institutions are buying similar products from the same providers. There is a key role to be played in networking those institutions.

K-12 School Sector-Specific Findings

  • Local and regional procurement is almost exclusively done directly from producers or distributors, not from cooperatives, food hubs, or CSAs.
  • Food cost was seen as equally important to healthy and nutritious foods in K-12 schools at a leadership level – possibly providing some opportunity to market “local” with “healthy” as a way to increase local and regional procurement by schools.
  • Almost all respondents (96%) said they were interested in sourcing more local and regional products, indicating an opportunity to make significant changes in the coming years.
  • Although average costs are not standardized, most state-affiliated schools receiving federal funding are required to tie the costs used in their FSMC contracts to the consumer price index (CPI).

College/University Sector-Specific Findings

  • Local and regional procurement was preferred by these participants through aggregated sources because of reported problems for individual producers (high liability requirements, invoicing needs, and other contracting issues).
  • Sample group participants reported that their internal tracking systems tallied higher local and regional food purchasing than other current, publically available tools. The differences in tracking system parameters and criteria beyond local sourcing can often yield conflicting results, which often add a third-party audit and criteria beyond local sourcing.
  • Colleges and universities generally had a slightly higher labor cost which may reflect a different service style or a slightly higher wage for food service employees.

Hospital Sector-Specific Findings

  • Local and regional procurement is almost exclusively done through distributors, followed by cooperatives, food hubs, or CSAs. There is very little purchasing done through direct vendors, often because of high-volume needs, the need for protection against commingling of products to comply with allergy diets, and liability requirements similar to those in the college and university sector.
  • Health care institutions must now disclose all discounts and rebates, including capital commitments from FSMCs and discounts given by GPOs, as part of the reimbursement process for federal funds, including Medicare and Medicaid.
  • The lack of certified processing facilities that meet the specific needs of the health care sector are a significant barrier to sourcing more products, especially proteins and produce, to hospitals and other health care institutions.
  • Internal tracking systems account for local and regional sourcing differently.

D. OBSERVED ATTRIBUTES OF DIFFERENT TYPES OF FOOD SERVICE OPERATIONS

The following table captures observed attributes of different types of institutional food service operations. The variations that exist within each category depend upon the goals articulated by the institution and are reflected in the contracts with purchasing groups.

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6. Key Recommendations

As a result of research conducted by the FINE Food Service Project to date, the project advisory board has compiled a detailed list of key recommendations that include guidance for 1) institutions, 2) food system advocates and 3) FSMCs and GPOs interested in increasing the purchasing of local food by institutions. Appendices A, B and C contain the full list of recommendations for these three primary groups.

Since this toolkit is specific to guiding the RFP and contract process, the four core recommendations to support institutions in that process are highlighted below:

A. Provide clear and detailed definitions of local food so that implied, value-based attributes are made explicit and are included in procurement policies.
B. Secure a consultant for the creation of RFPs and contract negotiations for food service management. 
C. Set quantitative purchasing commitments in the contract. 
D. Utilize the RFP and contract process to foster supply chain transparency and accountability in support of the facility’s values. 


A. PROVIDE CLEAR AND DETAILED DEFINITIONS OF LOCAL FOOD SO THAT IMPLIED, VALUED-BASED ATTRIBUTES ARE MADE EXPLICIT AND ARE INCLUDED IN PROCUREMENT POLICIES

As institutional purchasers seek increased amounts of local food to achieve sustainability goals and satisfy consumer demand, the sources of that local food expand and the possibilities meeting their goal increase. In order to ensure that all of the institution’s primary reasons for choosing local foods are honored, institutions should be very clear in their definition of “local food.”

Institutions traditionally define local food by identifying a preferred geographic region in an effort to support the community and economy in which they are located. As well as financial support, local purchasing can demonstrate an endorsement of other values-based attributes, including, but not limited to:

  • Healthy
  • Ecologically sound
  • Socially just

Some institutions prefer more regional foods for their implied health benefits, because those products are oftentimes less-processed and more fresh and nutritionally dense. Others might prioritize the environmentally sustainable aspects of certain foods and/or their production methods—their role in reducing fossil fuel consumption and air pollution, promoting responsible use of water, eliminating soil degradation and erosion and increasing biodiversity. There are some institutions that also support the creation of a more localized, decentralized food system because it makes communities more self-reliant through the development of a robust local economy that is more resilient in the face of disruptions to the larger, corporate, more globalized food chain. Social justice and racial equity are other principles the institution may choose to support.

The following are specific examples of value-based attributes that could be included in a “local food” definition:   

  • Preference for vendors that provide fair wages, benefits, a positive workplace environment and a right to unionize to their workers
  • Preference for vendors that regularly provide culturally-appropriate foods in consultation with the religious and ethnic minority groups in the community
  • Preference for vendors that ensure that indigenous, minority and New American producers are sought out and incorporated into the vendor’s local purchasing program
  • Preference for vendors that are transparent and forthcoming with information regarding the ecological impact of the food sourced, including the use of pesticides, fertilizers, antibiotics, energy use, processing methods, waste management and other factors involved in food production
  • Preference for local businesses based on % market share (e.g., this would exclude soda from a soda bottling plant based in the local community as a local product)

The following resources provide examples of values-based definitions, criteria and/or language:


B. SECURE A CONSULTANT FOR THE CREATION OF AN RFP AND CONTRACT NEGOTIATIONS FOR FOOD SERVICE MANAGEMENT

The RFP and contract process requires a unique set of skills, including legal acumen and negotiation. By outsourcing this role and then working closely with the consultant throughout the process, institutions can leverage their skills to ensure that their values and goals for the food services program are represented in the final contract. Use a public Request For Proposal (RFP) process to identify a consultant who will help with both the food service RFP as well as the facilitation of the contracting process with the new FSMC.

When selecting a consultant, consider their past experience and skills in the following areas:

I. Drafting an RFP

  • Ability to identify the values and priorities of the institution and selection committee and use these values to develop the RFP’s content
  • Ability to develop a scoring matrix that clearly reflects the weight of the values and priorities of the institution, including local foods 

II. Reviewing Proposals

  • Ability to summarize and organize vendor proposals in a systematic way for presentation to the selection committee
  • Ability to develop and facilitate a review process using the previously developed scoring matrix  

III. Contract Negotiations

  • Ability to serve as an adviser to the institution’s legal counsel and participate in the negotiation with the FSMC to ensure the local food specifications outlined in the RFP have been incorporated into the binding agreement/contract

IV. General Qualifications

  • Consultant should be independent, without existing business arrangements with an FSMC, distributor, manufacturer, or equipment manufacturer
  • Consultant should understand financial models, institutional food service contract components, and innovative approaches designed to improve transparency and shared ownership of the food service program (e.g., capital investment payment agreements, volume discounts, etc.)
  • If ongoing support for implementation of the contract goals is of interest: Consultant should be able  to support the implementation and evaluation of the FSMC in achieving the operational tasks and goals outlined in the new contract. Depending upon the support needs, skills may include:
    • Mentoring FSMC procurement and production staff
    • Networking with other facilities to leverage purchasing
    • Conducting ongoing evaluation of progress towards goals

Resources for Finding Consultants


C. SET QUANTITATIVE PURCHASING COMMITMENTS IN THE CONTRACT

Spending institutional dollars on local food has the potential to shift millions of dollars in the local food economy over the course of the contract length, situating the institution as a key player in supporting and developing the local and regional food economy. In addition, by articulating goals for purchasing foods with values-based attributes, the institution may assist the growth of a food system that is community-based, humane, ecologically sound, and just.

Establishing quantitative commitments based on an established baseline embeds accountability directly into the contract. It ensures all parties involved have a clear goal to strive for and be evaluated on. These commitments should include:

  • An overall local food purchasing goal percentage based on total dollars spent on food;
  • Percentage goals for multiple product categories to ensure a representation of local food purchased from a diversity of categories, farmers, fisherman and suppliers. This may be determined by the end of the first year of the contract and based on market-based analysis of the opportunity for growth of the regional agricultural system. (Example: Maine Food for the UMaine System Guide Appendix B pg 41 for recommended purchasing preferences by product category for Maine);
  • A commitment to prioritize procurement of regional New England food when products are not available in state;
  • A timeline for achieving the above benchmarks, in addition to targets that increase incrementally based on an annual re-evaluation of market opportunities.

The following are some resources and industry standards that institutions might consider when determining a local food purchasing goal:

Healthier Hospitals Food Challenge: The program is free to any hospital in the United States and Canada and serves as the industry standard for the health care sector. The Food Challenges uses the definition for local and sustainable food created by Health Care Without Harm and the Green Guide for Health Care Credit 3. Participating health systems gain access to free tools and resources to track progress at the local level and share data to show the measurable impact towards the goals.  

Real Food Challenge Campus Committment & Calculator: This free resource serves as an industry standard for colleges and universities. Using the ‘Real Food’ standard ensures alignment with peer institutions, including those using the Association for the Advancement of Sustainability (AASHE) tracking program.


D. UTILIZE THE RFP AND CONTRACT PROCESS TO FOSTER SUPPLY CHAIN TRANSPARENCY AND ACCOUNTABILITY IN SUPPORT OF THE FACILITY'S VALUES

The RFP and contract process is a vehicle to articulate your goals and priorities and invite a partnership with a FSMC that is willing and able to help you achieve those goals. The foundation of a healthy partnership is transparency, accountability and good communication. In addition, activities that support supply chain development not only help grow the market to meet your local food goals, but also position the facility to drive social, economic,and ecologic health. The following recommendations can help ensure that the RFP process meets the facility’s goals and priorities:

During the RFP process:
(refer to Guidance on Bid/RFP Development)

  • RFP Committee: Ensure special seats for key institutional and community stakeholders on the RFP committee to ensure that the concerns of the primary consumers are accounted for when making changes to dining services.
    • Require the FSMC onsite management team (ex: food service director) to be present during the bidder presentations
  • FSMC References: Get to know the history and values of the FSMC by calling other facilities they have worked with to achieve similar goals.
  • Staff Hiring Team: Ensure the hiring team for the on-site food service director and executive chef includes a stakeholder representative from outside the institution. Allow time to interview the candidates separately from their supervisors, as they will be on location day-to-day. This ensures alignment with the institution’s culture.
  • Key Performance Indicators: Request that the FSMC outline their key performance indicators and employee evaluation process to explore how to integrate indicators that will evaluate how well the institution’s goals are being met.

When writing the final contract:
(refer to Approaching a New Food Service Contract)

  • Goal Reporting and Auditing: Require vendor to annually report progress towards local (and sustainable and fair etc.) purchasing targets via a reputable and independent auditing program (e.g., Center for Good Food Purchasing, Real Food Calculator, independent consultant). Articulate a process for the facility to provide regular evaluation and feedback on agreed upon goals.
  • Staff Evaluation and Accountability: Clarify the FSMC’s key performance indicators and employee evaluation process and outline how indicators for achieving the goals of the facility will be incorporated.
  • Capital Investment Offers: Take a close look at capital investment offers. While contract-based capital investments are a convenient way to meet equipment and facility needs, it’s important to pay attention to the details of how those investments are repaid, especially where the term outlives the contract length, to ensure capital commitments do not hinder the flexibility of the operation to allocate funds to meet local purchasing and labor standards.
  • Purchasing Rebates: Require vendor to document and return all off-invoice rebates to a dedicated fund, such as a special local agriculture development fund.
  • Supply Chain Communication and Support: Require vendor to provide volume data needed by interested farmers, suppliers and ag-support organizations on an annual basis. This may include:
    • An annual supplier/producer meeting to describe contracting and bidding process for food suppliers
    • General price-range and volume information for pre-season planning  
    • Information about the approval process for adding new suppliers/producers and products
  • Performance Accountability: Define the consequences of failing to meet contract terms.

When implementing and evaluating the goals of the contract:
(refer to Implementing Your Contract)

  • Review Process: Establish an ongoing review and feedback process, with annual or even quarterly reviews, to identify challenges and outline improvements to food offerings.
  • Stakeholder Committee: Form a “Food Systems Working Group” or similar committee comprised of primary consumers (students, staff, parents, etc.) and institutional stakeholders. This may be in addition to or independent of existing dining services, green team, or wellness committees. Through this group:
  • Actively monitor adherence to contract requirements and act in partnership with the Vendor to research and implement new products, dining hall education, producer outreach, and more.
  • Require vendor participation in the group, except in cases where stakeholders prefer to connect in their absence.

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7. Guidance on Bid/RFP Development

Section Table of Contents

A. Overview
B. Develop a Team & Identify Your Values
C. Request for Proposal (RFP) & Bid Specification Development
D. Leveraging RFP Components to Increase Local Procurement
E. RFP Bidder Evaluation Process


A. Overview

Institutions issue a request for proposal (RFP) in the process of selecting a FSMC to manage their food service operations. The RFP presents an opportunity for an institution to narrow the pool of FSMCs to those that are best aligned with the institution’s values. The RFP is used to clearly articulate the client’s vision for what they want to accomplish, including their values surrounding food and food system growth, in the context of what they would like the FSMC to do to support these values. The following sections offer a specific approach that shows how a facility can incorporate its vision and goals into the RFP process.


B. DEVELOP A TEAM & IDENTIFY YOUR VALUES

First Steps

A first step in articulating the values of the organization and your expectations for the FSMC is to develop a team of key stakeholders from the organization. Several excellent resources exist that offer recommendations for this phase of the process, including:

Both of these documents emphasize the importance of assembling a team of champions early in the process, made up of knowledgeable individuals from all levels of the organization as well as allies and partners within your broader regional food network. Having a group of people that are committed to the process, and who also have the time, skills and/or the leverage to influence the overall outcome, will make all aspects of implementation easier. It is also important to understand the various concerns and motivations of those members, so that common ground and clear goals can be identified amidst a diversity of perspectives. The other audience to keep in mind during this process is the clients/customers being served, as their engagement and satisfaction are both means and measures for success.

Sample Questions to Establish Values

To Staff / Students:

  • What is important to you about dining / cafe?
  • What do you like about current dining / cafe?
  • What do you wish was happening in the dining program?
  • If you have been to other facilities / campuses, are there things you liked about their program?
  • What is your vision for dining services?

To Administrative Partners:

  • What is working well with the current vendor?
    • What do you want to retain?
    • What is the most important thing you do not want to lose?
  • What is the current vendor not providing or doing that you would advocate for as part of the next dining services contract?

With a team in place, the next step is to articulate a clear vision that outlines the values and priorities of your organization, as well as the long-term, aspirational outcomes of this entire process. Establishing these statements may seem burdensome, but taking the time to articulate the purpose of this work can offer both inspiration and practical guidance when implementation decisions must be made. The Food Alliance Guide recommends that the vision apply “a holistic view of sustainability,” so that it incorporates and combines institutional ideals related to such interrelated themes as personal wellbeing, social justice, economic stability and economic balance. The guide also suggests that the vision should not confuse the means (“support local and organic food”) with the actual ends you might have in mind, such as safe and fair working conditions, healthier food, mitigating climate change and supporting a strong regional economy.

Other resources for developing a vision that outlines the organization’s values and priorities

One way of creating a clear statement of the institution’s values is to pose the following questions to the team: “If we could only accomplish five things in this next contract term, what would they be? What is most important for our food service operation?” The following table is an example of how UMASS Amherst (guide coming soon!) outlined their values:
 


C. REQUEST FOR PROPOSAL (RFP) & BID SPECIFICATION DEVELOPMENT

The key to writing an effective request for proposal (RFP) or invitation for bids (IFB) is to balance bid specification rigor with market realities. This will ensure both adequate competition as well as vendor responses that meet your needs. The less detail you include in your RFP / IFB specifications, the greater the number of general responses you are likely to receive. This may be fine if you are going out to bid for a commoditized product or service with little or no differentiation between brands (e.g. bottled water) and price is your primary consideration. However, if you are hoping to contract with an FSMC or vendor to fulfill a set of customized criteria or values, or are looking for an FSMC to suggest a novel approach for your operation, a lack of specificity in your RFP / IFB specifications may place in an administrative burden on the facility due to multiple responses from vendors who cannot meet your needs. Conversely, issuing specifications that are too detailed can have the opposite effect by stifling competition, generating a lack of bids or perpetuating a market failure where a monopoly is created.  

The following table offers an outline of key considerations when developing the RFP.


D. LEVERAGING RFP COMPONENTS TO INCREASE LOCAL PROCUREMENT

To solicit the information that will be most useful in identifying the best-suited management company, an RFP should include probing questions that will demonstrate how the company operates and if it is able to meet the institution’s needs. At many points throughout the RFP, specific verbiage that clarifies the expectations for the local and sustainable food purchasing can and should be incorporated. The sections of an RFP are outlined below. Hyperlinked Items offer details on how to include language outlining your interest in local and sustainable food purchasing.

Sample RFP Outline

1. Proposal Instructions

  • Contact person: name, address, e-mail and telephone number
    • Timeline of events: deadline for questions, proposal submission, anticipated award date and anticipated contract start date
    • Date, time and location for pre-proposal meeting/site tours/interviews
    • Vendor performance agreement and contract terms
      • Contract Length Recommendation: It is important that a food service contract be no more than five years in order to create accountability and a more engaged partnership with the Vendor. Often capital investments made by the FSMC to the institution have generated longer contract periods.  
  • Proposal evaluation criteria
    • Written Proposal
    • References
    • Quality of example programs
    • Credentials
    • Interview
  • Consider a public forum: invite your constituents to be part of the RFP process so that community and campus individuals and groups can ask questions and hear Vendor responses.
  • Proposal formatting/layout instructions

2. Scope of Services

3. Qualifications of Provider

  • Type of business—corporation, partnership, sole proprietorship
  • Management, staffing, and subcontractor plan, including resumes of principals and description of support staff
  • Transition plan from existing vendor (if applicable)
  • Supply chain partner list and detailed sourcing practices overview
  • Development plan, which may include menus and nutritional information, marketing and merchandising plan
  • Pricing schedule
  • Inventory, equipment and maintenance plan
  • Quality improvement management process
  • Certifications, proof of insurances and safety plan
  • Proof of fiscal solvency and adequate working capital
  • Example of other programs the FSMC provides as they pertain to your specifications.

4. Signature Page


Note: The following topics in regards to local/sustainable food expectations correspond with the bolded topics above.

Section 1.e. Proposal evaluation criteria

In order to evaluate all proposals fairly and encourage the right mix of applicants, offer a decision-making rubric or scoring system with the RFP. Demonstrate the importance of local food by including it in the rating scale and by assigning a specific number of points to it in comparison with other RFP criteria. Make it clear whether you are willing to entertain working with a company that does not have a track record of supporting local foods, or whether this will be required for them to earn your business.

Consider the weight placed on economics, overall sustainability, service and other components of a company’s operations. How important is availability of local products in relation to these other components? In order to apply adequate weight to the goal of increasing local food sourcing, avoid linking local foods, sustainability, and other values into one overarching category. Doing so will prevent reviewers from the ability to evaluate each individual value. As an example, see the suggested decision-making rubric created for the University of Maine RFP Committee in 2015.

Section 2. b. i. Summary of the institution’s philosophy and operation

Summarize the philosophy of the institution and the value placed on local and sustainable food sourcing. Articulate the outcomes you are hoping to achieve through a successful food service operation. Include verbiage and/or a section that outlines the institution’s commitment to local, sustainable food within the standard language for the food service RFP.

Example: “Because the XYZ Institution believes strongly in the health benefits of sound nutrition and the contribution of local food to our local economy, we are launching an upgrade of the food we present to our patients/students/employees and our visitors. Our upgraded Food Services Program will reflect a focus on our customers’ needs and expectations as well as seasonal, local and sustainable food [1] (insert definition in a footnote or addendum). It is essential that in addition to basic food service standards, we execute a Food Services Program that subscribes to the obligation we have to provide food that is healthy, economically supportive of our community and supportive of environmental sustainability.”

Section 2.b.iii Description of services required and plans for the project, including the operating schedule and desired end result

In order to indicate a preference for locally sourced items, provide a clear definition of “local,” as that term does not mean the same thing to everyone. Depending on how you define the term, an FSMC may or may not have the relationships that will enable them to provision a sufficient quantity of high-quality local products.

Some common definitions of “local” being used in New England include items produced:

  • In-state
  • In the six-state region
  • Within 250 miles of the institution
  • A tiered approach that prioritizes in-state first, then regional, and national or global products last

To ensure that an FSMC can provide a sufficient supply of local products, an institution may want to consider asking the following questions:

  • Please provide a list of all local items currently available.
  • Are you able to provide town or state of origin for the products you offer?
  • What requirements must a farm or food business meet to be approved by your FSMC?
    • A. Do they need a Good Agricultural Practices (GAP) certification?
    • B. What level of liability insurance must they carry?
  • What, if any, support do you provide to farm and food businesses to meet these requirements?
  • Do you currently have plans to expand the availability of local products in New England? If so, please explain.

3.d. Supply chain partner list and detailed sourcing practices overview

Supply Chain Partnership and Development
Request a list of the supply chain partners the FSMC currently contracts with. Request they discuss their willingness and ability to incorporate new vendors as requested by the facility. Provide accessible information about the approval process for suppliers/producers. For an example, see pages 28 – 31 of the Maine Food for the UMaine System Guide, which details their process for acquiring and working with new vendors.

Supply Chain Transparency, Tracking and Metrics
As important as having local food procurement goals is the ability to evaluate whether they are being met. When an institution contracts with an FSMC, they become reliant on the FSMC and its vendors for information about the products they purchase, including product place of origin. Some FSMCs have transparent ordering systems through which one can easily decipher a product’s origins; however, many do not. The RFP is the perfect place to set expectations for transparent ordering and reporting and to determine a company’s ability to meet those expectations. However, it’s important for criteria and evaluation metrics to be based on achievable goals for growth based on the current state of the food system.

Here are some important questions to consider when determining the ability of a company to be transparent and track orders:

  • Are local items clearly marked on ordering guides by place of origin so the facility can determine if it meets their definition of local?
  • Are local items listed on ordering guides as “prefered” or “on contract” and are they offered at a competitive price compared to the non-local alternatives?
  • Is information about local purchases tracked on invoices or standing reports?
  • Are reports that track client purchasing patterns available upon request?
  • How will you educate both customers and staff about sustainable food?

E. RFP BIDDER EVALUATION PROCESS

Institutions have the opportunity to prioritize sustainability, local foods, transparency, and community engagement through their RFP and contract process. In order to ensure that Vendors are aware of the level of importance of these areas to the contracting institution, it is critical to give these priorities weight in the RFP and in the scoring rubric that will be used to select the next Vendor. The following suggestions will guide the evaluation and scoring of bids once they have been received in order to ensure a clear process for identifying a good match for the institution. Please see page 11 of the Maine Food for the UMaine System Guide for details on the development and use of a decision-making rubric for the RFP committee.

Key steps to consider in the bid evaluation process:

  • Summarize and organize vendor proposals in a systematic way for presentation to the Selection Committee.
  • Use the decision-making matrix that was developed in the RFP process to evaluate how each vendor meets the institution’s vision and values.
  • Include a feedback report to all bidders that outlines where they excel and where improvement is needed to align with the goals of the institution. This encourages growth within the FSMC regardless of the outcome of the bidding process.

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8. FSMC Contracts

*FSMC = Food Service Management Company

Section Table of Contents

A. Comparison of Contract Types
B. Basic Contract Components
C. Approaching a New Food Service Contract: Contract Negotiation Considerations

    - Split Contracts
    - Management-Only Contracts
    - Preference for Local Foods
    - Price Constraints
    - Quantitative Purchasing Goals
    - Approval of New Local Sources
    - Supply Chain Transparency and Tracking
    - Rebate Transparency and Audit Plan
D. Amending Your Food Service Contract
E. Implementing Your Contract

    - Evaluation: Quantitative Measures
    - Evaluation: Qualitative Measures
    - Performance Meetings and Key Performance Indicators


A. COMPARISON OF CONTRACT TYPES

The figure below outlines the types of contracts between FSMCs and their clients. Although there are a number of options, there are generally two main types: (1) Profit and Loss (P&L) and (2) Management Fee. Under a P&L contract, the FSMC earns revenue from their services in the form of profits that are generated by the food service operation. By the same token, if the operation loses money, the loss is to the FSMC, not the institutional client. Therefore, the FSMC assumes the most financial risks and reaps the majority of rewards of the food service operation. Generally, the P&L contract gives more autonomy to the FSMC to design a program of their choosing, with the client often playing a more hands-off role except during the contracting process. This model offers an incentive for the FSMC to reduce costs within the boundaries of their contract as a means to increase profit. This may take the form of reducing labor costs.

Under management fee contracts, the FSMC is guaranteed a fixed source of revenue in the form of a fee from the client. This fee is negotiated as a percentage of revenue. There is no national or industry standard cap or threshold for FSMC fees. The management company is required to provide a food service program specified by the institutional client. Any profit from the operation typically goes to the client, and by the same token, losses are borne by the client, who is obligated to reimburse the FSMC for the outstanding costs of the operation in addition to the pre-determined fee. This type of contract poses a greater risk to the client because the operating fee typically remains the same whether or not the food service operation is profitable. However, the management fee contract may offer the client more control and flexibility over the operation, including sources of product, as long as the client is willing to accept the financial implications.


B. BASIC CONTRACT COMPONENTS

While every contract is different, and they may vary widely, typical contracts between client institutions and FSMCs often include the following components:

  • Scope and Purpose - This includes details of the service being contracted and the institution's goals and vision for its food service operation.
  • Definitions - Like any legal contract, there often is a long list of terms referenced throughout the contract.
  • Contract Terms – This section includes information such as the length and dates of the agreement, liability insurance, indemnification, breach of contract, termination, state or federal compliance, proprietary material guidelines, trademarks, intellectual property safeguards,  etc.
  • Financial Terms - This section includes terms of compensation, coverage of miscellaneous expenses and payment terms, details of the pricing structure, and invoicing and payment procedures. It may specify the student and staff meal rates or any subsidies, requirements or regulations concerning specific sources of funding or regulatory authorities, the reimbursement timelines, the financial statements the FSMC must provide on a regular basis, the management of rebates or volume discounts and on-contract compliance rates (e.g. low or removed).
  • Management and Personnel - In this section, the qualifications and standards for the on-site management team may be defined, as well as any requirements for staff training, use of advisory groups, leadership structure, wage levels, designation of staff as FSMC or institution employees or rehiring of existing workers (in the case the contract has changed hands).
  • Food Service Operation - This section includes the bulk of the most relevant content, including product specifications, health certifications and food safety standards, purchasing details, hours of service, menus, inventory cycle and other operational details.
  • Sustainability Programs - Increasingly, contracts include sections that specifically address sustainability concerns, including energy, waste management (composting and recycling) and food procurement.
  • Audit and Recordkeeping – This section includes agreed-upon requirements for tracking and accountability, including the parties responsible for tracking.
  • Facilities - Additional sections may describe use and maintenance of buildings, existing equipment, inventory, loading docks and other physical plant issues.

C. APPROACHING A NEW FOOD SERVICE CONTRACT: CONTRACT NEGOTIATION CONSIDERATIONS

Overview

Successful contracts that meet an organization's goals result from thoughtful bid specifications, deliberate and fair bid processes, rigorous contract negotiation and consistent monitoring and assessment of vendor performance. See Appendix D for a case study of UVM’s contracting process. The graphic below provides an overview of the contracting process, followed by a detailed discussion of each step.

Diagram by Northbound Ventures, LLC.

Clear criteria in your RFP should help narrow the pool of applicants to those companies which are able to work with your institution around local food procurement. However, the contract — not the RFP — is the legally binding document to which both the FSMC and the institutional client must abide. The language around local food that is included in the contract will set the terms for the tenure of the contract. With that in mind, it is important to ensure that institutional priorities are captured in the contract, with language that emphasizes local food procurement. To ensure this outcome, the institution needs to be represented in the contract negotiation process by empowered decision makers who not only are knowledgeable about institutional policies, but who also understand the values and priorities of the institution around food procurement.

Many New England based institutions that contract with FSMCs and GPOs find it difficult to purchase significant quantities of products from local farms. This is in part because most contracts require institutional clients to purchase 80% to 100% of their food items from approved or preferred vendors of FSMC or GPO in order for them to benefit from negotiated discounts or rebates. Such arrangements exclude local food from standard purchasing contracts by default. For FSMCs, approved vendors may include some local suppliers in categories such as produce, but largely consist of national manufacturers and suppliers who arrange discounts with FSMCs and GPOs based on large sales volume.

Split Contracts

New England farm and food businesses are typically unable to meet the full variety and quantity demanded by an all-inclusive food contract. However, there may be food businesses that can provide high-quality products for a smaller number of items. These companies can be pulled into the bid process on contracts that focus on products produced and processed in New England. For example, institutions that wish to increase their ability to purchase local food may want to consider excluding produce and/or dairy from their general contract with a FSMC. Instead, they can issue a second RFP requesting significantly higher portions of local procurement for produce and dairy, which are available throughout New England.

Management-Only Contracts

Institutions may consider contracting with FSMCs for their management services only and maintaining food procurement as an in-house activity. As such, all decisions around purchase of food would be made by institutional staff. This arrangement enables institutions to capitalize on the expertise of FSMCs around managing retail and cooking operations, while maintaining full control over the quality of food used by the institution. The primary drawback of a management-only contract is that the institution is no longer privy to discounted prices negotiated by the FSMC. One way to address this challenge is to work in collaboration with other nearby institutions to develop a buying group that pools their purchases in order to obtain discounted rates.

Preference for Local Foods

New England is home to thousands of small farm and food businesses, many of which are not likely to have established a direct relationship with the selected FSMC or its approved distributor. When buying direct from smaller suppliers, be sure to consider how responsibilities typically handled by an established distributor will be carried out. For instance, how will the food get to the institution? How will the institution make the purchase from these local suppliers? Consider negotiating for the ability to procure local food items off-contract when an equivalent local food item is not available through an approved vendor. These purchases are not to be counted toward the allotment of off-contract purchases. For example, if local kale is not available through an approved vendor, then the institution can purchase kale directly from a local farm without it counting as an off-contract purchase.

Price Constraints

Contract negotiations will include an overall budget. In some instances, the budget can inhibit local procurement if local items are more expensive than those provided by larger national suppliers. Consider allocating a set amount of the budget for procuring local products even when they are more expensive, up to an additional 15%, or other specified amount [4].

Quantitative Purchasing Goals

Articulate a quantitative goal for purchasing local foods, or request that vendors provide a baseline for local purchases and then work with the FSMC to establish improvement goals over the course of the contract.

Approval of New Local Sources

The New England food system will be enhanced if more regional producers and manufacturers become approved vendors for FSMCs. This will enable them to sell to additional institutional clients, including those that were unable to negotiate local food preferences in their contracts. A major sticking point for many New England producers is the requirement that they receive United States Department of Agriculture Good Agricultural Practice (GAP) certification in order to sell to most FSMC institutional sites. Consider negotiating a HACCP-based or alternative state-based food safety certification in place of this requirement. (Note: HACCP is an acronym for Hazard Analysis and Critical Control Points plan.)

Supply Chain Transparency & Tracking

If an institution has set local procurement goals, it will need to track the amount of products purchased by either dollars or pounds. Therefore, ease of source identification, both in ordering and tracking, is important. Under ideal circumstances, the FSMC will be able to identify the product’s place of origin in an ordering guide. However, in instances when this is not possible, consider requesting updates on local products on a weekly or monthly basis so that the food service director or chef can identify local items when placing orders. Additionally, an institution will need summary reports of procurement of local food by category to determine if goals are being met. Request monthly or quarterly tracking/reports from distributors that distinguish between items grown locally (carrots) or produced / processed locally (roasted coffee).

It is also important to include the definition of “local” within the contract language, as it was defined in the RFP process. This definition should apply to the institution, FSMC and the approved distributors or vendors. Having clear and agreed-upon definitions will help in monitoring progress and make tracking product origin a smoother process.

Rebate Transparency & Audit Plan

The only way to realize the full volume of rebates or volume discounts connected to your institution’s purchasing is through an auditing process. This process is usually an expensive cost to the institution. Auditing provisions should be included in the contract. Example: “Client has right to conduct an audit of FSMC, at their expense, except if it is found that the FSMC fails to meet terms of the contract. In the case of non-compliance, the FSMC is responsible for the auditing costs.”

Connecting rebate dollars directly to your facility can be challenging as the FSMC often holds thousands of contracts between manufacturers, producers and distributors, some of which have international reach.

Closing

As a part of the FSMC review process, financial statements are commonly requested from the FSMC. The institution usually receives a straight Profit & Loss statement, otherwise known as the Client Report. What is not included in the P&L statement are what one consultant called “below the line credits” that FSMCs receive—credits as a portion of the volume purchasing rebates, etc. This information is shared with the FSMC management team in the form of a compliance report, which indicates how they are doing with regard to purchasing from the FSMC approved-product list. If shared with the client, such information would help the institution more fully understand the financial performance of the FSMC and the volume discounts they receive.

As one food service consultant noted when discussing rebates, “It is important how you ask for transparency. If I was going to write this into a contract, I would list a requirement to disclose the discount or revenue coming to the FSMC through your purchasing agreements.”

In many cases FSMC will offer a flat rate or percentage as a way to share the rebates they earn as a result of large volume purchasing. This approach removes the process of a formal audit and the associated costs. However, it does not imbed accountability within the FSMC to source per the institution’s specifications versus their high-volume contracted items. In order to address this concern, the institution may request that the FSMC provide a regular report of rebates earned by the organization at large and those earned as a result of the institution purchasing. One innovative strategy is to require the FSMC to document and return all rebates to a special local food fund to assist the institution in achieving its local food procurement goals.


D. AMENDING YOUR FOOD SERVICE CONTRACT

A contract can be amended at anytime during the existing contract period, as long as both the FSMC and the facility agree and sign the amendment. You may consider drafting an amendment if the current contract is preventing you from meeting your procurement goals. For instance, if the original contract set a fixed budget, and the purchase of local food items has proven to be financially prohibitive in meeting that budget, an amendment can stipulate a general increase in budget or an increase for specified items.

In order to explore this option, it is critical for the facility leadership be involved in and approve of the changes. It is recommended that they provide justification for the changes.

Sample justification to facility leadership: “In order to meet the established goal of the organization to source 20% of its food product from local sources, an increase in monies allocated for the food service management procurement is warranted. The cost of meat raised from a large scale industrialized farm is subsidized through the farm bill commodity program and therefore the production and product costs are disproportionately low. In gathering production cost and price data from x# of local beef farms who practice sustainable production practices, we found the average to be x$ per pound. To source 20% of our beef from these sources requires an additional x$ from the current spend on beef. By transitioning our purchases to these local sources, we are contributing to the growth of our local food system and economies and reducing the overuse of antibiotics.”

Sample contract amendment language: “x$ or x% will be added to the contracted budget for food service management to be used for products sourced locally from x source. An accounting of these purchases will be tracked by the contracted food service operator and reported to facility leadership on a quarterly basis.”  


E. IMPLEMENTING YOUR CONTRACT

Overview

Having a robust implementation strategy for the contract is as important—if not more important—to the long-term success of those procurement policies as the language and benchmarks outlined in the contracts themselves.

Questions to consider when developing a plan for implementing and evaluating the contract (reference Food Alliance Guide, p. 13):

  • How will purchase data be tracked, and in what detail?
  • How will performance data be compiled, reported and evaluated?
  • Who will have responsibility for assessing and reporting compliance with the policy?
  • How frequently will reviews be conducted?
  • How will lessons learned be documented and shared?
  • How will new ideas and opportunities be brought forward?
  • How will performance affect employees charged with implementation of the policy?
    • How will bonuses or employee evaluations be scored for the FSMC employees?
    • What are the terms of penalties?
  • How will performance affect continuation of existing supply contracts and relationships?
  • Who will make those decisions, and how will decisions be weighed against other factors?
  • How and when will the institution make adjustments to its policy and goals?
  • Who will have final authority on changes to the policy or goals?

Evaluation: Quantitative Measures

Establishing goals and metrics whereby the institution will assess its progress is related to, but different from, the vision process (insert hyperlink to earlier section on vision). If your contract does not already include reference to those metrics, then your team should construct benchmarks that are SMART: Specific, Measurable, Attainable, Relevant and Time-Bound. Developing quantitative and practical goals should be done within the context of any constraints you anticipate related to staffing, expertise, product availability, contract language, facilities, etc. It is also important to decide what you want to track, and how and when you want to report these results to both your internal and external stakeholders. Beyond local and regional food criteria, some organizations also set goals with regard to other values and certifications, such as organic, humane, fair trade, etc. The Sustainability Food Purchasing Guidelines developed by the Emory University Sustainable Food Committee have extensive descriptions and background on many of those characteristics.

Your institution may decide that utilizing a pre-existing tracking mechanism and set of criteria such as the Real Food Calculator makes the most sense. Those in health care often reference the criteria and tracking spreadsheet developed by Health Care Without Harm and the Healthier Hospitals Initiative.

In addition, FSMCs have developed internal tools that offer guidance and support for tracking various purchasing metrics.

  • Sodexo clients have access to the SMART Tool, created by the company, which has a healthy/sustainable food category.
  • Compass clients have access to the Climate FOODprint toolkit, which serves as a climate impact calculator for food purchases.

Once you determine what you will measure, you should establish a baseline for each of those purchasing metrics against which you can measure your progress. Whether you use an established program or develop your own means, make sure you are clear about whose responsibility it is to compile this information. You may find that you also need to work in partnership with vendors so that they provide you with the traceability data you need to evaluate your progress. In both cases, establishing clear roles and tasks can improve accountability and ensure success.

As establish these various systems and develop buy-in from the many stakeholders in your institution, focusing on high priority and/or smaller projects/products that have a large and visible impact, and require little in the way of time and resources, can be a good starting place. Decide where the low-hanging fruit is, address those areas, and then celebrate those successes and the people that made them possible. These pilot programs can build confidence and energize the team to take on some of the larger and more complicated goals over time.

With regard to priorities, some institutions have also found it useful to develop a prioritization matrix to provide staff with guidance as they place their orders. For instance, do you give preference to local food or organic food? What about organic products versus humanely-raised? The Sustainability Food Purchasing Guidelines from Emory University and Appendix B: Recommendations for Purchasing Preferences by Product Category from the Maine Food for the UMaine System guide both include examples of these matrices. Be sure that you have clear definitions for all of the terms you are referencing in your matrix, whether those definitions are based on industry standards or certifications or whether they are defined internally (e.g. “local” food is sourced from within 100 miles”). The Food Alliance Guide and the Maine Food for the UMaine System documents include detailed suggestions for constructing those definitions and developing priorities

Evaluation: Qualitative Measures

Outline processes, measures and evaluative metrics that ensure accountability and that the goals articulated in the contract will be met. For instance:

  • How will new vendors be incorporated?
  • Who will communicate new policies to internal and external stakeholders?
  • What factors will weigh into budgetary considerations?

Employee Orientation Materials

An ideal way to ensure that all food service staff are aware of facility goals is to include key responsibilities related to achieving the goals in job descriptions and incorporate an educational component into all employee orientation.

See Appendix E for Sample Job Descriptions Featuring Skills in Local Food Purchasing and Promotion

Employee Evaluations

The employee evaluation process provides another opportunity to reinforce the institution’s goals and incentivize participation. For instance, some FSMCs offer a bonus to a facility account manager who maintains a benchmark level of compliance of approved products. See Appendix F for a sample of standard categories found in a FSMC director evaluation. Or a contract might note that staff bonuses are contingent upon the success of local food goals. If your contract outlines a plan for marketing and education, then the FSMC evaluation should track and recognize progress in this area. Some institutions develop an expectation that the FSMC will partner with faculty and students by providing time and information on the food service operation for courses focused on food and agriculture, or work with clinician or parent groups to align the food services with the requests of these stakeholders.

Communicating such efforts can benefit the FSMC and the institution by improving staff loyalty and involvement and attracting new vendors and customers, which will impact the bottom line positively. More detail and sample language for articulating these requirements can be found in Appendix E.

Performance Meetings & Key Performance Indicators

Conduct performance review meetings with facility leadership, stakeholders and FSMC representatives to review progress. Create a checklist of key goals and metrics you would like the FSMC staff to report on, including financial and product purchasing reports. This is where you can request a report on rebates. Conduct a survey of constituents or stakeholders prior to the meeting to gather feedback on what is working and what needs improvement. See Appendix H for Sample Performance Review Form – UMass Amherst FY 2015.

FSMCs and self-operated institutions have traditionally evaluated their success based on self-monitoring of attributes, such as key performance Indicators (KPIs), manager evaluations, and volume discount agreement (VDA) or rebate percentages. However, more institutions are now using additional metrics to evaluate their contracts, including incentives and repercussions for compliance with the institution’s local and regional purchasing policies.

Key Performance Indicators in Food Service Evaluation

  • Plate cost: participation rates
  • Food cost: retail transactions per day and revenue
  • Meals per labor hour: check average
  • Sales per labor hour: customer count

KPIs are unique to each institution, but this list encompasses most industry-standard performance indicators that measure critical budget features of any food service program.

KPI’s can be developed to evaluate the effectiveness of the FSMC in meeting the contract goals. Contract evaluations nearly always specify compliance targets for fees, purchasing, cost, labor, and other goals. In addition, some contracts also include compliance targets for on-site managers, including alignment of dining services program with institutional purchasing goals, certifications or pledges, such as 100% sustainable seafood or fair-trade products. It is important to tie KPIs to financial incentives such as merit increases and bonuses, both at the employee and FSMC organizational level.

Traditionally, FSMCs provide internal reporting on their purchasing. New types of reporting are emerging that can help institutions track contract performance data. Institutions can now request additional data, such as local, regional, and sustainable items purchased, compliance with AASHE STARS, Real Food Challenge, Health Care Without Harm, and other national reporting programs and metrics associated with institution sustainability programs, such as composting, recycling, energy consumption, community or campus gardens, and other programs.

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9. Glossary of Terms

  • Local, Regional & Sustainable Products: Institutions in our research defined these terms in various ways. Generally, local products are found within a smaller radius of a given location than regional products. Because of New England’s small size, however, many institutions use these terms interchangeably, with “local” and “regional” both meaning “from New England.” Sustainable products also have their own institutional definitions, but are generally considered to be those produced in a way that is environmentally sound, meets social justice criteria such as fair wages and/or are grown or harvested in a way that does not deplete the total natural supply.
  • On-Contract Purchasing refers to an institution’s procurement with a contracted vendor. Typically, FSMCs or GPOs will set a specific amount of product that the organization must purchase in order to receive the benefit of discounted product. This amount is given as a percentage of the total food budget and is usually between 70-90%.
  • Off-Contract Purchasing refers to an institution’s procurement with secondary vendors other than its primary FSMC or GPO. These can include other distributors, local or regional farms and producers, manufacturers, processors, and aggregators.
  • RFP (Request for Proposals): this is the process by which institutions generally solicit bids from FSMCs or GPOs and evaluate those bids for selection purposes.
  • FSMC (Food Service Management Company): FSMCs include such companies as Sodexo, Aramark, and Bon Appetit, who contract with an institution to manage and operate most aspects of dining services.
  • GPO (Group Purchasing Organizations): GPOs are independent or member owned and leverage collective purchasing power to create lower price points for members. They do not provide services such as culinary management or staff training, as an FSMC would.
  • Institutional Food Service: Dining services provided at large agencies or entities, such as hospitals, medical centers, universities, colleges, elementary and secondary schools, prisons, child and elder care facilities and others. Institutional food service is of interest to food system advocates because they collectively impact a large market share of the food economy with their volume purchasing.

Footnotes

[1] Los Angeles Food Policy Council. Good Food Purchasing Program. Available at: http://goodfoodla.org/wp-content/uploads/2013/02/GFPP15-IntroBrochure.co.... Accessed October 31, 2015 

[2] Porter, H. David. “Self-Op vs. Contract: What’s Right for Your Campus?” http://www.porterkhouwconsulting.com/articles/documents/SelfOpVsContract.... Accessed July 2015.

[3] Porter, D. (2006). “Self-Op vs. Contract: What’s Right for Your Campus? Food Management” http://www.porterkhouwconsulting.com/articles/documents/SelfOpVsContract.... Last accessed August 2, 2015

[4] J. Boynton, Interview, 2014

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Appendix

Note: This section is not yet fully developed. Check back again soon!

Appendix A: Tip Sheet for Food System Advocates (web)

Appendix B: Tip Sheet for Institutions (web)

Appendix C: Tip Sheet for FSMCs & GPOs (web)

Appendix D: Real Case Examples (web)

Appendix E:  Sample Job Descriptions Outlining Skills in Local Food Purchasing & Promotion

Appendix F: Sample Categories of a FSMC Food Service Director Employee Evaluation (web)

Appendix G: Considerations for Evaluation & Accountability of Food Service Vendor (coming soon!)

Appendix H: Sample Performance Review Form – UMass Amherst FY 2015 (doc)

Appendix I: Sample Language for Local Food in Contracts and RFPs (PDF)

Appendix J: University of Vermont RFP Committee Mission Statement (coming soon!)

Appendix K: Case Study on Successful Partnerships with Food Service Management Company (coming soon!)

Appendix L: Case Study on Transitioning to Self-Operated Food Service (doc -- revised version coming soon!)

Appendix M: Resource List & Links (web)

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