The British Hospitality Association (BHA) Food & Service Management Survey 2010 identified that during the recession, profit and loss based contracts grew by more than 75%. In other words, the continued shift from cost-plus type contracts has gathered even greater momentum.
This move away from cost-plus catering contracts is not new and alternative types of contract that place greater responsibility and risk with the caterer have been evident for well over ten years.
The three main types of catering contract within the employee catering arena are cost-plus; fixed price and profit and loss/ performance guarantee. Under a cost-plus model the caterer provides its expertise and invoices the client for all operational costs, plus a management fee. Typically, these contracts do not have a ceiling and therefore if the caterer fails to either optimise the revenue or effectively manage the costs it is the client organisation that picks up the bill. Fixed price contracts provide a greater degree of certainty and work very much as the name suggests. The client receives a specified service level for a defined sum. As may be imagined there are pros and cons with this particular style of contract and while it can be appropriate for some organisations, it can prove costly and inflexible for others. The third contract type comes in many guises and is often referred to as a profit and loss contract; performance guarantee contract or a concession based contract. These types of contracts are often interpreted in different ways and frequently have nuances that mean that when compared against peer organisations they include varying levels of ‘risk and reward’ for the caterer. Concession based contracts, whilst evident within the staff catering sector, are still typically more associated with visitor attractions, historic buildings and the like.
The move to ensuring catering organisations are more accountable for their abilities is great news, not just for the banks, law firms, manufacturing companies, ad agencies and other client organisations that the food service management companies are earning a living from, but also in terms of upping the ante and ensuring that employee catering facilities continue to provide great value to their customers.
Of course, there will always be a requirement for different types of catering contracts, depending upon organisational requirements, site dynamics, location, external catering competition and a whole host of other considerations that need to be taken into account. Critical to all of this is ensuring that the contract is appropriate, fair and able to provide a realistic reward incentive to the caterer as well as providing accountability.
For further information as to how we can support your organisation in ensuring you have the most appropriate catering contract style and structure in place, please see Operator Selection/Tendering & Contract Management in our Services section or contact us for an informal discussion.
Posted on May 11th, 2011