Understanding Contract Costs

Earlier last year while undertaking a catering tender exercise on behalf of a very well known international corporation for their London offices there was an interesting moment when we were explaining the future contract structure to those catering organisations tendering to provide the catering services.

Half way through the discussion, the Managing Director from one of the catering organisations piped up, ‘Management fee, what’s that? We won’t be needing a management fee’.

It’s worth explaining why he had arrived at this conclusion. As an intentional strategy and at the client’s request we had invited a number of catering operators that worked predominantly in the commercial sector, including those working in museums, visitor attractions, as well as event caterers. The client had decided that they wanted to understand any differences, both culturally and in terms of approach, that such operators could bring to their catering services in comparison to those caterers operating only in the corporate sector.

The statement made during the briefing may at first appear naive; however, when you consider that the person commenting had only ever managed concessions and fully commercial catering operations, it is more understandable. As such, they had been used to paying a fee to their client organisations for the privilege of operating in their premises. However, what they hadn’t been aware of was that for those operations that do not make a surplus, i.e. part subsidised in this case, the only means for the caterer to achieve any remuneration for operating the service was through a management fee, paid by the client to the caterer.

The above example is extreme in terms of total lack of knowledge that management fee based contracts even exist. However, from our experience what is clear is that there are a number of senior management decision makers and contract managers that do not entirely understand what an appropriate level of management fee is and what should be included or excluded within the fee. Prior to shedding light on this subject along with a brief overview on overhead costs, it is useful to consider the types of catering contracts that typically include a management fee element.

To read the article in full, please click on below link.

PFM February 2012 – Understanding Contract Costs 

First published in Premises & Facilities Management (PFM) & on-line February 2012.

www.montfortconsultants.com – for specialist catering advice


Posted on February 18th, 2012