FS-026 Ver 1.3 (Aug 23)

1. Revenue

Time must be taken to fully understand the contract, especially how it relates to the client's contract commitments and financial liabilities.  Importantly, ensure that a full understanding of the key aspects are in place. If in doubt iscuss details with both the CBRE client and CBRE Global Lead to ensure alignment.

We must remember that Savings are often linked to a Client contract through Glidepath savings and remain an integral part of the Contract.

The Importance of a Good Contract

Contract Cost Components

2. Cost Of Sales

3. Labour Costs

4. Operational Expenses

Reference Templates:

Food Services Supplier Meeting Routines Matrix

Food Services KPI Template 2022

Food Services Strategic Escalation RACI

KPI and Fee at Risk for Services

5. Useful Links

Collaboration is the KEY to a successful Contract

Revenue can be split into several categories:

• Cash or credit sales taken at point-of-sale 
• Free issues (no charge items) billed to the Client by the supplier partner for products and services i.e., no payment occurring at point-of-sale
• Internal hospitality / catering services and fine dining invoicing, typically operating on a set tariff and recharged based on consumption or use
• Retail sales from shops, incremental services operated by the Food Service supplier, such as dry cleaning, consumer goods, home grocery orders or external trader stalls
• External or private fine dining and event revenue
• Management fees may be processed and declared as revenue by a supplier within their P&L

The product cost in relation to the food and beverages served within a specific period and within a specific service. This may also include:

• Disposables
• Consumables such as napkins, plastic cutlery, disposable carry trays, take-away boxes

Site specific labour costs in delivering the service should be broken down to show:

• Total salary cost
• Burden or on-costs - Employers National insurance (ENI), pensions, medical care and life assurance
• Holiday pay accruals
• Agency labour and holiday cover
• Bonuses
• Sick pay accruals
• Management fees can be declared as revenue by a supplier within their P&L

Chargeable operating costs in the delivery of the services.

Costs within this section can include: 

• Insurance
• Disposables
• Janitorial
• Cleaning materials
• Uniforms
• Bank charges
• Stationery etc

Food Services

Contract Development

Contracting

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Have the right people at the table

Ensure the project has a competent leader

Take the necessary action to delivery results on time and on budget

Have engaging and active collaboration from all sides

Ensure there is support and ideas from all parties

Have a shared purpose and agreed goals

Fees charged by the supplier partner are normally variable but can be a fixed value charged as 12ths throughout the year.

• When management fees are variable establish and understand exactly what the proposed metrics are to validate the values charged
  
• Fees are often calculated as a ratio of costs (against the total Cost-Of-Sales (COS), operating costs and labour costs)

6. Management Fees

The agreed selling price and strategy for items on sale and all internal recharges and free issues. 

Clients will drive tariff strategy and will seldom grant tariff sovereignty to a supplier, allowing them to dictate selling prices.

Tariff strategies are contractually subject to annual review to:

• Maintain the supplier partners ability to manage the service commercially
  
• Absorb suppliers annual product and labour cost increases
  
• Manage subsidy levels at the required levels

7. Tariff Strategy

Relates to any product or services where cash or credit transactions do not happen at the point-of-sale, service or consumption. Example: Hospitality and fine dining where the service is invoiced based on consumption and charged at an agreed tariff.

Sense-checking that the associated costs are accurately processed within the supplier partners P & L ensuring subsidies are not adversely impacted will help validate costs. 

8. Recharge Fees and Free Issues

Is the cost of operating the service (excluding free issues) and represents the “operating loss” in P&L terms, calculated as:

• Revenue, Cost-of-Service, labour Costs and Operating Costs before management fee are applied to then calculate the variable between revenue and total cost. Depreciation is often charge below-the-line* to avoid inaccurate subsidy calculations, but must remain as part of the financial reporting process and in alignment with established budgets
• Some sub-category service lines are often structured to operate at a “profit”, such as the recharges applied to hospitality and catering services, that typically are charged the business unit service recipient

The optimum is for any profitable service lines to off-set the main subsidy, consolidating the P&L to ultimately reduce the subsidy, accordingly. In the case of a nil-subsidy or commercial contract, where the supplier operates the services without a subsidy, the profitable sub-category service lines typically enable this model, so are processed as supplier benefit off-setting other less profitable service lines.

9. Subsidy

* Footnote:- 8: Subsidy ("Below the Line")

Below the Line refers to items in a profit and loss statement that are income or expense items that are not normally incurred in a company's day-to-day operations. It includes exceptional and extraordinary items that relate to another accounting period or do not apply to the current accounting period

Food Services

Contract Development

Contracting

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FS-026 Ver 1.3 (Aug 23)

10. Key Points

* Footnote:- 10: BOMA

Stands for Building Owners and Managers Association. This is the term used in CBRE to also define the general accounting codes for Financial reporting.

1. A supplier partners "in-to-unit" pricing has a bearing on the ultimate cost. Ask the supplier for periodic benchmarking to ensure equitable pricing is maintained
2. Supplier partners use different terminology and *BOMA codes. Understanding the breakdown is vital
3. Spend the time setting-out and agreeing which costs are permissible and those that are not
4. Non-site specific labour should not be charged into the account
5. Operational management costs are charged to the site where the supplier partners operations manager is dedicated to that account and then the cost is pro-rated between the sites within scope
6. A review and challenge of labour structures and costs may identify cost reductions
7. Depending on the type of supplier partner, ensure to select the appropriate contract document (ie- Regional Supplier – Regional MSA etc)
8. Ensure that all contractual elements are fully documented and agreed upon to avoid future misalignment. Engage CBRE legal and the CBRE Global Lead for support

Food Services

Contract Development

Contracting

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FS-026 Ver 1.3 (Aug 23)