Scott: Hey! This is Scott Daniels with Culinary Coach and you’re listening to Cosmic Soup.

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Mike: Welcome back, dining innovators, to the one and only Cosmic Soup, the senior living podcast focused on making aging better.

On the last episode, we talked about dining management for the C-suite. Today’s conversation picks up right where that left off. Only this time, we’re going to discuss contracted dining service and how to effectively manage and understand them.

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Mike: Of course, we brought Scott Daniels and Cynthia Thurlow back to enlighten us with their hot takes on this hot topic. Hey, Scott. Hey, Cynthia. Welcome back.

Cynthia: It’s great to be here. I love the Soup.

Scott: Thanks, Mike. It’s good to be back.

Mike: Yeah. Well, last time, we had a really awesome conversation regarding dining management and the C-suite. As we close that out, we kind of segued into another topic that we decided was going to be a great episode all on its own, Scott. That is basically how to manage your food service contract.

This is a very complicated topic that has a lot of legs and can go in many different directions. But with your experience, as a contractor and as somebody who has worked with contractors, I felt like this was going to be a great topic for you to kind of really demystify that process for us.

Let’s just kind of get the ball rolling. Let’s just say that you have decided to outsource your dining department, meaning you’re not going to have it internal. You’re going to hire another company to take care of all of your foodservice needs. What do you need to understand prior to signing that contract? Probably even before answering that, what are some of the reasons somebody might decide to go that route?

Scott: Sure, Mike. Contracted food service can be controversial at times. I’m not here to say that contract service is good, bad, or indifferent, but there are challenges that we’ll review.

What I find oftentimes is a community where the C-suite – and this goes back to our last podcast – doesn’t have an understanding of the dining department. The fear kicks in, and they feel the resident satisfaction might be low. Their budget might be running very high.

What do they do? They don’t know what to do, so they reach out to a contract company. They bring in oftentimes just one. If they’re going to bring in a contract company, it’s good to put an RFP out and bring in several, so you can get different proposals to look at.

You’ve agreed to go with a contractor. They provide you with a contract to review.

Now, oftentimes, these contracts are 30, 40 pages long, full of legalese, scary in and of themselves, and the average person can’t understand the contract. We’re not contract lawyers. It’s almost a different language. There are a lot of things (intentionally or unintentionally) put in these contracts that can be misleading at times.

What happens once you sign a contract? You’re stuck with it.

There are a lot of different areas that we can talk about with regard to the contract. First of all, you’ve got to understand the contract in front of you. That doesn’t mean that you can do that on your own. You should hire or potentially have an attorney that supports your community that understands contracts, that they can do a full contract review.

Basically, they’re breaking out the language and putting it into English so you can understand it. You’d be amazed, once that happens, how much more understanding you have of the information you read that you might have thought was something completely different.

Mike: Yeah, man. Those contracts are super intimidating. I’ve seen a few of them, and stuff gets hidden in there. Whether or not it’s intentional or whether or not just the person that came up with the language did not do a good enough job of just kind of explaining the process.

Either way, sometimes companies will just run into problems and not even know what’s in there. They don’t even know where to start. They don’t know how to interpret it. They don’t know where funds are going, and there’s also tons of hidden stuff in there, as we talked about previously, right?

Scott: There sure are. I think the contract, written in its legalese, is both intentional and unintentional, as I said before. I do think sometimes it’s meant to hide things or shape things in a different light.

There are a couple of big things you need to look for. Number one is, how long is the contract (the term of the contract) that you’re potentially going to sign? Is it one year, two years, three years, five years? You need to understand that.

You need to understand what the fee structure is and what it’s based on. I mean the finances are the big piece of a contract because, with the hidden costs that are potentially in there, you can be billed.

What a lot of individuals that sign contracts don’t understand is oftentimes they build in pre-agreed upon annual increases. You might have a year-after-year.

Let’s say you sign a three-year contract. There might be a year-after-year 7% fee increase or food cost increase. I really struggle with those because, what are they based on? I could have poor satisfaction. I could be managing your department poorly, and I still give you an increase of 7% on the fee.

You need to understand the language, what everything is based on.

How do you get out of your contract? There should be an out clause. We’ll talk about that in a minute.

Sometimes the contractors will perform amazingly, but sometimes they’re not going to perform well. You need to know (if that’s happening) how you navigate those waters to move away from the contract or have the contractor fix the areas that are broken.

Hidden costs. I hate to say hidden costs, but they’re costs that you’re not aware of. They’re built into that contract.

What are we talking about (hidden costs)? There could be bonus structures that you might not provide your individuals with bonuses, but the provider might and they’re built-in. You don’t really necessarily have any say on what the bonuses might be, so that’s non-budgeted money for you. That’s not something you’ve agreed upon.

Other labor costs. Typically, with a contract company, the managers will report to the contract company. You might not have any say in what they pay those individuals.

Again, you might pay $50,000 for that person and they might say, “Well, we’re hiring somebody for $75,000.” I’m not saying one price is better than the other or right or wrong, but you need to understand what that is because, at the end of the day, they’re all passthrough prices. If they’re paying more, they’re just passing that through to you at the community level to pay.

I like to use the words “risk and reward.” If you’re going to sign a contract, there should be risk and reward for that contractor. If they perform poorly, their fee or their profits are impacted.

Let’s talk about resident satisfaction, as it relates to a contractor.

Mike: Cynthia, did you want to add to that?

Cynthia: Well, just on the subject of performance, Scott. I have a thought on that, and it’s an easy assumption to make that the contractors will have a magic bullet for my problem in my community that they will somehow have the ability to build a workforce easier than I can (if I’m self-operated). Certainly, there is a huge place for contract dining in many communities, but I think there’s a myth that contract dining is somehow different and they’re going to alleviate all of my problems as the C-suite executive, when in fact they really don’t.

They have the knowledge. They bring a process and the tools, but they’re going to experience exactly the same workforce issues and performance issues that I would experience as a self-operated organization. I just wanted to throw that out there because I think it’s really important when you think about performance.

Scott: Absolutely.

Mike: Yeah. At the end of the day, really, people that work with the contractors, they are employees in and of themselves, right? They belong to a company that has to perform certain roles. Yeah, the human factor (regardless of self-op or contracted), you’re still going to run into a lot of the same issues. That was a good bring-up, Cynthia.

Cynthia: Thank you.

Scott: The contractors don’t have what I refer to as the magic bus of employees and managers. It’s kind of a misnomer. They don’t directly say that they have them, but they kind of allude to the fact that they have unlimited resources, unlimited people.

Now more than ever, you look at the times we’re in with COVID. Communities, both self-op and contracted, are struggling with staffing. The contract companies don’t have busloads full of employees to bring in to backfill vacancies or voids in staff.

At the end of the day, you’re only as good as the boots on the ground, the management team (whether it’s self-op or contracted). Yes, all the management companies have great toolboxes, but if the people in place managing the communities aren’t performers, aren’t using the tools, it makes no difference whether there’s a contractor there or not.

The one thing I will tell you, if you do contract out as a community, you’re not contracting to relinquish the control of your department. It’s still your dining department. It’s still within your building. It’s not the contractor’s business. It’s your business that you’re partnered with that contractor to manage.

Even if you have a contractor, you need to be hands-on. You need to be—as we talked about in our previous podcast—walking the building, walking through your kitchen, checking things, making sure that the performance is suited to meet the contract that you’ve agreed to.

Mike: Yeah, so you still have a say in your day-to-day operations. You still have that ability to have those discussions with the contractor, and you should have those conversations because, at the end of the day, you can’t just turn them loose and say, “Make it awesome,” right? It’s got to be a very detailed pathway to success that should be laid out, especially if it’s in a contract, on exactly what steps are going to be taken. It’s up to you to make sure that those steps are in fact being taken.

Scott: Absolutely. There are going to be times when a contractor doesn’t perform. It happens. You work with that individual company, and the problems aren’t fixed.

You need to know how to exit your contract. When I say exit your contract, every contract has a cancel clause in it. You need to understand what that cancel clause is and how to navigate that.

Oftentimes, what will happen is a community will let things get so bad that they get to their wit’s end and they just go and they “fire” the contract company, which opens up doors (if they don’t do it properly).

It could be a 30-, 60-, 90-day out clause. It could be tied to, they have the right within the clause to fix the problem, so documentation is critical. You need to make sure you understand that out clause.

Then if you do finally decide that you’re going to cancel the contract and move to self-op or to another contractor, you need to put a plan in place. I will tell you that I frequently have seen in the past where a community cancels a contract (either to go self-op or to another contract company). They don’t put a plan in place. They do a knee-jerk reaction, and it ends up causing more problems for their community from a transition standpoint.

You just have to know what the clause is. You need to preplan and do it the right way, so you can have a smooth transition.

At the end of the day, the residents shouldn’t be impacted negatively by a transition, in any direction (to a contractor, away from a contractor, to self-op). The residents should pay the price.

Cynthia: Yeah. What I’ve seen, just having been in meetings or conversations about a contract change or maybe switching over to self-op, it seems like a really, really scary thing but it really doesn’t have to be scary if it’s planned ahead.

I think of relationships, business relationships. Maybe it’s because I’m a woman. But if you have a bad boyfriend, you need to set up your ground rules, like, when will I know I’ve had enough? You know?

Then you make a plan well in advance in how you’re going to approach the transition, and it actually doesn’t have to be a disaster at all. It can be quite smooth if you have enough time. Right, Scott?

Scott: Absolutely. Mike, one area I forgot to talk about when I talk about hidden costs – if you don’t mind me going back – this is a pretty big one, so I apologize – is purchasing. Purchasing is huge.

Your contract companies that you partner with – and this is any of them – have purchasing agreements with manufacturers, distribution, and it’s based on volume. They’re able to bring a large savings, and they’ll sell it as a large savings to the community. Yes, you might get a little bit less expensive (to the door) food delivery. But your contract company is making an awful lot of money behind the scenes on purchasing.

Do they deserve that? In some cases, they do because they’re driving the volume with all their customers combined. But I would often tell you to take a look at that and work with that contractor, your provider, to share that reward.

If they’re making 15%, 16% behind the scenes on purchasing, they deserve to make some of that. But you deserve some of that savings as well. Look at a shared purchasing arrangement with your contractor to where it’s a win-win versus a win-lose. Both parties win at the same time.

What a contractor will tell you is, “Hey, we’re getting those great prices because we’re so big.” But that’s partially why I contracted with you is to reap the benefits of all the resources you have, and purchasing dollars is a resource.

Mike: Also worth noting and, Scott, you and I have had many conversations regarding this; if you do have a contractor and you decide to go that route, one of the things you want to do is make sure that you have some ability to have decisions in what’s being purchased as well, right? Sometimes your hands get a little bit tied behind your back and you have to use certain foods or you don’t have as many options. Is there kind of a way to work within that?

Scott: Absolutely. As we talked about a little bit earlier, just because you contracted doesn’t mean you’ve handed all the keys over to the contract company carte blanche to do as they please. You need to make sure that you still have say with what they’re doing.

If you’re going into a partnership with a contractor, and you know there are some specifics that you want them to operate by, you need to be transparent with them as well upfront (when the deal is being drawn up) to make sure that they’re aware.

Let’s just say you only want to use fresh vegetables, or you want an established farm-to-table program built-in. That should all be built into the contract. Don’t take a shake of hand or a verbal agreement.

Again, I’m not trying to say that they wouldn’t do a verbal agreement, but you know? There’s a reason there’s a contract in place. That protects both parties.

I highly recommend that you don’t relinquish the master key and give up ownership because you need to have involvement. If you want the menu to change three times a year, you should build that into the contract. You want 80% of the menu to change 3 times a year or 20% or whatever it is, the more you can outline going into the contract based on what you want out of it, you’re going to be more successful on the operator side.

Let me tell you. The contract that they write is going to have everything that they want written into it.

Cynthia: Here’s my other woman analogy – not to be sexist because a lot of women do know about cars.

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Cynthia: I almost feel like, when you’re contracting, it might feel like you take your car to the mechanic. You think, “Well, the mechanic always knows. They’re going to tell me what I need. I’m just going to sign it and say yes.”

When in reality, if you come into it with, “Hey, I’m in the driver’s seat here, and I can outline what my expectation is and how I want my contract to read.” Then allow the company to respond to that versus the other way around, which is the contract company is going to tell me what I need, and then I’m going to sign it. I think there’s a different approach to that.

Mike: Yeah, absolutely. Really, what we’re talking about, at the end of the day, is that the C-suite still has to be involved in that decision-making process. The idea that you’re just going to hire a contractor and not have to manage your dining department is not really in fact accurate. It still requires you to manage those that are managing your dining department.

Manage versus lead. I guess there’s a whole other topic in that. But that being said, you still have to have the awareness, and you still have to have the desire and ability to have those conversations to move things forward.

Cynthia: Yeah.

Scott: Absolutely. Yep. Two words: clear expectations. Clear expectations, you’ve got to have mutual clear expectations when you’re partnering with any contract company in dining or outside of dining. It could be laundry services. It could be any contract services. You have to have mutually agreed upon, clear, documented expectations.

Then periodically, schedule check-ins on those expectations. Don’t just take it for granted that the expectations were agreed upon in writing and signed off in the contract. You need to have checks and balances where you’re mutually reviewing those expectations.

Let’s face it. There are going to be short-fails on both sides from time to time. You’ve got to sit at the table and work through those or navigate away from that contract provider.

Mike: To close this out then, let’s just say I’m at the point now, and I’m really wanting to make a decision (as an executive) to decide, do I want to outsource my dining department or do I want to self-operate? How do I go about making that decision and what would be the main advantages versus disadvantages of each?

Scott: I think, if you’re at a point where you’re thinking about that, the topic is just in the front of your mind, the first question I would ask is, why do you think you need to outsource or what’s driving you to that question? Is it a lack of knowledge? Is it a lack of tools and resources? Is it just that you have poor or low resident satisfaction operating the way you are and you think that that will fix?

Don’t jump at a decision. Use your resources and tools.

Again, not that this is a sales pitch, but that’s something that we do as Culinary Coach. We go into communities that are either self-op, struggling, or that are contracted and struggling, and we can help navigate those waters with you – not for you. You’ve got to be part of that solution, but we can help you, give you the tools and understanding, help you make an educated decision on the direction that you eventually will come to.

Mike: Final thoughts, Cynthia?

Cynthia: No. Just that, again, our vision, our hope is that our elders can eat delicious, healthy food every day that thrills them, whether it’s delivered by a self-operated department or a contract department. We know it’s possible, and please give us a call if you need any advice or you’re interested in knowing more.

Scott: Absolutely. We’re here to help.

Mike: Scott, Cynthia, thanks again for another awesome conversation. I’m excited to share this. I think this is going to help a lot of people out.

Scott: Thanks, Mike.

Cynthia: Thank you, Mike.

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Mike: As always, thanks to all of you out there in the senior living cosmos for joining us in the Soup. We’re honored to have you here as a key ingredient in the recipe for future success.

Please, do us a favor by subscribing to the show on your favorite streaming platform and by following 3rdPlus, 3rdThird Marketing, and Culinary Coach on all the social media platforms.

If you’d like more information on any of our topics or if you’d like some help or advice, send us an email to cosmicsoup@3rd3rd.com. Now, go re-read those dining contracts and we’ll talk to you soon on Cosmic Soup.

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