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Fl Fdoc Audit of Aramark Contract 2007

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OFFICE OF THE INSPECTOR GENERAL

BUREAU OF INTERNAL AUDIT

FLORIDA DEPARTMENT OF CORRECTIONS

Cost-Value Analysis: Aramark Food Service Contract C1927
Paul C. Decker, Inspector General
Report #R07006

Donald L. Miller, Chief Internal Auditor

January 10, 2007

EXECUTIVE SUMMARY
We conducted this analysis as part of our continuing efforts to identify “problemopportunity” issues within the Florida Department of Corrections (Department)
operational matrix and bring them to management’s attention.
Aramark Contract C1927 was selected for review based on its high dollar amount ($71
million annually) and numerous irregularities brought to our attention involving its
operations. When we started the review, we found that most documents related to food
service performance prior to 2004 had been purged from Department files; however,
during our examination of archives related to the initial 2001 Request for Proposal
(RFP), we uncovered documentation that provides a baseline for performance
comparisons and conclusions. By comparing that baseline to the results of the contract
manager’s recent reviews of Aramark’s performance, we were able to identify two
critical issues worthy of management’s attention. They are:
1. Feed rates have declined sharply since the contract’s inception in 2001,
creating a windfall for the vendor and reducing the value of the services
provided without a proportionate decrease in per diem rates charged to the
Department.
2. During the first 24 months following the contract’s inception, the food
service master menu was changed repeatedly, allowing the vendor to
substitute less costly meat products such as ground turkey for previously
required beef products. This cut the vendor’s production costs with no
proportionate decrease in per diem rates charged to the Department.
These two dynamic changes in the cost/value balance of the contract suggest
that the Department’s needs would be better served either by modifying and rebidding the contract to address the above issues, or by restoring food service as
an in-house operation.
KEY FACTORS WHICH DEFINE THE CONTRACT PERFORMANCE BASELINE
RFP Timeline:
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The original Request for Proposal (RFP) states that the Department was
seeking proposals for outsourcing its food service operations affecting 78,000

inmates in an effort “to reduce its administrative and personnel costs by
consolidating food service operations with a single contractor while maintaining
the current standards of quality in delivering food service…” At that time, the
Department estimated its current self-operated costs for food (not
including salaries) at $1.60 per inmate per day (per diem).
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The original RFP was mailed out 1/26/01 requesting proposals for food service
operations at DC facilities in Region IV

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The RFP was amended in March 2001 to include food service operations at
most correctional institutions and satellite facilities statewide.

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Proposals were opened in April 2001.

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Aramark Correctional Services Inc. (Aramark) was awarded the contract for
statewide food service operations for the period July 1, 2001, through June 30,
2006.

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The contract was subsequently extended by one year, to June 30, 2007.

Significant Contract Requirements:
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The Contractor was given 90 days from the implementation date of the contract
to phase in complete food service operations at most Department operated
institutions and satellite facilities.

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All meals were to be prepared in accordance with the Department’s Master
Menu.

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Payments were to be based on a contract-specified per diem rate multiplied by
the midnight count of inmates at each facility served by the contractor.

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The per diem rate was set at $2.316 in the first year (slightly higher for
aggregate populations over 68,582), and was increased incrementally each year
to $2.565 during fiscal year 2005-06.

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The contractor was required to install and operate equipment to count the
number of meals served at each facility. This count was to be used in
subsequent audits of the adequacy of the food prepared, and not used for
invoicing, as payments were based on the aggregate midnight count.

Performance Baseline:
Prior to the issuance of the RFP, Department food service administrators were aware
that not all inmates participated in or were served meals at Department dining facilities.
While the RFP provided no estimate of the number of inmates who were not
participating in meals prior to outsourcing, the question was raised by two prospective
vendors who expressed interest in the contract: Aramark and Trinity Services Group
Inc. (Trinity). Their questions submitted during the RFP process, along with the
accompanying department responses, illustrate the significance of the difference
between population counts (upon which invoicing was based) and the actual number of
meals served (upon which the Department based its quarterly audits of the adequacy
and sufficiency of food prepared by the vendor).

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Question (Trinity): “The contractor will be audited quarterly on meals invoiced
and production records. Due to the fact the contractor is billing on midnight
census, yet preparing meals based on historical meal preparation, will missed
meal factor be considered in quarterly auditing of monthly invoices?”
Answer (Department): “…Auditing of the production of food products will be
based on the actual count of meals provided…”
Question (Trinity): “Can the Department supply meal participation factors by
facility?”
Answer (Department): “Meal participation for each major institution main unit
and annex is provided for the month of January 2001...”
Question (Aramark):
“Please provide breakfast, lunch and dinner count
sheets for all facilities …”
Answer (Department): “This information is for the month of January 2001 for
all major institutions, main units and annexes...” (meal participation sheets for
major facilities listed in the RFP were attached to the response)
Question (Aramark): “May ground turkey be used to replace ground beef in
recipes?”
Answer (Department): “No. If the recipe specifies ground beef, then ground
beef must be used.”

The above exchanges reflect some important considerations that the vendors found
necessary in order to prepare competitive cost estimates. They show that:
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The vendor was to be audited for adequacy of food prepared based on the
number of inmates actually participating in each meal, and not on the total
inmate count at each facility.

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The meal participation sheets indicate that during January 2001 the
Department was feeding on average 89.76 percent of all inmates or about
65,000 of the more than 72,000 inmates at reported facilities.

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It is likely that vendors used the meal participation sheets provided by the
Department to estimate the actual number of meals they would have to prepare,
and factored those numbers into their calculation of proposed per diem costs.

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Although payment was based on 100 percent of the midnight inmate count, this
participation formula allowed vendors to prepare meals for only about 90
percent of the inmate population, for a food cost reduction of 10 percent less
than would be needed to feed the entire inmate population at contracted sites.

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The Department did not intend to allow the selected vendor to substitute
turkey for beef, which was required on the master menu.

This Performance Baseline establishes two significant performance expectations:
1. All meals were to be prepared in accordance with the Department’s master
menu, and

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2. Interested vendors were aware that they would be required to feed about
90% of the inmate population for which they were being paid.
Had these two conditions remained consistent during the life of the contract, one could
argue that the Department was receiving what it expected (although one could also
voice concern over the fact that the vendor was to be paid a per diem rate of $2.316 vs.
the $1.60 cost for food under Department-run food service – a 45% premium for some
non-food costs). However, these factors did not remain static. In fact, they changed
significantly in favor of the vendor, as indicated below.

ISSUES
Issue #1: Feed rates have declined sharply since 2001, creating a windfall for the
vendor and reducing the value of the service provided to the Department with no
proportionate decrease in per diem rates.
We obtained copies of the original Bureau of Support Services meal participation count
sheets for January 2001. By comparing the number of meals fed to the January 2001
populations, we calculated the January 2001 feed rate to be 89.76%.
We then obtained Bureau of Support Services quarterly audits for facilities fed by
Aramark during May 2006 and, by comparing those numbers with the corresponding
populations, we found the feed rate for all Aramark-fed Department facilities to be
81.72%.
This represents an 8% decline in the percentage of the inmate population fed over the
five-year life of the original contract. During FY 2005-06, the Department paid
$71,122,925 for food service operations statewide. Had inmate participation remained
at the 2001 pre-contract level of 89.76%, in May 2006 Aramark would have fed an
average of 67,549 inmates a day. However, the declining participation reduced the
actual number fed to just 61,498. This represents approximately 6,051 inmates or
18,000 meals that were not served due to declining participation rates.
In monetary terms, last fiscal year the Department paid more than $71 million for
services in which meal participation rates had fallen from 89.76% in 2001 to 81.72% in
2006, with no corresponding decrease in per diem rate paid to the vendor. At the FY
2005-06 per diem rate of $2.565, our calculations show the value of this lost
service in FY 2005-06 totaled more than $5.6 million.
A final consideration relating to this issue is the cause of the declining feed rates. Our
review of Bureau of Support Services documentation suggests that the reason for the
decline is due, at least in part, to menu changes and substitutions of less-costly and
less-palatable products by the vendor. This issue is explored further in the next issue.

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Issue #2: During the first 24 months following the contract’s inception, the
Master Menu was changed, allowing the vendor to substitute less costly meat
products such as ground turkey for previously required beef products. This
reduced the vendor’s production costs with no proportionate decrease in per
diem rates paid by the Department.
On October 2, 2006, the Bureau of Support Services prepared a memo outlining “the
methodical move that has virtually eliminated ground beef from the” (Master Menu).
The memo noted that four menu changes made between September 2001 and April
2003 removed ground beef from all recipes except meat loaf, which was altered to
allow a 49-51 ratio of turkey to beef. Recipes calling for turkey breast were
modified to substitute “turkey ends and pieces.”
The Bureau of Support Services calculated that with a cost difference of 57 cents a
pound for ground turkey vs. a $1.50 a pound for ground beef, Aramark is realizing an
annual cost savings of $4.9 million, with no corresponding cost savings to the
Department. It is likely that the substitution of less costly and less palatable food
products is at least partially responsible for decreasing inmate meal participation rates.

CONCLUSION
The outsourcing of Food Service operations has not met its stated objectives.
Either the contract should be modified to pass savings from reduced vendor
performance on to the Department, or the Department should consider restoring
food service operations to an in-house function.
The original RFP stated the primary intent of outsourcing the food service function was
to “reduce its administrative and personnel costs” while “maintaining the current
standards of quality in delivering food service.” We can find little evidence of either
objective being met. Service levels have deteriorated both in relative quantity and in
quality, and windfall savings from this declining service have not been passed on to the
Department.
Prior to implementation of the Aramark contract in 2001, in-house operations provided a
reliable, economical and quality level of food service. In 2006, the Bureau of Support
Services prepared an estimate of the cost for returning in-house food service operations
to the Department. Those figures show the additional personnel and food products
needed to feed 87% of the population at Aramark locations (5% more than is currently
served by Aramark) would cost the Department $63,857,587 or about $7 million less
than it paid Aramark in FY 2005-06. The proposal would save the state $7 million
annually, while at the same time feeding more inmates.
We recommend that the Department consider the following:
The Aramark contract is due to expire June 30, 2007. Before choosing to continue
outsourcing its food service operations, the Department should conduct a cost-benefit

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analysis that weighs any potential savings against the lessons learned from the
Aramark experience.
If the Department chooses to continue outsourcing food service operations, the contract
should be modified and re-bid, so that the Department either shares in the savings from
reductions in food service quality and quantity, or requires the vendor to restore service
to pre-contract levels.
Even if Aramark’s original cost proposal was based on a break-even operating margin,
FY 2005-06 compensation of $71 million was an excessive amount to pay for the
reduced quality and percentage quantity of meals that the Department received. Under
the current contractual relationship, Aramark has no incentive to improve the quality of
food served or increase the number of inmates fed.
If the Department wants to restore food service to pre-2001 quality levels, then a return
to Department-operated food service may be the better alternative.

This cost-value analysis was conducted by Bob Macmaster, Management Review Specialist.
Please direct all inquiries to Donald L. Miller, Chief Internal Auditor, at 410-4166.

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