- The public sector in England spends around 2 billion[Footnote 1]
per year on providing food and drink to service users, staff, the
general public, clients and visitors. This expenditure alone makes
public food procurement of interest to Parliament and the taxpayer,
in terms of seeking assurance that this money is being spent
efficiently.[Footnote 2] Equally, the quality and safety of public
sector food are of prime interest to the millions of adults and
children who eat it. In recent years there has been rising interest
in the quality of food served commercially in Britain, as well as
in the quality and variety of British produce; accompanying this,
and helped by some high profile media coverage, there has been a
growing interest in the quality of food served in the public
sector, in particular school food.
- The range of major interests and issues that are touched by
public food procurement are vital to the Governments broad aims to
improve the users experience of public services, and are reflected
in a number of important Government policy agendas, most notably on
efficiency,[Footnote 3] public health and nutrition, and sustainability
(addressing the public sectors wider and longer term impact on the
environment and economy). There is an increasing recognition of the
linkages and potential trade-offs involved between these agendas.
For example, an increasing number of studies point to the wider
benefits to be gained by increasing the nutritional quality of
public sector food, be that improved concentration of pupils in
school, or the longer term impacts on obesity and heart disease.
Reconciling these agendas is not impossible, but to successfully
combine them places considerable demands on the skills and capacity
of those responsible for actually delivering food
procurement.
- A number of departments and agencies have overarching
responsibility for policies which apply to the entirety of public
food procurement, notably the Department for Environment, Food and
Rural Affairs; the Office of Government Commerce; the Department of
Health; and the Food Standards Agency. In addition, in each of the
four main sectors of spend on public food procurement schools,
hospitals, Armed Forces bases, and prisons departments are working
to improve food procurement with a range of bodies and stakeholders
throughout often complex delivery chains.
- The focus of this report is on how public sector organisations
can become more effective procurers of food, maintaining or
improving the quality of the meals they serve while controlling or
reducing their costs. In particular, we assessed:
- the progress of public sector organisations, including those
with cross-government responsibility for food procurement, in
increasing efficiency, sustainability, and nutritional quality in
their food procurement; and
- what more needs to be done by public sector organisations to
improve performance and realise financial and quality of service
benefits, supported by examples of good practice from organisations
in both the public and private sectors.
- Part of our examination concentrated on case study examinations
in three of the largest areas of public sector food procurement
schools, hospitals and Armed Forces bases. The fourth, prisons, is
covered in a separate report, Serving Time: Prisoner Diet and
Exercise, published in March 2006.[Footnote 4 ]
- In identifying opportunities for efficiency gains and reduced
costs, we have focused on measures which would also benefit, or at
least have neutral impacts on, levels of customer service,
sustainability, and nutritional quality. Our conclusion is that
there is significant scope for increasing efficiency simply through
raising the professionalism of public sector food procurement, and
by the public sectors pursuing a more joined up approach, and that
such measures need have no negative effect on the quality of food
served. Indeed, increasing efficiency can have a positive impact on
sustainability and nutrition, by enabling organisations to use cost
savings in some areas to help to finance improvements in others;
for example, savings resulting from better checks on goods
delivered could be used to improve the quality of ingredients
purchased, or improved nutritional quality could lead to reduced
hospital stays and so improve the overall efficiency of NHS Trusts.
Within this report we identify numerous examples of organisations
that have both increased efficiency and improved the quality of
their meals.
Key findings
Addressing the challenge of reconciling costs, quality and
sustainability
- On the scope to improve efficiency and reduce costs
without negative impacts on sustainability and nutritional
quality. Despite the progress made at departmental and
frontline levels in our three case study sectors in improving the
efficiency of food procurement efficiency we estimate that
additional annual efficiency gains of nearly 37 million are
achievable across the entire public sector by 2007-08, rising to
224 million by 2010-11. We identified significant scope for
improving efficiency in the following areas:
a Reduced prices for the same or better quality food
products: We found that prices for a range of commodities
routinely purchased in large quantities varied considerably, across
the public sector (a pint of milk, for instance, ranging from 17 to
44 pence, and an 800g wholemeal loaf of bread costing between 32
pence and 1.10). While the lowest prices reported by public
organisations were genuinely competitive compared against the best
market prices available, there were many which were comparatively
expensive. We estimate that public sector organisations should,
simply by improving their market knowledge and buying
professionalism, be able to reduce their food ingredient costs by
at least four per cent, amounting to 40 million, by 2010-11.
b Improved transparency of costs and more rigorous
oversight of contract caterers charges: There is
widespread lack of transparency in contract caterers charges. As an
example, one third of the organisations in our survey that
outsourced their catering were unable to state the purchase prices
of any of the basket of ten commonly purchased items we requested.
Major catering firms routinely obtain volume discounts of around 12
per cent and year-end rebates of approximately three per cent from
their suppliers (the largest UK catering firms may be earning up to
around 95 million in total this way solely through their contracts
with public sector clients in England). However, it is unclear how
much of this is returned to the public sector. Public sector
organisations should, through better understanding of the charging
structures of major catering firms and through more joined-up
negotiations with them, be able to negotiate a share of 30 million
from the estimated 95 million per year earned by catering
contractors from discounts and rebates.
c Aggregating demand to reduce procurement costs and
increase purchasing power: Given that food procurement is
common to many public bodies, and that in almost every location
there will be other public bodies nearby, there is obvious
potential for public food procurers to join together to increase
their purchasing power. The overall picture, however, is of
fragmented purchasing, particularly within the schools sector and
across the NHS. Just over half of public sector organisations
(excluding the schools sector where the proportion is likely to be
even higher) do not engage in any joint buying with other public
bodies, despite 44 per cent of these organisations using at least
two of the same major suppliers. Aggregation of public sector
demand should not automatically mean aggregation of supply.
Procurers may need to assess the longer term impacts of the
sustainability and contestability of the market when deciding how
their package of requirements should be presented to the market. We
estimate that with greater aggregation across the public sector, an
average reduction in prices of four per cent is possible, equating
to an annual saving of 80 million by 2010-11. This is in addition
to the savings achievable through raising market knowledge and
buying professionalism.
d Improving catering professionalism, and better use of
external expertise: Well developed capabilities in the
receipt and storage of food, menu design and meal preparation can
all generate efficiency gains and reduce waste. Our survey and site
visits indicated that the quality of menu design, goods received
checks, stock reconciliation, food storage, and accounting
procedures varied greatly. In addition, only a third of
organisations in our survey used consultants to successfully reduce
their costs, even though those that did reported achieving
reductions on average of seven per cent; and only 16 per cent of
organisations use commercial price monitoring services, with ten
per cent not taking any measures to monitor the competitiveness of
the prices paid for food. We estimate that four per cent cost
reductions are achievable across the public sector, amounting to 40
million, by 2007-08.
e Managing catering operations to reduce environmental
impacts and costs: We found limited evidence of public
bodies working independently or with their suppliers to reduce
environmental impacts and increase efficiency. For example, we
found no evidence of public bodies passing on the kitchen utility
costs to their contractors (which might incentivise them to
increase onsite resource efficiency). Across the schools sector we
estimate that it should be possible to achieve annual savings of
two per cent, just under 1 million, by 2007-08 by taking actions
such as only lighting ovens or switching on grills when needed.
Savings of a similar magnitude should be possible across all other
parts of the public sector but in the absence of details of
baseline expenditure it is not possible to quantify the potential
savings.
f Increased take-up of meals, and income generated by
them: Where consumers have a choice whether to use a
catering service or not, overall take-up of that service is often
vital to its financial viability, as reduced income leads to
falling spend on ingredients, reduced customer confidence and
reduced scope for investment. Failing to increase the volume of
take-up and therefore of food purchased represents an unrealised
opportunity to reduce unit costs. This issue is particularly
relevant to schools, hospitals and local authorities (where they
are selling meals to the public), and to the Ministry of Defences
Pay-As-You-Dine initiative. We found significant variations in meal
take-up: in the schools sector, for example, take-up varies from 26
to 90 per cent across different local authorities. We estimate that
for the school sector alone it should be possible to achieve, on
average, an increase in take-up of ten per cent by 2010-11 which
(taking account of increased food and other variable costs) would
result in an additional 33 million being generated for schools and
local authorities in England. While it is not possible to make firm
estimates for the other sectors because of the lack of data on
current take-up and revenue generated, similar percentage increases
should be possible.
The scale of the efficiency gains outlined does not necessarily
mean that the public sector can cut its spending on food and
catering services. The efficiency gains could help finance much
needed improvements in the quality of the services provided and, in
so doing, help the Government in the steps it is taking to improve
public sector food.
- On increasing the sustainability and nutritional
quality of food procurement. We identified five areas
where there is significant scope for sustainability and nutritional
quality to be increased, and in a more efficient manner:
- streamlining and prioritising objectives;
- being intelligent and innovative in tackling the barrier of
higher costs;
- providing strategic support to bridge the gap between procurers
and suppliers;
- addressing shortfalls in skills and infrastructure;
- using marketing and education to boost consumer demand.
In particular, it should be possible for the public sector to
make faster tangible progress by prioritising those measures that
are inexpensive or even save money, and more widely adopting best
practice in minimising the extra costs where increasing
sustainability and nutrition is more expensive.
- On the extent to which centrally led cross-government
initiatives are contributing to improved public sector food
procurement. The main cross-government lead comes from the
Department for Environment, Food and Rural Affairs Public Sector
Food Procurement Initiative, established to help the Government
deliver its Sustainable Farming and Food Strategy. This aims to
achieve a sustainable farming and food sector that contributes to a
better environment and healthier and more prosperous communities.
The Department has taken a joined-up approach in co-ordinating the
implementation of the Public Sector Food Procurement Initiative by
a wide range of departments (for example chairing the Food
Procurement Implementation Group which brings together
representatives from the Departments food commodities divisions,
public sector bodies that are major buyers of food and Government
Offices for the Regions), funded pilot projects, and provided a
large amount of practical guidance for both procurers and
suppliers. It is difficult to assess the overall impacts of this
Initiative at this stage; but our survey findings as to how many
public bodies were aware of the Departments guidance and found it
useful suggest that while much has been achieved, much still
remains to be done.
- The other departments with cross-cutting remits are the Office
of Government Commerce (in respect of efficiency, advice and
guidance on the legal and policy framework governing public sector
procurement, and work to open up the Government marketplace to
small businesses) and the Department of Health (in respect of
nutritional standards). The Office of Government Commerce has
worked closely with the Department for Environment, Food and Rural
Affairs to advise on the EU rules and value for money policy in
respect of the Public Sector Food Procurement Initiative, and they
have undertaken a wide range of programmes to increase the
participation of small businesses in the public sector market. The
Office has not so far prioritised food in its work driving forward
the efficiency agenda in large part because its remit has only
recently been extended to include the NHS, Armed Forces, and local
government (in which the bulk of public spending on food occurs),
although its agency, OGCbuying.solutions, is successfully
supporting public food procurers in their use of e-procurement to
achieve savings. The Office would have the potential to expand the
impacts of this work by, for instance, seeking to ensure that as
many different public bodies as possible can take advantage of the
best deals negotiated by public procurers. The Department of Health
is working with the Food Standards Agency and major procuring
departments to develop nutritional standards for the public sector;
it is too early to record any impacts of this work.
- On the progress towards improved food procurement
within the three case study sectors (schools, hospitals, and Armed
forces). Within all three of our case study sectors the
lead departments and agencies have been implementing various
improvement initiatives. Many of the initiatives are very recent
and therefore the extent of progress and impact varies. Of
particular note are:
- The additional 220 million over planned levels of
funding targeted by the Department for Education and Skills at
improving school meals. The first tranche was paid to
schools and local authorities in October 2005. The Department has
not stipulated what the money should be spent on but has required
local authorities to develop and implement strategies, making use
of the additional funds to address local priorities.
- The savings achieved by the NHS Purchasing and Supply
Agencys central tendering for framework contracts to supply the
whole NHS with food combined with their use of e-auctions.
The Agency tendered for all types of NHS food requirements in one
go (with the exceptions of baby milk, fruit and vegetables, and
readymeals, a market worth in total around 130 million. The Agency
was able to obtain more competitive starting bids than previously
and achieved further reductions by holding e-auctions to decide the
final value of successful bids. Overall they achieved savings of
nine per cent (just under 12 million).
- The Ministry of Defences Defence Logistics Organisation
has applied the principles of Category Management to the tendering
of its food supply contract. The procurement of food is
aggregated and managed as a whole across the organisation; this
aims to identify how food procurement can be improved through
implementing procurement best practice. The Ministry of Defence
expects this approach to generate savings of 19.4 million by
2010.
Overall conclusion on value for money
- Public sector organisations have made progress in improving the
efficiency, nutritional quality and sustainability of their food
procurement as highlighted by the examples in our three case study
sectors and the range of other successful initiatives cited from
other public bodies in this report and associated volumes. Our
analysis, however, of performance indicates much more needs to be
done before the public sector achieves full value for money from
its food procurement. In particular, there is significant scope for
improvement in increasing joined-up procurement, raising the
professionalism and efficiency of catering operations, and
increasing take-up and revenue through investing in and marketing
the service provided. If our recommendations below on the
implementation of good practice and the provision of more effective
and targeted support from departments with cross-government and
sector specific responsibilities are carried out fully, then
significant financial savings will be achieved, and the
contribution towards wider Government objectives on public health
and sustainability considerably enhanced.
- We identified six main aspects of performance in the
procurement of food and catering services that public sector
organisations need to focus their efforts on improving. These are
summarised in Figure 1 on page 14. To help
organisations to implement these recommendations and realise the
potential for financial savings we have highlighted the good
practice most likely to achieve better performance in two
associated volumes published alongside this report (both this and
the associated volumes are also available on the NAO website at
www.nao.org.uk):
- A guide to help public bodies improve efficiency, focusing on
six areas and drawing on examples of good practice that have
enabled organisations in both the public and private sectors to
reduce their catering costs while at least maintaining levels of
service delivery, sustainability and nutritional quality.
- A case study volume setting out in more detail the progress,
achievements and scope for further improvements in our three case
study sectors. From our analysis of public and private sector
organisations that have made efficiency improvements, we believe
the benefits brought about through the carefully managed
introduction of our recommendations outweigh implementation costs.
It is difficult to be precise, however, about the costs involved in
implementation because many of the improvements identified are
dependent on wider changes in existing contractual arrangements and
will differ from organisation to organisation.
- To assist the Department for Environment, food and
Rural Affairs in targeting its support and advice on
sustainable food procurement, we make the following
recommendations. The Department should help public sector
organisations at all levels of the delivery chain to make tangible
progress in increasing the sustainability of their food procurement
by:
- Producing more user friendly, practical tools that make it
easier for public bodies to include Public Sector Food Procurement
Initiative objectives in their procurement of food and catering
services.
- Drawing on existing best practice that the public, private and
voluntary sectors are developing for the Public Sector Food
Procurement Initiative to produce a practical step-by-step guide to
help practitioners to improve co-operation among buyers and
suppliers and establish the systems, networks and infrastructure to
help local producers do business with the public sector.
- Working with major food procurers and the Office of Government
Commerce to provide advice on the best ways in which to achieve the
aggregation of public sector demand to increase
sustainability.
- Examining more thoroughly the costs and benefits of providing
extra funding and expertise to help identify ways to secure more
innovative and cost-effective engagement with local producers and
small and medium-sized enterprises, such as found in the Cornish
Food Programme in the NHS, thereby increasing the volume of
procurement from these sectors.
However the Department is dependent on the support of others to
achieve the aims of the Public Sector Food Procurement Initiative
and so it is also crucial that public sector procurers of food
(particularly those departments and agencies responsible for
significant amounts of catering provision) give their active
assistance to the Department for Environment, Food and Rural
Affairs to deliver the Initiatives objectives.
- To assist the Office of Government Commerce to
make more effective use of their support and advisory services, we
make the following recommendations. Now that the Office of
Government Commerces remit has been extended to include all of the
major public procurers of food, it could use its expertise (and
that of other bodies such as the NHS Purchasing and Supply Agency
and MoDs Defence Logistics Organisation) to facilitate the public
sectors engagement with major wholesalers and contract caterers
either directly or via a central body, and thereby help the public
sector collectively to strike better deals. The Office of
Government Commerce should also, either directly or in support of a
central body:
- Produce guidelines to ensure all contracts are widely available
within the public sector and that best practice procurement
techniques are widely publicised to help the re-tender of food or
catering service contracts negotiated by public service
organisations.
- Consider establishing frameworks for contracted out catering
services for the public sector as a whole, and in doing so
investigate the potential to negotiate rebates from catering firms
based on the volume of their business with the public sector in its
entirety. As a first step, and to strengthen the negotiating
position of all organisations within the public sector, the Office
needs to encourage public sector organisations to maintain records
of the volume of business between major wholesale and contract
catering firms and all public bodies.
- To assist the Department for Education and
Skills in its overview of schools meals provision and to increase
the practical help given to local authorities and schools, we make
the following recommendations. The Department for Education and
Skills should:
- Secure greater information on local strategies and performance
to identify developing trends within school meals provision, to
assess the effectiveness with which the transitional 220 million to
improve school meal provision has been used, and to act as an
evidence base for decision-making on future policy
interventions.
- Encourage greater aggregation of demand in purchasing by
schools and local authorities and, if feasible, also with NHS
Collaborative Procurement Hubs and other public bodies within the
locality as this may open up further opportunities. For example the
Department could cover this issue more clearly in their procurement
guidance, supported with good practice case examples.
Figure 1 (" Actions needed to improve
performance") is unavailable in this version of the executive
summary.
- To assist the NHS Purchasing and Supply Agency
in its overarching work to increase the efficiency with which NHS
Trusts purchase food and catering services, we make the following
recommendations. The Agency should continue to:
- Increase take-up of national framework contracts through
negotiating directly reduced prices for those Trusts which join
together and commit to using these frameworks.
- Support and promote those hospitals equipped with central
processing units as potential suppliers for neighbouring hospitals,
as a means of increasing sustainability and encouraging a diversity
of suppliers within the market for hospital readymeals; and explore
the potential for joint central processing units to serve both
hospitals and other organisations, such as care homes.
- Building on an initial trial, further develop the work of one
of the pathfinder Collaborative Procurement Hubs (which are
bringing NHS Trusts together on a regional basis) in increasing
joint procurement of food between Trusts, and assessing the
resulting lessons for implementation throughout the NHS.
- To assist the Ministry of Defences Defence Logistics
Organisation in its transition to a new mechanism for
non-operational catering, we make the following recommendations.
The Defence Logistics Organisation should:
- Develop facilities contract management skills within the
Ministry to realise the proposed benefits of Pay-As-You-Dine; the
role of the Facilities Category Management Team could be expanded
across the Pay-As-You-Dine facilities provision in addition to the
food supply contract. To ensure the success of Pay-As-You-Dine as a
personnel measure, the costs to junior staff will need to remain
affordable while also providing adequate nutrition.
- Increase the focus on cost after food has been delivered to
bases. For example, there is scope to improve energy and water
efficiency and improve utility bills through fitting separate
energy and water meters in kitchens, and to improve waste
management and recycling.