Executive Summary

National Audit Office Value for Money Report

1. 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.  
     
2. 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.
    
3. 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.
    
4. 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.
5. 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 ]
    
6. 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
   
   

7. 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.
   
   
8. 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.
    

9. 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.
    
10. 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.
     
11. 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

    
    
12. 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.
     
13. 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.
    
     
14. 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.
     

15. 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.
      
     
16. 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.

     
17. 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.
    
     
18. 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.

1. [back from footnote 1] National Audit Office estimate (further details are contained within the appendix to this report).
    
2. [back from footnote 2] Public sector food procurement represents around 7 per cent of the 26 billion total UK market for food and catering services (Public Sector Catering in Berkshire, Buckinghamshire and Oxfordshire: the Potential for Sustainable Food, Mike Rimmington, Oxford Brookes University Business School, 2005), and is therefore also of direct interest for producers and suppliers throughout the UK food industry.
    
3. [back from footnote 3] Under the Governments Efficiency Programme, announced in Spending Review 2004, the public sector has been given a target of achieving some 21.5 billion in annual efficiency savings by 2007-08, of which some 7.17 billion is due to come from efficiencies in procurement, including food procurement.
    
4. [back from footnote 4] National Audit Office: Serving Time: Prisoner Diet and Exercise, HC 939, Session 2005-06.