House of Commons - Public Accounts

Select Committee on Public Accounts Thirteenth Report

2 Procuring healthy and appetising food at better value

12. Besides raising standards, public bodies need to improve the efficiency of their food procurement and reinvest the resources in the provision of higher quality food and catering services to customers.[29] Annual savings across the entire public sector in the order of £220 million (11% of the total currently spent by the public sector on food and catering) are achievable by 2010-11.[30] This figure includes £66 million and £43 million in the schools and health sectors respectively, where the Department for Education and Skills and the NHS Purchasing and Supply Agency accept that substantial progress towards better value can be made within the next two years.[31]

13. On 1 October 2006 the Ministry of Defence awarded a five year main food contract to Purple Foodservice Solutions (a three-company consortium).[32] The contract is worth £300 million over five years. The Ministry expects the value of the contract to reduce each year as the Pay-As-You-Dine contract catering initiative is rolled out (replacing the traditional canteens operated by Defence Catering Group with a contract caterer). The Ministry expects to generate savings of £19.4 million from the new contract by 2010 based on its analysis of the key factors impacting on costs and prices of food procurement, and the use of the insights gained in the establishment of gain-share arrangements as part of the contract letting negotiations.[33]

14. Also, from 1 October 2006 NHS Logistics and part of the NHS Purchasing and Supply Agency (including the purchasing of food and kitchen supplies) were outsourced to the German company DHL and its main sub-contractor, the American firm Novation, under a ten year £3.7 billion deal negotiated by the Department of Health's Commercial Directorate.[34] The deal is expected to deliver in excess of £1 billion net savings to NHS Trusts over the life of the contract, mainly through increased use of centrally negotiated contracts and achieving greater price competitiveness.[35] The NHS Purchasing and Supply Agency recognise that the benefits are dependent on NHS Trusts using the DHL service, and the firm achieving rapid and sustained growth in centralised purchasing (NHS Trusts are not mandated to use the services), and will take at least two years to start to be realised.[36]

15. There are wide disparities in the prices paid by public bodies for the same food items. For example, the price paid for a standard 800g loaf of wholemeal bread varies between 32-84 pence for NHS Trusts, between 55-97 pence for local authorities and between 45-110 pence for Higher Education Institutions (Figure 3).[37] While there are reasons in some cases for the variations, many organisations are paying high prices reflecting differences in the professionalism of their food purchasing.[38] The Ministry of Defence has used price benchmarking services to gauge the competitiveness of the prices they are paying for food.[39] E-procurement methods can also be used to stimulate greater transparency of prices and increased competition through, for example, e-auctions.[40]

Figure 3: Variations in the prices obtained by public sector procurers

Sector Milk (1 pint whole milk)
Pence
Bread (800g wholemeal)
Pence

NHS Trust (range) 18-27 32-84

NHS Trust (average) 21 55

Local Authority (range) 25-44 55-97

Local Authority (average) 31 69

University (range) 20-38 45-£1.10

University (average) 28 72

Central Government (range) 17-39 57-93

Central Government (average) 31 75

Very competitive market price 22 48

Source: National Audit Office

16. Aggregating demand and joining up purchasing activity can generate better value in food procurement. Four primary schools in Essex have demonstrated the benefits by standardising and aggregating their food requirements to achieve better deals, reduced overheads and higher quality food.[41] Despite the fact that food procurement is common to many public bodies and that in almost every location there will be other public bodies nearby, the potential for public food procurers to join together and increase their purchasing power is significantly under-realised, particularly in Health Trusts and the schools sector.[42]

17. The NHS Purchasing and Supply Agency (NHS PASA) has established national frameworks for food and catering services for use by NHS Trusts, should they choose to use them^.[43] The Department for Education and Skills recognises that it could learn from NHS PASA about securing improved value from framework arrangements for schools, and the two bodies are in discussion about securing access for schools and local authorities to the NHS PASA frameworks now being operated by DHL under the NHS outsourcing

18. As at 31 March 2006 there were 3,042 Chartered Institute of Purchasing and Supply qualified staff in the public sector.[44] Frontline procurers need professional and commercial skills and knowledge of the specialist food and catering market to strike good deals with wholesale food and contract catering companies effectively.[45] Departments accept that more can be done to make use of commercial expertise across sector boundaries and share good practice, as well as exploring innovative approaches such as how they might work with the national supermarket chains to supply food to frontline organisations.[46]

19. Contract catering firms could be earning as much as £95 million from volume discount and year end rebate payments from their suppliers based on the volume of their public sector business, but there is limited awareness of this issue amongst public procurers.[47] While full transparency about such payments will be difficult to achieve, frontline organisations can legitimately request and obtain a share of these payments. (Shell, for example, requests 100% return of discounts and rebates earned as a result of any catering contract with them.)[48]

20. The Department for Education and Skills and NHS PASA acknowledge that significant deficiencies exist in frontline catering skills and kitchen facilities in the health and schools sectors, considerably reducing their ability to increase the use of fresh ingredients in preparing healthier meals.[49] For example, a quarter of local authorities do not have enough trained cooks able to prepare fresh food in all school kitchens, and a fifth of schools have kitchen facilities that are more than 30 years old.[50]

21. The Department for Education and Skills is providing £2 million in funding in 2007-08 to establish a network of training kitchens to act as centres of excellence and raise catering skills.[51] It has also introduced new catering qualifications from September 2006 as part of the Support Work in School qualification.[52] Frontline organisations have obtained considerable benefit where they have appointed a commercially experienced on-site chef or manager (or by drawing on similar existing expertise in other peer bodies) so that they can receive and store food efficiently, and design menus and prepare meals that get the most from the ingredients and reduce waste.[53]

22. Many schools and hospitals have in recent years been constructed or refurbished without fully equipped kitchens.[54] The Department for Education and Skills is investing £8 billion by 2010-11 in renewing and refurbishing the school estate. While it is ultimately for schools and local authorities to determine how best to spend this capital investment, the Department has made improvement of school meals services a priority in its guidance.[55] It will also target capital support (from 2008 onwards) specifically for local authorities who cannot otherwise afford to introduce kitchens in schools from existing capital resources.[56]

23. Some 77% of public sector catering operations do not have separate metering in the kitchens to allow them to measure electricity, gas and water consumption.[57] Where they have outsourced their catering there is also little evidence of public bodies passing on responsibility for the payment of kitchen utility costs to their contract caterers thereby incentivising them to use kitchen facilities more efficiently.[58]

29 Q 63 Back

30 C&AG's Report, Smarter Food Procurement in the Public Sector, HC (2005-06) 963-I, para 2.14, page 38 Back

31 Qq 28, 32, 35, 63 Back

32 Ministry of Defence Press Notice 180/2006 (27 June 2006) Back

33 C&AG's Report, Smarter Food Procurement in the Public Sector: Case Studies, HC (2005-06) 963-II, para 11, page 36 Back

34 Memorandum from NHS Purchasing and Supply Agency, October 2006 (not printed). Back

35 ibid Back

36 Qq 15, 16, 34, 35 Back

37 Q 1; C&AG's report, Smarter Food Procurement in the Public Sector, HC (2005-06) 963-I, Figure 10, page 33 Back

38 Qq 1, 2; C&AG's Report, Smarter Food Procurement in the Public Sector, HC (2005-06) 963-I, para 2.5, page 33 Back

39 C&AG's Report, Smarter Food Procurement in the Public Sector: Case Studies, HC (2005-06) 963-II, para 8, page 35 Back

40 C&AG's Report, Smarter Food Procurement in the Public Sector: A good practice guide, HC (2005-06) 963-III, Case example 15, page 13 Back