Cafeteria Privatization: Detroit Puts New Plan on the Table

One way the embattled Detroit public school district has tried to improve quality while reserving more education dollars for the classroom is through privatization of noneducational services. And one service it has been considering privatizing for some time is cafeteria management.

In the summer of 2000, however, Detroit school officials halted—at least temporarily—privatization of the district's cafeteria system in order to explore new options for contracting out the service. What happened?

Officials originally asked private vendors to submit proposals explaining how they would manage the district's cafeteria service and for how much. It's a big job: Any private contractor that signed on would have to feed as many as 70 percent of the district's 167,000 students each day.

The first request the district issued for private-sector proposals indicated a desire to operate under a "fixed-price" contract. A fixed-price contract is one in which a contractor promises to provide lunches (or breakfasts, if requested) on a per-meal basis at an agreed—upon price-$1.20 each, for example.

There is not a single school district in the state of Michigan that outsources for cafeteria services under a fixed-price contract. The 150 school districts that already outsource for food services operate under "cost reimbursable" contracts. A cost reimbursable contract reimburses vendors for their expenses (including food provision and some direct management) and also pays vendors an agreed-upon fee for delivering the service.

One reason the cost reimbursable contract is favored by school districts is because of their belief that it increases the likelihood that current district employees will be retained by vendors. Under such an arrangement, all 1,265 of Detroit's cafeteria employees would remain as employees of the district. After the union contract expires, the private food service provider could then hire district employees and let them keep the seniority they had established.

A Change in Plan

After receiving a number of fixed-price proposals, Detroit officials reviewed them and chose a winner based on quality and price. But the contract was never awarded. After months of inaction, the district informed all vendors that it was re-bidding the service. The official reason was that the district wanted to issue a new request for proposal (RFP) based on a cost reimbursable, as opposed to a fixed-price, contract.

During the first week of January 2001, the district posted a new RFP on its web site, reflecting the new criteria for bidding. Detroit Public Schools intends to solicit feedback from vendors before issuing a final copy of the RFP. Once the final RFP is issued, vendors can decide whether or not they wish to bid on the proposal.

But delays in awarding the food service contract have probably hurt Detroit's school children and district already. This is because of the fact that responding to an RFP is expensive. Contractors being forced to redouble their efforts for an indecisive school district not only results in greater costs being imposed on the process, but it hurts the reputation of the district as well. Vendors may think twice about dealing with a district that has a reputation for changing its rules in the middle of the game, or simply using vendor bids to beat union negotiators over the head during contract talks, as some school boards have done. This could lead a district to being stuck with the same poor and expensive in-house service it had in the first place.

Money saved from contracting out could be reinvested in classrooms where it could do more to further the district's educational mission. Shaving just 10 percent from Detroit's $45 million annual cafeteria budget could place a lot more textbooks, notepads, pencils, software, and other resources in the classroom.

Contracting out for school cafeteria services should not be difficult or time consuming. After decades of school contracting experience in other Michigan counties and American states, the issuance of a new RFP and award of a food service contract should be elementary. The Detroit school district should place a high priority on choosing a winning bidder before it's too late to outsource its cafeteria system for the 2001-2002 school year.

Michael LaFaive is managing editor of Michigan Privatization Report.