10 Concepts to Include in Your Food Service Contract

Your service provider may not welcome the introduction of these concepts. They will come up with many reasons not to include them. Be tenacious! If the service provider is not open to these types of terms, other service providers will be. CLC does not recommend negotiating your contract based on our content alone. In fact CLC recommends hiring a technical expert and legal representation. Remind the service provider true partnerships include trust and communication. You understand they have a need to generate a profit, but you need more disclosure and accountability. The following are items that should be included in a contract:

1.  Golden Rule–If the vendor wants a right under the agreement to terminate with thirty days written notice, then it should be mutual.

2.  Set clear policies and rules pertaining to performance, conduct and background checks.

3.  Avoid rebates (may use countless names for the same concept). Get guaranteed amounts ahead of time. Rebates are too hard to verify and service providers have little vested interest to pay you.

4.  Require the service provider to furnish monthly detailed P&L reports.

a).  Have them provide sample form prior to signing contract.

b).  The problem with most of these contracts is that they are based on the service provider’s P&L. The P&Ls are padded with countless expenses that are not directly related to your location including: overhead/G&A and internal safety charges, to name a few. These charges offset outside cost centers within your service provider’s organization, resulting in reduced profits at your locations. Hence your profit split is diminished. Prior to any agreement, have your financial people review the detailed P&L in-depth to understand external expenses that have been agreed on. Include sample reports in your contract.

5.  Rewards are just as important as liquidated damages.

a).  List the measurables that are most important to your organization. For example:

• Scores of secret shopper programs
• Pass health inspections
• Reduced number of complaints
• Increased participation numbers
• XXX number of marketing plan executed
• Passed outside agency inspections

6.  Liquidated Damages    
a).  Again, list the measurables that are most important to your organization. For example:  

• Customer complaints, $10,000.00 for every percentage point increase over baseline.
• Failed health inspections, $45,000.00 dollars per incident.
• Correct portion size violations, $500.00 dollars per incident.
• Following standardized recipes, violations $2,500.00 dollars per incident.
• Following standardized purchasing specification, violations $5,000.00 dollars per violation.
• Staffing compliance, open management positions over 5 days is salary + benefits + 10 percent per day.  Include a similar formula for hourly employees.

b).  Determine acceptable variations and penalties that tie to each concept.

7.  You have the right to interview all key personnel including the regional representative.

8.  Move away from max yearly increase based on Consumer Price Index.

a).  Ensure that the timetable centers around your budget process.

b).  Separate food from labor. Labor should be capped and based on actual increase of wages per the labor report. Get a break down on real, not estimated benefits.

9.  No organizational modification will be implemented without your consent or if implemented then you have a right to terminate.

10.  Recipe books and product specifications including manufactures that are approved need to be included in the contract. Any changes would require prior approval.