Why is it important to benchmark cost/price contracts?

Cost/price contracts usually are flexible amounts charged each month by the contractor to their client. This amount is called the trading subsidy. The client also has bear the costs involved in providing the catering facilities. Other costs are hospitality which is a term used to cover all services provided by the contractor for meetings, entertaining, visitors, special functions, training, free beverages etc.

Why benchmark?

• To establish a benchmark percentage level in relation to general market prices for all the contractors’ supplies, preferably at the outset, that can be monitored throughout the contract.
• To support any changes that may be necessary to tariffs, and other annual increases due to changing costs in the market price.
• To prove due diligence and best practice and maintain quality of food. Quality can be reduced by a gradual reduction in the frequency of quality prime foods appearing on the menus either due to price increases or to increase gross profit levels.
• To be in control, reducing the possibility of contractors or suppliers grossly manipulating the cost of supplies.
• To negotiate any revisions to the contract from a position of strength.
• To monitor the efficiency of contractors purchasing, it affects the price you pay!
• To be in a position to evaluate the contractor’s trading account and their trading profits/losses.

Tip

Do not allow hospitality to be overpriced by contractors to subsidise the main core services. A cut back in hospitality often takes place and the true cost of core services is then revealed. Benchmark each service to ensure that each service bears the true costs of supplies.