agenda item: v florida polytechnic university board of ...€¦ · sodexo was the only provider...

AGENDA ITEM: V

Florida Polytechnic University

Board of Trustees

Finance & Audit Committee

March 27, 2014

Subject: Approval of the Dining Services Contract

Proposed Committee Action

(1) Authorize the Chief Operating Officer to sign the agreement provided the agreement has a

clause that states that the agreement is effective only if it is approved and ratified by the full

Board.

(2) Approve the selection of Option B in the Agreement.

Background Information

Several campus food services providers were offered the opportunity to present food services

contracts to the University to “piggy-back” on for purposes of providing food services on

campus. Sodexo was the only provider that presented contracts for consideration. The proposed

contract results from piggy-backing on the agreement Sodexo entered into with University of

Michigan for its Dearborn campus.

The proposed Florida Poly agreement adjusts the University of Michigan contract based on our

student population during the first five years, and it includes three significant changes. First,

Sodexo is offering to make a one-time investment of $1 million, instead of the $50,000

investment at Dearborn. If the University accepts that investment, there will be annual

guaranteed minimum sales amounts that must be met. Second, Sodexo is offering an additional

investment of $500,000 if the University enters into an agreement with Sodexo for facility

services. And third, Sodexo is offering an Option B, which allows the University to keep a

portion of the meal plan revenues in lieu of receiving a minimum annual payment. The Major

Terms are set out in the “Sodexo Proposed Agreement Major Terms”, which are attached and

provided as supporting documentation.

Assuming that the Academic Affairs Committee, the Audit and Finance Committee, and the

Operations Committee approve of this Agreement, an additional provision was added so the

COO can sign the Agreement shortly after approved by the committees, but the Agreement will

only become effective upon being approved and ratified by the full Board of Trustees.

Staff has projected estimated revenues under both Option A and Option B for contract years 1-5

and is recommending that the University enter into the agreement and choose Option B. If 80%

of the students and employees on the campus participate in the dining services programs, staff

projects that the University will receive $3.5 million in estimated revenue over the next 5 years,

in addition to the $1 million investment by Sodexo.

Agenda Item V: Approval of Dining Services Contract 1

Fiscal Impact: See Proposed Agreement Major Terms Sheet.

Supporting Documentation:

Sodexo Proposed Agreement Major Terms

Agreement for Providing Food Services between the Board of Trustees of Florida Polytechnic

University and Sodexo America, LLC- DRAFT

Prepared By: Gina DeIulio, Vice President & General Counsel and Ray Galleno, Executive

Director of Business and Auxiliary Services


Sodexo Proposed Agreement

Major Terms

(Adopting agreement between Sodexo and BOR of Michigan for Michigan Dearborn campus with

additional opportunities that are favorable for the University.)

General Terms:

Term: Initial Term is for 7 years with the ability of the parties to renew for three additional one year

periods. (June 1, 2014- May 31, 2021 initial term)

Termination: Either party can terminate for breach (30 calendar day cure period); or without cause by

providing 60 calendar days’ notice- however, effective termination date is at the end of a semester.

Premises:

IST Building coffee shop- completed no later than July 7, 2014

Wellness Center Food Services- (retail and non-retail) completed no later than August 14, 2014

Venues and Hours of Operation:

Hours of operations will be mutually determined, initial hours of operation:

IST Building Coffee Shop- will have Starbucks and Simply to Go (food & drink only) - open

Mon.-Thurs. 7:30 AM – 5:00 PM, and Friday 7:30 AM-1:30 PM, closed weekends.

Wellness Center- Retail- will have Starbucks, Grill, Sub Connection – open

Mon.-Thurs. 7:30 AM – 5:00 PM, and Friday 7:30 AM-1:30 PM, closed weekends.

Wellness Center- Non-Retail All-You-Can Eat with Food Stations (“cafeteria”)- daily

rotations of entrees and sides, salad/soup, pizza, deli, grill, desserts and beverages and

Open: Mon.-Fri. 7:00 AM – 9:00 PM for breakfast, 11:30-1:30 for lunch, and 5:00 PM to 7:00

PM for dinner; Saturday and Sunday 11:00 AM-1:00 PM for brunch and 5:00 PM to 7:00 PM for

dinner.

Wellness Center- Simply to Go convenience store that has prepackaged food, and sundries-

open Mon.-Thurs. 7:30 AM – 5:00 PM, and Friday 7:30 AM-1:30 PM, and Saturday and Sunday

11:00 AM – 7:00 PM.

Pricing of Meals

Prices charged will be competitive and in keeping with similar operations of businesses conducted within

the Lakeland, Florida area. University must approve any subsequent increases. Biannual meetings to go

over menu and pricing; pricing increases limited to the Producer Price Index, Foods Manufacturing

Series. (*For pricing, see Financial Arrangement section below.)

Fixtures and Equipment:

Sodexo will furnish, install and maintain all fixtures and equipment necessary to display, sell and conduct

its business on the Premises.

University is responsible for the maintenance of the core building systems (HVAC, plumbing, electrical,

gas, water and sewer for the building), as well as maintenance of the common areas of the building.

Sodexo is responsible for maintenance and repair of all movable fixtures and equipment owned by

Sodexo, and also of all University-owned equipment that Sodexo uses.


Small Wares:

Small wares will be paid by the University or paid out of Sodexo’s $1M investment. Sodexo is

responsible for maintaining the wares and replacing them as necessary.

Utilities:

University provides the utilities; Sodexo is supposed to conserve resources where possible, use recyclable

disposables, and incorporate other sustainability measures. Sodexo is responsible for paying for its phone

service and local/long distance charges.

Custodial Services:

Sodexo shall be responsible for all custodial services for the Premises, including bussing and cleaning of

tables during hours of operation, and will place the trash in University provided receptacles.

Insurance: Sodexo is responsible for maintaining certain levels of Insurance coverage ($1M/$3M Commercial

general liability, $1M/$2M professional liability/errors and omission, worker’s compensation, $1M auto

liability). University is responsible for self-insurance/insurance as to the buildings against loss or damage

by fire, explosion or other cause normally covered by standard broad form property insurance.

Personnel:

The University will have the opportunity to interview final candidates for management positions (GM,

catering manager, and executive chef). The University has the ability to have a Sodexo employee

reassigned from our premises if they repeatedly fail to perform in a competent manner.

Sodexo is required to make every attempt to employ qualified University students.

Sodexo must pay for and perform background checks on all personnel assigned to the Premises in order to

ensure the safety of the University community (background checks will be performed initially and then

regularly thereafter).

Facilities:

The University is responsible for providing Sodexo with the space, facilities and accommodations the

University deems reasonably necessary to support Sodexo in providing the services under the Agreement.

Sodexo cannot use the premises for any other purpose.

Sodexo is responsible for providing, at their sole cost and expense, drawings, specifications and

construction plans meeting all applicable building codes and showing all initial improvements to be made

to the premises prepared by licensed architects/engineers knowledgeable with University and State of

Florida codes. All plans must be architecturally and aesthetically compatible with the building in which

the premises are located, as reasonably determined by University.

Sodexo is responsible for initial inspection and acceptance of existing systems as being adequate for their

operations. Any required changes to existing systems within the premises and/or building systems in

order to meet the needs of the Sodexo’s operation must be approved and coordinated by the University,

with Sodexo being responsible for the costs.

Collection of Payments and Technology System

Sodexo is responsible for processing the credit/debit card transactions using Sodexo’s technology systems

and broadband internet connectivity- existing independent of the University’s existing infrastructure. The

University will provide access to all necessary points of demarcation for broadband internet connectivity

and provide Sodexo with physical cabling structure necessary to extend broadband Internet connectivity

to the credit/debit cardholder data environment and associated hardware. Sodexo will provide network

security and management, and all associated hardware, for the credit/debit cardholder environment at


University’s premises through Sodexo’s third party provider. Sodexo will comply with PCI/DSS

requirements.

Financial Arrangement:

1. Meal Plans. Sodexo will offer the following Meal Plans/Declining Balance (“DCB”) plans to

students and employees:

Description of plan Cost

14 Meal per week + $225

DCB

$1818.30

per

semester

50 Meal Block Plan

$415.80

per

semester

$650 Declining Balance Plan $600.00

$750 Declining Balance Plan $700.00

$150 Declining Balance Plan

(Summer Only) $150.00

“14 Meals per week + $225 DCB” also referred to as “14 Meals Per Week Plan” provides the patron with

14 meals per week during the semester in the cafeteria only and $225 DCB to use in the cafeteria or retail

space.

“50 Meal Block Plan” the patron has 50 meals to use the Academic year.

“DCB Plan” provides that, for example, the patron pays $600 for the semester, and is provided a

beginning balance of $650 against which the patron is charged $6.00 per meal in the cafeteria and actual

cost in retail spaces until the balance is zero.

2. Commission. Sodexo will pay the University a commission on the retail sales and operations as

follows:

5% on all net retail cash sales

5% on net sales DCB

25% on board meal plans (14 Meals Per Week Plan and 50 Meal Block Plan)

3. Scholarships. Sodexo will provide $15,000 per year for the University to use for student internship

scholarships of $5,000 each and/or meal plan scholarships.

4. Student Programming Fund. Sodexo will use 1% of total annual Net sales in all categories for a

student programming fund for enhancing the student dining experience at Florida Poly.

5. $1M Investment. Sodexo will make a one-time investment of $1M (vs. the $50,000 investment that

was in the Michigan agreement) for equipping the coffee shop and the dining facility- to be administered

and construction supervised by the Sodexo Solution Center. Sodexo will amortize the investment

(straight line over 9 years) as an operating expense; University owns the equipment/renovations;

University only pays the unamortized amount after expiration or termination of the Agreement.

However, in accepting the $1M investment, the University must guarantee a minimum in total meal plan

and declining balance sales (collectively referred to as “total meal plan sales”; if the total meal plan sales

do not reach the guaranteed minimum sales in any given contract year, the University is responsible for


paying Sodexo the difference between the actual total meal plan sales and the guaranteed minimum

sales. (Guaranteed minimum sales amounts are different depending on whether the University chooses

Option A or Option B, amounts provided below).

6. Options A and B. In addition to the revenue streams above, Sodexo has offered the University Option

A (was included in the Michigan agreement) or Option B (alternate added to Florida Poly agreement).

The University must choose one of the options prior to July 1, 2014; however, the University can switch

from one option to the other option at the beginning of any subsequent contract year. Options A and B

are described below.

OPTION A (Minimum Annual Payment): Sodexo will pay the University a minimum annual payment

each year of the contract. The annual amount will be paid in 12 equal monthly payments. The Minimum

Annual Payment increases each year throughout the life of the contract as follows:

Minimum

Annual Pmt.

Year 1 $65,000

Year 2 $111,031

Year 3 $173,762

Year 4 $178,975

Year 5 $219,474

Year 6 $226,058

Year 7 $232,840

Year 8 $239,825

Year 9 $247,020

Total $1,628,985

The estimate for the total sales for the Year 1 under Option A are:

Description of plan Daily Rate

Semester

Rate

No. of

patrons

per sem.

X2 = no.

of patrons

2

semesters Total in Sales

14 Meal per week +

225 DCB $16.53 $1,818.30 219 438 $796,415.40

50 Meal Block Plan $3.78 $415.80 40 80 $33,264.00

$650 DCB (fall/spring) $600.00 160 320 $192,000.00

$750 DCB (fall/spring) $700.00 40 80 $56,000.00

$150 DCB (summer) $150.00 25 50 $7,500

Total: 484 968 $1,085,179.40


Therefore, estimated Payments to University in Year 1 under Option A, based on

projected sales above for Year 1 are:

Program Minimum Sales Capital

Marketing* Scholarships*

Annual

Pmt. Commissions Investment Total

Year 1 $10,552 $15,000 $65,000 $220,195 $1,000,000 $1,310,747

The guaranteed minimum sales required for the $1M Investment under Option A are as follows:

Years

Option A Minimum Annual

Meal plan and DCB sales Total

Year 1 $851,134

Year 2 $1,701,158

Year 3 $2,175,300

Year 4 $2,240,559

Year 5 $3,365,112

Year 6 $3,466,065

Year 7 $3,570,047

Year 8 $3,677,148

Year 9 $3,787,463

Option B. Under Option B, Sodexo will offer the same Meal Plans/DCB plans to students and

employees, but Sodexo will only receive $1,232.00 per 14 Meals Per Week Plan, the difference will go to

the University in lieu of the Minimum Annual Payment that is in Option A. Note, the calculations below

assume the patrons will be charged $1818.30 per semester for the meal plan. The commission paid to the

University for the 14 Meals Per Week Plan is less, as the University forgoes the 25% commission on the

amount it receives for such meal plan.

The estimate for the total sales for the Fall and Spring of Year 1 under Option B are:

Description of plan

Daily

Rate

Semester

Rate

No. of

patrons

per

semester

no. of

patrons

for 2

semesters

Total in Sales

to Sodexo

14 Meal per week +

225 DCB $11.20 $1,232 219 438 $539,616.00

50 Meal Block Plan $3.78 $415.80 50 80 $33,264.00

$650 DCB (fall/spring) $600.00 160 320 $192,000.00

$750 DCB (fall/spring) $700.00 40 80 $56,000.00

$150 DCB (summer) 25 50 $7,500

Total: 484 968 $828,380.00


Estimated Payments from Sodexo and receipts kept by University in Year 1 under

Option B, based on projected sales above for Year 1 are:

Program Mark-up on

Meal plan

Sales Capital

Marketing* Scholarships* Commissions Investment Total

Year 1 $10,552 $15,000 $256,799.40 $155,995 $1,000,000 $1,438,346.40

The guaranteed minimum sales required for the $1M Investment under Option B are as follows:

Years

Option B Minimum

Annual Meal plan and

DCB sales Total

Year 1 $675,244

Year 2 $1,555,241

Year 3 $2,035,058

Year 4 $2,144,684

Year 5 Est. $3,240,490

Year 6 Est. $3,337,705

Year 7 Est. $3,437,836

Year 8 Est. $3,540,971

Year 9 Est. $3,647,200

A projection of the revenues for each of the Options is provided for contract years 1-5 on the following

pages, with the assumption that 80% of the total population of students and employees on the campus will

participate in the dining services programs. Based on the projections, staff is recommending that the

University enter into the agreement and choose Option B. Option B is preferred because the projected

revenues over contract years 1-5 are approximately $500,000 greater than under Option A. In addition,

the University has the ability to adjust the price of the 14 Meals Per Week Plan to make it more affordable

for the patrons, of course, if the price of the Plan is adjusted, the revenues to the University will be

effected.


agenda item: v florida polytechnic university board of ...€¦ · sodexo was the only provider...

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