ANALYSIS: Money goes both ways in CMU's contract with Chartwells
Chartwells' decade-long contract with Central Michigan University is a complex agreement with money being exchanged both ways.
Most 3,633 on-campus students are required to purchase residential meal plans. That means students have paid nearly $9.3 million for meal plans during the Fall 2021 semester.CMU will pay Chartwells for serving close to one million meals a semester, equalling nearly $2.9 million dollars in food costs for one semester.
On Sept. 20, Central Michigan Life sent a Freedom of Information Act request to the university's General Counsel Office asking for a copy of CMU's contract with Chartwells. It was delivered on Oct. 1. However, all financial information in the contract was redacted.
According to General Counsel John Danner, Chartwells claimed the financial numbers were "trade secrets." President Bob Davies granted CM Life's appeal. CM Life received the non-redacted Chartwells contract on Oct. 20.
Annual in-kind contributions Chartwells makes to CMU
- $45,000 student internship wages
- $5,000 retail value of food services
- $5,000 to Presidents United to Solve Hunger pantry
- $2,000 to First Impressions
- $10,000 of catering services for catering showcases
- $5,000 for recognizing Chartwells employees
- $8,000 to the Academic Integration initiative
According to the contract, revenue from residential meal plans is spent far beyond the cost of the food that ends up on a student's plate.
Where does the meal plan money go?
Chartwells is the food provider for many high-profile universities, including Northwestern University, New York University and Louisiana State University. The company came highly recommended when university officials asked around about Chartwells.
"We reached out and had conversations with the staff at Eastern Michigan University to talk about food," Director of Auxiliary Services Cal Seelye said. "I had many contacts at Oakland University. I reached out to them – not all of them are tied directly to food service – to ask what their perspective was."
In the end, two companies competed for the CMU contract – Aramark and Chartwells.
CMU had a 25-year relationship with Aramark, a company that Michigan prisons ended its contract with in 2015 due to poor service.
In December 2020, CMU and Chartwells entered into a fee-based, management agreement. This type of contract means that Chartwells' parent-company, Compass, earns revenue through fees attached to the CMU account.
After the start of the new fiscal year July 1, 2021, CMU must pay Chartwells a $665,000 management fee. That management fee is paid in 10 monthly installments from August through May. The fee does not go toward any on-campus costs.
To begin the 2021 Fall Semester, the university paid Chartwells a $2 million advance. CMU will make the same startup payment to Chartwells to begin the Spring Semester, but not the summer. Seelye said the $2 million primarily goes toward the cost of purchasing food and to cover the wages of full-time Chartwells' CMU employees. After that money is spent, Chartwells bills CMU each month to cover its food and labor costs.
According to Seelye, through September the university's expenses were $918,000 – that's through one-sixth of the contract, and one-third of the semester.
In the contract, the university is required to reconcile Chartwells' semester costs at the close of the fall and spring semesters. Chartwells must also provide a proposed budget by Jan. 15 of each year to be approved by both parties by the end of March.
Seelye said CMU should have approximately $1 million left each semester after paying all invoices.
In addition to paying for Chartwells' services, Meal Plan revenue also is used to fund the Auxiliary Services department, which includes Seelye and his staff, the CMU Bookstore, CentralCard Services, wages for students working in dining halls and restaurants and other areas.
“We're not funded by the university at all,” Seelye said. “Any money that we receive, we have to pay whatever emergencies might come up. We put that in reserve.”
The Aramark contract was a mixed contract – part management fee and profit and loss agreement. In its 2014-15 contract, Aramark received a $21,763 monthly management fee, set to increase 3 percent a year, for dining halls and 60 percent of all profit made from markets and franchise restaurants on campus.
Why Chartwells was chosen
On several occasions, President Bob Davies said the Chartwells and Aramark bids were similar. One difference was that Chartwells offered to put a larger investment into on-campus eateries. The other big difference was that Aramark wanted to bring a controversial fast food brand to campus.
"One of the things that hurt Aramark was they wanted a Chick-fil-A," Seelye said. "They insisted on that. It was very clear from the (direction) above me that it wasn't going to happen on our campus."
Seelye said when Aramark submitted its best and final offer it had replaced the Chick-fil-A with a Raising Cane's Chicken Fingers.
The university also requested the addition of more healthy eating options to dining menus. According to Seelye, the cost per meal for the Aramark's contract was $2.17. As written in the contract with Chartwells, “the cost per meal in residential dining is $2.90.” The difference in the prices has to do with type of foods CMU requested. Administrators wanted less processed food.
“One of the requests we had was to provide more healthy options,” Seelye said. “It’s more fresh vegetables, different qualities of meat, different expectations with how things are bought. Most of the meat is halal prepared. We have a larger commitment to allergen-free foods. (Our) expectation is that the food is quality.”
Under regular circumstances, CMU would have visited other Chartwells customers to sample what the company was serving up. However, due to COVID-19 and traveling restrictions, they were unable to do so.
"We weren't allowed to travel and other institutions weren't allowed to have people or they simply didn't have their operations open," Seelye said.
Another big difference between the Chartwells and Aramark bids was the fee and incentive-based payouts Chartwells accepted. After this year, CMU and Chartwells will set up a list of goals and incentives to meet. In the contract these are called Key Performance Indicators. Since it is the first year in the contract, this year will set a baseline for the KPIs. Seelye said COVID-19 also makes it a little more challenging.
"If they meet and exceed KPIs, the university pays them a bonus, if you will," Seelye said.
In addition, contractually Chartwells gives $80,000 of in-kind funds to CMU annually. During its contract with Aramark, CMU received $250,000 in donations to the Engler Center for Charter Schools over six-years.
Chartwells also agreed to pay about $14 million in improvements made to the restaurants in the newly renamed "Central Eats" and Merrill and North dining halls that will stay with the university even if it decides to part ways with Chartwells. Funds used to pay for that construction, as well as a $1.6 million "future project," will slowly be amortized by CMU over the course of the contract.
Aramark was put on notice in 2019 that CMU was starting a bidding process for a food service provider. By the time bids were submitted and the process was under way, the campus was shut down due to the COIVD-19 pandemic.
For CMU, there was no turning back. For Aramark, submitting its bid was probably the beginning of the end.
"When we announced to Aramark that we were going to go with Chartwells, the relationship (with Aramark corporate) soured pretty dramatically," Seelye said. "It would have been very challenging, at that point in time, to renegotiate and bring Aramark back to our campus."
After the decision to move on from Aramark was made, the company did not offer much assistance transitioning its CMU employees to Chartwells. Although CMU offered all hourly Aramark employees a position with Chartwells, not all of them agreed to work for the new company.
"(Some) employees saw this as an inflection point," said Nick Long, vice president of finance and administrative services. "They used (the transition) as the trigger to go do something different."
For example, Aramark's marketing representative agreed to stay on, but then left the position a few days before the transition to Chartwells began. CMU was unable to hire a replacement until mid-August.
About one-third of the full-time staff chose to leave rather than transition. Some employees agreed to make the switch, but then never reported to work. Others left due to changes in their jobs.
"We have a lot of long term employees that were with Aramark for a really long time," Seelye said. "You get set in your ways. You do things how you always want to do it, then you have somebody come in and upset your applecart and are going to require you to do things differently, to prepare food differently."
Due to these job vacancies, CMU and Chartwells have been dealing with a lack of full-time staff members since the beginning of the semester.
"I think one of the things that Chartwells told us over and over that they need those employees because they don't have a magical truck somewhere to bring in enough employees," Seelye said. "Whether we like to admit it or not, we are not in a metropolitan area where we have a lot of employees to draw from."
In addition to being down full-time employees, CMU has also struggled to hire student workers this semester. Student workers are paid by the university, not Chartwells, though they are managed by the food service company.
According to Seelye, there are approximately 600 student employees currently working for campus dining. He said this puts CMU in a good position.
"We have a smaller student base to draw from (due to some) pretty rough years when it comes to enrollment," Seelye said. "The pandemic doesn't help. I think there's still apprehension about going out there and working."
Regardless of all of the issues during the transition, there is one area where CMU has thrived but that has left other universities struggling. Supply chain disruptions have affected many restaurants and campus dining operations, but CMU hasn't struggled in having enough food for campus meals.
"Every person I talk to I try and remind them that we do not have a supply chain issue on food," Seelye said. "(Resident District Manager) Tyson (Dubay), who I've worked with since he started on campus, said we've never had more food on our campus than any time in (his) career here."