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PURPOSE

BACKGROUND

WITNESSES

The purpose of the hearing is to investigate the monetary losses associated with Amtrak’s food and beverage operations as reported by the Amtrak Inspector General; to examine management deficiencies identified by the Government Accountability Office (GAO) in reviewing Amtrak’s food and beverage operations; to explore best practices and alternative options for improving food and beverage service aboard Amtrak trains.

The Statutory Framework

Section 121 of the Amtrak Reform and Accountability Act of 1997 repealed prior restrictions on contracting out various functions of Amtrak [49 U.S.C. 24312(b)(1996)], and devolved all such issues to the collective bargaining process, with the exception of work related to food and beverage service [Sec. 121 (c)]. Food and beverage service was unaffected by this legislation, because the pre-1997 statute contained an exception to the contracting ban for food and beverage services [49 U.S.C. 24312(b)(1996)].

The 1997 legislation also contained the following disclaimer in section 121(d): “NO INFERENCE. The amendment made by subsection (a)(1) is without prejudice to the power of Amtrak to contract out the provision of food and beverage services on board Amtrak trains * * *.”

The Current Amtrak Food/Stock Supply Contract

In January 1999, Amtrak executed an agreement with Dobbs International Services, Inc., a Delaware corporation entitled “Contract For Services to Support NRPC’s Nationwide Operation of Food, Beverage, & Certain Other Services.” (This agreement governed only the provision of food and beverage supplies for Amtrak’s on-board operations, not the actual serving of those items aboard trains. The latter function continues to be performed by Amtrak employees.)

Gate Gourmet International, Inc subsequently acquired Dobbs. The term of the contract is seven years, and it expires September 30, 2006. Amtrak has an option to extend the contract for five years by giving Gate Gourmet written notice by mid-August, 405 days prior to the September 30, 2006 contract expiration date.

Amtrak provides various levels of food and beverage service operations in 65 lounge/café cars and 83 dining cars in its fleets around the country, ranging from snack/beverage services in lounge cars to full meals in dedicated dining cars. Prior to entering into the contract with Dobbs/Gate Gourmet, Amtrak had acquired supplies for its food and beverage services through Amtrak’s own commissaries. As a result of the contract, Amtrak has outsourced its procurement of food and beverage stock as well as services supplies stock (linens, tableware, etc.). In addition to procuring and delivering this stock, Gate Gourmet manages, operates, and maintains the 14 Amtrak-owned commissary facilities throughout the country, maintains and provides cleaning and laundry services, and manages and maintains operating equipment for Amtrak’s employees to use in the service of food and beverage operations.

Amtrak Inspector General’s Report on Food and Beverage Operations

The Amtrak Inspector General has issued a report entitled “Amtrak Food & Beverage Operation-Evaluation of FY ’03 Performance.” The report examines Amtrak’s performance on a system, route, and service-type level. The report also compares Amtrak’s performance with that of the U.S. restaurant industries. Lastly, the report identifies opportunities to improve performance.

In summary, the Amtrak Inspector General’s report found that Amtrak food and beverage operations in FY03’ generated approximately $78 million in revenue but had $162 million in expenses-- resulting in a loss of over $83 million.

However, these figures do not include Amtrak’s additional expense of operating, repairing, and maintaining the 65 lounge/café cars and the 83 dining cars. These costs are estimated at over $65 million per annum. Lastly, the figures do not incorporate lost revenues due to theft.

Additional summary findings in the Amtrak Inspector General’s report are as follows:

1. All six long-distance routes lost money on both dining and lounge service.
2. No short distance routes made money on food and beverage service.
3. Commissary charges for both long and short distance routes were found to be excessive.
4. Labor expenses of food and beverage services ranged from 64 % to 121 % of sales, depending on route.
5. In comparison to a typical U.S. restaurant, Amtrak pays 2.5 times as much for its food and beverage supplies.
6. Amtrak also pays twice as much for non-consumable stock.
7. In the category of overall labor, supplies, and operating expenses, for every dollar of sales revenue, U.S. restaurants pay 70 cents while Amtrak pays $2.08.
8. Amtrak food service employees receive 3.5 times the pay of the average U.S. restaurant employee.

Principally, the Inspector General recommends assessing the feasibility of contracting out Amtrak’s food and beverage operation by choosing some short distance routes to run a pilot test, followed by a report and recommendation on the results of the pilot test of contracted food service.

GAO Review of Food and Beverage Operations

Separately, the GAO conducted its own review of Amtrak’s food and beverage operations. The GAO found that the Dobbs/Gate Gourmet contract was administered with little oversight by Amtrak management. GAO found that Gate Gourmet did not file annual reports as required by the contract, and that Amtrak did not enforce the contractual requirement that annual reports be filed. According to GAO, required audits of discounted stock purchases by the vendor also were not done.

Best Practices and Contract Renewal

Finally, both the Amtrak Inspector General and General Accountability Office have found that Amtrak does not utilize industry best practices in its food and beverage operations and needs to dramatically change how it delivers those services to the traveling public.

According to both the Amtrak IG and GAO, Amtrak needs to determine the best practices that are appropriate for Amtrak’s operations, and implement them. The Amtrak IG has recommended to the Amtrak Board not to extend the current food and beverage contract in August. It is unclear whether Amtrak intends to follow the Inspector General’s recommendation.