Food and beverages have been served onboard Amtrak trains since  Amtrak was created. Since then, Amtrak has contracted out the responsibility for  the commissaries and for ordering and stocking all food, beverages, and  related items under a contract that expires in September 2006. Gate Gourmet charges Amtrak for the items used, as well  as for labor, management, and other fees. Amtrak’s financial records show that for every dollar Amtrak earns in food  and beverage revenue, it spends about $2—a pattern that has held  consistent for all 3 years we reviewed. 2.) Amtrak’s  financial records also indicate that Amtrak has lost a total of almost $245  million for fiscal year 2002 through fiscal year 2004 on food and beverage  service. While Amtrak’s labor costs for its food and beverage service  are significant, these costs are part of Amtrak’s overall labor cost  structure, and as such, are beyond the scope of work we did for this  testimony. Current Contract Does Not Provide Incentives to Reduce or Contain Costs

One way to control costs is to build provisions into a contract that  motivate a contractor to keep costs as low as possible. Amtrak’s current  cost reimbursable contract with Gate Gourmet creates, if anything, an  incentive to increase Amtrak’s costs unless properly monitored. In  addition, the contract also provides that Gate Gourmet deduct any trade or  quantity discounts on items purchased for Amtrak either immediately from  Amtrak’s invoices or retroactively based on the proportion of Amtrak’s  purchases. Management Controls Over Food and Beverage Operations Not Fully Exercised

We identified five types of management controls that Amtrak did not fully  exercise regarding oversight of its food and beverage service. Amtrak’s contract requires Gate Gourmet to provide an independently  audited annual report within 120 days following the expiration of each  contract year; this report must also be certified by Gate Gourmet officials. Amtrak did not adequately monitor its purchase price  information for food and beverage items purchased by Gate Gourmet. Amtrak also does not include any  information about its food and beverage expenses in any of its internal or  external reports, including its monthly performance reports, its internal  quarterly progress reports, or its annual consolidated financial statements. Absent this information, it is difficult for internal and external  stakeholders to determine the amount of expense attributable to the food  and beverage service and to gauge the profit or loss of the operation. This  hinders oversight and accountability. Conclusions

Amtrak’s food and beverage service may represent a relatively small part  of the company’s operating budget, but it speaks volumes about Amtrak’s  need to get its operations in better order. 2. 3. Create separate revenue and expenditure reporting and other basic  food service metrics to allow for internal and external accountability  for its food and beverage service and create incentives to reduce costs  and/or increase revenue. 4.
Why GAO Did This Study

Amtrak has provided food and beverage service on its trains since it began operations in 1971. Amtrak has struggled since its inception to earn sufficient revenues and depends heavily on federal subsidies to remain solvent. While a small part of Amtrak's overall expenditures, Amtrak's food and beverage service illustrates concerns in Amtrak's overall cost containment, management and accountability issues. This testimony is based on GAO's work on Amtrak's management and performance as well as additional information gained from Amtrak and other transportation providers. This testimony focuses on (1) the provisions written into Amtrak's contract with Gate Gourmet to control costs, (2) the types of management controls Amtrak exercises to prevent overpayments, and (3) the information Amtrak collects and uses to monitor the service and to report to stakeholders such as its Board of Directors.

What GAO Found

Amtrak's financial records show that for every dollar Amtrak earns in food and beverage revenue, it spends about $2--a pattern that has held consistent for all 3 years GAO reviewed. In GAO's estimation, Amtrak has lost a total of almost $245 million from fiscal year 2002 through fiscal year 2004 on food and beverage service. Since 1999, Amtrak has contracted out the responsibility to Gate Gourmet International (Gate Gourmet) for managing commissaries and for ordering and stocking all food and beverages and related items managing under a contract that expires in September 2006. Amtrak's current cost reimbursable contract with Gate Gourmet creates, if anything, an incentive to increase Amtrak's costs unless properly monitored. Gate Gourmet can charge Amtrak for the cost of the food and beverage items, as well as management, labor, and other expenses. Without defined controls and management, this type of contract structure provides little incentive for a contractor to reduce or contain costs to provide better value to its customer. GAO found five different management controls that Amtrak did not fully exercise regarding oversight of its food and beverage service. These controls include: (1) requiring an independently audited financial report, (2) auditing for all applicable rebates and discounts that Gate Gourmet could have applied to food and beverage items purchased for Amtrak, (3) adequately monitoring purchase price information for its food and beverage items, (4) not considering Amtrak's food and beverage labor costs, as a part of product markups, and that (5) not utilizing Amtrak's procurement department in negotiating the current contract. Information that could provide both internal and external accountability for the food and beverage function is limited. Amtrak does not include any information about its food and beverage expenses in any of its internal or external reports, including its monthly performance reports, its internal quarterly progress reports or its annual consolidated financial statements. This lack of information makes it difficult for internal and external stakeholders to gauge the profit or loss of the operation as well as to assign accountability.