Future Provision of Laundry Services

The Community and Neighbourhood Services Committee recommends the adoption of the following report (July 16, 1998) from the Commissioner of Community and Neighbourhood Services:

Purpose:

To gain authority to immediately secure the services of an alternate, interim launderer, effective October 1, 1998, as a result of K-Bro Linen Systems Inc. issuing the City of Toronto notice of termination (July 3, 1998), in order to ensure uninterrupted linen and personal laundry services for the Homes for the Aged and other City of Toronto operations served by the Central Laundry, including Hostels, Children's Services, and Ambulance Services.

To obtain authority to develop and issue a Request for Proposals (RFP) with respect to the longer term future direction of the Central Laundry, which allows proponents to respond to options related to both the ownership of the Central Laundry and the provision of laundering service.

Funding Sources, Financial Implications and Impact Statement:

There is no immediate cost to the City of Toronto by taking this direction. However, failure to act immediately may leave insufficient time to secure the services of an alternative launderer to be in place for the October 1, 1998, termination date. If interim arrangements are not made on a timely basis, there will be an untenable negative impact on the Homes for the Aged and other City of Toronto operations served by the Central Laundry, as laundry processing needs will not be met.

In the longer term, the issuing of a Request for Proposals allows City of Toronto Council the opportunity to review various options for the ownership and operation of the Central Laundry, and to select the option which results in the best outcome for the City of Toronto, its various operations, and the clients/residents who rely on the laundering services.

Recommendations:

It is recommended that:

(1)City of Toronto Council authorize staff to immediately arrange for the services of an alternative full service laundry operator (within the resources available), who has the qualifications, expertise, and capacity to process the volume of laundry generated by the City of Toronto operations presently serviced at 795 Middlefield Road by K-Bro Linen Systems Inc.;

(2)staff be authorized to enter into an agreement with the selected laundry operator, as outlined in Recommendation No. (1), effective October 1, 1998, for a fixed period of time and on terms and conditions acceptable to the City Solicitor and the Commissioner of Community and Neighbourhood Services;

(3)City of Toronto Council direct staff to develop and issue a Request for Proposals (RFP) with respect to the future ownership of the Central Laundry and the future provision of laundry services to the Homes for the Aged and other City of Toronto operations presently served by the Central Laundry;

(4)staff report back to City of Toronto Council with respect to the results of the RFP process, outlining the possible options, and providing advice regarding the most desirable option which provides benefit to the City of Toronto, its operations, and its clients/residents; and

(5)the appropriate City officials be authorized and directed to take the necessary action to give effect thereto.

Background:

On May 25, 1984, Metropolitan Council approved a laundry agreement (ten-year term with two five-year renewal options) between Stork Diaper Services Alberta Ltd. (now K-Bro Linen Systems Inc.) and Metro to provide laundry services to the Homes for the Aged. Pursuant to this joint venture agreement, a Central Laundry was designed and built on property located at 795 Middlefield Road. The Central Laundry has been operated by K-Bro Linen Systems Inc. (K-Bro) since that time under a royalty arrangement and a lease agreement. The current five-year extension with K-Bro expires December 31, 1999. However, the agreement provides for earlier termination by either party, under a set of prescribed, predetermined criteria.

The royalty arrangement set out in the agreement gives K-Bro the right to process laundry for clients other than the Homes for the Aged in the Metro (City) Central Laundry, on the condition that K-Bro make payments to a Metro (City) Central Laundry reserve fund, for each pound processed. Over the years, K-Bro has secured a number of non-city clients and recently has been processing laundry for up to seven non-city clients at the City's Central Laundry. The Central Laundry reserve fund is primarily used for maintenance, repairs and plant upgrades. This ensures that no municipal dollars are used in the maintenance of the Central Laundry.

Further to the original authority granted by Metropolitan Council regarding the ownership and operation of the Central Laundry, staff and K-Bro representatives have from time-to-time discussed their working relationship and considered whether there was a more desirable way to operate laundry services. In 1996, Metropolitan Council authorized staff to contract with KPMG Management Consulting (KPMG) to conduct a feasibility study with respect to the operation of the Central Laundry. At approximately the same time as the KPMG study, three issues occurred which have had impact on the working relationship between the City of Toronto and K-Bro. First, K-Bro was sold to the Berkshire Group of Boston (BG). Second, K-Bro purchased another major laundry facility in the City of Toronto and started to build the volume of laundry processed at this directly-owned plant. Last, K-Bro began to express increased concern regarding their profit margins at the City's Central Laundry, and made a number of requests to staff to revise the current financial arrangements, in order to increase their financial return.

The Central Laundry currently processes 10 million pounds of laundry per year for the Homes for the Aged. In addition, the Central Laundry processes laundry for Hostels (0.5 million pounds), Children's Services (200,000 pounds), and Ambulance Services (250,000 pounds). Each of these City-owned operations has a purchase order agreement with K-Bro for the processing of their volume.

Comments and/or Discussion:

Over the past year, Homes for the Aged Division staff have been attempting to resolve a number of operating and financial issues with K-Bro, within the terms of the current agreement. Unfortunately, these discussions have not been successful, and on July 3, 1998, K-Bro issued the City of Toronto with notice of termination. Their ninety (90) day notice will become effective on October 1, 1998. In further correspondence on July 14, 1998, K-Bro reaffirmed their notice of termination, but indicated that they would be willing to delay termination until the end of 1998, if the City of Toronto agreed to revise/improve the current terms and conditions.

Given the essential nature, scope, and complexity of laundry service needs for the Homes for the Aged and other City operations, it is essential to maintain uninterrupted daily laundry service. To this end, staff are recommending that Council provide authority to take immediate action to secure the services of an alternative qualified service provider, prior to the October 1, 1998, termination date. However, both a short-term and long-term strategy are needed. The short-term strategy will be to retain the services of an alternative full-service launderer, to replicate the scope of service provided by K-Bro. Once the selected operator is identified by staff, staff are prepared to work with the City Solicitor to quickly execute an agreement for the period of time up to December 31, 1998, with a provision to extend the agreement on an every-three-months basis, until such time as a permanent solution is made with respect to the Central Laundry through the RFP process.

In the long term, staff believe that it is wise to test the marketplace and determine the laundry model (both ownership and service provision) that provides the best benefit to the City of Toronto.

Conclusions:

Since K-Bro served notice of termination on July 3, 1998, this ninety (90) day notice of termination will come into effect on October 1, 1998. Given the urgency of the situation, staff believe that the best course of action at this time is to identify and secure the services of an alternative qualified launderer prior to the actual termination date.

The ten municipal Homes for the Aged produce a substantial volume of laundry for processing, and they are therefore a major client for any service provider. However, the Homes' laundering needs are quite complex. Therefore, in order to avoid a crisis, it is necessary to make contingency plans as soon as is possible, in order to ensure uninterrupted service.

In addition to making provision for the short-term continuance of laundering services, staff believe that a long-term strategy is also needed and recommend that a RFP be issued to the marketplace. This will allow staff to assess which laundry model will provide the best benefit to the City of Toronto with respect to both ownership and service provision. Staff are asking City of Toronto Council to provide authority to initiate work on both of these initiatives on a concurrent basis.

Contact Name:

Sandra Pitters,

General Manager, Homes for the Aged Division

Tel: 392-8907/Fax: 392-4180

Carl Hunter,

Director, Support Services, Homes for the Aged Division

Tel: 392-8912/Fax: 392-4180

The Community and Neighbourhood Services Committee reports for the information of Council, also having had before it a confidential report (July 15, 1998) from the Commissioner of Community and Neighbourhood Services respecting the future provision of laundry services.