May 19, 1999
To:Community Services Committee
From:Commissioner, Community and Neighbourhood Services
Subject:Future Provision of Laundry Services
To explain the outcome of the cost benefit analysis undertaken by staff, following City Council adoption of Clause No.16
of Report No.7 of the Community and Neighbourhood Services Committee (July 29, 1998), with respect to options for the
future provision of laundry services to the Homes for the Aged, and to gain City Council authority to enter into negotiations
for the sale of the Central Laundry facility.
To advise City Council regarding the recommended optimal approaches for laundering both linens and residents' personal
clothing, and to advise Council regarding the anticipated time frame for reporting back regarding cost and service
implications related to re-introducing a system of in-house personal laundry.
Funding Sources, Financial Implications and Impact Statement:
Following the May 1984 Metropolitan Toronto Council decision to establish a Homes for the Aged Central Laundry
through a joint venture with K-Bro Linen Systems Inc. (K-Bro), Council directed staff to establish a Homes for the Aged
Central Laundry Reserve Fund. This fund was established to pay for all required laundry capital upgrades. The Central
Laundry Reserve Fund has been self-supporting over the years, as the laundering agreement established between the Homes
for the Aged and K-Bro required K-Bro to pay the Homes for the Aged a royalty from all of the other K-Bro customers
whose laundry was processed at the Central Laundry facility. These royalty payments were regularly deposited to the
Central Laundry Reserve Fund. As of May 19, 1999, the fund had a balance of $1.5 million.
In September 1998, K-Bro terminated its agreement with the City of Toronto. As a result of the circumstances surrounding
the termination, the parties have exchanged correspondence identifying areas of financial dispute. In addition, when K-Bro
terminated the agreement, their unions filed complaints with the Ontario Labour Relations Board. The City of Toronto is a
respondent to these proceedings. The Board has adjourned the hearings until December 1999. The Legal Division is
representing the City in these proceedings and staff of the Legal Division have been consulted in the preparation of this
report. Should the City be found to have any liability with respect to either the outstanding financial issues between itself
and K-Bro, or any liability as a result of an Ontario Labour Relations Board ruling, these costs will be paid for from the
Central Laundry Reserve Fund.
Last, on September 25, 1996, Council authorized the Homes for the Aged to make future allocations from the Central
Laundry Reserve Fund to any laundry-related operating or capital cost within the Homes for the Aged. If City Council
directs staff to negotiate the sale of the Central Laundry facility and authorizes the re-introduction of in-house personal
laundry, there will be new operating and capital costs associated with establishing the in-house laundry facilities. The funds
acquired from the sale of the central laundry, combined with the existing $1.5 million in the Central Laundry Reserve Fund
can be earmarked to deal with these expenditures. In this manner, there will be no immediate impact on the net cost
associated with the Homes' operation.
Staff from the Finance Department have been consulted in the preparation of this report and are supportive of the approach
and assessed financial implications.
It is recommended that:
(1)staff be directed to enter into negotiations for the sale of the Central Laundry facility to Lakeshore Laundry & Linen
Concept Ltd., and to report back to City Council on the outcome of the negotiations;
(2)the negotiations and sale be undertaken and completed by a staff team, with representation from Homes for the Aged,
Legal, and Corporate Services;
(3)the proceeds from the sale be deposited to the Central Laundry Reserve Fund and held in this account until staff report
back to City Council regarding the costs associated with re-introducing in-house personal laundry facilities in the nine
Homes for the Aged that do not presently have these facilities;
(4)staff report back to City Council, through the Community Services Committee, by the end of 1999, outlining the
financial and service impacts of laundering residents' personal clothing in each of the 10 Homes;
(5)subject to the approval of City Council to establish in-house personal laundry facilities, the Central Laundry Reserve
Fund be used as a source of funds for the start-up costs associated with the in-house laundries; and
(6) the appropriate City Officials be authorized and directed to take the necessary action to give effect thereto.
On May 25, 1984, Metropolitan Toronto 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 795Middlefield Road.
As part of the initial agreement with K-Bro, Metro established a Homes for the Aged Central Laundry Reserve Fund. K-Bro
was allowed to acquire other laundry customers and process their laundry volume out of the Middlefield Road plant. In
exchange for this right, K-Bro was required to pay a royalty to the Homes for the Aged, and these royalty payments were
deposited to the Central Laundry Reserve Fund. In turn, the Reserve was used to fund all capital upgrades and equipment
repairs and purchases, ensuring that no net cost was incurred by Metro (City) related to the day-to-day operation of the
Central Laundry facility. As of May 19, 1999, the Central Laundry Reserve Fund had a balance of $1.5 million.
In 1996, K-Bro was sold to the Berkshire Group of Boston (BG). Around the same time, K-Bro purchased a major laundry
facility, also located within the City of Toronto. As outlined in previous staff reports, the working relationship between
K-Bro and Homes for the Aged deteriorated in the time period following these K-Bro business decisions, and K-Bro clearly
communicated to Homes for the Aged that they were desirous of increased profit at the Middlefield Road plant, as a
prerequisite of continuing business at that location. Throughout 1997 and early 1998, the Division continued discussions
with K-Bro regarding the central laundry operations. However, these discussions were not successful, and on July 3, 1998,
K-Bro issued the City of Toronto with notice of termination with an effective date of September 30, 1998.
On July 29, 1998, in response to the notice of termination served by K-Bro, and through adoption of Clause No.16 of
Report No.7 of the Community and Neighbourhood Services Committee, City Council directed the Homes for the Aged to:
(1)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
(2)enter into an agreement with the selected alternative laundry operator effective October1, 1998;
(3)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 served by the Central
(4)report back to City 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
All of these directives have been actioned, and this report provides the required further information for further decision
With respect to Recommendations Nos. 1 and 2, Lakeshore Laundry & Linen Concept Ltd. (Lakeshore) assumed operation
of the laundry service, under an interim agreement, effective October 1, 1998. The transfer to Lakeshore was extremely
well-managed and transition problems generally encountered in such a change were minor in nature, and were mitigated by
regular Lakeshore staff problem-solving visits to the various Homes. In general, the service from the interim operator has
been very good.
As directed in Recommendation No. 3, staff issued a Request for Proposals (RFP) with respect to the future ownership of
the Central Laundry and the future provision of laundry services to the City's operations. This RFP was issued on January
29, 1999. The submissions have now been evaluated and the process used is the subject of this report.
Last, ancillary to implementing strategies directly related to managing the issues that arose over time regarding services
provided under the laundering agreement, the Homes for the Aged Division spent considerable time planning and
implementing a multi-year plan to improve efficiency and effectiveness. On May 8, 1996, through adoption of Clause No.1
of Report No.5 of the Human Services Committee, Metropolitan Toronto Council endorsed a report entitled "Discussion
Paper Respecting the Future Direction of the Municipal Homes for the Aged". This report identified a number of possible
strategic directions to improve the Division's effectiveness. One of these potential strategies was the possible sale of the
Central Laundry facility. The report identified that laundry of linens was not a core business of the Homes for the Aged, and
suggested that there might be merit in exploring the potential to sell off the physical asset and contract for the supply of
laundry services. Although no definitive action was taken on the direction at that time, this report explores this option.
Comments and/or Discussion:
Following City Council authority to develop and issue a Request for Proposals (RFP) with respect to the longer term
direction of the Central Laundry (including options related to both ownership of the Central Laundry and the provision of
laundering service), the Homes for the Aged Division used a Request for Proposals process to select and secure the services
of a management consulting firm to assist in developing the Central Laundry RFP. As a result of this process, the Division
secured the services of Deloitte Touche Tomatsu (Deloitte) as its public/private partnership advisor to assist in the design,
development, and evaluation of a Request for Proposal process to determine viable alternatives for the future of its Central
The Homes for the Aged Division established a process team, with representation from Homes for the Aged, Purchasing,
and Deloitte, to scope out the content and approach of the RFP and to develop a process and criteria for evaluation and
selection. The objectives of the RFP established by the team were to meet the complex laundering service needs of the
Homes for the Aged and their residents and to find a solution that provided maximum financial and economic benefit to the
City and the Community and Neighbourhood Services Department.
To ensure the integrity of the RFP process, proponents were advised to submit any questions that might arise out of their
preparatory work directly to Deloitte (in writing). Deloitte responded to questions on the City's behalf. In this way, staff
were able to guarantee proponents of objectivity and equity in terms of access to and interpretation of information.
The RFP was issued by the City's Purchasing Division on January 29, 1999, to a total of 16 companies who had previously
advised the City of their interest. In addition, the RFP was advertised in the Toronto Star, the Globe and Mail, the Daily
Commercial News, and on the City's web page on the Internet. The RFP generated considerable interest in Ontario and the
U.S. Ten potential bidders attended the mandatory site visits and three companies (one U.S. and two Canadian) ultimately
met the full requirements of the RFP process and made formal submissions.
Deloitte reviewed each submission, analyzed the content, and submitted their findings to the project team. Utilizing
Deloitte's expertise, the team considered the strengths and weaknesses of the individual submissions, and the risks and
benefits of the various approaches suggested by the bidders. Factors considered in determining the recommended course of
(iii)proponent's capacity, and
(iv)evidence of ability to provide quality of service on an ongoing basis.
The following provides a high level analysis of the five bids received from the three proponents.
(a)Bidder "A" is an American based organization, with considerable experience in operating and managing similar
commercial laundry facilities. They did not, however, provide any site-specific or project-specific information nor reference
any experience in Canada.
They proposed to operate the facility under a five-year management agreement, with the following key financial
components: City maintains 100 percent ownership; a fixed cost annual management fee and an additional annual operating
expense to hire two on-site managers; a "projected" cost per pound for clean laundry, with a caveat to adjust the rate, up or
down, at the start of the agreement based on actual wage and utilities costs. Although Bidder "A" anticipated reducing its
cost to the City following start up and operating experience, there was no guarantee that the costs would be less than those
cited in the proposal.
(b)Bidder "B" is the Canadian arm of an American firm. The Bidder claims to be the largest health care support services
provider in Canada. They have hands-on experience in operating commercial health care laundry facilities. Bidder "B"
offered a cost-plus-fee approach on the following terms: a five-year term; a year one management fee; price per pound
charged to the City to be based on a profit/loss operating budget to be agreed upon, with profits from any non-City accounts
divided with the City on a 75:25 basis. Although they were unable to identify an accurate price per pound, they provided an
estimated range of the price per pound.
(c)Bidder "C" submitted three separate proposals to the City; the first outlined their proposal for a management
agreement; the second outlined their proposal for a joint venture; and the third outlined their proposal for purchase of the
physical asset and subsequent contract to process the laundry generated in the Homes.
Bidder "C" is a Canadian firm, established in 1998, who took over the operations of one of the largest commercial laundry
facilities in North America (in operation for more than 30 years). The key employees of Bidder "C" were previously
employed by the commercial operation that they took over, and therefore have experience in operating it.
Bidder "C" also was the selected interim operator for the Central Laundry, and has been operating the Central Laundry
since October 1998.
In terms of its bid for a management agreement, Bidder "C" offered either a five-year or a ten-year contract; the price per
pound quoted varied marginally between the 5-year and 10-year agreement. The quoted 10-year price was lower than both
Bidders "A" and "B"; the 5-year price was marginally higher than Bidder "A" and lower than Bidder "B". They provided a
separate price for the laundering of residents' personal clothing. The management agreement proposed also provided for
profit sharing of revenue from outside accounts, in the amount of 100percent of the profits generated on the first 5 million
pounds above an anticipated City volume of 10 million pounds, at a minimum of 10 cents per pound. Thereafter, the profits
would be shared equally. There is no guaranteed volume of business or rate.
With respect to the joint venture bid, the City would be in a position to receive its proportional share in Bidder "C"'s
profits and dividends, based on their percentage of equity ownership.
In their third bid, Bidder "C" offered to purchase all of the City's laundry assets; in return, they are asking for a 5- or
10-year laundering contract. Their bid prices for a laundering contract are the same as those quoted in the management
agreement option. In terms of the purchase of the assets, Bidder "C" has made an initial offer, setting out different purchase
prices for a purchase with a 5-year contract and a purchase with a 10-year contract.
Evaluation of Proponents and Bids:
Bidders "A" and "B" are not being recommended by staff. The analysis completed by Deloitte provided evidence that costs
could not be accurately estimated up front and therefore the Division would have to include contingency in its operating
budget in order to guard against possible price adjustments. In addition, although the City would receive royalties for all
non-City business, if the bidders did not generate the business, the City would not have a source of ongoing income to
offset the costs of capital equipment replacement, repairs and maintenance of the plant.
The experience of the Division to date is that there is considerable Homes for the Aged staff time invested in supporting a
joint venture and/or management agreement. As identified in the Division's strategic directions exercise, laundry should not
be a core business of the Division and staff time would be better utilized in directly ensuring service for residents.
For the same reasons, Bidder "C"'s bids for a management agreement or joint venture are not recommended. In particular,
staff have concerns about the joint venture proposal, as it proposes that the City become a shareholder in a private sector
However, Bidder "C"'s offer to purchase the laundry assets is an option recommended by staff, based on the merits of the
First, Bidder "C" is recommended as service provider, based on their significant experience in long term care laundry
service. They offer a quality assurance program and approach with a strong customer service focus, which encompasses all
aspects of their laundry service. They have provided a strong contingency plan, including the provision of processing the
Homes' volume at their other plant located in Toronto, should there ever be an interruption of essential utilities, etc. at the
Middlefield Road location. In this manner, their plan ensures the uninterrupted laundry service to the Homes. An added
value of Bidder "C"'s bid is that, if selected, it would present the least possible disruption to residents and the Homes, as
Bidder "C" is currently operating out of the Middlefield Road location as the Homes' interim launderer.
Second, the selling price would provide an infusion of capital to the Homes that could be used to improve the provision of
personal laundry service to residents, by re-introducing in-house laundry facilities in each of the nine Homes currently
without these facilities.
By way of background, only one of the 10 Homes currently has the capacity to do personal laundry on site. Although each
of the operators of the Central Laundry has tried hard to meet the needs for personal laundry service, this is the area of
highest dissatisfaction amongst residents and families. There are regular complaints about personal laundry, ranging from
concerns related to lost items, shrinkage, and lengthy turnaround time. Some of these complaints are simply a by-product of
the volumes being processed in an off-site location and the large commercial equipment being used, rather than a result of
operator quality control issues.
In resident and family satisfaction surveys, the levels of satisfaction between the Home in which personals are done
in-house and the other nine Homes in which the personals are sent out are quite different. For example, in the Home where
personals are done in-house, over 73 percent of residents cite a high level of satisfaction (vs. 54 percent in other Homes);
family satisfaction in the Home where personals are done on site is regularly above 75 percent (vs. 68 percent in other
Homes). For these reasons, the Division would like to explore the feasibility of setting up in-house personal laundry
facilities in each of the remaining nine Homes, using a portion of the proceeds from the sale to fund this initiative. A full
cost benefit analysis will be submitted to City Council at a later date, prior to taking any definitive action.
The preferred service provider is Lakeshore Laundry & Linen Concept Ltd. This recommendation is based on their
performance history, their strong customer service orientation, and the fact that they have the capacity to provide
uninterrupted service to residents through their contingency plan.
Their proposal for the outright purchase of the building, land and assets presents the best value for the Division and the
City. An appraisal was completed by the City's Real Estate Division in early May 1999, which provides evidence that the
offered purchase price from Lakeshore is fair and reasonable. Staff recommend negotiating with Lakeshore on the terms of
their initial offer, with the results of these negotiations being reported back to City Council.
If negotiations for the sale of the assets are unsuccessful, the next most viable option would be a management agreement
with Lakeshore. Staff will report back to City Council if this direction is required, as a result of unsuccessful negotiations.
The one remaining concern that the Division has regarding the future of laundry service is the cost identified for laundering
residents' personal clothing. The price quoted by Lakeshore for laundering these items appears high. Personal laundry is the
highest area of dissatisfaction amongst residents and families. One of the Homes houses and staffs its own in-house
personal laundry. In this Home, satisfaction is higher and laundry costs are lower. However, it is a Home with fairly light
resident care needs, and the Division needs time to research and analyze projected costs to re-introduce in-house laundry
facilities in the remaining nine Homes.
Staff are of the opinion that it is a preferred option, from both a cost and quality perspective, to launder the personal
clothing in-house. In order to determine and better understand the costs and benefits of this approach, the Homes propose to
conduct an in-depth study incorporating all financial and quality aspects of laundering personal clothing and to report back
to City Council with the results.
Sandra Pitters, General Manager, Homes for the Aged Division
Tel: 392-8907; Fax: 392-4180; E-mail: email@example.com
Carl Hunter, Director, Support Services, Homes for the Aged Division
Tel: 392-8912; Fax: 392-4180; E-mail: firstname.lastname@example.org
General Manager, Homes for the Aged Division
Commissioner, Community and Neighbourhood Services