Military food contracts under fire; Defence employees' union questions legality of replacing canteens with fast-food outlets

Such fast-food outlets as Tim Hortons, Pizza Pizza and Subway are quietly popping up on military bases across the country in sole-source deals that "hand them a captive market," says the Union of National Defence Employees.

It wants to challenge the legality of replacing base restaurants, canteens and cafeterias operated by the Canadian Forces Exchange System -- known as CANEX -- with food outlets and franchises without seeking bids from other suppliers.

"What bothers us is these private sector companies are selling on crown property to provide services to a captive market, the military troops and their families, without being publicly tendered. It raises the question of how many small businesses would love to put in a bid for such a captive market or say KFC or McDonald's for that matter," said UNDE President John MacLennan who intends to ask Auditor General Sheila Fraser to investigate.

"We're challenging these contracts. How can one arm of a department be exempt from contracting rules, the Federal Accountability Act, and fair competition? At the end of the day, they all answer to the chief of defence staff who is a public servant."

But CANEX, which runs all retail and food services on bases, wings and units, is exempt from the contracting rules that govern National Defence and all other federal departments.

CANEX is part of the Canadian Forces Personnel Support Agency, which oversees all "non-public property" and is not part of the department. This arms-length agency has 5,000 employees whose mandate is to take care of the "morale and welfare" of military personnel and their families. It answers to a board of directors and comes under the authority of the Chief of Defence Gen. Rick Hillier.

CANEX can use federal property for its stores and restaurants and it keeps its revenues to pump into community programs on bases, from babysitting and child care to recreational and sports programs.

But Mr. McLennan worries hand-picking franchises and operators will affect the "quality of life" on bases if these fast-food chains are eating into the share of revenues that go back to the bases for community programs. He said many CANEX employees were spouses and children of military personnel and they now have to work for franchises where they make less money than when they worked for CANEX-operated restaurants.

But Gerry Mahon, the president of CANEX, said CANEX's food operations are generating record revenues for bases. He wouldn't reveal those numbers, but said CANEX directly contributed $5 million to base programs last year. At the same time, the number of food outlets have increased and the quality of service improved.

CANEX operates 41 retail outlets, from grocery to convenience stores, in addition to the 250 concession agreements it has with retailers, from fast food outlets to tailors and hairdressers.

He said CANEX does evaluations of what the base needs and wants and selects services and retailers that would be found in similar sized "progressive" communities. Tim Hortons is popular among the military and opened its first outlet on a base more than 13 years ago.

There are now nine Tim Hortons on bases, in addition to one at the Kandahar base in Afghanistan. CANEX used to operate the Tim Hortons in Petawawa, which was recently closed and replaced with a larger drive-thru owned by a local franchisee.

He argued CANEX wouldn't be able to get the services it wants if these concession contracts were thrown open to competition.

"We aren't talking about taxpayers' money. This is money generated by the people (on bases) and we're returning that money to deliver day-to-day morale and welfare programs for them across Canada."

He said CANEX is developing a national food services program so the fare, service and quality are consistent whether stationed in Halifax or Esquimault. He said the old model, which relied on Canex operated or locally-run stores, isn't "sustainable" and wasn't generating the money to provide the services needed on bases.

"These franchises are the most effective way to deal with changing demands and expectations in our communities. On our own we couldn't do it and replicate those services," said Mr. Mahon.

He said CANEX operates like any developer who wants to fill a shopping mall with the mix of tenants that will generate the most revenue and traffic for other stores. Tim Hortons, Subway and Pizza Pizza pay CANEX going market rates to set up shop on bases and that money is plowed back into recreational and other community programs at bases.

But Mr. McLennan doesn't buy it. He questions how CANEX could be making more money for community programs when it has to share profits with these franchises and operators that used to go back to the bases.

CANEX has negotiated a variety of different concession agreements for its food outlets. Some are operated by Canex, some by franchisees and others are run by third party operators like Aramark, a large international food and hospitality service manager. Mr. Mahon noted that CANEX sought four requests for proposals when it hired Aramark.

Alan Williams, a procurement expert and former assistant deputy minister at National Defence who was responsible for procurement, said CANEX has to ensure its deals are beyond reproach so they don't face such criticism about its contracting.

"The fact they are not bound by the legislative and regulatory framework that surrounds all other federal procurement does not exempt them from doing business in a prudent and cost-effective manner," said Mr. Williams.

The union, however, isn't quibbling about fast-food fare on bases, saying military personnel can make their own food choices. Mr. Mahon said the concession agreements also include provisions for the restaurants to offer healthy choices, no trans-fats and environmentally-friendly operations.