In a contract dated October 9, 2003, the Department of Corrections outsourced Statewide canteen operations to a private contractor (Keefe Commissary Network).  The contract is expected to generate annual revenues of approximately $21 million for the Department.  As part of our operational audit of the Department for the period July 2002 through February 2004 and selected actions taken through July 25, 2004, we reviewed the process for outsourcing canteen operations (including needs assessment, contractor selection, negotiation, and contract implementation).  Our audit disclosed the following:

•  Florida Statutes do not contain competitive procurement guidelines for revenue‑generating contracts.  As the Statewide canteen operations contract is revenue generating, the Department concluded that it was not a purchase contemplated by law and, consequently, did not provide notice of the contract opportunity to all interested parties.  The Legislature should consider revising the Statutes to include provisions for the competitive procurement of revenue‑generating contracts.  Such provisions should require advertisement and proper notice of the contract opportunity to all interested parties.

•  Prior to selecting a provider for Statewide canteen operations, the Department requested a best and final offer from three vendors.  Along with the request, the Department provided analyses of net earnings from Department canteen operations for the 2002‑03 fiscal year.  The Department analyses were generally supported by Department accounting records and estimates of projected data were reasonable.  However, certain revenue and expenditure items included in the Department analyses (such as vending machine commissions; canteen operating salaries; and some materials, supplies, and equipment costs) were not reflected in the contract with Keefe Commissary Network.

• Since the effective date of the Statewide canteen operations contract, the Department has executed three amendments.  Although some of these amendments may potentially increase Department costs for canteen operations (thereby reducing the net proceeds from the original Statewide canteen operations contract), a cost analysis or other written justification for each contract change was not prepared by Department staff prior to the execution of each amendment.

• An amendment to the Statewide canteen operations contract provides that all hardware and proprietary software installed in the canteens at Department facilities remains the exclusive property of Keefe Commissary Network.  However, as there is no provision for a period of transition from the Keefe Commissary Network system, canteen operations may be disrupted in the event Keefe Commissary Network discontinues canteen operations.

• Department records did not document that criminal history records checks of all Keefe Commissary Network employees assigned to the contract were appropriately conducted prior to those employees beginning work in the canteens. 

The Secretary's written response to the audit findings and recommendations is included in this report filed on the Auditor General Web site.