Outsourcing, in plain language

Terms worth knowing

• Contracts and models

  • Self-operated (self-op) — An organization runs services with its own employees and resources, retaining full control and full responsibility for performance and costs.
  • First-time outsourcing (FTO) — The transition where an organization, such as a university, hospital, or corporation, replaces its self-operated, in-house food or facilities services with an external corporate partner for the first time. 
  • Management-fee contract — The organization retains financial responsibility while paying a fee for leadership, expertise, and operational management. 
  • P&L (at-risk) contract — The service provider assumes financial responsibility for operating the service and is accountable for agreed-upon performance outcomes. 
  • Commission / concession — A provider operates a business on-site and shares a portion of generated revenue with the organization.

   

• Money and economics

  • Open-book — A financial model that provides visibility into costs, labor, purchasing, and rebates to support transparency and accountability.
  • Pro forma — A financial projection estimating future performance under a proposed operating model.
  • Subsidy — The amount an organization contributes to cover the gap between operating costs and revenue.
  • Signing bonus / capital — Upfront funding committed to support facility improvements, equipment, technology, or other strategic priorities.
  • Purchasing power / rebates — Cost advantages gained through larger purchasing volumes and supplier agreements.
  • GPO (group purchasing organization) — An organization that combines purchasing volume across multiple entities to secure better pricing and supplier terms.
  • VDA (volume discount allowance) — A manufacturer rebate or purchasing incentive earned based on volume commitments.
  • Guarantee — A formal commitment tied to specific financial, operational, or service outcomes.
  • Subsidy cap / guarantee — A defined limit on financial exposure that creates greater budget predictability and reduces downside risk.

• People and transition

  • Mobilization / transition — The process of moving from one operating model to another while minimizing disruption to employees and operations.
  • Retention — Efforts to keep employees engaged and employed during periods of change.