The $250,000+ Laundry Deal

Earlier this year, the Board voted to continue outsourcing our laundry facilities to a third party vendor for ten more years. Here are the facts and numbers. You decide if the Board acted in your best interests, or to make the books look better and save maintenance staff a bit of work.

For the first 20+ years of our cooperative, we owned and maintained the 21 washers and 21 dryers with two maintenance staff. Shareowners annually did 27,000 washes and 27,000 dryers. At $.50 per load, the cooperative grossed $27,000 per year. There was some maintenance, not a lot, and machines were replaced on a schedule so capital expenditures were managed. But then, under Halkeen management, we got in a huge financial mess. All the machines were at end-of-life and there was no budget to replace them.

So the cooperative outsourced the equipment ten years ago. The vendor put in new machines and water heaters and also paid the Cooperative about $30,000 as a "signing bonus" for our business. (In my line of work that would be a kickback, but all the laundry companies do it, so there must be some legal exclusion.) Costs more than doubled from $.50 to $1.25 (average), plus the new front loading machines held 1/3 to 1/4 less. Shareowner usage also dropped, from 54,000 down to 44,000 loads per year. Revenues jumped to $55,000 per year, which was split 50/50 with the vendor. The vendor gross revenues were $27,500 or so per year, well over $250,000 on the life of the contract.

End result? Cooperative revenues stayed flat but the cost to Shareowners more than doubled. It was a necessary evil, with little choice considering the mess the Board and Hallkeen got us into.

This year the laundry contract has expired. And again, the Board had made no provisions to budget for new equipment to facilitate a return to self management. And instead of buying all new equipment ourselves (Home Depot bid under $33,000 to provide all 42 machines), the cooperative has signed a new 10-year deal with the existing vendor with a price increase of $ .25 for each machine midway through the contract.

A few other notes:

All agreed the new machines will be more reliable than older equipment, thus reducing the demands for staff maintenance calls if we returned to self-performing the laundry service. Even at the current end-of-life of the current 10-year-old machines, the vendor was getting only one service call per week, quite often a false alarm because people still overload the smaller capacity machines. Optionally, maintenance could be contracted out locally on a per-call bases to a company like Poirier. For that your Board has decided to spend $250,000 of your money with the contractor.

It was not revealed until after the Board approved their bid that the banks will be taking a percentage cut for each credit/debit card transaction. The Board did not know what that percentage will be and how it will be paid. Did our lawyer miss it as well?

The vendor is switching to a card system instead of coins. Some will like it, others won't. But the important thing is they will no longer be coming each week to make their collections and inspect the equipment, so their expenses will drop considerably while their 50% take remains unchanged. And they did not provide a comprehensive maintenance schedule as required in the RFP, which is a concern.

The vendor is paying the Cooperative another "signing bonus" around $20,000 - $25,000 which will be earmarked for laundry room refurbishing. Like the laundry contract, this a fee paid by Shareowners, not the Cooperative.