TECHNICAL ASSISTANCE NOTE?

SUBJECT:
April 2006 Procurement Questions and Answers

TECHNICAL ASSISTANCE NOTE

No. 2007-01

School Business Services

Food and Nutrition Management

Contact: David Whetstone

Department of Education

John L. Winn,

ommissioner

April 2006 Procurement Questions and Answers

(850) 245-9332

SC 205-9332

DATE:

July 2

, 2006

TO:

Sponsors of the National School Lunch And School Breakfast Programs

FROM:

Diane Santoro, Administrator

Food and Nutrition Management

SUBJECT:

April 2006 Procurement Questions and Answers

This document supports the mission of Florida’s K-20 education system to increase the proficiency of

all students within one seamless, efficient system. Through this and other modes of assistance, the

office of Food and Nutrition Management supports the State Board of Education’s goal to deliver

quality, efficient services (Section 1008.31(3), Florida Statutes).

The United States Department of Agriculture, Food and Nutrition Service Division, recently issued the

attached questions and answers, on the topic of procurement in the Child Nutrition Programs,

particularly the National School Lunch and School Breakfast Programs. If you have questions,

contact David Whetstone at (800) 504-6609 or david.whetstone@fldoe.org.

Attachment

DS/iw

DIANE SANTORO, ADMINISTRATOR

FOOD AND NUTRITION MANAGEMENT

325 W. GAINES STREET • SUITE 1044 • TALLAHASSEE, FL 32399-0400 • (800) 504-6609 • www.fldoe.org

Suncom 205-0460 • FAX (850) 245-7855• diane.santoro@fldoe.org

United States

Department of

Agriculture

Memo Code:

SUBJECT

: April 2006 Procurement Questions

: State Directors

Child Nutrition Programs

All States

We continue to receive questions regarding procurements in the Child Nutrition

Programs, particularly in the National School Lunch and School Breakfast Programs.

Attached are the most recently received questions and answers. As in the past, please

share these questions and answers with your school food authorities. If you have any

questions, please contact your regional office.

STANLEY C. GARNETT

Director

for

Child Nutrition Division

Attachment

cc: Lael Lubing, GMD

Rachel Bishop, OGC

Question #1: We often see guaranteed returns in contracts between school food

authorities (SFAs) and food service management companies (FSMCs) and would like to

know what they are.

Answer: When dealing with procurement contracts involving the National School Lunch

and Breakfast Programs there are two basic variations of guaranteed returns. One

involves the FSMC guaranteeing a return to the nonprofit school food service account at

the end of the school year if certain agreed upon conditions in the contract are met. For

example, if conditions x, y, and z are met the FSMC agrees at the end of the year to

increase the nonprofit school food service account by an amount specified in the contract.

A second type involves an agreement between the FSMC and the SFA that if the

predetermined return amount is not met at the end of the school year, the FSMC will

cover the amount by reducing its management fee, up to the amount of the fee. As with

all terms and conditions, the guaranteed return provision must be specified in both the

solicitation and contract documents.

Question #2: What if the management fee doesn’t cover the predetermined return

amount? This is a possibility if at the end of the school year the loss exceeds the agreed

upon predetermined return amount.

Answer: This is a potential problem which is why the SFA should review the guaranteed

return provision carefully. If the guaranteed return provision requires the FSMC to

provide a guarantee that they will repay an amount up to the agreed upon management

fee, but not to exceed the fee if the terms and conditions of the agreement are not met,

then the SFA is essentially agreeing to limit the contractor’s liability. SFAs should

consider that any agreement to limit the contractor’s liability places the nonprofit school

food service account at great risk should a substantial to catastrophic loss be experienced

that school year.

Question #3: If the SFA enters into a contract containing such a guaranteed return, does

this mean they do not have to pay the FSMC for any losses incurred in the prior year?

Answer: No. It simply means they cannot pay for them out of the nonprofit school food

service account. If the SFA entered into a contract that included a guaranteed return

provision requiring that any losses incurred by the contractor in one year would have to

be paid by the SFA in the subsequent year, then the SFA would have to pay with funds

other than the nonprofit school food service account funds.

Question #4: When can an SFA pay bonuses?

Answer: Generally, bonuses paid to employees are allowable costs and nonprofit school

food service account funds may be used to pay the costs of bonuses for efficient

performance or as a result of a suggestion or safety improvement. However, the bonuses

can be paid to employees only as long as the overall compensation is determined to be

reasonable and such costs are paid or accrued pursuant to a formally established labor

agreement. Thus, this generally requires that such payments be a standard personnel

practice.

Question #5: A contractor is telling an SFA that they have to cover the costs of bonuses

the contractor pays to its own employees. Can the SFA pay the bonuses for these

employees?

Answer: Generally, no. Bonuses go to the SFA employees and not to their contractors.

Neither the contractor nor its employees are employees of the SFA. One exception might

entail an SFA paying for such bonuses if in its bid documents the SFA had explicitly

included as a cost an FSMC’s total compensation package for its employees that included

bonuses (i.e., total compensation includes rate plus incentives). SFAs should be aware

that if language does not exist in the Request for Proposal and in subsequent contracts to

allow for such costs to be paid, then the SFA does not have to cover these costs. SFAs

should be aware that the payment of such costs should be consistent with standard

personnel practices. Also, such a provision should be considered very carefully as the

incentive for a contractor to perform well should be inherent in the awarding of the

contract and not based on bonuses at the end of the contract period.

Question #6: In light of the disaster stemming from Hurricanes Katrina and Rita, what

would USDA consider an appropriate length of time available to conduct an emergency

procurement?

Answer: During a disaster situation noncompetitive contracts may be awarded only

when a public exigency or emergency exists that will not permit a delay in contracting

that would result from a competitive solicitation. Our recommendation is that the SFA

research its State’s requirements on what constitutes an emergency situation and whether

the provision discusses timeframes. Clearly these would qualify as emergency situations

but not all disasters are clear. The State has to make the determination as to whether the

emergency condition exists in the entire State or certain locales. The SFA must also

check with the State to determine the length of the emergency situation so that any

noncompetitive contracts comply with the timeframes associated with the designated

emergency situation.

Question #7: If a State has a provision in place that allows an SFA to use a

noncompetitive contract due to an emergency situation such as the situations created by

the hurricanes, does the SFA need FNS approval as well?

Answer: No. As noted above, as long as an SFA has received approval from its

respective State regarding emergency designation they do not need FNS approval.

Question #8: An SFA would like to purchase milk in plastic packaging (commonly

called chugs) instead of the traditional paperboard cartons. If, however, the SFA is

unaware whether it can afford the higher cost of the plastic packaging how can it award

the contract to a supplier of the milk in plastic packaging when the supplier of the

paperboard carton submitted a cheaper bid price?

Answer: As long as the SFA is not prohibited by State and local procurement

requirements from using options within its bid documents, then it can conduct a

solicitation that will allow for pricing on each type of carton individually. To accomplish

this, the SFA’s bid document should: 1) include the specifications for each type of

product (i.e., plastic packaging versus traditional paperboard cartons); 2) provide explicit

information about how bids for each option will be evaluated to determine

responsiveness and pricing and the basis for contract award; 3) make clear that in the

evaluation of the bids, responsiveness and pricing will be compared only within each

option (i.e., the bids submitted for plastic packaging are only compared to each other); or

across all of the options (i.e., price of plastic packaging compared to paperboard

packaging); and 4) ensure that the award criteria is drafted to permit the SFA to award

the bid to the lowest priced responsible responsive bidder for either of the options. Also,

to maximize competition, potential bidders should be encouraged to submit bids for all of

the options offered.

Question #9: How can SFAs participating in Cooperative Buying Groups (CBGs)

provide more than one supplier on the purchasing list so that they are not limited in terms

of the items they can purchase?

Answer: By pooling their purchasing power to acquire goods and services, SFAs hope to

lower their operating costs, better respond to competition, and improve overall

performance. Often, however, CBGs believe that their ability to purchase in large

quantities, due to their pooling of purchasing power, limits them to negotiating a volume

purchase with only one food vendor to achieve the best price. This does not have to be

the case. A CBG can identify in its solicitation document that it will seek multiple

suppliers. The CBG would test the products of the responding vendors using an

evaluation system that assesses and scores the products based on taste, price, quality, and

quantity. The CBG would set a percentage and those vendors whose products score at or

beyond the set percentage would pre-qualify. The CBG would then ask for best and

final prices of those that have pre-qualified and allow the SFAs participating in the CBG

to purchase from the top ranked of the vendors who provided the lowest price.