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Food Service Management Company Procurement

Explains regulations regarding procurement of services offered by a food service management company (FSMC).

Table of Contents

An FSMC is an entity that performs one or more activities of the food service operation on behalf of a school nutrition program sponsor. These activities may include any or all of the following services: bookkeeping, menu development, preparation of reimbursement claims, organization and maintenance of program documents (such as daily meal counts, menus, and menu production records), meal preparation and service, consulting services, and purchasing services.

FSMC contracts may be valid for up to one year from the date that they are signed by all parties and may be renewed for up to four additional one-year terms. Federal regulations require that districts annually submit all new contracts, corresponding bid documents, and/or annual contract extensions to the California Department of Education (CDE), Nutrition Services Division (NSD), for prior approval.

Federal regulations require that all purchases of goods and services using food service revenues follow federal procurement regulations. Specifically, sponsors must adhere to a competitive bidding process, and FSMC contracts must include federally required clauses. In addition, the sponsor is responsible for preparing all bid documents and the agreed upon contract. Following is a brief description of these requirements as they apply to FSMC contracts.

Request for Proposal and Model Contract

Bidding Process

Sponsors electing to contract with an FSMC must conduct a competitive bidding process using either informal or a formal bid procedures.

Competitive Procurement

Federal regulations at Title 7, Code of Federal Regulations (7 CFR) Section 3016.36(c) require all procurement transactions to be conducted in a manner providing full and open competition consistent with the standards of Section 3016.36. Some of the situations considered to be restrictive of competition include but are not limited to: (i) Placing unreasonable requirements on firms in order for them to qualify to do business, (ii) Requiring unnecessary experience and excessive bonding, (iii) Noncompetitive pricing practices between firms or between affiliated companies, (iv) Noncompetitive awards to consultants that are on retainer contracts, (v) Organizational conflicts or interest, (vi) Specifying only a "brand name" product instead of allowing "an equal" product to be offered and describing the performance of other relevant requirements of the procurement, and (vii) Any arbitrary action in the procurement process.       

Informal Bid Process

An informal bid process allows sponsors to contact a minimum of three agencies to obtain price quotes for specific services. Sponsors must write a description of the services they are seeking and provide the same information to each agency contacted. The sponsor must document and retain the following information from each of the contacted agencies:

Formal Bid Process

The formal bid process is a much more detailed process and may include, but is not limited to, the following activities:

As in the informal bid process, the formal bid process requires the sponsor to document the bid process and include a rationale for the selection of the bidder and the awarded contract amount. The sponsor must maintain the bid documentation for the duration of the contract, or in the event of a contract and/or procurement process audit finding, three years beyond the final resolution of the findings. Regardless of the bid process used, sponsors must award the contract to the lowest bidder that best meets their needs.

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Bid Threshold

The total annual (i.e., 12 consecutive months) value of the contract determines whether to use an informal or formal bid process. If the annual value of the FSMC contract is less than the applicable bid threshold, an informal bid process can be used. Likewise, a formal bid process must be used for contracts that are equal to or exceed the applicable bid threshold.

Sponsors must follow a bid threshold established by their governing body, which differs among agencies as follows:

Agencies may contact the NSD for assistance with their bid process. Remember, regardless of the bid process used, it must be competitively procured.

Contractor Involvement

Sponsors are responsible for preparing the contract and all accompanying bid documents. Title 7 CFR sections 3016.60(b) and 3019.43, prohibit sponsors from awarding a contract to any vendor that prepared or had a significant role in developing the contract and related bid documents; e.g., a price quote, request for proposal, invitation to bid, and bid specifications. While schools have broad discretion in gathering information for use in connection with procurements, information from potential bidders, including contracts developed or provided by a vendor, must be appropriately modified to develop tailored specifications; otherwise, these bidders must be excluded from competing for such procurements. Any action that diminishes open and free competition seriously undermines the integrity of the procurement process and may subject the sponsor to bid protests. Pursuant to 7 CFR 3016.36(b)(12), sponsors must have protest procedures in place to handle and resolve disputes relating to their procurements and must, in all instances, disclose information regarding a protest to the CDE.

To assist sponsors in obtaining consulting services, attached is a standard Price Quote form and a prototype food service consulting contract. Sponsors currently contracting or planning to contract with an FSMC for consulting services may use these prototypes. All FSMC contracts must include federally required language as specified in 7CFR 3019.48, 3016.36(i), 210.16(a) and 250.12(d). The highlighted components of the attached prototype contract meet this requirement and must not be deleted or modified. All other contract language may be modified to meet the agreed upon responsibilities of the food service consultant. Any modifications to the contract must be submitted to the CDE for approval prior to its execution.

State Requirements

Please contact the School Food Service Contracts Unit at SFScontracts@cde.ca.gov or the Unit Manager Rae Vant by phone at 916-445-2307 or 800-952-5609 or by e-mail at rvant@cde.ca.gov.

Recordkeeping Requirements

Sponsors are required to maintain appropriate records for procurement transactions occurring in connection with the Child Nutrition Programs. Title 7 CFR parts 3016, 3019, 210.9(b)(17), and the terms of the child nutrition program agreements require both the CDE and the sponsor to retain program-related records for a period of three years from the day a sponsor’s final allowable payment under the contract has been recorded. This is true regardless of whether the final payment is recorded prior to the expiration of the contract or subsequent to the expiration date.

When a procurement contract is continued or renewed at annual or other intervals, the retention period for the records of each contract period starts on the day the final payment is recorded in connection with the final renewal.

Actions such as bid protests, litigation, and audits may result in an extension of this three-year period. In all such cases, the records must be retained until: (1) three years beyond the completion of the action and resolution of all issues arising from it; or (2) the expiration of the regular three-year period, whichever occurs later.

Adequate procurement methods are a prerequisite for receiving funds. If records generated during the performance of the award do not demonstrate compliance with applicable procurement requirements, several possible penalties may follow such as disallowance of costs, annulment or termination of award, issuance of a stop work order, debarment or suspension, or other appropriate remedies. Examples of records include:

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Consequences for Noncompliance

Federal regulations specify that sponsors may not use food service revenues to pay for goods and services if they did not follow state and federal procurement procedures to obtain those services or if the nature of the contract violates state or federal laws and regulations. (NOTE: Food service revenues constitute all money that accrues to the food service operation, including federal and state meal reimbursements, meal payments from children and adults, money received from a la carte and vending machine food sales, and catering activities.)

Therefore, the CDE will not approve FSMC contracts that have been written by the contractor and/or are not in compliance with state and federal laws and regulations. In accordance with 7 CFR, Section 3016.43, the CDE will not allow sponsors whose contracts are denied to pay for the contracted services with food service revenues.

Those sponsors must implement one of the following two choices regarding such contracts:

  1. Re-bid the contract following state and federal procurement procedures and applicable state law; or,
  2. Pay for the services provided under the contract with non-program funds.

As a reminder, sponsors must annually submit their food service management company contracts and related bid documents to the CDE, Nutrition Services Division (NSD), for review prior to issuance and execution. Submitting the contract in draft form will help the sponsor ensure approval of its contract and bid award and minimize its financial risk. Sponsors may need to allow six months or more in order to advertise the Request for Proposal, open facilities for a pre-award tour, post the bid results, obtain CDE bid process and contract approval, and implement the services. The CDE’s review of the bid documents and contract may take up to six weeks.

The CDE will notify all sponsors whose contracts do not comply with state and/or federal laws and regulations and inform them that their contract cannot be approved. Any sponsor notified by the CDE of a contract denial that continues to utilize the goods and services provided under the contract without proper re-bidding, shall not use food service revenues to pay for those goods and services.

NSD staff are available to provide technical assistance and guidance to sponsors on the procurement process and contract requirements for FSMC contracts.

Impact on Cash Net Resources

If a sponsor chooses to continue to utilize services provided under an improperly procured contract and pay for the services provided under the contract from another fund, such as the general fund, the contract may continue. The CDE has no jurisdiction over contracts funded from non-food service account revenues. However, the lack of significant expenditure from the food service account may result in excess net cash resources. 

Net cash resources are the difference between program revenue and program expenditures. Federal regulation 7 CFR 210.14(b) limits net cash resources to no more than the equivalent of three months operating expenses. For example, if monthly program income is $10,000 and expenses are $9,000, the three months of net cash resources allowed is $27,000 ($9,000 X 3 months). Any amount over that requires the sponsor to either lower the price that children pay for meals or spend the excess to improve the program. Ultimately, the State is required to adjust the level of reimbursement to the sponsor until the net cash resources are within the allowable range. For this reason, sponsors should carefully consider their decision to retain improperly procured contracts and pay from another funding source because of the impact it could have on their reimbursements.

All contracts, corresponding bid documents, and contract extensions must be annually reviewed and approved by the California Department of Education, Nutrition Services Division. Prior to issuing an RFP/IFB or signing the contract, you must submit them to:

Rae Vant, Manager
School Food Service Contracts Unit
California Department of Education
1430 N Street, Suite 4503
Sacramento, CA 95814-5901

Federal procurement regulations can be downloaded at:

Public Schools [http://www.access.gpo.gov/nara/cfr/waisidx_03/7cfr3016_03.html] External link opens in new window or tab.

Non-Profit Schools [http://www.access.gpo.gov/nara/cfr/waisidx_03/7cfr3019_03.html] External link opens in new window or tab.

Contracting with Food Service Management Companies [http://www.fns.usda.gov/sites/default/files/FSMCguidance-sfa.pdf] External link opens in new window or tab. (PDF)
USDA guidance manual for school food authorities.

If you have questions, or would like assistance in preparing bid documents and contracts, please send an e-mail to SFScontracts@cde.ca.gov.

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Questions:   Nutrition Services Division | 800-952-5609
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