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Reminders-Compliance with Procurement Requirements

Nutrition Services Division Management Bulletin
Purpose: Policy
To: School Nutrition Program Sponsors Number: USDA-SNP-30-2012
Attention: Food Service Directors, Business Officials Date: October 2012
Subject: Reminders: School Food Authority Compliance with Federal Regulations Affecting Rebates, Discounts, and Applicable Credits on All Contracts
Reference: U.S. Department of Agriculture, Food and Nutrition Service, Policy Memo SP 01-2011; Title 7, Code of Federal Regulations sections 210.21(f), 220.16(e), 215.14a(d), 210.21(c), 215.14a(c), and 220.16(c)

This Management Bulletin (MB) reaffirms the importance of ensuring compliance with the procurement requirements established in regulations affecting the National School Lunch Program, School Breakfast Program, and Special Milk Program that became effective November 30, 2007.

Title 7, Code of Federal Regulations (7 CFR), sections 210.21(f), 215.14a(d), and 220.16(e) require that school food authorities (SFA) govern the requirements in all bid solicitations and contracts. You can review these regulations on the U.S. Government Publishing Office Electronic Code of Federal Regulations Web page at, or on the USDA School Meals Regulations Web page at

The following requirements must be followed during the bid and procurement process:

  • SFAs must include applicable contract language which details the allowable use of nonprofit school food service account revenues.
  • SFAs must obtain preapproval from the California Department of Education (CDE) for contract solicitations/executions involving a food service management company (FSMC).
  • SFAs must receive the full benefit of any discounts, rebates, or credits arising from purchases made under cost reimbursable contracts on behalf of the school meal programs. This is intended to ensure that limited school meal program resources are used as efficiently as possible.

The regulations above apply to all new solicitations issued on or after November 30, 2007. The USDA included an implementation timeline in the regulation’s preamble to structure rebidding of contracts by SFAs, in phases. The USDA responded to concerns raised by State Agencies (SAs) related to cost-reimbursable contracts which at the time of the regulation’s effective date, included provisions requiring that all discounts, rebates, and other applicable credits be credited to the SFA by the vendor, which was most often an FSMC.

The USDA advises SFAs currently receiving credits for discounts, rebates, and other applicable credits by the FSMC that the relevant cost reimbursable contract could be amended to incorporate the required language of the regulation without constituting a material change; therefore, the contract need not be rebid. The USDA originally required that all cost reimbursable contracts between an SFA and an FSMC or other vendor, regardless of the date entered into, were to be in compliance with the regulatory requirements by school year 2009–10.

Sections 210.10(f), 215.14a(d), and 220.16(e) of 7 CFR, require contractors under all contracts to provide sufficient information to permit an SFA to identify allowable and unallowable costs, as well as the amount of all such discounts, rebates, and credits on invoices and bills the FSMCs present for payment to an SFA. It is critically important that all contracts include the required provisions as described herein and that the contract provisions are monitored and enforced by SFAs and SAs.

Specifically, any prompt payment discounts, rebates, credits, or tangible incentives obtained from local vendors or through national or regional purchasing arrangements by the FSMC, must be retained by the SFA. The retention guidelines are as follows:

  • Allowable charges to an SFA must be net of all credits, discounts, and rebates.
  • An SFA must not be charged by the FSMC for costs that have been reduced by credits, discounts, and/or rebates.
  • An SFA must benefit from all credits, discounts, and rebates, including those obtained by the FSMC.
  • Monthly operating statements must clearly illustrate these transactions, including the date, amount(s), and applicable items that were discounted, credited, and/or rebated.

The CDE will continue to work closely with SFAs to ensure that their contracts, contract provisions, and solicitations include the required provisions, terms, and conditions to accomplish the necessary tracking of discounts, rebates, and applicable credits.

If you have any questions regarding the contents of this MB, please contact the School Food Service Contracts Unit at 916-319-0636.

Questions:   Nutrition Services Division | 800-952-5609
Last Reviewed: Wednesday, April 15, 2015

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