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Market Basket Analysis in Procurement


Important Notice: CACFP Program Moved to CDSS

The Early Childhood Development Act of 2020 (Senate Bill (SB) 98, Chapter 24, Statutes of 2020) authorized the transfer of child care and development programs administered by the California Department of Education to the California Department of Social Services (CDSS) effective July 1, 2021. The content on this page may not be current and involves the Child and Adult Care Food Program (CACFP) that has moved to CDSS. Visit the CDSS CACFP web page External link opens in new window or tab. or call 1-833-559-2420 for more information.

Nutrition Services Division Management Bulletin

Purpose: Policy, Beneficial Information

To: Child Nutrition Program Operators

Attention: Food Service Directors, Chief Business Officials, and Superintendents

Number: CNP-04-2018

Date: June 2018

Reference: U.S. Department of Agriculture Policy Memorandum FD 144, SP 04-2018, SFSP 01-2018, CACFP 04-2018 and USDA-FDP-02-2012

Subject: Market Basket Analysis When Procuring Program Goods and Modifying Contracted-for Product Lists


This management bulletin provides guidance from the U.S. Department of Agriculture (USDA) Policy Memorandum FD 144, SP-04-2018, SFSP 01-2018 and CACFP 04-2018 regarding the proper methodology to conduct a market basket analysis. A market basket analysis is a procurement practice used by program operators in the National School Lunch Program, School Breakfast Program, Child and Adult Care Food Program, Summer Food Service Program and Food Distribution Program to award contracts based on an evaluation of the lowest price a vendor can offer for a representative sample of goods the program operator wishes to obtain. The evaluated sample may include end products processed with USDA Foods and purchased using the net-off-invoice value pass through system. Prior to the policy memo, the USDA presumed all products to be listed in the bid. However, program operators and bidders found that providing pricing for all products (potentially hundreds of products) to be purchased was burdensome and limited the operator’s ability to purchase newly released products or find substitutes for discontinued products without conducting new procurements. In response, the USDA provided the following guidance:

Market Basket Analysis Evaluation and Scoring for Contract Award

The market basket analysis is intended to allow a program operator to review bids using an established, representative sample of goods. In determining the representative sample of goods to be used for evaluating an award, the USDA and the California Department of Education strongly recommend that the aggregate value of the sample be no less than 75 percent of the estimated total value of the contract to be awarded. The winning bidder is required to provide pricing for the remaining 25 percent of the solicited products prior to the final award. The cost of the representative sample must meet the reasonableness standard as described in Title 2, Code of Federal Regulations, Section 200.404.

Modifications of Contracted Price Lists to Acquire Additional Goods or Increase Quantities of Listed Goods

Items not included in the executed contract can be added only if all of the following conditions are met:

  • The option to add goods is included in the original solicitation and contract.

  • The total value of all added goods and quantities of listed goods does not exceed the limit specified in the original solicitation and contract. If the value of additional goods exceeds the specified limit, a separate procurement for those goods must be conducted or these purchases will be considered an unallowable cost. The USDA recommends limiting the additional costs to 5─10 percent of the estimated value of the contract.

  • Upon renewal, any goods added to the contract must be included in a contract amendment (if applicable).

  • For each year of a renewed contract, a new basis for contract value, including the actual expenditures for the previous year plus the additional items, must be established.

  • Program operators must maintain records of all additional goods purchased to ensure that the value of those goods does not exceed the specified limit.
The USDA policy memo includes a questions and answers section to provide program operators further clarification on the market basket analysis. The CDE strongly recommends that program operators read the questions and answers.
Service Contracts
A market basket analysis is not acceptable for awarding equipment or service contracts, such as pest control, because service contracts do not lend themselves to this type of analysis. In addition, a market basket analysis is not appropriate for fee-for-service processing contracts, where a processor charges a fee for converting raw USDA Foods into ready-to-use end products.
Written Procurement Procedures
Prior to conducting a market basket analysis to award a contract, program operators must have a documented process included in their written procurement procedures. This documentation must include the percentage of the estimated total purchase value used to determine the representative sample. The USDA policy memo includes sample language for the written procurement procedures.
Procurement Requirements Reminder
Regulations direct program operators to comply with procurement requirements per Title 7, Code of Federal Regulations, sections 210.21, 215.14(a), 220.16, 225.17, 226.22, and 250.4(d), and Title 2, Code of Federal Regulations, sections 200.318 to 200.320. Program operators are also responsible for complying with all state and local requirements.
Resources
Contact Information

If you have any questions regarding this subject, please contact the appropriate Nutrition Services Division staff for your agency as indicated below:

  • Procurement Resources Unit (PRU)

    You can contact the PRU by email at SFSContracts@cde.ca.gov to be directed to your PRU Specialist.

  • School Nutrition Programs Unit (SNP)

    You can find contact information for the SNP Specialists in the Download Forms section of the Child Nutrition Information and Payment System (CNIPS). You may also contact the SNP Office Technician by phone at 916-322-1450 or by email at SNPQUESTIONS@cde.ca.gov.

  • Child and Adult Care Food Program (CACFP)

    You can find contact information for the CACFP Specialists in the Download Forms section of the CNIPS. You may also contact the CACFP Office Technician by phone at 916-324-6153 or by email at CACFP@cde.ca.gov.

  • Summer Meals Unit (SMU)

    You can find contact information for the SMU Specialists in the Download Forms section of the CNIPS. You may also contact the SMU OT by phone at 916-322-8323 or by email at SFSP@cde.ca.gov.

  • Food Distribution Program Unit (FDP)

    You can contact the FDP by phone at 916-323-0865 or by email at FOODDISTRIBUTION@cde.ca.gov.
Questions:   Procurement Resources Unit | 800-952-5609
Last Reviewed: Thursday, June 10, 2021
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