Distinguishing an FSMC from a Meal Vendor
Nutrition Services Division Management Bulletin
Purpose: Policy, Beneficial Information
To: School Food Authorities and Local Education Agencies Participating in School Nutrition Programs
Attention: All School Nutrition Program Sponsors, County and District Superintendents, Chief Business Officers, School Food Service Directors, Charter School Directors, and Residential Child Care Institution Administrators
Date: February 2016
Reference: Title 7, Code of Federal Regulations, 210, 220, and 245; Title 2, Code of Federal Regulations, Part 200; U.S. Department of Agriculture, Policy Memorandum SP 02-2015, dated October 8, 2014
Supersedes: NSD-SNP-11-2013: Distinguishing a Food Service Management Company from a Meal Vendor
Subject: Distinguishing a Food Service Management Company from a Meal Vendor and Procurement Requirements Overview
This Management Bulletin (MB) supersedes MB NSD-SNP-11-2013 (August 2013) and updates guidance to assist school food authorities (SFA) with determining whether a contract with a company that provides meals is a vended meal contract or a food service management company (FSMC) contract. This MB also provides guidance to SFAs on the procurement requirements for vended meal contracts.
Change in Policy
Meal vendors are companies that prepare meals for schools for purchase. Meal vendors deliver meals that meet the federal meal pattern requirements and are ready for service to students. Depending upon the time of delivery, SFAs may or may not need to reheat the meals. Both the meal vendor and the SFA are required to document temperatures at the time they leave the preparation facility and at the time they are delivered to the SFA.
In addition to preparing meals, meal vendors must document menu production, maintain standard recipes, and record the number of meals ordered and delivered. SFAs procure this level of service as a vended meal contract.
If an SFA requires the meal vendor to provide staff to serve the meals, prepare the meals at the SFA’s facility, or other food service activities, the U.S. Department of Agriculture (USDA) recently clarified that the procurement is actually for an FSMC. An FSMC procurement requires the California Department of Education (CDE) to pre review and approve the bid process and contract. This includes contract provisions where the company prepares meals in the SFA’s facilities.
Vended Meal Companies
The scope of allowable services provided by meal vendors are:
- Delivering meals
- Cleaning their own equipment used for meal delivery
- Receiving, storing, and using USDA Foods on behalf of the sponsor, provided the CDE approved the vendor to minimally process USDA Foods and meals are prepared at the vendor’s facilities
- Preparing menus; however, the sponsor must retain control of the School Nutrition Program by ensuring that the menus meet the federal meal pattern requirements for food-based menu planning
- Completing the daily menu production worksheets
Food Service Management CompaniesTo aid SFAs in determining whether to solicit the services of a meal vendor or an FSMC, Title 7, Code of Federal Regulations (7 CFR), Section 210.2 defines an FSMC as “a commercial enterprise or nonprofit organization which may be contracted with by the SFA to manage any aspect of the school food service.” The following activities are within the scope of services provided by an FSMC because they involve managing some aspect of the SFA’s food service program and must be solicited as such:
- Accessing individual student meal eligibility
- Assuming duties typically performed by an SFA employee
- Collecting and providing meal reimbursement claim data
- Collecting meal payments from students or households
- Conducting point-of-service meal counts
- Determining student eligibility data for meals
- Developing menus and menu production records for SFA approval
- Marketing the food service program
- Overseeing compliance
- Ordering USDA Foods
- Preparing claims for SFA approval and submission
- Preparing meals at the SFA’s facilities
- Preparing, delivering, or serving meals
- Providing SFA staff with program guidance and training
- Providing program oversight or management
- Purchasing food, supplies, or equipment
- Serving meals, regardless if pre plated or prepared off site
- Supervising SFA staff
State Agency Preapproval Requirement
The CDE must preapprove all bid documents for an SFA’s procurement of FSMC contracts, including all bids, rebids, amendments, and contract extensions. Bid documents include the Request for Proposal, public announcement, all proposals received, evaluations or scoring matrix, proposed and executed contract, and any other relevant records to ensure the SFA’s procurement complies with all state, federal, and local procurement laws and regulations. To review the CDE approval time line, please visit the Procurement in Child Nutrition Programs web page at http://www.cde.ca.gov/ls/nu/sn/fsmcproc.asp and select the Approval tab.
The CDE Nutrition Services Division (NSD) does not currently require preapproval for vended meal contracts, but may do so at a future date. Please note that SFAs must submit a copy of their vended meal contract or contract extension during annual updates and when the contract or extension is initially executed. Submit contracts to the School Nutrition Programs Unit by uploading them into the Child Nutrition Information and Payment System (CNIPS) under the Checklist link. SFAs must also complete and submit the CNIPS Vendor Fact Sheet for CDE approval.
Consequences of Noncompliance
If an SFA contracts with an FSMC without obtaining the CDE’s approval, the SFA must:
- Rebid the contract
- Pay the FSMC from a source other than the nonprofit school food service account (cafeteria fund)
SFAs may continue to use the improperly procured FSMC during the new bidding process, but must pay that FSMC from a funding source other than the cafeteria fund. After the rebidding is complete and the CDE has approved the new contract, SFAs may then use the cafeteria fund to pay the successful contractor.
Please note that the SFA may not use the cafeteria fund to reimburse the account used to pay for services the FSMC provided during the invalid contract period. Additionally, some contractors may allow an SFA to defer payment until after the contract is approved; however, SFAs cannot use the cafeteria fund to pay for any improper procurement—this includes the balance due for any FSMC services rendered before the SFA obtained the CDE’s preapproval.
If, upon review of a vended meal contract, the CDE determines that the services constitute food service management, the restrictions on the use of cafeteria funds described in the preceding paragraph apply. The CDE will require the SFA to rebid the contract following federal—and where applicable—state procurement procedures. The SFA may conduct a competitive procurement for a meal vendor or if they want to retain the level of services that constitute food service management, the SFA must conduct a competitive procurement for an FSMC, which includes obtaining CDE prior approval.
Cafeteria Funds and Control of Account
Improper Procurement—As previously stated, SFAs that do not conduct their procurement in a manner that complies with state, federal, and local procurement procedures may not use cafeteria funds to pay the contractor and the CDE may withhold meal reimbursements. If an SFA fails to obtain prior CDE approval for an FSMC contract, they cannot use cafeteria funds to pay for the contracted services but must use another, nonfederal funding source.
Control of School Food Service Account and Revenues—State and federal regulations require SFAs to retain control of the food service account and all revenues. SFAs must ensure that household meal payments are made directly to the SFA and that such payments are deposited into the SFA’s cafeteria account in compliance with 7 CFR, Section 210.14(a) and California Education Code (EC), sections 38090 through 38095.
Online Meal Payments and Fees in School Meal Programs—Many SFAs offer online services to parents, which may include providing online options for parents to add money to their children’s meal account(s). SFAs can charge a fee for this service, but only if the SFA also offers another method to add money to meal accounts that does not incur any additional fees to the student. Examples of methods SFAs can use without incurring a fee include accepting money at the school food service office or accepting cash payments at the point of service. As an alternative to charging parents a fee for services, SFAs may use school food service account funds to cover the cost of providing online services to parents. If the school food service account does not have the funds to cover these costs, SFAs can seek outside sources to cover the costs associated with providing this service. Outside funding for this purpose may include monetary donations from the general fund or outside organizations. For more information, please refer to Policy Memorandum SP 02-2015 on the USDA Online Fees in the School Meal Programs web page at http://www.fns.usda.gov/online-fees-school-meal-programs.
Overt Identification—Section 245.8(b) of 7 CFR and EC Section 49557 state that there shall be no overt identification of any children eligible to receive free and reduced-price (F/RP) meals or free milk. Overt identification may be the result if SFAs use special tokens, tickets, or any other identifiable means of meal payment. SFAs may not require students eligible for F/RP meals to order and pay for meals only through the SFA if they allow or require students ineligible for F/RP meals to order and pay for their meals directly through the contractor.SFAs interested in using an online payment system should first consult with their Board of Directors or legal counsel. In addition, SFAs must separately competitively procure the use of an online payment service. For more information on overt identification, please refer to MB SNP-05-2015 on the CDE Preventing Overt Identification of Children web page at http://www.cde.ca.gov/ls/nu/sn/mbsnp052015.asp.
Contractor Involvement in Drafting Procurement DocumentsSFAs, not the contractors, must develop all bid documents, specifications, and scope of work, as well as the subsequent contract. Contractors may want to offer their standard contract, however, SFAs cannot use it. Title 2, Code of Federal Regulations, (2 CFR), Section 200.319, states that contractors that develop or draft specifications, requirements, statements of work, Invitations for Bid, or RFPs must be excluded from competing for such procurements. The CDE may require the SFA to rebid any contract where the contractor participated in developing any part of the bid documents or contract.
Conflict of Interest and Standards of Conduct RequirementsEffective October 1, 2015, SFAs must comply with 2 CFR, Section 200.318, which requires written codes (standards) of conduct governing the actions of all employees who are engaged in the selection, award, and administration of contracts. Officers, employees, and agents of the SFA may not solicit or accept gratuities, favors, or anything of monetary value from contractors or subcontractors.
SFAs must follow a competitive bidding process for all procurements including the services of a meal vendor. Depending on the value of a contract, goods, or services, SFAs must use the applicable federal, state, or local bid threshold to determine the appropriate procurement method (informal or formal). For detailed information about the procurement methods, please visit the Procurement in School Nutrition Programs web page at http://www.cde.ca.gov/ls/nu/sn/fsmcproc.asp, and select the Procurement tab.
Resources and Assistance
Additional guidance on procurement, contracts, applicable regulations, and other procurement-related information is available on the Procurement in School Nutrition Programs web page http://www.cde.ca.gov/ls/nu/sn/fsmcproc.asp.
If you have any questions regarding this subject, you may contact the Procurement Resources Unit (PRU) by email at SFSContracts@cde.ca.gov to be directed to a PRU specialist.
For questions about the USDA Foods program, contact NSD Distribution and Processing Unit by phone at 916-323-0865.