Prototype Language for Return of Discounts

This Management Bulletin provides prototype contract language to meet the requirements of the final rule updating the United States Department of Agriculture (USDA) regulations regarding procurement of food and supplies and the procurement of services offered by a food service management company (FSMC).

You can find the Final Rule, Procurement Requirements for the National School Lunch, School Breakfast, and Special Milk Programs at http://edocket.access.gpo.gov/2007/pdf/E7-21420.pdf [Note: The previous link is no longer valid. Please visit https://www.fns.usda.gov/cn/prototype-language-return-discounts-rebates-and-credits.]

The rule explicitly (1) limits a school food authority’s (SFA) use of nonprofit school food service account funds to costs resulting from proper procurements and contracts; (2) requires that allowable costs paid from the nonprofit school food service account be net of all discounts, rebates, and applicable credits; and (3) requires State agencies (SA) to review and approve SFA procurements of FSMC services in advance of contract execution. 

In response to several requests and to assist SAs and SFAs in their compliance efforts, the USDA is providing the following prototype contract language requiring the return of purchase incentives to SFAs:

The _________ School District shall ensure that _________ (Company/Food Service Management Company) fully discloses all discounts, rebates, allowances, and incentives received by the Company from its suppliers. If the Company receives a discount, rebate, allowance, or incentive from any supplier, the Company must disclose and return to the _________ School District the full amount of the discount, rebate, or applicable credit that is received based on the purchases made on behalf of the _________ School District. All discounts, rebates, allowances, and incentives must be returned to the _________ School District during a mutually agreed upon timeframe that is beneficial to the School District.

SFAs may also opt to use the language found in Title 7, Code of Federal Regulations, Part 210.21(f)(i):

Allowable costs will be paid from the nonprofit school food service account to the contractor net of all discounts, rebates and other applicable credits accruing to or received by the contractor or any assignee under the contract, to the extent those credits are allocable to the allowable portion of the costs billed to the SFA.

It is important that SFAs consult with their own legal counsel regarding the use of any particular contract language to ensure that all federal, state, and local requirements are met.

In addition to ensuring that SFA contracts contain appropriate language requiring the return of discounts, rebates, and applicable credits to the SFA, it is critical that SFAs monitor contract compliance on an ongoing basis and strictly enforce all contract provisions, including those related to the return of discounts, rebates, and applicable credits.

If you have any questions or need assistance in preparing bid documents and contracts, please contact the School Food Service Contracts Unit by email at SFSContracts@cde.ca.gov.