Reaffirming the Requirement that SFAs Comply with Federal Regulations Affecting Rebates, Discounts, and Other Applicable Credits in All Cost Reimbursable Contracts
|DATE:||April 5, 2011|
|MEMO CODE:||SP 01-2011 Revised|
|SUBJECT:||Reaffirming the Requirement that School Food Authorities Comply with Federal Regulations Affecting Rebates, Discounts, and Other Applicable Credits in All Cost Reimbursable Contracts|
Please be aware that the original policy memorandum from October 1, 2010, (SP 01-2011) has been revised. This policy memorandum supersedes the previous version, as changes have been made to correct a regulatory citation and for clarification purposes.
That said, this is a reminder to state agencies (SAs) of the importance of ensuring compliance with the procurement requirements established in regulations affecting the National School Lunch Program (NSLP), School Breakfast Program (SBP), and Special Milk Program (SMP) which became effective on Nov. 30, 2007 and emphasize that:
- all cost reimbursable contracts (including contracts with cost reimbursable provisions) require provisions which limit the use of the nonprofit school food service account to pay only for allowable costs – those costs net of all discounts, rebates and other applicable credits;
- all cost reimbursable contracts were to be in compliance with the regulatory requirements by School Year 2009-2010;
- the SA may impose a pre-issuance requirement on a school food authority’s (SFA) proposed procurement; and,
- the SA must annually review each contract (including supporting documentation) between each SFA and food service management company (FSMC) before execution of the contract.
Pre-issuance Review Requirement
The regulations allow a SA to impose a pre-issuance review of an SFA’s proposed procurement. 7 CFR 210.21(c), 215.14a(c) and 220.16(c).
Annual Review and Approval of Each Contract between SFA and FSMC
The program regulations for NSLP and SBP require that each SA annually review and approve each contract between any SFA and FSMC before execution of the contract by either party. 7 CFR 210.16(a)(10), 210.19(a)(6) and 220.7(d)(1). Additionally, the program regulations for NSLP require that each SA annually review all supporting documentation to a contract (i.e., solicitation documents, responses submitted by bidders, etc.) between any SFA and FSMC before execution of the contract by either party. 7 CFR 210.19(a)(6). The program regulations for SMP do not explicitly state that each SA must annually review and approve each contract between any SFA and FSMC before execution of the contract by either party, and the program regulations for SMP and SBP do not explicitly state that each SA must annually review all supporting documentation to a contract between any SFA and FSMC before execution of the contract by either party. However, please be aware that it is unlikely for any SFA to contract with an FSMC for solely SMP or SBP without also contracting for NSLP; therefore, each SA is required to annually review each contract (including all supporting documentation) between any SFA and FSMC before execution of the contract by either party if the resulting contract is for NSLP and either the SMP or SBP. In the rare circumstance where the contract between any SFA and FSMC is for SMP and/or SBP, we advise that it is prudent for the SA to annually review each contract (including supporting documentation) before the contract is executed by either party.
The regulations ensure that SFAs receive the full benefit of any discounts, rebates or other applicable credits arising from purchases made under cost reimbursable contracts on behalf of the school meals programs. As such, it helps ensure that limited school meals program resources are used as efficiently as possible.
It is critically important not only that all cost reimbursable contracts include the required provisions as described above, but that the contract provisions are monitored and enforced by SAs. SAs should continue to work closely with SFAs to ensure that cost reimbursable contracts, contract provisions and solicitations contain the required provisions and terms and conditions to accomplish the necessary tracking of the discounts, rebates, and other applicable credits.
If you have any questions regarding the contents of this memo, please contact your regional office.
Child Nutrition Division
The contents of this guidance document do not have the force and effect of law and are not meant to bind the public in any way. This document is intended only to provide clarity to the public regarding existing requirements under the law or agency policies.