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Procurement Standards and Resource Management Requirements related to Franchise Agreements

Last Published: 06/02/2016

The Food and Nutrition Service (FNS) is aware that school food authorities and Program operators may be operating the National School Lunch Program (NSLP), School Breakfast Program (SBP), and other Child Nutrition Programs (CNP), in a way that includes offering reimbursable meals and non-program foods (a la carte sales, catering, adult meals, etc.) using foods from popular franchise restaurants through a franchise agreement. Upon review, such franchise agreements contained a number of serious flaws which are out of compliance with applicable Federal law.

Franchise agreements often have provisions that are inherently problematic for the Child Nutrition Programs because they entail having a school or sponsor essentially “buy” into an agreement with a commercial vendor for the purpose of exclusively marketing or selling that company’s good or services as opposed to having that vendor submit a bid for its products during a competitive process. While it may be possible to sell the products of a franchise, those products must be competitively procured from among competitively solicited franchises. Failure to properly compete violates competitive procurement standards as required in Program regulations and 2 CFR 200.318-326 (formerly 7 CFR Parts 3016.36 and 3019.40-48, as applicable), and for schools operating NSLP and SBP, regulations on competitive food services in 7 CFR Parts 210.11 and 220.12 and use of nonprofit food service account (NFSA) funds in 7 CFR 210.14(a).

Document #: 
SP03 CACFP03 SFSP03-2016