Rebates and Food Service Management Company Contracts

 

School districts that are currently outsourcing the management of food service operations or are considering doing so should be aware of a new Final Rule recently released by the USDA Food and Nutrition Service.  This rule requires districts to use approved open and competitive procurement processes.  The highlight of the new rule relates to “rebates.”  A rebate is a discount, usually on a percentage basis, of volume food purchases.  For example, if a Food Service Management Company gets a 5% rebate for buying food that will be utilized in the school district, then that 5% rebate must be credited to the district.  This new ruling is intended to ensure school districts receive these rebates.

 

Food Service Management Companies (FSMC) have always been required to return rebates, credits or any discounts to the school district.  Now the FSMC is required to notify the SFA of the amount of rebate that will apply to the school district.  The requirement will apply to all of those districts using the RFP process to secure the services of a FSMC.  If the district is already contracted with a FSMC, the annual renewal of the contract must include this information.

 

This new ruling by the USDA places the responsibility for compliance with the Child Nutrition division of each State Department of Education.  If you are about to issue an RFP, that document must include this new language requirement.  FSMCs must disclose in their proposal how they calculate and disclose the rebate amount to the school district.  The state Child Nutrition department is charged with approving all RFP documents and all annual contracts before an FSMC can begin service.  Before the state approves the RFP or annual contracts they will ensure the districts’ RFP or contract contains the language required by this new ruling.

 

This new ruling was prompted in part by audits released by the USDA Office of Inspector General.  These audits found that in many cases school districts were not receiving the rebates they were entitled.  This ruling now places the burden on Food Service Management Companies to explain in their proposal to a RFP how their rebate credits will be given to the school district.  Actual invoices to school districts from a Food Service Management Company must also reflect exactly what is stated in the proposal and the contract.  State Child Nutrition agencies will be responsible for auditing these contracts to ensure compliance.    

 

What does this mean for the local district?  Awareness of the new ruling is critical to ensuring a smooth operation with a FSMC.  The complete rule can be accessed on the USDA Food and Nutrition Service website at:

 https://www.partnerweb.usda.gov/ifx/index.htm

 

Your state agency procurement office is the best source of information regarding this new ruling.

 

If you would like a two page brief of the new ruling you can request it through our Contact Us page on this website.

 

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Portolan Associates, Inc is the nation’s premier provider of school district support service operations consulting.  Please feel free to contact us at 1-706-569-9669.