Section 5: Purchasing Rules Food Purchasing for Child Care Centers Section 5: Purchasing Rules

Lesson Objectives The learner will be able to explain why centers must follow Federal food purchasing rules, select the rules which apply to his/her center, and verbalize a practical application for each rule.

Before Buying Groceries . . . . . .you need to review food purchasing rules.

Words for Purchasing Rules “Laws” U.S. Congress State legislatures “Regulations” Federal Agencies State Agencies “Policies” and “Procedures” Local agencies Board of directors

Code of Federal Regulations (C.F.R.) http://www.gpoaccess.gov/cfr/index.html

Federal Regulations Private Non-Profit Centers 7 C.F.R. pt. 3019

Federal Regulations For-Profit Centers 7 C.F.R. pt. 226.22

Federal Regulations Public Centers 7 C.F.R. pt. 3016

Purchase Procedures Formal Purchase Procedure IFB—Invitation for Bid RFP—Request for Proposal Informal Purchase Procedure Small Purchase Procedure (price quotes)

Private Non-Profit Centers Federal Principles Private Non-Profit Centers Must use formal purchase procedures for purchases of more than $100,000* or amount stated in their organization’s procedures (if less). *At press time, USDA was in the process of issuing changes to its child care regulations to increase the current $10,000 small purchase threshold for non-profit centers to this higher level. Check with your State Agency for updates.

Federal Principles Public Centers Must use formal purchase procedures for purchases of more than $100,000 or amount stated in State law or local procedures, whichever is less. *At press time, USDA was in the process of issuing changes to its child care regulations to increase the current $10,000 small purchase threshold for public centers to this higher level. Check with your State Agency for updates.

Federal Principles For-Profit Centers Must use formal purchase procedures for purchases of more than $10,000.

Centers must have written purchasing procedures. Federal Principles Centers must have written purchasing procedures.

Federal Principles Explanation Purchase plan approved by board of directors/owners and policies of board of directors/owners become written purchasing procedures.

Accounting records must be supported by source documentation. Federal Principles Accounting records must be supported by source documentation.

Federal Principles Examples of source documentation: Invoices Grocery receipts Cancelled checks Bid documents

Federal Principles The center shall maintain a written standard of conduct for its employees working with the award and administration of purchasing contracts.

Federal Principles Examples of standards of conduct: No employee or board member/owner can ask for gifts from vendors, accept unsolicited gifts valuing more than $15, or accept unsolicited gifts more than twice a year.

Federal Principles Purchasing transactions shall be conducted in a manner to provide full and open competition.

Federal Principles Example 1 No unrealistic requirements that restrict competition Requirement: Grocery stores extend the center 90-day credit. If only one grocery store can meet this requirement, then competition is restricted.

Federal Principles Example 2 No unrealistic delivery requirements that restrict competition Requirement: Delivery on Monday morning at 7:00 a.m. Competition restricted to those vendors delivering on Mondays

Federal Principles A center shall not knowingly do business with a company that is debarred or suspended.

Federal Principles Definitions Debarred Suspended Center prohibited from contracting with the company Suspended Center temporarily prohibited from contracting with the company

Federal Principles Check the Excluded Parties Listing System (EPLS) at www.epls.gov to see if a vendor is debarred or suspended or Require vendors to certify in writing that they have not been debarred or suspended if they are responding to an IFB/RFP or the center expects to spend $25,000 or more with them.

Federal Principles specifications requirements statements of work Contractors excluded from competing if they help develop or draft specifications requirements statements of work invitations for bid requests for proposal contract terms purchasing procedures

Federal Principles Example A center is considering purchasing a new commercial refrigerator. It contacts a local commercial food service equipment distributor to help write the specifications. When the request for pricing is issued, this distributor will not be eligible to offer a price.

Federal Principles A clear and accurate description of the technical requirements shall be provided for everything that is purchased. Peaches, canned: sliced; packed in light syrup; to meet U.S. Grade B standard; 24/No. 2½ cans per case.

Federal Principles All factors that will be considered when deciding where to purchase food and supplies shall be listed in the instructions of a sealed bid or proposal.

Federal Principles Examples Delivery to the center shall be made after 1:00 p.m. on a day selected by the vendor. Net 30-day credit terms shall be extended to the center.

Federal Principles The use of local geographic preference laws in deciding where and what to purchase is not permitted in Child Nutrition Programs.

Federal Principles Example A State writes a law that says that apples grown in the State where the center is located can be 5% higher and the center should buy these apples. Centers belonging to the CACFP cannot use this law to purchase the higher-priced apples.

Federal Principles Centers shall ensure that small businesses, minority-owned firms, and women’s business enterprises have an opportunity to compete.

The pricing method used shall be determined by the center. Federal Principles The pricing method used shall be determined by the center.

Federal Principles The “cost-plus-a- percentage-of-cost” pricing method shall not be used.

Federal Principles Example A large center buys from several institutional distributors and must obtain price quotes from all the distributors. Palm Tree distributor suggests that the director could save time by allowing them to quote a price of 15% over cost. With this method the invoice would automatically be priced and it would not be necessary to get price quotes. This type of pricing is not allowed.

Contracts shall be made only with responsible contractors. Federal Principles Contracts shall be made only with responsible contractors.

Federal Principles Example An institutional distributor had a center’s contract last year. The fill rate (percentage of items delivered) was below 75% of the items ordered. The distribution industry standard is 98%. Thus, this distributor is not responsible. The center should not make another contract with this distributor.

Federal Principles Suggestions Document poor performance by keeping copies of phone calls or letters to a contractor. In the instructions for next IFB: Specify required fill rate, Require potential vendors to provide their fill rate for the prior year, and State that the center will not consider a supplier responsible if there is a record of poor performance.

Federal Principles Centers shall make purchasing documents available for review by the Federal or State Agency when requested.

Federal Principles Conditions for requesting documents: The State Agency is conducting a review. The purchasing procedures fail to comply with Federal requirements. The purchase is expected to be more than the small purchase threshold (currently $100,000) and made without competition.

Federal Principles Conditions for requesting documents: The purchase is expected to exceed the small purchase threshold and the description specifies a brand name. Example: Catsup: 24/12-oz bottles per case; Tomato brand only.

Federal Principles Conditions for requesting documents: The purchase method is a sealed bid (IFB) and the purchase is expected to be more than the small purchase threshold and awarded to a company other than the responsive low bidder.

Federal Principles Conditions for requesting documents: A contract modification changes the amount of the contract by more than the small purchase threshold.

Some form of cost analysis shall be performed for all purchases. Federal Principles Some form of cost analysis shall be performed for all purchases.

Federal Principles Example Price of Whole Milk per Gallon: Store 1: $2.91 Store 2: $2.87 Store 3: $2.93

Federal Principles Purchasing records shall be kept for a period of three years from the end of the fiscal year the purchase is made (unless the State Agency requests a longer period), three years from the end of the fiscal year the last purchase is made (if multi-year contract), or until an audit or investigation is officially closed.

National Food Service Management Institute This training was conducted by the National Food Service Management Institute The University of Mississippi www.nfsmi.org 800-321-3054

National Food Service Management Institute The University of Mississippi Mission: To provide information and services that promote the continuous improvement of child nutrition programs Vision: To be the leader in providing education, research, and resources to promote excellence in child nutrition programs