CONTRACTING WITH A FOOD SERVICE MANAGEMENT COMPANY January 2014

1. CONTRACTING WITH A FOOD SERVICE MANAGEMENT COMPANY January 2014

2. OBJECTIVES Local Education Agency (LEA) Will: • Correctly complete food service management company (FSMC) procurement process • Receive approval from state agency • Know where to find resources regarding FSMC procurement

3. SERVICES TO BE EXPECTED Monthly Profit & Loss Statement Regular Presentations to Board & PTA Employee Training Menu Components & Portion Sizes Meet Requirements Active Advisory Committee FSMC Promotions Proper Collection Methods Nutrition Education Acceptable Counting & Accountability Methods Payroll Analysis of Trends & Participation Reports Support Services I.e. Dietitian or Chef Nutrient Analysis Documents for Administrative Reviews (AR)

4. LEA RESPONSIBILITIES Annual On-Site Reviews Review Edit Check Worksheets Establish Meal & A La Carte PricesReview, Submit & Certify Monthly Reimbursement Claim Review USDA Food Utilization Determine Free & ReducedPrice Applications Generate and Maintain Benefit Issuance Document LEA SFA Conduct DC/Verification Review and Approve Menus Establish Advisory Committee Review Monthly Profit and LossStatement

5. PROCUREMENT PROCESS OVERVIEW After 4 renewal years, Begin Process Again Evaluate Food Service Operation Write Specifications LEA Make Decision to Renew SFA Advertise Request for Proposal (RFP) Submit Contract & Required Documents to State for Approval Receive Proposals Obtain & Sign Contract Award Contract Analyze, Score & Compare Proposals

6. GETTING STARTED Federal procurement regulations, state and local public school contract laws must be followed LEA must guarantee open and free competition Start process early to assure sufficient time for FSMC to: Develop a thorough, comprehensive proposal Attend a facility walk-through while school is in session

7. GETTING STARTED (CONT) • Before writing specifications and soliciting proposals, plan and forecast LEA needs. Review food service operation from prior years to determine if: • LEA’s food service needs were met • Costs and revenue were as expected • Changes in food service operation need to be made • Equipment is needed

8. WRITING SPECIFICATIONS Detailed specifications must be developed by LEA (not by FSMC) Anyone who drafts specifications cannot submit a proposal for consideration All contract requirements must be included LEA must clearly define what they want Requirements cannot be overly restrictive (i.e. cannot require potential FSMCs to have operated in New Jersey) Must include current state agency Response & Projected Operating Statement (Form #23)

9. WRITING SPECIFICATIONS (CONT) Scoring criteria must be included so all FSMC are on level playing field Scoring should identify all evaluation criteria and relative importance Overall cost of the contract should get the most weight Transparency of FSMC rebate system should be included in scoring evaluation Include as much information about food service operation as possible to allow FSMC to give realistic proposal

10. CAUTIONWHEN WRITING SPECIFICATIONS Incentives LEAcannot request and FSMC cannot offer “value added” incentives such as scholarships, donations, grants, etc. Revisions/Clarifications Revisions and clarifications to LEA’s original specifications must be made in writing and sent to all FSMC who expressed interest in submitting a proposal

11. CAUTION IF REQUESTING EQUIPMENT IN SPECIFICATIONS • FSMC can only offer to purchase equipment if LEA makes request in RFP • RFP must include detailed equipment specifications or technical requirements • LEA repayment procedures must be included • Equipment provisions must be for one year only. No assumptions can be made that LEA will renew contract for additional years if FSMC purchases equipment Note: If equipment is purchased, public school contract law must be followed and title to all equipment must be retained by LEA

12. ADVERTISING THE RFP • RFPmustbe publicly advertised in regional news source/official newspaper • 20 days minimum requiredfor advertisement prior to deadline for submission of proposal • LEA CANNOT advertise RFP exclusively on school web site • In addition to the requiredpublic advertisement, LEA can solicit proposals from registered FSMCs by sending letters or emails • LEAmustprovide RFP and specifications to all currently registered FSMCs who request them

13. RECEIVING PROPOSALS • Proposals can only be accepted from FSMC who are registered and listed on the Directory of Registered FSMC for School Year 2014-2015 ( Form #221) • Overly responsive proposals cannot be considered in the evaluation • FSMCs cannot offer goods and/or services that were not requested in specifications provided by LEA • When directions in the RFP are not followed, the proposal is “non responsive” and should not be considered • FSMC proposals should not include any material change from LEA’s specifications. If LEA accepts any change, all potential FSMC must be notified and allowed to amend proposal

14. ANALYZING, SCORING & COMPARING PROPOSALS FSMC must include completed Response & Projected Operating Statement (Form #23)in proposal. All FSMC fees must be identified on Page 1 Evaluate proposals received by usingFSMC Proposal Comparison Form (Form #24) LEA must rank and score proposals based on evaluation criteria included in specifications Potential FSMC can be “interviewed” prior to awarding contract

15. UNDERSTANDING FSMC MANAGEMENT FEES AND GUARANTEES BEFORE AWARDING CONTRACT

16. FSMC MANAGEMENT FEES • One overall management fee or two separate fees (that added together are the overall management fee) may be charged by FSMC • A fee is a management fee no matter what it is called. Some common names for management fees: • Management fee • Administrative fee • Support service fee • General & administrative expense

17. FSMC MANAGEMENT FEES • ALLOWABLE FEE STRUCTURES-Flat fixed fee-Cents per meal fee-Combination of flat fee & cents per meal • PROHIBITED FEE STRUCTURES-Cost plus percentage of cost-Cost plus percentage of income

18. ANNUAL FLAT FIXED MANAGEMENT FEE EXAMPLE $10,000 per year OR $1000 per month for 10 months

19. CENTS PER MEAL MANAGEMENT FEE • Management fee is based on “X” cents per meal and meal equivalent • Meal equivalents are calculated from income received for non reimbursable sales such as adult meals, a la carte, special functions, vending, etc. • Meal equivalent conversion factor must be identified EXAMPLE $.045 cents per meal and meal equivalentMeal equivalent conversion factor of $1.00

20. SEPARATE MANAGEMENT FEE AND ADMINISTRATIVE FEE EXAMPLE $.10 cents per meal/meal equivalent management fee and$.05 cents per meal/meal equivalent administrative feeOR $.08 cents per meal/meal equivalent management fee and $10,000 per year administrative fee OR $10,000 per year management fee and$5,000 per year administrative fee

21. GUARANTEES FSMC contracts may include one of the following guarantees: • GUARANTEED BREAK EVEN • GUARANTEED RETURN (PROFIT) • GUARANTEED LOSS (SUBSIDY)

22. GUARANTEE CAUTION • Read proposals/contract to make sure guarantee is really a guarantee • Review conditions/assumptions affecting contract guarantees to determine if they are realistic and appropriate for your district

23. SAMPLE ILLUSTRATION IS THIS REALLY A GUARANTEED BREAKEVEN? Guaranteed breakeven language in contract: “If the actual bottom line is a subsidy(loss), the FSMC will subsidize the difference up to 50% of the management fee” Management fee: $30,000 (50% of fee is $15,000) Actual bottom line: $26,000 loss $26,000 Loss - $15,000 FSMC guaranteed subsidy amount $11,000 actual cost to LEA LEA DID NOT BREAKEVEN!!!!!!!!

24. AWARDING THE CONTRACT Award to FSMC whose proposal, based on scoring and ranking, was most advantageous to LEA, price and other factors considered Obtain board approval to award contract Maintain record of procurement history, including reason for selection of FSMC and basis of contract price Contract is awarded for a term of one year only. Contract can be renewed yearly for four additional years as long as terms and conditions are not substantially changed State agency approved prototype contract must be used

25. PROTOTYPE CONTRACT CHANGE REQUEST If EXACT prototype contract approved by state agency is not used OR if FSMC is purchasing equipment at LEA’s request: DO NOT SIGN CONTRACT!!! LEA must obtain state agency approval for requested changes PRIOR TO SIGNING CONTRACT. STOP

26. STATE AGENCY APPROVAL OF CONTRACT CHANGE REQUEST If requesting a change to FSMC prototype contract approved by state agency, submit: • Completed LEA and FSMC Prototype Contract/Addendum Change Request Form (#47) • Unsigned Contract • Copy of LEA’s specifications if: • Requesting FSMC to purchase equipment on LEA’s behalf • Incorporating specifications into contract Allow a minimum of 30 business days for State Agency review

27. FINAL STATE AGENCY APPROVAL If using exact approved contract OR after receiving approval for change request, submit: • Completed and signed LEA/FSMC Certification Form (#48) • Signed contract with original signatures and date signed • Certified board minutes awarding contract (must contain ALL fees and guarantee language) • Copy of actual publicized advertisement regarding RFP • Page 1 of Completed Response & Projected Operating Statement (Form #23) for all FSMCs that submitted proposals

28. GETTING STATE AGENCY APPROVAL • Do not sign contract with a separate signature page • Original signatures and date signed required for FSMC and LEA • Board minutes must include fee(s), guarantee, certifying statement and original signature • Fee(s) and guarantee in contract and board minutes must be identical • Use LEA/FSMC Base Year Checklist (Form #15)to assure that all required documents are submitted • As soon as all documents on Form #15 are completed, mail to State Agency to help assure that LEA’s agreement packet approval for Fiscal Year 2015 is not delayed. Do not wait until September 30 to submit

29. RESOURCES • For questions, contact the state agency at 609-984-0692 • For FSMC forms, go to: • SNEARS “Resources” • www.nj.gov/agriculture/applic/forms/#5 • Other Resources*: • “Contracting with Food Service Management Companies: Guidance for School Food Authorities” • USDA Procurement Regulations • “State Agency Guidance on Procurement, Topics 1 & 2”online USDA training available to the public through the National Food Service Management Institute • NJ Public School Contract Law • “Best Practices for Awarding Service Contracts” *See Steps and Resources for Privatization of School Food Services (Form #36) for web addresses

30. Thank you for coming Disclaimer: This presentation was provided as technical assistance to provide a general framework of the process of contracting with a FSMC. LEAs are advised to review all reference materials and applicable federal, state and local law to ensure compliance