By Barry Sackin, SNS 2016-09-09 05:02:10
Are you a K-12 newbie mystified by complicated purchasing requirements? Check out this procurement primer. If you’ve come to K-12 school nutrition with experience in other non-commercial foodservice segments or in restaurants or even simply as the family supermarket shopper, you might be mystified as to all the rules and paperwork associated with the sale and purchase of ingredients and menu items needed to produce meals for the students. Whether you are a school nutrition operator buying food and beverage items or a manufacturer’s rep selling them, the process is far from simple. Why? Why can’t you simply buy the breakfast biscuit that you know your students will eat and that fits perfectly into the meal pattern? Why can’t you give a purchase order to the school chef who raves about the versatility of your low-sodium mushroom soup? Why is the procurement process such a big, complicated deal? To begin, you must consider the situation from the government’s point of view. Federal and state agency administrators are committing some $10-12 billion each year to school foodservice purchases. That’s a lot of money. Accountability for that much money is important, and accountability relies upon the application of good, honest procurement practices—and the documentation of those practices. In so doing, you also can save a lot of money. After all, when you buy a car, you shop around. You make sure you’re getting the best deal for your investment. Shouldn’t the same principle apply to the investment you make with American tax dollars? Procurement has always been a critical area for school foodservice operations, but until recently it did not command the attention and oversight it deserves. A decade ago, Congress got into the act by requiring USDA to address procurement issues. USDA’s response was the development, with the Institute of Child Nutrition, of a comprehensive 30-hour online training program originally intended for state agency staff, but which has since been expanded to all who wish to take it. But many school food authorities—especially those administered by novice and under-staffed operators—aren’t able to take advantage of such training when trying to keep up with daily responsibilities. This leaves a serious and ongoing education gap. Recognizing this, SNA has made providing information and training in this area a priority for the foreseeable future, including this issue of School Nutrition, presentations from the Annual National Conference, webinars and a soon-to-be-released “white paper” developed by the SNA Procurement Task Force (see page 24). This article will focus on K-12 purchasing basics, serving as a primer of sorts to start closing the education gap. GETTING THE GOODS The single most important thing to know in any and all of your K-12 procurements is that the process must be fair, open, competitive and transparent. If, in everything you do when buying goods and services, you keep these four factors in mind, you (and your program) should be OK when your practices are scrutinized by the state agency or another authority with oversight. This means that even if you use the most informal procurement methods, you still must have some kind of auditable system that ensures all possible vendors have an opportunity to sell goods and services to your operation. The second major principle in procurement is that your decision must result in purchases that are in the best interest of the district. The most obvious area where this applies is that buying the cheapest product offered isn’t always the best choice for the district. But, in keeping with the four essential procurement factors, your decision must be defensible. How and why you make an award must be clear to anyone and everyone. Federal law recognizes five allowable methods of procurement for K-12 school meal programs. These are: • micro-purchasing for very low-value items; • small purchasing procedures for procurements under the federal small purchase threshold of $150,000 (your state’s “bid limit” is probably much lower than this); • non-competitive procurements, which are extremely limited; • competitive procurements, which you may know as Requests for Proposal (RFP); and • Invitation to Bid (ITB)/sealed bid procurements. This article will explore and explain the basics of the last two methods. In general, schools should use bids when the primary difference between products or vendors is price. While price is typically the most important factor in purchasing, if other factors are to be considered in awarding a contract, schools may choose to use an RFP approach. Deciding which method that you will use is one of the first decisions you will make in any K-12 school nutrition procurement. But it’s not always obvious—and it’s not always the same for all the items you purchase and it might be appropriate to use more than one. For example, do you issue an ITB for your center-of-the-plate items, or do you use an RFP? The difference between individual products may only be the price, but you also require distribution, which is a service. Here’s a thought: Do both. Bid the products directly with the manufacturers because, if you are using good specifications, the only notable difference will be in the price. Then issue an RFP for distribution service, especially where there are a number of factors that are important to you beyond the price. We’re getting ahead of ourselves a bit, as we haven’t walked through the ITB and RFP approaches in detail yet. But the point of this example is to illustrate the importance of thinking through each procurement decision. Don’t assume that you’re “supposed to” opt for one approach over another or treat all purchases the same. Keep this in mind as we explore two of the most common and more formal procurement methods. YOU ARE CORDIALLY INVITED TO... An Invitation to Bid (ITB) is a very formal process. It requires a publicly published announcement of solicitation that vendors who might be interested in responding will be able to find easily. Where do you publish solicitations? This is a local decision, dictated in part by several factors: the nature of the procurement, where potential vendors are likely to see it and, frankly, the cost of publishing it. Some districts rely on lists of publications or procurement services, print or online, that they use regularly. But don’t lose sight of those two major procurement principles. The goal is not to find the easiest, most convenient way of meeting this requirement; it is to procure the goods and services of greatest value to the district. This is why many districts will, in addition to the required publication, send copies of the solicitation to known vendors or to lists of pre-approved vendors. This way, the district can ensure that any company that wants to bid has the opportunity. What is the “boilerplate”? There are some generic elements that all bids should contain; the wording of many of these can be found in the “boilerplate.” These are a set of standard terms and conditions that the district includes in all of its solicitations, whether books or biscuits. For example, who’s asking? Seems simple, but don’t overlook it, because vendors need this information. The boilerplate should include the name of the agency (the school district), where it is located, where the service is to be performed or the goods delivered, who to call if there’s a question and so on. What does the district require when it comes to insurance, surety and performance bonds, licenses and certifications, etc.? In many states, any vendor whose staff will be visiting a school campus must have background checks on file for those employees. Requiring certain levels of liability insurance for delivery drivers and vehicles indemnifying the district if something happens to staff or property is common. Depending on the nature of the procurement, a variety of statements may be standard language in a solicitation; these might include statements regarding non-discrimination, fair employment, nonpolitical practices and more. Your district probably has this type of boilerplate, or several variations for different scenarios, which it uses for other types of procurement beyond school foodservice. How should you expect to receive the bids? With sealed bids, there is a specific deadline for submissions. The reason these are called sealed bids is that no one knows what a vendor is offering until all of the bids have been received; this way, no one gains an advantage (or disadvantage) from knowing how another vendor responded—or didn’t. If the solicitation says bids must be received in the foodservice or procurement office by 10:00 a.m. on a specific date, any bid that does not arrive by then may not be accepted, even if it’s from one of your best vendor partners. Some ITBs warn vendors against relying on services like FedEx if they are running close to the deadline. Late is late, even by a minute. This helps ensure fairness to all. What else should be included? General terms and expectations for the vendor should be stipulated. For example, a contract to supply food items should include when orders will be placed, plus the timing and frequency of deliveries, including any restrictions or limitations. For example, some schools require that milk be delivered in the window of time between staff arrivals in the morning and when breakfast is served. Some sites might restrict deliveries during the time when meals are being served. For refrigerated or frozen goods, bids should include the acceptable temperature range at the time of delivery. (Remember, inspect what you expect! If you require milk to be delivered on a refrigerated vehicle, go out and check the truck and stick a thermometer in a carton in the middle of a middle case.) How do you write product or service specifications? You want your ITB to include very specific criteria for the products or services you want to buy. The more detailed your specification, the more likely you are to get exactly what you want. Here’s an example of a thorough spec: “A fully cooked, 2.25-oz. beef patty with TPP. TPP not to exceed 20% by weight. Sodium less than 400 mg per patty. CN Label required.” The specification process also includes accurately estimating how much you need. Vendors frequently report little or no correlation between the quantity on the bid and the amount the district actually buys. This isn’t fair to anyone and ends up costing you money. In preparing your ITB, be sure to review your upcoming menus, production records and projected meal counts. Simply “rolling over” what you bid last year may save you some steps, but it is a disservice to the procurement process. There are a few caveats to keep in mind about the specification process. You can’t use a proprietary or restrictive spec. That means that you can’t call out a specific product by its brand name or the manufacturer’s code, except as an example. Thus, you might specify that you want a beef patty “like Processor X’s CN123 or its equal.” That way, another processor will understand what you seek and determine if it can offer a comparable item. That said, ensure that you have an established basis for a fair comparison. Just because a vendor says its product is equal to the one you identified doesn’t mean it is in actuality, but you must know how you intend to compare the two. There has been great confusion about whether it is appropriate (or legal) to use a specification that has been written by a vendor. This is tempting, because we can’t be experts in all of the many product areas we are responsible for purchasing. Writing specifications for a vegetable medley is very different than writing them for a walk-in freezer! One solution is to hire an independent third-party contractor to write your bids and bid specs. But it’s also OK to ask a vendor to help you write specs as long as the end document doesn’t restrict another vendor from bidding on the contract. Proprietary specifications that only one company can meet are neither allowed nor in the best interest of the district. How do you make an award? In the case of bids, price is almost always and exclusively the basis for awarding a contract. If you have been clear and thorough in your specifications, and two vendors offer products that meet that spec, the only determining factor is the price, right? Well, ask yourself another question: Is this always in the district’s best interest? Discussions about best procurement practices acknowledge that what is in the district’s best interest is awarding the contract to “the most responsive and responsible” bidder. Responsive means that the product or service offered meets your needs and specifications. But responsible means that the vendor is capable of meeting the terms of the contract. Let’s revisit our example of the general terms we set for our milk bid. In addition to requiring a particular delivery time, plus the refrigerated truck and the product held in an appropriate temperature range, you might also require that milk be delivered in clean and sanitary cases, with a maximum number of cartons or weight per case. If a vendor has a reputation for delivering the product in trucks with insufficient refrigeration or, more commonly, their cases haven’t been cleaned, they may not be a responsible vendor. If the dairy company packs heavier cases than you allow, they may not be responsive. Making this determination is tricky. But it is fair and reasonable to ask for references from comparable districts before awarding the contract based solely on the lowest price. Establishing the standard for acceptable performance is an important step in the process. Ask the reference how often a delivery was rejected for failing to meet the temperature or sanitation standard. Make sure your ITB clearly states that if two (or another minimum) references report that they rejected deliveries on a defined number of occasions, you can deem that the vendor is not responsible. Leave no room for misunderstanding the standards you’ve set, and document every decision. While clear and specific standards are essential, you also want to provide yourself with reasonable flexibility. Consider the weight limit example. Your work rules may stipulate that an employee cannot be required to lift cases heavier than 30 pounds. That would make a case count or weight limit a reasonable request. But if only one dairy company packs in 20-lb. cases, you can’t set your limit to that weight and exclude all the potential vendors that pack at a higher weight. Lastly, you don’t have to accept any bids. If no one meets your specifications, or the price of the contract exceeds a maximum that you have determined acceptable, you can reject all bids and try again. USDA does this frequently with USDA Foods purchases. However, you should weigh the importance and timing of such a decision; consider our milk example. Since you are required to offer milk with every meal, the failure to award a contract would jeopardize your program. REQUEST APPROVED In many respects, Requests for Proposal (RFPs) are similar to bids. You still need to provide all of the boilerplate language and specifications. But in the case of an RFP, price is still the most important factor in making the award, but it isn’t the only element in play. Historically, RFPs have been more common in procuring service contracts for which there may be significant differences in the nature of how the vendor goes about meeting the terms. But schools are recognizing that quality, service and other factors are important even in contracts for goods. What’s the difference? What makes RFPs distinct from ITBs is the fact that you must clearly state the criteria that you are using to decide your award. Remember those underlying procurement principles. The procurement must be fair, open, competitive and transparent. Everyone must have a common understanding of what you are looking for so that when you make the award, it is obvious why. To do this, you should list all the factors that you will weigh in the process of making the award. And “weigh” is not used as a simple synonym. Once you identify the different factors, you have to rank them for importance and assign a value to that importance. Price should be the most important factor. But perhaps price is 75% of the decision or 50% or even lower. As long as no other factor weighs more heavily—has a higher value—than price, it’s OK. The simplest scale many districts use is a 100-point range. Maybe price is 40 points. Service might be 30 points. Certifications and sanitation might be 10 points. Taste test results might be 20 points. The key is that these factors—and their responses—must be measurable. For example, for service, you might ask how much lead time the vendor requires when you place an order. Of a 10-point total, you might award 10 points if you can place orders the day before you need the products, 7 points for a three-day lead time and 2 points for two weeks. Other factors, like certifications, may be simple “yes” or “no” facts, with all points given or none at all. Certain factors may have more nuances, especially if they involve subjective factors like taste, and you may opt to average the results in order to get a quantifiable measure. The key to weighted factors is that everyone needs to know the criteria and how you’re going to evaluate the responses. When the process is complete, anyone who looks at the score sheets should understand why you made the award decision you did. LET’S MAKE A DEAL Once a bid or proposal has been awarded/accepted, a contract must be agreed to by all parties. In most cases, the solicitation itself becomes the basis for the contract. It is the agreement that cements the terms and prices for the goods or services being purchased. The procurement aspect of the relationship between the vendor and the district should not end when the contract is awarded. Contract compliance is all too often forgotten or ignored. Never assume that all of the terms you agreed to are being followed all of the time. As in our previous milk example, you are responsible for monitoring your vendor performance expectations. You don’t want to have a straw-that-breaks-the-camel’s-back moment one day, decide you’ve had it with a vendor and choose to make a change. Not only should you monitor performance, but you should provide feedback—bad and good—and other communication on a regular basis. Your relationship with your vendors is a partnership. They must have the opportunity to meet your expectations, which they can’t do if they either don’t know what those are, or don’t know that you are dissatisfied. Document, document, document. Remember, contracts are binding. Plan for the unexpected. Most of you remember when fuel prices skyrocketed a few years ago. You may have been sympathetic to the plight of vendors facing greater costs, but unless the contract included the opportunity for price adjustments (which is certainly allowed), vendors were stuck with the prices they bid. When a vendor commits to a price schedule, they must adhere to it. Be sure you monitor this, too. Check your invoices against the bid and contract. Our fuel price crisis example leads to another important point. As sympathetic as you might have been to a vendor who didn’t stipulate to emergency price adjustments in a contract, you can’t simply agree to one now. This is because it would be considered a material change to the contract—something that, had another vendor known you were going to allow, might have led them to bid differently. A material change requires that you rebid the contract. In our example, you and the vendor could agree that the conditions had changed and agree to a limited time for the vendor to continue under the existing contract while you put out a new bid. PRIORITIZE PROCUREMENT PRACTICES This article has provided a brief overview of certain aspects of a very complicated process. Many of you may find that you devote as little time as possible to procurement, because the complexity is intimidating on multiple levels. Get over your anxiety and procrastination and give it the time and attention it deserves. The law requires it. Plus, it is becoming a more significant aspect of the state review process. But the most important reason is that procurement has a tremendous impact on your bottom line and your ongoing ability to serve your student customers the nutritious and delicious meals they want and need. Barry Sackin is a school nutrition consultant specializing in procurement issues and a former staff vice president of government affairs for SNA. He can be reached at email@example.com.
Published by School Nutrition Association. View All Articles.