Study of food service management companies in school nutrition programs contract review results

              United States
Department of
Agriculture
Food and
Nutrition
Service
Office of
Analysis and
Evaluation
fl qFa: F TWJL
Study of Food Service
Management Companies in
School Nutrition Programs
Contract Review Results
June 1994
2 COMPLETED
Prepared for:
Office of Analysis and Evaluation
USDA Food and Nutrition Service
3101 Park Center Drive, Room 214
Alexandria, VA 22302
prepared by:
Price Waterhouse
Office of Government Services
1801 K Street, NW, 10th Fl.
Washington, D Z 20006
Contract No. FNS-3198-0-59
TTiis report was prepared by Price Waterbouse for the Office of Analysis and Evaluation, Food
and Nutrition Semce, USDA, under contract FNS 3198-53-0-59. All material presen^m this
draft interim report was prepared under the supervision of Mr. Joseph Casey. Dr. John Korbel,
Pnnc-pal, reviewed the material. The information contained in the report is not intended to
represent or otherwise convey any policy, position, or endorsement of the Food and Nutrition
Service.
Contents
Chapter I Overview 1
Introduction Background 2
Federal Child Nutrition Programs 2
Food Service Management Companies 2
FNS Guidance 4
Contracting Considerations 5
District Responsibilities 5
FSMC Responsibilities 6
Required Contract Language 6
Suggested Provisions 7
Chapter II Overview 8
Contract Review Sample Selection 8
Methodology Contract Acquisition 8
Contract Abstraction 8
Data Analysis 10
Chapter m Overview 11
National Profile of Use of FSMCs 11
FSMC Usage Level of District Experience with FSMCs 14
FSMC Types and Market Share 16
Chapter IV Overview 21
FSMC Management Incorporation of Federal Regulations 21
Functions State Regulations 21
Free and Reduced-Price Meal Policy 21
Control of Meal Prices 23
Ownership and Control of Donated Commodities 23
Use of Advisory Group 26
Food Service Performance Parameters 27
Chapter V Overview 29
Food Services Types of Meals that FSMCs Provide 29
Responsibility for Meal Related Services 30
Food Storage and Inventory 34
Nutrition Education and Community Services 34
Chapter VI Overview 37
Financial Terms Fee Structures 37
FSMCs in School Nutrition Programs - Contract Review
Contents
and Characteristics
of Contracts
Meal Program Cost Controls
Payments, Security and Reserves
Operating Cost Guarantees and Recovery
41
44
46
Chapter VII
Other Contractual
and Business Issues
Overview
Record Requirements
Facilities Management
Personnel
Insurance Requirements
49
49
49
51
52
Chapter Vffl
Summary
56
Appendices Contract Review Methodology
Contract Origins
A-l-fc»
B-l - 70
Tables Table 3-1:
Table 3-2:
Table 3-3:
Table 4-1:
Table 4-2:
Table 4-3:
Table 4-4:
Table 4-5
Table 4-6
Table 4-7
Table 4-8
Table 5-1:
Table 5-2:
•"ible 5-3
Table 5-4
Table 5-5
Table 5-6:
Table 5-7:
Table 5-8:
School Districts Using an FSMC in School Year 1990-91 12
Sire of FSMCs Providing Food Service to School Districts
in School Year 1990-91 H
Number of Contracts by FSMC Size in Selected States 17
22
23
23
Contracts the Specify Adherence to State Regulations
Contracts that Specify Adherence to Free and Reduced
Price Meal Policy
Contracts that Specify Final Determinant of School
Lunch Prices
Provisions for Changing Prices Charged for Meals During
the School Year 24
Ownership of Donated Commodities 25
Responsibility for Commodity Acquisition and Processing 25
Use of Food Service Advisory Committee 26
Performance Parameters and Food Service
Assumptions Contained in Contract Documents 28
Meal Services Provided by the FSMC
Conditions on Sale of Food and Beverages Other Than
Those Served in School Nutrition Programs
Responsibility for Meal Services
Food Purchasing/Procurement Requirement Terms
Types of Food Product Specifications Contained in
Contracts
Testing of Portion Sizes, Food Temperatures, and
Food Content
Responsibility for Food Storage and Inventory
Responsibility for Nutrition Education and
29
31
31
33
34
35
35
FSMCs in School Nutrition Programs - Contract Review
Contents
Community Services 36
Table 6-1:
Table 6-2:
Table 6-3:
Table 6-4:
Table 6-5:
Table 6-6:
Table 6-7:
Table 6-8:
Table 6-9:
Table 6-10:
Table 6-11:
Table 7-1:
Table 7-2
Table 7-3
Table 7-4
Table 7-5
Table 7-6
Table 7-7
Table 8-1:
Table A-l:
Table A-2:
Payment Structure Combinations Commonly used in FSMC
Contracts
Range of Fee Payments from Districts to FSMCs
by Enrollment
Ala Carte Conversion Factor
Program Cost Accounting and Reporting Services and
Costs
Final Authority for Food Service Equipment Purchase
Effect of Changed Assumptions on Financial Terms
of Contract
Recalculation of Fees on Contract Renewal
Payment of Food Service Bills
Type of Performance Security Specified in Contract
Contract Terms Regarding Guarantees on Food Service
Costs to District
Conditions for Loss Reimbursement
Record Keeping Requirements
Responsibility for Facilities Management
Hiring Practices
Personnel Management
Food Service Employee Benefits
Types of Insurance Coverage and Liabilities Identified
in Contracts
38
39
41
42
42
43
44
45
46
47
48
Information that Contracts Require FSMCs to Maintain 50
51
52
53
54
54
55
Overall Level of Conformance of Contracts in Effect in 1990-
91 School Year and FNS 1992 Contracting Guidelines 57
Contents of Contract File Provided by State Child
Nutrition Agency as Reviewed
States with Supporting Documentation for FSMC
Contracts
A-3
A-5
Exhibits Exhibit 3-1:
Exhibit 3-2:
Exhibit 3-3:
Exhibit 3-4:
13
Concentration of NSLP School Districts Using Food
Service Management Companies
First Year of FSMC Contracting - Percent of Districts
that began FSMC Contracting in Each Year Since 1971 15
FSMC Market Share in Selected States 19
Size of FSMC by District Enrollment 20
FSMCs in School Nutrition Programs - Contract Review
BLANK PAGE
W
Acknowledgements The Study of Food Service Management Companies in School Nutrition
Programs is the first systematic study 01 this issue. Many school distinct
officials across the country have given generously of their time. State Quid
Nutrition Directors and their staff have also helped significantly in this study.
The study was also assisted during the design by an Advisory Panel of experts
in food service. These persons include Kathy Kuser. New Jersey Department
or Education, Annette Boraar, Georgia Department of Education, Shirley
Watkins, Memphis City Public Schools, and George Van Drasek, Marriott
Corporation.
Staff of the Office of Analysis and Evaluation, Food and Nutrition Service, U.S.
Department of Agriculture were responsible for oversight of the research. As
project Officer, Ms. Carol Kelly oversaw all planning, implementation, and
reporting activities.
Special consultants to the staff included nutritionist Dr. Martha Taylor of North
Carolina State University, and nutritionist Sara Ducey.
Finally, staff from Price Waterhouse and our subcontractor Bert Smith and
Company played important roles in the research. Key staff include the authors,
James Thompson, Bruce Caswell, Bryant Tclles. A.J. Wood, and Dr. John
Korbel from Price Waterhouse, and Leon Walker and Noel Mentore from Bert
Smith, and Co.
BLANK PAGE
v)
Chapter I: Introduction
Overview During Fiscal Year 1992, the Federal government invested over
$5.2 billion to support the operation of school nutrition programs.
The twin objectives of these programs are to provide nutritious
meals for the nation's children and to support American agriculture
by providing an effective outlet for surplus farm production. The
National School Lunch Program (NSLP) and the School Breakfast
Program (SBP) are two of the Food and Nutrition Service's
(FNS's) Child Nutrition Programs." At the local level, these
programs are operated by a School Food Authority, or SFA. The
SFA is responsible for providing meals to school children in a
manner that conforms with FNS and State program requirements.
In 1970, FNS published regulations allowing local school districts
to contract with Food Service Management Companies (FSMCs)
for the purpose of operating school food services. Since that time,
there have been few studies focusing on FSMCs that operate in
school districts, and the available descriptive information is
limited.
In the Fall of 1990, FNS contracted with Price Waterhouse to
complete a study of the use of FSMCs by school districts that
participate in NSLP and SBP. The propose of the study is to
collect descriptive information about the use of FSMCs to manage
and operate school nutrition programs - information that is not
presently available. The study is being conducted in three phases:
a review of contracts between school districts and FSMCs; a
survey of a sample of school districts using FSMCs and a
matching sample of school districts that have never used FSMCs;
and case studies of ten school districts that have had experience
using FSMCs.
This report presents the findings of review of a nationally
representative sample of contracts between school districts and
Food Service Management Companies, and the extent to which
these contracts reflect established criteria for contracting with
FSMCs. The report provides a general description of FSMCs, and
describes the contractual controls available to school districts, the
range of food services provided by FSMCs, the financial terms of
the contracts and other contractual and business issues. The
objective of the contract review is to provide FNS with an initial
understanding of the frequency and range of procedures,
contractual agreements, and the services provided by FSMCs to
school districts. The contract review is not designed to serve as
an audit of FSMCs, nor to measure the level of FSMC contract
Pagel FSMCs in School Nutrition Programs - Contract Review
Chapter I: Introduction
compliance to Federal, State, or local regulations. Rather, the
review is intended solely to be descriptive.
Background
Federal Child
Nutrition Programs
The Child Nutrition Programs administered by the Food and
Nutrition Service (FNS) of the U.S.' Department of Agriculture
(USDA) are an essential part of the nation's commitment to
improved nutrition. The five Federal programs include: the
NSLP; thft SBP; the Special Milk Program (SMP); the Child and
Adult Care Food Program; and the Summer Food Service
Program. These programs operate in each of the fifty States,
Trust Territories, and Possessions. Three of these programs -
NSLP, SBP, and SMP - are school-based. They are operated
primarily by local public school districts, private schools, and
institutional programs for children operated by the States. A
small number of local programs are administered by FNS Regional
Offices. This study focuses on the NSLP and the SBP, because it
is mainly for these two programs that school districts look to
FSMCs for management and operational assistance.
Food Service School districts may contract with FSMCs for many aspects of
Management Companies their meal programs. The commercial organizations that contract
with school districts for the purpose of operating food services
include large national corporations such as Marriott, Canteen, and
ARA, corporations operating regionally or at multiple sites in a
State, and small companies servicing a single school district. The
services sought by a school district are likely to include some
combination of management and operational services including:
• Food service operations, including meal planning, food
purchasing, storage, preparation, packaging, and service to
students;
• Accounting services and design of financial controls,
budgets, and reporting systems, including those required
for State and Federal reports;
• Facilities design, equipment maintenance and replacement,
cleaning services;
• Staffing and personnel management; and,
Page 2 FSMCs in School Nutrition Programs - Contract Review
Chapter I: Introduction
• Providing support activities such as marketing and
promotion of school lunch and breakfast programs, and
providing nutrition information and education programs.
FNS requires that school districts contracting for these services
retain authority over their school food programs to ensure that
programs are administered in an accountable manner and all
program regulations are met. In most instances, the official
responsible for exercising this authority is a school district's
business manager.
Duties that school districts cannot delegate to FSMCs are listed in
Title 7 CFR § 210.16, and include:
• Ensuring that food service operations are in conformance
with the SFA's agreement under the NSLP and SBP;
• Monitoring the food service operation through periodic on-site
visits;
• Retaining control of the quality, extent, and general nature
of food services, including the prices to be charged for
meals;
• Ensuring that all Federally donated foods made available to
an FSMC are fully used to the benefit of the school food
service;
• Maintaining applicable health certification; and
• Establishing an advisory board of parents, teachers, and
students to assist in menu planning.
In addition, when contracting with an FSMC, school districts must
adhere to the following procurement standards as specified in Title
7 CFR §210.16.
• States and SFAs can use State or local procurement
procedures sc long as they conform to applicable Federal
regulations (7 CFR Part 3015);
• Sanctions for nonperformance are to be specified and
applied;
• Contracts that permit cost accrual, cost-plus percent of
cost, or cost plus a percent of income are prohibited;
p„e 3 FSMC* in School Nutrition Programs - Contract Review
Chapter I: Introduction
Contracts that provide for a fixed fee, such as a
management fee, are permitted;
FSMCs must maintain and make available auditable
records;
Contracts must be for a period not exceeding one year,
with up to four annual renewal periods; and
All contracts must permit for:cause cancellation by either
party with 60-day notification
FNS Guidance In October of 1992, FNS issued Guidance for School Food
Authorities; Contracting with Food Service
Management Companies. This guidance, which is based on
existing regulations, is intended to inform school districts about the
contracting process and provides a single-source compilation of
school district responsibilities with respect to food service
management companies. It reinforces existing regulatory language
about the specific responsibilities that a school district must retain.
The guidance provides extensive information about the
procurement process, the decision-making process that a school
district should follow when deciding to contract for food service
management, and the appropriate contracting vehicles. Much of
the guidance focuses on the actions that lead to the actual contract.
The contracts sampled for this analysis were chosen before the
guidance was prepared and released. Comparisons with the
guidance provide an indication of how well existing contracts meet
current regulations. The reason for this is that all current FNS
regulations were in effect when the sample of contracts was
entered in to or renewed. The guidance issued by FNS have
important implications for future FSMC contracts. Although
prepared independently, many of the findings of this analysis
reinforce the guidance provided by FNS.
Contracting
Considerations
FNS advises school districts to consult their State Agencies and
neighboring FSMC districts for information before
contracting with a management company. Among other things,
districts should thoroughly research the total costs of operating the
food service and solidify their food service goals.
Page 4 FSMCt in School Nutrition Programs - Contract Review
Chapter I: Introduction
If the decision has been made to contract the school food service,
the district then needs to decide on a method of procurement. The
two methods discussed in FNS's guidance material are competitive
sealed bids and competitive negotiation. Competitive sealed bids,
which use an Invitation for Bid (IFB) process, are useful to
districts that have identified exactly the services and costs to be
delegated to the FSMC. The IFB process also provides for a more
simple contract evaluation and monitoring process than is possible
with other methods. The competitive negotiation process, which
involves the use of a Request for Proposals (RFP), is better suited
to districts that desire flexibility in selecting an FSMC because
they are uncertain of the approach they want to take in contracting
their food services. The RFP process requires that districts be
able to critically evaluate the submitted proposals and later monitor
the contract. Cost-reimbursable contracts are only possible
through the RFP process. Under either method, the district must
provide a clear and realistic description of the services desired
under a FSMC contract. The FNS guidance provides further
description of the regulations that address the evaluation of bids
and proposals.
Program regulations require State agencies to review the contract
prior to issuance of a bid or after negotiations are complete,
whichever situation is applicable. State agencies may also review
the RFP before it is released.
District Responsibilities The responsibilities that FNS designates as district responsibilities
must be present in every district contract with an FSMC. Among
these responsibilities are:
Signature authority on reimbursement claims;
All phases of the free-/reduced-price meal approval process
Control of the school food service account;
Establishment of all program and non-program meal and a
la carte prices;
Title to USDA-donated foods;
Development of the cycle menu, where possible;
Establishment and maintenance of a parent/teacher/student
advisory board to assist in menu planning;
Maintenance of applicable health certifications at the SFA
facility; and
Control of the quality, extent, and general nature of food
service.
Pa*«5 FSMCs in School Nutrition Propwnt - Contract Review
Chapter I: Introduction
School districts must monitor FSMC compliance with the contract
and any other applicable Federal, State, or local regulations. The
district should also maintain thorough documentation of this
monitoring.
FSMC Responsibilities FNS also defines several requirements for management companies
that contract with school districts. Chief among these is the period
over which FSMCs must keep records on file. The FNS guidance
states that the FSMC must retain all records relevant to district
claims and Federal laws and regulations for three years from the
close of each year's contract. Every FSMC contract must include
some mention of this requirement. The records must be available
for audit by representatives of the district, State Agency, USDA,
or the General Accounting Office at any reasonable time and place.
Unresolved audit findings may force retention of records beyond
three years.
All revenue and any expenses charged to the district must flow
through the district food service account. Each contract must
attempt to guarantee this by specifying that the school food service
account will remain under district control. Along the same lines,
FNS requires that USDA commodities accrue only to the benefit
of the district's non-profit school food service. An FSMC must
keep accurate and complete records with respect to the receipt,
use, storage, and inventory of donated foods. All contracts should
indicate that commodity processing rebates are the property of the
district. Furthermore, all proceeds from these rebates must be
utilized by the district's non-profit food service program.
Finally, if an FSMC uses outside food preparation facilities, it
must maintain health certifications for any off-site facilities for the
duration of its contract. This requirement does not extend to on-site
facilities, which are the responsibility of the district. Of
course, the FSMC must meet all applicable State and local health
regulations for every facility it operates in relation to food service.
Required Contract
Language
FNS specifies that certain language must appear in every FSMC
contract. These clauses concern unsatisfactory meal service,
contract termination, and compliance with relevant Federal Acts.
The first required clause sets forth the procedure in case meal
service does not meet certain standards. The clause must state that
spoiled or unwholesome meals, and those not meeting the
specifications of the contract will not be remunerated. Each
Pa** 6 FSMCs in School Nutrition Programs - Conuaci Review
Chapter I: Introduction
contract must also include a termination clause to be applied by
either the district or the FSMC to nullify the contract. Sixty-day
notification by either party is required for contract termination. In
addition, the contract should detail penalties for instances where
contract terms are breached. The guidance advises that the statute
of limitations on contract grievances be linked to either the State
Agency's required document-retention period, or three years,
whichever is longer.
The final contract language requirement is designed to ensure
FSMC compliance with Acts relevant to food service. All
contracts must require compliance with the Fair Labor Standards
Act and the Occupational Safety and Health Act, among others.
Suggested Provisions FNS also suggests, without requiring, that contract provisions
appear in FSMC contracts regarding the following:
• Compliance with the Civil Rights Act of 1964, although
this is mainly a district responsibility;
• Compliance with Buy American provisions in food
purchasing; and
• A provision stating that any omissions from the contract
should imply that "best commercial practices" are expected
in that area.
P»«e7 FSMCs in School Nutrition Programs - Coronet Review
Chapter II: Contract Review Methodology
Overview This section describes how contracts between school districts and
food service management companies (FSMCs) and other related
documentation were collected, reviewed, and prepared for
analysis.
Sample Selection A total of 905 school districts contracted with FSMCs in the
1990-91 school year. A sample of 135 of these districts was
selected for the study. The sample size was computed to provide
a 95 percent confidence level and estimates that, on average, have
a precision of +Z-7.3 percent. Stratification by enrollment size of
the school district was used to ensure proportional representation
of the population of school districts using FSMCs. Contracts were
obtained for 132 districts.
Contract Acquisition In May of 1991, each of the 24 State Agencies with a school
district in the sample was contacted by letter and telephone and
asked to provide a copy of the contents of their contract files for
each of the sampled school districts. Specific instructions on the
types of contract-related documents were contained in the request.
Though most State Agencies were able to respond to the request,
extensive follow-up was necessary. This follow-up included
correspondence, telephone calls, and visits to State Agencies to
assist with file retrieval and photo-copying.
Of the contract files received, 57 percent contained the contract
document only, while the remainder contained both the contract
and supporting documents including bid specifications, RFPs,
and/or amendments.
Contract Abstraction Each of the 132 contracts was given a structured review of
content, and data were abstracted. These data were then entered
into a data base and serve as the basis of the analysis presented
herein.
Prior to collecting the contracts, a small group of contract files
were reviewed to identify the typical clauses, terms and services
likely to be contained in a contract between a school district and
an FSMC. A review form was prepared which incorporated the
full range of data that might be available in each contract. Data
elements corresponding with each clause, term, and service area
were assigned a basic set of numeric codes that could be entered
Page 8
FSMCs in School Nutrition Programs - Contract Review
Chapter II: Contract Review Methodology
into a database. This document was used to ensure that data were
abstracted consistently. Staff with accounting and audit training
conducted the reviews.
The review focused on the following aspects of the contract
document:
• Reference to and incorporation of Federal and/or State
contracting laws or regulations;
• Provisions that enable school districts to control FSMC
performance and costs;
• Food service management duties and responsibilities of the
FSMC and the school district's school food authority
(SFA);
• Basis for fee payment, and payment conditions;
• Statement of assumptions serving as the basis for fees;
• Monetary guarantees included in the contract specifications;
• Other contractual issues such as reporting, personnel, and
insurance.
Care was taken to avoid interpretations and conjecture about the
intent of contract language. If there was any doubt about the
specificity of a point of fact (e.g., a service provided or a
requirement placed upon the FSMC by the school district) the
coding attempted to reflect this uncertainty. Virtually all of the
information was coded into numeric categories, most of which
reflects the presence or absence of a point of information. Each
reviewer re-examined the information recorded on the abstracting
form to ensure that all fields were accurately and properly
completed. In those instances where the reviewer was unable,
based on the available information, to make a determination, this
fact was documented. A sample of all abstracting was
independently reviewed against the original contract. Supervisory
staff reviewed all work.
Once the contracts and completed data input forms were reviewed
by the supervisor, the data were keyed into a series of
spreadsheets. Codes for descriptive text entries appeared in the
database. The completed spreadsheets were reviewed against the
Pa(!e 9 FSMCt in School Nutrition Programs - Contract Review
Chapter II: Contract Review Methodology
data forms, convened to a SAS data set, and subjected to tests for
missing or illogical data (see Appendix A), and then tabulated.
Data Analysis The first step in the analysis was to prepare tabulations for each
variable. After reviewing the variables individually, they were
combined into logically related groups that correspond to each of
the chapters in this report. It was also necessary to combine
variables into more meaningful measures. To illustrate, the terms
of payment or fee structure of contracts were not simple constructs
such as per meal cost plus an administrative fee. Often there are
multiple fees - administrative, management - and the basis for the
application of the fee might be per meal or an annual value.
Numerous permutations were identified and considerable effort was
required to adequately define the combinations. This was done to
avoid the possibility of misleading results if simple (duplicated)
counts were reported for the number of contacts that used a
particular type of fee. The tabulations were submitted to FNS for
review.
The contract review data are largely descriptive. Considerable
analysis was undertaken to identify patterns that might be
attributed to specific causes such as degree of involvement of State
Agencies, size of the food service management companies, size of
school district, and extent to which the contract provided school
districts with adequate control over the performance of the FSMC.
These variables add little useful new information about variations
in contract terms and conditions.
A more detailed discussion of the file review methodology appears
in Appendix A. Appendix B contains a discussion of the probable
origin of contracts. The report contains selected tabulations.
Fa_, IQ FSMCs in School Nulrilioo Proptm* - Comnct Review
Chapter III: National Profile of FSMC Usage
Overview
i ,
This chapter provides descriptive information about the use of
private Food Service Management Companies (FSMCs) by school
districts to manage their school nutrition programs. Information
is provided about the population of FSMCs and their patterns of
involvement in the NSLP.
Use of FSMCs Child Nutrition State agencies identified 905 NSLP school districts
as using a Food Service Management Company in School Year
1990-91. In comparison, the Office of Inspector General, USDA,
identified 839 school district:; that used an FSMC during School
Year 1987-88. According to the Child Nutrition Program
Operations Study1, 12,898 public and 3,381 private school
districts participated in the NSLP in School Year 1990-91. Thus,
5.6 percent of school districts participating in the NSLP used a
FSMC during the School Year 1990-91. The majority of these
districts (93.4 percent) were public school districts. Most public
school districts that used an FSMC had between 1,200 and 5,000
students (see Table 3-1). All private schools that used an FSMC
had fewer than 1,200 students.
The proportion of public and private school districts that use
FSMCs varies greatly by State. In some States, no school districts
use an FSMC, while in others, up to 27 percent of school districts
use an FSMC.2 Overall, FSMCs operated in 33 States during the
1990-91 School Year.
FSMC contracting is most heavily concentrated into four areas of
the United States. Exhibit 3-1 shows that FSMC use is
concentrated in the Northeast, the Midwest, Texas, and the West
Coast. States outside these areas have five or fewer districts that
use FSMCs. Only three States in the South have districts that use
FSMCs. The States with a high concentration of districts using
FSMCs tend to be those with numerous small school districts,
rather than large, county based school districts.
1 St. Pierre, Robert et al., Child Nutrition Program
Operations Study. Prepared for USDA Contract No. FNS-
53-3198-7-32, January 1992.
The State Child Nutrition Agency in those States with high
numbers of school districts using FSMCs provided
information on the total number of NSLP school districts.
Pa«e 11 FSMCs in School Nutrition Programs - Contract Review
Table 3-1. School
Districts using an
FSMC in School
Year 1990-91 Type of district Districts in
U.S.
Percent of
Total
Districts
using
FSMCs
Percent
using
FSMCs
Public
Fewer than 1,200 students
1,200-4,999 students
5,000 - 9,999 students
10,000 or more students
TOTAL
8,111
4,986
932
922
14,951
54.3%
33.3%
6.2%
6.2%
100.0%
170
521
116
39
846
2.1%
10.4%
12.4%
4.2%
5.7%
Private
Fewer than 1,200 students
1,200-4,999 students
5,000 - 9,999 students
10,000 or more students
TOTAL
13,686
50
0
1
13,737
99.6%
0.4%
0.0%
0.0%
100.0%
59
0
0
0
59
0.4%
0.0%
0.0%
0.0%
0.4%
Source: School district population taken from MDR, Inc.
FSMC population from State Child Nutrition Agencies
Page 12 FSMCs in School Nutrition Programs - Contnct Review
Concentration of NSLP School Districts Using
Food Service Management Companies
By State - 1990-91 School Year
3o
¥1
V
5? I
io * Bold outline indicates FNS Regions
Source: State Child Nutrition Agencies
Number of Districts Using FSMCs
D None i 6-20
□ 1-5 21 or more
a
Z
o'
3
3
3
!5
Ire
«f
/J
Chapter III: National Profile of FSMC Usage
Level of District While many school districts have been using an FSMC for only
Experience with FSMCs a few years, some school districts have used contracted food
service management for over 20 years. Most school districts that
currently use an FSMC began using FSMCs within the last twenty
years. On average, a district using an FSMC in School Year
1990-91 had used an FSMC for 9 years. Districts that presently
use an FSMC began using FSMCs at a steady rate (about 30 new
contracts per year) during the 1970s. In 1980, the contracting rate
increased to approximately 60 new contracts per year, and this rate
of new, or first time, contracts has remained constant for most
years since. During the same period, school districts renewed
contracts and continued to use FSMCs. Exhibit 3-2 shows the
years in which districts that currently use an FSMC began
contracting for food service management.3
Among districts that are currently using an FSMC, most have used
the same contractor for 6 to 7 years. While just over 10 percent
are in their first year of contracting with their current FSMC,
some districts have used the same FSMC for over 20 years.
School districts that have changed contractors use the same FSMC
for 3 to 4 years, on average. However, some districts have
changed FSMCs before completing one year of contracting.
Until 1988, districts that contracted with FSMCs were required to
conduct a full procurement for FSMC services for a base year plus
two option years. At the end of the third year, a full open
procurement was required. In 1988, these regulations were
changed to allow up to four one year renewals after the base year.
Thus, districts that signed contracts with FSMCs from School Year
1988-89 to the present have been permitted up to four option
years4. Therefore, districts that used an FSMC in School Year
1990-91 will need to renew contracts between School Years
3 Since Exhibit 3-2 only captures the years of experience
with FSMCs for districts that currently use FSMCs, the
apparent trend in FSMC use is biased towards more recent
years. It does not reflect the history of FSMC use for
districts that no longer contract with FSMCs. For
example, districts that used an FSMC betv een 1982 and
1985 that are currently self-managed are not captured in the
graph.
4 New Jersey and New York regulate the length of contract
base periods and option years that differ from the standard
limit of four one-year renewals.
Page 14 FSMCs in School Nutrition Programs - Contract Review
3
2c
f
First Year of FSMC Contracting
Percent of Districts that began FSMC Contracting in each Year
since 1971
10%
P
to
2
5s.
o
EL
Ire
o
71* 72 73 74 75 76 77 78 79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90
School Year Beginning in
* Note: 1971 or before
Source: Survey of Districts
/S
lv>
Thapter III: National Profile of FSMC Usage
1993-94, 1994-95, or 1995-96, depending on their contracting
cycle (assuming that all one-year options are exercised).
Approximately 28 percent of school districts using FSMCs will
need to conduct procurements in 1993, 39 percent in 1994, and 33
percent in 1995. The contracting guidelines issued by FNS in
October of 1992 should be reflected in the new contracts as they
take effect.
FSMC Types and Market Fifty-four percent of school districts that contract with FSMCs
Share use on of the four national FSMCs: ARA, Marriott, Canteen, and
Service America. Smaller, regional FSMCs hold 43 percent of
contracts, while FSMCs that operate in only one school district
hold the remaining 3 percent of contracts (See Table 3-2).
Although there are no States with a majority of one-contract
FSMCs, there are States wherein regional or national FSMCs hold
a sizeable majority of contracts. Table 3-3 shows market share for
selected States. Some States, such as New Jersey, have a large
number of regional FSMC contracts relative to the total number of
contracts, while contracts in some States, such as Michigan and
Texas, are almost entirely held by large FSMCs.
In States with a high percentage of national FSMC contracts, one
contractor usually has a large majority of the contracts. For
example, in California, Oregon, and Washington, Marriott is the
predominant FSMC contractor. In Texas, ARA has most FSMC
contracts, while in Michigan, the most common contractor is
Canteen. In these States, market share held by the predominant
FSMC is extremely high. This fact is reinforced in Exhibit 3-3,
which shows the percent of contracts held by the largest FSMCs
in selected States. The chart for each state shows the percent of
FSMC contracts in the State held by each FSMC. For example,
in Texas where there are 5 FSMCs under contract to school
districts, 78 percent of the contracts are held by the single largest
FSMC in the State. In contrast, of the 14 FSMCs that operate in
New York, only one contractor holds more than 20 percent of the
contracts.
p„e w FSMCs in School Nutrition Progtims - Contract Review
Chapter III: National Profile of FSMC Usage
Table 3-2: Size of
FSMCs Providing
Food Service to
School Districts
in School Year
1990-91
Size of FSMC
Large National
Regional
FSMC with one
Contract
TOTAL
Number of Contracts
486
390
29 .
905
Percent of Contracts
53.7%
43.1%
3.2%
100.0%
Source: State Child Nutrition Agencies
Table 3-3:
Number of
Contracts
byFSMC
Size in
Selected State
Large
FSMCs Percent
Regional
FSMCs Percent
Single
FSMCs Percent
States
Arizona 3 21% 10 72% 7%
California 24 96% 0 0% 4%
Illinois 68 75% 21 23% 2%
Michigan 71 98% 1 1% 1%
Minnesota 3 9% 31 88% 3%
New Jersey 43 22% 149 76% 2%
New York 49 43% 61 54% 3%
Texas 44 96% 1 2% 2%
Wisconsin 6 33% 11 61% 6%
Source: State Child Nutrition Agencies
Page 17 FSMCs in School Nutrition Programs - Contract Review
Chapter III: National Profile of FSMC Usage
As district enrollment increases, there is a trend towards use of
larger FSMCs. Exhibit 3-4 shows that in districts with fewer than
1,200 students enrolled, nearly 25 percent of contracts are with
national FSMCs. This percentage increased to about 85 percent
in districts with enrollments of 10,000 students or more.
Page 18 FSMCs is School Nutrition Programs - Contract Review
Market Share for Each FSMC in Selected States
Percent of
contracts held Illinois Michigan New Jersey
32o
w
zia
IO
I 2 3
91 FSMC District!
New York
I 2 3 4 1 6 7 8 9 10 II 12 13 14
113 FSMC Dlslrtds
Source: State Child Nutrition Agencies
I 2
73 FSMC Districts
Pennsylvania
1 2
96 FSMC Districts
I 3 5 7 9 II 13 15 17 19
195 FSMC Districts
Texas
100
80
60
40
20
0 1 ■ Irrir-r-i ■
100
80
60
40
20
I 2
46 FSMC Districts
".2
wa.
o
r»
O-»>
T1
CO
n
8
»
19
I
5'
n
zI3
oo
Size of FSMC by District Enrollment
69.4%
24.5%
6.1%
Fewer than 1,200
74.8%
5,000 - 9,999
59.6%
2.5%
37.9%
1,200-4,999
84.6%
10,000 or more
■ National FSMC ■ Regional FSMC □ Single Contract FSMC
Source: Stale Child Nutrition Agencies
3»
§
tn I
Chapter IV: FSMC Management Functions
Overview Contracts between school districts and FSMCs provide the basis
for successful and appropriate oversight by the school district in
meeting its need to provide meal service that conforms with USDA
requirements and to do so in a cost effective manner. Contracts
were examined to determine the extent to which key management
practices were in place and language about performance was
provided as a basis for the contract.
Incorporation of Federal The Code of Federal Regulations provides rules which school
Regulations districts must observe if they are to participate in NSLP, SBP, and
other meal programs. These rules are fairly specific with respect
to the roles and responsibilities of school districts that chose to
contract for food service management. Practically all contracts
(95.5 percent) minimally state in varying ways that the FSMC
must perform in accordance with Federal regulations. Among
these contracts., 83.8 percent specifically site Child Nutrition
Program regulations; the remainder contain a nonspecific reference
to "Federal regulations". Incorporation of program regulations,
(e.g., stating that the FSMC is to comply with the regulations),
provides a common basis for performance by the FSMC. It does
not, however relieve a school district from its need to monitor
performance and conformance with program regulations, and to
retain active responsibility for key aspects of the program.
State Regulations Table 4-1, summarizes the prevalence of references to State
regulations. First, almost 92 percent of all contracts contain some
reference to applicable State regulations. Included are
procurement requirements and requirements associated with child
nutrition programs. To illustrate, New Jersey (and several other
States) require that an addendum summarizing Federal and State
requirements be included in any contract for food service
management.
Free and Reduced-Price
Meal Policy
Providing free and reduced-price meals permits a school district to
contribute significantly to the nutritional needs of children from
families with low incomes. FNS reimburses school districts at
higher rates for these meals than for full price meals. Finally, the
provision of free and reduced-price meals involves application and
benefit certification procedures that are subject to State and Federal
Page 21 FSMCs in School Nutrition Programs - Contract Review
Chapter IV: FSMC Management Functions
Table 4-1: Contracts
that Specify
Adherence to State
Regulations
All
Contracts
FSMC must conform to State regulations 91.9%
Contract does not state that FSMC 8.1%
must conform to State regulations
TOTAL 100.0%
oversight. While school districts are expected to be responsible
for the application processing, FSMCs are often responsible for
meal related aspects including accurate meal counts and use of
procedures that prevent overt identification of free and reduced-price
eligible students. It is therefore appropriate for this area to
be addressed in contracts. As shown in Table 4-2, 83.8 percent
of all contracts do include language requiring the FSMC to comply
with the school district's free and reduced-price meal policies.
Approximately 68 percent of all contracts include language
assigning responsibility for free and reduced-price meal
application verification and approval. In most instances (92
percent) the school district has responsibility for this activity. For
the remaining sizable number of contracts that do not contain clear
statements on this issue, it is not possible to affirm that the school
districts retain control over free and reduced-price meal policy,
eligibility determination and benefit delivery,
Table 4-2: Contracts that Specify
Adherence to Free and Reduced Price
Meal Policy
All
Contracts
Contract specifies FSMC must adhere to policy 83.8%
Contract does not state that FSMC \d.2%
must adhere to F/RP policy .
TOTAL . 100-0%
p™ 22 FSMCs in School Nutrition Programs - Contract Review
Chapter IV: FSMC Management Functions
Control of Meal Prices Another area where school districts are likely to exert control is in
the setting of meal prices. Meal and a la carte prices should be
affordable and consistent with overall school district policy. Table
4-3, indicates that 82.4 percent of all contracts state that the school
district has final authority over meal prices. In 8 percent of all
contracts, authority is shared by the school district and the FSMC.
The contracts do not specify the nature of sharing - e.g., whether
or not the FSMC provides input or recommendations. It is
noteworthy that 9.6 percent of contracts fail to identify who has
authority to determine meal prices.
It is expected that school districts will retain control over prices
and that some formal means for changing prices should be in
place. As indicated in Table 4-4, only 7.4 percent of contracts
have language addressing price changes. In those few instances
where there is language on meal price changes, two different types
of language were found: prices can change without Board
approval; and, ceilings placed on prices charged to students. The
first is not consistent with a school districts responsibility to retain
control over prices. However, it is important to reiterate that very
few contracts contained this language.
Ownership and Control of USDA donated entitlement and bonus commodities offset the cost
Donated Commodities to districts of providing school meals. School districts are
expected to retain control over the use of donated commodities and
Table 4-3: Contracts that Specify Final
Determinant of School Lunch Prices
All
Final determinant: Contracts
District or School Board 82.4%
Shared . . ^0%
Not specified 9-6%
TOTAL S2L2*
Page 23 FSMCs in School Nutrition Programs - Contract Review
Chapter IV: FSMC Management Functions
Table 4-4: Provision for
Changing Prices Charged for Meals
During the School Year
Percent of
Contracts
Prices may change during the year 7-4%
No provision for price change _ 92.6%
TOTAL 100.0%
Additional provisions for price change:
Prices may change without Board approval 1-8%
Ceiling placed on prices charged during school year 1-0%
ensure that they are used for program purposes. Contracts were
generally found to address two areas: ownership and responsibility
for commodity acquisition and processing. Table 4-5 summarizes
ownership of commodities. Overall, 86.4 percent of contracts
state who owns commodities. The remaining 13.6 percent of
contracts do not address this issue. Of interest is that a large
proportion of contracts - 62.9 percent overall, or 72.8 percent of
all contracts that address commodities ownership - state that the
FSMC, not the school district, controls the donated commodities.
While this may be an efficient arrangement, that is, food service
professionals employed by the FSMC plan, order, take delivery of,
store and use donated commodities, contracts do not generally
provide explicit language with respect to the retention of control
over use by the school district. When there is language on this
issue, it is a simple restatement of the FNS regulations, but does
not define the specific measures (e.g., inventory, review of order
and delivery documents, observation of meal preparation) that a
school district can take to ensure compliance.
A second aspect of donated commodities is responsibility for
acquisition and processing. As shown in Table 4-6, 65.6 percent
of all contracts address commodity acquisition and processing to
some degree; the remainder do not. When contracts are examined
p„e 24 FSMCs in School Nutrition Programs - Contact Review
Table 4-5: Ownership of Donated
Commodities
All
Contracts
FSMC will have title to commodities 62.9%
District will have title to commodities 23.5%
Not specified in contract 13.6%
TOTAL 100.0%
Table 4-6: Responsibility for
Commodity Acquisition and
Processing
Percent of
Level of specificity in contract: Contracts
Some responsibilities outlined in contract 62.5%
No responsibilities outlined in contract 34.4%
Responsibilities alluded to in contract 3.1%
Percent of
FSMC is responsible for services: Contracts
Storage and inventory 54.4%
Ordering and acquisition 37.6%
Processing 29.6%
to determine who is responsible for specific activities such as
storage, ordering, and processing, among all contracts the
responsibility appears to be shared. If the analysis focuses only on
contracts that do address commodity acquisition and processing, 83
percent assign responsibility for storage and inventory to the
FSMC, 57 percent assign responsibility for ordering and
acquisition to the FSMC, and 45 percent assign responsibility for
processing to the FSMC. However, the overarching point is that
contracts do not generally provide much specificity about the use
and control of commodities and suggest that school districts are
assigning control and responsibility to the FSMC. This raises
questions about accountability for donated commodities that resides
with school districts. Regulations clearly state that school districts
can not delegate to FSMCs responsibility for ensuring that donated
commodities are fully used to the benefit of the school food
service.
P**«25 FSMCs in School Nutrition Programs - Contract Review
Chapter IV: FSMC Management Functions
Use of Advisory Group Program regulations require that school districts use an advisory
group made up of students, parents and faculty to obtain guidance
on various aspects of a school district's food services. The
regulations also state that responsibility for the advisory committee
can not be delegated to the FSMC. As indicated in Table 4-7,
most contracts, 90 percent require that the FSMC establish an
advisory group and 3.5 percent require that the FSMC work with
an existing advisory group. Most contracts specify membership to
include students, parents, and teachers which is consistent with
program regulations. Thus, this aspect of meal program
management-providing a mechanism for responsiveness to student
and school needs-is addressed in contracts. The contracts do not
specify who actually controls the advisory group or whether the
FSMC is limited to providing administrative support.
Table 4-7: Use of Food Service
Advisory Committee
Type of committee:
FSMC must establish and use committee
FSMC must use existing committee
Advisory committee not mentioned
Percent of
Contracts
90.0%
3.596
6.5 %
TOTAL 100.0%
Contract identified advisory committee membership:
Students ,
Parents
Teachers/faculty
FSMC site manager or representative
Not specified
Business manager (or designee)
Non-FSMC employees of district
Percent of
Contracts
90.2%
87.6%
87.1%
14.9%
2.5%
1.6%
1.1%
Average number of member types cited in contract: 3
Note: Multiple responses possible.
Page 26 FSMCs in School Nutrition Programs - Contnct Review
Chapter IV: FSMC Management Functions
Food Service Perform-ance
Parameters
Most of the points already raised in this section provide the basis
for the school district to guide and provide oversight of the FSMC
in the provision of meal services. In addition, it is expected that
contracts (or associated documents such as the RFP or bid
specification) would also provide both specific and general
information about the scope of services to be provided. Table 4-8
summarizes the types of information contained in contracts that
may be used to define performance parameters or make food
service assumptions. While most contracts (96.2 percent) provide
some parameters, the types summarized in the table represent what
was found across the full sample of contracts. On average, five
items from this list were specified in a contract.
Most often specified were numbers of buildings, meal prices,
numbers of students, available meal preparation facilities, and
number of meal service days expected for the school year.
However, there is no specific pattern evident. Surprisingly, fewer
than three percent of contracts contain meal count data (typically
prior year totals for reimbursed meals, a la carte service, adult
meals) which should be of value to the FSMC when it prices the
contract. It is quite possible that information of this type is
presented as part of the bid specifications or RFP that a school
district publishes, or is determined by a FSMC when it markets its
services to a school district or conducts a ite survey. Contracts
do not provide insights into these possibilities.
Page 27 FSMCs in School Nutrition Progrt-ns - Contract Review
Chapter IV" FSMC Manaoempnt Functions
Table 4-8: Performance Parameters and
Food Service Assumptions Contained in
Contract Documents
Percent of
Contracts
Number of school buildings 67.4%
Meal prices 50.2%
Number of students available for lunch 40.6%
Meal preparation facilities described 40.4%
Number of service days 38.1%
Quantities of commodi'des available 27.8%
Federal/State reimbursement rates 26.87c
Meal service hours 23.2%
Food service and serving methods 19.0%
Number of meal service periods
Commodity usage
Estimated meal counts
25.1%
Assumptions:
Employee benefits covered or provided for
Legislation and regulations , 24.5%
Minimum wage rates , 21.2%
Wages and pay schedules j|jg
District equipment responsibilities
Unscheduled meal service events
CPI adjustments ,
No assumptions/performance parameters _ L£r_
Average number of assumptions/parameters identified in contracts: S.
Note: These assumptions were either stated explicitly or alluded to in the
contract document.
Note: Multiple responses possible.
p„e 28 FSMCs in School Nutrition Programs - Contract Review
Chapter V: Food Services
Overview This section describes the range of services covered in contracts
between school districts and food service management companies
(FSMCs). Considered here are the types of meals provided by the
FSMC and the division of responsibility for the various activities
that define meal services such as food purchasing and storage,
meal preparation, and other related activities. As might be
expected, the contracts designate the FSMC as having primary
responsibility for the majority of food acquisition, storage,
preparation, and service activities related to school meal programs.
Types of Meals that
FSMCs Provide
Food Service Management Companies tend to concentrate on
providing lunch, breakfast, and special event meals. Other meal
programs such as child care are rarely specified in the contract.
Table 5-1 summarizes the types of meals specified in contracts.
On average, two meal types were specified in contracts. Eight
percent of the contracts fail to specify the types of meals that the
school district is contracting out. While it is possible that the
meals to be provided by the FSMC were specified in another
document such as an request for proposals or bid specifications,
this fact was not referenced in the contract. This is a fundamental
requirement that should be described in contracts since it defines
a significant portion of the services to be provided by the FSMC.
Table 5-1: Meal Services
Provided by the FSMC
Percent of
Contracts
FSMC provided meals:
Lunch
Special event meals
Breakfast
Dinner
Child care food program
No reference to meal services
Average number of services provided by contract: 2
Note: Multiple responses possible.
86.7%
62.8%
42.8%
1.
0.9%
8.1%
Pa*e29 FSMCs in School Nutrition Programs - Contnct Review
Chapter V: Food Services
School districts also may sell foods that are primarily intended to
generate revenue, such as snacks and drinks sold a la carte or
through vending machines. The types of foods offered can vary
widely. These foods may either supplement or supplant those
provide by the pattern meal. There has been some concern in the
school food service community that many a la carte and vending
machine offerings are of lower nutritional value than the pattern
meals. For this reason, a school district interested in controlling
the nutritional integrity of foods offered would want to retain
authority over foods made available by the FSMC that are in
addition to the pattern meal. The review indicates that about half
of the contracts specifically designate the FSMC as having
approval authority over foods offered by the school food service,
and half do not (Table 5-2).
Responsibility for
Meal Related Services
In addition to specifying the types of meals that the FSMC is to
provide, contracts should designate who is specifically responsible
for a range of associated services such as cafeteria operations,
verification and approval of free and reduced price meal
applications, meal ticket sales, and food purchasing and storage.
Table 5-3 provides two types of information about these services.
The first is the level of specificity in contracts about services.
About 81 percent of all contracts identify who is responsible for
providing various services. However, the level of specificity
varies. That is, some contracts provide detailed lists while others
only identify key services. Only 16.8 percent of contracts fail to
define responsibility for various meal service activities. Most
often, it is the FSMC that is responsible for meal services.
However, school districts are most often responsible for processing
free and reduced-price applications. FSMC contracts address this
responsibility in 67.6 percent of cases. Slightly fewer contracts,
64.7 percent, cite special function meal service including catering,
which, like lunch and breakfast service, is most likely to be the
responsibility of the FSMC.
Fewer than half of the contracts cited meal ticket sales (in the
elementary or the secondary cafeterias) and food delivery to the
serving sites. Of interest is that when ticket sales is cited, it is
most likely to be the FSMC that has the responsibility.
When identified in a contract, food purchasing is primarily an
FSMC responsibility. In contrast, menu planning is primarily a
responsibility shared by the school district and the FSMC (77% of
contracts), when cited.
Page 30 FSMCs in School Nutrition Propims - Contract Review
Chapter V: Food Services
Table 5-2: Conditions on Sale of
Food and Beverages Other than
Those Served in School Nutrition
Programs
Percent
Contract states FSMC may sell only food and
beverages authorized by the district 49.3%
Contract does not state the FSMC must sell only foods
and beverages authorized by the district
TOTAL
50.7%
100.0%
Table 5-3 Responsibility for
Meal Services
Level of specificity in contract:
Some responsibilities outlined in contract
No responsibilities outlined in contract
Alluded to in contract
Percent of
Contracts
809%
168%
2.3%
Responsibility for services
Menu planning
FSMC
Responsibility
District
Responsibility
Preparing and servuig meals
Meal ticket sales
Food delivery to serving sites
Service at special functions
Food purchasing
Processing/approval of free/reduced
price meal applications
Menu printing/distribution
79.1%
39.7%
138%
582%
778%
5.5%
2.3%
170%
0.0%
4.6%
24.2%
1.9%
4.2%
0.0%
63.4%
Snared
Responsibility
No Mention of
Responsibility
5.1%
28%
0.3%
46%
46%
09%
77.0%
1.9%
0.0%
18.1%
554%
57.4%
35.3%
17.11
174%
32.4%
78.0%
Page 31
FSMCs in School Nutrition Programs - Contract Review
Chapter V: Food Services
Purchasing requirements may provide an important method for
controlling operating costs as well as for obtaining food that
conforms with applicable Federal and State guidelines. One of the
perceived benefits of contracting with a FSMC for a district is
participation in large-scale purchasing where economies of scale
may be achieved. Some of the ways that purchasing can be
controlled include limits on sources, use of product specifications,
and product testing.
Over 42 percent of all contracts do not address procurement
policies and practices to be followed by the FSMC (Table 5-4).
When contracts do cite procurement policies and practices, they
are most likely to be:
• The FSMC is permitted to purchase from subsidiaries
(26.1% of all contracts);
• The cost of products is the sole determinant for purchase
(e.g., least price) (20.3% of all contracts);
• FSMCs must pass through trade discounts to the school
district (22.4% of all contracts); and,
• FSMCs must give preference to local purveyors or
purveyors that the school district has been using in the past
(18.4 and 14.7% respectively, of all contracts).
Seldom cited are the authority of the parent local government
(e.g., city or county government) or State laws.
School districts are expected to adhere to a variety of food
purchasing specifications. FSMC contracts were examined to
determine whether they addressed three standards: applicability of
USDA major ingredient specifications, use of Child Nutrition
labeling, and applicability of USDA standards about the use of
texturized vegetable protein fillers and extenders. As summarized
in Table 5-5, these or other food quality standards were addressed
in fewer than half of the contracts. Specifically, the most often
cited requirement - that food products conform to USDA major
ingredient specifications - was cited in only 30.2 percent of
contracts.
An important adjunct to food product specifications is food product
testing by the school district. Testing could address portion sizes,
food temperature, and/or the ingredients of food products obtained
or prepared by the FSMC. Testing is important because
Page 32 FSMCs in School Nutrition Programs - Contract Review
Chapter V: Food Services
Table 5-4: Food
Purchasing/Procurement
Requirement Terras
Percent of
Contracts
Purchasing requirements:
FSMC allowed to purchase from subsidiaries 26A%_
Cost is sole determinant 20.3%
Practice reasonable economics 11.3%
Competitive bidding [ LZ™
No requirements specified
Average number of purchasing terms identified in contracts: 2
Note: Multiple responses possible.
Preference given to:
Local vendors 18-4%
Existing vendors . 14.1%
Small/minority vendors
In-State vendors _0J_%
Government vendors/sources 2il5.
General requirements:
FSMC must take pass through discounts to district 22.4%
Municipal laws apply to procurement 2-2%
District purchases all food Ll™.
Bidding with pre-approved specifications L25.
FSMC advises on all food purchases IS™.
Vendors acceptable to district must be used °-9%
State laws apply to procurement , 2^.
42.4%
p„e 33 FSMCs in School Nutrition Programs - Contncl Review
Chapter V: Food Services
Table 5-5: Types of Food
Product Specifications
Contained in Contracts
Products must meet USDA major ingredient
specifications
Percent of
Contracts
30.2%
Fillers and extenders must conform to USDA
specifications
Food must have CN labeling
15.4%
1.2%
regulations state that no payment is to be made for meals that are
spoiled or do not meet specifications and requirements of the
contract. Eighty-five percent of all contracts address food testing
and the majority of those contracts specify that a penalty for
noncompliance with specifications can be assessed against the
FSMC. Table 5-6 summarizes this information.
Food Storage and
Inventory
Table 5-7 summarizes the extent to which food storage and
inventory requirements are addressed in contracts. About 69
percent of the contracts contain language that addresses the
particulars of food storage and inventory and the responsible party.
Two requirements were in evidence in between 42 and 56 percent
of the contracts:
• FSMCs were responsible for food storage (48.3%) and
inventory of an unspecified nature (46.3%);
• FSMCs and school districts shared responsibility for
conducting the initial (start of contract) inventory (49%)
and conducting the final (end of year) inventory (36.6%).
Nutrition Education In support of the delivery of meals, nutrition education and other
ana Community Services non-meal services such as meetings with students andfaculty
independent of the advisory panel may be provided. As
summarized in Table 5-8, only 34.3 percent of FSMC contracts
specifically address these services, and when they do, the focus is
upon nutrition education. Moreover, when addressed, school
districts and the FSMC share responsibility for nutrition education.
Based on the contracts alone, nutrition education is not accorded
a high priority, nor is it something that FSMCs are expected to
lead.
Page 34 FSMCs in School Nutrition Programs - Contnct Review
Chapter V: Food Services
Table 5-6: Testing of Portion
Sizes, Food Temperatures, and
Food Content
Product Testing:
Not addressed
Yes: Penalty for noncompliance
Yes: Noncompliance penalty not mentioned
Percent of
Contracts
14.9%
54.7%
30.4%
TOTAL 100.0%
Table 5-7: Responsibility for
Food Storage and Inventory
Level of specificity in contract:
Some responsibilities outlined in contract
No responsibilities outlined in contract
Responsibilities alluded to in contract
Percent of
Contracts
688*
30.9%
0.3%
FSMC District Shared No Mention of
Responsibility Responsibility Responsibility Responsibility
Responsibility for service:
Food storage 48.3% 6.7% 1.0% 44.0%
Conduct initial inventory
Conduct final inventory
Periodic audit of inventory
2.7% 0.1% 49.0%
7.3% 0.1% 36.6%
48.1%
560%
1.2% 2.1% 0.1% 96.6%
Unspecified reference to inventory 46.3% 0.9% 0.9% 520%
Page 35 FSMCs in School Nutrition Propims - Contract Review
Chapter V: Food Services
Table 5-8: Responsibility for
Nutrition Education and
Community Services
Level of specificity in contract
Some responsibilities outlined in contract
No responsibilities outlined in contract
Responsibilities alluded to in contract
Percent of
Contracts
34.3%
647%
1.0%
Responsibility for services:
Nutrition education
Communications with students, parents,
teachers _^
Community activities
FSMC
Responsibility
District
Responsibility
Shared
Responsibility
No Mention of
Responsibility
0.0% 0.0% 39.0% 61.0%
3.8% 1.2% 1.2% 93.9%
5.8% 0.0% 0.3% 93.9%
Regular meetings with students and facult 4.6% 0.0% 0.1% 95.3%
Page 36 FSMCs in School Nutrition Programs - Contract Review
Chapter VI: Financial Terms and Characteristics of Contracts
Overview Contracts between school districts and food service management
companies (FSMCs) provide the basis for payments and
management of the business relationship. This section describes
the range of financial terms and conditions of FSMC contacts.
Considered here are fee structures, cost controls, and financial
management. The issue of bid structure, while of great
importance, is not addressed here since information on this process
is not part of the contract files found to be typically maintained by
State Child Nutrition Agencies.
Fee Structures Federal program regulations permit two types of payment or fee
structures in school district contracts with FSMCs: a fixed price or
fee, and cost plus a fixed fee. Fixed price fees take the form of
a unit charge or cost, where the unit may be per meal or per time
period, typically a year. Under a fixed price structure for
example, a FSMC might charge $1.50 per meal or $50,000 per
year. In each instance the fee charged is expected to cover all
operating and administrative costs with no additional charges to the
school district. In contrast, a cost reimbursement plus fee contract
permits the FSMC to pass all food service operating costs through
to the school district and charge an additional fixed or flat fee that
covers management and administrative costs. The fee is often
described in different ways. Some contracts refer to it as a service
fee, others a management fee, and still others an administrative
fee. Moreover, there are instances where a cost plus fixed fee
contract will have multiple fees. There may be a per meal and an
annual fee. Also one fee might be called an administrative fee and
another a management or service fee. While ultimately the cost
reimbursement plus fixed fee structure is simply the billing of
operating costs to the school district along with a additional
amount intended to compensate for various indirect costs incurred
by the FSMC, the actual form of the fee(s) is often quite complex.
The analysis of contracts provides some important insights into fee
structure. The majority (92 percent) of all contracts do identify
and describe-in varying degrees-the fee structure to be observed
and the terms and conditions affecting payment by the school
district to the FSMC. Table 6-1 summarizes the types of payment
and fee structures set forth in contracts with FSMCs. Overall, 72
percent of the contracts specify a cost plus fixed fee payment
structure and 20 percent a fixed fee payment structure. Among the
cost reimbursable contracts, 57 percent provide for an annual fee,
Pa«e37 FSMCs in School Nutrition Prognms - Contract Review
Chapter VI: Financial Terms and Characteristics of Contracts
Table 6-1: Payment
Structure Combinations
Commonly used in FSMC
Contracts Contracts that allow the FSMC to be reimbursed for direct costs
Percent
Percent of of all
category contracts
Per meal fee only 19.0% 13.7%
Yearly fee only 56.8% 41.0%
Both per meal and annual fee 24.2% 17.5%
Total 100.0%
Contracts that allow the FSMC to be reimbursed at a fixed rate
Fixed per meal fee only:
Fixed yearly fee only.
Total
72.2%
27.8%
100.0%
144%
5.5%
rotal 72.2%
Total 19.9%
No payment method specified: 7.9% Total 7.9%
TOTAL 100.0%
19 percent provide for a per meal fee,1 and 24 percent provide for
both a per meal and a per year or annual fee in addition to the
reimbursed operating cost. Among fixed price (fee) contracts, 72
percent are per meal and 28 percent are per year.
The per meal fee that a FSMC earns will vary as a function of
meals served whereas the per year (annual) fee remains fixed and
is not subject to changes in meal service. A per meal fee might be
expected to act as an incentive to increase the number of school
food service meals sold. An annual fee is a more conservative fee
structure since it is not affected by changes in the number of meals
served.
Table 6-2 presents the different fee structures relative to the size
of a school district. The table provides information on the lowest
Meals in the context of a per meal fee typically include all meals
reimbursable under NSLP, adult meals, and meal equivalents for
a la carte sales.
Page 38 FSMCs in School Nutrition Prognms - Contract Review
Table 6-2: Range of Fee
Payments from Districts to
FSMCs by Enrollment
Districts with 10.000 or more students
'ercent of
Contracts
Amount of Fee
Highest Median Lowest
Per meal fee with direct cost reimbursement
Fixed per meal fee
2.0%
0.0%
$0,088 $0,043 $0,018
Annual fee with direct cost reimbursement
Fixed annual fee
1.1*
0.0%
$200,000 $62,000 $30,000
Both per meal and annual fees
Annual:
Per meal:
1.1%
1.1%
$100,224
$0.143
$31,793
$0,031
$4,750
$0,007
DiiWricts with 5,000to0,°9Q ctiiHents
Per meal fee with direct cost reimbursement
Fixed per meal fee
4.0%
0.9%
$0,158
$1,500
$0,067
$1,500
$0,042
$1,500
Annual fee with direct cost reimbursement
Fixed annual fee
5.2%
0.0%
$63,600 $42,500 $8,941
Both per meal and annual fees
Annual:
Per meal:
1.7%
1.7%
$15,000
$0,070
$10,310
$0,048
$5,619
$0,025
Districts with 1.200 to 4.999 students
Per meal fee with direct cost reimbursement
Fixed per meal fee
5.1%
11.6%
$0,162
$1,620
$0,110
$1,175
$0,070
$0,974
Annual fee with direct cost reimbursement
Fixed annual fee
19.3%
2.0%
$55,075
$52,620
$21,250
$33,250
$1,250
$13,880
Both per meal and annual fees
Annual:
Per meal:
12.7%
12.7%
$40,000
$0,110
$12,000
$0,020
$3,440
$0,010
nirtriets with lees than 1.200 students
Per meal fee with direct cost reimbursement
Fixed per meal fee
0.7%
1.9%
$0,155
$1,088
$0,155
$1,075
$0,155
$1,063
Annual fee with direct cost reimbursement
Fixed annual fee
11.2%
1.0%
$14,850
$29,727
$9,800
$29,727
$3,450
$29,727
Both per meal and annual fees
Annual:
Per meal:
0.9%
0.9%
$18,060
$0,010
$18,060
$0,010
$18,060
$0,010
Private schools flew «•««« 1,200 students)
Per meal fee with direct cost reimbursement
Fixed per meal fee
0.0%
0.0%
Annual fee with direct cost reimbursement
Fixed annual fee
4.2%
1.8%
$227,988
$119,669
$13,880
$103,574
$7,000
$87,480
Both per meal and annual fees 0.0%
Fee amount not specified
No payment method or fee specified
3.7%
7.9%
TOTAL 100.0%
Page 39 FSMCs in School Nutrition Programs - Contract Review
Chapter VI: Financial Terms and Characteristics of Contracts
and highest fees in each group as well as the median. The
enrollment size of a school district is associated with the type of
payment structure found in contracts. In examining the median per
meal fee associated with cost reimbursable contracts, per meal fees
increase as school district size decreases. The median per meal
fee for large school districts is 4.3 cents as compared to 15.5 cents
for small school districts. In contrast, the median annual fee
associated with cost reimbursable contracts decreases as school
district size decreases. The median annual fee for large school
district is $62,000 as compared to $9,800 for small school
districts. In each case, the difference is reflective of the volume
of meals served.
Another observation is that fixed per meal fees are not present in
contracts between school districts with enrollments in excess of
5,000 students. Fixed per meal fees are only used in smaller
school districts. While the contracts do not provide reasons for
this, an FSMC is less likely to encounter significant operating cost
increases in smaller school districts.
Private schools are treated as a separate category since their fees
tend to be much greater than those found for public schools. Since
private schools fall within the small school district strata, their
high values would distort the values that characterize the smaller
school districts that use FSMCs.
A La Carte Conversion. Another component of the overall
payment structure is the way that a la carte sales are counted as
meals and valued. Because school districts are expected to
monitor all meal valuation practices, contracts were examined to
determine if they define a la carte conversion factors. A la carte
sales provide an important source of income for meal programs.
However, a la carte sales are not counted in the same way that
pattern meals are counted. Rather, the total dollar value of a la
carte sales is tabulated. To obtain reimbursement for the value of
those meals, school districts and FSMCs agree upon an a la carte
equivalent. The average equivalent is $1.50, and ranges in value
from $1.00 to $2.00. Thus, if the a la carte sales for a month is
$150 and the conversion factor is $1.50, the FSMC would claim
100 a la carte meal equivalents at the contract-specified per meal
fee. An a la carte conversion factor is only used when there is a
per-meal fee payment structure.
As indicated in Table 6-3, 43 percent of contracts between school
districts and FSMCs provide an a la carte conversion factor.
p„e 40 FSMCs in School Nutrition Prognmi - Control Review
Chapter VI: Financial Terms and Characteristics of Contracts
TaEIeWTAJaCaTteCom'ersion
Factor
Percent of
Contracts
Conversion factor identified in contract
No conversion factor identified in contract
43.0%
57.0%
TOTAL 100.0%
However, among contracts providing an a la carte conversion
factor, 84 percent use some form of per meal reimbursement.
Meal Program Cost
Controls
This section examines some of the cost and reporting controls
identified in contracts between school districts and FSMCs. One
strategy is the use of a cap or ceiling on payments to FSMCs.
Only a very few contracts provide for a cap, about two percent.
Program Cost Accounting and Reporting. Table 6-4
summarizes the cost accounting and cost reporting requirements in
contracts. Approximately 81 percent of all contracts contain
accounting requirements that the FSMC is expected to meet.
Among the types of reports present in contracts, three were most
often identified: periodic summary reports on operations which
may include aggregate meal count data along with monthly profit
and loss or operating cost reports; daily meal counts in support of
NSLP meal claims; and end of year (financial) statements.
Contracts do not provide reporting formats nor do they uniformly
specify the types of information that an FSMC is expected to
provide. They do not specify who is responsible for preparing
reimbursement claims submitted to the State Agency for Federal
(and State in those States that provide funding for school meal
programs) payments, nor do they specify the records that must be
kept in support of those claims. Specifying the types of reports
and information items required of an FSMC provides a school
district with one important means for monitoring performance.
Control of Food Service Equipment Purchases. Food service
equipment represents a major capital investment for school
districts. If an FSMC adds or replaces equipment without prior
school district approval, the school district could be placed in
financial risk. Table 6-5 summarizes who is designated in the
contract as having final approval authority for the purchase of
Page 41 FSMCs in School Nutrition Progtinu - Contnct Review
Chapter VI: Financial Terms and Characteristics of Contracts
Table 6-4: Program Cos»
Accounting and Repotting Services
and Costs
Level of specificity in contract:
Some responsibilities outlined in contract
No responsibilities outlined in ccntract
Responsibilities alluded to in contract
Percent of
Contracts
-7P5T
19.5%
~T5%
FSMC District Shared No Mention of
Responsibility Responsibility Responsibility Responsibility
Types of reports:
Periodic reports on operations
Daily meal counts
Periodic meal count audits
Record/control audits
Year end statement
Maintenance of records
TT9%-
15-9%-
T25T
ToTT
0.0%
"oM"
T7%~
T6TT
T6TT
4.9%
0.0%
00%
TfST
4^%
9.6%
■oo%~ 0.0*
Preparation of Federal, state, and/or
district fiscal and management reports
T9%~ 0 1%
T5W
82.2%
90.7%
"92~2%~
86.1%
■95-8%"
874%
Table 6-5: Final Authority for
Food Service Equipment
Purchase
Percent of
Contracts
Organization with final authority:
District
Both
67.3%
3.
FSMC 1.9%
Not specified in contract 27.2%
TOTAL 100.0%
Pate 42 FSMCs in School Nutrition Programs - Contract Review
Chapter VI: Financial Terms and Characteristics of Contracts
equipment that would be used in the storage and preparation of
school meals. Overall. 72.8 percent of all contracts address this
issue. Among those contracts that do specify who has authority
over equipment purchases, 67.3 percent state that the school
district is the final authority.
Adjustments to Payments. For various reasons, payment terms
in a contract might be adjusted in these two situations: during the
school year and upon contract renewal. First, during the school
year, there may be significant deviations from the assumptions
upon which the original payment terms were defined. Program
participation may change significantly or donated commodities may
not be available in expected quantities or types. As a result, the
cost of preparing meals might increase or decrease, depending
upon the deviation. Second, upon renewal of a contract, which
occurs at the end the base and each option year, there may be a
need to re-examine the payment structure in light of operational
experiences during the school year.
Contracts were examined to determine how these adjustments
might be addressed and the data are summarized in Tables 6-6 and
6-7. With respect to the first type of change - a mismatch
between cost and performance assumptions and actual performance
- only 30.2 percent of contracts contain language permitting the
school district and FSMC to examine and presumably renegotiate
payment terms.
Table 6-6: Effect of Changed
Assumptions on Financial Terms of
Contract
Percent of
Contracts
If performance assumptions change during year:
Financial terms may be changed . 30_12%
No mention of change in financial terms 69JS9&
TOTAL ]W£1
Page 43 FSMCs in School Nutrition Programs - Contact Review
Chapter VI: Financial Terms and Characteristics of Contracts.
Table 6-7: Recalculation of Fees
on Contract Renewal
Percent of
Contracts
Contract allows recalculation based on:
Recalculation allowed for unspecified reasons
Inflation
Inflation and performance
Performance
31.7%
28.1%
3.0%
1.0%
No recalculation clause in contract
TOTAL
Payments, Security
and Reserves
36.2%
100.0%
Recalculation of fees upon renewal is addressed in 63.8 percent of
all contracts. Most often, the contract simply contains language
permitting recalculation. Inflation as a basis for recalculation was
cited in 28 percent of contracts. No other reason or basis was
cited consistently. Other factors such as unsatisfactory FSMC
performance FSMC and inability of the FSMC to meet operating
cost targets are not generally stated in contracts.
In addition to payment adjustments based on operations or inflation
changes, payment terms can also be changed based on food service
quality expectations.* The contract review revealed that 88 percent
of contracts contain language that permits the school district to
adjust or disallow claims when meals are determined to be of
unacceptable quality. This is consistent with Federal regulations
that specify that no payment is to be made for meals that are
spoiled, unwholesome, or do not otherwise meet specifications or
contract requirements.
Contracts for food services also contain language about payment
of bills and accounts. Table 6-8 summarizes the forms of payment
specified in contracts between school districts and FSMCs. In
68.6 percent of the contracts reviewed, the FSMC is responsible
for paying the bill and then invoicing the school district for the
cost. This is consistent with the dominant payment structure, cost
reimbursement with a fixed fee. The other primary form of bill
payment is for the FSMC to pay bills directly and then recover
Page 44 FSMCs in School Nuirition Piogtmais - Contract Review
Chapter VI: Financial Terms and Characteristics of Contracts
these expenditures as part of the per meal or per year fee. What
is not evident in contracts is the degree to which either of 'hese
invoicing methods require that the FSMC provide back-up
documentation that supports the invoice. Back-up documents
would include copies of invoices from vendors and suppliers and
proof of payment. Finally, 7 percent of the contracts require the
school district to pay vendors directly.
Performance Security. A performance security, or bond, is a
method available to a school district to obtain financial recourse in
the event that the FSMC defaults on its responsibilities. Table 6-9
summarizes the presence and types of performance securities.
About one-third (31.2 percent) of contracts provide for a
performance security. When required, the security was often
defined as "in a form acceptable to the school district" or is a
bond. When specified as a flat amount, the average dollar value
was $37,201. When specified as percent of the estimated annual
value of the service, the average dollar value was 23.3 percent.
Working Capital Fund. A working capital fund is a requirement
that may be placed upon a school district to assure that it has
sufficient funding to compensate the FSMC as costs are incurred.
Only 11.2 percent of contracts have this requirement.
Table 6-8: Payment of
Food Service Bills
Percent of
Contracts
District pays vendors direcdy , 7.0%
FSMC pays vendors and bills district 68^3%
FSMC pays and does not bill district/itemize costs 23_15%
—~~~~~~~~~ n 9% Payment method not mentioned r^_z.
TOTAL 100.0%
Note: Costs include food, materials, and supplies to be used for food service
operations.
P««e45 FSMCs in School Nutrition Programs - Contract Review
Chapter VI: Financial Terms and Characteristics of Contracts
Table 6-9: Type of Performance
Security Specified in Contract
Required but not defined *
Bond
Certified check
Bond and certified check
No performance security
TOTAL
Percent of
Contracts
16.2%
13.1%
1.0%
0.9%
68.8%
100.0%
Average value of performance security:
Dollars:
Asa percent of projected annual costs:
$37,201
23.3%
* Typical language includes "in a form acceptable to the district.'
Operating Cost
Guarantees and
Recovery
The financial goal of any school food service operation is to pay
for the program using the revenues generated though sales and
reimbursements from Federal (and State) programs, and to
minimize or eliminate subsidies from the school district's general
fund. A school food service operation operates at a loss when
costs exceed program income. Contracts for food services may
contain language about guarantees of operating costs and terms for
the recovery of costs in excess of program income. Typically,
guarantees are in response to a school district's desire to reduce
food service operating costs. For example an FSMC may
guarantee to balance costs and income or reduce overall costs by
some combination of increased revenue from increased
participation, a la carte meal sales, and/or reduced operating costs.
A loss occurs when the FSMC fails to achieve targets such as
reducing the general fund subsidy for food service or operating a
self-supporting meal program. Losses may be carried over into
Page 46 FSMCs in School Nutrition Programs - Contiact Review
Chapter VI: Financial Terms and Characteristics of Contracts
the following school year or paid for using funds from other
school district sources such as the general fund. Alternatively,
losses may be recovered from the FSMC by the school district
fully or partially.
Guarantees. Table 6-10 summarizes the types of guarantees in a
contract. A guarantee of return or break-even for the school
district is present in 40.8 percent of all contracts. In contrast,
17.2 percent of all contracts specify that the school district is
responsible for some or all losses. Forty-two percent of the
contracts do not contain language about guarantees.
Recovery. As indicated in Table 6-11, 47 percent of contracts
specify conditions for recovery of losses. There are two primary
ways FSMC liability for losses are addressed: the FSMC
reimburses the school district for the loss without limit; or it
reimburses the school district with limits equal to the management
fee or a ceiling. In a few instances, FSMCs are permitted to apply
positive income to prior year losses. That is, if costs exceed
earnings in one year but in the next year income exceed costs, then
the net positive income can be used to offset the prior year's loss.
Finally, in 12.5 percent of the contracts, the school district agrees
to assume responsibility for costs that exceed income from sales
and Federal (and State) reimbursements. In these instances, the
FSMC is not responsible for costs that exceed program income.
Table 6-10: Contract Terms
Regarding Guarantees on Food
Service Costs to District
Percent of
Presence of a Contracts
Gain/loss agreement: , __—-—■
Guaranteed return to district JJjZ
District guaranteed to break even \9A%_
District responsible for some or all of losses \J_2%_
No gain, lose, break even clause 420%
TOTAL i°2£*
p 47 FSMCs in School Nutrition Programs - Contract Review
Chapter VI: Financial Terms and Characteristic? nf Contracts
Table 6-11: Conditions for Loss
Reimbursement
Percent of
Contracts
Contract specifies conditions for loss reimbursement 47.0%
Contract does not specify conditions 53.0%
TOTAL 100.0%
Types of loss reimbursement clauses:
FSMC reimburses district for loss 20.9%
District pays loss 12.5%
Reimbursement cannot exceed mgmt fee 12.0%
FSMC pays loss up to a ceiling 6.2%
FSMC may recoup losses in later years 5.7%
FSMC/district will agree on deficit recovery 3.8%
p ^ FSMCJ in School Nutrition Prognms - Contnct Review
Chapter VII: Other Contractual and Business Issues
Overview Contracts between school districts and FSMCs address a variety of
other issues that define the working relationship between the
parties. Considered here are record keeping, facilities
management, hiring and personnel practices, and insurance
requirements.
Record
Requirements
FSMCs are expected to maintain business records such as food and
supply bid specifications, purchase orders, invoices, and personnel
records that relate to the provision of food services to a school
district. Contracts do not describe in detail what those records
should be, but do provide general guidance about their availability
to school district officials for purposes of inspection or audit.
Records. Table 7-1 summarizes the types of information that
FSMCs are expected to maintain. Requirements for record
keeping in the contracts fell into two categories: program income,
expenditures, and meal counts; and general guidance on record
keeping. General guidance is most likely to refer to applicable
state requirements. However, 43.9 percent of all contracts did not
identify any recordkeeping requirements.
Accessibility. Table 7-2 summarizes contract requirements about
school district access to food service information maintained by the
FSMC. Virtually all contracts contain language requiring that the
FSMC make records available for inspection (90.9%) and also
specify the length of time that those records must be available
(96.7%). The average number of years that records must be kept
is four years, although the contracts are not clear as to when this
time frame starts and ends. If this period does not correspond to
the maximum allowable period of performance allowed under
Federal regulations (e.g,. the base year and four option years),
then the ability of a school district, in the event of a dispute over
payments or claims, to recover costs following completion of the
contract would be impaired.
Facilities Management Table 7-3 summarizes responsibilities for food service facilities
operation and maintenance. Approximately 82 percent of all
contracts address this area and specify who is responsible for a
variety of activities. In general, when cited, the school district is
Pa«e49
FSMCs in School Nutrition Programs - Contract Revie*
Chapter VII: Other Contractual and Business Issues
Table 7-1: Information that
Contracts Require FSMCs to
Maintain
Specific requirements:
General requirements:
Note: Multiple responses possible.
Percent
Program income and expenditures 28.6%
Daily number of lunches served (NSLP and a la carte) 16.4%
Daily F/RP lunches served 14.1%
Lunches served to adults j 14.6%
Value of a-la-carte sales l4.67o
Value of donated commodities 1-0%
Amount of milk served __^_____ °-1%
Accordance with State requirements 21.6%
Meet SFA requirements 8.3%
Meet NSLP requirements 3-6%
Accordance with FSMC experience 0-3%
Contracts that do not specify record keeping 43.9%
requirements
Average number of record contents requirements
specified in contracts: 2
responsible for most facilities-related activities including:
providing the meal preparation and service facilities, repair and
maintenance of equipment, cleaning of the dining areas, trash
removal, exterminator services, and repairs. FSMCs are most
likely to be responsible for cleaning the food preparation areas.
p„e 5Q FSMCs in School Nuthlioo Programs - Conlxicl Review
Chapter VII: Other Contractual and Business Issues
Table 7-2: Record Keeping
Requirements
Availablitv of records:
FSMC must make records available for periodic inspections
Contract does not specifically address inspections
TOTAL
Percent of
Contracts
90.9%
9.1%
100.0%
Time frame:
Contract specifies length of time records must be kept
Percent of
Contracts
96.7%
Contract does not specify length of time records must be kept 3.3%
TOTAL 100.0%
Average number of years records must be kept: 4.
Personnel Contracts for food services also contain language about personnel
issues including hiring practices, management of staff, and
employee benefits. Information in contracts about practices and
responsibility are summarized below.
District and FSMC Staff. Table 7-4 summarizes hiring and
cross-hiring as it is addressed in contracts. Only 3 percent of the
Page 51 FSMCs in School Nutrition Programs - Contract Review
Chapter VII Other Contractual and Business Issues
Table 7-3: Responsibility for
Facilities Management
Level of specificity in contract
Some responsibilities outlined in contract
No responsibilities outlined in contract
Responsibilities alluded to in contract
Percent of
Contracts
81 7%
163*
20*
Responsibility for services:
Providing facilities for service/operations
Repair, maintenance of equipment
Cleaning of preparation area
FSMC
Responsibility
District Shared
Responsibility Responsibility
Cleaning I dining area floors, etc.
Ensuring periodic health inspections
Garbage removal from site
Cleaning of cafeteria tables
Exterminator service
Repairs to fixtures
Garbage removal from dining area
Garbage removal from kitchen
Fire extinguishing equipment
1 0%
1.0%
70.7%
No Mention of
Responsibility
2.0%
18.9%
1.3%
31.5%
0.0%
1.0%
12.9%
11.7%
0.0%
81 7%
77.5%
5.5%
57.9%
31.9%
66.2%
32.8%
653%
60.3%
47.3%
48.3%
4.3%
0 8%
2.9%
1.9%
14 5%
20.0%
0.0%
1.0%
0.0%
0.0%
0.0%
0.0%
00%
16.6%
18.6%
21.8%
25.6%
29.2%
32.596
34.7%
34.7%
38.7%
39.9%
40.0%
95.7%
contracts require that the FSMC hire the school district's food
service director as a contract requirement. School district approval
of the FSMC's site manager is required in 38.5 percent of all
contracts. Approval of the site manager is one way that school
districts can exercise control over food service operations. Most
contracts do not address the issue of retention or replacement of
the food service staff employed by a school district prior to the
award of the contract to an FSMC. Based on the contracts, it is
not reasonable to support or refute another major argument for
using an FSMC -- namely that it is a way for school districts to
transfer personnel and benefit costs from the school district to an
FSMC and as a result lower food service operating costs.
Table 7-4 also contains information about the issue of cross-hiring.
Cross-hiring refers to the hiring by one party to a contract of staff
employed by the second party to the contract. Such practices
might be of concern, for example, when an FSMC substantially
improves food service performance and the school district hires the
FSMC site manager rather than renewing the contract. Over half
of the contracts address this issue, and most of these prohibit each
PafeS2 FSMCs in School Nutrition Programs - Contract Review
Chapter VII: Other Contractual and Business Issues
Table 7-4: Hiring Practices
FSMC must hire current food service employees
Percent of
Contracts
3.0%
District can approve FSMC site manager 38.5%
Cross hiring:
District cannot hire any FSMC employees
FSMC cannot hire any district employees
Both practices are prohibited
Contract does not address cross-hirinf
Percent of
Contracts
15.1%
2.1%
36.6%
46.2%
TOTAL 100.0%
party from hiring the other's personnel.
Personnel Management. Personnel management responsibilities
are summarized in Table 7-5. About three-fourths of all contracts
define responsibility for personnel management in some fashion.
In general, FSMCs are responsible for personnel management,
even when the staff they are managing are employees of the school
districts. Most often identified in contacts are: managing employee
and labor relations; personnel development, and hiring and
termination of management staff. Contacts are less likely to
include non-management staff faring and firing as a FSMC
responsibility.
Employee Benefits. Approximately one-third of contracts
(34.9%) define responsibility for employee benefits (Table 7-6).
When cited, they are likely to refer to the responsibilities placed
upon the FSMC with respect to its own employees. The benefits
identified most often in contracts include medical, insurance,
retirement, and holidays.
Insurance Requirements Contracts for food services also contain language about insurance
requirements that FSMCs must meet. Table 7-7 summarizes these
requirements. Insurance was addressed in 79.1 percent of
P»«e53 FSMCs in School Nutrition Progrims - Contrtct Review
Chapter VII: Other Contractual and Business Issues
Table 7-5: Personnel
Management
Level of specificity in contract.
Some responsibilities outlined in contract
No responsibilities outlined in contract
Responsibilities alluded to in contract
All
Contracts
74.9*
23.0*
2.1*
FSMC District Shared No Mention of
Responsibility Responsibility Responsibility Responsibility
Responsibility for personnel management services
Managing employee-labor relations 67.1% 0.0% 0.0% 32.9%
Personnel development 60.6% 0.0% 1.0% 38.3%
Hiring/firing of management staff 44.8% 1.0% 1.2% 53.0%
Hiring/firing of non-management staff 32.7% 9.8% 1.7% 55.8%
Training student helpers 17.3% 1.0% 7.1% 74.5%
Admin and technical staff supervision 22.1% 0.0% 1.0% 76.9%
Consulting services 9.3% 0.0% 0.0% 907%
Note: Multiple responses are possible.
Table 7-6: Food Service
Employee Benefits
Level of specificity in contract.
All
Contracts
Some responsibilities outlined in contract 34.8%
No responsibilities outlined in contract 65.1%
Responsibilities alluded to in contract 0.1%
FSMC District Shared No Mention of
Responsibility Responsibility Responsibility Responsibility
Responsibility for costs of employee benefits:
Medical benefits 20.4% 2.0% 2.8% 74.7%
Life insurance benefits 18.0% 2.0% 2.8% 77.1%
Retirement 15.0% 2.0% 1.9% 81.1%
Workman's compensation 12.8% 3.0% 2.0% 82.2%
Paid leave 14.4% 2.0% 0.9% 82.7%
Uniform allowance 10.9% 4.0% 0.0% 85.0%
Bereavement 8.8% 2.0% 0.0% 89.2%
Unemployment security 8.4% 1.0% 1.0% 89.6%
Educational assistance 8.3% 2.0% 0.0% 89.7%
Jury duty 7.9% 2.0% 0.0% 90.0%
Sick leave 6.4% 2.9% 0.0% 90.7%
Premium pay 7.1% 0.0% 0.0% 92.9%
Welfare insurance 5.4% 0.0% 0.0% 94.6%
Employee savings plan 0.1% 2.0% 0.0% 97.8%
Note: Multiple responses are possible.
Page 54 FSMCs in School Nutrition Programs - Contract Review
Chapter VII: Other Contractual and Business Issues
contracts. An average of three liabilities were identified with
comprehensive general liability, workman's compensation, and,
vehicle insurance being the most common.
Table 7-7: Types of Insurance Coverage
and Liabilities Identified in Contracts
Percent
Comprehensive general liability 76.7%
Worker's compensation 74.9%
Auto and truck insurance 21.5%
Product, bodily, and property damage 4.9%
Umbrella excess policies 4.7%
Unemployment 4.2%
Contractual liability 1.6%
Public liability 1.2%
Insurance type not specified 1.2%
Property damage 0.9%
Catastrophe liability 0.1%
Surety bond 0.1%
None specified 21.9%
Average number of liabilities for which insurance is required: 3
Note: Multiple responses possible.
Page 55 FSMCs in School Nutrition Programs - Contract Review
Chapter VIJT: Summary
The review of contracts between school districts and food service
management companies (FSMCs) provides important insights into
the formal business relationships that exist to provide school
lunches (primarily) to school children. At a minimum, contracts
should delineate clearly the roles and responsibilities of the school
district and the FSMC, they should conform to FNS regulations,
and they should provide appropriate means whereby the school
district retains full control of and accountability for its meal
programs. The results of this analysis indicate that contracts
between school districts and FSMCs generally meet these
expectations, but that there are areas in need of improvement.
Conclusions in this report are limited to the contract and their
contents. They should be useful in identifying aspects of contracts
that can be strengthened along the lines set forth in FNS guidance
issued in October of 1992 on the use of FSMCs. This report and
its conclusions do not provide information about the procurement
process or actual performance after the contract is signed.
However, the contract review is part of a larger study effort that
examines the procurement process, FSMC responsibilities,
payment terms, accountability, and meal program operating
characteristics. For these reasons, the findings of this report must
be viewed as tentative.
1. Contracts between school districts and FSMCs address
some, but not all of the basic school nutrition program
requirements. Contracts vary considerably in their compliance
with regulatory requirements about key school district
responsibilities.
The guidelines recently issued by FNS - Contracting with Food
Service Management Companies: Guidance far School Food
Authorities ~ clearly state the responsibilities that school districts
must retain when they contract for food service management.
Many of these areas of responsibility have been examined m this
report, with others to be addressed in subsequent reports. Table
8-1 summarizes each of the primary responsibilities that FNS
requires a school district to retain when contracting. For each
area the percent of contracts that explicitly assign the school
district with responsibility has been listed. Contracts in effect for
the 1990-91 School Year generally conform with the FNS guidance
on retention of responsibilities in the areas of free and reduced
price meal policy, meal price setting, control of the program, and
ra^ 56 FSMCs in School Nutrition Programs - Contract Review
Chapter VUT: Summary
Table 8-1: Overall Level of
Conformance of Contracts in Effect
in 1990-91 School Year to FNS 1992
Contracting Guidance
FNS Guidance— Percent of Contracts
School District Areas of Responsibility: Where District Retains Control
Not addressed in contracts
NSLP agreement
Control,cof accounts *•»*
, . • 82.4*
Establish meal prices
Signing the reimbursement claim form Not addressed in contracts
K ; — 83.8%
Free and reduced price meal program policies
Free and reduced meal application process 83 8%
73.0%
Monitoring meal program
Control of quality, extent and nature of food services 1
■ —■ 23 5%
Title to USDA donated commodities
Assuring that donated commodities are used for NSLP meals | , L_
Forming advisory board^ ■
' " 90 9%
Resoluuon of review and audit findings :
" " —^——^——— -. no
Maintaining health department certifications
Procurement Issue
Menu for pricing of contracts
resolution of review and audit findings. However, these same
contracts were less specific about school district control of donated
commodities, responsibility for forming an advisory board, and
clearly stating that the school district retains control over food
service accounts.
The majority of contracts include general requirements that the
FSMC comply with FNS child nutrition as well as State
regulations. Over 95 percent of contracts include some reference
to FNS regulations, most often through specific references to those
regulations. Eighty-four percent of contracts state that the FSMC
must adhere to the school district's meal policies, and 82 percent
state that the school district will determine meal prices. The
minority of contracts that do not address these issues directly,
either indicate that the school district and FSMC share
responsibility, or simply do not address the requirement.
One area where school districts are expected to retain control is
the ownership of USDA donated commodities. However, 62.9
percent of contracts state that the FSMC and not the school district
has tide to the donated commodities. Only 23.5 percent of
contracts state specifically that the school district retains control of
r £7 FSMCs in School Nutrition Programs - Contract Review
Chapter VIII: Summary
donated commodities. Yet FNS regulations do not permit school
districts receiving USDA donated commodities to delegate control
of those commodities to the FSMC and school districts must
ensure that commodities are used exclusively in the district's
nonprofit school food service. Whether or not some school
districts are, in fact, delegating control to the FSMC, or whether
the intent is that the FSMC be responsible for processing and
storage of commodities as an agent of the school district, can not
be determined solely from the contract document. Thus the
question of ownership of donated commodities can not be resolved
on the basis of the contract alone; however, the contract language
used indicates an area where many contracts could be
strengthened.
2. Contracts between school districts and FSMCs generally
conform to USDA regulations on payment structures.
Two types of payment (fee) structures are documented in
contracts: cost reimbursement plus a fixed fee (72.2 percent of all
contracts); and a fixed fee for services (19.9 percent of all
contracts). Both payment structures are permitted by FNS
regulations, and no contracts reviewed had payment structures not
conforming to FNS regulations.
Under the first structure, the school district pays all operating costs
plus a predetermined management fee. Under the second type, the
school district pays a fixed price for services that includes
operating costs and a management fee. This fixed price may be
per-meal or an annual cost. Within the two payment structures,
the actual mechanisms under which a school district compensates
ar FSMC tend to be complex. A variety of terms are used
including, service fees, management fees, and adrninisfcativc fees.
It is not unusual to find combinations of different fees applied
annually, on a per meal basis, or both.
In addition to payment terms, approximately 41 percent of
contracts between school districts and FSMCs contain language
addressing the attainment of operating cost goals and the
mechanism for paying costs in excess of those goals. Goals are
most often expressed as operating a school district's school meal
program within a certain tolerance. When incurred costs exceed
the tolerance, the FSMC generally reduces its fee to absorb some
or all of the overage. This provides a financial incentive for cost
controls. An additional 17.2 percent of contracts state that the
school district is responsible for some or all of the costs that
p>IC 58 FSMCs in School Nutrition Programs - Contract Review
Chapter VIII: Summary
exceed program income. The remaining 42 percent of contracts
do not contain cost-related operating goals.
In addition. 88 percent of contracts permit school districts to adjust
or disallow payments when meals are determined to be substandard
or incomplete.
3. Many contracts between school districts and FSMCs contain
accounting requirements, but provide limited guidance on
reporting and accountability.
FNS regulations require that school districts using FSMCs exercise
control over accounts and have overall financial responsibility for
their school nutrition programs. Approximately 81 percent of all
contracts contain accounting requirements that the FSMC is
expected to meet. Three types of reports are most often identified
in contracts: periodic summary reports on operations which may
include aggregate meal count data along with monthly profit and
loss or operating cost reports; daily meal counts in support of
NSLP meal claims; and, end of year (financial) statements.
Contracts do not provide reporting formats nor do they uniformly
specify the types of information that an FSMC is expected to
provide. They do not specify who is responsible for preparing
reimbursement claims submitted to the State Agency for Federal
(and State in those States that provide funding for school meal
programs) payments, nor do they specify the records that must be
kept in support of those claims. Specifying the types of reports
and information items required of an FSMC provides a school
district with one important means for monitoring performance.
The majority of contracts do require that FSMCs maintain records
for an average of four years and that those records be made
available to the school district.
4. Contracts between school districts and FSMCs generally
describe the services that FSMCs are expected to provide.
However, there is wide variation in the numbers of services to
be provided and the detail with which these services are
described.
The contract is the agreement for services between the school
district and the FSMC. Overall, 83.2 percent of the contracts
describe who is responsible for various meal service functions.
The most frequently cited functions are preparing and serving
meals, food purchasing, and menu planning. Contracts cite an
jj^ 59 FSMCs in School Nutrition Programs - Contact Review
Chapter VIII: Summary
average of 4.8 individual meal service functions. The remaining
16.8 percent of contracts do not identify meal service functions nor
who is responsible for them.
In the area of food purchasing, 59.6 percent of contracts provide
guidelines that the FSMC must follow. The average contract
contains two purchasing requirements for this complex area of
food service management. Sixty-nine percent of the contracts state
who is responsible for food storage - FSMCs ~ and inventory --
a shared responsibility.
These variations in specificity may be the result of incomplete
contract files. Approximately 43 percent of the contract files
provided by the State agencies contained the contract and
supporting information of the type described above. The
remainder of the files, at a minimum, contained the contract only.
States are only required to maintain a copy of the current contract
on file. Thus, the variations noted above may reflect the fact that
contracts rely upon bid documents, to describe requirements and
responsibilities. However, the contracts reviewed in this study did
not refer to bid documents and, as noted above, the language used
in the contracts is often ambiguous.
Page 60 FSMCs in School Nutrition Prognms - Contract Review
Appendix A: Contract Review Methodology
Overview This section describes in greater detail how contracts and other
related documentation between school districts and food service
management companies (FSMCs) were collected, reviewed, and
prepared for analysis.
Sample Selection In the Spring of 1991, Price Waterhouse, with the cooperation of
each of the State Child Nutrition Agencies constructed a universe
of school districts receiving NSLP funding that contract with an
FSMC to operate school-based nutrition programs. This effort
resulted in the identification of 905 public and private districts with
active contracts for the 1990-91 school year. The districts were
stratified according to their enrollment and the size of their FSMC.
Four classifications of district enrollment were used: less than
1,200 students; 1,200 - 5,000 students, 5,000 - 10,000 students;
and 10,000 or more students, which defined the certainty strata.
Four classifications of FSMC size were also used: those operating
on a nationaTscale; those operating in multiple States; those in one
State with more than one contract; and those with only one
contract.1 Once stratified, a sample of 166 districts was selected
for the survey of districts using FSMCs.2 A subsample of 132 out
of the 135 districts was drawn.
This was done for the following reasons. First, based prior work
with the State Agencies to develop the frame, it was recognized
that in many instances a significant burden was likely to be
imposed. Second, the sample of 166 districts is intentionally
inflated to offset expected losses due to survey nonresponse. For
purposes of the contract review, non-response was not expected.
The contract review sample of 135 was selected at random and in
a manner that preserved the distribution of FSMC districts in each
of the stratification cells described above. Subsequently, it was
discovered that State agency-provided information about the status
of three of the sampled districts was incorrect. For this reason, a
PageA-l
The first stratifying variable-enrollment size- is used for
estimation purposes. The second stratifying variable is
used to maintain proportionate representation among
different types of FSMCs.
It was assumed that an 80 percent response rate for the
survey could be achieved. Thus, 166 districts were
selected, assuming that 135 would respond.
FSMCs in School Nutrition Progrtmi - Contract Review
<o\
Appendix A: Contract Review Methodology
total of 132 contracts were abstracted. The subsample reflected
the overall distribution of school districts in the larger sample.
Each of the 132 districts selected was assigned a sample weight
based on the stratification cell from which it was selected.
Obtaining The Each State Child Nutrition Agency was sent a list of the districts
Contract Documents sampled from that State and was requested to provide any and all
contract documents maintained on file at the Agency. Specifically
requested were the following documents:
• Invitation to bid or RFP (the two vehicles that a district
might use to solicit qualified bidders;
• Signed contract; and,
• Amendments to the contract
As part of the request, a cover sheet for each district was included
so that the State Agency could indicate what documents were
available or note which documents were not readily available.
Most State Agencies were able to respond in a timely manner.
Some problems, however, were encountered:
• Approximately one-fourth of the States were unable to
provide full documentation - the contract and the bid
document(s) - for all sampled districts or provided
contracts for the incorrect district. It was necessary to
work closely with each of the State Agencies to ensure that
correct and current contract documents were provided.
• Some States were unable to commit the necessary material
and manpower resources to provide contracts. Contractor
staff went to the State Agency to obtain the necessary
information, or paper was sent to the State Agency for
copying the contract documents needed for the review.
The effort concentrated on obtaining contracts from State Agencies
for two reasons: State Agencies are required to maintain a copy
of contract documents; and, there was concern that school districts
not be burdened with responding to this information request. In
a few instances, school districts were contracted directly, but only
when the State Agency was unable to provide a copy of the
contract and the district fell into the certainty strata.
Upon receipt of a copy of the contract file for each of the sampled
school districts, the contents were reviewed for completeness. All
documents noted on the cover sheet were accounted for and any
p A2 FSMCs in School Nutrition Progrtms - Contnct Review
Appendix A: Contract Piwiew Methodology
deficiencies were noted. Provisions for noting that documents did
not exist (for example, not all contracts have amendments) were
also incorporated in the cover sheet. If a document was not
included due to an apparent oversight, the State Agency (and, in
limited cases, the district) was re-contacted.
As noted above, virtually all contracts were provided by State
Agencies. However, there is no way to be certain that the
contracts on file at the State Agency are the same as the final
signed contracts on file with the school district. For example,
some contracts on file with the State Agency were not signed,
suggesting that they were review copies submitted to the State
Agency in advance of signing. Also, many States did not have
supporting documentation, such as the RFP or Invitation to Bid, on
file.
Table A-l summarizes the results of our request to each State
Agency. Overall, 42.8 percent of the contract files contained the
contract and supporting information of the type described above.
It should be noted that the States are only required to maintain a
copy of the current contract on file. Thus, the issue being
considered here is not compliance with requirements, rather the
availability of a more complete set of documents. The reason why
this is of interest is that the contract review results clearly indicate
that contract documents vary significantly in the amount and
specificity of requirements and performance parameters (i.e., who
does what and exactly what the contractor is expected to do). One
Table A-l: Contents of Contract File
Provided by State Child Nutrition
Agency as Reviewed percem
Contract only 57'2^
Contract and supporting documentation 42.8%
TOTAL . 100-0%
Pate A-3 FSMCs in School Nutrition Prognms - Contnct Review
(-J
Appendix A: Contract Review Methodology
Contract Abstracting
reason for this appears to be that contracts rely upon other
documents, especially bid documents. Because it was not possible
to obtain these documents from all State agencies and to examine
these documents, it is difficult to cite this as a cause of the lack of
specificity and detail that was evident. The primary remaining
reason is that many contracts do not provide sufficient information
to support effective performance and oversight by the FSMC and
school district.
A more in-depth consideration of source of the contract led to a
tabulation of the types of documents available from the State
Agency for each State. The States were assigned to one of three
categories: States with the contract and supporting documentation
for all contracts; States with the contract and no additional
supporting documents; and States with contract files that fell mto
both categories. The results are presented in Table A-2.
Prior to collecting the contracts, a small group of contract files
were reviewed to identify the typical clauses, terms and services
likely to be contained in a contract between a school district and
an FSMC. Then, the draft review form was modified and
expanded to incorporate the full range of data that might be
available in each contract. The form was also submitted to FNS
for review. Data elements corresponding with each clause, term,
and service area were assigned a basic set of numeric codes that
could be entered into a database. Thus, for any given field, xle
was developed to describe the necessary text. This document was
used to ensure that data were abstracted consistendy. The actual
contract review proceeded through these stages.
Contract Review Training: A training session was held for all
staff assigned to the abstracting task. The training was organized
around a contract abstraction manual which provided:
Descriptions of the roles and responsibilities of the FSMC
contract reviewers and supervisors;
Descriptions of the FSMC data contract review document
and a question-by-question guide to the document's use;
Definitions of acceptable and unacceptable codes and
interpretations;
• A guide to key sections of contracts in which important
information may be found;
ajeA-4 FSMCs in School Nutrition Programs - Contract Review
H
Appendix A: Contract Review Methodology
Table A-2: State* with
Supporting Documentation for
FSMC Contract!. States with SupportinE Documentation for All contracts
Percent of
Category
Percent of
Total
New York 91.6% 13.9%
Oregon 6.6% 1.0%
Florida 0.9% 0.1%
Utah 0.9% 0.1%
TOTAL 100.0% 15.2%
States with No SupportinE Documentation in Contract File
Percent of
Category
Percent of
Total
New Jersey 51.3% 18.6%
Ohio 11.0% 4.0%
Minnesota 7.7% 2.8%
California 7.0% 2.5%
Washington 5.6% 2.0%
Connecticut 5.6% 2.0%
Virginia 5.0% 1.8%
faili«M 2.8% 1.0%
New Hampshire 2.0% 0.7%
Montana 2.0% 0.7%
TOTAL 100.0% 36.3%
Pennsylvania
Illinois
Michigan
Massachusetts
Texas
Vermont
Arizona
Rhode Island
WjgflOMJg
Colorado
TOTAL
'ft "—M
Contract
Contract and Percent of Percent of
Only Documentation Category Total
86.1% 13.9% 30.5% 14.8%
17.9%
30.9%
12.2%
3.3%
58.8%
6.7%
87.8%
83.8%
50.0%
82.1%
69.1%
87.8%
96.7%
41.2%
93.3%
12.2%
16.2%
50.0%
21.9%
12.5%
12.3%
8.6%
5.1%
4.3%
2.4%
1.8%
0.6%
100.0%
10.6%
6.1%
5.9%
4.2%
2.5%
2.1%
1.2%
0.9%
0.3%
48.5%
Page A-5 FSMCs in School Nutrition Programs - Contract Review
06v
Appendix A: Contract Review Methodology
•
A detailed review of the contact abstracting form; and,
An overview of the FSMC contract database and data-keying
system for tabulating contract information.
Contract Review and Abstraction: Each contract file was
thoroughly reviewed by trained individuals. Care was taken to
avoid interpretations and conjecture about the intent of contract
language. If there was any doubt about the specificity of a point
of fact (e.g., a service provided or a requirement placed upon the
FSMC by the district) the coding attempted to reflect this
uncertainty. Virtually all of the information was coded into
numeric categories. For this reason, the data in the contract
review data base are categorical data.
As the abstracting progressed, it was necessary to expand upon the
initial set of codes. The database was constructed to allow persons
keying the data to add new codes defined by the abstractor if those
provided in the contract review form were inadequate to describe
the text in the contract. The definition of each code was recorded
directly into the data base. All data were dual-keyed and checked
for errors.
Contract abstract verification: Following the review of the
contract file, each reviewer re-examined the information recorded
on the abstracting form to ensure that all fields were accurately
and properly completed. In those instances where the reviewer
was unable, based on the available information, to make a
determination, this fact was documented.
As the first round of contracts were abstracted, Price Waterhouse
staff re-abstracted these same contracts, documented discrepancies,
and provided supplemental instructions to the reviewers. As the
work progressed, thirty percent of all contract files were randomly
selected for independent re-review by an FSMC contract review
supervisor. Contracts selected for re-review were assigned to a
reviewer who had not seen the file. Also, reviewers were
directed to refrain from taking notes in the margins or otherwise
marking the contract documentation during the review process. In
this manner, independence in reviews was ensured as reviewers
were unable to differentiate between contracts-being reviewed for
the first or second time.
The re-review of contracts following the same criteria as first-time
reviews. The review supervisor maintained a list of school
districts selected for review and re-review and monitored the
Page A-6 FSMCs in School Nutrition Programs - Contract Review
(etc
Appendix A: Contract Review Methodology
timeliness and progress of the review process. The first and
second reviews were compared, and discrepancies were resolved
by the first and second reviewer or a supervisor. When the
discrepancies suggested a pattern, all abstractors were informed of
this potential problem. In addition, the contract review supervisor
examined all abstracting work on a routine basis.
Data transcription, error detection, and resofition: Once the
contracts and data input forms were reviewed by the supervisor,
the data input forms were separated and set aside to be transcribed
into the appropriate database. The supervisor was responsible for
monitoring the completion of the data entry process. The database
consisted of seven Lotus 2.2 spreadsheets.3 Codes for textual
entries appeared in the database. When other codes were
necessary, the person keying the data was able to document new
codes in a designated area on the spreadsheet.
After all data was keyed into the spreadsheet, the information was
converted to a SAS data set. Analysis to detect data problems was
completed using SAS. Tests included:
• Computing and examining the distribution of each of the
approximately 250 variables to ensure that entries were
valid and within predefined ranges; and
• Comparisons of related data fields to ensure that responses
were consistent, logical, and in accordance with
dependency patterns (e.g., a yes response was followed by
valid subsequent data, while a no reflected a skip to the
next applicable variable).
Errors detected through this process were corrected by referring
back to the abstraction form or the contract document, depending
on the nature of the error. Once all error checking was
completed, the data base was judged to be ready for preliminary
analysis.
Data Analysis The first step in the analysis was to prepare and review frequencies
for each variable. At this point, it was necessary to combine
variables that were logically related. To illustrate, the terms of
3 The file structure corresponded to logical sections of the
data base, determined by the capacity of the spread sheet
to contain a workable number of data fields.
Pafe A-7 FSMCs in School Nutrition Programs - Contract Review
67
Appendix A: Contract Review Methodology
payment or fee structure of contracts were not simple constructs
such as per meal cost plus an administrative fee. Often the there
are multiple fees -- administrative, management -- and the basis for
the application of the fee might be per meal or an annual value.
Numerous permutations were identified and considerable effort was
required to adequately define the combinations. This was done to
avoid the possibility of misleading results if simple (duplicated)
counts were reported for the number of contacts that used a
particular type of fee. The tabulations were submitted to FNS for
joint inspection.
It should be noted that these data are largely descriptive and are
reflective of events and activities that are not likely to reflect
underlying causes or structures. Considerable analysis was
undertaken to identify patterns that might be attributed to specific
causes such as degree of involvement of State Agencies, size of the
food service management companies, and size of district. The
basic rationale for this approach is summarized below for each
variable:
• FSMC Size. It was hypothesized that the larger national
FSMCs would be more sophisticated in the development of
contracts. However, this hypothesis was not supported.
Strong contracts can be found between districts and FSMCs
of varying sizes.
• District Size. A pattern similar to that expected for
FSMC size was hypothesized for district size. However,
upon further inspection, it was evident that district size is
not related to contract content. Thus, it is inappropriate to
necessarily assume that larger school districts are likely to
be more accomplished at procurement.
• State Agency Involvement. It was hypothesized that those
States exerting greater influence on the contracting process
might produce stronger, better specified contracts.
However, there are only three States with FSMC contracts
(New York, Illinois, and Florida) which fit in this
category; an insufficient number of States upon which to
base conclusions.
• District Control of Food Services. It was hypothesized
that contracts would vary in the amount of control of food
services retained by the school district. An important
component of the FNS guidance described in Chapter I is
the description of activities and responsibilities that a
Pate A-* FSMCs in School Nutrition Progtttns - Contnet Review
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Appendix A: Contract Review Methodology
school district must retain. Some of these responsibilities,
such as maintaining the NSLP agreement and processing of
free and reduced-price meal applications, are not
controlling per se. Many of the responsibilities such as
control of accounts, signing of reimbursement claim forms,
monitoring the meal program, control of donated
commodities, and control of contracts do provide the
mechanisms by which a school district can control its meal
program. Specific contract reference to "applicable Federal
regulations" include all of responsibilities and provide a
school district with broad control. However, when
contracts specify each of these factors, control is increased.
The difficulty, from an analytic standpoint is