Procurement Guidance Part 4: Informal Procurement Methods for School Nutrition Programs

Procurement Guidance Part 4: Informal Procurement Methods for School Nutrition Programs


Welcome to the California Department of Education’s,
or CDE’s, Procurement Guidance Video Series, Part 4: Informal Procurement Methods for School
Nutrition Programs (SNP). My name is Vincent Keene and I am a Program
Analyst in the Nutrition Services Division at CDE The training objectives of this video are
to identify the federal procurement standards, describe the requirements of the two informal
procurement methods, and determine when to use each method. Let’s begin with identifying the federal procurement
standards. In December 2013, the federal government published
Title 2, Code of Federal Regulations (2 CFR), Part 200-Uniform Administrative Requirements,
Cost Principles, and Audit Requirements for Federal Awards. The CDE refers to this document as the Uniform
Grant Guidance because it consolidates eight older regulatory sections into one document
that covers all administrative requirements, cost principles, and audit requirements for
all federal awards. The guidance in these regulations pertains
to all school food authorities (SFA) that receive federal awards or funds, not just
SFAs participating in the SNP. The procurement standards are covered in sections
200.318‒200.326. Before we discuss the two informal procurement
methods, it’s important to point out that 2 CFR, Part 200.318(d) requires that SFAs
make an “appropriate analysis to determine the most economical approach.” This means that SFAs should consider all purchase
methods, even if they are not required based upon the purchase threshold. Let’s look at the definition in the Merriam-Webster
dictionary for the term economical. Economical means:
• Marked by careful, efficient, and prudent use of resources
• Operating with little waste or at a savings, for example, having an economical car
The point to remember is that even though a procurement method, such as the micropurchase
method, may be allowable based on the dollar amount of the single purchase transaction,
the SFA should always consider whether using that method is the most economical approach. We will return to this concept later in this
video. There are two informal procurement methods:
the micropurchase and small purchase methods. I will discuss each method in detail in this
two-part video. Part one will cover the micropurchase method
and part two will cover the small purchase method. Let’s get started with Part One: The Micropurchase
Method. SFAs may not be familiar with the term, micropurchase,
because it is relatively new to the federal regulations. It pertains to a single purchase transaction
equal to or below the micropurchase threshold, which is currently set at $3,500. SFAs should be aware that this dollar amount
changes from time to time. SFAs should also keep in mind that the micropurchase
threshold may be even lower than the threshold of $3,500 established by the federal government
depending on local rules or laws. For example, a school district may establish
a more restrictive micropurchase threshold than the federal micropurchase threshold of
$3,500. SFAs must always adhere to the most restrictive
threshold. SFAs that adhere to the federal micropurchase
threshold should reference the Federal Acquisition Regulations, or FAR, Part 2, to ensure that
they are following the current micropurchase threshold. A link to the FAR is listed on this slide. This link is also accessible by selecting
the Show More tab directly below this video. I mentioned that a micropurchase pertains
to a “single purchase transaction.” A single purchase transaction has one receipt
or purchase order. The screen lists two examples of single purchase
transactions: • A single trip to a kitchen supply store
to purchase cooking utensils • A one-year contract for produce In the two examples of a single purchase transaction, which one would be a micropurchase? A single trip to the kitchen supply store
with a receipt for $29.93 or a one-year produce contract totaling $45,000? If you thought a kitchen supply store receipt
for $29.93, you are correct. Since a micropurchase is a single purchase
transaction equal to or less than $3,500, the receipt showing $29.93 would be considered
a micropurchase. The one-year contract for $45,000 is over
the federal micropurchase threshold of $3,500 so it would not be considered a micropurchase. Other examples of micropurchases include purchasing
paper from an office supply store or purchasing gluten-free products at the grocery store. If an SFA’s dishwasher unexpectedly breaks,
the SFA may decide to pay someone to repair it or purchase a new one. In these cases, the cost is likely to be below
the $3,500 micropurchase threshold. Many SFAs have asked whether shopping for
groceries falls under the micropurchase method if the receipt is less than $3,500. Technically the answer is “yes”. A trip to the grocery store would be a single
purchase transaction. However, remember that I stated that SFAs
are required to make an analysis to determine the most economical approach for purchases. If an SFA is going to make ongoing, routine
purchases that add up to a significant amount of money by the end of the school year, the
SFA should consider whether there are alternative purchase methods to obtaining groceries that
might make more sense. Here are some questions for the SFAs to consider
when determining the correct procurement method to use:
• Can the SFA get better prices by shopping around and choosing the store with the lowest
overall prices? • Can the SFA obtain price quotes for a
contract with a distributor for some of the food items they need? The SFA cannot split the procurement into
two single-purchase transactions solely to avoid using the small or formal purchase method. I will revisit this issue in Part Two: The
Small Purchase Method in just a few minutes. So now that you know that a micropurchase
is a single purchase transaction equal to or less than the micropurchase threshold,
what else do SFAs need to know about this procurement method? SFAs need to know that the price quotes are
not required for micropurchases as long as two conditions are met. The first condition is that the SFA’s purchasing
agent should consider the price they are paying to be reasonable. Remember, the SFA should focus on making economical
purchases. The second condition of a micropurchase is
that the SFAs must spread their micropurchases equitably among qualified suppliers, as much
as practicable (or reasonable). This requirement is stated in federal regulations. Spreading micropurchases equitably among qualified
suppliers basically means that the SFA needs to shop at different stores to spread federal
funds equitably among different vendors. This does not mean the SFA must make the approximately same number of visits at each vendor; rather it means that the SFA needs to equitably divide
the amount of money spent at each vendor. For example, let’s say an SFA always purchases
paper from an office supply store down the street, even though there are other office
supply stores in the area. The regulation requires, if practicable, that
the SFA shop at different stores when following the micropurchase method. Rotating stores allows multiple vendors to benefit from federal dollars coming into their community. This is what is meant by distributing micropurchases
equitably among qualified suppliers. During the off-site Local Agency Procurement
Review, the SFA will be asked to provide the CDE with a list of stores where micropurchases
were made and document how much the SFA spent during the prior closed school year at each
of the stores. To summarize, it isn’t enough just to shop
at different stores. SFAs must ensure they spend about the same
amount of money at each store during the school year. This may be a big change for SFAs that are
accustomed to shopping at only one store. Some SFAs have asked what they should do if
they are located in a rural area and there is only one store within a reasonable distance. The regulation states “. . .to the extent
practicable, spread purchases equitably among qualified suppliers.” If there are no other qualified suppliers
within a reasonable distance, then considering the cost of gas and increased labor hours,
it would not be practicable to drive a long distance in order to spread purchases equitably
among qualified suppliers. If an SFA determines that it is not practicable
to shop at different stores, the SFA should document the reason that it’s not practicable
and include documentation of this in the SFA’s written procurement procedures for the micropurchase
method. Please remember that your procurement procedures
must be fair and reasonable. If Store B is just a few miles away from your
usual Store A but you do not shop at Store B because, for example, you are more familiar
with the layout of Store A, you will not be in compliance with the micropurchase method
for procurement. Let’s talk about shopping for groceries again. Many SFAs prefer to shop at a specific store
because it has the lowest prices. Of course it’s always preferable and makes
economic sense to shop at a store that has the lowest prices. However, because the micropurchase method
requires that an SFA considers price to be reasonable and that they spread purchases
equitably among qualified suppliers, an SFA would no longer be following the micropurchase
method if they shopped at only one store because of the lower prices. This means that even if the SFA’s receipt
for a single purchase is less than $3,500, the purchase would not be considered a micropurchase
because when prices are considered and the SFA is not spreading purchases equitably,
the SFA is following the small purchase method, which compares prices from various suppliers. On that note, let’s start Part Two: The Small
Purchase Method. Under federal rules, the small-purchase threshold
determines whether the procurement is conducted using the small or formal procurement methods. SFAs typically use the small purchase method
for procuring goods and services when the estimated amount of the purchase is below
the most restrictive small purchase threshold, which is the lowest of the federal or local
thresholds. An SFA may, however, choose to use a formal
procurement method for procurements that are below the most restrictive threshold, even
though they are not required to do so. A possible reason for this is if the SFA wanted
to issue a Request for Proposal, which is a formal procurement method, because they
wanted to consider factors others than price, such as vendor experience. In addition, the SFA may choose to use the
small purchase method for a procurement that falls below the micropurchase method. A possible reason for this is if the SFA wants
to get price quotes from various vendors in order to get the lowest price. Price quotes are not required for micropurchases,
so in this situation the SFA is using the small purchase method. The one must regarding the small purchase
threshold is if the estimated amount of the purchase is above the most restrictive small
purchase threshold. In this situation the SFA must conduct a formal
procurement. It is important to note that regulations prohibit
breaking up solicitations into smaller pieces to avoid the formal procurement processes
unless specific circumstances exist to justify splitting the purchase. So what is the small purchase threshold? Effective January 1, 2018, the majority of
SFAs will adhere to the federal small purchase threshold of $150,000 unless they are required
to follow a more restrictive local small purchase threshold. Prior to January 1, 2018, school districts
and county offices of education purchasing goods and services for federal child nutrition
programs were required by Public Contract Code, Section 20111 to adhere to the California
small purchase threshold. However, this law was recently revised to remove this
requirement for purchases made for federal child nutrition programs only. School districts and county offices of education
must still adhere to the California small purchase threshold for all other purchases,
as applicable. To make sure the federal small purchase threshold
of $150,000 has not changed, SFAs should check the Federal Acquisition Regulation, Part 2,
which can be located on the Acquisition.Gov Web page accessible in the Show More tab directly
below this video and listed on the screen. SFAs may also contact a procurement specialist
by e-mailing [email protected] Some SFAs must comply with local small purchase
thresholds that are set by either local governments or by their own agency. For example, if the board of a school district
established a small purchase threshold of $25,000, the district would not follow the
federal small purchase threshold of $150,000. Agencies are required to follow the most restrictive
threshold. As a result, in this example the SFA could
only use the small purchase method for purchases below $25,000. When considering which procurement method
to use, the SFA must always take into account the small purchase threshold. SFAs cannot intentionally divide purchases
if the only justification is to keep the price below the federal or local small purchase
or micropurchase threshold. For example, let’s say a school district follows
the federal small purchase threshold of $150,000. If the district plans to purchase $160,000
worth of lettuce for the salad bar, the district cannot split the procurement into two purchases
of $80,000 each. However, the school can specify different
varieties of lettuce that must be provided and may award to more than one supplier using
a lump sum award for each variety of lettuce. For more information on splitting procurements,
refer to page 77 in the USDA Procuring Local Foods for Child Nutrition Programs guide,
accessible in the Show More tab directly below this video. Next, I will discuss the steps an SFA will
follow when using the small purchase method. These are the five steps for conducting a
small purchase transaction that an SFA will follow after they conduct a needs assessment,
forecast, and budget for the school year. 1. Develop written specifications. 2. Identify sources. 3. Obtain and evaluate the price quotes. 4. Award the contract; and, 5. Manage the contract. Step 1: Develop written specifications. A specification is the details of the goods
or services you want. A district’s procedures should state that
all solicitations include a clear and accurate description of the requirements for the material,
product, or service to be procured so that vendors can understand what is requested. This description is called the specification. Some specifications are very brief, while
others may be quite extensive. The more extensive and detailed the specification,
the more likely you are to get what you expect. However, you can’t be so specific as to restrict
competition. In an ideal situation, you will get multiple
vendors that can meet your needs. This allows for competition and the ability
of the SFA to get the most out of their food program dollars. When developing specifications, SFAs may identify
a specific brand of product they are interested in purchasing, as long as they include the
language “or equivalent” after the brand name. For example, a district could state in their
specifications they want Paula’s Processed Chicken Nuggets “or equivalent.” Adding “or equivalent” opens competition. Keep in mind that the SFA must define the
method for determining what is an “equivalent” product. While this is not an inclusive list, some
of the specifications you could include are: • Name of item
• Description • Case pack and weight
• Delivery needs • Minimum or maximum size
• Main ingredient(s) • Other product ingredients
• Prohibited ingredients • Nutritional standards
• Unit or quantity needed • Quality indicators
• Meal pattern requirements, or • Child Nutrition labels Once the SFA has written a clear and accurate specification, step two is to contact an adequate
number of vendors. The CDE encourages SFAs to not limit the search
to just two or three vendors if there are more vendors available. Make sure to document the quotes, even if
they are provided to you verbally. As a best practice, the CDE recommends that
SFAs request that vendors respond by e-mail to assist the SFA to maintain documentation. When soliciting for a small purchase, school
districts and COEs must comply with the State of California Public Contract Code, Section
20116. This state law requires these agencies to
annually publish a notice inviting contractors to register to be notified of future informal
bidding projects. Whenever a school district or COE seeks a
contractor or vendor for a small purchase, they must notify the contractors or vendors
who are registered. Again, this requirement pertains only to school
districts and COEs. What if an SFA does not get a response from
an adequate number of vendors? For example, what if an SFA can only find
one qualified source? In these cases, the procurement is considered
a noncompetitive procurement. The regulations allow noncompetitive procurements
under four criteria. The four criteria are:
1. After solicitation, competition is deemed inadequate. This means the SFA has done a proper job soliciting
for goods or services and they only received one quote. 2. Goods or services are only available from
one source (referred to as a sole source). This criteria typically applies to technology
procurements. 3. There is an urgent or public need that will
not permit a delay. For example, a fire destroyed a school’s storage
facilities and they need an immediate procurement to feed the students. 4. The SFA received approval from the CDE after
written request from the SFA. In this case, among other items, the CDE will
review the specification to ensure it is not too specific that it restricts competition. SFAs are strongly encouraged to contact their
procurement specialist if they have a noncompetitive or sole source situation. Failure to adequately follow procurement guidelines
and requirements related to sole source or noncompetitive procurement may result in a
financial finding against an SFA. After soliciting for quotes, the SFA will
evaluate the quotes. Are the vendors responsive, meaning can they
meet the terms of your conditions? Can they deliver when you need it, and do
they have the product as described in your specification? Are they responsible? Can they perform successfully under the terms
and condition of the contract? Do they have a poor track record when checking
their references? Did they pass the taste test if one was conducted? When evaluating quotes, the SFA cannot consider
additional services a potential vendor offered that were not listed in the original solicitation. If this occurs, the vendor is considered “overly
responsive”. The award decision must always be based on
the criteria outlined in the original solicitation and not on any additional factors a vendor
has chosen to add. To factor in overly responsive items allows
for unfair competition as other respondents who were strictly responsive to the solicitation
document are now at an unfair disadvantage. After evaluating the quotes, the SFA selects
a responsible and responsive vendor that quotes the lowest price. The SFA must document the steps it takes to
award the contract to the lowest priced responsive and responsible bidder. It is important to note that procurements
using the small purchase method must always result in a fixed-price contract. For more information on contract types, SFAs
can reference the Types of Contracts section in the Procurement in the 21st Century Resource
Manual, accessible in the Show More tab directly below this video. Please note that as of December 2017, the
Procurement in the 21st Century Resource Manual is in the revision process. The CDE will update the link to this resource
in the Show More tab when the revised version is available. An important, but often overlooked step, is
contract oversight. The purpose of overseeing the contract is
to make sure the vendor is meeting the terms and conditions in the executed contract. For example, let’s say a district has a milk
contract which states that deliveries of 500 cartons of one percent white milk must be
made at specific times on specific days and the temperature of the milk must be between
35 and 38 degrees Fahrenheit upon delivery. Who will check to make sure the vendor delivers
milk as stated, brings the correct quantity and type of milk, and the milk is at the correct
temperature? What will a district do if one of these conditions
are not met? If the vendor is unable to fulfill the terms
and conditions of the contract, an SFA may terminate the contract as outlined in the
terms and conditions of the contract. It is very important that you have a termination
clause in your boilerplate language for situations like this. As mentioned in Part One: The Micropurchase
Method, some SFAs may want to shop at only one grocery store for small purchases under
the micropurchase threshold, even though there are many other qualified suppliers in the
area, because they believe one store has the lowest prices. In this situation, the SFA needs to compare
prices and choose the store with the lowest prices, making this procurement a small purchase,
not a micropurchase. In this situation, the SFA would first identify
specific quantities of the top ten items they purchase. They should be specific in order to compare
apples to apples. The next step would be to obtain documentation
of prices from different stores in the area. After adding up the prices for all items in
a specific quantity, they should be able to determine which store has the lowest prices
overall. SFAs can look for prices online, get quotes
over the phone, or physically go to the store. If they obtain quotes over the phone, they
must write the prices down. If they physically go to the store, they should
take a picture of the prices. This documentation must be retained to show
evidence of obtaining price quotes and selecting the vendor with the lowest price. If the SFA obtains prices online, they should
print and retain the prices as proof of costs. The federal regulations do not define the
frequency for conducting this type of analysis. A best practice is to obtain quotes annually. SFAs might also consider developing specifications
and obtaining price quotes from food distributors. It may be cost effective to establish a contract
with a distributor who delivers food. This will depend upon the size of the SFA. The small purchase method is not required
for purchasing groceries. A single purchase transaction that is equal
to or less than $3,500 could be made as a micropurchase. However, as mentioned before, consideration
should be given to the most economical approach. Whenever there are routine, ongoing purchases,
the small purchase method will likely result in lower expenditures. It is up to each SFA to justify why the micropurchase
method is the best approach for items they purchase using this method. When purchasing equipment, there are several
things SFAs need to know. First, the SFA must know the definition of
equipment. Equipment is any item of nonexpendable personal
property with a useful life of more than one year and a per unit acquisition cost of greater
than $5,000, unless the educational agency has a lower threshold. Nonexpendable personal property can be tangible,
having physical existence, such as equipment, or intangible, having no physical existence,
such as patents, inventions, and copyrights. Considering the definition for equipment,
a refrigerator that costs $2,500 would not be considered equipment because all items
less than $5,000 are considered supplies. SFAs do not need to obtain specific prior
written approval for equipment purchases greater than $5,000, if the equipment is listed on
the U.S. Department of Agriculture, or USDA, Capital Expenditure Approved List. This list is available on the CDE School Nutrition
Program Cafeteria Funds Guidance Web page at the Web address listed on this slide, which
is also accessible by selecting the Show More tab directly below this video. Let’s wrap-up the video by taking a brief
quiz. Question number one: An SFA needs to purchase
three new gas ranges for three kitchen sites and the cost for each one is $2,000. How should they make this purchase? Should they:
• Make a micropurchase by purchasing each gas range separately so their invoices are
below the micropurchase threshold; or… • Follow the small purchase method and develop
specifications, obtain price quotes, and award to lowest-priced responsible and responsive
vendor In this situation, the cost of the three gas
ranges is $6,000, which is over the micropurchase threshold. As discussed in this video, an SFA cannot
knowingly separate purchases so the amount falls below the micropurchase threshold to
avoid getting price quotes. Therefore, the SFA would need to follow the
small purchase method, which includes developing specifications, obtaining price quotes, and
awarding to the lowest-priced responsible and responsive vendor. Question number two. An SFA makes routine grocery purchases less
than $3,500 per single transaction at the same store every time they shop because they
believe that store carries the lowest prices. Which method should they use? Should they:
• Follow the small purchase method by comparing and documenting prices for the top ten items
they purchase and maintain this written documentation to justify shopping at the same store each
time; or… • Follow the micropurchase method since
the prices are reasonable and the amount is under the micropurchase threshold In this situation, the SFA should follow the small purchase method by comparing and documenting
prices. Remember, the amount spent on micropurchases
must be distributed equitably among qualified suppliers. If the SFA uses one store because they think
they have the best prices, the SFA needs to document this. Price quotes are never obtained for micropurchases,
the price just has to be considered reasonable. So if the SFA is comparing prices among stores
and not distributing purchases equitably among qualified suppliers, they are using the small
purchase method and need to document their justification for using only one store. We have come to the end of this video. To conclude this video, there are several
resources on the Internet to support SFAs with following proper procurement methods. The CDE Procurement in Child Nutrition Programs
Web page includes guidance and links to helpful resources and trainings. Also, the Institute of Child Nutrition’s Procurement
in the 21st Century Resource Manual covers a variety of procurement topics including
Principles of Good Procurement, Competitive Purchasing, and Forecasting. Several chapters in the resource are dedicated
to cooperative purchasing best practices. Links to these Web pages are also available
by selecting the “Show More” tab directly below this video. The Nutrition Services Division Procurement
Resources Unit has an e-mail address for SFAs to send procurement questions. Please send your questions by e-mail to [email protected] or call area code 916-319-0636. Other ways to receive NSD updates include
accessing our Web site, following us on Twitter, and viewing our other YouTube videos. SFAs can print a certificate of completion
for this video by accessing the link in the Show More tab directly below this video. Keep this certificate on file, as you may
be asked to show it during an AR. For SNP operators that must meet the Professional
Standards requirements, this slide provides the required information to track your training
for today. This concludes Part 4: Informal Procurement
Methods for School Nutrition Programs, in the CDE Procurement Guidance Video Series. This institution is an equal opportunity provider. Have a great day!

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