Management of Donated Foods in Child Nutrition Programs, the Nutrition Services Incentive Program, and Charitable Institutions, 46169-46190 [E8-18230]
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46169
Rules and Regulations
Federal Register
Vol. 73, No. 154
Friday, August 8, 2008
[FNS–2007–0039]
to 250.54. State agencies and recipient
agencies must implement those
requirements according to the
implementation schedule in section II.I
of the preamble of this rule.
FOR FURTHER INFORMATION CONTACT:
Lillie F. Ragan, Assistant Branch Chief,
Policy Branch, Food Distribution
Division, Food and Nutrition Service,
U.S. Department of Agriculture, Room
500, 3101 Park Center Drive,
Alexandria, Virginia 22302–1594, or
telephone (703) 305–2662. A regulatory
impact analysis has been prepared for
this rule. You may request a copy of the
analysis by contacting us at the above
address or by e-mail to
Robert.Delorenzo@fns.usda.gov.
RIN 0584–AD45
SUPPLEMENTARY INFORMATION:
Management of Donated Foods in
Child Nutrition Programs, the Nutrition
Services Incentive Program, and
Charitable Institutions
I. Background
On June 8, 2006, the Department of
Agriculture (the Department or USDA)
published a proposed rule in the
Federal Register (71 FR 33344) to
amend provisions in 7 CFR part 250,
which contain the general regulations
for USDA domestic food distribution.
The proposals were intended to
accomplish the following objectives:
• Establish requirements to ensure
that recipient agencies in child nutrition
programs receive the benefit and value
of all donated foods received and
provided to food service management
companies for use in the recipient
agencies’ meal service;
• Revise and clarify requirements for
the use and management of donated
foods in the National School Lunch
Program (NSLP) and other child
nutrition programs;
• Reduce the paperwork burden
associated with the distribution of
donated foods to charitable institutions
and summer camps;
• Revise provisions for the
distribution of donated foods in the
Nutrition Services Incentive Program
(NSIP) to reflect legislative changes; and
• Restructure and rewrite revised
provisions in a plain language format,
including new subparts and sections, to
make the regulations easier to read and
understand.
This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents. Prices of
new books are listed in the first FEDERAL
REGISTER issue of each week.
DEPARTMENT OF AGRICULTURE
Food and Nutrition Service
7 CFR Part 250
Food and Nutrition Service,
USDA.
ACTION: Final rule.
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AGENCY:
SUMMARY: This final rule revises and
clarifies requirements for the
management, distribution, and use of
donated foods in the National School
Lunch Program and other child
nutrition programs, in the Nutrition
Services Incentive Program, and by
charitable institutions. In response to an
audit by the USDA Office of Inspector
General, the rule establishes specific
requirements to ensure that recipient
agencies in child nutrition programs
receive the benefit and value of all
donated foods received and provided to
food service management companies to
conduct the food service. The rule also
incorporates legislative changes
affecting the distribution of donated
foods in the Nutrition Services Incentive
Program, and reduces reporting and
administrative requirements for donated
foods provided to charitable
institutions. Lastly, the rule restructures
and revises regulatory provisions in a
plain language format to make them
easier to read and understand.
DATES: Effective Date: This final rule is
effective November 6, 2008.
Implementation Date: State agencies
and recipient agencies are required to
implement the provisions of this final
rule by November 6, 2008, except for the
new contract requirements in §§ 250.50
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II. Analysis of Comments Received
The Department received a total of
668 comment submissions to the
proposed rule, including 576 schools, 7
school associations, 35 State agencies,
49 members of industry and outside
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organizations, and one member of
Congress. The comments are discussed
in detail below.
A. Definitions, 7 CFR 250.3
In the proposed rule, we proposed to
remove, add, and revise definitions in 7
CFR 250.3 to provide program
administrators and recipients with a
better understanding of the
requirements contained in 7 CFR part
250. We received three comments
expressing general support for the
proposed changes in definitions.
We received one comment objecting
to the proposed removal of the
definition of ‘‘Offer and acceptance
system’’, stating that it supports the
current means of ordering donated foods
through the Electronic Commodity
Ordering System (ECOS). While true, we
believe that 7 CFR 250.58 of this final
rule clearly describes the requirements
for the distributing agency to offer,
order, and provide, donated foods to
school food authorities for their use,
making the definition unnecessary.
Since we did not receive any other
comments, this final rule will remove
definitions, as proposed, of ‘‘Nonprofit
summer camps for children’’,
‘‘Nonresidential child or adult care
institution’’, ‘‘Nutrition program for the
elderly’’, ‘‘Offer and acceptance
system’’, ‘‘Program’’, and ‘‘Students in
home economics’’.
Since we did not receive any
comments in response, this final rule
will add definitions, as proposed, of
‘‘Adult care institution’’, ‘‘AoA’’,
‘‘Bonus foods’’, ‘‘CACFP’’, ‘‘Child care
institution’’, ‘‘Commodity offer value’’,
‘‘DHHS’’, ‘‘Elderly nutrition project’’,
‘‘Entitlement’’, ‘‘Entitlement foods’’,
‘‘National per-meal value’’, ‘‘Nonprofit
organization’’, ‘‘Nonprofit school food
service account’’, ‘‘NSIP’’, ‘‘NSLP’’,
‘‘Reimbursable meals’’, ‘‘SBP’’, ‘‘7 CFR
part 3016’’, ‘‘7 CFR part 3019’’, ‘‘SFSP’’,
‘‘Single inventory management’’, and
‘‘Summer camp’’.
We received two comments on the
proposed revision of the definition of
‘‘Food service management company’’.
One commenter was unsure if a
company that was hired to repair
refrigerators would be characterized as a
food service management company.
Another commenter questioned if a
company operating only as a consultant
would be required to credit the recipient
agency for donated foods, in accordance
with the proposed requirements for food
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service management companies. Under
the proposed definition, a food service
management company is an entity that
manages any aspect of a recipient
agency’s food service. We believe that
this definition clearly excludes a
company that simply repairs
refrigerators, since this activity would
not constitute management of the food
service. We also believe that it is clear,
in 7 CFR 250.51(a) of this final rule, that
a commercial enterprise performing
only a consulting service with respect to
donated foods would not have to
provide a credit for the value of donated
foods, since they are not receiving and
using such foods in the food service.
However, to provide further
clarification, in this final rule we refine
the definition of ‘‘Food service
management company’’ to include the
statement in proposed 7 CFR 250.50(a)
that, to the extent that such management
includes the use of donated foods, the
food service management company is
subject to the applicable requirements
in this part. As discussed in section II.E
of the preamble, we are removing the
characterization of a food service
management company in 7 CFR 250.50
of this final rule.
We did not receive any other
comments in objection to proposed
revisions to definitions, and received
one comment in support of the revised
definition of ‘‘Charitable institutions’’.
Accordingly, this final rule will revise
definitions, as proposed, of ‘‘Charitable
institutions’’, ‘‘Child nutrition
program’’, ‘‘Commodity school’’, ‘‘End
product’’, ‘‘ Processing’’, ‘‘Processor’’,
‘‘Recipient agencies’’, ‘‘Recipients’’,
‘‘Section 311’’, ‘‘Service institutions’’,
and ‘‘State Agency on Aging’’.
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B. Agreements and Contracts, 7 CFR
250.12
In the proposed rule, we proposed to
remove reference to agreements between
the Department and State Agencies on
Aging, in 7 CFR 250.12(a), and to
remove 7 CFR 250.12(d), which
addresses contract requirements with
food service management companies, in
conjunction with the proposed new
requirements for the use of donated
foods under such contracts in proposed
subpart D of 7 CFR part 250. We also
proposed to remove 7 CFR 250.12(e) and
(f), as requirements relative to storage
facility and processor contracts or
agreements are currently addressed in 7
CFR 250.14, and in subpart C of 7 CFR
part 250, respectively. Lastly, we
proposed to revise the section heading
to Agreements. Since we did not receive
any comments in response to these
proposals, this final rule retains the
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amendments to 7 CFR 250.12, as
proposed.
C. Reviews, 7 CFR 250.19
In the proposed rule, we proposed to
clarify or revise required procedures in
the distributing agency’s review system
in 7 CFR 250.19(b)(1), by which the
distributing agency ensures compliance
with the requirements in 7 CFR part
250. We proposed to amend the
introductory text to clarify that the
listed requirements may apply to some,
but not all, programs that receive
donated foods. While we did not receive
any comments in response to this
proposal, we have further revised the
introductory text in this final rule to
provide additional clarification.
We proposed to remove the
requirement that review procedures
must include on-site reviews of
recipient agencies in NSIP, since
oversight of this program is currently
the responsibility of the Department of
Health and Human Services (DHHS).
We proposed to streamline and clarify
the requirement to conduct on-site
reviews of charitable institutions and
summer camps, and the food service
management companies under contract
with them. Since we did not receive any
comments in response to these
proposals, this final rule retains them.
We also proposed to include a
requirement that the distributing
agency’s review procedures include onsite reviews of recipient agencies in
NSLP, the Child and Adult Care Food
Program (CACFP), and the Summer
Food Service Program (SFSP) that have
contracts with food service management
companies in order to ensure
compliance with the proposed
requirements for the use of donated
foods under such contracts. However,
we proposed to permit the distributing
agency to enter into an agreement with
the appropriate State administering
agency (if a different agency) to include
its review as part of the State
administering agency’s required on-site
review of such recipient agencies.
We received thirteen comments in
response to this proposal. Twelve of the
commenters indicated that requiring
State agency on-site reviews of recipient
agencies to ensure compliance with
requirements for the use of donated
foods in food service management
company contracts would impose a
significant additional burden.
Commenters indicated that State
agencies often do not have sufficient
personnel to conduct such reviews, or
sufficient funds to permit travel
throughout the State. Additionally,
commenters noted that State agency
personnel often have limited expertise
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in reviewing contract provisions and
ensuring that the value of all Federal
resources provided to school food
authorities and other recipient agencies
has accrued to them. One commenter
indicated that the cost of conducting
such reviews would likely be passed on
to schools.
We agree with commenters that the
proposed review requirements would
impose an additional burden on the
State distributing agency, which does
not currently conduct on-site reviews of
recipient agencies in NSLP, CACFP, and
SFSP. This would be especially true in
States in which a large number of
recipient agencies have contracts with
food service management companies.
However, the State agency responsible
for administering these programs
(usually the State Education Agency)
currently conducts on-site reviews of
these recipient agencies to ensure
compliance with requirements set forth
in contracts with food service
management companies. Additionally,
in accordance with a final rule
published in the Federal Register on
October 31, 2007 at 72 FR 61479, such
State agencies are required to review
and approve all school food authority
contracts with food service management
companies prior to their execution.
Accordingly, the proposed requirement
that the distributing agency’s review
system must include an on-site review
of recipient agencies in NSLP, CACFP,
and SFSP has been removed in this final
rule. In accordance with the removal of
the proposal described above, this final
rule removes current 7 CFR
250.19(b)(1)(v), rather than
redesignating and revising it, as
proposed.
One commenter suggested that
compliance with requirements in food
service management company contracts
should be determined by auditors, in
accordance with Federal audit
requirements under the Single Audit
Act and Office of Management and
Budget (OMB) Circular A–133, and
codified in departmental regulations in
7 CFR part 3052. Under the audit
requirements, a State or local
government or nonprofit agency that
expends at least $500,000 in Federal
awards in a school or fiscal year
(including the value of donated foods)
must obtain a single audit (or, in some
cases, a program-specific audit) for that
year. Audits can be an effective tool in
helping State agencies to ensure that
Federal resources are used for the
intended purpose, and in accordance
with Federal requirements. However,
auditors do not, as a rule, determine
compliance with requirements for
donated foods in contracts with food
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service management companies in
conducting the required Federal audit,
and including such determination
would likely increase the cost of
obtaining the audits for school food
authorities and other recipient agencies.
Accordingly, we do not believe it would
be in the best interest of the child
nutrition programs served to include the
audit as a replacement for the State
agency on-site review in ensuring
compliance with the requirements for
donated foods in contracts with food
service management companies. We
also received one comment indicating
that agreements between State agencies
and recipient agencies should include
assurance of compliance with
requirements relating to the use of
donated foods in food service
management company contracts.
However, we believe that current
agreement provisions requiring that
recipient agencies distribute and use
donated foods in accordance with the
requirements in 7 CFR part 250, and
that hold them responsible for
noncompliance with such requirements,
are sufficient.
We proposed to remove 7 CFR
250.19(d), which requires the
monitoring of funds in NSIP to ensure
purchase of only U.S. agricultural
products. As previously indicated,
DHHS is currently responsible for the
oversight of NSIP. Since we did not
receive any comments in response to
this proposal, 7 CFR 250.19(d) is
removed in this final rule.
D. Distributing Agency Performance
Standards, 7 CFR 250.24
In 7 CFR 250.24 of the proposed rule,
we proposed to revise current
performance standards required of the
distributing agency with respect to the
ordering of donated foods and their
distribution to school food authorities,
in accordance with proposed changes in
7 CFR 250.58. We proposed to revise 7
CFR 250.24(d)(8) to state that
distributing agencies are responsible for
providing recipient agencies with
ordering options and commodity values,
and considering the specific needs and
capabilities of such agencies in ordering
donated foods. We received four
comments indicating that distributing
agencies do not always consider the
needs of recipient agencies in ordering
donated foods. Two of the commenters
indicated that distributing agencies may
instead order those donated foods that
generate higher delivery fees, or may
charge such fees for donated foods
delivered directly to a processor. Two
other commenters suggested requiring
distributing agencies to permit school
food authorities capable of accepting
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full truckload shipments to submit
donated food orders to FNS. In 7 CFR
250.58 in this final rule, we are
requiring the distributing agency to
ensure that all school food authorities
have an opportunity to state their food
preferences each year before the
distributing agency submits donated
food orders to FNS. The revision of 7
CFR 250.24(d)(8), as proposed, would
ensure that the distributing agency
complies with this requirement.
However, as discussed in section II.F.3
of the preamble, we have chosen to
reserve any revision of requirements
relating to the distributing agency’s
system of donated food distribution for
future proposed rulemaking. We
received one comment stating that
recipient agencies are guaranteed
ordering options and visibility of
donated food values through ECOS,
making this performance standard
unnecessary. However, not all
distributing agencies utilize ECOS for
all food distribution programs.
Accordingly, 7 CFR 250.24(d)(8) is
revised as proposed.
We proposed to revise 7 CFR
250.24(d)(9) to state that distributing
agencies are responsible for offering
school food authorities participating in
NSLP the commodity offer value of
donated food assistance, at a minimum,
and for determining an adjusted
assistance level in consultation with
school food authorities, as appropriate,
in accordance with the proposed 7 CFR
250.58. Since we did not receive any
comments in response to this proposal,
7 CFR 250.24(d)(9) is revised as
proposed in this final rule.
In 7 CFR 250.24(d)(10), we proposed
to state that distributing agencies be
responsible for providing each school
food authority participating in the NSLP
with the opportunity to order, or select,
donated foods from the full list of
available foods, and to distribute the
selected donated foods to each school
food authority, to the extent that
distribution of such foods to, and
within, the State would be costeffective. In accordance with the
amendments to the proposed 7 CFR
250.58 in this final rule, we have
revised 7 CFR 250.24(d)(10) in this final
rule to state that distributing agencies
are responsible for ensuring that all
school food authorities participating in
the NSLP are aware of the full list of
available donated foods, have the
opportunity to provide input at least
annually in determining the donated
foods from the full list that they may
select for their food service, and receive
all such selected donated foods that may
be cost-effectively distributed to them.
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The proposed rule included a
restructuring of some sections of 7 CFR
part 250, including:
• The removal of current subpart E.
• The revision of subpart D to include
new sections with proposed
requirements for the use and
management of donated foods in
contracts with food service management
companies.
• The addition of a new subpart E to
include revisions and clarifications in
current requirements for the use of
donated foods in the NSLP and other
child nutrition programs.
• The addition of a new subpart F to
include current requirements, without
change, for household programs.
• The addition of a new subpart G to
include revisions and clarifications in
requirements for the use of donated
foods by charitable institutions and
summer camps, and in NSIP, and to
include current requirements, without
change, for the use of donated foods in
disasters and situations of distress.
Since we received no comments in
response to the proposed restructuring,
it is retained as proposed in this final
rule. The comments received in
response to the specific new or revised
requirements proposed in each of these
subparts are described below.
E. Subpart D—Donated Foods in
Contracts with Food Service
Management Companies
We proposed to revise Subpart D of 7
CFR part 250 to include, in six new
sections, specific requirements to ensure
that recipient agencies receive the
benefit and value of donated foods in
contracts with food service management
companies. As previously indicated,
this subpart would replace the current
7 CFR 250.12(d). In the first two
sections, we proposed to include the
contract and procurement requirements
for recipient agencies in retaining the
services of a food service management
company, and the specific activities
relating to donated foods that a food
service management company may
perform in accordance with the
contract.
We also proposed to clarify the
distinction between a food service
management company and a processor.
However, since this distinction is
clearly made in the definitions of these
two entities in 7 CFR 250.3, as revised
in this final rule, we are removing it in
this subpart. Consequently, we are
consolidating the proposed 7 CFR
250.50 and 250.51 into 7 CFR 250.50 in
this final rule, and revising the heading
of this section to Contract requirements
and procurement. Accordingly,
proposed 7 CFR 250.52 through 250.55
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are redesignated as 7 CFR 250.51
through 250.54, respectively, in this
final rule. The specific comments are
described below under the pertinent
sections.
1. Contract Requirements and
Procurement, 7 CFR 250.50
We proposed to clarify that the
recipient agency must enter into a
contract with a food service
management company, in accordance
with Federal requirements in 7 CFR
parts 210, 220, 225, or 226, as
applicable, and that the contract must
ensure that all donated foods received
for use by the recipient agency in the
school or fiscal year, as applicable, are
used to benefit the recipient agency’s
food service. We proposed to require
that contracts between child nutrition
program recipient agencies and food
service management companies also
ensure compliance with other
requirements in this subpart. We also
proposed to clarify the two types of
contracts—fixed-price and costreimbursable—that may be used, and
the differences between them. Since we
did not receive any comments in
response to these proposals, this final
rule retains the proposed provisions
relating to contract requirements and
types of contracts in 7 CFR 250.50(a)
and (b), respectively, with one
exception. In 7 CFR 250.50(a) of this
final rule, we require that the contract
ensure that all donated foods received
for use by the recipient agency in the
school or fiscal year, as applicable, are
used in (instead of benefit) the recipient
agency’s food service. This change is
made in accordance with the revised
requirements for the use of donated
foods in 7 CFR 250.51(d) of this final
rule, as discussed in section II.E.2 of the
preamble.
We proposed to clarify that the
recipient agency must meet
Departmental procurement
requirements in 7 CFR part 3016 or
3019, and in 7 CFR parts 210, 220, 225,
or 226, as applicable, in obtaining the
services of a food service management
company, and to require that
procurement documents, as well as
contract provisions, include the donated
food activities that the food service
management company is to perform. We
also proposed to indicate some of the
donated food activities that the food
service management company may
perform, in accordance with its contract,
such as preparing and serving meals,
and ordering or storing donated foods.
We proposed to specifically prohibit a
food service management company from
entering into a contract or agreement
with a processor to process donated
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foods or finished end products for use
in the recipient agency’s food service.
Six commenters indicated that the
food service management company
must play a role in ordering or selecting
donated foods, in order to ensure that
the selected foods are those that may be
most effectively used in the food
service. We agree, and 7 CFR 250.50(d),
as finalized in this rule, will permit the
food service management company to
order or select donated foods for use in
the food service, in coordination with
the recipient agency.
Seven commenters indicated that the
food service management company
should be permitted to enter into
processing contracts, or to procure
processed end products, on behalf of
recipient agencies, since it would
permit those agencies to benefit from
the food service management company’s
purchasing expertise and buying power.
Two other commenters indicated that,
as most processing agreements are
between the processor and the
distributing agency, and not the
recipient agency, the significance of
prohibiting food service management
companies from entering into such
agreements is unclear. The parties to the
processing agreements required in
subpart C of 7 CFR part 250 are usually
the distributing agency and the
processor. Such agreements permit the
distributing agency to ensure
compliance with the processing
requirements in subpart C of 7 CFR part
250, which include the processing of
donated foods into approved end
products, compliance with processing
yields of donated foods, and
maintenance of donated food
inventories at approved levels. The
distributing agency may permit
recipient agencies to enter into
processing agreements, and to ensure
compliance with the processing
requirements. However, it would be
inappropriate to delegate such oversight
of a commercial enterprise (i.e., the
processor) to another commercial
enterprise (i.e., the food service
management company). Hence, we
retain in this final rule the prohibition
of a food service management company
from entering into the processing
agreement with the processor required
in subpart C of 7 CFR part 250.
The actual procurement of processed
end products from processors (or
commercial distributors), however, is
usually conducted by recipient
agencies. Such procurement must be
conducted in accordance with
Departmental procurement
requirements in 7 CFR parts 3016 or
3019, as applicable, and with
requirements in subpart C of 7 CFR part
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250. Although we included the payment
of processing fees or remittance of
refunds from a processor among the
donated food activities that a food
service management company may
perform on behalf of a recipient agency,
we did not specifically include the
procurement of processed end products
among such activities. However, such
procurement is not prohibited.
Furthermore, we agree with commenters
that recipient agencies could benefit
from food service management company
procurements of processed end products
on their behalf, since it would reduce
their time and labor in conducting such
activity, and may result in decreased
purchase costs. Thus, we specifically
include the procurement of processed
end products as an activity that the food
service management company may
perform on behalf of the recipient
agency in 7 CFR 250.50(d) of this final
rule. However, we also clarify that such
procurement must ensure compliance
with the requirements in subpart C of 7
CFR part 250, and with the provisions
of distributing or recipient agency
processing agreements, and must ensure
crediting of the recipient agency for the
value of donated foods contained in
processed end products at the
processing agreement value. Other
donated food activities included in the
proposed rule are retained in 7 CFR
250.50(d) of this final rule, with some
consolidation.
2. Crediting for, and Use of, Donated
Foods, 7 CFR 250.51
In the proposed rule, we proposed to
include requirements to ensure that
recipient agencies in child nutrition
programs receive the benefit and value
of donated foods in the meal service
provided by food service management
companies. We proposed to require the
recipient agency to ensure that the food
service management company, in both
fixed-price and cost-reimbursable
contracts, credits it for the value of all
donated foods received for use in the
recipient agency’s food service in a
school year or fiscal year (including
both entitlement and bonus foods), with
the exception of donated foods
contained in processed end products.
We proposed to include the accepted
means by which crediting for the value
of donated foods must be achieved, the
required frequency of such crediting,
and that, in all cases, crediting be
clearly documented.
One commenter suggested that we
require crediting for donated foods as
they are used (rather than as they are
received), to avoid a situation in which
credit is provided for donated foods that
may not be used during the contract
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period—e.g., due to receipt of a
shipment late in the year. However,
requiring crediting for the value of
donated foods only as they are used
would provide a disincentive to use
them. Additionally, we do not want to
create a situation in which school food
authorities with food service
management company contracts must
monitor donated food inventories to
ensure proper crediting, as such
monitoring would impose an additional
burden, and would be very difficult
under a single inventory management
system, in which school food authorities
(and, in accordance with 7 CFR
250.52(b) of this final rule, food service
management companies) may
commingle donated foods and
commercially purchased foods.
We received two comments
expressing uncertainty whether
crediting must occur for donated foods
delivered to processors for processing
into end products when the end
products are delivered to the recipient
agency, or when the food service
management company uses the end
products in the recipient agency’s food
service. As we described in the
proposed rule, the processor (or
commercial distributor, as applicable)
must credit the recipient agency for
donated foods contained in processed
end products in the sale of such end
products to the recipient agency, in
accordance with the requirements in
subpart C of 7 CFR part 250. Hence, the
value of the donated foods accrues to
the recipient agency’s nonprofit food
service in its purchase of the processed
end products. Although the food service
management company must use such
end products in the recipient agency’s
food service, it is not required to
provide an additional credit for the
value of donated foods contained in
them when they are used, or received
for use, in the food service. However, an
exception would be if the food service
management company’s contract
requires it to procure processed end
products on behalf of the recipient
agency, or to act as an intermediary in
passing the donated food value in such
end products on to the recipient agency,
in accordance with 7 CFR 250.50(d) of
this final rule. Hence, in 7 CFR
250.51(a) of this final rule, we clarify
that, in such cases, the food service
management company must also credit
the recipient agency for the value of
donated foods contained in processed
end products.
We include the proposed methods of
crediting permitted, and the required
frequency of crediting, together in 7 CFR
250.51(b) of this final rule, in the
interest of clarity. We proposed to
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include ‘‘pre-crediting’’ as an accepted
means of crediting for the value of
donated foods in fixed-price contracts.
In pre-crediting, the food service
management company deducts the
value of donated foods the recipient
agency is expected to receive from the
fixed-price bid submitted during
procurement of the food service
management company to conduct the
food service. In contracts with school
food authorities, this deduction is
usually for the per-meal value of
donated food assistance established in
accordance with section 6(c) of the
Richard B. Russell National School
Lunch Act (42 U.S.C. 1755(c)). However,
school food authorities may receive a
greater value of donated food assistance
for the school year. This may result for
a number of reasons (some of which are
described in 7 CFR 250.58(d) of this
final rule), but is most commonly due to
the receipt of surplus, or bonus, foods
purchased by the Department to remove
market surpluses, and donated to school
food authorities and other recipient
agencies later in the year.
As indicated in the Office of Inspector
General (OIG) audit (#27601–0027–CH)
referenced in the proposed rule, food
service management companies that
utilize ‘‘pre-crediting’’ sometimes fail to
credit school food authorities for the
additional foods received later in the
year. Hence, in the proposed rule, we
also proposed to require the food service
management company to provide an
additional credit for the value of any
donated foods not accounted for in the
fixed-price per meal.
We received nine comments
indicating that this requirement would
discourage food service management
companies from efficiently using
donated foods, since providing recipient
agencies with an additional credit for
the value of donated foods received later
in the year would reduce their revenue.
However, as the proposal would require
crediting for all donated foods received
in the school or fiscal year, and not just
those donated foods that are actually
used, it would not discourage the use of
donated foods. We received four
comments questioning whether a
recipient agency would have to
reimburse the food service management
company if it actually received less than
the pre-credited value of donated foods.
This may occur, for example, if a school
food authority does not select donated
foods offered by the distributing agency
equal to its commodity offer value (i.e.,
the legislated per-meal value), or if
selected foods may not be purchased,
due to market conditions or other
factors. However, the proposed
requirement is intended only to ensure
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that the recipient agency is credited for
the value of all donated foods received.
It would not require reimbursement of
the food service management company
if such crediting is in excess of that
value. However, such reimbursement
may be established by the food service
management company and the recipient
agency, in accordance with their
contract.
One commenter contended that some
recipient agencies are more interested in
a guaranteed cost of the service (i.e., in
the fixed-price per meal), rather than
assurance that credit is received for the
value of all donated foods. Another
commenter suggested that additional
credits be excused when a food service
management company does not include
other related costs, such as storage, in
the fixed price. However, permitting any
exceptions to the requirement that the
recipient agency receive credit for the
value of all donated foods would not
meet the primary intent of the
regulations, or address the concerns
expressed in the OIG audit.
Notwithstanding this requirement, a
recipient agency may consider storage
or handling costs in establishing the
value of donated foods to be used in
crediting, as permitted in 7 CFR
250.51(c) of this final rule. Another
commenter questioned the accuracy of
the term ‘‘fixed-price’’ contract if
deductions for the value of donated
foods are required on invoices. While
technically true, this designation is
commonly used, and use of an alternate
term would be confusing.
We proposed to permit ‘‘crediting by
disclosure’’ in cost-reimbursable
contracts. Under such contracts, the
food service management company bills
the recipient agency for costs incurred
in conducting the food service, and also
charges a fixed management fee.
However, one commenter was unsure if
crediting by disclosure meant disclose
to the recipient agency the value of
donated foods received during the
period covered by the invoice, or
actually credit funds to the recipient
agency for such foods. We agree with
the commenter that the meaning is not
clear. Therefore, we are amending the
language in 7 CFR 250.51(b) of this final
rule to clarify that, in crediting by
disclosure, the food service management
company credits the recipient agency
for the value of donated foods by
disclosing, in its billing for food costs
submitted to the recipient agency, the
savings resulting from the receipt of
donated foods for the billing period.
However, it does not require a reduction
of the fee charged for conducting the
food service, or any other type of
payment for the value of donated foods.
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We proposed to require the recipient
agency to ensure that crediting for the
value of donated foods be performed not
less frequently than annually. Two
commenters were unsure if the food
service management company must
credit the recipient agency for the value
of donated foods when such foods are
delivered to the recipient agency, or
when the food service management
company actually uses the donated
foods in the recipient agency’s food
service. The proposal did not include a
specific time that crediting must be
performed, only that it be performed at
least annually. Hence, the recipient
agency may require a food service
management company to credit it for
donated foods upon delivery, quarterly,
or all at once at the end of the year
(provided that, for a school food
authority, such a one-time credit would
not result in its cash resources
exceeding the limits established in 7
CFR 210.9(b)(2)). The recipient agency
may also permit crediting for donated
foods as they are used in the food
service. However, the recipient agency
must ensure that the food service
management company credits it for the
value of all donated foods received
during the year; permitting the food
service management company to credit
for donated foods as they are used may
not ensure that this requirement is met.
Additionally, it may be difficult to track
donated foods as they are used if the
entity responsible for storing them is
using a single inventory management
system.
Another commenter indicated that it
should be clear exactly when crediting
for the value of donated foods must be
achieved, as a food service management
company might offer to provide an
upfront payment for such value as an
inducement to winning the bid for the
contract. However, such an upfront
payment for the value of donated foods
would be acceptable if this method of
crediting were provided for in
procurement documents and in contract
provisions, as required in this final rule.
It would be unlikely, though, to include
crediting for all donated foods received
in the school or fiscal year, and would,
therefore, necessitate additional
crediting at a later time.
Accordingly, we have retained the
allowed methods of crediting for
donated foods, as proposed, in 7 CFR
250.51(b) of this final rule, with the
clarification of crediting by disclosure
in cost-reimbursable contracts. We have
also retained, as proposed, the required
frequency of crediting, and the
requirement that all forms of crediting
provide clear documentation of the
value received from the donated foods.
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As in the proposed rule, we have
indicated that a school food authority
must also ensure that the required
method and frequency of crediting does
not cause its cash resources to exceed
the limits established in 7 CFR
210.9(b)(2).
In the proposed rule, we proposed to
provide some flexibility in determining
the value of donated foods to be used in
crediting, in order to permit the
recipient agency to ensure that the
donated foods received provide a good
value to its food service. Hence, rather
than require use of the donated food
value utilized by the distributing agency
in crediting the recipient agency’s
donated food ‘‘entitlement’’ (as
described in 7 CFR 250.58(e) of this
final rule), we proposed to permit the
use of an alternate value determined by
the recipient agency, and approved by
the distributing agency. We proposed to
require that the method of determining
the donated food values to be utilized in
crediting be included in procurement
documents and in the contract. We
received two comments stating that the
donated food values used by food
service management companies in
crediting school food authorities should
be the same as the values used by
distributing agencies in crediting the
school food authority’s donated food
‘‘entitlement’’. Three commenters
indicated that school food authorities do
not have the time or expertise to
determine alternate donated food
values. We agree that most school food
authorities would not have the time or
expertise to determine alternate donated
food values for use in crediting, and will
likely use the values established by the
distributing agency. However, we
believe that having the flexibility to use
alternate values may benefit some
school food authorities or other
recipient agencies. We received three
comments indicating that the proposed
flexibility in valuation of donated foods,
while commendable, may be confusing
to the parties responsible (e.g., the
distributing agency or the State
administering agency) for ensuring that
recipient agencies have received credit
for the value of all donated foods. We
agree that the use of different values in
crediting may be confusing to such
parties. However, as previously
indicated, most recipient agencies will
likely use the values established by the
distributing agency, rather than use
alternate values—which, in any case,
would have to be approved by the
distributing agency. Additionally, in 7
CFR 250.54(a) of this final rule, we
require recipient agencies to maintain a
record of the donated food values used
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in crediting, which will help State
agencies or other entities to determine
compliance with requirements for
crediting of the donated food value.
Accordingly, we have included the
options for valuing donated foods as
proposed in 7 CFR 250.51(c) of this final
rule. We have included, as proposed,
the requirement that the method of
determining the donated food values to
be utilized in crediting be included in
procurement documents and in the
contract. We have also included, as
proposed, the requirement that the
method of valuation specified must
result in the determination of actual
values, and may not permit any
negotiation of such values. Lastly, we
have included, as proposed, the
requirement that the recipient agency
must ensure that the specified method
of valuation of donated foods permits
crediting to be achieved in accordance
with regulatory requirements and the
provisions of the contract.
We also proposed to provide some
flexibility in the use of donated foods by
the food service management company,
especially in its contracts with school
food authorities to conduct the meal
service. Under the proposal, the food
service management company would
not be required to use those donated
foods that are not included in school
menu plans, with a few exceptions
(although it must provide a credit for all
donated foods received). Rather, the
food service management company
could use its food purchasing capacity
to provide other foods that meet
nutritional requirements in place of
those donated foods that do not fit
easily into the school menu plans. We
received 641 comments in opposition to
this proposal. Almost all of them
indicated that food service management
companies should be required to use all
donated foods in the school food
service, or should use either the donated
foods or a commercial substitute of the
same type, of U.S. origin, and of equal
or better quality (as required of
processors under subpart C of 7 CFR
part 250). Many commenters saw the
proposal as providing school food
authorities under contract with food
service management companies with the
opportunity to receive cash in exchange
for donated foods (i.e., for those donated
foods not used in the food service)—an
option not available to school food
authorities that operate their own food
service. Some of the commenters feared
that this might lead to a ‘‘cash-out’’ of
NSLP. Other commenters feared that the
proposal would permit sale of donated
foods on the open market and wondered
if the Federal government would be
liable for donated foods that went out-
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of-condition and were sold by a food
service management company to
another party.
In the proposal, we sought to provide
school food authorities and food service
management companies with the
flexibility needed to integrate donated
foods into the food service as effectively
as possible. It was not meant to provide
an advantage to school food authorities
with food service management company
contracts, or to signal a move to
discontinue the distribution of donated
foods in NSLP, and provide cash
instead. However, we are sensitive to
the perception that the proposal would
provide a ‘‘cash for food’’ option, and
would create an unfair playing field, to
the disadvantage of those school food
authorities that operate their own food
service. Therefore, we have amended
the proposed requirements for the use of
donated foods by food service
management companies in 7 CFR
250.51(d) of this final rule. We require
that the food service management
company use all donated ground beef,
donated ground pork, and all end
products, in the recipient agency’s food
service. We also require that the food
service management company use all
other donated foods, or commercially
purchased foods of the same generic
identity, of U.S. origin, and of equal or
better quality than the donated foods, in
the recipient agency’s food service.
However, the recipient agency may
choose to prohibit the food service
management company from using
commercial substitutes in place of the
donated foods, in accordance with its
contract.
In the proposed rule, we addressed
the disposition of donated foods upon
termination of the contract in this
section. However, in the interest of
clarity, we have moved this provision to
the next section, which includes
requirements for storage and inventory
management of donated foods, in this
final rule.
3. Storage and Inventory Management of
Donated Foods, 7 CFR 250.52
In the proposed rule, we proposed to
include requirements for the storage and
inventory management of donated foods
by food service management companies.
We did not receive any comments in
response to the proposal that the food
service management company comply
with the general storage and inventory
management requirements in 7 CFR
250.14. Therefore, we have retained this
requirement, as proposed, in 7 CFR
250.52(a) of this final rule. However, as
the general storage and inventory
requirements are in 7 CFR 250.14(b), we
have amended the regulatory citation
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accordingly in this final rule in the
interest of clarity.
We proposed to permit the food
service management company to store
and inventory donated foods together
with commercially purchased foods–
i.e., utilize a single inventory
management system, as defined in this
final rule–if allowed in its contract with
the recipient agency. However, we
proposed to require that the food service
management company store donated
ground beef, donated ground pork, and
all end products in a manner that
ensures they will be used in the
recipient agency’s food service. We
received one comment stating that
ensuring the use of donated ground beef
and ground pork, and end products,
under a single inventory management
system will be impractical. Another
commenter stated that single inventory
management should apply to all school
food authorities, irrespective of their
contracts with food service management
companies. In single inventory
management, a school food authority
may store and inventory its donated
foods together with its commercially
purchased foods, unless the distributing
agency requires the donated foods to be
distinguished from commercially
purchased foods in storage and
inventoried separately. This applies to
all school food authorities, with or
without food service management
company contracts. Likewise, a food
service management company may store
and inventory donated foods together
with foods it has purchased
commercially for use in the school food
authority’s food service. However, it
may store and inventory such foods
together with other foods only to the
extent that such a system may ensure
compliance with the requirements for
the use of donated foods in 7 CFR
250.51(d)—i.e., use all donated ground
beef and ground pork, and all end
products in the food service, and use all
other donated foods or commercially
purchased foods of the same generic
identity, of U.S. origin, and of equal or
better quality than the donated foods, in
the food service. In the interest of
clarity, we have included this revised
language in 7 CFR 250.52(b) of this final
rule. We have also included, without
change, the requirement that, in costreimbursable contracts, the system of
inventory management must ensure that
the recipient agency is not charged for
donated foods.
We proposed that, upon termination
of the contract, the food service
management company return all unused
donated ground beef, donated ground
pork, and end products, and that it
return other donated foods, at the
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recipient agency’s discretion, or pay the
recipient agency for the value of the
donated foods. One commenter
indicated that the recipient agency
should take ownership of all unused
donated foods upon termination of the
contract, in accordance with the
contention that all donated foods should
be used in the recipient agency’s food
service. However, if the food service
management company is storing
donated foods together with foods
purchased commercially for the
recipient agency, as permitted in this
final rule, the return of donated foods
remaining in inventory upon
termination of the contract may be
achieved only if all such foods ‘‘owned’’
by the recipient agency are returned.
Such disposition of unused foods would
be a matter for the recipient agency and
the food service management company
to resolve, in accordance with their
contract. Therefore, in 7 CFR 250.52(c)
of this final rule, we have retained the
requirement that the food service
management company return all unused
donated ground beef, donated ground
pork, and end products, and that it
return other donated foods at the
recipient agency’s discretion. However,
rather than providing the option of
payment for the value of the donated
foods, we have included the
requirement that the recipient agency
must ensure that the food service
management company has credited it
for the value of all donated foods
received for use in its food service in the
school or fiscal year. Accordingly, we
have revised the heading of this section
to Disposition of donated foods and
credit reconciliation upon termination
of the contract.
4. Contract Provisions, 7 CFR 250.53
In the proposed rule, we proposed to
require specific contract provisions to
ensure compliance with the proposed
requirements for the use of donated
foods in contracts with food service
management companies. The provisions
of 7 CFR 250.53 of this final rule
include those contract provisions
required to ensure compliance with
such requirements in this final rule. It
clarifies that the contract must include
any activities relating to donated foods
that the food service management
company will be responsible for, in
accordance with 7 CFR 250.50(d), and
assurance that such activities will be
performed in accordance with the
applicable requirements in 7 CFR part
250. It also clarifies that contract
provisions must assure compliance with
storage and inventory requirements for
donated foods, and that an on-site
review of the food service management
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company’s operation may include a
review of required records.
One commenter indicated that the
proposed contract provisions will
require State agencies to amend
prototype contracts, or to communicate
the new requirements to recipient
agencies to ensure their inclusion in
their contracts with food service
management companies, which will
impose an additional burden on State
agencies. We agree that it will require
additional work for State and recipient
agencies to implement the new contract
requirements. However, once
implemented, the additional burden
would be minimal. As previously
indicated, the inclusion of the contract
provisions is necessary to ensure
compliance with the requirements in
this subpart. Additionally, in
accordance with a final rule published
in the Federal Register on October 31,
2007 at 72 FR 61479, the State
administering agency is required to
review and approve all school food
authority contracts with food service
management companies prior to their
execution.
5. Recordkeeping and Reviews, 7 CFR
250.54
In the proposed rule, we proposed to
include specific recordkeeping
requirements for recipient agencies and
food service management companies in
order to clearly document compliance
with the requirements in this subpart.
We did not receive any comments in
response to the proposals. However, in
accordance with 7 CFR 250.51(a) of this
final rule, we clarify, in 7 CFR 250.54(a)
and (b), that documentation of crediting
for the value of donated foods must
include crediting for such foods in
processed end products, as applicable.
Additionally, in accordance with 7 CFR
250.50(d) of this final rule, we clarify,
in 7 CFR 250.54(b), that the food service
management company must include
documentation of its procurement of
processed end products on behalf of the
recipient agency, as applicable.
We also proposed to include specific
review requirements for recipient
agencies and distributing agencies, in
order to ensure compliance with the
requirements in this subpart. We
proposed to require that the recipient
agency include a review of food service
management company activities relating
to the use of donated foods as part of its
required monitoring of the food service
operation, in accordance with 7 CFR
parts 210, 220, 225, or 226, as
applicable. We also proposed to require
that the recipient agency conduct a
reconciliation to ensure that the food
service management company has
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credited it for the value of all donated
foods received for use in the food
service in the school or fiscal year, as
applicable.
One commenter indicated that the
reconciliation process should be
formalized to provide clear guidance on
accounting for donated foods, including
beginning and ending inventories,
processing yields, and theft or damage.
However, the recipient agency is not
required to monitor the food service
management company’s beginning and
ending donated food inventories as part
of the proposed review requirement, or
to make a separate accounting of
donated food loss. Although the
recipient agency would have to ensure
crediting for donated foods contained in
processed end products procured by the
food service management company on
its behalf, it would not have to monitor
processing yields as part of its
reconciliation. We received two
comments indicating that the food
service management company and the
school food authority must receive
accurate and timely data on food values
to ensure that crediting for the value of
donated foods is accurate. While true,
the distributing agency is required to
provide recipient agencies with
information on donated food values, in
accordance with 7 CFR 250.24(d)(8) of
this final rule.
We received seven comments
indicating that the proposed review
requirements would impose additional
costs on school food authorities, and
that such requirements should be
reviewed for their impact on schools.
Another commenter suggested that FNS
test the proposals to assess their impact
on a cost-benefit basis. We agree that the
proposed requirement to ensure
crediting for the value of donated foods
through a reconciliation process would
require school personnel to commit
more time to this activity, and thus has
the potential to increase costs. However,
we believe the flexibility provided in
the method and frequency of crediting
for donated foods will permit school
food authorities to minimize such an
impact. A school food authority may
find that it works best to require a onetime refund for the value of all donated
foods near the end of the year, or may
choose to require that donated food
value be credited each month or quarter
through reductions on invoices. In
short, we expect that school food
authorities will find the method that is
most cost-effective and efficient for
them. Hence, in 7 CFR 250.54(c) of this
final rule, we retain the review
requirements for recipient agencies as
proposed. However, we clarify that the
required reconciliation must also ensure
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crediting for the value of donated foods
contained in processed end products, in
accordance with the requirements in 7
CFR 250.51(a), and that such
reconciliation must be conducted at
least annually, and upon termination of
the contract.
In accordance with the removal of the
proposal in this final rule that the
distributing agency’s review system
include an on-site review of recipient
agencies in NSLP, CACFP, and SFSP
with food service management company
contracts, as described in section II.C of
the preamble, this final rule removes the
proposed reference to such review
requirement in this section.
Lastly, we proposed to indicate that
the Department may also conduct
reviews of food service management
company operations with respect to the
use and management of donated foods,
in order to ensure compliance with the
requirements of 7 CFR part 250. As we
did not receive any comments in
response to this proposal, it is retained
in 7 CFR 250.54(d) of this final rule.
F. Subpart E—National School Lunch
Program (NSLP) and Other Child
Nutrition Programs
In the proposed rule, we proposed to
provide a clearer, more comprehensive,
description of the requirements relating
to donated foods in NSLP and other
child nutrition programs in a new
subpart E of 7 CFR part 250, which
includes seven new sections. This
subpart would replace the current 7 CFR
250.48, 250.49, and 250.50. Since we
received no comments in response to
the proposed restructuring of these
requirements, it is retained in this final
rule. Comments received in response to
proposed revisions or clarifications of
specific requirements are discussed
below in the pertinent sections.
1. Provision of Donated Foods in NSLP,
7 CFR 250.56
In 7 CFR 250.56 of the proposed rule,
we proposed to include a general
description of the provision of donated
foods in NSLP, including the types and
amounts provided, and to reference
applicable regulatory requirements, in
addition to 7 CFR part 250. We also
included a streamlined description of
the quantity of donated foods provided
to distributing agencies each school
year, in accordance with Section 6(c) of
the Richard B. Russell National School
Lunch Act (42 U.S.C. 1755(c)), and the
values of donated foods utilized in
determining the quantities provided.
Lastly, we included the current
description of the cash option offered to
States previous to 1974, in lieu of
receiving donated foods. We received
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one comment indicating that the general
description, and the types and amounts
of donated foods provided, do not add
any value to the regulations, and are,
therefore, unnecessary. However, we
believe that these provisions help to
clarify the role of donated foods in
NSLP, and have retained them, as
proposed, in 7 CFR 250.56 of this final
rule.
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2. Commodity Schools, 7 CFR 250.57
In 7 CFR 250.57 of the proposed rule,
we proposed to describe the provision
of donated foods to commodity schools,
including a streamlined description of
the determination of the quantity of
donated foods provided to distributing
agencies for commodity schools each
school year, in accordance with section
6(c) of the Richard B. Russell National
School Lunch Act (42 U.S.C. 1755(c)).
We also included the types of donated
foods available to commodity schools.
Since we received no comments in
response to the proposals, 7 CFR 250.57
is retained in this final rule as proposed.
3. Ordering Donated Foods and Their
Provision to School Food Authorities, 7
CFR 250.58
In 7 CFR 250.58 of the proposed rule,
we proposed to describe the means by
which the distributing agency orders
donated foods and provides them to
school food authorities for use in the
school food service. We included, in 7
CFR 250.58(a), a description of ECOS,
the web-based system implemented in
2003 to permit the distributing agency
to submit donated food orders to FNS.
We proposed to require that, before
submitting orders to FNS, the
distributing agency provide the school
food authority with the opportunity to
order, or select, donated foods for its
food service from the full list of
available donated foods. We received
eighteen comments indicating that,
because of the wide variety of donated
foods available, this proposal is
impractical, and would impose a
significant additional burden on
distributing agencies. Many orders
submitted by school food authorities
could not be fulfilled, since they would
not constitute full truckload shipments,
and would necessitate the submission of
alternate selections. This would make
the process of submitting food orders to
FNS more time-consuming and workintensive. Several commenters also
indicated that, in current practice,
distributing agencies ‘‘filter out’’ some
foods from the full list, using
information received in advance from
school food authorities with respect to
those foods that are most desired and
useful for their food service. Such
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information may be obtained through
annual advisory councils, periodic
surveys, or by other means. Seven
commenters supported the proposal,
indicating the importance of having a
‘‘request-driven’’ ordering system, in
which all school food authorities have
input, and of providing all schools with
the opportunity to order and receive the
donated foods that they need and want.
We have amended the proposal in
response to the comments received. In
7 CFR 250.58(a) of this final rule, we
have required the distributing agency,
before submitting orders to FNS, to
ensure that all school food authorities
are aware of the full list of available
donated foods, and have the
opportunity to provide input at least
annually in determining the donated
foods from the full list that are made
available to them for ordering or
selection. This requirement will ensure
that all school food authorities have a
chance to submit to the distributing
agency their food preferences each year,
with knowledge of the full list of foods
available, while also permitting the
distributing agency to ‘‘filter out’’ some
foods from that list, based on the input
received, in order to ensure efficient
ordering and distribution of donated
foods.
We also proposed to require that the
distributing agency ensure distribution
of all donated foods selected by the
school food authority that may be costeffectively distributed to it, and that the
distributing agency explore all available
storage and distribution options to
determine if such distribution may be
performed cost-effectively. In making
such determination, the distributing
agency may not prohibit the use of split
shipments—i.e., donated food
shipments with more than one stop-off
or delivery location. We received five
comments in support of the proposal
that the distributing agency may not
prohibit the use of split shipments. We
received two comments indicating that
the distributing agency may not be
aware of, or have the capacity to
explore, all available storage and
distribution options, and to determine
the most cost-effective option. The
commenters recommended that the
distributing agency be required to
permit school food authorities to accept
full truckload shipments, rather than
use the State distribution system. Two
other commenters indicated that the
distributing agency should be required
to permit recipient agencies to divert
donated foods to processors for
processing. Another commenter
indicated that requiring the distributing
agency to explore other storage and
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distribution options would necessitate
costly logistics studies.
The proposal to require the
distributing agency to explore all
available storage and distribution
options was intended to help ensure
that school food authorities receive the
donated foods that they desired, and
could most effectively use in their food
service. A few States currently order
limited varieties of donated foods for
delivery to a distributing agency storage
facility with limited storage space,
rather than permit direct shipments to
school food authorities or to processors.
For example, one commenter stated that
permitting school food authorities to
order from the full list of donated foods
would increase the amount of storage
space that the State must rent, and that
the additional cost would be passed on
to school food authorities. However, we
agree with commenters that requiring
the exploration of all available storage
and distribution options could be costly
and time-consuming for the distributing
agency. Furthermore, the comments
received reveal the issue of the costeffectiveness of the food distribution
system to be more complex than simply
assuring that school food authorities
have access to the donated foods that
they desire for their food service. In
light of these concerns, this final rule
does not require that, in determining the
cost-effectiveness of distribution, the
distributing agency must explore all
available storage and distribution
options. However, we have retained in
this final rule the proposed requirement,
in 7 CFR 250.58(a), that the distributing
agency must ensure distribution to
school food authorities of all such
selected donated foods that may be costeffectively distributed to them, and may
not prohibit the use of split shipments
in determining such cost-effectiveness.
Since we have consolidated the
requirements for ordering and
distribution of donated foods in 7 CFR
250.58(a) of this final rule, we have
revised the section heading to Ordering
and distribution of donated foods. We
will review current requirements in 7
CFR 250.14 for the distributing agency
to evaluate its storage and distribution
system to ensure cost-effective delivery
of donated foods to recipient agencies,
and may include any proposals for
change in future rulemaking as
appropriate.
We proposed to remove the current
regulatory provision that permits the
distributing agency to utilize an ‘‘offer
and refusal’’ system, which provides
school food authorities with a more
limited assurance of receiving the
donated foods that they desire for their
food service. Since we did not receive
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any comments in response to this
proposal, that provision is removed in
this final rule.
We proposed to describe the value of
donated foods that the distributing
agency must offer to school food
authorities each school year, in
accordance with section 6(c)(2) of the
Richard B. Russell National School
Lunch Act (42 U.S.C. 1755(c)(2)), and
the value of donated foods that the
distributing agency must offer to
commodity schools each school year, in
accordance with section 14(f) of the
Richard B. Russell National School
Lunch Act (42 U.S.C. 1762(f)). We also
included the eligibility of the school
food authority to receive bonus foods in
addition to the Section 6 foods. We
proposed to remove the current option
provided to the distributing agency to
use another method to determine the
value of donated foods offered to school
food authorities that would provide
them with an equitable share of foods.
Since we received no comments in
response to these proposals, they are
retained in 7 CFR 250.58(b) of this final
rule as proposed.
For the purpose of clarity, we
proposed to describe some factors that
might result in a school food authority
receiving less than the commodity offer
value of donated foods, or an ‘‘adjusted
assistance level’’, and to describe
circumstances in which a school food
authority might receive more than the
commodity offer value of donated foods.
We received two comments indicating
that, if a school food authority does not
utilize its full commodity offer value,
the distributing agency should be
required to permit it to carry over the
remaining value into the next school
year. If the school food authority does
not utilize such value in that year, then
it must be offered in the following year
to other school food authorities on a
fair-share basis. Currently, the
regulations do not restrict the
distributing agency in allocating the
remaining value of donated foods if a
school food authority does not utilize its
full commodity offer value. School food
authorities are not ‘‘entitled’’ to receive
a specific amount of donated foods but
must only be offered the commodity
offer value. Accordingly, the
distributing agency may choose to
permit the school food authority to carry
over the remaining donated food value
into the next year, or may reallocate it
in the current year to other school food
authorities. Since the distributing
agency is in the best position to
determine how donated foods may be
most efficiently utilized, we have
concluded that the regulations should
not restrict such decision-making.
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Therefore, we have retained the
proposed list of factors relating to
receipt of the commodity offer value in
7 CFR 250.58(c) and (d) in this final rule
without change.
We proposed to include the current
options in 7 CFR 250.13(a)(5) that the
distributing agency may use to value
donated foods in crediting school food
authorities for the commodity offer
value (or adjusted assistance level), but
to clarify the meaning of the USDA
purchase price. Since we received no
comments in response to the proposal,
these options are included in 7 CFR
250.58(e) of this final rule as proposed.
4. Storage and Inventory Management of
Donated Foods, 7 CFR 250.59
In 7 CFR 250.59 of the proposed rule,
we proposed to include the
requirements for the storage and
inventory management of donated
foods, including the general
requirements in current 7 CFR 250.14,
and the specific requirements for
distributing agencies and school food
authorities. Since we received no
comments in response to the reference
to the general storage and inventory
requirements, it is retained in 7 CFR
250.59(a) of this final rule.
In accordance with 7 CFR
250.14(b)(4), the distributing agency, or
subdistributing agency, must store and
inventory donated foods in a manner
that permits donated foods to be
distinguished from commercially
purchased foods or other foods.
However, a school food authority may
utilize single inventory management—
i.e., may commingle donated foods and
commercially purchased foods in
storage, and maintain a single inventory
record of such commingled foods,
unless the distributing agency imposes
other storage and inventory
requirements. We received one
comment indicating that single
inventory management should also be
permitted for distributing agencies,
since it would save money in
contracting with commercial
distributors. However, the distributing
(or subdistributing) agency must remain
accountable for donated foods in its
storage facilities, or in those of its
commercial distributors, and ensure
their distribution to school food
authorities. Such accountability cannot
be achieved if donated foods are
commingled with other foods at the
distributing agency level. While
retaining the storage and inventory
requirements for the distributing
agency, as proposed, we have amended
7 CFR 250.59(b) in this final rule to
clarify that such storage must permit
donated foods to be distinguished from
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commercially purchased foods or other
foods (rather than actual physical
separation at the storage facility) in
order to ensure compliance with the
requirements for the distribution and
control of donated foods in this part. In
a similar manner, we have retained the
single inventory management option for
the school food authority, as proposed,
in 7 CFR 250.59(c) of this final rule.
Such option may be exercised unless
the distributing agency requires donated
foods to be distinguished from
commercially purchased foods in
storage and inventoried separately at the
school food authority level.
We also proposed to clarify that a
commercial storage facility under
contract with the school food authority
may store and inventory donated foods
together with commercially purchased
foods it is storing for the school food
authority, unless prohibited in its
contract. However, the commercial
enterprise may not commingle foods it
is storing for a school food authority
with foods it is storing for a commercial
enterprise or other entity, since this
might jeopardize the use of the donated
foods provided in the school food
service. Since we received no comments
in response to the proposal, 7 CFR
250.59(d) is retained in this final rule as
proposed.
5. Use of Donated Foods in the School
Food Service, 7 CFR 250.60
In 7 CFR 250.60 of the proposed rule,
we proposed to include the
requirements for school food authorities
in the use of donated foods in the school
food service. We proposed to require
that the school food authority use
donated foods, as far as practical, in the
school lunches, but that they may also
use donated foods in other nonprofit
school food service activities. Such
activities are listed in 7 CFR 250.60(a),
and include, for example, school
breakfasts, a la carte foods sold to
children, and meals served to adults
directly involved in the operation and
administration of the food service.
Revenues received from all such
activities must accrue to the school food
authority’s nonprofit school food service
account. We proposed to state that
donated foods should not be used in
food service activities that do not
benefit primarily schoolchildren, such
as banquets or catered events. However,
we recognized that their use in such
activities may not always be avoided—
e.g., if a school food authority utilizes a
single inventory management system.
Hence, we proposed to require that the
school food authority ensure
reimbursement to the nonprofit school
food service account for the value of the
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donated foods used in such activities, in
addition to its responsibility to ensure
reimbursement for any other resources
utilized from that account.
The only comment received in
response to the proposals indicated that
school food authorities should be
permitted to use donated foods only in
those a la carte meals that may be
claimed as reimbursable meals, in
accordance with the nutritional
requirements for such meals in 7 CFR
part 210. However, the intent of the
proposal was to ensure that
schoolchildren receive the nutritional
benefits provided by the donated foods,
which they would receive whether
those foods were included in the
reimbursable meals or in the a la carte
foods provided. Therefore, we have
retained the requirements in 7 CFR
250.60(a) and (b) of this final rule as
proposed, with one clarification. In
addition to permitting donated foods to
be used in meals served to adults
directly involved in the operation and
administration of the food service, this
final rule permits their use in meals
served to other school staff as well.
We proposed to include in this
section the option for the school food
authority to use donated foods in a
contract with a food service
management company to provide meals
for use in its food service, in accordance
with the requirements in subpart D of 7
CFR part 250. We proposed to require
the school food authority to assure that
a food service management company
ensures reimbursement to the nonprofit
food service account for donated foods
used in catered meals or other activities
outside of the nonprofit school food
service. We also proposed to state that
a school food authority may use donated
foods to provide a meal service to other
school food authorities, in accordance
with an agreement between the parties.
Under such an agreement, a school food
authority providing the food service
may commingle its own donated foods
and the donated foods of the other
school food authorities that are parties
to the agreement. Since we received no
comments in response to the proposals,
they are retained in 7 CFR 250.60(c) and
(d) of this final rule as proposed, except
that the reference to ‘‘catered meals’’ in
7 CFR 250.60(c) is changed to ‘‘meals for
banquets or catered events’’, in order to
be consistent with the use of this term
in 7 CFR 260.60(b).
6. Donated Foods in CACFP, 7 CFR
250.61
In 7 CFR 250.61 of the proposed rule,
we proposed to describe the provision
of donated foods in CACFP, through the
distributing agency, for use in serving
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lunches and suppers to eligible
participants in child care and adult care
institutions. We proposed to include, in
streamlined form, the determination of
the minimum value of donated foods
provided for distribution to such
institutions participating in CACFP, in
accordance with section 6(c) of the
Richard B. Russell National School
Lunch Act (42 U.S.C. 1755(c)). We
proposed to indicate that the number of
reimbursable lunches and suppers may
be adjusted during, or at the end of the
year, in accordance with 7 CFR part 226.
We also proposed to include the types
of donated foods that the distributing
agency may receive for distribution to
child and adult care institutions. Since
we did not receive any comments in
response to the proposals, they are
retained in 7 CFR 250.61(a) and (b) of
this final rule as proposed, with only
the following clarification. In 7 CFR
250.61(b), we clarify that, for each
school year, the distributing agency
receives, at a minimum, the national
per-meal value of donated food
assistance, or cash in lieu of donated
foods, for each lunch and supper served
in the previous year.
We proposed to include the
responsibility of the State administering
agency to determine whether child care
and adult care institutions wish to
receive donated foods or cash, and to
work with the distributing agency (if a
different agency) to ensure that donated
foods are provided to those institutions
that wish to receive them. We also
proposed to include in this section the
option for child care and adult care
institutions to use donated foods in a
contract with a food service
management company to provide meals
for use in its food service, in accordance
with the requirements in subpart D of 7
CFR part 250. Lastly, we proposed to
indicate that the requirements in this
subpart relating to the ordering, storage
and inventory management, and use of
donated foods in NSLP, also apply to
CACFP, except that a child care or adult
care institution that uses donated foods
to prepare and provide meals to other
such institutions is considered a food
service management company. Since we
received no comments in response to
the proposals, they are retained in 7
CFR 250.61(c), (d), and (e) of this final
rule.
7. Donated Foods in SFSP, 7 CFR 250.62
In 7 CFR 250.62 of the proposed rule,
we proposed to describe the provision
of donated foods to service institutions
participating in SFSP for use in serving
meals to needy children primarily in the
summer months, in their nonprofit food
service programs. We proposed to
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describe the types and quantities of
donated foods received by the
distributing agency in SFSP. We
proposed to indicate that the
distributing agency provides donated
foods to service institutions based on
the number of meals served that are
eligible for donated food support, in
accordance with 7 CFR part 225. We
also proposed to include in this section
the option for service institutions to use
donated foods in a contract with a food
service management company to
provide meals for use in its food service,
in accordance with the requirements in
subpart D of 7 CFR part 250. Lastly, we
proposed to indicate that the
requirements in this subpart relating to
the ordering, storage and inventory
management, and use of donated foods
in NSLP, also apply to SFSP. Since we
received no comments in response to
the proposals, they are retained in 7
CFR 250.62 of this final rule.
G. Subpart F—Household Programs
In the proposed rule, we proposed to
include, in a new subpart F of 7 CFR
part 250, current requirements in 7 CFR
250.45, 250.46, 250.47, and 250.51, and
redesignate them as 7 CFR 250.63
through 250.66, respectively, but
otherwise without change. Since we
received no comments in response to
the proposed restructuring, it is
included in this final rule as proposed.
H. Subpart G—Other Donated Food
Outlets
In the proposed rule, we proposed to
add a new subpart G of 7 CFR part 250
to include the distribution of donated
foods to other outlets, including
charitable institutions, NSIP, and to
organizations assisting in situations of
disasters and distress. In this new
subpart, we proposed to include
requirements for the distribution of
donated foods to charitable institutions
and to summer camps together in 7 CFR
250.67, which would replace current 7
CFR 250.40 and 250.41. We proposed to
include requirements for the
distribution of donated foods in NSIP in
7 CFR 250.68, which would replace the
current 7 CFR 250.42. We proposed to
include the current requirements in 7
CFR 250.43 and 250.44 for the
distribution of donated foods in
disasters and situations of distress in
redesignated 7 CFR 250.69 and 250.70,
but otherwise without change. Since we
received no comments in response to
the proposed redesignation and
restructuring, it is included in this final
rule as proposed. The following sections
describe the specific changes to the
current requirements for charitable
institutions and NSIP.
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1. Charitable Institutions, 7 CFR 250.67
In the proposed rule, we proposed to
remove current requirements that a
charitable institution’s agreement with
the distributing agency include
information on the institution’s days of
operation and number of participants
and meals served, data relating to the
number of needy persons served, and a
statement assuring that proper inventory
controls will be maintained. We also
proposed to remove current
requirements that a summer camp’s
agreement with the distributing agency
include data on the number of adults
participating at camps relative to the
number of children. We proposed to list
some types of charitable institutions
that may receive donated foods, if they
meet the eligibility requirements in this
section (including summer camps that
do not participate in child nutrition
programs), as well as some
organizations that may not receive
donated foods as charitable institutions.
We proposed to streamline the
qualifying criteria with respect to the
rehabilitation programs of adult
correctional institutions, which
determine if such institutions may
receive donated foods as charitable
institutions. Since we received no
comments in response to the proposals,
they are retained in 7 CFR 250.67(a) and
(b) of this final rule.
We proposed to include the
appropriate data for the distributing
agency to use in determining if an
institution or organization serves
predominantly needy persons, which is
a requirement to meet the revised
definition of ‘‘Charitable institution’’ in
this final rule. The distributing agency
may use, for example, socioeconomic
data on the area in which the
organization is located, or on the
clientele served by the organization. We
received one comment indicating that
the proposal seems cumbersome
considering the amount of donated
foods provided to charitable
institutions; for example, summer
camps are often located in remote
economically poor areas, but some
participants may be from financially
secure families. However, such a
summer camp would be eligible to
receive donated foods under the
proposed requirements. The wide array
of data permitted to determine if an
institution serves predominantly needy
persons would be considerably less of a
burden on a distributing agency than the
currently required submission and
review of data on meals and participants
served, or, for summer camps, data on
the number of adults compared to the
number of children at the camp. Thus,
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the proposals are retained in 7 CFR
250.67(c) of this final rule without
change.
We proposed to include the types of
donated foods that charitable
institutions are eligible to receive—i.e.,
surplus donated foods, as available,
which may be purchased under section
4(a), 32, 416, or 709. We proposed to
include the requirement that the
distributing agency distribute donated
foods to charitable institutions based on
the amounts that they may effectively
utilize without waste, and the total
amounts available for distribution to
such institutions. Since we received no
comments in response to the proposals,
they are retained in 7 CFR 250.67(d) of
this final rule.
Lastly, we proposed to include the
option that a charitable institution may
use donated foods in a contract with a
food service management company,
which must ensure that all donated
foods received for use by the charitable
institution in a fiscal year are used to
benefit the charitable institution’s food
service. We did not receive any
comments in response to this proposal.
However, in accordance with the
amended requirement in7 CFR 250.50(a)
of this final rule, we have amended 7
CFR 250.67(e) in this final rule to
require that all such donated foods must
be used in (instead of benefit) the
charitable institution’s food service.
2. Nutrition Services Incentive Program
(NSIP), 7 CFR 250.68
As described in the proposed rule,
amendments to the Older Americans
Act of 1965 (42 U.S.C. 3030a) in 2000
and 2003 made changes in the
allocation of resources in, and the
administration of, NSIP. In order to
incorporate the legislative changes, we
proposed to revise current requirements
to indicate the role of the DHHS
Administration on Aging (AoA) in
administering the allocation of
resources in NSIP, and the USDA role
in purchasing and providing donated
foods to those State Agencies on Aging
requesting them as part of their NSIP
grant. However, since the publication of
the proposed rule, further amendments
to the Older Americans Act of 1965
have been made. The Older Americans
Act Amendments of 2006 (Pub. L. 109–
365), enacted on October 17, 2006,
removed the option for State Agencies
on Aging to receive all or part of their
NSIP grant as donated foods for fiscal
year 2007. The enactment of the Older
Americans Reauthorization Technical
Corrections Act (Pub. L. 110–19), on
April 23, 2007, restored this option for
fiscal year 2008 and subsequent years.
The latter legislation also requires a
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transfer of funds from AoA to FNS for
the cost of purchasing donated foods
and for expenses related to such
purchases, rather than provide for
reimbursement for such expenses.
Lastly, the legislation authorizes FNS to
carry over unused funds to make
donated food purchases for the
appropriate State Agencies on Aging in
the subsequent fiscal year, rather than
require the return of such funds to AoA
for disbursal to State Agencies on Aging.
Other procedures for the purchase and
distribution of donated foods in NSIP
were not changed by legislation, nor did
we receive any comments in response to
the clarification of such procedures in
the proposed rule. Accordingly, 7 CFR
250.68, as finalized in this rule,
incorporates the nondiscretionary
legislative changes, as follows:
(1) 7 CFR 250.68(a) describes the
transfer of funds from AoA to FNS for
the purpose of purchasing donated
foods and for related expenses; and
(2) 7 CFR 250.68(e) describes the
carryover of any unused funds that have
been transferred, to make donated food
purchases in the following fiscal year,
rather than the return of such funds to
AoA.
I. Implementation of New Requirements
We received ten comments indicating
that FNS should provide adequate time
for implementation of new
requirements, for updating of program
information, and for amendment of
agreements between distributing and
recipient agencies. We received two
comments indicating that extensive
training will be needed to ensure
effective implementation of the
requirements. We agree that the
requirements imposed by this final rule
may necessitate some changes in
procedures, including those related to
recordkeeping and reviews, for
distributing and recipient agencies, as
well as amendments to agreements.
Therefore, we have made this final rule
effective 90 days after its publication in
the Federal Register, rather than the
more common 30- or 60-day period, to
provide additional time to implement
new procedures and agreement
provisions. We are also committed to
providing any necessary training to
ensure effective implementation of the
new requirements, and will work
closely with distributing agencies, FNS
Regional Offices, and with other parties,
as appropriate, to ensure that such
training is provided.
We received seven comments
questioning how the proposed changes
in food service management company
contract requirements would affect
existing contracts and contract
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extensions. In a final rule published in
the Federal Register on October 31,
2007 at 72 FR 61479, an implementation
schedule was established to balance the
need for prompt implementation of new
food service management company
contract requirements established in
that rule with consideration of the need
to honor existing contracts and
procurements. The schedule was
established in accordance with the oneyear duration of food service
management company contracts, with
an option for up to four additional oneyear renewals. In the interest of
consistency, we will use the same basic
implementation schedule for the new
contract requirements established in
this final rule, as follows:
(1) The requirements will be
applicable for all new procurement
solicitations initiated on or after the
effective date of this final rule.
(2) For all procurement solicitations
for contracts issued prior to the effective
date of this final rule:
a. Recipient agencies and State
agencies with contracts with a term of
12 months or fewer remaining are
exempt from applying the provisions of
this rulemaking to those contracts; and
b. With State administering agency
approval, recipient agencies with
contracts that have annual renewal
provisions may delay implementation
until expiration of the current contract
plus one 12-month renewal period.
As in the final rule referenced in the
previous paragraph, the State
administering agency may choose to
establish shorter time frames for
implementation, or may require some
recipient agencies to implement the
requirements sooner than others.
However, in no case may a recipient
agency be permitted to delay
implementation beyond the timeframes
specified above.
III. Procedural Matters
A. Executive Order 12866
This rule has been determined to be
significant and was reviewed by the
Office of Management and Budget
(OMB) in conformance with Executive
Order 12866.
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B. Regulatory Impact Analysis
1. Need for Action
This action is needed to respond to an
OIG audit, which found that, in
contracting with food service
management companies, school food
authorities did not always receive the
full value of the donated foods provided
for use in the NSLP. It also incorporates
amendments to the Older Americans
Act of 1965 (42 U.S.C. 3030a) that affect
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the NSIP, and revises and clarifies other
requirements to ensure the efficient and
effective management and use of
donated foods.
2. Benefits
The regulatory changes help to ensure
that recipient agencies receive the full
benefit and value of donated foods
provided to food service management
companies for use in the recipient
agencies’ meals programs. The changes
also remove reporting requirements
used to determine the amount of surplus
donated foods that charitable
institutions may receive for service to
needy persons. FNS quantified these
benefits using audit results reported by
the OIG. If the size and nature of the
accounting problems uncovered by the
OIG are indicative of problems with
FSMC contracts nationwide, then an
effective rule could generate benefits as
high as $36 million over five years.
However, given that the OIG did not
choose a nationally representative
sample for audit, this estimate is subject
to considerable uncertainty.
3. Costs
This action is not expected to
significantly increase costs of State and
local agencies, or their commercial
contractors, in using donated foods.
FNS estimates five-year costs of roughly
$243,000. Despite uncertainty with the
estimate of potential benefits, the rule is
undoubtedly cost-effective.
C. Regulatory Flexibility Act
This rule has been reviewed with
regard to the requirements of the
Regulatory Flexibility Act (5 U.S.C.
601–612). The Under Secretary of Food,
Nutrition, and Consumer Services,
Nancy Montanez Johner, has certified
that this action will not have a
significant economic impact on a
substantial number of small entities.
Although the rule requires specific
procedures for food service management
companies, State distributing agencies,
and recipient agencies to follow in using
donated foods, USDA does not expect
them to have a significant impact on
such entities.
D. Unfunded Mandates Reform Act
Title II of the Unfunded Mandates
Reform Act of 1995 (UMRA), Pub. L.
104–4, establishes requirements for
Federal agencies to assess the effects of
their regulatory actions on State, local,
and tribal governments and the private
sector. Under Section 202 of the UMRA,
FNS generally must prepare a written
statement, including a cost-benefit
analysis, for proposed and final rules
with ‘‘Federal mandates’’ that may
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46181
result in expenditures to State, local, or
tribal governments, in the aggregate, or
to the private sector, of $100 million or
more in any one year. When such a
statement is needed for a rule, section
205 of the UMRA generally requires
FNS to identify and consider a
reasonable number of regulatory
alternatives and adopt the least costly,
more cost-effective or least burdensome
alternative that achieves the objectives
of the rule. This rule contains no
Federal mandates (under the regulatory
provisions of Title II of the UMRA) that
impose costs on State, local, or tribal
governments or the private sector of
$100 million or more in any one year.
This rule is, therefore, not subject to the
requirements of sections 202 and 205 of
the UMRA.
E. Executive Order 12372
The donation of foods in USDA food
distribution and child nutrition
programs, and to charitable institutions
and elderly nutrition projects in NSIP,
is included in the Catalog of Federal
Domestic Assistance under 10.550. For
the reasons set forth in the final rule in
7 CFR part 3015, subpart V and related
Notice published at 48 FR 29114, June
24, 1983, the donation of foods in such
programs is included in the scope of
Executive Order 12372, which requires
intergovernmental consultation with
State and local officials.
F. Federalism Summary Impact
Statement
In accordance with Executive Order
13132, FNS has considered the impact
of the regulatory actions on State and
local governments. The following
paragraphs describe FNS’s
considerations in terms of the three
categories called for under section
(6)(b)(2)(B) of Executive Order 13132.
1. Prior Consultation With State
Officials
The programs affected by the
regulatory proposals in this rule are all
State-administered, Federally-funded
programs. FNS headquarters and
regional offices have formal and
informal discussions with State and
local officials on an ongoing basis
regarding program issues relating to the
distribution of donated foods. FNS
meets annually with the American
Commodity Distribution Association, a
national group with State, local, and
industry representation, and the School
Nutrition Association, to discuss issues
relating to donated foods.
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2. Nature of Concerns and the Need to
Issue This Rule
The rule addresses concerns
identified in an OIG audit with respect
to the benefit and value of donated
foods received by recipient agencies in
their contracts with food service
management companies. While the
regulatory requirements imposed by this
rule may increase the workload of State
and local agencies to a certain extent,
the provisions will help to ensure that
recipient agencies receive the benefit
and value of the donated foods provided
for their use.
3. Extent to Which We Meet those
Concerns
FNS has considered the impact of this
final rule on State and local agencies.
FNS has established compliance
timeframes that give due consideration
to the need for changes in contract
requirements and in the procedures
necessary to assure compliance with
such requirements.
G. Executive Order 12988
This rule has been reviewed under
Executive Order 12988, Civil Justice
Reform. This rule is intended to have
preemptive effect with respect to any
State or local laws, regulations, or
policies which conflict with its
provisions or which would otherwise
impede its full implementation. This
rule is not intended to have retroactive
effect. Prior to any judicial challenge to
the provisions of this rule or the
application of its provisions, all
applicable administrative procedures
must be exhausted.
H. Civil Rights Impact Analysis
FNS has reviewed this rule in
accordance with the Department
Regulation 4300–4, ‘‘Civil Rights Impact
Analysis’’, to identify and address any
major civil rights impacts the rule might
have on minorities, women, and persons
with disabilities. After a careful review
of the rule’s intent and provisions, FNS
has determined that this rule will not in
any way limit or reduce the ability of
participants to receive the benefits of
donated foods in food distribution
programs on the basis of an individual’s
or group’s race, color, national origin,
sex, age, or disability. FNS found no
factors that would negatively and
disproportionately affect any group of
individuals.
I. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. Chap. 35; see 5 CFR part
1320) requires that the Office of
Management and Budget (OMB)
approve all collections of information
by a Federal agency before they can be
implemented. In the publication of the
proposed rule on June 8, 2006, FNS
solicited comments on the burden
estimate; the need for the information;
its practical utility; ways to enhance its
quality, utility and clarity; and ways to
minimize the burden on respondents,
including the use of automated
collection techniques or other forms of
Number of
respondents
Section
Number
responses per
respondent
information technology. Although FNS
sought public comments specific to the
estimated reporting and recordkeeping
burden detailed in the proposed rule, no
comments were received and the
information collection burden
associated with the proposed rule, OMB
No. 0584–0293, was approved on
August 8, 2006. However, since the
publication of the proposed rule, FNS
has found that the total estimated
annual burden for OMB No. 0584–0293
should reflect a decrease to 1,070,452
hours, rather than the decrease to
1,085,814 hours included in the
proposed rule. The discrepancy is a
result of mathematical errors in
calculating the burden hours.
Additionally, in the most recent survey
of school food authorities (SFAs)
conducted in school year 2003–04, it
was estimated that 13.4 percent of SFAs
had contracts with FSMCs. Hence, for
school year 2005–06, it is estimated that
2,783 of the 20,770 SFAs participating
in NSLP had such contracts, rather than
the 1,765 included in the proposed rule.
This adjustment results in an increase of
1,272 burden hours for this particular
activity, making the total estimated
annual burden for OMB No. 0584–0293
1,071,724 hours, which is still a
decrease from the proposed rule. The
resulting changes in the reporting and
recordkeeping burdens associated with
food service management contracts,
from both current levels, and those
included in the proposed rule, are
shown in the following table.
Total annual
responses
Hours per
response
Total hours
Reporting
250.12(d) .............................
250.54 .................................
250.53 .................................
Current ................................
Proposed ............................
Final ....................................
300
1,765
2,783
0.25
1
1
75
1,765
2,783
0.33
1
1
24.75
1,765
2,783
........................
........................
........................
........................
........................
........................
0.08
0.25
0.25
24
442
696
Recordkeeping
rfrederick on PRODPC74 with RULES
250.12(d) .............................
250.54/250.55 .....................
250.53/250.54 .....................
Current ................................
Proposed ............................
Final ....................................
Estimated total number of
respondents: 18,552.
Estimated total annual responses:
1,160,746.
Estimated annual burden: 1,071,724.
FNS will request an adjustment in the
total annual burden associated with
OMB No. 0584–0293 to reflect the
changes indicated above. Additionally,
these requirements will not become
effective until approved by OMB. When
these information collection
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300
1,765
2,783
requirements have been approved, FNS
will publish separate action in the
Federal Register announcing OMB’s
approval.
J. E-Government Act Compliance
FNS is committed to compliance with
the E-Government Act, to promote the
use of the Internet and other
information technologies to provide
increased opportunities for citizen
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access to government information and
services, and for other purposes.
List of Subjects in 7 CFR Part 250
Administrative practice and
procedure, Food assistance programs,
Grant programs, Social programs,
Indians, Reporting and recordkeeping
requirements, Surplus agricultural
commodities.
Accordingly, 7 CFR part 250 is
amended as follows:
I
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PART 250—DONATION OF FOODS
FOR USE IN THE UNITED STATES, ITS
TERRITORIES AND POSSESSIONS
AND AREAS UNDER ITS
JURISDICTION
1. The authority citation for part 250
continues to read as follows:
I
Authority: 5 U.S.C. 301; 7 U.S.C. 612c,
612c note, 1431, 1431b, 1431e, 1431 note,
1446a–1, 1859, 2014, 2025; 15 U.S.C. 713c;
22 U.S.C. 1922; 42 U.S.C. 1751, 1755, 1758,
1760, 1761, 1762a, 1766, 3030a, 5179, 5180.
2. In § 250.3:
a. Remove definitions of Nonprofit
summer camps for children,
Nonresidential child or adult care
institution, Nutrition program for the
elderly, Offer-and-acceptance system,
Program, and Students in home
economics.
I b. Revise definitions of Charitable
institutions, Child nutrition program,
Commodity school, End product, Food
service management company,
Processing, Processor, Recipient
agencies, Recipients, Section 311,
Service institutions, and State Agency
on Aging.
I c. Add definitions, in the appropriate
alphabetical order, of Adult care
institution, AoA, Bonus foods, CACFP,
Child care institution, Commodity offer
value, DHHS, Elderly nutrition project,
Entitlement, Entitlement foods, National
per-meal value, Nonprofit organization,
Nonprofit school food service account,
NSIP, NSLP, Reimbursable meals, SBP,
7 CFR part 3016, 7 CFR part 3019, SFSP,
Single inventory management, and
Summer camp.
The revisions and additions read as
follows:
I
I
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§ 250.3
Definitions.
Adult care institution means a
nonresidential adult day care center that
participates independently in CACFP,
or that participates as a sponsoring
organization, in accordance with an
agreement with the distributing agency.
AoA means the Administration on
Aging, which is the DHHS agency that
administers NSIP.
Bonus foods means Section 32,
Section 416, and Section 709 donated
foods, as defined in this section, which
are purchased under surplus removal or
price support authority, and provided to
distributing agencies in addition to
legislatively authorized levels of
assistance.
CACFP means the Child and Adult
Care Food Program, 7 CFR part 226.
Charitable institutions means public
institutions or nonprofit organizations,
as defined in this section, that provide
a meal service on a regular basis to
predominantly needy persons in the
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Jkt 214001
same place without marked changes.
Charitable institutions include, but are
not limited to, emergency shelters, soup
kitchens, hospitals, retirement homes,
elderly nutrition projects; schools,
summer camps, service institutions, and
child and adult care institutions that do
not participate in a child nutrition
program, or as a commodity school, as
they are defined in this section; and
adult correctional institutions that
conduct rehabilitation programs for a
majority of inmates.
Child care institution means a
nonresidential child care center that
participates independently in CACFP,
or that participates as a sponsoring
organization, in accordance with an
agreement with the distributing agency.
Child nutrition program means NSLP,
CACFP, SFSP, or SBP.
*
*
*
*
*
Commodity offer value means the
minimum value of donated foods that
the distributing agency must offer to a
school food authority participating in
NSLP each school year. The commodity
offer value is equal to the national permeal value of donated food assistance
multiplied by the number of
reimbursable lunches served by the
school food authority in the previous
school year.
Commodity school means a school
that operates a nonprofit food service, in
accordance with 7 CFR part 210, but
that receives additional donated food
assistance rather than the cash
assistance available to it under Section
4 of the Richard B. Russell National
School Lunch Act (42 U.S.C. 1753).
*
*
*
*
*
DHHS means the United States
Department of Health and Human
Services.
*
*
*
*
*
Elderly nutrition project means a
recipient agency selected by the State or
Area Agency on Aging to receive
donated foods in NSIP, for use in
serving meals to elderly persons.
End product means a food product
that contains processed donated foods.
Entitlement means the value of
donated foods a distributing agency is
authorized to receive in a specific
program, in accordance with program
legislation.
Entitlement foods means donated
foods that USDA purchases and
provides in accordance with levels of
assistance mandated by program
legislation.
*
*
*
*
*
Food service management company
means a commercial enterprise,
nonprofit organization, or public
institution that is, or may be, contracted
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46183
with by a recipient agency to manage
any aspect of a recipient agency’s food
service, in accordance with 7 CFR parts
210, 225, or 226, or, with respect to
charitable institutions, in accordance
with this part. To the extent that such
management includes the use of
donated foods, the food service
management company is subject to the
applicable requirements in this part.
However, a school food authority
participating in NSLP that performs
such functions is not considered a food
service management company. Also, a
commercial enterprise that uses donated
foods to prepare meals at a commercial
facility, or to perform other activities
that meet the definition of processing in
this section, is considered a processor in
this part, and is subject to the
requirements in subpart C of this part.
*
*
*
*
*
National per-meal value means the
value of donated foods provided for
each reimbursable lunch served in
NSLP in the previous school year, and
for each reimbursable lunch and supper
served in CACFP in the previous school
year, as established in Section 6(c) of
the Richard B. Russell National School
Lunch Act.
*
*
*
*
*
Nonprofit organization means a
private organization with tax-exempt
status under the Internal Revenue Code.
Nonprofit organizations operated
exclusively for religious purposes are
automatically tax-exempt under the
Internal Revenue Code.
*
*
*
*
*
Nonprofit school food service account
means the restricted account in which
all of the revenue from all food service
operations conducted for the school
food authority principally for the benefit
of school children is retained and used
only for the operation or improvement
of the nonprofit school food service.
NSIP means the Nutrition Services
Incentive Program, which is
administered by the United States
Department of Health and Human
Services, in accordance with Section
311 of the Older Americans Act of 1965
(42 U.S.C. 3030a).
NSLP means the National School
Lunch Program, 7 CFR part 210.
*
*
*
*
*
Processing means a commercial
enterprise’s use of a commercial facility
to:
(a) Convert donated foods into an end
product;
(b) Repackage donated foods; or
(c) Use donated foods in the
preparation of meals.
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Processor means a commercial
enterprise that processes donated foods
at a commercial facility.
Recipient agencies means agencies or
organizations that receive donated
foods, in accordance with agreements
signed with a distributing agency, or
with another recipient agency.
Recipients means persons receiving
donated foods, or meals containing
donated foods, provided by recipient
agencies.
*
*
*
*
*
Reimbursable meals means meals that
meet the nutritional standards
established in Federal regulations
pertaining to NSLP, SFSP, and CACFP,
and that are served to eligible recipients.
SBP means the School Breakfast
Program, 7 CFR part 220.
*
*
*
*
*
Section 311 means Section 311 of the
Older Americans Act of 1965 (42 U.S.C.
3030a), which authorizes State Agencies
on Aging under Title III of that Act, and
any Title VI grantee (Indian Tribal
Organization) under that Act, to receive
all, or part, of their NSIP grant as
donated foods.
*
*
*
*
*
Service institutions means recipient
agencies that participate in SFSP.
7 CFR part 3016 means the
Department’s regulations establishing
uniform administrative requirements for
Federal grants and cooperative
agreements and subawards to State,
local, and Indian tribal governments.
7 CFR part 3019 means the
Department’s regulations establishing
uniform administrative requirements for
Federal grants and cooperative
agreements awarded to institutions of
higher education, hospitals, and other
nonprofit organizations.
SFSP means the Summer Food
Service Program, 7 CFR part 225.
*
*
*
*
*
Single inventory management means
the commingling in storage of donated
foods and foods from other sources, and
the maintenance of a single inventory
record of such commingled foods.
*
*
*
*
*
State Agency on Aging means:
(a) The State agency that has been
designated by the Governor and
approved by DHHS to administer the
Nutrition Services Incentive Program; or
(b) The Indian Tribal Organization
that has been approved by DHHS to
administer the Nutrition Services
Incentive Program.
*
*
*
*
*
Summer camp means a nonprofit or
public camp for children aged 18 and
under.
*
*
*
*
*
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3. In § 250.12:
a. Revise the section heading to read,
as set forth below.
I b. Remove the last sentence in
paragraph (a).
I c. Remove paragraphs (d), (e), and (f).
The revision reads as follows:
I
I
§ 250.12
Agreements.
*
*
*
*
*
I 4. In § 250.19:
I a. Revise the introductory text of
paragraph (b)(1).
I b. Remove paragraphs (b)(1)(i) and
(b)(1)(v), and redesignate paragraphs
(b)(1)(ii), (b)(1)(iii), and (b)(1)(iv), as
paragraphs (b)(1)(i), (b)(1)(ii), and
(b)(1)(iii), respectively.
I c. Revise newly redesignated
paragraph (b)(1)(i).
I d. Remove paragraph (d).
The revision reads as follows:
§ 250.19
Reviews.
*
*
*
*
*
(b) * * * (1) As part of its review
system, each distributing agency must
establish procedures to ensure
compliance with the requirements of
this part, and with other Federal
regulations, as applicable. Such
procedures must include, for example,
requirements relating to eligibility of
recipient agencies and recipients,
ordering, storage, and inventory of
donated foods, reporting and
recordkeeping, and civil rights, as they
apply to specific programs. They must
also include:
(i) An on-site review of all charitable
institutions, or the food service
management companies under contract
with them, at a minimum, whenever the
distributing agency identifies actual or
probable deficiencies in the use of
donated foods by such institutions, or
by their contractors, through audits,
investigations, complaints, or any other
information.
*
*
*
*
*
I 5. In § 250.24, revise paragraphs
(d)(8), (d)(9), and (d)(10), to read as
follows:
§ 250.24 Distributing agency performance
standards.
*
*
*
*
*
(d) * * *
(8) Providing recipient agencies with
ordering options and commodity values,
and considering the specific needs and
capabilities of such agencies in ordering
donated foods;
(9) Offering school food authorities
participating in NSLP, or as commodity
schools, the commodity offer value of
donated food assistance, at a minimum,
and determining an adjusted assistance
level in consultation with school food
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authorities, as appropriate, in
accordance with § 250.58; and
(10) Ensuring that all school food
authorities in NSLP are aware of the full
list of available donated foods, have the
opportunity to provide input at least
annually in determining the donated
foods from the full list that they may
select for their food service, and receive
all such selected donated foods that may
be cost-effectively distributed to them.
*
*
*
*
*
I 6. Add the heading for new subpart F
to read as follows:
Subpart F—Household Programs
7. Redesignate §§ 250.45, 250.46,
250.47, and 250.51, as §§ 250.63, 250.64,
250.65, and 250.66, respectively, and
transfer them from subpart D to new
subpart F.
I 8. Add a new subpart G, consisting of
§§ 250.67 and 250.68, to read as follows:
I
Subpart G—Other Donated Food
Outlets
§ 250.67
Charitable institutions.
(a) Distribution to charitable
institutions. The Department provides
donated foods to distributing agencies
for distribution to charitable
institutions, as defined in this part. A
charitable institution must have a
signed agreement with the distributing
agency in order to receive donated
foods, in accordance with § 250.12(b).
However, the following organizations
may not receive donated foods as
charitable institutions:
(1) Schools, summer camps, service
institutions, and child and adult care
institutions that participate in child
nutrition programs or as commodity
schools; and
(2) Adult correctional institutions that
do not conduct rehabilitation programs
for a majority of inmates.
(b) Types of charitable institutions.
Some types of charitable institutions
that may receive donated foods, if they
meet the requirements of this section,
include:
(1) Hospitals or retirement homes;
(2) Emergency shelters, soup kitchens,
or emergency kitchens;
(3) Elderly nutrition projects or adult
day care centers;
(4) Schools, summer camps, service
institutions, and child care institutions
that do not participate in child nutrition
programs; and
(5) Adult correctional institutions that
conduct rehabilitation programs for a
majority of inmates.
(c) Determining service to
predominantly needy persons. To
determine if a charitable institution
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serves predominantly needy persons,
the distributing agency must use:
(1) Socioeconomic data of the area in
which the organization is located, or of
the clientele served by the organization;
(2) Data from other public or private
social service agencies, or from State
advisory boards, such as those
established in accordance with 7 CFR
251.4(h)(4); or
(3) Other similar data.
(d) Types and quantities of donated
foods distributed. A charitable
institution may receive donated foods
under Section 4(a), Section 32, Section
416, or Section 709, as available. The
distributing agency must distribute
donated foods to charitable institutions
based on the quantities that each may
effectively utilize without waste, and
the total quantities available for
distribution to such institutions.
(e) Contracts with food service
management companies. A charitable
institution may use donated foods in a
contract with a food service
management company. The contract
must ensure that all donated foods
received for use by the charitable
institution in a fiscal year are used in
the charitable institution’s food service.
However, the charitable institution is
not subject to the other requirements in
subpart D of this part relating to the use
of donated foods under such contracts.
rfrederick on PRODPC74 with RULES
§ 250.68 Nutrition Services Incentive
Program (NSIP).
(a) Distribution of donated foods in
NSIP. The Department provides donated
foods in NSIP to State Agencies on
Aging and their selected elderly
nutrition projects, for use in providing
meals to elderly persons. NSIP is
administered at the Federal level by
DHHS’ Administration on Aging (AoA),
which provides an NSIP grant each year
to State Agencies on Aging. The State
agencies may choose to receive all, or
part, of the grant as donated foods, on
behalf of its elderly nutrition projects.
The Department is responsible for the
purchase of the donated foods and their
delivery to State Agencies on Aging.
AoA is responsible for transferring
funds to the Department for the cost of
donated food purchases and for
expenses related to such purchases.
(b) Types and quantities of donated
foods distributed. Each State Agency on
Aging, and its elderly nutrition projects,
may receive any types of donated foods
available in food distribution or child
nutrition programs, to the extent that
such foods may be distributed costeffectively. Each State Agency on Aging
may receive donated foods with a value
equal to its NSIP grant. Each State
Agency on Aging and elderly nutrition
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Jkt 214001
projects may also receive donated foods
under Section 32, Section 416, and
Section 709, as available, and under
Section 14 (42 U.S.C. 1762(a)).
(c) Role of distributing agency. The
Department delivers NSIP donated
foods to distributing agencies, which
distribute them to elderly nutrition
projects selected by each State or Area
Agency on Aging. The distributing
agency may only distribute donated
foods to elderly nutrition projects with
which they have signed agreements. The
agreements must contain provisions that
describe the roles of each party in
ensuring that the desired donated foods
are ordered, stored, and distributed in
an effective manner.
(d) Donated food values used in
crediting a State Agency on Aging’s
NSIP grant. FNS uses the average price
(cost per pound) for USDA purchases of
a donated food made in a contract
period in crediting a State Agency on
Aging’s NSIP grant.
(e) Coordination between FNS and
AoA. FNS and AoA coordinate their
respective roles in NSIP through the
execution of annual agreements. The
agreement ensures that AoA transfers
funds to FNS sufficient to purchase the
donated foods requested by State
Agencies on Aging, and to meet
expenses related to such purchases. The
agreement also authorizes FNS to carry
over any such funds that are not used
in the current fiscal year to make
purchases of donated foods for the
appropriate State Agencies on Aging in
the following fiscal year.
§§ 250.43 and 250.44 [Redesignated as
§§ 250.69 and 250.70]
9. Redesignate §§ 250.43 and 250.44
as §§ 250.69 and 250.70, respectively,
and transfer them from subpart D to new
subpart G.
I 10. Revise subparts D and E to read as
follows:
I
Subpart D—Donated Foods in Contracts
with Food Service Management Companies
250.50 Contract requirements and
procurement.
250.51 Crediting for, and use of, donated
foods.
250.52 Storage and inventory management
of donated foods.
250.53 Contract provisions.
250.54 Recordkeeping and reviews.
Subpart E—National School Lunch Program
(NSLP) and Other Child Nutrition Programs
250.56 Provision of donated foods in NSLP.
250.57 Commodity schools.
250.58 Ordering donated foods and their
provision to school food authorities.
250.59 Storage and inventory management
of donated foods.
250.60 Use of donated foods in the school
food service.
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250.61 Child and Adult Care Food Program
(CACFP).
250.62 Summer Food Service Program
(SFSP).
Subpart D—Donated Foods in
Contracts With Food Service
Management Companies
§ 250.50 Contract requirements and
procurement.
(a) Contract requirements. Prior to
donated foods being made available to
a food service management company,
the recipient agency must enter into a
contract with the food service
management company. The contract
must ensure that all donated foods
received for use by the recipient agency
for a period specified as either the
school year or fiscal year are used in the
recipient agency’s food service.
Contracts between recipient agencies in
child nutrition programs and food
service management companies must
also ensure compliance with other
requirements in this subpart relating to
donated foods, as well as other Federal
requirements in 7 CFR parts 210, 220,
225, or 226, as applicable. Contracts
between other recipient agencies—i.e.,
charitable institutions and recipient
agencies utilizing TEFAP foods—and
food service management companies are
not subject to the other requirements in
this subpart.
(b) Types of contracts. Recipient
agencies may enter into a fixed-price or
a cost-reimbursable contract with a food
service management company, except
that recipient agencies in CACFP are
prohibited from entering into costreimbursable contracts, in accordance
with 7 CFR part 226. Under a fixedprice contract, the recipient agency pays
a fixed cost per meal provided or a fixed
cost for a certain time period. Under a
cost-reimbursable contract, the food
service management company charges
the recipient agency for food service
operating costs, and also charges fixed
fees for management or services.
(c) Procurement requirements. The
recipient agency must meet
Departmental procurement
requirements in 7 CFR parts 3016 or
3019, as applicable, in obtaining the
services of a food service management
company, as well as applicable
requirements in 7 CFR parts 210, 220,
225, or 226. The recipient agency must
ensure that procurement documents, as
well as contract provisions, include any
donated food activities that a food
service management company is to
perform, such as those activities listed
in paragraph (d) of this section. The
procurement and contract must also
specify the method used to determine
the donated food values to be used in
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crediting, or the actual values assigned,
in accordance with § 250.51. The
method used to determine the donated
food values may not be established
through a post-award negotiation, or by
any other method that may directly or
indirectly alter the terms and conditions
of the procurement or contract.
(d) Activities relating to donated
foods. A food service management
company may perform specific activities
relating to donated foods, such as those
listed in this paragraph (d), in
accordance with procurement
documents and its contract with the
recipient agency. Such activities may
also include the procurement of
processed end products on behalf of the
recipient agency. Such procurement
must ensure compliance with the
requirements in subpart C of this part
and with the provisions of the
distributing or recipient agency’s
processing agreements, and must ensure
crediting of the recipient agency for the
value of donated foods contained in
such end products at the processing
agreement value. Although the food
service management company may
procure processed end products on
behalf of the recipient agency, it may
not itself enter into the processing
agreement with the processor required
in subpart C of this part. Other donated
food activities that the food service
management company may perform
include:
(1) Preparing and serving meals;
(2) Ordering or selection of donated
foods, in coordination with the recipient
agency, and in accordance with
§ 250.58(a);
(3) Storage and inventory
management of donated foods, in
accordance with § 250.52; and
(4) Payment of processing fees or
submittal of refund requests to a
processor on behalf of the recipient
agency, or remittance of refunds for the
value of donated foods in processed end
products to the recipient agency, in
accordance with the requirements in
subpart C of this part.
rfrederick on PRODPC74 with RULES
§ 250.51
foods.
Crediting for, and use of, donated
(a) Crediting for donated foods. In
both fixed-price and cost-reimbursable
contracts, the food service management
company must credit the recipient
agency for the value of all donated foods
received for use in the recipient
agency’s meal service in a school year
or fiscal year (including both
entitlement and bonus foods). Such
requirement includes crediting for the
value of donated foods contained in
processed end products if the food
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service management company’s contract
requires it to:
(1) Procure processed end products on
behalf of the recipient agency; or
(2) Act as an intermediary in passing
the donated food value in processed end
products on to the recipient agency.
(b) Method and frequency of crediting.
The recipient agency may permit
crediting for the value of donated foods
through invoice reductions, refunds,
discounts, or other means. However, all
forms of crediting must provide clear
documentation of the value received
from the donated foods—e.g., by
separate line item entries on invoices. If
provided for in a fixed-price contract,
the recipient agency may permit a food
service management company to precredit for donated foods. In precrediting, a deduction for the value of
donated foods is included in the
established fixed price per meal.
However, the recipient agency must
ensure that the food service
management company provides an
additional credit for any donated foods
not accounted for in the fixed price per
meal—e.g., for donated foods that are
not made available until later in the
year. In cost-reimbursable contracts,
crediting may be performed by
disclosure; i.e., the food service
management company credits the
recipient agency for the value of
donated foods by disclosing, in its
billing for food costs submitted to the
recipient agency, the savings resulting
from the receipt of donated foods for the
billing period. In all cases, the recipient
agency must require crediting to be
performed not less frequently than
annually, and must ensure that the
specified method of valuation of
donated foods permits crediting to be
achieved in the required time period. A
school food authority must also ensure
that the method, and timing, of crediting
does not cause its cash resources to
exceed the limits established in 7 CFR
210.9(b)(2).
(c) Donated food values required in
crediting. The recipient agency must
ensure that, in crediting it for the value
of donated foods, the food service
management company uses the donated
food values determined by the
distributing agency, in accordance with
§ 250.58(e), or, if approved by the
distributing agency, donated food values
determined by an alternate means of the
recipient agency’s choosing. For
example, the recipient agency may, with
the approval of the distributing agency,
specify that the value will be the
average price per pound for a food, or
for a group or category of foods (e.g., all
frozen foods or cereal products), as
listed in market journals over a
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specified period of time. However, the
method of determining the donated food
values to be used in crediting must be
included in procurement documents
and in the contract, and must result in
the determination of actual values; e.g.,
the average USDA purchase price for the
period of the contract with the food
vendor, or the average price per pound
listed in market journals over a
specified period of time. Negotiation of
such values is not permitted.
Additionally, the method of valuation
must ensure that crediting may be
achieved in accordance with paragraph
(b) of this section, and at the specific
frequency established in procurement
documents and in the contract.
(d) Use of donated foods. The food
service management company must use
all donated ground beef, donated
ground pork, and all processed end
products, in the recipient agency’s food
service, and must use all other donated
foods, or commercially purchased foods
of the same generic identity, of U.S.
origin, and of equal or better quality
than the donated foods, in the recipient
agency’s food service (unless the
contract specifically stipulates that the
donated foods, and not such commercial
substitutes, be used).
§ 250.52 Storage and inventory
management of donated foods.
(a) General requirements. The food
service management company must
meet the general requirements in
§ 250.14(b) for the storage and inventory
management of donated foods.
(b) Storage and inventory with
commercially purchased foods. The
food service management company may
store and inventory donated foods
together with foods it has purchased
commercially for the school food
authority’s use (unless specifically
prohibited in the contract). It may store
and inventory such foods together with
other commercially purchased foods
only to the extent that such a system
ensures compliance with the
requirements for the use of donated
foods in § 250.51(d)—i.e., use all
donated ground beef and ground pork,
and all end products in the food service,
and use all other donated foods or
commercially purchased foods of the
same generic identity, of U.S. origin,
and of equal or better quality than the
donated foods, in the food service.
Additionally, under cost-reimbursable
contracts, the food service management
company must ensure that its system of
inventory management does not result
in the recipient agency being charged
for donated foods.
(c) Disposition of donated foods and
credit reconciliation upon termination
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of the contract. When a contract
terminates, and is not extended or
renewed, the food service management
company must return all unused
donated ground beef, donated ground
pork, and processed end products, and
must, at the recipient agency’s
discretion, return other unused donated
foods. The recipient agency must ensure
that the food service management
company has credited it for the value of
all donated foods received for use in the
recipient agency’s meal service in a
school year or fiscal year, as applicable.
rfrederick on PRODPC74 with RULES
§ 250.53
Contract provisions.
(a) Required contract provisions in
fixed-price contracts. The following
provisions relating to the use of donated
foods must be included, as applicable,
in a recipient agency’s fixed-price
contract with a food service
management company. Such provisions
must also be included in procurement
documents. The required provisions are:
(1) A statement that the food service
management company must credit the
recipient agency for the value of all
donated foods received for use in the
recipient agency’s meal service in the
school year or fiscal year (including
both entitlement and bonus foods), and
including the value of donated foods
contained in processed end products, in
accordance with the contingencies in
§ 250.51(a);
(2) The method and frequency by
which crediting will occur, and the
means of documentation to be utilized
to verify that the value of all donated
foods has been credited;
(3) The method of determining the
donated food values to be used in
crediting, in accordance with
§ 250.51(c), or the actual donated food
values;
(4) Any activities relating to donated
foods that the food service management
company will be responsible for, in
accordance with § 250.50(d), and
assurance that such activities will be
performed in accordance with the
applicable requirements in 7 CFR part
250;
(5) A statement that the food service
management company will use all
donated ground beef and ground pork
products, and all processed end
products, in the recipient agency’s food
service;
(6) A statement that the food service
management company will use all other
donated foods, or will use commercially
purchased foods of the same generic
identity, of U.S. origin, and of equal of
better quality than the donated foods, in
the recipient agency’s food service;
(7) Assurance that the procurement of
processed end products on behalf of the
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recipient agency, as applicable, will
ensure compliance with the
requirements in subpart C of 7 CFR part
250 and with the provisions of
distributing or recipient agency
processing agreements, and will ensure
crediting of the recipient agency for the
value of donated foods contained in
such end products at the processing
agreement value;
(8) Assurance that the food service
management company will not itself
enter into the processing agreement
with the processor required in subpart
C of 7 CFR part 250;
(9) Assurance that the food service
management company will comply with
the storage and inventory requirements
for donated foods;
(10) A statement that the distributing
agency, subdistributing agency, or
recipient agency, the Comptroller
General, the Department of Agriculture,
or their duly authorized representatives,
may perform onsite reviews of the food
service management company’s food
service operation, including the review
of records, to ensure compliance with
requirements for the management and
use of donated foods;
(11) A statement that the food service
management company will maintain
records to document its compliance
with requirements relating to donated
foods, in accordance with § 250.54(b);
and
(12) A statement that extensions or
renewals of the contract, if applicable,
are contingent upon the fulfillment of
all contract provisions relating to
donated foods.
(b) Required contract provisions in
cost-reimbursable contracts. A costreimbursable contract must include the
same provisions as those required for a
fixed-price contract in paragraph (a) of
this section. Such provisions must also
be included in procurement documents.
However, a cost-reimbursable contract
must also contain a statement that the
food service management company will
ensure that its system of inventory
management will not result in the
recipient agency being charged for
donated foods.
§ 250.54
Recordkeeping and reviews.
(a) Recordkeeping requirements for
the recipient agency. The recipient
agency must maintain the following
records relating to the use of donated
foods in its contract with the food
service management company:
(1) The donated foods and processed
end products received and provided to
the food service management company
for use in the recipient agency’s food
service;
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(2) Documentation that the food
service management company has
credited it for the value of all donated
foods received for use in the recipient
agency’s food service in the school or
fiscal year, including, in accordance
with the requirements in § 250.51(a), the
value of donated foods contained in
processed end products; and
(3) The actual donated food values
used in crediting.
(b) Recordkeeping requirements for
the food service management company.
The food service management company
must maintain the following records
relating to the use of donated foods in
its contract with the recipient agency:
(1) The donated foods and processed
end products received from, or on
behalf of, the recipient agency, for use
in the recipient agency’s food service;
(2) Documentation that it has credited
the recipient agency for the value of all
donated foods received for use in the
recipient agency’s food service in the
school or fiscal year, including, in
accordance with the requirements in
§ 250.51(a), the value of donated foods
contained in processed end products;
and
(3) Documentation of its procurement
of processed end products on behalf of
the recipient agency, as applicable.
(c) Review requirements for the
recipient agency. The recipient agency
must ensure that the food service
management company is in compliance
with the requirements of this part
through its monitoring of the food
service operation, as required in 7 CFR
parts 210, 225, or 226, as applicable.
The recipient agency must also conduct
a reconciliation at least annually (and
upon termination of the contract) to
ensure that the food service
management company has credited it
for the value of all donated foods
received for use in the recipient
agency’s food service in the school or
fiscal year, including, in accordance
with the requirements in § 250.51(a), the
value of donated foods contained in
processed end products.
(d) Departmental reviews of food
service management companies. The
Department may conduct reviews of
food service management company
operations, as necessary, to ensure
compliance with the requirements of
this part with respect to the use and
management of donated foods.
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Subpart E—National School Lunch
Program (NSLP) and Other Child
Nutrition Programs
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§ 250.56
NSLP.
Provision of donated foods in
(a) Distribution of donated foods in
NSLP. The Department provides
donated foods in NSLP to distributing
agencies. Distributing agencies provide
donated foods to school food authorities
that participate in NSLP for use in
serving nutritious lunches or other
meals to schoolchildren in their
nonprofit school food service. The
distributing agency must confirm the
participation of school food authorities
in NSLP with the State administering
agency (if different from the distributing
agency). In addition to requirements in
this part relating to donated foods,
distributing agencies and school food
authorities in NSLP must adhere to
Federal regulations in 7 CFR part 210,
as applicable.
(b) Types of donated foods
distributed. The Department purchases a
wide variety of foods for distribution in
NSLP each school year. A list of
available foods is posted on the FNS
Web site, for access by distributing
agencies and school food authorities. In
addition to Section 6 foods (42 U.S.C.
1755) as described in paragraph (c) of
this section, the distributing agency may
also receive Section 14 donated foods
(42 U.S.C. 1762(a)), and donated foods
under Section 32 (7 U.S.C. 612c),
Section 416 (7 U.S.C. 1431), or Section
709 (7 U.S.C. 1446a–1), as available.
(c) National per-meal value of
donated foods. For each school year, the
distributing agency receives, at a
minimum, the national per-meal value
of donated foods, as established by
Section 6(c) of the Richard B. Russell
National School Lunch Act (42 U.S.C.
1755(c)), multiplied by the number of
reimbursable lunches served in the State
in the previous school year. The
donated foods provided in this manner
are referred to as Section 6 foods, or
entitlement foods. The national permeal value is adjusted each year to
reflect changes in the Bureau of Labor
Statistic’s Producer Price Index for
Foods Used in Schools and Institutions,
in accordance with the Richard B.
Russell National School Lunch Act. The
adjusted value is published in a notice
in the Federal Register in July of each
year. Reimbursable lunches are those
that meet the nutritional standards
established in 7 CFR part 210, and that
are reported to FNS, in accordance with
the requirements in that part.
(d) Donated food values used to credit
distributing agency entitlement levels.
FNS uses the average price (cost per
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pound) for USDA purchases of donated
food made in a contract period to credit
distributing agency entitlement levels.
(e) Cash in lieu of donated foods.
States that phased out their food
distribution facilities prior to July 1,
1974, are permitted to choose to receive
cash in lieu of the donated foods to
which they would be entitled in NSLP,
in accordance with the Richard B.
Russell National School Lunch Act (42
U.S.C. 1765) and with 7 CFR part 240.
§ 250.57
Commodity schools.
(a) Categorization of commodity
schools. Commodity schools are schools
that operate a nonprofit school food
service in accordance with 7 CFR part
210, but receive additional donated food
assistance rather than the general cash
payment available to them under
Section 4 of the Richard B. Russell
National School Lunch Act (42 U.S.C.
1753). In addition to requirements in
this part relating to donated foods,
commodity schools must adhere to
Federal regulations in 7 CFR part 210,
as applicable.
(b) Value of donated foods for
commodity schools. For participating
commodity schools, the distributing
agency receives donated foods valued at
the sum of the national per-meal value
and the value of the general cash
payment available to it under Section 4
of the Richard B. Russell National
School Lunch Act (42 U.S.C. 1753),
multiplied by the number of
reimbursable lunches served by
commodity schools in the previous
school year. From the total value of
donated food assistance for which it is
eligible, a commodity school may elect
to receive up to 5 cents per meal in cash
to cover processing and handling
expenses related to the use of donated
foods. In addition to Section 6 and
Section 14 foods under the Richard B.
Russell National School Lunch Act (42
U.S.C. 1755 and 1762(a)), the
distributing agency may also receive
donated foods under Section 32 (7
U.S.C. 612c), Section 416 (7 U.S.C.
1431), or Section 709 (7 U.S.C. 1446a–
1), as available, for commodity schools.
§ 250.58 Ordering donated foods and their
provision to school food authorities.
(a) Ordering and distribution of
donated foods. The distributing agency
orders donated foods through a Webbased system called the Electronic
Commodity Ordering System (ECOS).
Through ECOS, the distributing agency
places orders directly into a centralized
computer system. Before submitting
orders for donated foods to FNS, the
distributing agency must ensure that all
school food authorities are aware of the
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full list of available donated foods, and
have the opportunity to provide input at
least annually in determining the
donated foods from the full list that are
made available to them for ordering or
selection. The distributing agency must
ensure distribution to school food
authorities of all such selected donated
foods that may be cost-effectively
distributed to them, and may not
prohibit the use of split shipments in
determining such cost-effectiveness.
(b) Value of donated foods offered to
school food authorities. In accordance
with Section 6(c) of the Richard B.
Russell National School Lunch Act (42
U.S.C. 1755(c)), the distributing agency
must offer the school food authority, at
a minimum, the national per-meal value
of donated food assistance multiplied by
the number of reimbursable lunches
served by the school food authority in
the previous school year. This is
referred to as the commodity offer value.
For a commodity school, the
distributing agency must offer the sum
of the national per-meal value of
donated foods and the value of the
general cash payment available to it
under Section 4 of the Richard B.
Russell National School Lunch Act (42
U.S.C. 1753), multiplied by the number
of reimbursable lunches served by the
school in the previous school year. The
school food authority may also receive
bonus foods, as available, in addition to
the Section 6 foods.
(c) Receipt of less donated foods than
the commodity offer value. In certain
cases, the school food authority may
receive less donated foods than the
commodity offer value in a school year.
This ‘‘adjusted’’ value of donated foods
is referred to as the adjusted assistance
level. For example, the school food
authority may receive an adjusted
assistance level if:
(1) The distributing agency, in
consultation with the school food
authority, determines that the school
food authority cannot efficiently utilize
the commodity offer value of donated
foods; or
(2) The school food authority does not
order, or select, donated foods equal to
the commodity offer value that can be
cost-effectively distributed to it.
(d) Receipt of more donated foods
than the commodity offer value. The
school food authority may receive more
donated foods than the commodity offer
value if the distributing agency, in
consultation with the school food
authority, determines that the school
food authority may efficiently utilize
more donated foods than the commodity
offer value, and more donated foods are
available for distribution. This may
occur, for example, if other school food
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authorities receive less than the
commodity offer value of donated foods
for one of the reasons described in
paragraph (c) of this section.
(e) Donated food values required in
crediting school food authorities. The
distributing agency must use one of the
following values for donated foods in
crediting the school food authority for
its commodity offer value or adjusted
assistance level:
(1) The USDA purchase price (cost
per pound), which may be an average
price for purchases made for the
duration of the contract with the food
vendor;
(2) Estimated cost-per-pound data
provided by the Department, as
included in commodity survey
memoranda; or
(3) The USDA commodity file cost as
of a date specified by the distributing
agency.
rfrederick on PRODPC74 with RULES
§ 250.59 Storage and inventory
management of donated foods.
(a) General requirements. Distributing
agencies, subdistributing agencies, and
school food authorities must meet the
requirements for storage and inventory
of donated foods in § 250.14, in addition
to the requirements in this section.
(b) Storage at distributing agency
level. The distributing or subdistributing
agency, or storage facilities with which
they have contracts, must store donated
foods in a manner that permits them to
be distinguished from commercially
purchased foods or other foods, in order
to ensure compliance with the
requirements for the distribution and
control of donated foods in this part.
(c) Storage by school food authorities.
The school food authority may store and
inventory donated foods together with
commercially purchased foods and
other foods, under a single inventory
management system, as defined in this
part, unless the distributing agency
requires donated foods to be
distinguished from commercially
purchased foods in storage and
inventoried separately.
(d) Storage by storage facilities under
contract with school food authorities. A
storage facility under contract with a
school food authority may store and
inventory donated foods together with
commercially purchased foods it is
storing for the school food authority,
unless its contract with the school food
authority prohibits this. However, the
storage facility may not commingle
foods it is storing for a school food
authority with foods it is storing for a
commercial enterprise or other entity.
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§ 250.60 Use of donated foods in the
school food service.
(a) Use of donated foods in school
lunches and other meals or activities.
The school food authority should use
donated foods, as far as practical, in the
lunches served to schoolchildren, for
which they receive an established permeal value of donated food assistance
each school year. However, the school
food authority may also use donated
foods in other nonprofit school food
service activities. Revenues received
from such activities must accrue to the
school food authority’s nonprofit school
food service account. Some examples of
other activities in which donated foods
may be used include:
(1) School breakfasts or other meals
served in child nutrition programs;
(2) A la carte foods sold to children;
(3) Meals served to adults directly
involved in the operation and
administration of the nonprofit food
service, and to other school staff; and
(4) Training in nutrition, health, food
service, or general home economics
instruction for students.
(b) Use of donated foods outside of
the nonprofit school food service. The
school food authority should not use
donated foods in meals or food service
activities that do not benefit primarily
schoolchildren, such as banquets or
catered events. However, their use in
such meals or activities may not always
be avoided, e.g, for a school food
authority utilizing single inventory
management. In all cases, the school
food authority must ensure
reimbursement to the nonprofit school
food service account for the value of
donated foods used in such activities, in
addition to reimbursement for other
resources utilized from that account.
Since school food authorities utilizing
single inventory management cannot
reimburse the nonprofit school food
service account based on actual usage of
donated foods outside of the nonprofit
school food service, they must establish
an alternate method—e.g., by including
the current per-meal value of donated
food reimbursement in the price
charged for the food service activities.
(c) Use of donated foods in a contract
with a food service management
company. A school food authority may
use donated foods in a contract with a
food service management company to
conduct the food service. The contract
must meet the requirements in subpart
D of this part with respect to donated
foods, and must also meet requirements
in 7 CFR part 210 and 7 CFR parts 3016
or 3019, as applicable, with respect to
the procurement of such contracts. The
school food authority must also ensure
that a food service management
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Frm 00021
Fmt 4700
Sfmt 4700
46189
company providing meals for banquets
or catered events, or other food service
activities that do not benefit primarily
schoolchildren, ensure reimbursement
to the nonprofit school food service
account for donated foods used in such
activities, in accordance with paragraph
(b) of this section.
(d) Use of donated foods in providing
a meal service to other school food
authorities. A school food authority may
use donated foods to provide a meal
service to other school food authorities,
under an agreement between the parties.
A school food authority providing such
a service may commingle its own
donated foods and the donated foods of
other school food authorities that are
parties to the agreement.
§ 250.61 Child and Adult Care Food
Program (CACFP).
(a) Distribution of donated foods in
CACFP. The Department provides
donated foods in CACFP to distributing
agencies, which provide them to child
care and adult care institutions
participating in CACFP for use in
serving nutritious lunches and suppers
to eligible recipients. Distributing
agencies and child care and adult care
institutions must also adhere to Federal
regulations in 7 CFR part 226, as
applicable.
(b) Types and quantities of donated
foods distributed. For each school year,
the distributing agency receives, at a
minimum, the national per-meal value
of donated food assistance (or cash in
lieu of donated foods) multiplied by the
number of reimbursable lunches and
suppers served in the State in the
previous school year, as established in
Section 6(c) of the Richard B. Russell
National School Lunch Act (42 U.S.C.
1755(c)). The national per-meal value is
adjusted each year to reflect changes in
the Bureau of Labor Statistic’s Producer
Price Index for Foods Used in Schools
and Institutions. The adjusted per-meal
value is published in a notice in the
Federal Register in July of each year.
Reimbursable lunches and suppers are
those meeting the nutritional standards
established in 7 CFR part 226. The
number of reimbursable lunches and
suppers may be adjusted during, or at
the end of the school year, in
accordance with 7 CFR part 226. In
addition to Section 6 entitlement foods
(42 U.S.C. 1755(c)), the distributing
agency may also receive Section 14
donated foods (42 U.S.C. 1762(a)), and
donated foods under Section 32 (7
U.S.C. 612c), Section 416 (7 U.S.C.
1431), or Section 709 (7 U.S.C. 1446a–
1), as available, for distribution to child
care and adult care institutions
participating in CACFP.
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08AUR1
46190
Federal Register / Vol. 73, No. 154 / Friday, August 8, 2008 / Rules and Regulations
(c) Cash in lieu of donated foods. In
accordance with the Richard B. Russell
National School Lunch Act, and with 7
CFR part 226, the State administering
agency must determine whether child
care and adult care institutions
participating in CACFP wish to receive
donated foods or cash in lieu of donated
foods, and ensure that they receive the
preferred form of assistance. The State
administering agency must inform the
distributing agency (if a different
agency) which institutions wish to
receive donated foods and must ensure
that such foods are provided to them.
However, if the State administering
agency, in consultation with the
distributing agency, determines that
distribution of such foods would not be
cost-effective, it may, with the
concurrence of FNS, provide cash
payments to the applicable institutions
instead.
(d) Use of donated foods in a contract
with a food service management
company. A child care or adult care
institution may use donated foods in a
contract with a food service
management company to conduct its
food service. The contract must meet the
requirements in Subpart D of this part
with respect to donated foods, and must
also meet requirements in 7 CFR part
226 and 7 CFR parts 3016 or 3019, as
applicable, with respect to the
procurement of such contracts.
(e) Applicability of other requirements
in this subpart to CACFP. The
requirements in this subpart relating to
the ordering, storage and inventory
management, and use of donated foods
in NSLP, also apply to CACFP.
However, in accordance with 7 CFR part
226, a child care or adult care
institution that uses donated foods to
prepare and provide meals to other such
institutions is considered a food service
management company.
rfrederick on PRODPC74 with RULES
§ 250.62
(SFSP).
Summer Food Service Program
15:19 Aug 07, 2008
Jkt 214001
Dated: July 31, 2008.
Nancy Montanez Johner,
Under Secretary, Food, Nutrition, and
Consumer Services.
[FR Doc. E8–18230 Filed 8–7–08; 8:45 am]
BILLING CODE 3410–30–P
FEDERAL RESERVE SYSTEM
12 CFR Part 226
(a) Distribution of donated foods in
SFSP. The Department provides
donated foods in SFSP to distributing
agencies, which provide them to eligible
service institutions participating in
SFSP for use in serving nutritious meals
to needy children primarily in the
summer months, in their nonprofit food
service programs. Distributing agencies
and service institutions in SFSP must
also adhere to Federal regulations in 7
CFR part 225, as applicable.
(b) Types and quantities of donated
foods distributed. The distributing
agency receives donated foods available
under Section 6 and Section 14 of the
Richard B. Russell National School
Lunch Act (42 U.S.C. 1755 and 1762),
VerDate Aug<31>2005
and may also receive donated foods
under Section 32 (7 U.S.C. 612c),
Section 416 (7 U.S.C. 1431), or Section
709(7 U.S.C. 1446a–1), as available, for
distribution to eligible service
institutions participating in SFSP.
Section 6 donated foods are provided to
distributing agencies in accordance with
the number of meals served in the State
in the previous school year that are
eligible for donated food support, in
accordance with 7 CFR part 225.
(c) Distribution of donated foods to
service institutions in SFSP. The
distributing agency provides donated
food assistance to eligible service
institutions participating in SFSP based
on the number of meals served that are
eligible for donated food support, in
accordance with 7 CFR part 225.
(d) Use of donated foods in a contract
with a food service management
company. A service institution may use
donated foods in a contract with a food
service management company to
conduct the food service. The contract
must meet the requirements in Subpart
D of this part with respect to donated
foods, and must also meet requirements
in 7 CFR part 225 and 7 CFR parts 3016
or 3019, as applicable, with respect to
the procurement of such contracts.
(e) Applicability of other requirements
in this subpart to SFSP. The
requirements in this subpart relating to
the ordering, storage and inventory
management, and use of donated foods
in NSLP, also apply to SFSP.
[Regulation Z; Docket No. R–1320]
Truth in Lending
Board of Governors of the
Federal Reserve System.
ACTION: Final rule; staff commentary.
AGENCY:
SUMMARY: The Board is publishing a
final rule amending the staff
commentary that interprets the
requirements of Regulation Z (Truth in
Lending). The Board is required to
adjust annually the dollar amount that
triggers requirements for certain home
mortgage loans bearing fees above a
certain amount. The Home Ownership
and Equity Protection Act of 1994
(HOEPA) sets forth rules for home-
PO 00000
Frm 00022
Fmt 4700
Sfmt 4700
secured loans in which the total points
and fees payable by the consumer at or
before loan consummation exceed the
greater of $400 or 8 percent of the total
loan amount. In keeping with the
statute, the Board has annually adjusted
the $400 amount based on the annual
percentage change reflected in the
Consumer Price Index that is in effect
on June 1. The adjusted dollar amount
for 2009 is $583. This adjustment does
not affect the new rules for ‘‘higherpriced mortgage loans’’ adopted by the
Board in July 2008.
EFFECTIVE DATE: January 1, 2009.
FOR FURTHER INFORMATION CONTACT:
Dana Miller, Attorney, Division of
Consumer and Community Affairs,
Board of Governors of the Federal
Reserve System, at (202) 452–3667. For
the users of Telecommunications Device
for the Deaf (‘‘TDD’’) only, contact (202)
263–4869.
SUPPLEMENTARY INFORMATION:
I. Background
The Truth in Lending Act (TILA; 15
U.S.C. 1601–1666j) requires creditors to
disclose credit terms and the cost of
consumer credit as an annual
percentage rate. The act requires
additional disclosures for loans secured
by a consumer’s home, and permits
consumers to cancel certain transactions
that involve their principal dwelling.
TILA is implemented by the Board’s
Regulation Z (12 CFR part 226). The
Board’s official staff commentary (12
CFR part 226 (Supp. I)) interprets the
regulation, and provides guidance to
creditors in applying the regulation to
specific transactions.
HOEPA was contained in the Riegle
Community Development and
Regulatory Improvement Act of 1994
and was enacted as an amendment to
TILA. Public Law 103–325, 108 Stat.
2160 (60 FR 15463). In 1995, the Board
amended Regulation Z to implement
HOEPA. These amendments, contained
in §§ 226.32 and 226.34 of the
regulation, impose substantive
limitations and additional disclosure
requirements on certain closed-end
home mortgage loans bearing rates or
fees above a certain percentage or
amount. As enacted, the statute requires
creditors to comply with HOEPA’s
requirements if the total points and fees
payable by the consumer at or before
loan consummation exceed the greater
of $400 or 8 percent of the total loan
amount. The statute requires the Board
to adjust the $400 figure annually on
January 1 based on the annual
percentage change in the Consumer
Price Index (CPI) that was reported on
the preceding June 1. 15 U.S.C.
E:\FR\FM\08AUR1.SGM
08AUR1
Agencies
[Federal Register Volume 73, Number 154 (Friday, August 8, 2008)]
[Rules and Regulations]
[Pages 46169-46190]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-18230]
========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
Prices of new books are listed in the first FEDERAL REGISTER issue of each
week.
========================================================================
Federal Register / Vol. 73, No. 154 / Friday, August 8, 2008 / Rules
and Regulations
[[Page 46169]]
DEPARTMENT OF AGRICULTURE
Food and Nutrition Service
7 CFR Part 250
[FNS-2007-0039]
RIN 0584-AD45
Management of Donated Foods in Child Nutrition Programs, the
Nutrition Services Incentive Program, and Charitable Institutions
AGENCY: Food and Nutrition Service, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This final rule revises and clarifies requirements for the
management, distribution, and use of donated foods in the National
School Lunch Program and other child nutrition programs, in the
Nutrition Services Incentive Program, and by charitable institutions.
In response to an audit by the USDA Office of Inspector General, the
rule establishes specific requirements to ensure that recipient
agencies in child nutrition programs receive the benefit and value of
all donated foods received and provided to food service management
companies to conduct the food service. The rule also incorporates
legislative changes affecting the distribution of donated foods in the
Nutrition Services Incentive Program, and reduces reporting and
administrative requirements for donated foods provided to charitable
institutions. Lastly, the rule restructures and revises regulatory
provisions in a plain language format to make them easier to read and
understand.
DATES: Effective Date: This final rule is effective November 6, 2008.
Implementation Date: State agencies and recipient agencies are
required to implement the provisions of this final rule by November 6,
2008, except for the new contract requirements in Sec. Sec. 250.50 to
250.54. State agencies and recipient agencies must implement those
requirements according to the implementation schedule in section II.I
of the preamble of this rule.
FOR FURTHER INFORMATION CONTACT: Lillie F. Ragan, Assistant Branch
Chief, Policy Branch, Food Distribution Division, Food and Nutrition
Service, U.S. Department of Agriculture, Room 500, 3101 Park Center
Drive, Alexandria, Virginia 22302-1594, or telephone (703) 305-2662. A
regulatory impact analysis has been prepared for this rule. You may
request a copy of the analysis by contacting us at the above address or
by e-mail to Robert.Delorenzo@fns.usda.gov.
SUPPLEMENTARY INFORMATION:
I. Background
On June 8, 2006, the Department of Agriculture (the Department or
USDA) published a proposed rule in the Federal Register (71 FR 33344)
to amend provisions in 7 CFR part 250, which contain the general
regulations for USDA domestic food distribution. The proposals were
intended to accomplish the following objectives:
Establish requirements to ensure that recipient agencies
in child nutrition programs receive the benefit and value of all
donated foods received and provided to food service management
companies for use in the recipient agencies' meal service;
Revise and clarify requirements for the use and management
of donated foods in the National School Lunch Program (NSLP) and other
child nutrition programs;
Reduce the paperwork burden associated with the
distribution of donated foods to charitable institutions and summer
camps;
Revise provisions for the distribution of donated foods in
the Nutrition Services Incentive Program (NSIP) to reflect legislative
changes; and
Restructure and rewrite revised provisions in a plain
language format, including new subparts and sections, to make the
regulations easier to read and understand.
II. Analysis of Comments Received
The Department received a total of 668 comment submissions to the
proposed rule, including 576 schools, 7 school associations, 35 State
agencies, 49 members of industry and outside organizations, and one
member of Congress. The comments are discussed in detail below.
A. Definitions, 7 CFR 250.3
In the proposed rule, we proposed to remove, add, and revise
definitions in 7 CFR 250.3 to provide program administrators and
recipients with a better understanding of the requirements contained in
7 CFR part 250. We received three comments expressing general support
for the proposed changes in definitions.
We received one comment objecting to the proposed removal of the
definition of ``Offer and acceptance system'', stating that it supports
the current means of ordering donated foods through the Electronic
Commodity Ordering System (ECOS). While true, we believe that 7 CFR
250.58 of this final rule clearly describes the requirements for the
distributing agency to offer, order, and provide, donated foods to
school food authorities for their use, making the definition
unnecessary. Since we did not receive any other comments, this final
rule will remove definitions, as proposed, of ``Nonprofit summer camps
for children'', ``Nonresidential child or adult care institution'',
``Nutrition program for the elderly'', ``Offer and acceptance system'',
``Program'', and ``Students in home economics''.
Since we did not receive any comments in response, this final rule
will add definitions, as proposed, of ``Adult care institution'',
``AoA'', ``Bonus foods'', ``CACFP'', ``Child care institution'',
``Commodity offer value'', ``DHHS'', ``Elderly nutrition project'',
``Entitlement'', ``Entitlement foods'', ``National per-meal value'',
``Nonprofit organization'', ``Nonprofit school food service account'',
``NSIP'', ``NSLP'', ``Reimbursable meals'', ``SBP'', ``7 CFR part
3016'', ``7 CFR part 3019'', ``SFSP'', ``Single inventory management'',
and ``Summer camp''.
We received two comments on the proposed revision of the definition
of ``Food service management company''. One commenter was unsure if a
company that was hired to repair refrigerators would be characterized
as a food service management company. Another commenter questioned if a
company operating only as a consultant would be required to credit the
recipient agency for donated foods, in accordance with the proposed
requirements for food
[[Page 46170]]
service management companies. Under the proposed definition, a food
service management company is an entity that manages any aspect of a
recipient agency's food service. We believe that this definition
clearly excludes a company that simply repairs refrigerators, since
this activity would not constitute management of the food service. We
also believe that it is clear, in 7 CFR 250.51(a) of this final rule,
that a commercial enterprise performing only a consulting service with
respect to donated foods would not have to provide a credit for the
value of donated foods, since they are not receiving and using such
foods in the food service. However, to provide further clarification,
in this final rule we refine the definition of ``Food service
management company'' to include the statement in proposed 7 CFR
250.50(a) that, to the extent that such management includes the use of
donated foods, the food service management company is subject to the
applicable requirements in this part. As discussed in section II.E of
the preamble, we are removing the characterization of a food service
management company in 7 CFR 250.50 of this final rule.
We did not receive any other comments in objection to proposed
revisions to definitions, and received one comment in support of the
revised definition of ``Charitable institutions''. Accordingly, this
final rule will revise definitions, as proposed, of ``Charitable
institutions'', ``Child nutrition program'', ``Commodity school'',
``End product'', `` Processing'', ``Processor'', ``Recipient
agencies'', ``Recipients'', ``Section 311'', ``Service institutions'',
and ``State Agency on Aging''.
B. Agreements and Contracts, 7 CFR 250.12
In the proposed rule, we proposed to remove reference to agreements
between the Department and State Agencies on Aging, in 7 CFR 250.12(a),
and to remove 7 CFR 250.12(d), which addresses contract requirements
with food service management companies, in conjunction with the
proposed new requirements for the use of donated foods under such
contracts in proposed subpart D of 7 CFR part 250. We also proposed to
remove 7 CFR 250.12(e) and (f), as requirements relative to storage
facility and processor contracts or agreements are currently addressed
in 7 CFR 250.14, and in subpart C of 7 CFR part 250, respectively.
Lastly, we proposed to revise the section heading to Agreements. Since
we did not receive any comments in response to these proposals, this
final rule retains the amendments to 7 CFR 250.12, as proposed.
C. Reviews, 7 CFR 250.19
In the proposed rule, we proposed to clarify or revise required
procedures in the distributing agency's review system in 7 CFR
250.19(b)(1), by which the distributing agency ensures compliance with
the requirements in 7 CFR part 250. We proposed to amend the
introductory text to clarify that the listed requirements may apply to
some, but not all, programs that receive donated foods. While we did
not receive any comments in response to this proposal, we have further
revised the introductory text in this final rule to provide additional
clarification.
We proposed to remove the requirement that review procedures must
include on-site reviews of recipient agencies in NSIP, since oversight
of this program is currently the responsibility of the Department of
Health and Human Services (DHHS). We proposed to streamline and clarify
the requirement to conduct on-site reviews of charitable institutions
and summer camps, and the food service management companies under
contract with them. Since we did not receive any comments in response
to these proposals, this final rule retains them.
We also proposed to include a requirement that the distributing
agency's review procedures include on-site reviews of recipient
agencies in NSLP, the Child and Adult Care Food Program (CACFP), and
the Summer Food Service Program (SFSP) that have contracts with food
service management companies in order to ensure compliance with the
proposed requirements for the use of donated foods under such
contracts. However, we proposed to permit the distributing agency to
enter into an agreement with the appropriate State administering agency
(if a different agency) to include its review as part of the State
administering agency's required on-site review of such recipient
agencies.
We received thirteen comments in response to this proposal. Twelve
of the commenters indicated that requiring State agency on-site reviews
of recipient agencies to ensure compliance with requirements for the
use of donated foods in food service management company contracts would
impose a significant additional burden. Commenters indicated that State
agencies often do not have sufficient personnel to conduct such
reviews, or sufficient funds to permit travel throughout the State.
Additionally, commenters noted that State agency personnel often have
limited expertise in reviewing contract provisions and ensuring that
the value of all Federal resources provided to school food authorities
and other recipient agencies has accrued to them. One commenter
indicated that the cost of conducting such reviews would likely be
passed on to schools.
We agree with commenters that the proposed review requirements
would impose an additional burden on the State distributing agency,
which does not currently conduct on-site reviews of recipient agencies
in NSLP, CACFP, and SFSP. This would be especially true in States in
which a large number of recipient agencies have contracts with food
service management companies. However, the State agency responsible for
administering these programs (usually the State Education Agency)
currently conducts on-site reviews of these recipient agencies to
ensure compliance with requirements set forth in contracts with food
service management companies. Additionally, in accordance with a final
rule published in the Federal Register on October 31, 2007 at 72 FR
61479, such State agencies are required to review and approve all
school food authority contracts with food service management companies
prior to their execution. Accordingly, the proposed requirement that
the distributing agency's review system must include an on-site review
of recipient agencies in NSLP, CACFP, and SFSP has been removed in this
final rule. In accordance with the removal of the proposal described
above, this final rule removes current 7 CFR 250.19(b)(1)(v), rather
than redesignating and revising it, as proposed.
One commenter suggested that compliance with requirements in food
service management company contracts should be determined by auditors,
in accordance with Federal audit requirements under the Single Audit
Act and Office of Management and Budget (OMB) Circular A-133, and
codified in departmental regulations in 7 CFR part 3052. Under the
audit requirements, a State or local government or nonprofit agency
that expends at least $500,000 in Federal awards in a school or fiscal
year (including the value of donated foods) must obtain a single audit
(or, in some cases, a program-specific audit) for that year. Audits can
be an effective tool in helping State agencies to ensure that Federal
resources are used for the intended purpose, and in accordance with
Federal requirements. However, auditors do not, as a rule, determine
compliance with requirements for donated foods in contracts with food
[[Page 46171]]
service management companies in conducting the required Federal audit,
and including such determination would likely increase the cost of
obtaining the audits for school food authorities and other recipient
agencies. Accordingly, we do not believe it would be in the best
interest of the child nutrition programs served to include the audit as
a replacement for the State agency on-site review in ensuring
compliance with the requirements for donated foods in contracts with
food service management companies. We also received one comment
indicating that agreements between State agencies and recipient
agencies should include assurance of compliance with requirements
relating to the use of donated foods in food service management company
contracts. However, we believe that current agreement provisions
requiring that recipient agencies distribute and use donated foods in
accordance with the requirements in 7 CFR part 250, and that hold them
responsible for noncompliance with such requirements, are sufficient.
We proposed to remove 7 CFR 250.19(d), which requires the
monitoring of funds in NSIP to ensure purchase of only U.S.
agricultural products. As previously indicated, DHHS is currently
responsible for the oversight of NSIP. Since we did not receive any
comments in response to this proposal, 7 CFR 250.19(d) is removed in
this final rule.
D. Distributing Agency Performance Standards, 7 CFR 250.24
In 7 CFR 250.24 of the proposed rule, we proposed to revise current
performance standards required of the distributing agency with respect
to the ordering of donated foods and their distribution to school food
authorities, in accordance with proposed changes in 7 CFR 250.58. We
proposed to revise 7 CFR 250.24(d)(8) to state that distributing
agencies are responsible for providing recipient agencies with ordering
options and commodity values, and considering the specific needs and
capabilities of such agencies in ordering donated foods. We received
four comments indicating that distributing agencies do not always
consider the needs of recipient agencies in ordering donated foods. Two
of the commenters indicated that distributing agencies may instead
order those donated foods that generate higher delivery fees, or may
charge such fees for donated foods delivered directly to a processor.
Two other commenters suggested requiring distributing agencies to
permit school food authorities capable of accepting full truckload
shipments to submit donated food orders to FNS. In 7 CFR 250.58 in this
final rule, we are requiring the distributing agency to ensure that all
school food authorities have an opportunity to state their food
preferences each year before the distributing agency submits donated
food orders to FNS. The revision of 7 CFR 250.24(d)(8), as proposed,
would ensure that the distributing agency complies with this
requirement. However, as discussed in section II.F.3 of the preamble,
we have chosen to reserve any revision of requirements relating to the
distributing agency's system of donated food distribution for future
proposed rulemaking. We received one comment stating that recipient
agencies are guaranteed ordering options and visibility of donated food
values through ECOS, making this performance standard unnecessary.
However, not all distributing agencies utilize ECOS for all food
distribution programs. Accordingly, 7 CFR 250.24(d)(8) is revised as
proposed.
We proposed to revise 7 CFR 250.24(d)(9) to state that distributing
agencies are responsible for offering school food authorities
participating in NSLP the commodity offer value of donated food
assistance, at a minimum, and for determining an adjusted assistance
level in consultation with school food authorities, as appropriate, in
accordance with the proposed 7 CFR 250.58. Since we did not receive any
comments in response to this proposal, 7 CFR 250.24(d)(9) is revised as
proposed in this final rule.
In 7 CFR 250.24(d)(10), we proposed to state that distributing
agencies be responsible for providing each school food authority
participating in the NSLP with the opportunity to order, or select,
donated foods from the full list of available foods, and to distribute
the selected donated foods to each school food authority, to the extent
that distribution of such foods to, and within, the State would be
cost-effective. In accordance with the amendments to the proposed 7 CFR
250.58 in this final rule, we have revised 7 CFR 250.24(d)(10) in this
final rule to state that distributing agencies are responsible for
ensuring that all school food authorities participating in the NSLP are
aware of the full list of available donated foods, have the opportunity
to provide input at least annually in determining the donated foods
from the full list that they may select for their food service, and
receive all such selected donated foods that may be cost-effectively
distributed to them.
The proposed rule included a restructuring of some sections of 7
CFR part 250, including:
The removal of current subpart E.
The revision of subpart D to include new sections with
proposed requirements for the use and management of donated foods in
contracts with food service management companies.
The addition of a new subpart E to include revisions and
clarifications in current requirements for the use of donated foods in
the NSLP and other child nutrition programs.
The addition of a new subpart F to include current
requirements, without change, for household programs.
The addition of a new subpart G to include revisions and
clarifications in requirements for the use of donated foods by
charitable institutions and summer camps, and in NSIP, and to include
current requirements, without change, for the use of donated foods in
disasters and situations of distress.
Since we received no comments in response to the proposed
restructuring, it is retained as proposed in this final rule. The
comments received in response to the specific new or revised
requirements proposed in each of these subparts are described below.
E. Subpart D--Donated Foods in Contracts with Food Service Management
Companies
We proposed to revise Subpart D of 7 CFR part 250 to include, in
six new sections, specific requirements to ensure that recipient
agencies receive the benefit and value of donated foods in contracts
with food service management companies. As previously indicated, this
subpart would replace the current 7 CFR 250.12(d). In the first two
sections, we proposed to include the contract and procurement
requirements for recipient agencies in retaining the services of a food
service management company, and the specific activities relating to
donated foods that a food service management company may perform in
accordance with the contract.
We also proposed to clarify the distinction between a food service
management company and a processor. However, since this distinction is
clearly made in the definitions of these two entities in 7 CFR 250.3,
as revised in this final rule, we are removing it in this subpart.
Consequently, we are consolidating the proposed 7 CFR 250.50 and 250.51
into 7 CFR 250.50 in this final rule, and revising the heading of this
section to Contract requirements and procurement. Accordingly, proposed
7 CFR 250.52 through 250.55
[[Page 46172]]
are redesignated as 7 CFR 250.51 through 250.54, respectively, in this
final rule. The specific comments are described below under the
pertinent sections.
1. Contract Requirements and Procurement, 7 CFR 250.50
We proposed to clarify that the recipient agency must enter into a
contract with a food service management company, in accordance with
Federal requirements in 7 CFR parts 210, 220, 225, or 226, as
applicable, and that the contract must ensure that all donated foods
received for use by the recipient agency in the school or fiscal year,
as applicable, are used to benefit the recipient agency's food service.
We proposed to require that contracts between child nutrition program
recipient agencies and food service management companies also ensure
compliance with other requirements in this subpart. We also proposed to
clarify the two types of contracts--fixed-price and cost-reimbursable--
that may be used, and the differences between them. Since we did not
receive any comments in response to these proposals, this final rule
retains the proposed provisions relating to contract requirements and
types of contracts in 7 CFR 250.50(a) and (b), respectively, with one
exception. In 7 CFR 250.50(a) of this final rule, we require that the
contract ensure that all donated foods received for use by the
recipient agency in the school or fiscal year, as applicable, are used
in (instead of benefit) the recipient agency's food service. This
change is made in accordance with the revised requirements for the use
of donated foods in 7 CFR 250.51(d) of this final rule, as discussed in
section II.E.2 of the preamble.
We proposed to clarify that the recipient agency must meet
Departmental procurement requirements in 7 CFR part 3016 or 3019, and
in 7 CFR parts 210, 220, 225, or 226, as applicable, in obtaining the
services of a food service management company, and to require that
procurement documents, as well as contract provisions, include the
donated food activities that the food service management company is to
perform. We also proposed to indicate some of the donated food
activities that the food service management company may perform, in
accordance with its contract, such as preparing and serving meals, and
ordering or storing donated foods. We proposed to specifically prohibit
a food service management company from entering into a contract or
agreement with a processor to process donated foods or finished end
products for use in the recipient agency's food service.
Six commenters indicated that the food service management company
must play a role in ordering or selecting donated foods, in order to
ensure that the selected foods are those that may be most effectively
used in the food service. We agree, and 7 CFR 250.50(d), as finalized
in this rule, will permit the food service management company to order
or select donated foods for use in the food service, in coordination
with the recipient agency.
Seven commenters indicated that the food service management company
should be permitted to enter into processing contracts, or to procure
processed end products, on behalf of recipient agencies, since it would
permit those agencies to benefit from the food service management
company's purchasing expertise and buying power. Two other commenters
indicated that, as most processing agreements are between the processor
and the distributing agency, and not the recipient agency, the
significance of prohibiting food service management companies from
entering into such agreements is unclear. The parties to the processing
agreements required in subpart C of 7 CFR part 250 are usually the
distributing agency and the processor. Such agreements permit the
distributing agency to ensure compliance with the processing
requirements in subpart C of 7 CFR part 250, which include the
processing of donated foods into approved end products, compliance with
processing yields of donated foods, and maintenance of donated food
inventories at approved levels. The distributing agency may permit
recipient agencies to enter into processing agreements, and to ensure
compliance with the processing requirements. However, it would be
inappropriate to delegate such oversight of a commercial enterprise
(i.e., the processor) to another commercial enterprise (i.e., the food
service management company). Hence, we retain in this final rule the
prohibition of a food service management company from entering into the
processing agreement with the processor required in subpart C of 7 CFR
part 250.
The actual procurement of processed end products from processors
(or commercial distributors), however, is usually conducted by
recipient agencies. Such procurement must be conducted in accordance
with Departmental procurement requirements in 7 CFR parts 3016 or 3019,
as applicable, and with requirements in subpart C of 7 CFR part 250.
Although we included the payment of processing fees or remittance of
refunds from a processor among the donated food activities that a food
service management company may perform on behalf of a recipient agency,
we did not specifically include the procurement of processed end
products among such activities. However, such procurement is not
prohibited. Furthermore, we agree with commenters that recipient
agencies could benefit from food service management company
procurements of processed end products on their behalf, since it would
reduce their time and labor in conducting such activity, and may result
in decreased purchase costs. Thus, we specifically include the
procurement of processed end products as an activity that the food
service management company may perform on behalf of the recipient
agency in 7 CFR 250.50(d) of this final rule. However, we also clarify
that such procurement must ensure compliance with the requirements in
subpart C of 7 CFR part 250, and with the provisions of distributing or
recipient agency processing agreements, and must ensure crediting of
the recipient agency for the value of donated foods contained in
processed end products at the processing agreement value. Other donated
food activities included in the proposed rule are retained in 7 CFR
250.50(d) of this final rule, with some consolidation.
2. Crediting for, and Use of, Donated Foods, 7 CFR 250.51
In the proposed rule, we proposed to include requirements to ensure
that recipient agencies in child nutrition programs receive the benefit
and value of donated foods in the meal service provided by food service
management companies. We proposed to require the recipient agency to
ensure that the food service management company, in both fixed-price
and cost-reimbursable contracts, credits it for the value of all
donated foods received for use in the recipient agency's food service
in a school year or fiscal year (including both entitlement and bonus
foods), with the exception of donated foods contained in processed end
products. We proposed to include the accepted means by which crediting
for the value of donated foods must be achieved, the required frequency
of such crediting, and that, in all cases, crediting be clearly
documented.
One commenter suggested that we require crediting for donated foods
as they are used (rather than as they are received), to avoid a
situation in which credit is provided for donated foods that may not be
used during the contract
[[Page 46173]]
period--e.g., due to receipt of a shipment late in the year. However,
requiring crediting for the value of donated foods only as they are
used would provide a disincentive to use them. Additionally, we do not
want to create a situation in which school food authorities with food
service management company contracts must monitor donated food
inventories to ensure proper crediting, as such monitoring would impose
an additional burden, and would be very difficult under a single
inventory management system, in which school food authorities (and, in
accordance with 7 CFR 250.52(b) of this final rule, food service
management companies) may commingle donated foods and commercially
purchased foods.
We received two comments expressing uncertainty whether crediting
must occur for donated foods delivered to processors for processing
into end products when the end products are delivered to the recipient
agency, or when the food service management company uses the end
products in the recipient agency's food service. As we described in the
proposed rule, the processor (or commercial distributor, as applicable)
must credit the recipient agency for donated foods contained in
processed end products in the sale of such end products to the
recipient agency, in accordance with the requirements in subpart C of 7
CFR part 250. Hence, the value of the donated foods accrues to the
recipient agency's nonprofit food service in its purchase of the
processed end products. Although the food service management company
must use such end products in the recipient agency's food service, it
is not required to provide an additional credit for the value of
donated foods contained in them when they are used, or received for
use, in the food service. However, an exception would be if the food
service management company's contract requires it to procure processed
end products on behalf of the recipient agency, or to act as an
intermediary in passing the donated food value in such end products on
to the recipient agency, in accordance with 7 CFR 250.50(d) of this
final rule. Hence, in 7 CFR 250.51(a) of this final rule, we clarify
that, in such cases, the food service management company must also
credit the recipient agency for the value of donated foods contained in
processed end products.
We include the proposed methods of crediting permitted, and the
required frequency of crediting, together in 7 CFR 250.51(b) of this
final rule, in the interest of clarity. We proposed to include ``pre-
crediting'' as an accepted means of crediting for the value of donated
foods in fixed-price contracts. In pre-crediting, the food service
management company deducts the value of donated foods the recipient
agency is expected to receive from the fixed-price bid submitted during
procurement of the food service management company to conduct the food
service. In contracts with school food authorities, this deduction is
usually for the per-meal value of donated food assistance established
in accordance with section 6(c) of the Richard B. Russell National
School Lunch Act (42 U.S.C. 1755(c)). However, school food authorities
may receive a greater value of donated food assistance for the school
year. This may result for a number of reasons (some of which are
described in 7 CFR 250.58(d) of this final rule), but is most commonly
due to the receipt of surplus, or bonus, foods purchased by the
Department to remove market surpluses, and donated to school food
authorities and other recipient agencies later in the year.
As indicated in the Office of Inspector General (OIG) audit
(27601-0027-CH) referenced in the proposed rule, food service
management companies that utilize ``pre-crediting'' sometimes fail to
credit school food authorities for the additional foods received later
in the year. Hence, in the proposed rule, we also proposed to require
the food service management company to provide an additional credit for
the value of any donated foods not accounted for in the fixed-price per
meal.
We received nine comments indicating that this requirement would
discourage food service management companies from efficiently using
donated foods, since providing recipient agencies with an additional
credit for the value of donated foods received later in the year would
reduce their revenue. However, as the proposal would require crediting
for all donated foods received in the school or fiscal year, and not
just those donated foods that are actually used, it would not
discourage the use of donated foods. We received four comments
questioning whether a recipient agency would have to reimburse the food
service management company if it actually received less than the pre-
credited value of donated foods. This may occur, for example, if a
school food authority does not select donated foods offered by the
distributing agency equal to its commodity offer value (i.e., the
legislated per-meal value), or if selected foods may not be purchased,
due to market conditions or other factors. However, the proposed
requirement is intended only to ensure that the recipient agency is
credited for the value of all donated foods received. It would not
require reimbursement of the food service management company if such
crediting is in excess of that value. However, such reimbursement may
be established by the food service management company and the recipient
agency, in accordance with their contract.
One commenter contended that some recipient agencies are more
interested in a guaranteed cost of the service (i.e., in the fixed-
price per meal), rather than assurance that credit is received for the
value of all donated foods. Another commenter suggested that additional
credits be excused when a food service management company does not
include other related costs, such as storage, in the fixed price.
However, permitting any exceptions to the requirement that the
recipient agency receive credit for the value of all donated foods
would not meet the primary intent of the regulations, or address the
concerns expressed in the OIG audit. Notwithstanding this requirement,
a recipient agency may consider storage or handling costs in
establishing the value of donated foods to be used in crediting, as
permitted in 7 CFR 250.51(c) of this final rule. Another commenter
questioned the accuracy of the term ``fixed-price'' contract if
deductions for the value of donated foods are required on invoices.
While technically true, this designation is commonly used, and use of
an alternate term would be confusing.
We proposed to permit ``crediting by disclosure'' in cost-
reimbursable contracts. Under such contracts, the food service
management company bills the recipient agency for costs incurred in
conducting the food service, and also charges a fixed management fee.
However, one commenter was unsure if crediting by disclosure meant
disclose to the recipient agency the value of donated foods received
during the period covered by the invoice, or actually credit funds to
the recipient agency for such foods. We agree with the commenter that
the meaning is not clear. Therefore, we are amending the language in 7
CFR 250.51(b) of this final rule to clarify that, in crediting by
disclosure, the food service management company credits the recipient
agency for the value of donated foods by disclosing, in its billing for
food costs submitted to the recipient agency, the savings resulting
from the receipt of donated foods for the billing period. However, it
does not require a reduction of the fee charged for conducting the food
service, or any other type of payment for the value of donated foods.
[[Page 46174]]
We proposed to require the recipient agency to ensure that
crediting for the value of donated foods be performed not less
frequently than annually. Two commenters were unsure if the food
service management company must credit the recipient agency for the
value of donated foods when such foods are delivered to the recipient
agency, or when the food service management company actually uses the
donated foods in the recipient agency's food service. The proposal did
not include a specific time that crediting must be performed, only that
it be performed at least annually. Hence, the recipient agency may
require a food service management company to credit it for donated
foods upon delivery, quarterly, or all at once at the end of the year
(provided that, for a school food authority, such a one-time credit
would not result in its cash resources exceeding the limits established
in 7 CFR 210.9(b)(2)). The recipient agency may also permit crediting
for donated foods as they are used in the food service. However, the
recipient agency must ensure that the food service management company
credits it for the value of all donated foods received during the year;
permitting the food service management company to credit for donated
foods as they are used may not ensure that this requirement is met.
Additionally, it may be difficult to track donated foods as they are
used if the entity responsible for storing them is using a single
inventory management system.
Another commenter indicated that it should be clear exactly when
crediting for the value of donated foods must be achieved, as a food
service management company might offer to provide an upfront payment
for such value as an inducement to winning the bid for the contract.
However, such an upfront payment for the value of donated foods would
be acceptable if this method of crediting were provided for in
procurement documents and in contract provisions, as required in this
final rule. It would be unlikely, though, to include crediting for all
donated foods received in the school or fiscal year, and would,
therefore, necessitate additional crediting at a later time.
Accordingly, we have retained the allowed methods of crediting for
donated foods, as proposed, in 7 CFR 250.51(b) of this final rule, with
the clarification of crediting by disclosure in cost-reimbursable
contracts. We have also retained, as proposed, the required frequency
of crediting, and the requirement that all forms of crediting provide
clear documentation of the value received from the donated foods. As in
the proposed rule, we have indicated that a school food authority must
also ensure that the required method and frequency of crediting does
not cause its cash resources to exceed the limits established in 7 CFR
210.9(b)(2).
In the proposed rule, we proposed to provide some flexibility in
determining the value of donated foods to be used in crediting, in
order to permit the recipient agency to ensure that the donated foods
received provide a good value to its food service. Hence, rather than
require use of the donated food value utilized by the distributing
agency in crediting the recipient agency's donated food ``entitlement''
(as described in 7 CFR 250.58(e) of this final rule), we proposed to
permit the use of an alternate value determined by the recipient
agency, and approved by the distributing agency. We proposed to require
that the method of determining the donated food values to be utilized
in crediting be included in procurement documents and in the contract.
We received two comments stating that the donated food values used by
food service management companies in crediting school food authorities
should be the same as the values used by distributing agencies in
crediting the school food authority's donated food ``entitlement''.
Three commenters indicated that school food authorities do not have the
time or expertise to determine alternate donated food values. We agree
that most school food authorities would not have the time or expertise
to determine alternate donated food values for use in crediting, and
will likely use the values established by the distributing agency.
However, we believe that having the flexibility to use alternate values
may benefit some school food authorities or other recipient agencies.
We received three comments indicating that the proposed flexibility in
valuation of donated foods, while commendable, may be confusing to the
parties responsible (e.g., the distributing agency or the State
administering agency) for ensuring that recipient agencies have
received credit for the value of all donated foods. We agree that the
use of different values in crediting may be confusing to such parties.
However, as previously indicated, most recipient agencies will likely
use the values established by the distributing agency, rather than use
alternate values--which, in any case, would have to be approved by the
distributing agency. Additionally, in 7 CFR 250.54(a) of this final
rule, we require recipient agencies to maintain a record of the donated
food values used in crediting, which will help State agencies or other
entities to determine compliance with requirements for crediting of the
donated food value.
Accordingly, we have included the options for valuing donated foods
as proposed in 7 CFR 250.51(c) of this final rule. We have included, as
proposed, the requirement that the method of determining the donated
food values to be utilized in crediting be included in procurement
documents and in the contract. We have also included, as proposed, the
requirement that the method of valuation specified must result in the
determination of actual values, and may not permit any negotiation of
such values. Lastly, we have included, as proposed, the requirement
that the recipient agency must ensure that the specified method of
valuation of donated foods permits crediting to be achieved in
accordance with regulatory requirements and the provisions of the
contract.
We also proposed to provide some flexibility in the use of donated
foods by the food service management company, especially in its
contracts with school food authorities to conduct the meal service.
Under the proposal, the food service management company would not be
required to use those donated foods that are not included in school
menu plans, with a few exceptions (although it must provide a credit
for all donated foods received). Rather, the food service management
company could use its food purchasing capacity to provide other foods
that meet nutritional requirements in place of those donated foods that
do not fit easily into the school menu plans. We received 641 comments
in opposition to this proposal. Almost all of them indicated that food
service management companies should be required to use all donated
foods in the school food service, or should use either the donated
foods or a commercial substitute of the same type, of U.S. origin, and
of equal or better quality (as required of processors under subpart C
of 7 CFR part 250). Many commenters saw the proposal as providing
school food authorities under contract with food service management
companies with the opportunity to receive cash in exchange for donated
foods (i.e., for those donated foods not used in the food service)--an
option not available to school food authorities that operate their own
food service. Some of the commenters feared that this might lead to a
``cash-out'' of NSLP. Other commenters feared that the proposal would
permit sale of donated foods on the open market and wondered if the
Federal government would be liable for donated foods that went out-
[[Page 46175]]
of-condition and were sold by a food service management company to
another party.
In the proposal, we sought to provide school food authorities and
food service management companies with the flexibility needed to
integrate donated foods into the food service as effectively as
possible. It was not meant to provide an advantage to school food
authorities with food service management company contracts, or to
signal a move to discontinue the distribution of donated foods in NSLP,
and provide cash instead. However, we are sensitive to the perception
that the proposal would provide a ``cash for food'' option, and would
create an unfair playing field, to the disadvantage of those school
food authorities that operate their own food service. Therefore, we
have amended the proposed requirements for the use of donated foods by
food service management companies in 7 CFR 250.51(d) of this final
rule. We require that the food service management company use all
donated ground beef, donated ground pork, and all end products, in the
recipient agency's food service. We also require that the food service
management company use all other donated foods, or commercially
purchased foods of the same generic identity, of U.S. origin, and of
equal or better quality than the donated foods, in the recipient
agency's food service. However, the recipient agency may choose to
prohibit the food service management company from using commercial
substitutes in place of the donated foods, in accordance with its
contract.
In the proposed rule, we addressed the disposition of donated foods
upon termination of the contract in this section. However, in the
interest of clarity, we have moved this provision to the next section,
which includes requirements for storage and inventory management of
donated foods, in this final rule.
3. Storage and Inventory Management of Donated Foods, 7 CFR 250.52
In the proposed rule, we proposed to include requirements for the
storage and inventory management of donated foods by food service
management companies. We did not receive any comments in response to
the proposal that the food service management company comply with the
general storage and inventory management requirements in 7 CFR 250.14.
Therefore, we have retained this requirement, as proposed, in 7 CFR
250.52(a) of this final rule. However, as the general storage and
inventory requirements are in 7 CFR 250.14(b), we have amended the
regulatory citation accordingly in this final rule in the interest of
clarity.
We proposed to permit the food service management company to store
and inventory donated foods together with commercially purchased foods-
i.e., utilize a single inventory management system, as defined in this
final rule-if allowed in its contract with the recipient agency.
However, we proposed to require that the food service management
company store donated ground beef, donated ground pork, and all end
products in a manner that ensures they will be used in the recipient
agency's food service. We received one comment stating that ensuring
the use of donated ground beef and ground pork, and end products, under
a single inventory management system will be impractical. Another
commenter stated that single inventory management should apply to all
school food authorities, irrespective of their contracts with food
service management companies. In single inventory management, a school
food authority may store and inventory its donated foods together with
its commercially purchased foods, unless the distributing agency
requires the donated foods to be distinguished from commercially
purchased foods in storage and inventoried separately. This applies to
all school food authorities, with or without food service management
company contracts. Likewise, a food service management company may
store and inventory donated foods together with foods it has purchased
commercially for use in the school food authority's food service.
However, it may store and inventory such foods together with other
foods only to the extent that such a system may ensure compliance with
the requirements for the use of donated foods in 7 CFR 250.51(d)--i.e.,
use all donated ground beef and ground pork, and all end products in
the food service, and use all other donated foods or commercially
purchased foods of the same generic identity, of U.S. origin, and of
equal or better quality than the donated foods, in the food service. In
the interest of clarity, we have included this revised language in 7
CFR 250.52(b) of this final rule. We have also included, without
change, the requirement that, in cost-reimbursable contracts, the
system of inventory management must ensure that the recipient agency is
not charged for donated foods.
We proposed that, upon termination of the contract, the food
service management company return all unused donated ground beef,
donated ground pork, and end products, and that it return other donated
foods, at the recipient agency's discretion, or pay the recipient
agency for the value of the donated foods. One commenter indicated that
the recipient agency should take ownership of all unused donated foods
upon termination of the contract, in accordance with the contention
that all donated foods should be used in the recipient agency's food
service. However, if the food service management company is storing
donated foods together with foods purchased commercially for the
recipient agency, as permitted in this final rule, the return of
donated foods remaining in inventory upon termination of the contract
may be achieved only if all such foods ``owned'' by the recipient
agency are returned. Such disposition of unused foods would be a matter
for the recipient agency and the food service management company to
resolve, in accordance with their contract. Therefore, in 7 CFR
250.52(c) of this final rule, we have retained the requirement that the
food service management company return all unused donated ground beef,
donated ground pork, and end products, and that it return other donated
foods at the recipient agency's discretion. However, rather than
providing the option of payment for the value of the donated foods, we
have included the requirement that the recipient agency must ensure
that the food service management company has credited it for the value
of all donated foods received for use in its food service in the school
or fiscal year. Accordingly, we have revised the heading of this
section to Disposition of donated foods and credit reconciliation upon
termination of the contract.
4. Contract Provisions, 7 CFR 250.53
In the proposed rule, we proposed to require specific contract
provisions to ensure compliance with the proposed requirements for the
use of donated foods in contracts with food service management
companies. The provisions of 7 CFR 250.53 of this final rule include
those contract provisions required to ensure compliance with such
requirements in this final rule. It clarifies that the contract must
include any activities relating to donated foods that the food service
management company will be responsible for, in accordance with 7 CFR
250.50(d), and assurance that such activities will be performed in
accordance with the applicable requirements in 7 CFR part 250. It also
clarifies that contract provisions must assure compliance with storage
and inventory requirements for donated foods, and that an on-site
review of the food service management
[[Page 46176]]
company's operation may include a review of required records.
One commenter indicated that the proposed contract provisions will
require State agencies to amend prototype contracts, or to communicate
the new requirements to recipient agencies to ensure their inclusion in
their contracts with food service management companies, which will
impose an additional burden on State agencies. We agree that it will
require additional work for State and recipient agencies to implement
the new contract requirements. However, once implemented, the
additional burden would be minimal. As previously indicated, the
inclusion of the contract provisions is necessary to ensure compliance
with the requirements in this subpart. Additionally, in accordance with
a final rule published in the Federal Register on October 31, 2007 at
72 FR 61479, the State administering agency is required to review and
approve all school food authority contracts with food service
management companies prior to their execution.
5. Recordkeeping and Reviews, 7 CFR 250.54
In the proposed rule, we proposed to include specific recordkeeping
requirements for recipient agencies and food service management
companies in order to clearly document compliance with the requirements
in this subpart. We did not receive any comments in response to the
proposals. However, in accordance with 7 CFR 250.51(a) of this final
rule, we clarify, in 7 CFR 250.54(a) and (b), that documentation of
crediting for the value of donated foods must include crediting for
such foods in processed end products, as applicable. Additionally, in
accordance with 7 CFR 250.50(d) of this final rule, we clarify, in 7
CFR 250.54(b), that the food service management company must include
documentation of its procurement of processed end products on behalf of
the recipient agency, as applicable.
We also proposed to include specific review requirements for
recipient agencies and distributing agencies, in order to ensure
compliance with the requirements in this subpart. We proposed to
require that the recipient agency include a review of food service
management company activities relating to the use of donated foods as
part of its required monitoring of the food service operation, in
accordance with 7 CFR parts 210, 220, 225, or 226, as applicable. We
also proposed to require that the recipient agency conduct a
reconciliation to ensure that the food service management company has
credited it for the value of all donated foods received for use in the
food service in the school or fiscal year, as applicable.
One commenter indicated that the reconciliation process should be
formalized to provide clear guidance on accounting for donated foods,
including beginning and ending inventories, processing yields, and
theft or damage. However, the recipient agency is not required to
monitor the food service management company's beginning and ending
donated food inventories as part of the proposed review requirement, or
to make a separate accounting of donated food loss. Although the
recipient agency would have to ensure crediting for donated foods
contained in processed end products procured by the food service
management company on its behalf, it would not have to monitor
processing yields as part of its reconciliation. We received two
comments indicating that the food service management company and the
school food authority must receive accurate and timely data on food
values to ensure that crediting for the value of donated foods is
accurate. While true, the distributing agency is required to provide
recipient agencies with information on donated food values, in
accordance with 7 CFR 250.24(d)(8) of this final rule.
We received seven comments indicating that the proposed review
requirements would impose additional costs on school food authorities,
and that such requirements should be reviewed for their impact on
schools. Another commenter suggested that FNS test the proposals to
assess their impact on a cost-benefit basis. We agree that the proposed
requirement to ensure crediting for the value of donated foods through
a reconciliation process would require school personnel to commit more
time to this activity, and thus has the potential to increase costs.
However, we believe the flexibility provided in the method and
frequency of crediting for donated foods will permit school food
authorities to minimize such an impact. A school food authority may
find that it works best to require a one-time refund for the value of
all donated foods near the end of the year, or may choose to require
that donated food value be credited each month or quarter through
reductions on invoices. In short, we expect that school food
authorities will find the method that is most cost-effective and
efficient for them. Hence, in 7 CFR 250.54(c) of this final rule, we
retain the review requirements for recipient agencies as proposed.
However, we clarify that the required reconciliation must also ensure
crediting for the value of donated foods contained in processed end
products, in accordance with the requirements in 7 CFR 250.51(a), and
that such reconciliation must be conducted at least annually, and upon
termination of the contract.
In accordance with the removal of the proposal in this final rule
that the distributing agency's review system include an on-site review
of recipient agencies in NSLP, CACFP, and SFSP with food service
management company contracts, as described in section II.C of the
preamble, this final rule removes the proposed reference to such review
requirement in this section.
Lastly, we proposed to indicate that the Department may also
conduct reviews of food service management company operations with
respect to the use and management of donated foods, in order to ensure
compliance with the requirements of 7 CFR part 250. As we did not
receive any comments in response to this proposal, it is retained in 7
CFR 250.54(d) of this final rule.
F. Subpart E--National School Lunch Program (NSLP) and Other Child
Nutrition Programs
In the proposed rule, we proposed to provide a clearer, more
comprehensive, description of the requirements relating to donated
foods in NSLP and other child nutrition programs in a new subpart E of
7 CFR part 250, which includes seven new sections. This subpart would
replace the current 7 CFR 250.48, 250.49, and 250.50. Since we received
no comments in response to the proposed restructuring of these
requirements, it is retained in this final rule. Comments received in
response to proposed revisions or clarifications of specific
requirements are discussed below in the pertinent sections.
1. Provision of Donated Foods in NSLP, 7 CFR 250.56
In 7 CFR 250.56 of the proposed rule, we proposed to include a
general description of the provision of donated foods in NSLP,
including the types and amounts provided, and to reference applicable
regulatory requirements, in addition to 7 CFR part 250. We also
included a streamlined description of the quantity of donated foods
provided to distributing agencies each school year, in accordance with
Section 6(c) of the Richard B. Russell National School Lunch Act (42
U.S.C. 1755(c)), and the values of donated foods utilized in
determining the quantities provided. Lastly, we included the current
description of the cash option offered to States previous to 1974, in
lieu of receiving donated foods. We received
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one comment indicating that the general description, and the types and
amounts of donated foods provided, do not add any value to the
regulations, and are, therefore, unnecessary. However, we believe that
these provisions help to clarify the role of donated foods in NSLP, and
have retained them, as proposed, in 7 CFR 250.56 of this final rule.
2. Commodity Schools, 7 CFR 250.57
In 7 CFR 250.57 of the proposed rule, we proposed to describe the
provision of donated foods to commodity schools, including a
streamlined description of the determination of the quantity of donated
foods provided to distributing agencies for commodity schools each
school year, in accordance with section 6(c) of the Richard B. Russell
National School Lunch Act (42 U.S.C. 1755(c)). We also included the
types of donated foods available to commodity schools. Since we
received no comments in response to the proposals, 7 CFR 250.57 is
retained in this final rule as proposed.
3. Ordering Donated Foods and Their Provision to School Food
Authorities, 7 CFR 250.58
In 7 CFR 250.58 of the proposed rule, we proposed to describe the
means by which the distributing agency orders donated foods and
provides them to school food authorities for use in the school food
service. We included, in 7 CFR 250.58(a), a description of ECOS, the
web-based system implemented in 2003 to permit the distributing agency
to submit donated food orders to FNS. We proposed to require that,
before submitting orders to FNS, the distributing agency provide the
school food authority with the opportunity to order, or select, donated
foods for its food service from the full list of available donated
foods. We received eighteen comments indicating that, because of the
wide variety of donated foods available, this proposal is impractical,
and would impose a significant additional burden on distributing
agencies. Many orders submitted by school food authorities could not be
fulfilled, since they would not constitute full truckload shipments,
and would necessitate the submission of alternate selections. This
would make the process of submitting food orders to FNS more time-
consuming and work-intensive. Several commenters also indicated that,
in current practice, distributing agencies ``filter out'' some foods
from the full list, using information received in advance from school
food authorities with respect to those foods that are most desired and
useful for their food service. Such information may be obtained through
annual advisory councils, periodic surveys, or by other means. Seven
commenters supported the proposal, indicating the importance of having
a ``request-driven'' ordering system, in which all school food
authorities have input, and of providing all schools with the
opportunity to order and receive the donated foods that they need and
want.
We have amended the proposal in response to the comments received.
In 7 CFR 250.58(a) of this final rule, we have required the
distributing agency, before submitting orders to FNS, to ensure that
all school food authorities are aware of the full list of available
donated foods, and have the opportunity to provide input at least
annually in determining the donated foods from the full list that are
made available to them for ordering or selection. This requirement will
ensure that all school food authorities have a chance to submit to the
distributing agency their food preferences each year, with knowledge of
the full list of foods available, while also permitting the
distributing agency to ``filter out'' some foods from that list, based
on the input received, in order to ensure efficient ordering and
distribution of donated foods.
We also proposed to require that the distributing agency ensure
distribution of all donated foods selected by the school food authority
that may be cost-effectively distributed to it, and that the
distributing agency explore all available storage and distribution
options to determine if such distribution may be performed cost-
effectively. In making such determination, the distributing agency may
not prohibit the use of split shipments--i.e., donated food shipments
with more than one stop-off or delivery location. We received five
comments in support of the proposal that the distributing agency may
not prohibit the use of split shipments. We received two comments
indicating that the distributing agency may not be aware of, or have
the capacity to explore, all available storage and distribution
options, and to determine the most cost-effective option. The
commenters recommended that the distributing agency be required to
permit school food authorities to accept full truckload shipments,
rather than use the State distribution system. Two other commenters
indicated that the distributing agency should be required to permit
recipient agencies to divert donated foods to processors for
processing. Another commenter indicated that requiring the distributing
agency to explore other storage and distribution options would
nece