Cash Commodity Letter of Credit Program

THIS PROJECT IS SET-ASIDE FOR SMALL BUSINESS (i) This is a combined synopsis/solicitation for commercial items prepared in accordance with the format in Subpart 12.6, as supplemented with additional information included in this notice. This announcement constitutes the only solicitation; proposals are being requested and a written solicitation will not be used. This requirement is being procured in conjunction with FAR Part 13, using Simplified Acquisition Procedures (SAP). (ii) The solicitation number for this acquisition is RFP FNS-10-262SAM. This solicitation is issued as a Request for Proposals. (iii) The solicitation document and incorporated provisions and clauses are those in effect through Federal Acquisition Circular 2005-44. (iv) This procurement is set-aside for small businesses. The NAICS code for this requirement is 541618 and the size standard is $7.0M. (v) The following provides the description of the requirement being procured: PERFORMANCE WORK STATEMENT FOR FOOD AND NUTRITION SERVICE (FNS) CONTRACT MANAGEMENT DIVISION (CMD) ON BEHALF OF SPECIAL NUTRITION PROGRAM (SNP) A-1 INTRODUCTION 1.1 Since its inception in the early 1930s, the National School Lunch Program (NSLP) has been guided by two major objectives: to provide nutritionally sound meals to school children and to encourage the consumption of domestic agricultural products. Federal support for schools participating in the NSLP comes from direct cash subsidies as well as the donation of agricultural commodities. Donated commodities are purchased in the market by the United States Department of Agriculture (USDA), although some products are moved directly out of government stocks. Since the 1980's, there has been considerable debate over the feasibility of an alternative to the donation of commodities in the NSLP. Despite the many positive aspects of the commodity donation program, it was the subject of criticism in the late 1970s and early 1980s. The timing of deliveries, the need to transport and store the donated commodities, the choice of commodities provided, and the commodity-form and unit size were criticisms frequently heard. A Congressional directive as part of the 1981 Agricultural Appropriations Act mandated the USDA to conduct a 3-year study of two alternatives to the existing commodity donation program -- an all cash approach and a voucher approach that used Commodity Letters of Credit (CLOC). This mandated study got underway in School Year 1982-83 with 96 School Food Authorities (SFAS) from 29 States assigned to one of three options under the study: commodity donation, cash, and CLOC. Cash sites in the study were allocated cash equivalent to the amount that USDA would have used in buying donated commodities for them. Few limitations were placed on these funds. Cash SFAs were required to spend the money on the food service program. CLOC SFAs also received cash equivalent to the value of the donated commodities they would have received but the expenditure of this cash was restricted to foods containing those commodities that USDA was buying for donation through the NSLP. These CLOC sites received Commodity Letters of Credit, which specified the commodity they were to purchase as well as the purchase and delivery periods. In this way, CLOC funds were used to provide market support for the same commodities USDA was supporting through its purchases. Results of the evaluation of this initial demonstration were published in 1986 . Most SFAs were pleased with the flexibility offered by the alternatives. However, SFA's used their increased flexibility to buy more highly processed foods resulting in fewer pounds of raw commodity being removed from the market for some commodities. At the conclusion of this evaluation, USDA recommended that the alternatives be discontinued. The results of the study did not provide compelling evidence sufficient to warrant the dismantling of the existing commodity donation program. The evaluation did point out deficiencies in the current commodity donation program, which required some attention. Congress laid the groundwork for improving the commodity distribution system with the passage of the Commodity Distribution Reform Act and WIC Amendments (P.L. 100-237). Improvements in the commodity donation program over the last 5 to10 years have focused on the reduction of fat and salt content of donated commodities, improved labeling and product identification, increased product varieties, improved packaging, improved scheduling of deliveries and the adoption of unitized deliveries. Although the evaluation of the initial demonstration ended in School Year 1984-85 those sites that participated in this demonstration were allowed to continue under these alternatives through a series of legislative enactments. In 1989, the Conference Report accompanying the Child Nutrition and WIC Amendments Act (P.L.101-147) authorized the Secretary of Agriculture to review the CLOC procedures and make appropriate modifications to assist the Department in meeting its mandate to support domestic agricultural markets. The Food and Nutrition Service (FNS) developed modifications in the CLOC operating procedures that became effective at the beginning of School Year 1990-91. These modifications focused on: (1) the definition of the CLOC's in terms of commodity specificity as well as the timing of the purchases and deliveries; (2) the crediting policies; and (3) the guarantee that CLOC purchases were of domestic origin. The results of the evaluation of the modified CLOC system were published in 1992 . Results of this study indicate that a number of the major differences in the performance of CLOC and Commodity school districts found in the previous study and that were the focus of this the CLOC modifications had been narrowed. The CLOC districts were able to enter the market at the same time as USDA and remove approximately the same amount of product from the market as the matched commodity sites. However, there was still some question as to whether equivalent market impact is obtained by CLOC purchases. In addition, there was insufficient information to judge the administrative feasibility of CLOC at either the State or national level. The Child Nutrition Amendments of 1992 (P.L. 102-342) signed into law on August 14, 1992 extended through September 30, 1994 the CASH CLOC option to those SFA's that have been operating under these alternatives. The Healthy Meals for Healthy Americans Act of 1994 made these sites permanent. A-2 BACKGROUND 2.1 The fundamental difference among the three systems is the location of food purchase decision-making. In the COMMODITY system, food purchase decisions are centralized at the national level. USDA decides which foods will be purchased, when they will be bought, the form in which they will be bought, the type of packaging and when they will be delivered. Although input is elicited from State agencies, the market demand decisions are largely concentrated in Washington. DC. The CLOC system represents a movement toward decentralization of food purchasing authority. CLOC SFA's are given letters of credit for the cash equivalent of their commodity entitlement. USDA decides on the general type of food to be bought with letters of credit in order to support specific agricultural markets (e.g., by issuing beef, pork or turkey letters of credit). SFA's are allowed to purchase the targeted commodities locally in a form and in a size that best suits their needs and have it delivered at a time convenient to them. For example, if they lack modern kitchen equipment or find that labor costs are excessive, they can choose prepared foods (e.g., pizza) instead of purchasing raw ingredients (e.g., flour, tomato sauce, and oil) and preparing meals "from scratch". Alternatively they can use letters of credit for the same raw ingredient donated by USDA (e.g., bulk ground beef), but packaged according to their own specifications. The CASH system decentralizes the purchasing activity to its logical extreme. As with CLOC SFA's, CASH school districts are given the cash equivalent of their commodity entitlement. However, other than requiring that the money be spent on the food service program, USDA places no restrictions on local food purchasing. The money need not be spent for food; it can be spent on labor, equipment or for any other legitimate food service operating expense. If the money is used to purchase food, that food must be of domestic origin. Establishment and Distribution of Commodity Entitlement In order to determine the total value of the cash or letters of credit to be allocated to each SFA in the program, USDA calculates the amount of each SFAs commodity entitlement. At the beginning of each School Year, an estimate of the cash value of each CASH and CLOC SFA's annual commodity entitlement is obtained by multiplying each district's total NSLP participation (number of reimbursable NSLP lunches served) from the second preceding year by the current commodity rate ($.1950 in SY 2010). In December of each year, these estimated entitlements are adjusted to reflect actual school year participation from the prior year. By the end of the year, each CASH and CLOC SFA receives a commodity entitlement based on the actual count of reimbursable lunches served in the prior year. This procedure for generating entitlement estimates was adopted in large part because the Commodity system operates in a similar manner. Once entitlement estimates are established, CASH and CLOC SFA's receive direct deposits at the beginning of each quarter of the school year; July 1st , October 1st , January 1st and April 1st. CASH SFAs receive the cash value of their entitlement in equal disbursements - 25 percent of their entitlement each quarter. CLOC SFAs receive a proportionately greater share of their entitlement at the beginning of the school year, 36 percent in each of the first two quarters, 21 percent in the third quarter, and 7 percent in the final quarter. The reason for a disproportionate disbursement of funds during the school year to CLOC SFAs is that this plan offers the best approximation of USDA's purchase plan in which purchases of commodities are most intensive during the early part of the school year. In order for a CLOC system to have a market impact and surplus removal capability that compares favorably to the current procurement process, it is necessary that CLOC SFAs have the same relative purchasing capacity during the same time frame in which USDA purchases are being made. A similar entitlement allocation formula was not adopted for CASH SFAs since in the demonstration there was no intention to target school district purchases toward specific Commodities or specific times of the school year. Cash Entitlement Utilization Once in receipt of their commodity entitlement dollars, CASH SFAs have almost complete freedom in determining how these dollars should be spent. The only restrictions imposed upon CASH SFAs with respect to expenditure of entitlement money is that (1) expenditures have to be related to the operation of school feeding programs and (2) foods purchased have to be of domestic origin. Because these dollars are generally commingled with all other funds budgeted for food service operations (and, in some cases, with all funds for school district operation), special monitoring for compliance with these two restrictions is very difficult. The use of these funds by SFAs is, of course, subject to established auditing procedures currently a part of the NSLP. CLOC Entitlement Utilization Commodity purchases for schools are guided by a procurement plan that reflects USDA's best estimates of agricultural surpluses and school food program preferences. The CLOC system is intended to match this procurement plan as closely as possible in order to mirror the commodity support to the agricultural markets. Unlike their CASH Counterparts, CLOC SFAs are restricted to spending their entitlement dollars on specific agricultural products. The linkage between the CLOC system developed by FNS and the procurement plan established by USDA is in principle straightforward. Each time USDA makes a decision to enter commodity market information about this pending purchase is promptly forwarded to those responsible for operating the CLOC system. Included in this information is the type of product expected to be purchased, the anticipated value of the contracts awarded including funds added to cover transportation of goods to State distributing points, and the period within which commodities are to be shipped to designated State distribution points. Specifications for each letter of credit are established as follows. First, the specific commodity purchased by USDA establishes the general type of product which SFAs can purchase. However, CLOC SFAs are not required to purchase exactly the same type of product as USDA (e.g., whole turkeys). Rather, they are required to purchase products that are composed in whole or in part of the agricultural product (e.g., turkey breasts, turkey dogs). Second, the total value of USDA's procurement contracts, inclusive of transportation charges, is divided by the value of the entire estimated food procurement plan established by USDA. This calculation results in the percentage of the procurement budget to be allocated to each specific commodity. This percentage in turn is multiplied by each CLOC SFAs estimated annual commodity entitlement, and the resultant dollar value is the amount of entitlement money available to each CLOC SFA for the specific commodity purchases. The second way in which the CLOC system is linked to USDA's commodity procurement plan is with respect to the period allowed for local purchases. The intent is to have the period for letter of credit purchases match the period for USDA purchases. The letter of credit purchase period encompasses the time from USDA's announcement that they are entering a particular commodity market until the time of Contract award. For fruits and vegetables, the purchase period is usually slightly longer than 35 days. For commodities purchased on a continuous cycle such as meat and poultry products, the purchase period is approximately 3 months. This places SFAs in the market at the same time as successful bidders for USDA commodity procurements and gives SFAs a reasonable period in which to arrange their letter of credit purchases. Delivery periods of CLOC purchases extend through the last date specified for shipment of USDA donated commodities to designated distribution points. CLOC Issuance To understand how the CLOC system works the following apple purchase example is used. Well before USDA actually buys apples, it surveys State agencies for potential demand. At the time of this survey, CLOC SFAs receive from the contractor a "CLOC' Alert" to put them on notice that USDA might soon purchase apples and that SFAs should examine their requirements for apple-related products in advance of an authorization to buy apples or apple products. A CLOC Alert commits the contractor to nothing and imposes no obligation on an SFA. Assume that subsequent to the survey of State agencies, USDA announces its intent to buy apples with the assumption that purchases would be made amounting to 10 percent of USDA's food procurement budget. Within two to five days of the bid announcement, SFAs receive a CLOC authorization permitting them to spend up to 10 percent of their estimated entitlement on apples. The CLOC authorization provides considerable information to an SFA in addition to the amount of money that can be spent. It defines the period within which purchases must he made and the date by which purchased products must be delivered. These two sets of dates rarely coincide: the period for accepting purchases usually is much longer than the period in which purchases are required to be made. Under the CLOC system, SFAs are required to make a commitment to buy a specified product during the same time that USDA is in the market but can space the delivery of this product to best meet the particular requirements of their food service operations. In addition to setting money and time specifications, the CLOC authorization specifies a set of products that are termed "full-credit items". These are items that schools can pay for completely with commodity entitlement dollars. Such items are usually defined as any product that removes approximately the same amount of a commodity from the market per dollar spent as the form of USDA commodity purchases. For example, SFAs could use their apple letter of credit to buy fresh apples, canned apples, applesauce, apple juice concentrate, etc. and allocate the entire cost of these products to their CLOC accounts. The flexibility of the letter of credit system is further extended by the notion of "partial credit" for processed food items that contain at least some fraction of the targeted commodity. The CLOC system developed by FNS is setup to give SFAs credit (or discount) for that element of the processed food item that is made from the target commodity even though this target commodity may represent a small fraction of the overall food item formulation. If an SFA wishes to purchase a highly processed product like apple pie filling, SFAs would receive credit for a predetermined percentage (50%) of the total dollar value of the product. The proportion of credit given represents the ratio of: (1) the average weight of the commodity removed from the market by the SFA dollar spent on the product and (2) the weight of commodity removed from the market by USDA purchases per dollar spent by USDA. This partial credit element of the CLOC system is intended to give SFAs as much flexibility as possible in using their commodity dollars while still ensuring that SFAs buy the generic commodity that is the subject of USDA's procurement action. Most SFAs use most of their letters of credit for the purchase of full-credit items. The other major condition attached to a CLOC authorization is that the product purchased has to be formulated from a target commodity (or commodities) of domestic origin and that final authorization to use entitlement funds to pay for these items depends upon some evidence that the purchase has in fact been made. School districts must certify that products purchased with CLOCs are grown and produced in the United States. School districts are no longer required to obtain documentation from distributors certifying that CLOC purchases are of domestic origin. CLOC Monitoring and Accounting SFAs are required to document purchases to be allocated against their commodity entitlement funds by completing a reporting form developed specifically for the information requirements of the program and by submitting an invoice purchase order or contract indicating a commitment to buy the product in question. The documentation is reviewed to make sure that purchases listed on the CLOC Reporting Form corresponds to accompanying documentation and that these purchases were made within the specified period. A decision as to whether the purchase is an acceptable letter of credit transaction is made generally within three business days. Purchase data to be entered in the database are total cost of purchase, standardized food description, date of purchase, transaction code and credited amount. If the purchase is approved, the amount of the approved purchase is deducted from the SFA's CLOC. Each approved purchase is posted to accounts maintained by a firm under contract to FNS. At regular intervals, computer-generated copies of accounts maintained by the contractor are forwarded to SFAs for their review. These reports include a history of all transactions made by the SFA with respect to each letter of credit. As well as, a summary of the account status of all CLOCs issued to each SFA. A major challenge for the CLOC system is the calculation of predetermined percentages of the total dollar value of partial credit items. While many of these percentages have been calculated for previous years, it is essential that these calculations be reviewed each year in light of potential changes in market conditions. In addition, there may be new processed products introduced that SFAs would like to purchase with their CLOC funds that would require the calculation of the appropriate partial credit proportion. For example, suppose an SFA wished to purchase apple pies with its apple CLOC. The following information must be available to determine the percentage of the total dollar value of the apple pies that could be credited to the apple CLOC: (1) an estimate of the total amount of apples removed from the market with the USDA apple purchases using commodity conversion factors to estimate the farm-equivalent weight (2) the estimated dollar amount of USDA apple purchases: (3) the product formulation of the processed product (apple pies): (4) an estimate of the total amount of apples removed from the market with the SFA purchase of apple pies: and (5) the estimated dollar amount of the SFA apple pie purchase. The pounds of apples removed from the market per dollar spent on USDA apple purchases must be calculated and a calculation for the SFA apple pie purchases must be completed. The ratio of these two numbers represents the portion of the SFA apple pie purchase that would be creditable to the apple CLOC. Generally, SFAs are asked to obtain the product formulation information from the vendor or the products manufacturer. If an adequate formulation cannot be obtained from industry sources, a generic formulation must be developed subject to the review of the SFA. CLOC Trades SFAs may trade commodities under the current commodity system. If an SFA has accepted delivery of certain commodities for which the district has little or no need, these products may be exchanged with another SFA for a more desirable product mix. Trades may even occur across State lines, although trades over long distances are uncommon because of the transportation expenses involved. Trades are also permissible under the CLOC system. Under a CLOC system, a trade is quite simple to accomplish since it involves only a paper transaction. Under the commodity system, the actual products have to be exchanged. In School Year 2009 67 trades were made. A-3 PERFORMANCE STATEMENT OF WORK 3.1. The purpose of this contract is to obtain contractor support services necessary to administer the Government's purchase plan and monitor compliance of the Cash CLOC Programs. The contractor will work in conjunction with the Contracting Officer's Representative (COR), Food Distribution Division (FDD), Food and Nutrition Service (FNS), in performance of this contract. Within USDA, FNS, the Agricultural Marketing Service (AMS) and the Farm Service Agency (FSA) jointly prepare a Purchase Plan of food commodities and amounts (equated in percentages) that will be purchased by the Government for School Food Authorities (SFA's). This Plan will be provided to the Contractor within one week of contract award and may be modified periodically. Simultaneously, CLOC SFA's are given an opportunity to purchase the same commodities upon receipt of a voucher (otherwise referred to as a - Commodity Letter of Credit' (CLOC)) from the Contractor. In order for the Contractor to establish the amounts that SFAs can spend, the COR will provide a list of entitlement dollars for each SFA to the Contractor within one week of contract award. Entitlements are calculated from the previous school year's meal count that is provided to the Government by the Contractor at contract expiration (June 30). The Government will issue quarterly entitlement payments to SFA's. The contractor shall determine the amount an SFA can spend on a commodity by applying the Government's purchase plan percentage for that commodity to the SFA's entitlement amount. When a commodity is available for the Government to purchase, the Contractor shall issue a CLOC to the SFA that provides the following information: (1) the commodity to be purchased, (2) how much to spend (3) the purchase and delivery dates (4) a list of full credit items, and (5) instructions for partial credit items. The amounts an SFA can spend may need to be revised periodically based on changes to the Government's Purchase Plan. SFA's will receive full credit for purchases listed on the purchase plan. However, they can request partial credit if they choose to purchase a processed item that contains the commodity product. The Contractor should provide to the SFA's the previously approved list of partial credit products along with the percentage application. If partial credit is requested for a new product, the SFA must provide product specification information to the Contractor in order to determine the amount of credit allowed. The Contractor shall provide credit information on new products to the COR for approval prior to releasing the CLOC to the SFA. SFA's are responsible for providing purchase receipts to the Contractor for compliance and monitoring purposes. The Contractor shall monitor all procedures established for the Demonstration of Alternatives to Commodity Donation as set forth in the document entitled "Demonstration Procedures" (February. 1982) (Attachment A) and subsequent amendments as set forth in the document entitled "Changes in Operational CLOC Procedures SY 90-91" (May. 1990) (Attachment B). Specifically Collect monthly meal data from (SFAs) such as number of meals served and the number of days of operation for the month. An annual Summary of Meal Count Data will be provided to the COR on or before June 30. (Ref Item 1 of the Deliverable Schedule below) Review Purchase Plan and entitlements to determine the amounts an SFA can spend on each commodity. When a commodity is available for purchase, issue a CLOC to the SFA's that provides all relevant information including full and partial credit items. If partial credit is requested for a new product, provide credit information to the COR for approval prior to releasing the CLOC to the SFA. Monitor SFA purchases against commodity letters of credit. Develop a new data base management system or maintain the existing system to track CLOC allocations, purchases, trades, refusals, rollovers and substitutions. Generate individual SFA Monthly Account Statements and send to the respective CLOC SFA for each commodity letter of credit issued. (Ref Item: 2 of the Deliverable Schedule below). All CLOC purchase documentation shall be submitted by the school districts within one month after the end of the school year. Processing these purchases shall be completed within two weeks of receipt. Provide Monthly Status Reports to the COR that summarizes CLOC activities for the previous month including: CLOC issuance (commodity, percent of entitlement, purchase and delivery period), total percentage of CLOC entitlement issued to date and problems encountered and how these problems were resolved. The second part of the monthly status reports shall include a summary that provides for each major task, the amount of entitlement expended during the preceding month and the cumulative amount. (Ref Item 3 of the Deliverable Schedule below) Provide to the COR no later than June 30 an annual Summary Statement of Final Account Balances' for all CLOC sites. (Ref. Item 4 of the Deliverable Schedule below) Provide to the COR no later than June 30 an electronic file containing all CLOC transactions and accounting transactions that occurred during the school year. (Ref item 5 of the Deliverable Schedule below) Full documentation for these data files shall include: 1. file structure (data set name, record format, record length, block size and number of records) 2. code book ( record layout including variable names, variable format, variable labels, value labels, and missing values) 3. formulation of any calculated variables 4. Provide a draft transition plan to the COR within 180 calendar days of contract award. 5. Provide the final transition plan within 45 calendar days of receipt of Government comments. 6. Update transition plan on an as needed basis but not less than annually. 7. Develop and maintain Standard Operating Procedures (SOP) for administration and management of the program activities. 8. Provide a DRAFT SOP within 90 calendar days of contract award. 9. Provide a Final SOP within 30 calendar days of receipt of Government comments. 10. Update SOP on an ongoing basis throughout the contract. A-4 DELIVERABLE SCHEDULE 4.1 The Government requires delivery to be made according to the following schedule: ITEM/DESCRIPTION QUANTITY DELIVERY DATE RECIPIENT(S) Summary of Meal Count Data 1 June 30th COR SFA Monthly Account Statement 1 30th of each Month EACH CLOC SFA Monthly Status Report 1 30th of each Month COR and CS Summary Statement of Final Account Balances for all CLOC Sites 1 June 30th COR Close out Disc 1 June 30th COR Optional Task A In the event that a contract option year is not exercised or contract award is made to other than the incumbent contractor, the Government may exercise Optional Task A for the contractor to train new staff and close out all Cash and CLOC activities as follows: Training The contractor shall provide a training session to no more than ten people as determined by the COR. Agenda and training to be determined mutually by government and contractor. Training will be conducted at FNS Headquarters located in Alexandria, VA. The session will include an in-depth presentation of the operating procedures currently being used to monitor the Cash and CLOC sites. The contractor shall also provide hands-on training of their computerized software used to monitor Cash and CLOC sites. The contractor shall provide all necessary training materials and conduct training in a professional manner so trainees will have the required knowledge to take over the monitoring responsibilities. The contractor shall submit to the COR an agenda that covers all issues that will be provided in the training session. The agenda will be due within ten calendar days from the COR's notification of the training session. Close Out Activities The Contractor shall provide to the COR all records, materials and disks pertaining to the Cash and CLOC Program. Records shall cover at least three school years. ITEM/DESCRIPTION QUANTITY DELIVERY DATE RECIPIENT(S) Training Agenda 1 10 Calendar days from COR's notification of training COR Close Out Documents ALL 90 calendar days from the effective date of Optional Task A COR 4.2 REPORTING REQUIREMENTS During the course of the school year, the contractor shall provide FNS with monthly status reports that summarize the CLOC activities that have occurred in the previous month including: CLOC issuances (commodity, percent of entitlement, purchase and delivery periods), total percentage of CLOC entitlement issued to dated, and problems encountered and how these problems were resolved as required by the Statement of Work. Reports shall cover work accomplished during that period of contract performance. The second part of these monthly status reports shall include a budget summary that provides for each major task, the amount budgeted, the amount expended during the preceding month, and the cumulative amount expended. A-5.0 GENERAL INFORMATION 5.1 Type of Contract This is a commercial item, performance based, combination firm fixed-price indefinite quantity contract (FFP/IDIQ). This procurement will be based on FAR Part 12 and 15. 5.2 The Government will issue delivery orders in accordance with the Ordering clause 52.216-18 and the Indefinite Quantity clause 52.216-22. 5.3 Minimum and Maximum. The guaranteed minimum that the Government is obligated to purchase under this contract is the fixed-price portion of the base period of the contract. 5.3.1 The maximum quantity is the total dollar value of the IDIQ schedule items. The maximum quantity shall not ...