Market Basket Analysis—Procuring Goods and Modifying Contracted-for Product Lists
The U.S. Department of Agriculture (USDA) Policy Memorandum FD 144, SP-04-2018,
SFSP-01-2018 and CACFP-04-2018 provides policy guidance regarding the proper methodology to conduct a market basket analysis. A market basket analysis is a procurement practice used by program operators in the National School Lunch Program, School Breakfast Program, Child and Adult Care Food Program, Summer Food Service Program and Food Distribution Program to award contracts based on an evaluation of the lowest price a vendor can offer for a representative sample of goods the program operator wishes to obtain. The evaluated sample may include end products processed with USDA Foods and purchased using the net-off-invoice value pass through system. Prior to the policy memo, the USDA presumed all products to be listed in the bid. However, program operators and bidders found that providing pricing for all products (potentially hundreds of products) to be purchased was burdensome and limited the operator’s ability to purchase newly released products or find substitutes for discontinued products without conducting new procurements. In response, the USDA provided the following guidance:
Market Basket Analysis Evaluation and Scoring for Contract Award
The market basket analysis is intended to allow a program operator to review bids using an established, representative sample of goods. In determining the representative sample of goods to be used for evaluating an award, the USDA and the overseeing state agencies strongly recommend that the aggregate value of the sample be no less than 75 percent of the estimated total value of the contract to be awarded. The winning bidder is required to provide pricing for the remaining 25 percent of the solicited products prior to the final award. The cost of the representative sample must meet the reasonableness standard as described in Title 2, Code of Federal Regulations, Section 200.404.
Modifications of Contracted Price Lists to Acquire Additional Goods or Increase Quantities of Listed Goods
Items not included in the executed contract can be added only if all of the following conditions are met:
- The option to add goods is included in the original solicitation and contract.
- The total value of all added goods and quantities of listed goods does not exceed the limit specified in the original solicitation and contract. If the value of additional goods exceeds the specified limit, a separate procurement for those goods must be conducted or these purchases will be considered an unallowable cost. The USDA recommends limiting the additional costs to 5─10 percent of the estimated value of the contract.
- Upon renewal, any goods added to the contract must be included in a contract amendment (if applicable).
- For each year of a renewed contract, a new basis for contract value, including the actual expenditures for the previous year plus the additional items, must be established.
- Program operators must maintain records of all additional goods purchased to ensure that the value of those goods does not exceed the specified limit.
The USDA policy memo includes a questions and answers section to provide program operators further clarification on the market basket analysis. The overseeing state agencies strongly recommend that program operators read the questions and answers.
Service Contracts
A market basket analysis is not acceptable for awarding equipment or service contracts, such as pest control, because service contracts do not lend themselves to this type of analysis. In addition, a market basket analysis is not appropriate for fee-for-service processing contracts, where a processor charges a fee for converting raw USDA Foods into ready-to-use end products.
Written Procurement Procedures
Prior to conducting a market basket analysis to award a contract, program operators must have a documented process included in their written procurement procedures. This documentation must include the percentage of the estimated total purchase value used to determine the representative sample. The USDA policy memo includes sample language for the written procurement procedures.
Procurement Requirements Reminder
Regulations direct program operators to comply with procurement requirements per Title 7, Code of Federal Regulations, sections 210.21, 215.14(a), 220.16, 225.17, 226.22, and 250.4(d), and Title 2, Code of Federal Regulations, sections 200.318 to 200.320. Program operators are also responsible for complying with all state and local requirements.
Related Information
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