Avoiding ethics landmines in K-12 procurement

Stephanie Bruce is director of school nutrition services for Palm Springs USD in California. Like many in her position, she has had to deal with legal/ethical issues involving areas like bidding, procurement, vendor relations and the acceptance of gifts and complimentary products. She has made a study of the issues and gave a presentation on the subject at SNA’s School Nutrition Industry Conference in January. FM spoke with her afterward. Here are highlights from that conversation.

FM: Often, it seems the people getting in trouble had no intention of breaking the law but did it because they didn’t think what they were doing is wrong.

Bruce: Correct! No one’s intentionally trying to do anything against policy, it’s just that a lot of people don’t know. [After all] there are federal regulations, state regulations and then we each have our own local regulations and it’s hard to sift through all of that.

What are some of the biggest danger areas?

Right now, the hot button is with procurement and writing a bid that would not only protect a district from any conflict of interest but also protects the vendor from any conflict of interest as well. There are certain ways you have to enter into a bid process [but] a lot of things are done by a phone call and [saying] ‘Hey, we’ve had a good relationship in the past so I’m just going to go with you’ instead of doing an open and free competition. And that’s mainly because many foodservice directors aren’t mainly procurement specialists. In the past, many districts have just let child nutrition do what they do because they don’t understand their rules and regulations. But now, because USDA is really focusing in on [procurement], we’re trying to get directors to partner with their [district] purchasing departments and really learn what needs to happen.

So there’s more attention being paid now than in the past?

I can only speak for my state, California, and it wasn’t ever really a focal point on what used to be five-year audits and what is now a three-year audit. We actually have a separate procurement review now for child nutrition programs, and that’s really the result of people not knowing what needs to be done.

You mentioned conflicts of interest before. What are the main areas of danger?

It can be any number of things. [For example,] a director [in my state] was doing business with a company that she had a vested interest in as part owner. The procedure on how they entered into that agreement was not according to either state or federal procurement [regulations].

Is there a legal way you can do that?

Yes, you absolutely can. The district can still enter into a contract with someone that someone in the district has a vested interest in, but if that person has a decision-making power in enacting that agreement, they may need to either recuse themselves or [the district should] just not do business with [that] company. But they can recuse themselves, they can get board approval to allow that vendor to participate, knowing that the person with the vested interest will recuse themselves from any decision-making process over that contract.

What about those informal relationships where agreements are made with a phone call? Are those already technical violations?

I think it’s the lack of documentation. In the procurement audits, they’re really looking for documented action and proof. Anything you can [show] on why you made the [purchasing] decision.

A paper trail…

Exactly, a paper trail, and that’s really been [the] downfall—just keeping that documentation.

I understand there are volume thresholds on what needs or doesn’t need to be bid out. Is that an area where a lot of violations occur?

There’s a lot of confusion there, but I wouldn’t say there are a lot of violations. The federal procurement bid limit is $150,000 but states have their own bid thresholds. In the state of California right now, the threshold is $90,000. So unless a state public contract code would alleviate a child nutrition department from following state law to follow federal law, they would have to adhere to that more restrictive threshold. In that case they would have to do a formal bid for anything over that dollar amount.

As local procurement becomes more prevalent, it seems there are more smaller volume agreements with local vendors that tend to be concluded on a more informal basis because the parties know each other as members of the same community. Is this an area of potentially more violations?

Yes, but what you can do in such cases is [use] a provision called geographic preference that can only be applied to locally grown produce. So you could do an RFP of just locally grown items and receive any kind of bid from any local farmers depending on what ‘local’ means in your district. In my district, ‘local’ is the state of California within 50 to 100 miles of my district. I have two farmers I do business with and what I do is if I put out a produce bid and there is a section for locally grown, a section for California produce and a section for processed produce [like] precut carrot sticks, celery, things of that nature. So I actually do business with three different produce vendors so I can utilize the locally grown and also purchase produce that we just can’t get in our area.

Is that what everybody should do, to have those specifics?

The hard part is really writing the specifications to allow you to be able to purchase what you want and [make it] completely clear to the vendors what you’re looking for. And then you have to set a scoring criteria: if you’re a local farmer I give you more points because the produce doesn’t have to travel as far. But that doesn’t mean that I’m limited to award to just one vendor. You can do line items, where [you] can award by item, or by lot.

Is there a problem with writing a bid in a way that only one vendor can really fill it?

You can’t specify that you will only accept a certain brand name. I may want [a particular] brand and [list] the specifications for [that] brand but I [have to] allow an equal item to be bid. So if there’s another item that meets the same specifications but doesn’t have that brand name then I would have to award to that if they were the lower price.

Any exceptions?

Yes, if the item is a student preference, but you have to show that you did a blind taste test and cut all the products that were put on that bid and prove which was chosen by the students.

Does that have to renew periodically? After all, student bodies turn over and preferences evolve.

Correct. Annual bids can be renewed for up to three years. In my district, we do taste testing every year because, trust me, their tastes change constantly. Right now, we’ve done about a hundred different taste tests in the last two months. We taste test from November until the end of February and then we write our menus and do our orders for USDA.

What are the most troublesome areas in terms of vendor gifts and freebies?

Technically, we’re not supposed to be taking any kinds of gift cards as rebates. All of that should be factored in the price when they bid on the product in the first place. So directors should really be writing rebates, gifts, any of that into their bid specification: how will that vendor award or provide any of those items? The cleanest and best way is to offer a rebate or refund because anything you take based on the purchase of goods needs to go back and offset food costs. It should not go to benefit anybody personally or be used as a giveaway. But a lot of vendors do offer gift cards, and they’ll offer things like a Target gift card or a gas gift card, and those are things we really should not accept because we can’t use them to benefit the meal program.

What about a complimentary hotel registration that allows you to attend a food show? Isn’t that specific to the business purpose?

No, [they] can’t pay for any sort of travel. [They] can pay for education, so they can offer a scholarship to pay for registration for a conference, but not for travel to the conference or hotel stay at the conference. Registration is OK as long as the conference has an educational purpose and that should be written into your code of conduct or procurement procedures.

Do vendors generally know these rules?

No, they don’t, they’re learning right along with us… (laughs)

So they kind of become the devil that tempts you into breaking some of these rules and even they don’t know it’s wrong?

Yeah, it’s really a case of lack of education, which is why SNA is very forward thinking in trying to get this education out to people.

I see they recently put out a training module on the subject.

Yes, I was part of their task force to develop the training, and SNIC was the first look at that training. There’s another organization called the American Commodities Distribution Association. They are having a conference in April and will have an entire procurement track where we’ll be talking about procurement and bids and ethics.

I assume there are variations in violation severity: mortal sins where you are clearly just benefiting yourself personally and venial sins where you’re honestly just trying to benefit your program and the kids but run afoul of some rule in the process?

Right. People just have to remind themselves that we are a federally funded program with federal taxpayer dollars, and you have to understand that you have to be very mindful and purposeful in how you manage the money.

Is it usually the director who gets in trouble or someone in a lower position who may be even more unsophisticated about the rules?

It’s actually both, but the responsibility lies with the director, and sometimes we fail to educate those who work with us on the proper procedures. My procurement procedures are 35 pages long and a lot to digest, so we have team meetings every week and I spend about 20 minutes in every meeting going over a portion of that document. We’re required to make sure they are trained in the proper procurement procedures and the right code of conduct.

You’ve addressed multiple groups of directors over these issues. What is the general reaction: is it shock or We already knew that?

It’s shock (laughs).

So they’re technically guilty of something?

I think one of the things that is most shocking to people is that because we have received so many gift cards from vendors, what a lot of directors do is they take those gift cards and at the end of the year they have a luncheon for their staff, an appreciation of the staff, and they raffle off the gift cards. That in itself is a violation.

The personal use thing?

Yes, it’s going for personal use and it becomes part of federal money and so it becomes a gift of public funds, which is not allowable.

You can’t justify it as employee engagement or something like that?

No, they can be used for training but not for any other reason.

What about free samples of products vendors are coming out with? Is that OK?

Well, it is but it has to be written into your procurement procedures as to how you will request and accept samples.

So you can’t just accept them blind?

Right. What you should do if you’re going to do a true sample is purchase the product and do a run in a school site and have people out there sampling it to the students and talking to them and how they like it because that’s how they’re really going to see it.

You’re quite an expert on all of this. How did you come to learn all of it?

You know, I don’t like it when I’m doing something wrong, and I want to make sure I’m doing things right. I’ve learned my lessons the hard way, I’ve not always done the right thing by not knowing I wasn’t doing the right thing, so every time I make a mistake I try to learn and get better, and procurement was one of those things that that I was not willing to lose my job over not doing correctly.