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contains regulatory documents having general

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Rules and Regulations Federal Register

46169 

Vol. 73, No. 154 

Friday, August 8, 2008 

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 §§ 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 


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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’’. 

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 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 

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 

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. 

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 

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 


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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 

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. 


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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. 

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 outVerDate Aug<31>2005 15:19 Aug 07, 2008 Jkt 214001 PO 00000 Frm 00006 Fmt 4700 Sfmt 4700 E:\FR\FM\08AUR1.SGM 08AUR1

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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 

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 

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 

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 

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 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 

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 

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. 

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 

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 

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 

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, 

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 

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. 

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 

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 

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 

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. 

Section Number of 

respondents 

Number 

responses per 

respondent 

Total annual 

responses 

Hours per 

response Total hours 

Reporting 

250.12(d) ............................. Current ................................ 300 0.25 75 0.33 24.75 

250.54 ................................. Proposed ............................ 1,765 1 1,765 1 1,765 

250.53 ................................. Final .................................... 2,783 1 2,783 1 2,783 

Recordkeeping 

250.12(d) ............................. Current ................................ 300 ........................ ........................ 0.08 24 

250.54/250.55 ..................... Proposed ............................ 1,765 ........................ ........................ 0.25 442 

250.53/250.54 ..................... Final .................................... 2,783 ........................ ........................ 0.25 696 

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 

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 

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: 


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Federal Register / Vol. 73, No. 154 / Friday, August 8, 2008 / Rules and Regulations 46183 

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: 

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. 

■ 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. 

■ 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: 

§ 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 

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 

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. 

* * * * * 

■ 3. In § 250.12: 

■ a. Revise the section heading to read, 

as set forth below. 

■ b. Remove the last sentence in 

paragraph (a). 

■ c. Remove paragraphs (d), (e), and (f). 

The revision reads as follows: 

§ 250.12 Agreements. 

* * * * * 

■ 4. In § 250.19: 

■ a. Revise the introductory text of 

paragraph (b)(1). 

■ 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. 

■ c. Revise newly redesignated 

paragraph (b)(1)(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. 

* * * * * 

■ 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 

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. 

* * * * * 

■ 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. 

■ 8. Add a new subpart G, consisting of 

§§ 250.67 and 250.68, to read as follows: 

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. 

§ 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 

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. 

■ 10. Revise subparts D and E to read as 

follows: 

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. 

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. 

§ 250.51 Crediting for, and use of, donated 

foods. 

(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 

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 

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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Federal Register / Vol. 73, No. 154 / Friday, August 8, 2008 / Rules and Regulations 46187 

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. 

§ 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 

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; 

(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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46188 Federal Register / Vol. 73, No. 154 / Friday, August 8, 2008 / Rules and Regulations 

Subpart E—National School Lunch 

Program (NSLP) and Other Child 

Nutrition Programs 

§ 250.56 Provision of donated foods in 

NSLP. 

(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 

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 

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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Federal Register / Vol. 73, No. 154 / Friday, August 8, 2008 / Rules and Regulations 46189 

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. 

§ 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. 

§ 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 

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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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. 

§ 250.62 Summer Food Service Program 

(SFSP). 

(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), 

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. 

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 

[Regulation Z; Docket No. R–1320] 

Truth in Lending 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Final rule; staff commentary. 

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 homesecured 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. 


rfrederick on PRODPC74 with RULES