Providing a competitive advantage to local producers and vendors
- Background information regarding the Geographic Preference
- When to Apply Geographic Preference
- Geographic Preference and the procurement process
- What to know before using Geographic Preference
- Geographic Preference When Bidding
- Price reduction based on a fixed amount
- Price reduction based on a percentage of local agriculture product bid
- Geographic Preference When using a Requesting for Proposals (RFP)
- Geographic Preference Memos
Background information regarding the Geographic Preference
Geographic preferences usually give some sort of advantage to local sellers (i.e. vendors, farmers, growers, or producers) either by assignment of points for “proposals” or reduction in “bid price” for evaluation purposes.
Allowability of “geographic preference” by schools
Allowability of geographic preference by schools can be found in the Farm Bill which amended the National School Lunch Act to allow institutions receiving funds through the Child Nutrition Programs to apply a geographic preference when procuring unprocessed locally grown or locally raised agricultural products.
This gave the USDA Food Nutrition and Services (FNS) the authority to issue a final rule on geographic preference which allows the purchasing institution (i.e., the school or the state agency purchasing on behalf of the school) to apply a geographic preference procurement option when procuring unprocessed locally grown or locally raised agricultural products.
Geographic preference can be applied to the procurement of unprocessed agricultural products that retain their inherent character.
“Inherent character” allows for the following food handling and preservation techniques;
- Cooling; refrigerating; freezing;
- size adjustment made by peeling, slicing, dicing, cutting, chopping, shucking, and grinding;
- forming ground products into patties without any additives or fillers;
- packaging (such as placing eggs in cartons), vacuum packing and bagging (such as placing vegetables in bags or combining two or more types of vegetables or fruits in a single package);
- addition of ascorbic acid or other preservatives to prevent oxidation of produce;
- butchering livestock and poultry; cleaning fish; and
- the pasteurization of milk.
“Inherent character” does not allows for the changing of an agricultural product into product of a different kind or character
Normally schools can’t apply an in-State or local geographic preferences when conducting procurements except where applicable Federal and State laws expressly permit its use.
While the Farm Bill legislation and final rule on geographic preference permits schools to apply a geographic preference, it does not require schools to purchase locally grown and locally raised agricultural products.
When to Apply Geographic Preference
Before applying geographic preference, the school should determine even if they need to apply it. The school should ask the following questions;
- Is there a sufficient number of producers (at least 3) within your determine geographic area that will complete for the school’s business? – Yes?
- Have producers from outside that geographic area expressed interest in submitting offers to complete for the school’s business? – No?
- Is it the goal of the school to give competitive advantages to local produces when Federal and State regulations allow for it? – Yes?
If the above are the responses, then the school might not need to apply geographic preference.
This is especially true when using the informal procurement method and you can easily get more than 3 offers within your defined geographic area.
Geographic Preference and the procurement process
- In some situations schools might find it useful to apply a “Geographic Preference” to their procurement process.
- The geographic preference allows schools to give a reasonable advantage to vendors within a specified geographic area when procuring agricultural products that have been minimally processed.
- Schools will determine what is considered an appropriate geographic area.
Example of procurement and contract language
Federal procurement regulations specifically prohibit the use of in-state or geographical preferences in the evaluation of proposals except where permitted by federal law, such as the 2008 Farm Bill which amended the Richard B. Russell National School Lunch Act to encourage Child Nutrition Programs to purchase unprocessed locally grown and locally raised agricultural products.
- For example your solicitation may define locally grown/raised will mean within a ________ (miles) radius of ________ (city/school), Wisconsin.
- Your definition of local may also change depending on what is beign procured; for example;
- when procuring apples you may define local within "A" number of miles radius of your school, and
- when procuring grapes you may define local within "B" number of miles radius of your school.
- Unprocessed agricultural products mean only those agricultural products that retain their inherent character. Examples of allowed processing include size adjustments such as grinding beef, freezing fresh vegetables, and bagging raw vegetables into individual serving size packages.
- Vendors who are able to provide locally grown/raised products will receive, for evaluation of price only, a reduction of four (4) percent in price for those locally grown/raised products only.
Geographic Preference and Formal Procurement Method
Geographic preference is normally used when using the formal procurement method and/or a school is procuring the services of a prime vendor. When making these types of procurements a school normally finds that the increased value of the contract and the fact the suppliers may be providing the school with many types of products and services increases competition from outside the geographic area. Schools interested in increasing local participation, even if it’s as a subcontract to the prime vendor or producer, geographic preference will most likely benefit local producers.
What to know before using geographic preference
School deciding to use the geographic preference must do the following;
- Determine if the product(s) they are procuring is allowable to be procured using geographic preference.
- The product must be an agricultural product that has been minimally processed (i.e. retains its inherent character).
Applying Geographic Preference
Geographic preference can be applied in a couple different ways;
- reducing price by a curtain amount, for example by a percentage, for evaluation of bids, or
- assigning points to proposals.
Schools may ask, “Why use a percentage instead of a fixed amount for evaluation of bids?”
- First, the school may still use a fixed amount for reducing pricing evaluation of bids but you may run a risk of providing too much or too little of an advantage when evaluating bids.
- Second, the school may find it cumbersome to assign a fixed amount to a number of different products when procuring lots of different products.
- Lastly, by applying a percentage to the reduction in price, it allows for more uniformity in applying the reduction in price for evaluation of bids.
- This means that schools can provide enough advantage to make local produces competitive but not so much of an advantage as to discourage producers outside the geographic area from competing to win the contract.
- Schools must always ensure there is free and open competition and that all producers are playing on a level playing field and have the same opportunity to compete.
- Most importantly when using geographic preference, schools should make sure that the procurement procedures do not unduly restrict competition, or eliminate competition.
How much of an advantage should be providing to local producers and vendors
When considering how much of advantage the school is providing to local producers and vendors the school should consider bidders “profit margins” – the advantage should not be greater than the average profit margin.
- Schools can’t expect a producers and vendor to sell at a loss.
- It is advised to not apply a point system to bids (only costs are evaluated) when applying geographic preference
- Point systems are normally reserved entirely for evaluation of proposals (costs are just one of the evaluated criteria).
Geographic Preference When Bidding
Evaluation of offers using geographic preference when using Informal Procurement Method (Small Purchase (3 Bids and a Buy)) or Formal Procurement Method (Invitation for Bid (IFB))
Price reduction based on a fixed amount
Price reduction based on a percentage of local agriculture product bid
Geographic Preference When using a Requesting for Proposals (RFP)
Evaluation of offers using geographic preference when using *Informal Procurement Method or Formal Procurement Method
*When using Informal Procurement Method with a Request for Proposal (RFP), the process is similar to the Formal Procurement Method but lacks some of the requirement needed with a Formal Procurement Method such as closed bid requirements and public notice.
Assigning Points based on a fixed amount - Example
Assigning Points based on a percentage of cost for local product proposed - Example
Geographic Preference Memos
- Procurement Geographic Preference Q&As – Part II - USDA Guidance Memo SP 03-2013, 10/09/12
- Procurement Geographic Preference Q&As – Part I - USDA Guidance Memo SP 18-2011, 02/01/11
- Geographic Preference for the Procurement of Unprocessed Agricultural Products in the CNP - USDA Guidance Memo SP 08-2010, 11/13/09
- Applying Geographic Preferences in Procurements for the CNP - Updates (Revision of SP 30- 2008) - USDA Guidance Memo SP 01-2010, 10/09/09
- Applying Geographic Preferences in Procurements for the CNP - USDA Guidance Memo SP 30-2008, 07/09/08
- Purchases of Locally Produced Foods in the School Nutrition Programs - USDA Policy Memo #02-26, 05/22/02
Federal Rules and Regulations