School Lunch Program: Role and Impacts of Private Food Service Companies
(Chapter Report, 08/26/96, GAO/RCED-96-217).

Pursuant to a legislative requirement, GAO examined the extent to which
schools use private food service companies to operate their lunch
programs, focusing on the: (1) terms and conditions of the contracts
between schools and food service management companies (FSMC); and (2)
percentage of schools offering brand-name fast foods that participate in
the National School Lunch Program.

GAO found that: (1) the number of food authorities participating in the
school lunch program and contracting with FSMC has increased from 4 to 8
percent; (2) most food authorities use FSMC to reduce their budget
deficit and increase revenue; (3) the advantages of using FSMC include
paying lower costs for food, payroll, employee benefits, and
administration; (4) schools with food service contracts have fewer
students participating in school lunch programs than those schools not
using FSMC; (5) more food service workers remain employed as a result of
schools' contracting with FSMC; (6) food service contracts vary
depending on the type of meal and the federal regulations governing the
contracts; (7) most food service contracts require an annual fee, half
stipulate a per-meal fee, and some stipulate both fees; (8) about
one-half to two-thirds of FSMC contracts do not contain standard
contractual provisions to ensure compliance with federal requirements;
(9) the provisions most often omitted from the contracts are intended to
ensure that the food authority maintains control of the school meals
program; (10) the failure to include these provisions creates
uncertainty regarding FSMC responsibilities and diminishes the food
authority's ability to ensure that FSMC adheres to federal requirements;
and (11) although the percentage of schools offering brand-name fast
foods has increased, the number of items offered is limited.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-96-217
     TITLE:  School Lunch Program: Role and Impacts of Private Food 
             Service Companies
      DATE:  08/26/96
   SUBJECT:  Food services contracts
             Public schools
             Child care programs
             Food programs for children
             Contract monitoring
             Cost plus fixed fee contracts
             Contract specifications
             Nutrition surveys
IDENTIFIER:  National School Lunch Program
             National School Breakfast Program
             
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Cover
================================================================ COVER


Report to Congressional Committees

August 1996

SCHOOL LUNCH PROGRAM - ROLE AND
IMPACTS OF PRIVATE FOOD SERVICE
COMPANIES

GAO/RCED-96-217

School Lunch Program

(150245)


Abbreviations
=============================================================== ABBREV

  FSMC - food service management company
  GAO - General Accounting Office
  USDA - U.S.  Department of Agriculture

Letter
=============================================================== LETTER


B-272507

August 26, 1996

Congressional Committees

In the Healthy Meals for Healthy Americans Act of 1994 (P.L. 
103-448), the Congress mandated that we review the use of private
food establishments and caterers by schools participating in federal
programs for school meals.  As agreed with your offices, this report
examines the (1) extent to which schools use private companies to
operate their lunch program and the impacts that the use of these
companies has on the National School Lunch Program; (2) terms and
conditions in contracts between schools and food service companies;
and (3) extent to which fast foods and vending machines are available
in schools participating in the program and the types, brands, and
nutritional content of the fast foods most commonly offered. 

We are sending copies of this report to interested congressional
committees; the Secretary of Agriculture; the Director, Office of
Management and Budget; and other interested parties.  We will make
copies available to others upon request. 

Please contact me at (202) 512-5138 if you or your staff have any
questions.  Major contributors to this report are listed in appendix
IV. 

Robert A.  Robinson
Director, Food and
 Agriculture Issues


Congressional Committees

The Honorable Richard G.  Lugar
Chairman
The Honorable Patrick J.  Leahy
Ranking Minority Member
Committee on Agriculture, Nutrition,
 and Forestry
United States Senate

The Honorable Pat Roberts
Chairman
The Honorable E (Kika) de la Garza
Ranking Minority Member
Committee on Agriculture
House of Representatives

The Honorable William F.  Goodling
Chairman
The Honorable William (Bill) Clay
Ranking Minority Member
Committee on Economic and
 Educational Opportunities
House of Representatives


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

Under the multibillion-dollar National School Lunch Program, local
school districts receive federal funds for lunches that meet the
program's requirements for a nutritious, well-balanced meal. 
Although these school districts, through their school food
authorities, have traditionally operated their own school meals
program, a number have contracted with private food service
management companies to plan, prepare, and serve school meals.  In
addition, some schools have purchased brand-name fast foods to serve
as part of their school meals or as a la carte items. 

In the Healthy Meals for Healthy Americans Act of 1994 (P.L. 
103-448), the Congress directed GAO to study the use of private food
establishments and caterers by schools participating in the federal
programs for school meals.  As agreed with the cognizant
congressional committees, GAO (1) determined the extent to which food
authorities use food service companies to operate their school lunch
program and the impacts that the use of food service companies has
had on various aspects of the National School Lunch Program; (2)
described the terms and conditions in the contracts between food
authorities and food service companies; and (3) determined the extent
to which fast foods and snack foods in vending machines are available
in schools participating in the program and described the types,
brands, and nutritional content of the fast foods most commonly
offered. 

In conducting this review, GAO relied primarily on information
contained in (1) 1,175 questionnaires that were returned to GAO by
food authorities that had contracts with food service companies in
school year 1994-95, (2) 765 questionnaires returned by a national
random sample of food authorities that did not use food service
companies in that same year, and (3) 1,887 questionnaires returned by
a national random sample of public school cafeteria managers.  GAO
also analyzed a random sample of 68 contracts. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:2

About 8 percent of the food authorities nationwide that participated
in the lunch program in school year 1994-95 used food service
management companies.  This percentage is up from about 4 percent in
school year 1987-88, the last year that comparable data were
available.  Most of the food authorities using food service companies
reported that they turned to the companies for financial reasons,
such as their belief that using a private company would reduce budget
deficits and increase revenues.  Compared with those food authorities
that did not use food service companies, food authorities using food
service companies had about the same situation regarding reported
budget deficits but lower levels of students' participation in the
lunch program.  According to food authorities' responses, most food
service workers remained employed either with the school district or
the food service company as the result of contracting with a food
service company. 

Food authorities' contracts with food service companies vary in
content and compliance with the federal requirements governing these
contracts.  Contracts vary by the services provided by the food
service company, such as by the types of meals and nutrition
education provided, and by the associated fees for those services. 
In addition, about one-half to two-thirds of the contracts did not
contain all the standard contractual provisions necessary to ensure
compliance with federal requirements.  For example, the provisions
most often omitted were those intended to ensure that the food
authorities maintain control of the school meals programs.  GAO is
concerned that the failure to include some of these provisions in the
contracts may diminish compliance. 

The results of GAO's survey of cafeteria managers indicates that an
estimated 13 percent of the public schools participating in the lunch
program offer brand-name fast foods.  The most popular types of foods
were pizzas, burritos, and subs and other sandwiches.  These foods
can be incorporated into a school lunch that meets federal
requirements.  In an estimated 20 percent of the schools, students
had access to snack foods and drinks from vending machines during
lunch. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:3

In fiscal year 1995, the U.S.  Department of Agriculture (USDA) spent
about $5.2 billion to provide the nation's school-age children with
nutritious foods and promote healthy eating choices through its lunch
program.  State agencies, usually departments of education, are
responsible for the statewide administration of the program,
including disbursing federal funds, monitoring the program, and
record keeping.  Many of these responsibilities are carried out in
cooperation with food authorities.  Food authorities are responsible
for managing school food services for one or more schools or for a
school district. 

Schools participating in the lunch program receive cash
reimbursements and commodities for each meal served.  In turn, they
must serve lunches that meet federal nutritional requirements and
offer these lunches free or at a reduced price to children from
families whose income falls below certain specified levels. 

USDA's regulations stipulate that if a food authority contracts with
a food service company, the food authority must remain responsible
for the overall operation of its food service to ensure that the
program is administered in an accountable manner and that all of the
program's regulations are met.  This responsibility requires the food
authority to maintain direct involvement in the food service
operation, such as monitoring the food service company's operation
through periodic on-site visits. 


   PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4


      USE OF FOOD SERVICE
      COMPANIES TO MANAGE SCHOOL
      FOOD SERVICES IS INCREASING
-------------------------------------------------------- Chapter 0:4.1

From school year 1987-88 through school year 1994-95, the number of
food authorities participating in the lunch program and contracting
with food service companies to operate their schools' food services
increased from 4 to 8 percent.  These food authorities tend to be
larger, on average, in terms of the number of schools for which they
are responsible and the number of students enrolled than food
authorities that do not use these companies. 

Most food authorities using one of these food service companies
reported financial considerations, such as their belief that using a
company would reduce budget deficits and food service costs as
reasons for their decision.  For example, 61 percent reported that
before using a food service company, their food service operated at a
deficit.  The food authorities using these companies reported
financial improvements, including lower costs for food, payroll,
employee benefits, and administration.  However, 19 percent of the
food authorities reported that they were operating at a deficit after
contracting with a food service company, about the same percentage
reported by food authorities not using these companies in school year
1995-96.  In addition, the food authorities with food service
contracts reported increased student participation in the lunch
program; however, participation is still below the level for food
authorities that did not use these companies--49 percent compared
with an estimated 65 to 68 percent. 

After contracting with a food service company, food authorities
reported varied impacts on food service workers.  Forty-three percent
reported that most or all of their workers were retained as employees
of the school district.  However, 32 percent reported that most or
all of their workers lost their jobs with the school district but
were rehired by the private company.  Most food authorities using
these companies reported reductions in personnel-related food service
costs. 


      FOOD SERVICE CONTRACTS VARY
      IN CONTENT AND IN COMPLIANCE
      WITH SELECTED FEDERAL
      REQUIREMENTS
-------------------------------------------------------- Chapter 0:4.2

While almost all food authorities' contracts with food service
companies state that the company prepares and serves meals, the
contracts vary by the types of meals provided, such as breakfast
and/or lunch.  Moreover, some of the related meal services were
assigned to the food authority or shared by both the company and the
food authority.  For example, most of the contracts assigned the (1)
purchasing of food to the company, (2) repair and maintenance of
equipment to the food authority, and (3) menu planning jointly to the
food authority and the company.  In addition, some of the contracts
state that the existing food service staff will be retained; most
contracts do not mention the retention of existing school staff at
all. 

Most food service contracts specify a cost-plus-a-fixed-fee payment
structure, but fees and other financial provisions vary.  For
example, fees are for administrative costs, management costs, or both
and are calculated on an annual basis, per-meal basis, or both.  Many
of the contracts stipulate only an annual fee, about half stipulate
only a per-meal fee, and some stipulate both types of fees.  Food
service contracts vary in their treatment of rebates and discounts
received by the food service company when it purchases food for the
food authorities.  Many contracts do not address rebates and
discounts, and some allowed the company to keep portions of these
discounts. 

USDA's guidance for food service contracts specifies a number of
provisions that must appear in the contracts to ensure that federal
requirements are met.  State agencies, according to USDA's guidance,
are responsible for reviewing the contracts to ensure that they
contain all of the required federal provisions.  The provisions that
GAO selected for review address financial controls, USDA-donated
foods, monitoring and evaluation, and the contracts' duration and
renewal.  GAO found that about one-half to two-thirds of the food
service contracts do not contain provisions for all eight federal
requirements reviewed.  Moreover, the provisions most often omitted
from the contracts were those intended to ensure that the food
authority maintains control of the school meals programs.  The
failure to include some of the required provisions in the contracts
may create uncertainty about the food service company's
responsibilities and diminish the food authority's ability to ensure
that the food service company complies with the lunch program's
requirements. 


      PERCENTAGE OF SCHOOLS
      OFFERING BRAND-NAME FAST
      FOODS HAS INCREASED
-------------------------------------------------------- Chapter 0:4.3

The percentage of public schools participating in the lunch program
that offered brand-name fast foods increased dramatically from about
2 to 13 percent from school year 1990-91 through school year 1995-96. 
Among other characteristics, schools that offered brand-name fast
foods were more likely to be located in the suburbs, have larger
student populations, and use a food service company.  These schools
also offered one or two brand-name fast-food items twice a week, on
average. 

Most schools reported benefits from using brand-name fast foods. 
Seventy-five percent of the cafeteria managers reported that a desire
to increase student participation in the lunch program was one of the
reasons their schools decided to offer brand-name fast foods. 
Consistent with this desire, the most frequently cited benefit was an
increase in both school lunch and a la carte sales.  Cafeteria
managers at schools that were not using brand-name fast foods
reported most frequently that they believe the food currently being
served by their school was more nutritious. 

Federal reimbursements are not provided to schools for brand-name
fast-food items served a la carte because, by themselves, they do not
meet USDA's nutritional standards.  However, meals that include
brand-name fast foods and other foods prescribed by the lunch program
can be eligible for federal reimbursement.  GAO's analysis of
available ingredient information for four fast foods--Pizza Hut's
pepperoni pizza, Domino's pepperoni pizza, Taco Bell's bean burrito,
and Subway's Club sandwich--and the lunch program's requirements show
that these items can be incorporated into a reimbursable lunch. 

During lunch, students had access to snack foods and/or drinks in
most of the schools.  Two-thirds of the schools provided items such
as juices, baked goods, and ice cream through a school canteen or a
la carte sales during the lunch period.  About one in five of the
schools made such items available in vending machines. 


   RECOMMENDATION
---------------------------------------------------------- Chapter 0:5

To achieve improved compliance with USDA's guidance, GAO recommends
that the Secretary of Agriculture direct the Administrator, Food and
Consumer Service, to work with appropriate state officials to ensure
that food service management companies' contracts contain the
provisions required by USDA's guidance on contracting with food
service management companies. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6

GAO provided copies of a draft of this report to the Department's
Food and Consumer Service for its review and comment.  GAO met with
agency officials including the Director of the Grants Management
Division.  USDA concurred with GAO's recommendation and plans to take
action.  Planned actions include (1) sending a letter to appropriate
state agencies reiterating the importance of including required
provisions in food service management contracts and (2) making USDA's
guidance for these contracts more readily available by placing it on
the agency's automated information system and the Internet.  In
addition, agency officials provided GAO with some technical comments
that were incorporated into the report as appropriate. 


INTRODUCTION
============================================================ Chapter 1

In fiscal year 1995, the U.S.  Department of Agriculture (USDA) spent
about $5.2 billion to provide the nation's school-age children with
nutritious foods and promote healthy eating choices through its
National School Lunch Program.\1 State agencies, usually departments
of education, are responsible for the statewide administration of the
lunch program through the disbursing of federal funds, monitoring of
the program, and record keeping.  Many of these responsibilities are
carried out in cooperation with local school food authorities.  Food
authorities are responsible for managing school food services for one
or more schools or for a school district. 

Schools have traditionally operated their own food services. 
However, some important changes in the way they provide meals have
taken place since the 1980s.  Some food authorities have contracted
with private food service management companies (FSMC) to operate
their school food services.  In addition, some schools are offering
brand-name fast foods as a part of the lunch program meal or as
separate (a la carte) items. 


--------------------
\1 The program is authorized under the National School Lunch Act (42
U.S.C.  1751 et seq.). 


   NATIONAL SCHOOL LUNCH PROGRAM
---------------------------------------------------------- Chapter 1:1

According to USDA, on a typical school day in fiscal year 1996, the
lunch program provided about 26 million students with balanced and
low-cost or free lunches nationwide.  Of these students, about 25
million, or about 96 percent, attended public schools, and about
967,000, or about 4 percent, attended private schools.  Within a
school district, schools can choose to participate or not participate
in the program.  During fiscal year 1995, about 94,000 institutions,
including about 89,000 schools and about 5,000 residential child care
institutions participated in the lunch program, according to USDA.\2
State education agencies usually administer the program through
agreements with food authorities.  The federal cost to support school
lunches in fiscal year 1995 was about $5.2 billion, including about
$613 million in federal commodity donations, such as beef patties,
flour, and canned vegetables.  The lunch program operates in all 50
states, the District of Columbia, and U.S.  territories and
possessions. 

Schools participating in the lunch program receive cash
reimbursements and commodities from the federal government for each
meal served.  In turn, they must serve lunches that meet federal
nutritional requirements and offer these lunches free or at a reduced
price to children from families whose income falls below certain
levels.\3 For school year 1995-96, schools were reimbursed $1.795 for
each free lunch, $1.395 for each reduced-price lunch, and 17.25 cents
for each full-pay lunch.  In addition, schools received 14.25 cents
worth of commodity foods for each lunch served.  These lunch program
meal reimbursements and donated commodities help to sustain the food
services provided by food authorities.  However, in some areas, food
authorities may incur meal costs that are below or above the lunch
program's reimbursements because of food, labor, and other food
service-related cost variations, thus creating surpluses or deficits
in some food service budgets.\4

USDA has developed a "lunch pattern" for five different age and grade
categories.  (See app.  II.) This pattern requires that a school
lunch contain five food items chosen from the four basic food groups. 
The size of the portions varies by these categories; nevertheless
each lunch, at a minimum, must contain (1) one serving of a meat or a
meat alternate, (2) one serving of a bread or bread alternate, (3)
one serving of milk, and (4) two servings of vegetables or fruits.\5
Schools must offer all five food items unless, as provided by the
lunch program's regulations, they use the "offer versus serve"
option.  Under this option, a school must offer all five food items,
but a student may decline one or two of them.  All high schools must
use the "offer versus serve" option, and middle and elementary
schools may use it at the discretion of local officials.  According
to a 1993 report prepared for USDA,\6 71 percent of elementary
schools and 90 percent of middle schools used this option. 

Participating schools also agree to collect data on the number of
meals served and are responsible for other tasks, such as verifying
the income of families with students to determine whether the
students are eligible for free or reduced-price lunches. 

According to the American School Food Service Association, school
lunch preparation usually occurs at individual or centrally located
school kitchens.  These facilities are operated by the food
authorities or, with their approval, by others, such as FSMCs. 


--------------------
\2 Residential child care institutions include, but are not limited
to, homes for the mentally, emotionally, or physically impaired;
temporary shelters for abused or runaway children; and juvenile
detention centers. 

\3 Children from families with an income at or below 130 percent of
the poverty level (currently $20,280 for a family of four in the
contiguous 48 states and the District of Columbia) are eligible for
free meals.  (Special rates apply to Alaska and Hawaii.) Those with
an income between 130 percent and 185 percent of the poverty level
(currently $28,860 for a family of four) are eligible for
reduced-price meals.  Children from families with an income over 185
percent of the poverty level pay full price, although their meals are
still subsidized to some extent. 

\4 See Food Assistance:  Information on Meal Costs in the National
School Lunch Program (GAO/RCED-94-32BR, Dec.  1, 1993). 

\5 School lunches are intended to provide children with enough
nutrients to approximate one-third of the essential Recommended
Dietary Allowances.  The lunch program's regulations, effective for
school year 1996-97, require compliance with the Dietary Guidelines
for Americans.  Among other things, these guidelines, which represent
the official nutritional policy of the U.S.  government, establish
maximum daily amounts of total fat and saturated fat:  No more than
30 percent of calories should come from fat, and less than 10 percent
should come from saturated fat.  (See 7 C.F.R.  210.)

\6 The School Nutrition Dietary Assessment Study:  School Food
Service, Meals Offered, and Dietary Intakes, Mathematica Policy
Research, Inc.  (Oct.  1993). 


   FOOD SERVICE MANAGEMENT
   COMPANIES
---------------------------------------------------------- Chapter 1:2

In 1970, USDA issued regulations permitting food authorities to
contract with FSMCs to operate their school food services.\7 Food
authorities may contract with FSMCs for many aspects of their school
food service.  The commercial organizations that typically contract
with food authorities to operate food services include large national
companies, such as Marriott, Canteen, and ARAMARK; companies
operating regionally or at multiple sites in a state; and companies
servicing a single school district.  The services provided by FSMCs
are likely to include some combination of the following management
and operational service: 

  -- Food services, including meal planning, food purchasing,
     storage, preparation, and packaging and serving the food to
     students. 

  -- Accounting services and the design of financial controls,
     budgets, and reporting systems, including those required for
     state and federal reports. 

  -- The design of facilities, maintenance and replacement of
     equipment, and cleaning services. 

  -- Staffing and personnel management. 

  -- Support activities, such as marketing and promotion of school
     meals, and nutrition information and education programs. 

USDA's regulations stipulate that if a food authority contracts with
an FSMC, the food authority must remain responsible for the overall
operation of its food service to ensure that the program is
administered in an accountable manner and that all of the program's
regulations are met.  This responsibility requires the food authority
to maintain direct involvement in the food service operation, such as
monitoring the food service operation through periodic on-site
visits. 


--------------------
\7 7 C.F.R.  210.16. 


   BRAND-NAME FAST FOODS
---------------------------------------------------------- Chapter 1:3

While food authorities have traditionally prepared their own foods
for school lunches, many have begun to serve brand-name fast foods in
recent years.  These foods are ready-to-serve--for example, pizzas,
burritos, subs, and sandwiches--and are generally prepared and
delivered to schools by fast-food vendors such as Pizza Hut, Domino's
Pizza, Taco Bell, and Subway as well as by local vendors.  Unlike
FSMCs, these vendors usually do not manage schools' food service
operations.  Instead, they provide schools with a food product at a
specified time.  For example, a pizza vendor may agree to provide a
school with fresh, hot pizza for lunch on every other Wednesday. 

Unless a fast-food vendor operates as an FSMC, USDA does not allow
these vendors to sell directly to students at school.  Instead, these
vendors typically sell their food products to a school or its FSMC,
which, in turn, sells the products to the students.  Schools can
offer brand-name fast foods as part of a reimbursable lunch, as an a
la carte item, or both. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:4

In the Healthy Meals for Healthy Americans Act of 1994 (P.L. 
103-448), the Congress directed us to study the use of private food
establishments and caterers by schools participating in the National
School Lunch or School Breakfast Programs.\8 In response to this
mandate, and as agreed with the offices of the Senate Committee on
Agriculture, Nutrition, and Forestry and the House Committees on
Agriculture and on Economic and Educational Opportunities, we (1)
determined the extent to which food authorities use FSMCs to operate
their food services and the impacts that their use has had on various
aspects of the lunch program, such as student participation, school
food service employment, the generation of revenues through school
meal sales, and a la carte sales of food in schools; (2) described
the terms and conditions under which schools that participate in the
lunch program use FSMCs; and (3) determined the extent to which
schools that participate in the lunch program are provided with fast
foods and snack foods in vending machines, described the most
frequently used types and brands of fast foods commonly offered, and
described their nutritional content. 

Because our preliminary work demonstrated that developing a
nutritional profile of the hundreds of different food products
available nationwide to students during school hours would be
excessively costly, we discussed this issue with the offices of the
cognizant committees.  Given the technical complexities of the
requirement and the limits on our resources and reporting time
frame--our mandate required us to complete our work by September 1,
1996--we agreed with the cognizant committees to limit our work on
the third objective to (1) presenting nutritional information for a
sample of popular brand-name fast food products and (2) describing
the types of vending machine foods commonly available in schools
participating in the lunch program.  As further agreed, we limited
our review to the lunch program--the largest of USDA's school meals
programs. 

To address the first objective, we contacted each of the 50 states
and the District of Columbia to obtain their school year 1994-95
lists of all food authorities, both public and private, and all food
authorities using an FSMC.  We then mailed questionnaires to 1,462
food authorities that states had identified as having contracts with
FSMCs during the 1994-95 school year.  In the course of our review,
we identified 75 food authorities that were residential child care
institutions, did not participate in the lunch program, or did not
have contracts with FSMCs.  We excluded these food authorities from
the universe of 1,462 food authorities, thereby developing a universe
of 1,387 food authorities.  Eighty-five percent (1,175) of the
remaining 1,387 food authorities returned a completed questionnaire. 
Hence, our survey results for this group represent only the 1,175
survey respondents that participated in the lunch program and had
FSMC contracts during school year 1994-95. 

In addition, we mailed questionnaires to a national random sample of
934 of the food authorities that did not have contracts with FSMCs. 
Of those, 89 percent (835) of the food authorities returned completed
questionnaires.  However, 70 of the food authorities reported that
they did not participate in the lunch program or did use an FSMC
during school year 1994-95.  These questionnaires were not included
in our analysis.  We used the responses from the remaining 765
questionnaires to compare food authorities that had FSMC contracts
with those that did not.  Our survey results represent the views of
about 14,801 food authorities that do not have contracts with FSMCs. 

To address the second objective, we reviewed relevant federal
regulations and USDA's guidance on contracting with FSMCs and
collected and analyzed a random sample of 68 food service contracts
to identify the selected terms and conditions of these contracts and
reviewed relevant federal studies and evaluations of FSMC contracts. 
The results of our analyses of the 68 contracts can be generalized to
about 1,212 of the food authorities participating in the lunch
program that had contracts with FSMCs for their school lunch programs
during school year 1994-95. 

With respect to the third objective, we mailed questionnaires to a
national random sample of 2,450 public school cafeteria managers to
obtain information on the extent of their use of brand-name fast
foods and the availability of snack foods in vending machines in
public schools.  The results of this survey are presented in our
report entitled School Lunch Program:  Cafeteria Managers' Views on
Food Wasted by Students (GAO/RCED-96-191, July 18, 1996).  Of this
sample, 1,887 cafeteria managers who participated in the lunch
program returned a questionnaire.  We summarized the data that the
respondents provided us with to determine the extent to which
brand-name fast foods were used in the lunch program and the types of
snack foods sold to students a la carte from vending machines or by
canteens during lunch.  This information represents the views of
cafeteria managers in about 80 percent of the public schools that
participated in the lunch program nationwide. 

Three of our data collection strategies relied on statistical
sampling, including the survey of food authorities not contracting
with FSMCs, the selection of contracts between food authorities and
FSMCs, and the survey of cafeteria managers.  As with all sample
surveys, our statistical estimates based on these data collection
strategies contain sampling error--the potential error that arises
from not collecting data from all food authorities--on all contracts
or from cafeteria managers at all schools. 

We calculated the amount of sampling error for each estimate at the
95-percent confidence level.  This means, for example, that if we
repeatedly sampled food authorities from the same universe and
performed our analysis again, 95 percent of the samples would yield
results within the range specified by our survey estimate plus or
minus the sampling error.  This range is the 95-percent confidence
interval. 

We conducted our review from June 1995 through July 1996 in
accordance with generally accepted government auditing standards. 


--------------------
\8 The Congress directed that we and the Office of Technology
Assessment jointly conduct this study.  However, the Congress did not
provide fiscal year 1996 operational funds for the Office of
Technology Assessment.  The office ceased operations on September 29,
1995. 


SMALL BUT INCREASING PERCENTAGE OF
FOOD AUTHORITIES ARE USING FOOD
SERVICE MANAGEMENT COMPANIES
============================================================ Chapter 2

Nationwide, about 8 percent of the food authorities participating in
the lunch program used FSMCs in school year 1994-95, according to
information from state agencies.  This was up from about 4 percent in
school year 1987-88, the last year that comparable data were
available.  Food authorities' use of FSMCs is generally concentrated
in the Northeast and the Midwest.  In addition, food authorities
using FSMCs had a larger number of schools and students than food
authorities not using FSMCs.  The food companies serving these food
authorities were most often companies that operate nationwide. 

Most food authorities reported that they had decided to use FSMCs for
financial reasons, such as reducing food service costs and reducing
budget deficits.  Furthermore, food authorities considering the use
of FSMCs reported that budget deficits were one reason for examining
such a change.  In contrast, food authorities that were not using
FSMCs cited their own financial stability as a reason they do not use
FSMCs. 

Food authorities using food service companies generally reported
better financial conditions for their food services for the 1995-96
school year than for the year before using FSMCs.  Seventy-eight
percent reported operating at a surplus or about even with their
budgets compared with 27 percent operating at a surplus or about even
with their budgets prior to using FSMCs.  In addition, food
authorities using FSMCs said that both their level of student
participation in the lunch program and their a la carte sales had
increased.  Although these food authorities reported improved
financial conditions, their average participation rates in the lunch
program were below those of food authorities not using FSMCs. 


   THE NUMBER OF FOOD AUTHORITIES
   USING FSMCS HAS INCREASED AND
   IS CONCENTRATED IN CERTAIN
   AREAS AND TYPES OF FOOD
   AUTHORITIES
---------------------------------------------------------- Chapter 2:1

Although some food authorities participating in the lunch program
have used FSMCs since the early 1970s, use of FSMCs by food
authorities grew significantly during the 1980s and 1990s.  Food
authorities contracting with FSMCs are concentrated in certain areas
of the country and have, on average, larger student populations. 
According to USDA's Office of Inspector General and food authorities'
responses to our questionnaires, the percentage of food authorities
using FSMCs doubled from school year 1987-88 through 1994-95,
increasing from 4 to 8 percent of all food authorities.  Food
authorities with FSMC contracts reported that they provided meal
services to about 7,500, or about 8 percent, of the approximately
89,000 public and private schools participating in the lunch program. 

Although the use of FSMCs increased nationwide, most food authorities
using them were concentrated in the Northeast and the Midwest,
according to state information and our survey results.  Figure 2.1
shows the areas of concentration. 

   Figure 2.1:  Locations of Food
   Authorities Using FSMCs, School
   Year 1994-95

   (See figure in printed
   edition.)

Note:  Alaska and Hawaii (not shown) each had two food authorities
using FSMCs. 

Source:  Our analysis of state agencies' data. 

Five states--Arkansas, Delaware, Louisiana, Nevada, and West
Virginia--as well as the District of Columbia, had no food
authorities using FSMCs in school year 1994-95. 

Furthermore, as table 2.1 shows, 10 states contained about
three-fourths of the food authorities using FSMCs nationwide during
school year 1994-95.  The table also indicates the variation in the
percentage of FSMC use within each of these states. 



                               Table 2.1
                
                   States With Highest Percentage of
                 Nationwide FSMC Use, School Year 1994-
                                   95

                                                            SFAs using
                                                              FSMCs as
                                                            percent of
                                     Number of  Percent of   the 1,387
                                       SFAs in     SFAs in        SFAs
                         Number of   the state   the state  nationwide
                           SFAs in       using       using       using
State                    the state       FSMCs       FSMCs       FSMCs
----------------------  ----------  ----------  ----------  ----------
New Jersey                     808         272          34          20
New York                     1,320         132          10          10
\Pennsylvania                  929         132          14          10
Illinois                     1,098         123          11           9
Michigan                       730         109          15           8
Texas                        1,149          67           6           5
Ohio                           972          50           5           4
Massachusetts                  420          49          12           4
Missouri                       878          49           6           4
California                   1,110          48           4           3
======================================================================
Total                        9,414       1,031                    74\a
----------------------------------------------------------------------
Legend

SFA = school food authority

\a Column does not total 74 because of rounding. 

Some of the 1,175 food authorities with FSMC contracts that responded
to our questionnaire reported that they had used FSMCs for more than
20 years.  However, the majority of these food authorities reported
using FSMCs for a much shorter period.  Figure 2.2 shows the number
of years that these food authorities reported using FSMCs.  Our
analysis indicates that at the time of our survey, 10 years was the
average amount of time that food authorities used FSMCs. 

   Figure 2.2:  Number of Years
   That Food Authorities Reported
   Using FSMCs

   (See figure in printed
   edition.)

Note:  8.4 percent of the 1,175 food authorities did not provide us
with this information. 

According to the survey responses, the average size of the food
service budgets of food authorities using and not using FSMCs was not
significantly different. 

The food authorities using FSMCs, on average, had more schools and
students in their school districts than food authorities not using
FSMCs.  These food authorities reported an average of 6.4 schools in
their districts that participated in the lunch program, compared with
an average of 4.7 (3.9 to 5.5) schools in districts not using FSMCs. 
Furthermore, food authorities using FSMCs reported higher enrollments
in their districts--an average of 3,539 students--compared with an
estimated average of 2,317 (1,889 to 2,745) students in districts not
using FSMCs.  We also found that of the food authorities using FSMCs,
about 91 percent operate food services in public schools, and about 9
percent operate food services in private schools. 

While the food authorities using FSMCs were concentrated in certain
sections of the nation, FSMCs were generally national companies.  As
figure 2.3 shows, 57 percent of the food authorities using FSMCs
reported that they used food service companies that operate
nationwide.  Other food authorities used FSMCs that were local
(operating within a state or at a single location) or regional
(operating in more than one state) companies. 

   Figure 2.3:  Percentage of Food
   Authorities That Reported Using
   National, Regional, or Local
   FSMCs

   (See figure in printed
   edition.)

Legend

SFA = school food authority

Note:  Percentages do not add to 100 because of rounding. 


   FOOD AUTHORITIES TURNED TO
   FSMCS PRIMARILY FOR FINANCIAL
   REASONS
---------------------------------------------------------- Chapter 2:2

Financial issues were frequently cited reasons for choosing,
considering, or not choosing to use FSMCs, according to our survey
results.  About three-fourths of the food authorities that use FSMCs
reported that they turned to them for financial reasons; 77 percent
cited expectations of reducing food service costs as a major or
moderate reason; and 70 percent cited expectations of reducing budget
deficits as a major or moderate reason.  While these reasons were
cited most often as a major or moderate reason, food authorities also
reported other considerations, including expectations of reducing
administrative burden, increasing revenues, increasing student
participation in the lunch program, increasing the nutritional value
of the meals, having personnel or staffing concerns, and changing
their employer/employee relationship with cafeteria staff.  Figure
2.4 shows the frequency with which food authorities rated reasons
listed in our questionnaire as either major or moderate. 

   Figure 2.4:  Percentage of Food
   Authorities Citing Reasons for
   Using FSMCs

   (See figure in printed
   edition.)

Legend

NSLP = National School Lunch Program

In addition, 2 to 4 percent of the food authorities not using FSMCs
were considering their use.  For these food authorities, financial
concerns were also reasons why they might use FSMCs.  Of these food
authorities, 61 to 95 percent reported that one reason for
considering a change was their belief that the use of FSMCs would
reduce food service costs.  The food authorities also indicated that
reducing administrative burden was a reason for considering the use
of FSMCs.  Table 2.2 shows the frequency of reasons cited by food
authorities for considering the use of FSMCs. 



                               Table 2.2
                
                 Percentage of Food Authorities Citing
                Reasons for Considering the Use of FSMCs

                                   Percent of SFAs
                                  citing reason as
                                  major, moderate,
                                   or minor reason          95-percent
Reasons listed in the              for considering          confidence
questionnaire                     the use of FSMCs            interval
------------------------------  ------------------  ------------------
Reduce administrative burden                    83            67 to 98
Reduce food service costs                       78            61 to 95
Increase revenues                               52            32 to 73
Reduce budget deficits                          52            32 to 73
Increase participation in NSLP                  43            23 to 64
Change in employer/employee                     39            19 to 59
 relationship
Personnel or staffing concerns                  39            19 to 59
School board preference                         30            12 to 49
Increase nutritional value of                   26             8 to 44
 meals
----------------------------------------------------------------------
Legend

NSLP = National School Lunch Program

Note:  Two other reasons--school board mandate and reduced number of
students leaving school grounds--were included in the questionnaire
but were cited by too few to report. 

In contrast, over half of the food authorities not using FSMCs
indicated that they were not using FSMCs because of their own
financial stability, among other reasons.  From a list of reasons
provided in our questionnaire, these food authorities cited the small
size of their food service operation and their financial stability as
reasons for not contracting with an FSMC.  Over one-third of the food
authorities indicated that it was the school board's preference not
to use FSMCs.  A similar proportion indicated that they did not use
FSMCs because of the good local perceptions regarding their operation
of the food service.  These and other reasons for not using FSMCs and
the frequencies with which they were cited by food authorities are
shown in figure 2.5. 

   Figure 2.5:  Percentage of Food
   Authorities Citing Reasons for
   Not Using FSMCs

   (See figure in printed
   edition.)

Legend

SFA = school food authority

Note:  The sampling errors for each of the percentages above are
listed in order from left to right:  3.5 percent, 3.6 percent, 3.5
percent, 3.5 percent, 3.0 percent, 2.6 percent, 1.6 percent, 1.6
percent, and 1.0 percent, respectively. 


   FOOD AUTHORITIES REPORT
   BENEFITS FROM CONTRACTING WITH
   FSMCS
---------------------------------------------------------- Chapter 2:3

Seventy-eight percent of the food authorities using FSMCs reported
that after using an FSMC, their food services were operating at about
even with their budget or at a surplus--up from 27 percent prior to
using an FSMC--in school year 1995-96.  In comparison, the budgetary
situation for these food authorities was about the same regarding
reported budget deficits as that of food authorities not contracting
with FSMCs.  Food authorities using FSMCs reported that their costs
for food, payroll, employee benefits, and administration were lower;
student participation in the lunch program increased; and a la carte
sales increased.  Although the food authorities using FSMCs had
improved their prior financial conditions, their average student
participation rates were below those of food authorities that did not
use FSMCs. 


      AFTER USING FSMCS, MOST FOOD
      AUTHORITIES WERE OPERATING
      WITHIN THEIR BUDGETS
-------------------------------------------------------- Chapter 2:3.1

After using FSMCs, 32 percent of the food authorities reported that
their schools' food service operated at a surplus; 46 percent
reported operating at about even with their budgets; and 19 percent
reported operating at a deficit.  As figure 2.6 shows, food
authorities improved their budget conditions after using FSMCs to the
point where they were about the same regarding reported budget
deficits as food authorities that were not using FSMCs.  The figure
also shows that 61 percent of the food authorities using FSMCs
reported that prior to using FSMCs their schools' food service
operated at a deficit, while 20 percent reported operating at about
even with their budgets.  Only 7 percent of the food authorities
reported operating their food service at a surplus prior to using an
FSMC. 

   Figure 2.6:  Percentage of Food
   Authorities With Different
   Budget Conditions

   (See figure in printed
   edition.)

Legend

SFA = school food authority

Note:  The 95-percent confidence interval for "SFAs Not Using FSMCs"
is 18 to 24 percent for "Budget Surplus," 53 to 60 percent for "About
Even With Budget," and 16 to 21 percent for "Budget Deficit." The
percentage of SFAs reporting a budget surplus "After SFA Use of
FSMCs" differs significantly from "SFAs Not Using FSMCs" as does
those reporting "About Even With Budget."

As shown in figure 2.7, food authorities that used FSMCs generally
reported reductions in various food service costs as a result of
using FSMCs.  Fifty-eight percent of the food authorities reported
reduced food costs, and additional savings were reported in payroll,
program administration, employee benefits, and cafeteria/kitchen
supplies.  Twenty-three percent of the food authorities reported cost
reductions in cafeteria/kitchen equipment after using FSMCs. 

   Figure 2.7:  Percentage of Food
   Authorities Reporting Changes
   in Food Service Component Costs
   After Using FSMCs

   (See figure in printed
   edition.)


      FOOD AUTHORITIES REPORTED
      OTHER IMPACTS RESULTING FROM
      THE USE OF FSMCS
-------------------------------------------------------- Chapter 2:3.2

In addition to the budgetary improvements, food authorities reported
the following other impacts from using FSMCs: 

  -- Lunch program participation. 

Seventy-three percent of the food authorities using FSMCs reported
increases in average student participation in the lunch program as a
result of using FSMCs; 14 percent reported that it remained about the
same; and 2 percent reported decreases. 

  -- Sales of a la carte items. 

Seventy-four percent of the food authorities using FSMCs reported
increases in the sales of a la carte items in their lunch program; 11
percent reported that their sales remained about the same; and 2
percent reported decreases. 

  -- Students leaving school grounds. 

Among the food authorities using FSMCs and having schools that permit
students to leave school grounds for lunch, 30 percent reported
decreases in the number leaving as a result of using FSMCs; another
38 percent reported that the number remained about the same; and 7
percent reported an increase. 

(Twenty-five percent did not evaluate the effect of using an FSMC on
students leaving school grounds.)

In addition, 43 percent of the food authorities using FSMCs reported
that most or all of their food service workers were retained by the
school district when the food authorities began using an FSMC; 32
percent reported that all or most of their workers lost their jobs
with the district but were rehired by the FSMC.  (Our survey did not
collect information on the possible changes in employee pay and
benefits.) Thirty-six percent of the food authorities reported that
their use of FSMCs resulted in a decrease in the number of school
district employees overall.  Also, a small percentage of food
authorities reported that all or most of their staff retired,
resigned, or were terminated by their district and not rehired by the
FSMC. 

Finally, 36 percent of the food authorities using FSMCs reported that
the amount of federal commodities they accept increased after using
FSMCs; another 39 percent reported that their acceptance had remained
constant; and 5 percent reported a decrease. 


      FOOD AUTHORITIES USING FSMCS
      REPORT LOWER STUDENT
      PARTICIPATION IN LUNCH
      PROGRAM THAN OTHER FOOD
      AUTHORITIES
-------------------------------------------------------- Chapter 2:3.3

Despite reported improvements in the budgetary situations of food
authorities using FSMCs and reported increases in participation in
the lunch program, these food authorities' participation rates in the
lunch program were lower than those reported by food authorities not
using FSMCs.  Our analysis shows that during school year 1995-96, the
average participation rate for food authorities using food service
companies was 49 percent, compared with 65 to 68 percent for those
not using FSMCs. 


FSMCS' CONTRACTS VARY IN CONTENT
AND IN COMPLIANCE WITH SELECTED
FEDERAL REQUIREMENTS
============================================================ Chapter 3

Food authorities' contracts with FSMCs vary in content and in
compliance with the selected federal requirements from the USDA
guidance we reviewed.\1 In addition to stating that FSMCs will
prepare and serve school meals, the contracts assign responsibility
for other meal-related services such as food purchasing and nutrition
education to the FSMC in varying degrees.  Furthermore, although most
food service contracts state that food authorities will pay FSMCs
using a cost-plus-a-fixed-fee payment structure, the types and number
of fixed fees vary.  Finally, about one-half to two-thirds of the
FSMC contracts do not contain all provisions required by USDA's
guidance that we reviewed.  The required provisions most often not
found in the contracts were those intended to ensure that the food
authorities maintain control of the school meals programs. 


--------------------
\1 Federal requirements are based on the program's policies,
pertinent regulatory requirements, and guidance as described in
Contracting With Food Service Management Companies:  Guidance for
School Food Authorities, Food and Consumer Service, USDA (rev., Apr. 
1995, final, June 1995). 


   FOOD AUTHORITIES CONTRACT FOR A
   VARIETY OF SERVICES
---------------------------------------------------------- Chapter 3:1

While almost all FSMC contracts state that the FSMC is responsible
for preparing and serving meals and identify which meals the FSMC
will provide, the contracts vary with regard to other related
services--such as food purchasing and nutrition education--that they
assign to the FSMC.  We found that some contracts assign
responsibility for related meal services to the FSMC, some to the
food authority, and some to both organizations.  In addition, while
most contracts contain provisions defining responsibilities for
managing food service personnel, their treatment of issues affecting
the employment of existing personnel varies. 


      FSMC CONTRACTS VARY IN TYPES
      OF MEALS PROVIDED
-------------------------------------------------------- Chapter 3:1.1

Our review indicates that almost all contracts state that the FSMC is
responsible for preparing and serving meals.  In addition, about 91
(84 to 98) percent of the contracts state that the FSMC will provide
lunch, and 69 (58 to 80) percent state that the FSMC will provide
breakfast.  We also found that contracts specify a la carte service
to be provided by the FSMC about as often as they specify breakfast. 
Table 3.1 shows the percentage of FSMCs' contracts that provide for
specific meal services. 



                               Table 3.1
                
                   Types of Meals Specified in FSMCs'
                               Contracts

                                                            95-percent
                                        Percent of          confidence
Meal services provided by FSMC           contracts            interval
------------------------------  ------------------  ------------------
Lunch                                           91            84 to 98
A la carte                                      78            68 to 88
Breakfast                                       69            58 to 80
Special events meals                            28            17 to 39
----------------------------------------------------------------------
Note:  Other services were mentioned too infrequently to provide an
accurate estimate. 


      ASSIGNMENT OF RESPONSIBILITY
      FOR RELATED MEAL SERVICE
      ACTIVITIES VARIES
-------------------------------------------------------- Chapter 3:1.2

The FSMC contracts vary in the assignment of eight other related meal
services we reviewed.  Some contracts assign responsibility for these
related meal services to the FSMC, some to the food authority, and
some to both organizations.  Eight services we examined included (1)
purchasing food, (2) counting meals, (3) inventorying and storing
food, (4) planning menus, (5) providing for nutrition education, (6)
cleaning, (7) paying for utilities, and (8) repairing and maintaining
equipment.  As table 3.2 shows, it was common for contracts to assign
up to three additional meal-related services to the FSMC, while few
assigned more than three of these eight services to the FSMC. 



                               Table 3.2
                
                   Percentage of Contracts Assigning
                Responsibility for Multiple Related Meal
                           Services to FSMCs

                                                            95-percent
Number of the related services          Percent of          confidence
assigned to the FSMC                     contracts            interval
------------------------------  ------------------  ------------------
Four services                                   12             4 to 19
Three services                                  25            15 to 35
Two services                                    41            29 to 53
One service                                     21            11 to 30
----------------------------------------------------------------------
Table 3.3 shows the percentage of contracts assigning responsibility
for various meal services to the FSMC, the food authority, or both. 



                               Table 3.3
                
                Percentage of FSMCs' Contracts Assigning
                Responsibility for Various Meal-Related
                                Services

                                                                   95-
                                                               percent
                                                              confiden
Assignment of responsibility    Meal-related                        ce
in contract                     service              Percent  interval
------------------------------  ------------------  --------  --------
FSMC                            Food purchasing           87  79 to 95
                                Meal counts               87  79 to 95
                                Nutrition                 24  13 to 34
                                 education
                                Food inventory and        12   4 to 19
                                 storage
Both FSMC and SFA               Menu planning             91  84 to 98
                                Cleaning                  84  75 to 93
                                Food inventory and        65  53 to 76
                                 storage
                                Nutrition                 51  40 to 63
                                 education
SFA                             Utilities                 81  72 to 90
                                Equipment repair          66  55 to 77
                                 and maintenance
----------------------------------------------------------------------
Legend

SFA = school food authority

In addition to these eight services, we noted that FSMCs' contracts
assign responsibility for other related meal services.  Some services
typically assigned to the FSMC are (1) catering; (2) providing for
laundry and towels, condiments, and eating utensils; (3) representing
food authorities at meetings; and (4) evaluating the food service. 
Some responsibilities typically assigned to the food authority
include providing gas and oil for vehicles, telephone service, and
garbage removal. 


      FSMCS' CONTRACTS VARY IN
      THEIR TREATMENT OF EXISTING
      PERSONNEL
-------------------------------------------------------- Chapter 3:1.3

Most FSMC contracts define responsibilities for managing food service
personnel, but they vary in their treatment of issues affecting the
employment of existing personnel.  On the basis of our review of
FSMCs' contracts, about 93 (86 to 99) percent of the FSMC contracts
define responsibility for managing food service personnel in some
fashion.  More specifically, most of the contracts (82 to 97 percent)
state that the FSMC will employ the food service manager.  At least
half (50 to 73 percent) of the contracts state that the FSMC will
employ the food service staff.  Other arrangements in the FSMC
contracts specify that the food authority employ the staff (3 to 18
percent) and that the food authority and the FSMC each employ some of
the food service staff (10 to 28 percent). 

In addition, our review showed that many of the FSMC contracts (41 to
65 percent) do not mention whether currently employed school food
service staff will be retained by the food authority.  However, some
(9 to 27 percent) contracts state that the existing school staff will
retain their jobs.  Table 3.4 shows the percentage of FSMCs'
contracts containing language regarding the retention of existing
school staff. 



                               Table 3.4
                
                     Percentage of FSMCs' Contracts
                Addressing Retention of Existing School
                                 Staff

FSMCs' contract provision                                   95-percent
stating retention of school      Percent of FSMCs'          confidence
food service staff                       contracts            interval
------------------------------  ------------------  ------------------
No mention                                      53            41 to 65
Maybe or not clear                              24            13 to 34
Yes                                             18             9 to 27
No                                               0                 N/A
----------------------------------------------------------------------
Legend

N/A = not applicable

Furthermore, FSMC contracts vary on whether they include provisions
against the hiring of current FSMC employees by the food authority or
the hiring of current food authority employees by the FSMC.  About 50
(38 to 62) percent of the FSMC contracts contain language restricting
the food authorities' hiring of FSMC personnel.  Conversely, 38 (27
to 50) percent of the FSMC contracts contain restrictions regarding
the FSMCs' hiring of food authority personnel. 


   A VAST MAJORITY OF CONTRACTS
   SPECIFY A COST-PLUS-A-FIXED-FEE
   PAYMENT STRUCTURE, BUT OTHER
   FINANCIAL PROVISIONS VARY
---------------------------------------------------------- Chapter 3:2

Most FSMC contracts we reviewed have a cost-plus-a-fixed-fee payment
structure, but fees vary.  In addition, some contracts address other
financial arrangements, such as the treatment of rebates and
discounts that the FSMC receives from purchasing food for the school
meals programs and guarantees for a financial return or against a
financial loss to the food authority. 


      MOST CONTRACTS HAVE A
      COST-PLUS-A-FIXED-FEE
      PAYMENT STRUCTURE, BUT FEES
      VARY
-------------------------------------------------------- Chapter 3:2.1

Under federal program regulations, FSMCs' contracts may specify
payments to the FSMC through either a (1) cost-plus-a-fixed-fee
method or a (2) fixed-price or fee payment method.  On the basis of
our review, about 91 (84 to 98) percent of FSMCs' contracts use the
cost-plus-a-fixed-fee payment method. 

According to USDA guidance, under the cost-plus-a-fixed-fee method,
the FSMC passes food service operating costs through to the food
authority and charges an additional fixed- or flat-fee for management
and administrative costs.  Typically, the administrative fee
represents overhead costs, and the management fee represents the
profits.  A cost-plus-a-fixed-fee payment structure may include one
or more of these fees and may also be quantified as a per-meal fee
and/or an annual fee.  On the basis of our review, about 40 (28 to
51) percent of the FSMC contracts have only annual fees; 50 (38 to
62) percent have only per-meal fees; and 10 (3 to 18) percent have
annual fees and per-meal fees.  Table 3.5 shows the most common types
of fixed fees and associated average dollar amounts. 



                               Table 3.5
                
                 Most Common Fixed Fees in Cost-Plus-a-
                      Fixed-Fee Payment Structures

                                       Estimate of
                                 percent of FSMCs'
                                    contracts (95-    Average fee (95-
                                percent confidence  percent confidence
Type of fixed fee                        interval)           interval)
------------------------------  ------------------  ------------------
Annual administrative fee                       35             $12,867
                                        (24 to 47)         ($10,489 to
                                                              $15,245)
Annual management fee                           26              12,531
                                        (16 to 37)   (7,483 to 17,579)
Per-meal administrative fee                     34                .093
                                        (23 to 45)        (.06 to .13)
Per-meal management fee                         38                .045
                                        (27 to 50)        (.03 to .06)
----------------------------------------------------------------------
Note:  Per-meal amounts can vary with the number of meals and the
per-meal fees presented in this table are the average constant fee
per meal. 

Although federal regulations allow another payment
method--fixed-price or fee payment structure--few (0.3 to 11 percent)
of the FSMC contracts specify this approach.  According to USDA's
guidance, in a fixed-price or fee contract, charges are based on a
unit charge.  The unit may be per meal or per time period, typically
a year.  For example, the FSMC might charge $1.50 per meal, or
$50,000 per year.  In each instance, the fee charged is expected to
cover all operating and administrative costs, and no additional costs
are to be charged to the food authority. 

Two other types of financial payments--cost-plus-a-percentage-of-cost
and a cost-plus-a-percentage-of-income--are not permitted under
federal regulations (7 C.F.R.  210.16(c)).  However, one contract
that we reviewed specified a cost-plus-a-percentage-of-income payment
structure.  We are pursuing this issue with USDA officials. 

In addition to the payment structure specified in the FSMC contracts,
contracts may contain language permitting the food authority and the
FSMC to renegotiate payment terms.  Such renegotiations could occur
if actual experience does not conform to the assumptions upon which
the original fee structure was based.  On the basis of our review of
FSMCs' contracts, about 51 (40 to 63) percent of the FSMC contracts
contain provisions allowing for payment adjustments. 


      TREATMENT OF REBATES AND
      DISCOUNTS VARIES
-------------------------------------------------------- Chapter 3:2.2

According to USDA's guidance, as a control over purchasing, the
FSMC's contract should state how discounts that the FSMC obtains when
purchasing food are to be passed through to the food authority.\2 We
found that many contracts do not address rebates and discounts and
that some FSMC contracts contain provisions allowing FSMCs to receive
some of the rebates and discounts obtained from vendors.  As table
3.6 shows, FSMCs' contracts vary depending on how these rebates and
discounts are handled in the contracts. 



                               Table 3.6
                
                 Treatment of Rebates and Discounts in
                               Contracts

                                                            95-percent
                                 Percent of FSMCs'          confidence
Contract language                        contracts            interval
------------------------------  ------------------  ------------------
Contract does not address                       40            28 to 51
 rebates or discounts.
Contract requires that all                      37            25 to 48
 rebates/discounts be passed
 back to the SFA.
Contract permits the FSMC to                    18             9 to 27
 retain some rebates/
 discounts obtained from
 vendors.
----------------------------------------------------------------------
Legend

SFA = school food authority

FSMCs' contracts that permit the FSMC to retain some of the
rebates/discounts also vary depending on who receives these
discounts/rebates.  For example, some contracts we reviewed state
that only local discounts will be passed back to the food authority;
other discounts or rebates, from such sources as regional and
national purchasing arrangements, are to be retained by the FSMC. 


--------------------
\2 This applies to cost-reimbursable contracts and is not applicable
to fixed-price contracts. 


      SOME FSMC CONTRACTS CONTAIN
      FINANCIAL GUARANTEES
-------------------------------------------------------- Chapter 3:2.3

According to USDA's guidance, FSMCs' contracts may contain language
that guarantees a financial return or provides for protection against
a financial loss to the food authority.  On the basis of our review
of FSMCs' contracts, about 18 (9 to 27) percent of the contracts
contain a guarantee of surplus revenues.  The average dollar amount
of this guarantee was between $10,198 and $67,419.  This type of
guarantee was not always carried forward and in some cases was
reduced when the contract was renewed.  Of the 12 contracts we
reviewed that initially guaranteed a surplus, 6 have contract
renewals.  Of those six, three continue the surplus guarantee in the
current contract renewal.  In two of those cases, the surplus
guarantee was reduced when the contract was renewed. 

In addition, on the basis of our review of FSMCs' contracts, about 44
(32 to 56) percent of FSMCs' contracts contain provisions that
guarantee against a financial deficit in operating the school meals
programs. 


   MANY FSMC CONTRACTS DO NOT
   CONTAIN ALL EIGHT REQUIRED
   CONTRACTUAL PROVISIONS THAT WE
   REVIEWED
---------------------------------------------------------- Chapter 3:3

USDA's guidance for food authorities' contracts with FSMCs specifies
a number of provisions that must appear in the contracts to ensure
that federal requirements are met.\3

State agencies are responsible for reviewing these contracts to
ensure that all the required provisions are included.  We reviewed
FSMCs' contracts to determine if they contained eight required
provisions.  We selected two provisions in each of the following four
areas:  (1) financial control, (2) USDA-donated foods, (3) monitoring
and evaluation, and (4) duration and renewal of contracts.  We found
that about 57 (46 to 69) percent of the FSMC contracts do not contain
all eight federally required provisions we reviewed.  The required
provisions that were most often not in the contracts were those
intended to ensure that food authorities maintain control of the
school meals programs. 

Table 3.7 shows the percentage of FSMCs' contracts that do not
contain one, two, three, or more of the eight federally required
provisions we reviewed. 



                               Table 3.7
                
                 Percentage of FSMCs' Contracts That Do
                Not Contain One, Two, Three, or More of
                        the Required Provisions

                                                            95-percent
Number of provisions not         Percent of FSMCs'          confidence
contained in FSMCs' contracts            contracts            interval
------------------------------  ------------------  ------------------
One                                             19            10 to 28
Two                                             25            15 to 35
Three or more                                   13             5 to 21
----------------------------------------------------------------------

--------------------
\3 See Contracting with Food Service Management Companies:  Guidance
for School Food Authorities, Food and Consumer Service, USDA (rev.,
Apr.  1995, final, June 1995). 


      SOME CONTRACTS DO NOT
      CONTAIN SELECTED REQUIRED
      FINANCIAL CONTROL PROVISIONS
-------------------------------------------------------- Chapter 3:3.1

Under federal requirements, FSMCs' contracts must include a provision
stating that the food authority retains control of the overall
financial responsibility for the school meals programs, including the
nonprofit school food service account.  On the basis of our review of
FSMCs' contracts, about 35 (24 to 47) percent of FSMCs' contracts do
not contain this required provision. 

In addition, FSMCs' contracts must include a provision reaffirming
the food authority's responsibility for establishing all prices for
meals served under the nonprofit school food service account (e.g.,
pricing for all reimbursable meals, a la carte service and vending
machines, and adult meals).  Our review indicates that about 12 (4 to
19) percent of FSMCs' contracts do not contain this required
provision. 

Table 3.8 shows the percentage of FSMCs' contracts that do not
contain the required provisions we reviewed that address food
authorities' financial control responsibilities. 



                               Table 3.8
                
                 Percentage of FSMCs' Contracts That Do
                Not Contain Selected Required Financial
                           Control Provisions

                                 Percent of FSMCs'
                                 contracts that do          95-percent
                                  not contain this          confidence
Required provision                     requirement            interval
------------------------------  ------------------  ------------------
SFA retains control of the                      35            24 to 47
 nonprofit school food service
 account and overall financial
 responsibility for the school
 nutrition program.

SFA retains control of the                      12             4 to 19
 establishment of all prices
 for meals served under the
 nonprofit school service
 account.

----------------------------------------------------------------------
Legend
SFA = school food authority


      SOME CONTRACTS DO NOT
      CONTAIN SELECTED REQUIRED
      USDA-DONATED FOODS
      PROVISIONS
-------------------------------------------------------- Chapter 3:3.2

Under federal requirements, all contracts must state that the food
authority retain title to USDA-donated foods (such as fruit,
vegetables, meat, and poultry).  Some of FSMCs' contracts do not
contain this provision.  In addition, food authorities are to ensure
that these foods are used for the school meals programs.  These
USDA-donated foods offset the cost to food authorities of providing
school meals.  Few (3 of 68) of the FSMCs' contracts we reviewed did
not contain this provision. 

Table 3.9 shows the percentage of FSMCs' contracts that do not
contain the required provisions addressing food authorities'
responsibilities for USDA-donated foods. 



                               Table 3.9
                
                 Percentage of FSMCs' Contracts That Do
                  Not Contain Selected Required USDA-
                        Donated Foods Provisions

                                 Percent of FSMCs'
                                 contracts that do          95-percent
                                  not contain this          confidence
Required provision                     requirement            interval
------------------------------  ------------------  ------------------
SFA retains title to USDA-                      35            24 to 47
 donated foods.
SFA ensures that all USDA-                      \a                 N/A
 donated foods made available
 to the FSMC accrue only to
 the benefit of the SFA's
 nonprofit school food service
 and are fully utilized
 therein.
----------------------------------------------------------------------
Legend

N/A = not applicable

SFA = school food authority

\a No estimate developed. 


      SOME CONTRACTS DO NOT
      CONTAIN SELECTED MONITORING
      AND EVALUATION REQUIREMENTS
-------------------------------------------------------- Chapter 3:3.3

According to federal requirements, contract provisions must confirm
the food authority's responsibility to monitor the food service
operation through periodic on-site visits.  According to USDA's
guidance, the purpose of monitoring is to ensure that the FSMC
complies with the contract and any other applicable federal, state,
and local rules and regulations.  On the basis of our review of
FSMCs' contracts, about 18 (9 to 27) percent of the contracts do not
contain this required provision. 

In addition to spelling out the food authority's monitoring
responsibilities, the contract must state that FSMC's records will be
made available upon request to the Comptroller General, USDA, the
state agency responsible for overseeing food authorities, and the
food authority for audits and other types of evaluations to be
conducted.  On the basis of our review, about 10 (3 to 18) percent of
FSMCs' contracts do not contain parts of this requirement. 

Table 3.10 shows the percentage of FSMCs' contracts that do not
contain the required monitoring and evaluation provisions we
reviewed. 



                               Table 3.10
                
                 Percentage of FSMCs' Contracts That Do
                Not Contain Selected Required Monitoring
                       and Evaluation Provisions

                                 Percent of FSMCs'
                                 contracts that do          95-percent
                                  not contain this          confidence
Required provision                     requirement            interval
------------------------------  ------------------  ------------------
SFA monitors the food service                   18             9 to 27
 operation through periodic
 on-site visits to ensure that
 the food service is in
 conformance with program
 regulations.
Records must be made available                  10             3 to 18
 to the Comptroller General,
 USDA, the state agency, and
 SFA upon request for the
 purpose of making audit,
 examination, excerpts, and
 transcriptions.
----------------------------------------------------------------------
Legend

SFA = school food authority


      MOST CONTRACTS COMPLY WITH
      DURATION AND RENEWAL
      REQUIREMENTS
-------------------------------------------------------- Chapter 3:3.4

According to federal requirements, a contract must identify a
beginning and ending date to ensure that the contract between the
food authority and the FSMC is not longer than 1 year in duration. 
We found only 1 FSMC contract in the 68 we reviewed that did not
contain provisions limiting the contract's duration to 1 year or
less. 

In addition, federal requirements stipulate that options for renewing
FSMCs' contracts may not exceed four additional 1-year extensions. 
While almost all of FSMCs' contracts (66 of 68) we reviewed contain
provisions for renewal at the end of 1 year, few (3 of 68) of the
FSMC contracts we reviewed do not include the required renewal limit. 


      OMISSION OF REQUIRED
      PROVISIONS IN CONTRACTS MAY
      DIMINISH COMPLIANCE
-------------------------------------------------------- Chapter 3:3.5

USDA's guidance for contracts with FSMCs specifies a number of
provisions that must appear in these contracts to ensure that federal
requirements are met.  Required provisions include a range of terms
and conditions addressing the food authority's and the FSMC's
responsibilities in such areas as financial controls and payments;
monitoring; the quality, extent, and general nature of the food
service; controlling USDA donated foods; and various record-keeping
and reporting functions. 

State agencies, according to USDA's guidance, are responsible for
reviewing these contracts to ensure that all the required provisions
are included.\4 According to USDA, the contract between a food
authority and an FSMC is a major factor in ensuring a meal service
that not only meets the best interest of the food authority but also
conforms to federal, state, and local requirements.  In addition,
according to USDA, the contract is the basis for successful and
appropriate oversight by the food authority. 

If food authorities' contracts with FSMCs lack required provisions
specified in USDA's guidance, uncertainty may result about the
responsibilities of each party and thereby diminish compliance with
federal requirements.  This uncertainty could occur even if a
contract states that the FSMC will adhere to the lunch program's
regulations because USDA's guidance is more specific than the
regulations and specifies that the contracts must contain certain
provisions.  For example, the guidance requires the contract to
include a provision that the food authority retain control of the
school food service account and overall financial responsibility for
the school nutrition program.  In contrast, the lunch program's
regulation (7 C.F.R.  210.16(a)(4)) states that the food authority
shall "retain control of the quality, extent, and general nature of
food service." In addition, since a contract may provide that it
represents the entire agreement between the parties, the failure to
require compliance with the guidance in the contract may mean that
the FSMC is not bound by the required provisions in the guidance. 


--------------------
\4 Contracting with Food Service Management Companies:  Guidance for
State Agencies, Food and Consumer Service, USDA (rev., Apr.  1995,
final, June 1995). 


   CONCLUSIONS
---------------------------------------------------------- Chapter 3:4

While contracts between food authorities and FSMCs may properly vary
in their assignments of responsibilities, they should not vary in
their compliance with USDA's guidance for contracting with FSMCs.  If
the provisions required by this guidance are not included in the
contract, questions may arise over whether the FSMC is subject to
these provisions.  Consequently, such omissions could result in
FSMCs' noncompliance with the federal requirements for the lunch
program. 


   RECOMMENDATION TO THE SECRETARY
   OF AGRICULTURE
---------------------------------------------------------- Chapter 3:5

To achieve improved compliance with USDA's guidance, we recommend
that the Secretary of Agriculture direct the Administrator, Food and
Consumer Service, to work with appropriate state officials to ensure
that FSMCs' contracts contain the provisions required by USDA's
guidance on contracting with FSMCs. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 3:6

We provided USDA's Food and Consumer Service with copies of a draft
of this report for review and comment.  We met with agency officials
including the Director of the Grants Management Division.  USDA
concurred with our recommendation and plans to take action.  Planned
actions include (1) sending a letter to appropriate state agencies
reiterating the importance of including required provisions in FSMCs'
contracts and (2) making USDA's guidance for contracting with FSMCs
more readily available by placing it on the agency's automated
information system and the Internet. 


THE PERCENTAGE OF SCHOOLS OFFERING
BRAND-NAME FAST FOODS HAS
INCREASED
============================================================ Chapter 4

The percentage of public schools that participate in the lunch
program and offer brand-name fast foods increased substantially from
school year 1990-91 through school year 1995-96--from about 2 percent
to about 13 percent.  These schools offer one to two brand-name fast
foods twice a week, on average, and generally offer them as part of a
federally reimbursable lunch.  Schools offering brand-name fast foods
were more likely to be located in suburban areas and use an FSMC. 
They also have larger student populations on average. 

Most cafeteria managers at schools offering brand-name fast foods
reported benefits from their use.  Increased participation in the
lunch program was the reason mentioned most often by cafeteria
managers for offering these foods, and increased sales was the most
frequently reported benefit.  Most managers who did not use
brand-name fast foods reported that they did not use them because
they believed that the food they served was more nutritious. 

When coupled with other food items prescribed by the federal lunch
pattern, brand-name fast foods can be incorporated into a lunch that
is eligible for federal reimbursement. 

While most schools allowed students access to snack foods and/or
drinks during lunch, fewer schools provided such items from vending
machines.  Cafeteria managers in 67 percent of the schools we
surveyed reported that students had access to these foods from
canteens and a la carte sales; in 20 percent of the schools, students
had access to these items from vending machines. 


   THE PERCENTAGE OF SCHOOLS
   OFFERING BRAND-NAME FAST FOODS
   INCREASED, ALTHOUGH USE REMAINS
   LIMITED
---------------------------------------------------------- Chapter 4:1

The percentage of schools offering brand-name fast foods increased
from an estimated 2 percent in school year 1990-91 to about 13
percent in school year 1995-96, according to our analysis of the
information the cafeteria managers provided us with.\1 These schools
offered one or two of these items two times a week, on average, and
usually offered them as part of a federally reimbursable lunch.\2 In
addition, increased use of brand-name fast foods varied by several
school characteristics, such as a school's size and location. 


--------------------
\1 The sampling errors for the cafeteria managers' responses are
included in the figures unless otherwise noted. 

\2 All references to "schools" in this chapter refer to public
schools that participate in the National School Lunch Program. 


      PERCENTAGE OF SCHOOLS
      OFFERING BRAND-NAME FAST
      FOODS IS UP
-------------------------------------------------------- Chapter 4:1.1

In the 1995-96 school year, an estimated 13 percent of the cafeteria
managers in our survey reported using brand-name fast foods--up from
about 2 percent in the 1990-91 school year.  Figure 4.1 shows the
percentage of schools offering brand-name fast foods at lunch since
school year 1990-91. 

   Figure 4.1:  Schools' Use of
   Brand-Name Fast Foods, School
   Years 1990-91 Through 1995-96

   (See figure in printed
   edition.)

Note:  The sampling errors for each of the percentages above are 1.5
percent or less. 

Moreover, 1 to 3 percent of the cafeteria managers reported that
while their schools were not offering brand-name fast foods at the
time of our survey, they were planning to offer them during the
1995-96 school year. 

Even though more schools were offering brand-name fast foods, the
number of items offered and the frequency with which they were
offered was somewhat limited.  In the schools that offered these
items, most cafeteria managers (60 to 72 percent) reported that they
offered only one item, while others (24 to 36 percent) reported
offering two or more items. 

In addition, brand-name fast foods were generally not offered every
day but on an average of twice a week.  Most schools (51 to 63
percent) offered a brand-name fast food once a week or less.  About
19 (14 to 24) percent, offered an item every day. 

Most schools offering brand-name fast food items included them as
part of a lunch that qualifies for federal reimbursement under the
lunch program, the cafeteria managers reported.  However, about 24
(18 to 29) percent of the schools serving brand-name fast foods
reported that they offered them solely as a la carte items.  The
three types of brand-name fast foods that schools most frequently
offered were pizza, burritos, and subs and other sandwiches,
excluding hamburgers.  Of those schools offering brand-name fast
foods, 80 (74 to 85) percent offered pizza, 21 (16 to 26) percent
offered burritos, and 11 (7 to 15) percent offered subs and/or
sandwiches. 

According to cafeteria managers, four fast food vendors provided the
bulk of brand-name fast foods for the schools using these items in
school year 1995-96.  Collectively, about 73 (68 to 79) percent of
the schools that offered brand-name fast foods used one or more of
these four vendors:  36 (30 to 42) percent of the schools used Pizza
Hut; 27 (21 to 32) percent, Domino's Pizza; 22 (17 to 27) percent,
Taco Bell; and 6 (3 to 9) percent, Subway. 


      CHARACTERISTICS OF SCHOOLS
      OFFERING BRAND-NAME FAST
      FOODS DIFFERED FROM THOSE OF
      OTHER SCHOOLS
-------------------------------------------------------- Chapter 4:1.2

Schools offering brand-name fast foods differed in a number of ways
from those that did not.  In particular, by school level, middle
schools--about 25 (20 to 30) percent--and high schools--23 (18 to 28)
percent--were more likely to offer these foods than elementary
schools--9 (7 to 11) percent--during school year 1995-96.\3

By location, suburban schools were more likely to offer brand-name
fast foods than rural or urban schools.  The difference between urban
and rural schools was also significant.  Approximately 22 (19 to 26)
percent of the suburban schools used brand-name fast foods during the
1995-96 school year compared with 15 (12 to 19) percent of the
schools in urban areas and 8 (7 to 10) percent of the schools in
rural areas.\4

In addition, regardless of school level or location, schools using
and not using brand-name fast foods differed in the following areas: 

  -- Student population. 

Schools offering brand-name fast foods were more likely to have
larger student populations than schools not using these foods--an
average of from 730 to 885 students compared with from 503 to 543
students, respectively. 

  -- Cafeteria management. 

Schools offering brand-name fast foods were more likely to be managed
by an FSMC than schools not offering these foods--about 18 (13 to 23)
percent compared with 10 (8 to 11) percent, respectively. 

  -- Offer versus serve. 

Elementary and middle schools offering brand-name fast foods were
more likely to use the offer versus serve option than elementary and
middle schools that did not--about 95 (91 to 98) percent compared
with 84 (82 to 86) percent. 

  -- Multiple entrees. 

Schools using brand-name fast foods were more likely to offer
multiple entrees than schools that did not use these foods--about 83
(78 to 88) percent compared with 57 (54 to 59) percent. 


--------------------
\3 We defined elementary schools as schools serving children in grade
six and under or schools serving children through grade eight,
provided that they also serve children in grade three or under.  We
defined middle schools as schools with a minimum grade level of four
through eight and with a maximum grade level of seven through nine. 
We defined high schools as schools serving children only in grades
nine and up.  Some schools such as those that serve kindergarten
through grade 12 did not meet these definitions; hence we did not
include them in our analysis of differences by school level. 

\4 We defined urban as large and mid-size central cities of standard
metropolitan statistical areas.  We defined suburban as the urban
fringe of large and mid-size cities in metropolitan statistical areas
and large towns not in metropolitan statistical areas with
populations of 25,000 or more.  We defined rural as areas with
populations of less than 2,500 as well as small towns not in
metropolitan statistical areas. 


   MOST CAFETERIA MANAGERS REPORT
   THAT THEIR SCHOOL BENEFITED
   FROM USING BRAND-NAME FAST
   FOODS
---------------------------------------------------------- Chapter 4:2

The use of brand-name fast foods benefited schools' lunch service,
according to most cafeteria managers we surveyed.  They most often
cited a desire to increase students' participation in the lunch
program as the reason for using brand-name fast foods, and they most
frequently reported increased sales as a benefit.  Those cafeteria
managers not offering brand-name fast foods most frequently stated
that the food currently being served was more nutritious as their
reason for not offering those items. 


      INCREASED PARTICIPATION WAS
      THE MOST FREQUENTLY CITED
      REASON FOR OFFERING
      BRAND-NAME FAST FOODS
-------------------------------------------------------- Chapter 4:2.1

As figure 4.2 shows, 75 percent of the cafeteria managers at schools
offering brand-name fast foods named increased student participation
as the reason for turning to brand-name fast foods.  Fifty-five
percent said the students asked for brand-name fast foods, and
another 46 percent said their food authority or district decided to
provide students with brand-name fast foods. 

   Figure 4.2:  Reasons for Using
   Brand-Name Fast Foods Cited by
   Cafeteria Managers in Schools
   Currently Using Them

   (See figure in printed
   edition.)

Legend

SFA = school food authority

Note:  The sampling errors for each of the percentages above are
listed in order from left to right:  5.4 percent, 6.2 percent, 6.2
percent, 5.9 percent, 4.4 percent, 3.8 percent, 2.9 percent, and 2.5
percent, respectively. 


      INCREASED SALES WAS THE MOST
      FREQUENTLY CITED BENEFIT OF
      OFFERING BRAND-NAME FAST
      FOODS
-------------------------------------------------------- Chapter 4:2.2

As shown in figure 4.3, in terms of benefits, cafeteria managers most
often identified three changes following the introduction of
brand-name fast foods:  (1) 82 percent reported increased school
lunch and a la carte sales, (2) 74 percent reported increased student
satisfaction with the school lunch, and (3) 71 percent reported
greater student participation.  However, 6 percent of the managers
said that they experienced no change in sales, and 1 percent reported
a decrease. 

Schools' use of brand-name fast foods appeared to have little effect
on the number of schools' food service workers.  Sixty-four percent
of the schools reported no change in the number of food service
workers, another 5 percent reported a loss, and 10 percent reported a
gain. 

   Figure 4.3:  Effects of Using
   Brand-Name Fast Foods Cited by
   Cafeteria Managers

   (See figure in printed
   edition.)

Legend

NSLP = National School Lunch Program

Note:  The percentages within each category do not add up to 100
percent; not all managers answered each question.  Also, the sampling
errors for the percentages in each category are listed from left to
right:  "School Lunch and a la Carte Sales" (4.8 percent, 3 percent,
and 1.4 percent); "Student Satisfaction with School Lunch" (5.5
percent, 3.7 percent, and 2 percent); "Student Participation in NSLP"
(5.7 percent, 4.1 percent, and 3.2 percent); "Ease of Serving Food to
Students" (6.1 percent, 6.2 percent, and 2.9 percent); "Number of
Food Service Workers at the School" (3.7 percent, 6 percent, and 2.8
percent); "Students Leaving School Grounds During Lunch" (1.6
percent, 5.6 percent, and 3.7 percent); and "Amount of Plate Waste"
(2.1 percent, 5.3 percent, and 6.2 percent). 


      SOME SCHOOLS DO NOT OFFER
      BRAND-NAME FAST FOODS
      BECAUSE OF BELIEFS THAT
      CURRENT FOOD SERVED IS MORE
      NUTRITIOUS
-------------------------------------------------------- Chapter 4:2.3

According to cafeteria managers in 55 percent of the schools that did
not use brand-name fast foods, their school did not use these foods
because managers believed the food currently being served in their
cafeteria was more nutritious.  Thirty-six percent of the cafeteria
managers said that their school did not use brand-name fast foods
because these foods were too costly, and 35 percent reported that the
food authority or school district prohibited their use.  (See fig. 
4.4.)

   Figure 4.4:  Reasons for Not
   Using Brand-Name Fast Foods
   Cited by Cafeteria Managers Not
   Using and Not Planning to Use
   Them

   (See figure in printed
   edition.)

Legend

SFA = school food authority

Note:  The sampling errors for the percentages above are listed, in
order, from left to right:  2.5 percent, 2.4 percent, 2.3 percent,
1.2 percent, and 1.1 percent. 


   BRAND-NAME FAST FOODS CAN BE
   INCLUDED AS PART OF A FEDERALLY
   REIMBURSABLE LUNCH
---------------------------------------------------------- Chapter 4:3

Brand-name fast foods served alone do not qualify as a lunch meeting
USDA's nutritional standards and therefore are not eligible for
federal reimbursement under the lunch program.  However, meals that
include brand-name fast foods and other foods prescribed by the
federal lunch pattern, as discussed in chapter 1 and appendix II, can
be eligible for federal reimbursement.  Our analysis of available
ingredient information for four fast foods--Pizza Hut's pepperoni
pizza, Domino's pepperoni pizza, Taco Bell's bean burrito, and
Subway's Club sandwich--and the lunch program's requirements showed
that these items can be incorporated into a lunch that qualifies for
federal reimbursement under the program. 

Tables 4.1 through 4.4 show the contributions of the ingredients in
the four fast food products to USDA's prescribed lunch pattern
requirements for group IV (ages 9 and older/grades 4 through 12). 
The tables also show examples of lunches that include these
brand-name fast food items and could qualify for federal
reimbursement under the program.  Appendix II shows the federal lunch
pattern requirements for the five age and grade categories.  Appendix
III identifies the nutrient content of these foods, as described by
the fast food vendors. 



                               Table 4.1
                
                Pizza Hut's Pepperoni Pizza Ingredients
                and Contribution to the Lunch Program's
                              Requirements

                                          Contribution to NSLP's lunch
Ingredients by weight for 1/8 slice of a  program pattern requirement
14-inch hand-tossed pepperoni pizza       per serving
----------------------------------------  ----------------------------
Real cheese (1.76 oz.) and pepperoni      1 serving (2 oz.) of meat/
(0.37 oz.)                                meat alternate

Pizza crust (2.75 oz.)\a                  2.5 servings of bread

Pizza sauce (0.80 oz.)                    \b
----------------------------------------------------------------------
Legend

NSLP = National School Lunch Program

Note:  A school lunch, including this pizza, can qualify for federal
reimbursement if incorporated into a meal that also offered one-half
pint of milk, three-quarters of a cup of a vegetable, and
three-quarters of a cup of fruit.  The pizza contributes the bread
and meat/meat alternate components of the lunch pattern for group IV. 
(See app.  II.)

\a The pizza crust is made with enriched flour. 

\b Pizza Hut, Inc., does not include pizza sauce as a contributor to
the lunch pattern requirement for vegetables. 

Source:  Our analysis of the product's ingredient information
provided by Pizza Hut, Inc., and USDA's lunch pattern requirements. 



                               Table 4.2
                
                Domino's Pepperoni Pizza Ingredients and
                  Contribution to the Lunch Program's
                              Requirements

                                          Contribution to NSLP's lunch
Ingredients by weight for 1/8 slice of a  pattern requirement per
15-inch pepperoni pizza                   serving
----------------------------------------  ----------------------------
Real cheese (1.80 oz.) and pepperoni      1 serving (2 oz.) of meat/
(0.35 oz.)                                meat alternate

Pizza dough (2.67 oz.)\a                  2 servings of bread

Pizza sauce (1.10 oz.)                    1/8 cup vegetables
----------------------------------------------------------------------
Legend

NSLP = National School Lunch Program

Note:  A school lunch, including this pizza, can qualify for federal
reimbursement if incorporated into a meal that also offered one-half
pint of milk, five-eighths of a cup of a vegetable, and
three-quarters of a cup of fruit.  The pizza contributes the bread,
meat/meat alternate, and part of the fruit/vegetable components of
the lunch pattern for group IV.  (See app.  II.)

\a The dough is made with bleached, enriched flour. 

Source:  Our analysis of the product's ingredient information
provided by Domino's Pizza, Inc., and USDA's lunch pattern
requirements. 



                               Table 4.3
                
                Taco Bell's Bean Burrito Ingredients and
                  Contribution to the Lunch Program's
                              Requirements

                                          Contribution to NSLP's lunch
Ingredients by weight for a 7.45-ounce    pattern requirement per
bean burrito                              serving
----------------------------------------  ----------------------------
Pinto beans (104.0 g) and real cheese     1 serving (2 oz.) of meat/
(6.8 g) filling (total, 2.25 oz.)         meat alternate

Tortilla (72.3 g)\a                       2 servings of bread
----------------------------------------------------------------------
Legend

NSLP = National School Lunch Program

Note:  A school lunch, including this burrito, can qualify for
federal reimbursement if incorporated into a meal that also offered
one-half pint of milk, three-quarters of a cup of a vegetable, and
three-quarters of a cup of fruit.  The burrito contributes the bread
and meat/meat alternate components of the lunch pattern for group IV. 
(See app.  II.)

\a The tortilla is made with bleached, enriched, wheat flour. 

Source:  Our analysis of the product's ingredient information
provided by Taco Bell Corp.  and USDA's lunch pattern requirements. 



                               Table 4.4
                
                 Subway's Club Sandwich Ingredients and
                  Contribution to the Lunch Program's
                              Requirements

                                          Contribution to NSLP's lunch
Ingredients by weight for a 6-inch        pattern requirement per
Subway Club sandwich                      serving
----------------------------------------  ----------------------------
Real cheese (0.4 oz.), ham (0.5 oz.),     1 serving (2 oz.) of meat/
roast beef (1.0 oz.), & turkey breast     meat alternate
(1.0 oz.)

Italian white bread (2.5 to 2.6 oz.)\a    2.5 servings of bread

Vegetables (2.0 to 3.0 oz.)\b             1/4 cup vegetables
----------------------------------------------------------------------
Legend

NSLP = National School Lunch Program

Note:  A school lunch, including this sandwich, can qualify for
federal reimbursement if incorporated into a meal that also offered
one-half pint of milk, one-half of a cup of a vegetable, and
three-quarters of a cup of fruit.  The sandwich contributes the
bread, meat/meat alternate, and part of the fruit/vegetable
components of the lunch pattern for group IV.  (See app.  II.)

\a The bread is made with bleached, enriched flour. 

\b The vegetables are lettuce, tomatoes (slices will vary by weight),
and pickles. 

Source:  Our analysis of the product's ingredient information
provided by Subway and USDA's lunch pattern requirements. 


   MOST SCHOOLS ALLOW STUDENTS
   ACCESS TO SNACK FOODS DURING
   LUNCH
---------------------------------------------------------- Chapter 4:4

In most schools, students had access to snack foods from vending
machines or other sources, such as school canteens, during the lunch
period.  About 67 (64 to 69) percent of the cafeteria managers said
that their schools sold some type of snack food either a la carte or
from a school canteen during lunch.  According to the cafeteria
managers, the most frequently available items were juice (51
percent); cakes, pastries, and cookies (47 percent); ice cream (44
percent); and fruits (42 percent).  Nineteen (17 to 21) percent of
the cafeteria managers reported selling some type of snack foods from
vending machines during the lunch period.  Juice (10 percent),
carbonated soft drinks (10 percent), and chips (7 percent) were most
frequently cited as being available to students via vending machines. 

Table 4.5 shows the types of snack foods available to students
through vending machines, through school canteens, and a la carte
during lunch.\5



                               Table 4.5
                
                    Percentage of Cafeteria Managers
                Reporting Availability of Snack Foods in
                  Vending Machines and School Canteens
                              During Lunch



                                                 95-               95-
                                             percent           percent
                                            confiden          confiden
                                    Percen        ce  Percen        ce
Snack item                               t  interval       t  interval
----------------------------------  ------  --------  ------  --------
Juice                                   51  49 to 53      10   9 to 12
Cakes, pastries, cookies, and           47  44 to 49       5    4 to 6
 other bakery goods
Ice cream                               44  42 to 47       1    1 to 2
Fruits                                  42  40 to 45     0.4    0.1 to
                                                                   0.7
Chips (e.g., corn, potato)              32  30 to 34       7    6 to 9
Crackers                                28  26 to 30       4    3 to 5
Yogurt                                  19  17 to 20     0.4    0.1 to
                                                                   0.7
Nuts, seeds                             11   9 to 12       3    2 to 4
Candies                                  7    6 to 8       6    5 to 7
Carbonated soft drink/pop                7    6 to 8      10   8 to 11
----------------------------------------------------------------------
Note:  We did not assess the availability of sandwiches, salads,
pizza, fries, and many other a la carte items. 


--------------------
\5 We did not conduct a nutritional analysis of these food products. 


SURVEY METHODOLOGY
=========================================================== Appendix I

This appendix describes the survey methods we used to (1) determine
the extent to which food authorities contracted with food service
management companies (FSMCs) in school year 1994-95 and the impact of
these companies on the school lunch program, (2) describe the terms
and conditions in contracts between food authorities and FSMCs, and
(3) determine the extent to which brand-name fast foods and vending
machines are used in schools participating in the National School
Lunch Program and obtain information on the most frequently used
types and brands of these foods. 


   EXTENT OF FSMCS IN SCHOOLS AND
   IMPACT ON SCHOOL LUNCH PROGRAM
--------------------------------------------------------- Appendix I:1

We conducted two surveys--one of the states and the District of
Columbia and one of food authorities--to determine the extent of
FSMCs' use and their impact on the lunch program. 

First, we sent two letters to the agencies responsible for
administering the lunch program in each of the 50 states and the
District of Columbia asking them to provide us with the names and
addresses of (1) all food authorities in the state/District, both
public and private, and (2) all food authorities with FSMC contracts
in school year 1994-95.  All states and the District provided us with
both lists.  To the extent possible, we eliminated camps and
residential child care institutions from these two universes.  The
final universes included 19,248 and 1,462 food authorities,
respectively, and included schools that did not participate in the
lunch program.  Thus, according to state/District agencies' data, 7.6
percent of the food authorities had FSMC contracts in 1994-95. 

We then mailed questionnaires to all 1,462 food authorities
identified by state/District agencies as having an FSMC contract and
sent up to two follow-up mailings to encourage response.  During the
collection of the data, we identified 39 food authorities that were
residential child care facilities, 5 food authorities that did not
have contracts with FSMCs in school year 1994-1995, and 31 food
authorities that had no schools in their district participating in
the lunch program.  Eighty-five percent (1,175) of the remaining
1,387 food authorities returned a completed questionnaire.  Our
survey results for this group represent only the 1,175 survey
respondents that participated in the lunch program and had FSMC
contracts. 

To compare food authorities that had FSMC contracts with ones that
did not, we also surveyed the latter group.  For the latter group, we
drew a simple random sample of 1,000 food authorities from the
universe of 19,248 authorities identified by the 50 states and the
District of Columbia.  We eliminated from this sample 66 food
authorities (6.6 percent of the sample) that were included among the
1,462 food authorities that state/District agencies reported as
having contracted with an FSMC in the 1994-95 school year.  We mailed
questionnaires to the 934 food authorities identified as not having
FSMC contracts.  Of these, 1.6 percent (15) responded that they were
residential child care facilities.  The majority, 89.4 percent (835)
returned completed questionnaires.  Of these, 53 reported that they
did not participate in the lunch program, and 17 reported that they
had FSMC contracts in school year 1994-95.  We did not use data from
these 70 questionnaires in our analysis.  Therefore, we used the
responses from the remaining 765 questionnaires to compare food
authorities that had FSMC contracts with those that did not.  Our
survey results represent an estimated 14,801 food authorities
participating in the lunch program that did not contract with FSMCs
in school year 1994-95.\1


--------------------
\1 We used a conservative statistical approach that required us to
generalize our results only to the overall level reflected by our
response rate. 


   CONTRACTS WITH FOOD SERVICE
   MANAGEMENT COMPANIES
--------------------------------------------------------- Appendix I:2

To describe the terms and conditions contained in contracts between
food authorities and FSMCs, we selected a simple random sample of 82
food authorities from the starting universe of 1,462 food authorities
identified by the 50 states and the District of Columbia as having a
contract with this type of company.  We asked these food authorities
to provide us with a copy of their current food service contract and
related documents as well as their questionnaire response.  In the
course of our review, we determined that 11 of the 82 food
authorities did not belong in the universe of food authorities with
FSMC contracts because they were residential child care institutions,
did not have a contract with an FSMC, or were not participating in
the lunch program.  Of the remaining 71 food authorities in our
sample, 68 (95.8 percent) provided us with the contract documents we
requested.  We used a pro forma data collection instrument to code
information on selected terms and conditions in the contracts.  The
results from our analyses of the contracts can be projected to an
estimated 1,212 of the food authorities contracting with food service
management companies in school year 1994-95. 


   USE OF BRAND-NAME FAST FOODS
   AND VENDING MACHINES
--------------------------------------------------------- Appendix I:3

To determine the extent to which schools use brand-name fast foods in
the school lunch program and permit the use of vending machines, we
surveyed public school cafeteria managers about their lunch program. 
We selected a simple random sample of 2,450 schools from the 87,100
schools listed in the National Center for Education Statistics'
Common Core of Data Public School Universe, 1993-94 (Common Core of
Data).  Schools outside the 50 states and the District of Columbia
were excluded from consideration.  We sent a questionnaire to the
cafeteria manager at each school and made up to two follow-up
mailings to encourage response.  Eighty percent (1,967) of those
surveyed returned a questionnaire.  Of these, 4 percent did not
participate in the lunch program.  We matched the remaining 1,887
survey responses to information about each school in the Common Core
of Data.  Our survey results for this survey represent an estimated
65,743 of the 81,911 public schools that participated in the lunch
program in the 1993-94 school year. 

A number of the surveys were completed for the surveyed school's
district rather than the individual school.  In those cases, we used
information from the Common Core of Data to determine the surveyed
school's grade level and location.  Unless otherwise stated in the
survey response, we assumed that districtwide information held for
the surveyed school. 


   SAMPLING ERROR
--------------------------------------------------------- Appendix I:4

Three of our five data collection strategies relied on statistical
sampling, including the survey of food authorities not contracting
with food service management companies, the selection of contracts
between food authorities and food service management companies, and
the survey of cafeteria managers.  As with all sample surveys, our
statistical estimates that were based on these data collection
strategies contain sampling error--the potential error that arises
from not collecting data from all food authorities, on all contracts,
or from cafeteria managers at all schools.  The two data collection
strategies not using statistical samples included the state survey
concerning the prevalence of FSMC contracts and the survey to all
food authorities with FSMC contracts.  Those results do not contain
sampling error. 

We calculated the amount of sampling error for each estimate at the
95-percent confidence level.  This means, for example, that if we
repeatedly sampled food authorities from the same universe and
performed our analysis again, 95 percent of the samples would yield
results within the range specified by our survey estimate plus or
minus the sampling error.  This range is the 95-percent confidence
interval.  In calculating the sampling errors, we did not make a
correction for sampling from a finite population. 

The sampling error must also be taken into consideration when
interpreting differences between subgroups of interest, such as food
authorities that did and did not contract with FSMCs.  For each
contrast of subgroups that we reported, we calculated the statistical
significance of any observed differences.  Statistical significance
means that the differences we observed between subgroups are larger
than would be expected from the sampling error.  When this occurs,
some phenomenon other than chance is likely to have caused the
difference.  Statistical significance is absent when an observed
difference between two subgroups, plus or minus the sampling error,
results in a confidence interval that contains zero.  It should be
noted, however, that even in the absence of a statistically
significant difference, a difference may exist.  Instead, the sample
size or number of respondents to a question may not have been
sufficient to allow us to detect a difference. 

We used the chi square goodness of fit statistic to test for
differences in percentages between food authorities that did and did
not contract with FSMCs, and we used the one-sample t-test for
differences in means.  We used the chi square test of association to
test for differences in percentages between subgroups of cafeteria
managers, such as those located in rural versus suburban areas.  We
used the paired samples t-test to compare responses on two different
questions within a questionnaire. 


FEDERAL LUNCH PATTERN REQUIREMENTS
========================================================== Appendix II


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