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This article was originally published in The Tan Sheet

Executive Summary

INFANT FORMULA WIC BIDS WILL BE ACCEPTED FOR MILK- AND SOY- BASED FORMULAS under a federal system for competitive bidding to be conducted by the Agriculture Department's Food and Nutrition Service. An interim rule implementing the WIC Infant Formula Procurement Act of 1992, published in the Sept. 7 Federal Register, states that separate bids will be solicited for soy- based and milk-based infant formulas "except where FNS determines that doing so would not be in the best interest of the program." The 1992 act represents an attempt by Congress to expand the leverage of the state administrators of the federal government's Special Supplemental Food Program for Women, Infants and Children (WIC) in soliciting bids from manufacturers for the program. A federal law, enacted in 1989, required all states to implement a competitive bidding system for procuring infant formula. The interim rule establishes a federal system for soliciting bids from infant formulas for two or more states at a time. Citing the 11-state Western States Contracting Alliance, FNS noted in the interim rule that "current multi-state contracts appear to be advantageous for all of the participating state agencies." FNS reported that "some of the smaller state agencies" participating in the contracting consortium "realized an increase of as much as 80% over their previous per unit rebate amount." The interim rule, which is effective immediately, is limited to infant formula manufacturers that provide rebates on formula to states using retail food delivery systems such as vouchers. The rule does not include volume purchase discounts or states using other delivery systems. Under the competitive bid system, FNS will offer state agencies the opportunity to participate in federally administered multi-state bidding once every 12 months. Each state that elects to participate in the program is required to provide an estimate of infant participation in the state WIC program for the period to be covered in the contract as well as supporting documentation and the infant formula usage rates by type of formula, form and container size. These figures, FNS noted, will serve as the basis for the request for rebates. FNS noted that winning bids will be selected based on "the lowest net price weighted to take into account infant formula usage rates and infant participation." Ties between equally low bids, FNS said, will be broken "by a drawing by lot" limited to the lowest bidders. "Net price" is defined by FNS as "the difference between the manufacturer's wholesale price for infant formula and the rebate level offered or provided by the manufacturer under an infant formula cost containment contract entered into with the pertinent state agency." FNS explained that if a manufacturer changes its wholesale price, "the rebate must change proportionately throughout the contract period." FNS also pointed out that "since the overriding interest" of the 1992 law is to reduce per unit costs of infant formula, the agency "has decided that price is the only proper basis for evaluation of bids." Consequently, FNS said that under the federal bid system state agencies will not have the option "to request any additional 'free samples' of infant formula, related products, or printed materials." The agency noted, however, that manufacturers "may provide these products if they wish." Once the winning bid is determined by FNS, it will be up to the state agencies to award the bid and sign a contract with the manufacturer under the interim rule. States that agree to participate in the federal solicitation can elect not to enter into a contract with the winning bidder; however, the interim rule "limits the instances in which a state agency may decline to award a contract once bids are opened" to instances where the state determines that the award is not in "the best interest of its program" and after considering whether the national bid would achieve lower savings for the state.

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