By Steve Weinstein
By Devon Maloney
By Tessa Stuart
By Alison Flowers
By Albert Samaha
By Jesse Jarnow
By Eric Tsetsi
By Raillan Brooks
Critics contend that Accenture did not grasp the particulars of the food businesslike the difficulties inherent in trying to cram both produce items and frozen food on the same truck (the produce can end up frozen). "You cannot always have these hotshot MBAs," Goldman says. "People have to know the business that they're talking about."
This is not the first trouble for the school food distribution system: In 1995, the investigations commissioner found rampant mismanagement and dangerous food-handling practices in the department. In 2000, when chancellor Klein was an assistant U.S. attorney general, his office indicted 22 people and 13 companies for rigging bids on school food delivery contracts. Several figures went to jail. A 2004 report by the investigations commissioner found that persistent flaws in the delivery bidding system cost the city millions of dollarsand, remarkably, fingered three of the same school officials slammed in 1995. According to the 2004 probe, two of them accepted gifts from a contractor, and both lied to the FBI. But two were allowed to retire, and one resigned and receives a pension. While several business figures went to jail for corruption, no school food officials have been fired or prosecuted.
The current problems might seem minor compared to the earlier woes. But the current crisis reflects lessons unlearned. In the past, as now, accepting the lowest bid spelled trouble for school cafeterias. The officials now in charge of school foodBerkowitz and Oestreicherare not linked to the earlier problems; they arrived only in 2003 and helped develop the idea to centralize the distribution system.
If the Accenture-backed plan to centralize deliveries to three firms has faltered, at least there's comfort in knowing it might have been worse. In 2003, the school department considered hiring not three firms, but just one company to handle the entire city. Smaller vendors, perhaps wanting to preserve their part of the action, say they warned the department that the job was just too big for one firm.
"I said there's no way that one company can possibly handle the volume," says Pat Russo, who runs Chef's Choice. Russo's father went to jail in the school food bid-rigging case and then Russoa retired copbought the company and changed its name. Reports indicate that the school department was prepared to award the citywide contract to H. Schrier & Co., a firm that another city agency had declared "not a responsible bidder" because of its ties to one of the men indicted in 2000. Oestreicher, however, denies that his department was on the verge of giving Schrier the deal. He says officials dropped the one-company plan because "we thought it would probably be too much of a stretch."
With the citywide scheme scrapped, the school department came up with a plan to award the contracts to three companies. Again, there were warnings from vendors. One was Eleftherios Vouyiouklis, president of a delivery company called Teri Nichols. When the school department last June named Watermelons, Louis, and Driscoll as the winners of the delivery bids, Vouyiouklis warned the department that the companies "either do not have existing or cannot establish the appropriate levels of credit." He also complained that one of the winners, Watermelons Plus, did not have adequate warehouse space. Photographs obtained by the Voice show products being stored outside the Watermelons Flatbush warehouse. Watermelons did not return repeated phone calls.
Both Chef's Choice and Teri Nichols bid for the distribution contracts (estimated at a total $33.5 million total over five years) and lost, so their complaints could be chalked up to sour grapes. But SchoolFood eventually insisted that Watermelons get a larger warehouse facility. And credit problems, or at least the fear of them, did crop up. Joel Warshaw at Louis Foods says food manufacturers began demanding cash up front from the delivery firms, adding, "So our start-up situation was really difficult."
That's why the city had to advance the delivery companies more than $3.3 millionto pay the manufacturers, who may have been worried about being stiffed by the delivery firms. The worry was founded: It turns out the USDA in February 2004 temporarily banned Driscoll Foods "from operating in the produce industry" for failing to pay a vendor. Driscoll's president, Tim Driscoll, declines to answer questions but says in an e-mail, "The city contract is under control. Everything with my company is going great."
Credit and warehousing weren't the only issues. According to Oestreicher, the food manufacturers sometimes didn't produce enough for the delivery companies to transport. What's more, the delivery companies were given only a month from the official start of the contract to the first day of school. "At the very beginning the start-up period was supposed to be 90 days, but it never came to fruition and we had to rush, and rushing into it, there were a lot of problems," Warshaw says. The reason for the delay, according to Berkowitz, was that the contractors had to gear up by installing more shelving or improving freezers.
That rush to add capacity foreshadowed the later problems. Warshaw admits that handling all of Queens and part of Brooklyn "was too much for us." As the problems surfaced, the school department began fining the delivery firms. Watermelons Plus was hit for $148,380, Louis Foods for $77,881, and Driscoll for $59,759. Louis and Driscoll are challenging some fines.