Unjust Desserts

Pink slips on the menu for school food supplier

Pagano claims that the city owes him $1.6 million for underpayments, unjust fines, and improper charges. In addition, the Department of Education has withheld the final payment to Watermelons Plus for services rendered, worth about $1.1 million, until all accounts are settled. "We're just protecting the city's interest," Berkowitz says.

The companies that are replacing Louis Foods and Watermelons Plus had lost the initial bid because they charged more. Now, those higher charges apply, and they're eating into whatever savings the new program was expected to generate. One of the replacements, U.S. Foodservice—which has former executives under federal indictment for securities fraud—is charging six times more per pound than Watermelons Plus did.

So is the program saving any money at all? "It's hard to say," says Berkowitz, who points to the administrative advantages of the system. "One vendor per region is a big, big plus and it came in handy in something like the transit strike and other emergencies," he says, when, in Manhattan, "we had one company to deal with."


The Department of Education still says service is OK, and people who monitor it told the Voice they mostly agree. After months of delay, a new contract was opened up for bidding last week for the areas that have gone to emergency vendors. The revised plan divides the school system into smaller geographic zones and reworks the language on the prompt-payment discount. Work to improve the computer system continues. In other words, the department is fixing some of the problems that Pagano blames for his early departure.

Pagano's roots in the food business run deep. His grandfather peddled on the streets of Brooklyn, and then his dad and uncle took the family into the produce business. Pagano himself came on in 1968, and he works with two of his brothers, sometimes seven days a week. The school food contract held out the promise of gentler hours and a steady stream of money that in a few years would allow Pagano, 60, to hand the business to his son and nephew.

That hope is dashed, and now instead of stabilizing his business, Pagano might lose it. Immediate problems include paying off his produce suppliers, who are protected by a federal law that demands they get their checks on time. Louis Foods is a bigger company, but it's damaged too. The $3 million, aircraft-hangar-sized warehouse it built for the deal is mostly empty, and 60 people lost jobs.

Pagano acknowledges that the bid might have been a mistake for his little firm, but he thinks it could have worked. "I'm blaming all of us," he says. Now that the kinks are being worked out, Watermelons Plus would like to be in on the action. Its trucks, however, remain empty. "You're going to use us as a guinea pig? OK," Pagano says. "But we thought this was a partnership. They dumped the total responsibility on us."

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