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Queens Chronicle

City refers school milk contract to U.S. DOJ

Audit cites Dept. of Education on bidding oversight shortcomings

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Posted: Thursday, March 6, 2014 10:30 am | Updated: 11:39 am, Thu Mar 13, 2014.

The office of city Comptroller Scot Stringer has asked the U.S. Department of Justice to investigate the possibility of collusion among the recipients of the current contracts to deliver milk to schools under the city’s Department of Eduction.

The current five-year contract, awarded in 2008, was apportioned among Beyer Farms, Inc., Elmhurst Dairy and Bartlett Dairy, all of Jamaica.

Beyer declared bankruptcy in December 2012 and ceased operations. The DOE was able to award two other contracts to keep the flow of milk products uninterrupted.

“[The] DOE did not adequately review the financial capacity of the vendors that were awarded milk contracts,” Stringer said in a letter accompanying the 43-page audit report. “In addition, DOE lacked adequate procedures for detecting the warning signs of possible (emphasis in the original) collusion.”

Eric Sumberg, Stringer’s press secretary, said the contracts with Elmhurst, set to expire last Aug. 31, have been extended as the DOE prepares for new bids.

“We will be taking a very close look at those milk contracts, which have been sent out for bids, in our office,” he said.

He also said it is not unusual that an investigation would have begun so close to the end of a contract.

“Auditing is by its nature a backward-looking exercise,” he said.

Calls to Bartlett and Elmhurst were not returned. Gina Talamona, a spokeswoman for the DOJ, would acknowledge only that they are in receipt of Stringer’s referral.

The audit, begun under the administration of former Comptroller John Liu, found that a total of seven companies made bids for all or part of the services required in the DOE’s eight delivery zones.

Bartlett originally was awarded the smallest share of the contract, but in October 2008 — less than two months after the contracts were awarded and less than two before they went into effect — Beyer and Elmhurst sought and got permission to subcontract delivery to Bartlett in some sections of Queens, Manhattan and the Bronx.

The report states that warning signs of Beyer’s financial condition would have been visible with an adequate review. It says the DOE did not adequately review financial statements on Beyer for the years 2004 through 2007 that “indicated that Beyer did not have the financial resources to fully perform the contract.”

Page 14 of the audit states that the Comptroller’s Office identified “various warning signs pointing to possible collusion” including connections among the vendors, questionable bidding patterns and a bidder being selected as a subcontractor for two other bidders.

“While these warning signs in and of themselves are not evidence that collusion actually occurred, we believe that these signs indicate that further review by DOE ... was warranted before awarding these contracts.”

Stringer’s report included DOE responses on several points.

The DOE stated among other things that:

• “it does not disagree with the recommendation” to refine its procedures for reviewing vendors’ financial condition; and

• it will ensure that financial statements for the next milk contract be certified by an independent certified public accountant.

It also said some recommendations have been in place as far back as 2011.

In response to recommendations that the DOE take more advantage of resources such as the DOJ’s Antitrust Unit for vendor background checks, the DOE stated “That the Comptroller disagrees with the DOE’s analysis and possibly the conclusions does not mean that such analysis was not performed.”

A letter dated Oct. 9, 2013 from then-Deputy Chancellor Kathleen Grimm said “while the Comptroller may be critical of certain aspects of the DOE’s procurement ... the one thought that should not get lost in the report’s lengthy, chart-filled narrative is that every day, without a break attributable to contract implementation, high-quality milk is delivered to schools at a competitive cost. In the end, the procurement has proven to be a service to the schools and a savings to this city’s taxpayers.”

But the DOE did agree that it can create procedures that would make it easier to identify warning signs of collusion.

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