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Got Bilked? DOE Milk Suppliers May Have Creamed City With Contracts: Audit

By Colby Hamilton | February 26, 2014 4:04pm
 Comptroller Scott Stringer's office released the results of an audit on February 26, 2014 that raised questions over the handling of school milk contracts.
Comptroller Scott Stringer's office released the results of an audit on February 26, 2014 that raised questions over the handling of school milk contracts.
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DNAinfo/Colby Hamilton

CIVIC CENTER — City schools may be getting an udderly sour deal from their milkmen, according to an audit by the Comptroller’s office released Wednesday that raised questions about possible price collusion between milk vendors awarded $134 million in city contracts.

According to the report, three companies who vied for the five-year contracts back in 2008 quickly became business partners after the deals were made, raising questions about whether the city got a raw deal on the price of milk.

“DOE ignored red flags that its milk contracts may have been tainted,” Stringer said in a statement.

The audit did not specifically uncover evidence of collusion, but the comptroller's office said it was referring the matter to the U.S. Department of Justice, which has oversight over the federally funded school lunch program, for further investigation.

Beyer Farms received the largest chunk of the contracts out of the seven bids that were offered, valued at $111 million. Two other initial rivals, Elmhurst Dairy and Bartlett Dairy, won the remaining bids. All three companies were based in Jamaica, Queens.

But within months of being awarded the contracts, Beyer began subcontracting its milk delivery to its former competitors. For example, Bartlett’s share of milk delivery services rose from six percent to almost 70 percent, the report found.

According to Stringer, none of the companies mentioned the possibility of subcontracts in their bids, which they’re required to do. Additionally, given the speed with which the companies began doing business together after the bids were award, there’s a possibility they were working together ahead of the process to coordinate their offers in an effort to increase their profits, the report said.

“We see possible collusion when rival bidders become business partners within two months of being awarded contracts,” Stringer said. “Instead of doing its due diligence, DOE needlessly put taxpayers at risk.”

In a statement from its lawyer, Bartlett Dairy dairy called Stringers' allegations "false and defamatory."

"Every contract it has been awarded has been the result of competitive bidding and bids are made for competitive reasons—Bartlett Dairy, Inc. has done nothing wrong," the lawyer, Joe Paykin, said in a statement.

Cassandra Brannick, a spokeswoman for Elmhurst Dairy, wrote in a statement that the company "followed all proper protocols in bidding and fulfilling the 2008 contract to supply milk to the Department of Education."

Brannick said Stringer's office did not contact Elmhurst regarding the audit, had not read the report, and would not be making additional statements.

Stringer's office als claimed DOE failed to properly assess the financial health of the bidders. According to the audit, Beyer’s finances were a mess, but DOE ignored internal warnings, awarding the company its biggest contract. By 2012, the company was bankrupt, “leaving DOE scrambling for a replacement.

“This is an old audit based on contracts from 2008 and we have already implemented many of the audit’s recommendations," said DOE spokeswoman Davore Kaye. "Nonetheless, as we enter a new era for our school system, we’re going to bring even further transparency to all of our processes.”

The contracts in question expired in August of last year and the DOE is in the process of procuring new ones, the Comptroller’s office said.