In 2008, three companies—Beyer Farms, Bartlett Dairy and Elmhurst Dairy—won a combined $134 million worth of contracts to supply milk to city schools in what was supposed to be a competitive bidding process.
But an audit by New York City Comptroller Scott Stringer's office released Wednesday calls into question just how competitive the process really was.
Once the contracts were awarded, the companies started working together and entered into subcontracting agreements, according to the audit.
"Subcontracting of this magnitude does not occur overnight. It is outrageous. It also raised red flags of possible collusion that cried out for scrutiny. But [the Department of Education] never took the time to look under the hood and examine what was really going on," Stringer said at a press conference announcing the results of the audit.
Stringer said his auditors don't know how much—if anything—the "possible collusion" cost taxpayers. Every penny increase in the cost of a school lunch translates to a $1.5 million cost to the city, he said.
The audit also slammed the Department of Education for not doing enough to check out the financials of the companies. Beyer Farms had shaky finances when it won the contract and ended up in bankruptcy court in 2012.
In its written response to the audit, the Department of Education agreed to do more to scrutinize bidders but largely rejected many of the audit's findings:
“We have cooperated with the Comptroller’s office to review the milk distribution contracts process—and we believe that ensuring a fair and ethical review is a high priority. This is an old audit based on contracts from 2008 and we have already implemented many of the audit’s recommendations. 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 current milk contracts expire this year and the department is already looking for new vendors. It is possible the same contractors could vie for the work. The Department did not respond to a request for the names of the current bidders.
Elmhurst provided a prepared statement defending its actions.
"Elmhurst Dairy followed all proper protocols in bidding and fulfilling the 2008 contract to supply milk to the Department of Education," the company wrote. "The New York City Comptroller did not contact Elmhurst Dairy regarding this audit. We have not reviewed the Comptroller’s report issued today and therefore have no further comment."
The other companies were not immediately available for comment.