City Paper is not for tourists
How does D.C. ignore a multi-million dollar problem year after year? Pretty easily, it turns out.
On June 5, D.C. Attorney General Karl Racine reached a $19.4 million settlement in a whistleblower lawsuit against Chartwells/Thompson Hospitality, the public school system’s food services provider. The plaintiff, former D.C. Public Schools Food Services Director Jeffrey Mills, had detailed poor food quality and outright fraud, from misrepresented costs to concealed overpayments.
The city then proceeded to move forward on a renewal of Chartwells’ contract for the next year. Mayor Muriel Bowser and DCPS Chancellor Kaya Henderson seem determined to stick with it.
It’s the latest in a dysfunctional relationship between D.C. and Chartwells. Chicken nuggets and crates of spoiling milk is one thing. Price-gouging and fraud is another, given that DCPS exercised a renewal option in 2014, after the D.C. Office of Inspector General cited auditor’s findings that Chartwells brought in $19 million less in revenue and incurred $6 million more in costs than promised from 2008 to 2012. Revelations from the lawsuit and a separate employment lawsuit now hover over an arrangement that raised red flags the minute DCPS outsourced food services in 2008.
And city officials appear all too willing to wave Chartwells in for another year.
With the ink barely dry last month on the settlement, Racine seemed relieved to get the matter off his plate: “Chartwells has quite reasonably acknowledged and addressed mistakes it made in administering the contract to provide food and food services to DCPS,” he said in a press release. “In light of [their] acceptance of responsibility, DCPS looks forward to continuing its contractual relationship with the company.”
Added DCPS in a written statement: “We believe any issues regarding the provision of school meals, which relate primarily to the prior contract term, have been resolved. DCPS believes it can continue its relationship with Chartwells/Thompson through the expiration of the current contract.”
Henderson appeared the least bothered by activity that took place under her nose. Quashing any notion of change, she declared, “Food service is a massive operation, my focus is on improving academic achievement.”
Bowser has Henderson’s back. On June 19, she sent a contract renewal to the D.C. Council and said she will rebid it for the 2016-2017 school year. It will be hard to stop the renewal, too; The most vocal critic on the Council doesn’t even serve on the Committee for Education, which won’t hold a hearing until the fall.
To understand just how bad the city’s attempts at privatizing school meals have been, you need to go to Mills, a former restaurateur who came to D.C. passionate about food and left with last month’s settlement and a separate $450,000 settlement following his wrongful termination from DCPS.
Former colleague Joel Metlen puts it this way: “If it weren’t for Jeff’s lawsuit, none of this would’ve been on the radar.”
Jeff Mills was raised in northern Ohio on grandma’s cooking and the free school lunch program. He tended bar to pay for college in Boston, then after graduating, took his knack for business to New York, where he became a successful restaurateur. The nation’s biggest restaurant scene—full of what he describes as unreliable employees and business partners—was ultimately not for him, though. He still wanted to do something food-related, but with more social value.
Enter the nation’s capital.
D.C. has some of the country’s worst rates of food insecurity, hunger, and child obesity. For years, DCPS failed to provide nutritious meals to more than 45,000 students. In 2008, faced with losses of up to $7 million per year, then-DCPS Chancellor Michelle Rhee outsourced the school food operation, based on an internal study that said it would improve student health and save taxpayer money.
School districts are fueled by federal reimbursements for every meal they serve. The more meals served, the more reimbursements. According to the U.S. Food and Drug Administration, roughly 87 percent of large school districts nationwide run food services in-house. Mills had his staff do a district-by-district analysis and found that about 95 percent of all large districts break even or do this at a profit each year, but not D.C. Here, 76 percent of students qualify for the federal program, but year after year, the city subsidizes millions in costs that exceed federal reimbursements.
Chartwells won a $28 million contract for the 2008-2009 school year and guaranteed it would serve 13 million meals and cut costs. DCPS officials spotted problems with quality from the outset: Chartwells could not provide reliable information to schools that were waiting to feed students; the vendor was late in delivering meals or failed to deliver them; it delivered frozen food to schools with no appliances to freeze or heat the food; it served Slim Jims for lunch.
By the end of the first year, Chartwells had served two million fewer meals than projected, and DCPS’ losses doubled, as Chartwells raked in an additional $1 million in administrative fees and $.85 per meal in management fees. In spite of first-year losses and performance lapses, Rhee renewed Chartwells for 2009-2010. Then, from more than 100 applicants, she chose Mills as director of food services to come in and improve food quality and cut costs. Mills hit the ground running with the same energy that propelled him from Ohio to Boston to New York.
Mills is 41, fit, and graying at the sideburns. In his DCPS biography, he wears a beret in one photo and poses roguishly in a doorway inside his old restaurant in another. He’s less debonaire these days, padding around a temporary residence in Palisades, surrounded by binders of documents, waiting for his share of a settlement from a five-year ordeal. Mills spent three of those years fighting inside a system that, even now, resists change. “I didn’t feel like I had a choice,” he says. “If it were business in the private sector I would have walked away. But school food services affect kids’ lives. I grew up in the program, so I kept banging my head against walls.”
Though he found food services to be “deplorable” when he took over in 2010, Mills wanted to do more than fix what was broken. He wanted to innovate. He started tasting foods, approving menus, eliminating processed foods, and requiring meals to be cooked from scratch. He rolled out breakfast in the classroom in elementary schools and grab-and-go breakfasts in middle schools and high schools to get students eating. Because the federal reimbursement rate for supper was higher than the cost, he pushed to expand after-school programs and put the savings back into food services.
“Our ultimate client is the students,” he wrote to his superiors. “We will be successful when we provide meals that the students want and will eat.”
Former employees say Mills was demanding, but his sense of purpose was infectious. “It was drive, drive, drive, change to do better,” says a former colleague who still works within the system. “DCPS has a high-stress culture, but without strong management, goals and plans get lost. Jeff wanted to raise standards.”
Cafeteria inspections in 2010 still turned up deficiencies such as bags of cheese and meat with no expiration date, and crates of spoiled milk. But without financial viability, Mills knew he could not improve, much less advance, the program. Chartwells originally contracted to serve 148 schools, but after the contract was signed, Rhee closed 25 schools. Yet DCPS was still subsidizing costs above federal reimbursements at a rate of 112 percent higher than Chartwells projected. Mills pitched a 14-school pilot program to try out different options, and Revolution Foods and D.C. Central Kitchen were selected as additional vendors. They both charged DCPS $1 less per meal than Chartwells. Rhee agreed to let Mills expand the pilot program.
But Rhee resigned in October, and Henderson, a protégé, took over as chancellor. Unfazed, Mills proposed using Revolution Foods for the upcoming Free Summer Meals Program, estimating he could turn a projected loss of $348,000 into a $19,000 profit, according to an interoffice memorandum. He discovered DCPS was paying 14 percent more for food than other local jurisdictions, and noticed that the cost-reimbursement contract offered incentives for Chartwells to over-order food supplies that allowed them to collect rebates from suppliers. The contract required the vendor to pass those rebates on to the customer, but Mills could not get a straight answer from Chartwells about this. He wrote to Henderson about the losses DCPS was incurring, but to no avail.
As the 2011-2012 school year began, Mills lined up grants for salad bars and kitchen renovations, and partnered with foreign embassies that donated food for international meals. Ivy Ken, a professor of sociology at George Washington University, says Mills would meet monthly with a group of volunteer parents to receive their input. “He had a vision, he had a business plan,” says Ken. “But DCPS would string him along or just say no.”
Mills was not alone in confronting problems with Chartwells. In Dec. 2011, Deputy Chief Procurement Officer Glorious Bazemore cited the vendor for spoiled food, unmet nutritional requirements, and lack of employee background checks. She requested a credit for 12,000 lunches served, and threatened to pull food services in-house and charge costs back to Chartwells. It is unclear whether Chartwells issued the credit, but the vendor relationship remained intact.
Internal DCPS emails show the harder Mills tried, the more resistance he met. In Jan. 2012, as DCPS was about to re-bid the contract, Mills wrote to incoming Chief Operating Officer Anthony DeGuzman and challenged the assumptions DCPS had made in privatizing food services. For instance, from 2003 to 2007, DCPS paid more than $6 million per year to subsidize gaps in the federal reimbursement program, Mills wrote. That amount had since increased by $2 million each year. Revenue projections were off by $6 million per year. Average net losses came out to $10 million per year.
“The best interests of a private company simply cannot be the same as DCPS, and this inherently creates friction [with] the contractor in many key aspects of the operation, including making food services complement DCPS’ other operations and programs,” Mills wrote to DeGuzman.
DeGuzman’s background was in facilities modernization, so Mills gave his boss an orientation and showed how DCPS was out of step with national and regional averages in cost of food, labor, and student meals. Mills estimated that with Chartwells, losses would climb to $14.4 million per year. He and DeGuzman visited schools in Fairfax County, Atlanta, Philadelphia, and St. Paul to learn about how to turn the program from a money loser to a money maker.
Mills projected that DCPS could break even by the 2016-2017 school year, but it would require DCPS to start pulling food service operations back in-house or start investing more in smaller vendors. He and DeGuzman began work on a presentation for upper management about in-house food services. “If it had been up to me, I would have gone self-op from Day One,” Mills now says. At the last minute, the presentation was dropped from the meeting agenda.
Mills’ former employees concede he showed little patience for the banalities of government bureaucracy, and that he didn’t always operate through approved channels. “[Rhee] brought in Jeff to reform the food services program, and he could’ve done more to cultivate internal buy-in,” says one of his former charges. “But he was like, ‘Fuck this shit, I’m gonna make things happen.’”
Henderson defended the arrangement in a meeting with Ward 3 Councilmember Mary Cheh on Jan. 17, 2012, and pointed to politics as an excuse to keep Chartwells around, according to a Council staff email to Mills. Henderson acknowledged she knew DCPS had a bad contract from Day One, but could not make a change in the 2010 election year. She said that after former Mayor Vince Gray was elected, he did not want the challenge of re-structuring food services. Henderson also acknowledged that most jurisdictions do food service in-house, at a profit, and told Cheh she would commit to exploring different options the following year. “Kaya said that next year there will be a ‘new game in town’ and essentially committed to self-prep,” the email states.
Cheh was skeptical, and as it turns out, with good reason. On Feb. 8, 2012, she wrote to Henderson in dismay over persistent losses in excess of $10 million per year. In a 10-page memo, Cheh questioned Henderson about average costs and pricing among the three vendors, average losses, and expenses such as employee wages and fringe benefits. “How do we know that Chartwells has provided all of the rebates to which DCPS is entitled to receive?” she wrote, requesting responses by Feb. 15. Cheh called upon DCPS to break even within two years, expand the number of schools served by the other vendors, and purchase food directly rather than through Chartwells.
Henderson moved swiftly to get a new contract in place. In February, Mills says, DeGuzman came from a meeting and told him and his staff that Henderson had demanded a new Request for Proposal within three weeks. Henderson wrote to Cheh on Feb. 12 with plans to restructure what she referred to as the “mega” contract from a cost-reimbursement model to a fixed-price-per-meal model. Bringing food services back in-house, Henderson wrote, was premature. “Simply put, food service (like facilities maintenance and construction) is not a core competence of ours.”
Frustrated, Mills initiated a private audit by Federal Management Systems, Inc. Within weeks of its inception, Metlen, the manager of business operations, wrote to DeGuzman on May 17 that auditors had uncovered overstocking, excessive food waste, use of expired products, products not stored at proper temperatures, and inaccurate production records at 85 percent of the schools they visited. “They have also voiced serious concerns regarding the accurate reporting of costs and rebates, especially in regards to Chartwells’ use of an affiliate, Food Buy, to procure food and produce,” Metlen wrote.
Metlen and Mills kept hoping DCPS would find it difficult to ignore such glaring problems. “This history of non-compliance could pose financial and operational risks for DCPS if Chartwells is awarded a contract pursuant to this request for proposals,” Metlen wrote to the deputy chief for procurement on June 6, 2012. He also discovered that DeGuzman had instructed auditors to stop taking inventory of surplus food ordered by Chartwells, in an apparent effort to conceal excess product. Metlen cited more than $80,000 worth of excess stock at just four high schools. “This is all extremely clear evidence of systematic over-ordering and improper inventory control by Chartwells,” he wrote.
Mills added: “Anthony, these issues with excess inventory are a result of the over-ordering of product by Chartwells that I alerted you to in February. This mismanagement of procurement and inventory are major factors contributing to the increase in costs this year vs. last year with Chartwells. It is essential that the auditors be allowed to finish their inventories this week so the District can recoup the money that it is rightfully owed.”
By July 2012, Mills says, DCPS was instructing auditors not to show him initial assessments that already showed Chartwells owing the District $8 million, with the number expected to climb. That summer, DCPS awarded a 2012-2013 contract to Chartwells that was approved for $29,636,417. But with additional school closures, the vendor was down to serving 103 schools with no corresponding reduction in costs. What’s more, DCPS agreed to pay Chartwells more than $4 per lunch or supper meal—among the highest in the country for any large public school district. (Federal reimbursement is just $2.95 per meal.)
The cost structure had quality implications, Mills says. Chartwells switched from serving Stonyfield yogurt to sugar-fortified Trix yogurt because it had a financial interest in obtaining large rebates from its usual vendors. Likewise, he says, Chartwells switched from serving all-natural, antibiotic- and hormone-free chicken nuggets to the industrial Tyson brand because it had a rebate arrangement through Food Buy, its affiliated broker.
Mills was a dead man walking as the 2012-2013 school year got underway. DCPS had replaced him as contracting liaison with a purchasing manager named Rob Jaber, a former Chartwells employee. Mills’ dismay peaked in mid-September, when he obtained a copy of a 54-page Federal Management Systems, Inc. audit that nailed Chartwells for $39 million in unrealized cost reductions, overcharged or wasted meals, pocketed rebates, unmet budget projections, and improper modifications, according to a copy reviewed by City Paper. Yet it was a revised audit, without a quantitative analysis, that emerged in December and prompted a Council hearing. Again, the Council told DCPS it had two years to break even and begin plans to bring food services back in-house.
A week later, in Jan. 2013, DCPS fired Mills and promoted Jaber to director of food services. A week after that, Mills received a visit from investigators with the Office of the Inspector General. More than a year went by before Inspector General Charles Willoughby quietly sent a letter to Henderson, on March 14, 2014, confirming evidence of over-billing and meal counts below what was budgeted, even as food costs exceeded the budget. Chartwells also could not provide documentation to show that it had passed food supply rebates to DCPS, as required by the contract. Willoughby instructed Henderson to work with FMS and the D.C. attorney general to recoup DCPS’ losses.
Henderson’s office declined to answer questions for this story.
Willoughby then informed Council Chairman Phil Mendelson, on March 21, that his office “partially substantiated” financial aspects of the audit findings. But Willoughby also shot down most of the other allegations against DCPS, including one that said officials intentionally delayed the audit until after Chartwells’ 2012 contract was renewed—a peculiar finding, given that auditors told OIG investigators that DCPS had referred them to Chartwells for hard data, only to have Chartwells claim a proprietary privilege. (Chartwells also threatened to sue FMS if it went public with its initial findings, and FMS took pains to remove and add provisions at the behest of DCPS officials through six different drafts.)
Considering all the information he and others provided, Mills was stunned when he saw the OIG’s final product. “I spent a lot of time gathering documents for [OIG investigators] to end up with that shitty report,” he says. But by then, Mills was already working as a whistleblower with the attorney general’s office on a False Claims Act case, filed under seal in D.C. Superior Court in July 2013.
Mills wasn’t done. In April 2014, he sued Henderson, DeGuzman, and the D.C. government for wrongful firing and retaliation in violation of the D.C. Whistleblower Act, claiming Henderson had publicly blamed him for the state of DCPS food services program and that DeGuzman had attempted to interfere with the FMS audit. (DeGuzman left DCPS shortly after Mills was fired. Mills says DCPS accepted service for him in the lawsuit. DeGuzman is believed to be living in Italy. He could not be reached.) The District settled with Mills last year for $450,000, as Mills proceeded with his qui tam action against the District.
Chartwells has admitted no wrongdoing. The company did not respond to requests for comment.
On a recent Tuesday, Henderson and Bowser appeared at Leckie Elementary School in Bellevue to hail a private $4 million grant for DCPS. “Discerning parents want the best for their babies,” Bowser said, as she listed various initiatives—none of them related to nutrition. When approached afterwards, Bowser referred comment about Chartwells to Racine’s office. Henderson explained that even if she wanted to make a change for the upcoming school year, it would disrupt food services. “We’re not where we want to be academically to be taking on a new operation,” Henderson said.
So who is minding the store at DCPS?
On June 8, Cheh asked D.C. Auditor Kathy Patterson to audit the food services contracts and evaluate the promised benefits of privatizing school food services. Cheh has said she thinks Chartwells should be barred in the District. Patterson tells City Paper that she is requesting documentation about the privatization decision as well as other options that might exist. She says “Red Flag No. 1” is that D.C. spends local funds on food services at all.
Meanwhile, D.C. Inspector General Daniel Lucas informed Henderson on June 24 that he will conduct his own audit of food services contracts and evaluate food quality and service satisfaction. Says Patterson: “My take is that the new IG is committed to digging quite a bit deeper than what was done previously.”
Taking the Council’s pulse is more complicated. In February, At-Large Councilmember David Grosso, chair of the Committee on Education, asked DCPS students about school food and got an earful: wilted salads, undercooked food, nothing to eat but pizza and chicken nuggets. “I went to school I don’t know how many years ago,” said Grosso, 44. “And the school lunches sucked then. Why do they still suck?”
Oddly, Grosso’s statement was part of a slide presentation Rob Jaber recently gave him in a closed-door meeting attended by Council staffers from about 10 offices. The presentation included photos of kids standing in line for pizza and happily eating what appeared to be turkey and platters of what appeared to be rice and vegetables. He asked, rhetorically, what DCPS gets for its $35 million in annual food services costs, then ran a slide of “Ambassador Perceptions” that assessed letter grades of D and F for food appearance, healthiness, taste, service, efficiency, and cleanliness. Then he fired off pledges to improve the program. Attendees say Jaber could not answer any financial questions and that Grosso sent him back to DCPS with a batch of questions.
Grosso has said his committee will investigate the Chartwells-DCPS contract in the fall—but that will be after the 2015-2016 contract is approved. Visited in his office recently, Grosso declined to comment. None of his fellow committee members returned calls for comment about the contract or the Jaber meeting.
Cheh is the lone councilmember who speaks candidly about the five-year odyssey of Chartwells and DCPS. “This goes all the way up to the chancellor, who acted with knowledge and indifference toward poor performance by Chartwells,” said Cheh in an interview last month. “DCPS’ fingerprints are all over this.”
Of the Bowser administration, Cheh said: “I guess they figure this is some dusty corner of education, not worthy of notice perhaps. Which is sad, because the kids can’t control their circumstances. To not consider the whole child is criminal.”
(As this story was going to press on Wednesday, Cheh filed a disapproval resolution, supported by Ward 1 Councilmember Brianne Nadeau, Ward 6 Councilmember Charles Allen, and At-Large Councilmember Elissa Silverman, that gives the Council 14 days to review contract options before allowing a new one to go into effect.)
Mills considered the whole child, but ended up unemployed with no fixed address. Under the whistleblower statute, he is entitled to between 15 and 30 percent of the Chartwells settlement. He does not know what he’ll do next. He brightens at the thought of creating a company that makes food services a priority in schools, but he balks at the notion that it could happen in D.C. under the current administration. The new proposed contract, at $32 million, is a $1 million increase over last year, he says. And because of an inflated cost structure, if DCPS serves as many meals as in past years, local subsidies will only increase. Maybe that’s why Henderson has said she is discontinuing supper. “This isn’t taking care of the whole child,” he says. “The city loses money, and the kids lose a chance to eat as many as three healthy meals a day,” he says.
He’s particularly perturbed that Henderson—and Bowser—are trying to ram through the 2015-2016 contract renewal by holding food services hostage. “DCPS is pulling the same game they did in 2012,” says Mills. “They submit the Chartwells contract at the last possible minute and then say the kids won’t eat if they don’t approve it. It’s disgusting.”
Stepping back, Mills considers the root of his passion for food services. “I think D.C. was just named for having the most food insecure kids in the U.S. We need to make every effort to ensure these kids have access to meals. When you understaff cafeterias, run out of food, and stop the programs that benefit the underserved you are making problems worse and the achievement gap gets bigger. Hungry kids can’t learn.”