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Scandals and profiteering in publicly funded privatized food services

Scandals and profiteering 

in publicly funded 

privatized food services

Sodexo is a multinational company based in France that provides food services to schools, college campuses, the U.S. military, and other government entities across the United States. It won first spot for exposure by SourceWatch - a new site sponsored by the Center for Media and Democracy starring privatizers and profiteers.

If you think privatization, think profit. 

That profit is taken from the pockets of the public and put in the pockets of profiteers who run the companies. Some profiteers skate close to the edge in terms of providing safe, reliable products, adequate maintenance of infrastructure and workers rights. Others take a deep dive into the dark side and hope to get away with whatever they've been doing to improve their bottom line.

SourceWatch's expose of Sodexo was an eye-opener, given the plans of the current government in New Zealand to outsource food services in New Zealand hospitals. 

The Sodexo story certainly gives a realistic example of the perils of privatization of food services. (Note - Sodexo is not the only huge corporation involved in the privatized food catering industry.)

Sodexo Group is the largest food services and facilities management company in the world. In 2012 it reported $24 billion dollars in revenues ($8.8 billion of which came from North America - yielding $1.3 dollars in operating process from North American services alone.) That's a lot of money being taken out of the pockets of the public.

Sodexo contracts to provide food services to private corporations, government agencies, schools and universities, military bases, hospitals, clinics, senior residential facilities, and correctional facilities, and is a primary driver of the privatization and outsourcing of these services.

British Horsemeat Scandal
In February 2013, Sodexo withdrew all frozen beef products from its catering facilities in the UK because testing had shown that some meat lines (beef burgers, minced beef and halal minced beef) tested positive for horse meat. (Note - this was only brought to light because the UK government introduced rules requiring testing). 

There was a public outcry. The company not only supplied schools, but also supplied the Royal Ascot horse racing event and the London Olympics.

Vestey Food Group, a business owned by Lord Vestey, (the Queen's Master of the Horse) apparently admitted supplying the horsemeat to Sodexo. (That was more than a tad embarrassing. Just what did Vestey think Sodexo were going to do with horsemeat?)

German Tainted Strawberry Scandal
In 2012 at least 11,200 school children in ~500 schools and daycares became ill in Germany's largest outbreak
of food poisoning. The poisoning was attributed to frozen strawberries supplied by Sodexo, sourced from China, contaminated with norovirus.

US Government Health Complaints and Lawsuits 
In 2010, Sodexo paid a $20 million dollar settlement under the New York False Claims Act for over-charging 21 New York school districts and the State University of New York between 2004 and 2009. 

Suppliers complained of demands for "rebates" (kick-backs) for being able to supply contracted services. One of the whistle-blowers revealed that Sodexo rewarded employees that followed fraudulent rebate procedures with bonuses. The Investigative Fund estimated that total kickbacks, just within the New York system could amount to over $1 billion dollars. 

By 2012 New York's Attorney General was briefing his counterparts in 15 other states. This has led to an investigation that has uncovered a nationwide pattern of public schools getting ripped off. More than 10 major food industry companies are under investigation in the US.

US New Jersey Other Overcharges 
An investigation by the Clarion Group found that Sodexo overcharged the New Jersey schools for workers pay and insurance; withheld rebates due to districts by exploiting loopholes in the Department of Agriculture’s Food and Nutrition Service requirements; and repeatedly retained contracts, raising questions about the effectiveness of the competitive bidding process.

US Health Violations
The state of Oregon health inspectors found serious violations in 2012 by Sodexo - finding mouse droppings, mouldy milk machines, expired food, dangerous food temperatures etc.

US Safety Violations
Sodexo was cited for nine separate serious safety hazard violation in 2010. The OSHA investigation arose after the school district's repeated requests that Sodexo correct the hazards, were ignored by the company. OSHA has apparently carried out at least 132 enforcement inspections arising from incidents or complaints against conditions at Sodexa or its units.

US E. Coli Food Contamination outbreak
19 children fell ill and 4 hospitalized following E.coli contamination - leading to settlements with Sodexo.

US Sodexo withdrew from a contract
In May 2012 Sodexo pulled out of a $13million dollar a year contract with the Columbus City school system, one year early - because it was not making a profit. It left the school system in the lurch - having to purchase, prepare and plan for about 60,000 daily meals - which had been in the contract.

US Military Cost Over-runs etc
In 2002, Sodexo won a $1.2 billion dollar contract for Marine Corps food services.
Costs were inflated 36% (instead of the 20% savings which had been promised). 
There were problems with food safety, including Listeria. It's cook-chill processing facility had to be shut down in 2007 after the US Department of Agriculture counted 70 violations including rodent infestation.
The Services Employees International Unions exposed poor labor conduct.

Sodexo investment in the Private Prison Industry
In 1994 Sodexo acquired significant stock in Corrections Corporation of America (CCA) - a notorious for-profit US privately run prison company. By 2000 it was the largest investor in the company. But students at universities pressured schools to cut contracts with Sodexo because of this and food services. While Sodexo reduced it's shares in CCA, CCA sold Sodexo a 50% share of UK Detention Services. (Sodexo already owned the other 50% of the UK prison company - so gained total ownership of it.)

US Human Rights Watch Report
11 universities cut Sodexo Contracts following the 2011 Human Rights Watch Report which detailed Sodexo's violations of worker's rights.

Global Rights Complaints
In 2011 the non-profit human rights group TransAfrica released a report: 
They accused Sodexo of paying sub-par wages, denying employee breaks, withholding overtime pay and aggressively discouraging unions (even firing organizing workers) in multiple countries.

While Sodexo has been the feature of this post - this is mainly because it exemplifies the problems with privatization of publicly funded food services. (Some of these patterns are seen in other services that are privatized and get in the hands of profiteers.)

Any of the problems could occur with smaller local operators - but it is more likely such problems would be outed. When big companies pull the strings there tends to be a reluctance to report what is going on for fear of consequences because they are the only employer or purchaser of note. Fortunately whistle-blowers have come to the fore in the case of Sodexo.

Fraud, kick-backs and other abuses can also occur in food service systems organized and supplied by government - but auditing systems should be set up to monitor for this. In any event government run services should be able to run efficiently owing to government's bargaining power - and the fact that such services should NOT be provided through government on a profit-making basis - which is better for the general public.
  • Is Sodexo Group and its subsidiaries (or any similar global food supplier) working behind the scenes in the New Zealand government plans to privatize and outsource hospital food services in New Zealand?
  • Do any of the politicians pushing this (or their cronies) have links to Sodexo or its subsidiaries (or equivalent corporation)?
  • What is the objective evidence of a benefit to the general public of privatizing these types of services? 
Big companies gobble up smaller ones, so there is no real competition - especially in a small country like New Zealand. We've seen this with lab services. 

Publicly funded, government run services - operate as non-profit. (At least it should be that way). So how do private companies make a profit from such activities?

There are at least 3 ways companies can make profit under privatization:
  • Charge more that the service costs. This can be done overtly (and/or covertly by fraudulent means). This is always easy for them to do when competition has been eliminated or is effectively non-existent - which is common in a small country like New Zealand.
(In which case WHY must the public pay profit to a large company - especially as that profit comes from the pocket of the public into the coffers of a huge company - and the profit will likely leave the country, possibly becoming stashed in tax havens off shore?)
  • Operate at reduced cost
  • This generally involves one or more of the following:
  • Laying off staff, under-staffing and under-paying workers etc
  • Using cheaper materials, not necessarily of good quality - which increases the risks of health problems, accidents etc
  • Failure to adequately clean, maintain or upgrade equipment - which increases the risks of health problems, accidents and system failure etc
  • By using a combination of these

The Sodexo story indicates that the potential for major fraud when outsourcing to global food corporations is substantial.

When the major food supplier sub-contracts to just about anyone, anywhere, as they apparently do - the potential for a significant health hazards affecting very many people (not to mention further profiteering of sub-contractors) is even more substantial. In a hospital or old age home situation, this can be very dangerous for people who are ill and more vulnerable to the consequences of infection. Out-sourcing to private companies also certainly puts work safety and workers rights in jeopardy.

  • Privatizing publicly funded food services in hospitals is not in the public interest.
  • It would be far better to have hospital food services kept local; and government organized and funded - for the sake of employment, the economy and limiting the numbers exposed if there is contamination.

Put people first.

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