FreshPoint and Sysco: Cost Plus Profit, Then Another Markup

In the FreshPoint and Sysco produce settlement, FreshPoint paid $4.2 million to resolve allegations that it added unauthorized markups to Defense Department fruit and vegetable invoices. If you worked with produce costs, contract pricing or military customer accounts, the dispute turns on a familiar distinction: the price the contract allowed and the price the company put on the bill.

FreshPoint was a wholly owned Sysco subsidiary supplying fresh produce to Defense Department customers, including military troops. The U.S. Attorney’s Office for the Southern District of Georgia announced the payment in November 2013. The civil settlement resolved allegations against FreshPoint and Sysco arising from a qui tam case a former FreshPoint employee brought.

The national announcement identified 15 contracts originally awarded to East Coast Fruit Company. FreshPoint performed those contracts after acquiring that company in 2007. The government’s allegations concerned sales from December 17, 2007, through September 11, 2009.

The Contract Already Allowed a Profit

The government alleged that FreshPoint’s contracts required produce at cost plus a pre-established markup for profit. They did not allow additional price adjustments based on FreshPoint’s view of the market. The alleged overcharge came from adding that further adjustment to what the government had agreed to pay.

The district announcement called the added amounts marketing earned income, or MEI. It described random price markups added to invoices to bring produce prices toward their perceived market value. The government said the contracts never allowed them.

We see a second helping in the government’s account: the contracts already provided for profit, and the alleged market adjustment put more on the bill. Calling the addition marketing earned income did nothing to explain where the contract authorized it. Taxpayers feeding the troops were paying under a bargain that already included the supplier’s profit.

The payment terms of these defense contracts put acquisition cost and the agreed markup at the center of the bill. The alleged MEI addition used a different measure: what FreshPoint thought the produce was worth in the market.

The Records Behind a Produce Invoice

For a produce-pricing case, we connect the supplier’s charge, the contract’s permitted markup and the calculation that reached the government invoice. The government’s account of FreshPoint makes the added MEI entry central to that comparison. An employee who knows how the price was built can explain what the final invoice leaves out.

A payment request connects the calculation to government money. An approval trail can connect it to the people who chose or accepted the adjustment. Our work on evidence of defense contractor fraud brings those parts together, with the insider’s explanation of what each record meant inside the business.

That is why purchasing and billing knowledge can matter in the same case. Someone familiar with the supplier account may understand the acquisition cost, while someone working on government invoices may understand the added charge. We work with the part you know and build the connection to what the government was asked to pay.

Military Produce Markups Behind the Final Unit Price

FreshPoint’s alleged MEI adjustment makes the calculation behind the final unit price central to this case. In the whistleblower’s complaint against Public Warehousing, the whistleblower alleged that final-unit-price invoices concealed intermediary markups, a concern also examined in affiliated defense subcontractor markups. A separate whistleblower complaint against Inchcape Shipping Services alleged that higher-priced delivery tickets became Navy bills for the same food. In each account, an insider who understands supplier costs and added charges can explain how the government price was assembled.

A Whistleblower’s Share of the Recovery

A former FreshPoint employee brought the defense contractor whistleblower claim behind the settlement. The district announcement credited agents of the Defense Criminal Investigative Service and an auditor from the Defense Contract Audit Agency for their work.

The FreshPoint announcements said the former employee would receive a share of the settlement proceeds. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know How the Produce Price Was Built

If you handled acquisition costs, MEI entries or military produce invoices, speak to one of our Whistleblower Experts about the markup you saw. We shape what you know about the pricing into your strongest defense contractor whistleblower case, bring in defense contractor fraud whistleblower lawyers who understand government supply contracts, and stay beside you through the pursuit of a recovery.