USDA knocked for 'unfathomable' $39M contract awarded to San Antonio event planner

S E E D E D   C O N T E N T

A San Antonio event and wedding planner with no experience in food distribution has been awarded a $39.1 million federal contract to purchase, box and transport surplus food for distribution to needy families during the coronavirus pandemic.

Gregorio Palomino, owner of CRE8AD8 LLC (pronounced "Create A Date"), was a big winner when the U.S. Department of Agriculture announced $1.2 billion in grants for its Farmers to Families Food Box Program.

"We were very surprised," Palomino said in an interview.

Palomino won a contract despite lacking a required government license to operate a produce company.

"It's been applied for," he said.

Industry experts were nonplussed the government chose a company that plans weddings and corporate parties over experienced food distributors that submitted bids.

Palomino, a 37-year-old Temple native, defended his company's selection.

"We knew that we easily could do this because instead of putting tchotchkes in a bag that is going to go to a conference attendee, this is the same exact thing except it's just food going into a box," Palomino said.

Tom Stenzel, president and CEO of the United Fresh Produce Association, called Palomino's comparison "outrageous" and "ridiculous."

"I don't know them personally, but I have my doubts about their capabilities," Stenzel said.

His association, based in Washington, D.C., represents growers, processors, distributors, wholesalers and other businesses across the produce supply chain.

'Not sour grapes'

Michael "Nando" Gonzalez, owner of San Antonio food wholesaler River City Produce, agreed with Stenzel. His firm was among the unsuccessful bidders for a contract.

"This is not sour grapes," Gonzalez said. "I am not a sore loser. I'm the first to say, 'Good game. You kicked my ass. I'll take it.'

"But it doesn't make any sense at all how someone who has no experience in what we do comes in and beats known professionals. That would be the equivalent of me saying, 'Hey, I know you have a heart murmur. I'm going to give you open-heart surgery.'"

As part of the Coronavirus Farm Assistance Program, companies were invited last month to submit bids by May 1 for federal contracts. Distribution of food boxes is to begin as early as today and continue through June 30.

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It's not likely CRE8AD8 will be able to start distributing today. Palomino said he's working on hiring the needed employees — as many as 125 — and planning the logistics for a possible June launch.

Under its contract, CRE8AD8 is responsible for creating 750,000 food boxes with equal parts dairy, produce and protein.

The company, founded in 2007, is "an international multi-award-winning event marketing agency, specializing in meetings, incentives and corporate events," according to its website.

The address listed for its "global headquarters" is a shopping center near Loop 1604 on the North Side.

"I knew from the get-go we could pull this off," Palomino said. "As an event management company, we are already responsible for dozens, if not hundreds, of details on a weekly basis. We also work with budgets ranging from five figures to eight figures on a weekly basis, dealing with multiple suppliers, vendors and food companies.

"On top of that, because we also do meetings and conventions, a piece of our business is (order) fulfillment, so we already have that experience."

Palomino said his "logistics team" was working on securing a warehouse to assemble the food boxes and load them onto trucks. He said he did not know how many loading docks and trucks would be needed.

Asked what his company's annual revenue is, Palomino said he could not provide a figure because "we haven't finished our tax filing season this year."

"But it's definitely not $39 million," he said, referring to the size of his USDA contract.

Process 'breakdown'

The USDA received more than 550 proposals to serve seven supplier regions under the Farmers to Families Food Box Program. CRE8AD8 will supply the Southwestern Region, which includes Texas, Arkansas, Arizona, Louisiana, New Mexico, Oklahoma and Utah.

Of the $1.2 billion in contracts, CRE8AD8's was the seventh largest in the nation. The biggest —$147 million — went to Dallas-based Borden Dairy, which filed for bankruptcy in January.

A USDA spokesperson, asked why CRE8AD8 received a contract while some experienced distributors did not, said by email that "proposals were evaluated by, in descending order of importance, the technical information contained, the prices offered, past performances of the bidder and the bidder's capability to perform.

"Successful proposals included many small businesses and those that will support local and regional farmers, which was part of the evaluation criteria for contract award."

The spokesperson also said that bidders "must … have a Perishable Agricultural Commodities ACT (PACA) license to be granted a contract."

Palomino acknowledged he does not have a PACA license.

Asked how Palomino could have been granted a contract while lacking a license, USDA on Thursday revised its earlier statement to say that bidders must "have or acquire" a PACA license.

On its website, the USDA describes the license as "proof to your customers and suppliers that you are a serious business person who can be trusted to honor the terms of your contracts."

It said a PACA license is as necessary to operate a produce business as a driver's license is to operate a motor vehicle.

Stenzel said the USDA should not go into business with anyone lacking the license.

"We think it's critical that people (receiving contracts) be capable and competent, that they have the refrigerating facilities, that they buy and sell produce every day in bulk qualities, that they have staff on board for packaging," Stenzel said. "All that was supposed to be clear in bids. It seems there may have been a breakdown in the process."

Scratching heads

The USDA launched the program to help the hungry while also aiding farmers, whose sales have plummeted with the closure of restaurants, hotels and schools and who have resorted in some cases to dumping produce.

The department said it would partner with "regional and local distributors whose workforce has been significantly impacted by the closure of restaurants, hotels and other food service entities" to purchase up to $3 billion in fresh produce, dairy and meat products. That food is to be boxed and distributed to the needy through food banks and other nonprofits.

The program is off to a rocky start. Many in the agricultural business, as well as advocates for the hungry, have questioned the government's choices of contractors.

A company that specializes in trade-related finance and one that sells health and wellness items to travelers are among the questionable picks, POLITICO reported.

Yegg Inc., a California firm that offers "business finance solutions," was awarded $16.6 million to supply milk and dairy boxes, POLITICO said.

"There were lots of companies that feel like they were way more qualified and they are looking at these other companies that got contracts and kind of scratching their heads," said Celia Cole, CEO of Feeding Texas, a coalition of 21 food banks.

Eric Cooper, president and CEO of the San Antonio Food Bank, is counting on Palomino to help his nonprofit with the daunting task of feeding 120,000 people a week.

Cooper said he was surprised the USDA selected CRE8AD8.

"We were working with all the industry professionals (on bids), and these guys were not on our list because they are not food service professionals," Cooper said. "They are event planners."

Cooper said he has concerns about food safety.

"The San Antonio Food Bank puts people and food safety first," he said. "We work diligently to maintain extreme community trust. Integrity and efficiency are our core principles. I just hope all awardees of these government contracts have the same values."

Brent Erenwert, CEO of Brothers Produce, a Houston-based distributor that applied for but did not receive a contract, said Cooper should refuse to work with Palomino.

"He might want to pull the plug on this before it starts, so it doesn't hurt the supply chain," Erenwert said. "This isn't outsourcing a street contract, a plumbing contract. This is big stuff."

Stenzel wrote to a top USDA official this week asking for a review of contracts awarded under the Farm to Families Food Box Program.

"This is not 'sour grapes' from those that may not have been awarded; this is a genuine effort to ensure integrity and confidence in the program and that fresh produce actually gets to those in need in an efficient and cost-effective way," Stenzel wrote Bruce Summers, who oversees the USDA's Agriculture Marketing Service.

Stenzel said he has advised members of the United Fresh Produce Association who were denied bids to contact Summers to request a review of their applications and the grounds for their rejection.

Stenzel said he believes "several upstanding companies that are current government contractors to USDA" were denied contracts on "mistaken grounds."

"There ought to be a review of the contracts just to make sure people can deliver on them, deliver on what was promised," Stenzel said.

'Significant challenges'

Several local food distributors, including Ben E. Keith Food and Labatt Food Service, did not submit bids. Another local produce company, B. Catalani Inc., declined to say whether it did.

One industry expert who asked not to be identified said many distributors had concerns about the requirement that participating companies package individual food boxes.

"Food distributors are set up to move products in large packages from manufacturers to, primarily, restaurants," the expert said. "They are just not set up to assemble smaller boxes of mixed products."

Cole, of Feeding Texas, said she's heard other concerns about the program from distributors.

"If it were just the normal model of direct shipment of palletized products to food banks, it wouldn't be as complicated," she said. "But asking these distributors to have the materials and the warehouses and the labor and the refrigeration and all of that and the right equipment to do just-in-time distribution is (problematic).

"We want to make the program work, but there are definitely some pretty significant challenges in how it is currently designed."

'Not fazed'

Palomino insisted he's up to the challenge.

"We are not fazed, not deterred by any negativity out there," he said. "We are going to do what we were asked to do. The USDA would not have chosen us if they did not feel we were an appropriate and excellent opportunity for them to get those food boxes out to those in need."

Palomino said his company has 27 offices, including 14 in overseas locations such as Moscow, Barcelona, Spain, and Johannesburg, South Africa.

Depending on its workload and the time of year, CRE8AD8 employs 100 to 260 people, he said. To fulfill the USDA contract, it's looking to hire between 75 and 125.

Palomino said his "very large business professional network" will aid him in the hiring.

He said he decided to bid on a USDA contract after talking to Iverson Brownell, a San Antonio caterer.

"He reached out to me a couple of weeks ago and said, 'We should really go after this to help families out. There is such a need here in San Antonio,'" Palomino said.

He said the two became partners on the project, with Brownell overseeing "food procurement and food safety."

Brownell, 46, said the program would be a boon to farmers, families and food banks.

"I bring about 25 years of culinary, team building, logistics, development and execution to the table for this project," Brownell said. "It's a huge possibility to help the city and state. To the skeptics out there, I'd say, 'Be happy.'"