Rebate Culture Extended to Other Marriott Holdings

By -
5
7456

The rebate culture ran deep in Marriott and continued in Sodexho Marriott, formed in 1998 by the merger of Marriott’s food service and facilities management business (Marriott Management Services) with the U.S. subsidiary of Sodexho (So-DEX-oh) Alliance, a worldwide food and management services company headquartered in France. Marriott shareholders owned 51% of Sodexho Marriott Services, Sodexho owned 49%.

The shared client base included U.S. schools and colleges, health care facilities, businesses, government agencies, the military and prisons. Marriott International distributed food and supplies to Sodexho Marriott and provided administrative and data processing services. Sodexho Marriott, listed on the New York Stock Exchange, claimed to be the largest provider of outsourced food and facilities management in North America.

Sodexho Marriott built its business model on confidential rebates, and guarded its price list with care. In a previously unreleased July 21, 2000 memo, Anthony Alibrio, president of the Healthcare Service Division, warned employees not to divulge prices to hospitals and other facilities seeking to do price comparisons, and underscored the company’s reliance on rebates.

“SODEXHO MARRIOTT PRICING IS CONFIDENTIAL” (emphasis in original), Alibrio wrote. “The manufacturer rebates and distributor rebates fund and support our entire Purchasing & Procurement Department and network.”

The document was provided to 100Reporters by two Boston-area whistleblowers who worked for Sodexho and objected to the secret rebate policy.

Romney summer home in Wolfeboro, New Hampshire. / REUTERS
Alibrio was talking about rebates from sales to hospitals and nursing homes. Unreported rebates from purchases for facilities whose patients get federal assistance violate U.S. Medicare/Medicaid rules. Jim Sheehan, until recently New York State Medicaid Inspector General, said in an interview that that the Medicare-Medicaid Anti-Kickback Act of 1987 mandates that no vendor can give “anything of value in whole or part in cash or kind in return for referral of service paid for by government.” A company providing services “can get a discount,” said Sheehan, “so long as it’s accurately reported on the cost report.” But “a secret rebate would not meet that standard.”

Romney was not on the board of this new company, which was separate and independent from Marriott International. However, since Marriott obtained food and supplies for Sodexho, it would inevitably have dealt with the rebate issue.

There were, in addition, close social and personal ties between senior executives at the two companies. Before going to Sodexho, Alibrio had worked for Marriott International for 28 years. Romney, Marriott and Alibrio all had vacation homes at Lake Winnipesaukee, NH. Alibrio is in Center Harbor, Romney in Wolfeboro and the Marriotts have a compound of homes on Tuftonboro Neck. Steve Bush, a local real estate agent who lives “around the corner” from the Marriotts, said in an email that Romney would travel by motorboat the three or four miles from his place in Wolfeboro to visit the Marriotts in Tuftonboro.

In addition to Alibrio, at least eight top Marriott executives had moved to the new company, including Charles D. O’Dell, president of Marriott Management Services who became president and chief executive officer of Sodexho Marriott Services and chairman of the board. Philippe Taillet, a consultant for Bain & Company 1986 to 1991 (when Romney ran Bain Capital, Bain’s private equity spin-off), became the new company’s senior vice president for strategic planning. And J.W. Marriott was a member of the Sodexho Marriott board.

Alibrio, who has retired, did not respond to requests for comment. Marriott also declined to comment.

In June 2001, Sodexho Alliance bought out its partner’s controlling share, and the U.S. company became known again as Sodexho, a subsidiary of Sodexho Alliance.

Marriott thus escaped unscathed when the New York Attorney General’s office later investigated the documented claims of the Boston-area whistleblowers, Jay and John Carciero. Former Sodexho employees, they were fired after they objected to the company policy of taking supplier kickbacks while billing clients full price. Jay worked for Sodexho/Sodexho Marriott from 1994 to 2006 and John for Sodexho from 2001 to 2007. In 2010, the New York Attorney General obtained a $20-million settlement from Sodexo (which had dropped the “h” from its name) for “illegal overcharges,” or rebates the company pocketed that legally should have been passed on to New York State school districts.

Its investigation into illegal rebates that may have been diverted from other state-supported institutions, including hospitals, is continuing.

Lucy Komisar

Lucy Komisar

Lucy Komisar, a member of 100Reporters, is an investigative journalist focusing on corporate corruption. She won a 2010 Gerald Loeb award for exposing how the Florida Banking Dept. allowed Ponzi schemer Allen Stanford to move money offshore with no regulation. Her email is lucykomisar (at) thekomisarscoop.com.

RELATED ARTICLESMORE FROM AUTHOR

5 COMMENTS

  4. I worked for Sodexho for many years and was in full witness to the kick backs the company received.  Not mentioned in the article were the number of “Fee Based” accounts Sodexho managed,   Fee based clients normally were accounts that would run deficits during the  monthly operations, but the clients were willing to pay the fees and the monthly loss from operations for the benefit of having the service available for it’s employees.  

    Sodexho billed clients for the operational loss each month and also the management fees.
    What clients did not know was Sodexho received purveyor kick backs based upon the amount of goods that were purchased.  To make matters worse – Sodexho dictated to it’s operational management which items / brands they were to buy.  These items were more expensive and often times of less quality.  The kick back program became such a large income stream that it would surpass the amount of management fees Sodexho billed it’s clients. 

    And that is still not all of the under the table dealings ….  Sodexho also charged it’s operations with employee and management “benefit charges” which were way out of line with reality.
    The overage of course became profit for  Sodexho.  

    All of these practices by Sodexho were going on well before the Marriott merger.  In fact Sodexho’s practice of kick backs were considerably higher that those that Marriott received before the merger.   Granted Marriott did received kickbacks from vendors before the Sodexho merger – most of Marriott’s clients were aware of the practice as defined in the operational contracts signed by Marriott and it’s clients.  

    Sodexho pushed the envelope with the kickbacks to the point where managers were held accountable for buying only Sodexho sponsored products including the private labels that Sodexho developed with vendors which also had the highest kickbacks.  

    The practice wasn’t isolated to any line of business nor to just a few states.  Perhaps the only client that had enough sense to protect itself was the US Govt.   Contracts for GSA business spelled out that rebates were not allowed ….  in so many words.    Sodexho accounting was forced to show these rebates as income where in all other cases – they were not seen in the clients operational statements.   

    The state school systems, colleges and hospitals were never quite as sharp from what I  witnessed and to this day I’n sure the practices continue.  

LEAVE A REPLY