A food service company has filed a lawsuit against a consortium of Iowa school districts and another food service company, accusing them of fixing prices and rigging bids.

The publicly funded Iowa Educators Consortium was created by the state's Area Education Agencies 11 years ago to help school pool their purchasing needs and obtain volume discounts on food, supplies and other services.

While the consortium buys many of its supplies through multiple, competing vendors, it uses just one primary vendor, Martin Brothers Distributing Inc. of Cedar Falls, for food purchases for the schools.

The Des Moines Register reported that Hawkeye Food Service of Coralville filed a lawsuit in U.S. District Court alleging the consortium and Martin Brothers schemed to force food manufacturers and suppliers to give them discounts not available to Hawkeye and other competitors.

The lawsuit claims that during its first two years, the consortium chose Martin Brothers as its vendor without seeking bids and then in 2002 when it put the food-vendor contract up for bid the consortium wrote to food suppliers asking them to guarantee the best pricing for Martin brothers and to guarantee those prices would be kept confidential.

Hawkeye claims that it submitted the lowest bid in 2007 but that Martin Brothers was awarded the contract.

The lawsuit alleges that Martin Brothers, the consortium and its director, Dan Dreyer, a former Martin Brothers manager, conspired to violate federal anti-trust and racketeering laws while blocking fair competition in the purchase of food supplies for Iowa schools.

Dreyer referred questions to Brent Siegrist, director of state services for the Area Education Agencies, who called the claims "unfounded."

"We intend to fight these charges vigorously," he said.

Brooks Martin, president of Martin Brothers, said the "claims are baseless and we believe we will prove so in court."

Hawkeye Food Service filed a similar lawsuit in state court two years ago but it was thrown out by a district court. The Iowa Court of Appeals reversed the decision earlier this year and the case is now before the Iowa Supreme Court.

The state lawsuit challenges the legality of the Iowa Educators Consortium and alleges that Iowa's taxpayer-funded AEAs are violating a state law that limits the ability of government entities to sell goods and services that also are offered by private businesses. The lawsuit also claims Martin Brothers is funneling money back into the consortium through administrative fees that Hawkeye likens to kickbacks.

The U.S. Department of Agriculture, which helps pay for school lunches, said earlier this year that while the contract with Martin Brothers is now put up for bids on a regular basis, Iowa schools have been buying food from Martin Brothers that isn't included in the contract, skirting the competitive bidding requirements.

Copyright 2010 The Associated Press.