Hundreds of Thousands of Tax Dollars Wasted on Nonexistent DNR Computer System

September 10, 2012

Investigative Reports

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S.C. Department of Natural ResourcesMore than $285,000 in tax dollars and a promised computer system for the S.C. Department of Natural Resources remain in limbo even as a state panel has lifted a suspension for an Iowa software company with ties to the project.

After two days of hearings, the state Procurement Review Panel Friday afternoon reversed a ruling by the state’s chief procurement officer to suspend TAC 10 Inc. and its president from being awarded state contracts because work was not finished on a new computer system for DNR.

Mark DeGroote, Tac 10’s president, appealed the Feb. 17, 2011, suspension order by Michael Spicer, the state’s chief procurement officer.

The contract to install the new records management system was with Smart Public Safety Software Inc., which, according to records, ran into financial difficulties before the project was completed. TAC 10, made up of a number of former Smart employees, later was formed and acquired Smart’s assets, records show.

At issue was whether TAC 10 had assumed Smart’s contract for the DNR computer system. In last week’s hearings, lawyers for TAC 10 contended their client was not responsible for the contract.

“What we say, and what common sense tells you, is that the person that’s going to be debarred has to have some involvement, some reason to know that this bad act is happening,” said attorney Wade Mullins during Thursday’s hearing.

The total cost of the installation, warranty and maintenance of the new computer system was pegged at $583,123, records show. DNR paid Smart $281,800 in June 2009 and another $4,000 in November of that year, though the project was never finished.

Smart was awarded the contract in May 2009 and was supposed to complete the work by December 2009. But the project was delayed several times, and by May 2010, DNR demanded that Smart either finish the work or pay back the state, according to records.

Neither happened, records show.

State law allows the state’s chief procurement officer to suspend any company from being awarded future state contracts upon a finding that the firm violated an existing contract. The company can appeal its suspension to the seven-member Procurement Review Panel, which can either lift the suspension or impose a “debarment,” or ban, on the company from getting state contracts.

Smart took out a bank loan in 2004 and listed all of its assets and contracts – including the contract for the DNR computer system – as collateral. By 2010, Smart owed the bank nearly $2.5 million and defaulted on the loan, resulting in the bank seizing all of the company’s assets and contracts, records show.

Spicer, the state’s chief procurement officer, suspended Smart and its then-president, Robert Sorenson, last year from entering into future state contracts.

TAC 10, which began operating amid Smart’s financial difficulties, lists the same Iowa business address and phone number as Smart. Records also show that some of Smart’s staff now works for TAC 10: For example, DeGroote, who was Smart’s vice president of development, is TAC 10’s president.

DeGroote on behalf of TAC 10 bought Smart’s assets with a $2 million bank loan, including the software for the new DNR computer system, according to records. TAC 10’s attorneys last week contended, however, that the purchase did not include any contracts under development, including the DNR contract.

Spicer cited DeGroote’s close connection to Smart in suspending TAC 10 and DeGroote from being awarded future state contracts, records show.

Mullins, one of TAC 10’s attorneys, said during last week’s hearing that DeGroote “essentially had no involvement in the DNR contract,” though he acknowledged the contract had been violated because the work wasn’t finished.

During his three-hour testimony Thursday, DeGroote said he didn’t know what happened to the money South Carolina paid Smart.

Attorneys for the state said besides companies, “affiliates” or “principals” of firms can be suspended for violating state contracts, contending that Tac 10 is an affiliate of Smart.

“Smart and its proposal to DNR identified Mr. DeGroote… described his role as … coordinating development and scheduling of data conversion, interfaces and required feature additions,” said state attorney Dixon Robertson. “Those are exactly the services Smart failed to provide to DNR.”

“Most of the facts in this case are indisputable,” Robertson added. “We’re not really here to argue about what happened.”

Contacted Sunday, Mullins in a written response to The Nerve said his client was pleased with the ruling.

“Based on the evidence presented, we believe there was no other decision the Panel could have made – that is that the Suspension and Debarment of Mr. DeGroote and Tac 10 was improper,” Mullins said.

Robertson declined comment on the panel’s decision when contacted this morning by The Nerve, though he said the panel would release the reasons for its ruling in about a month on its website,

Reach Legette at (803) 254-4411 or derek@thenerve.org.