LLR: A Case Study of Bureaucratic Bungling

October 3, 2011

Investigative Reports

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The NerveImagine a state agency …

– Offering a multimillion-dollar contract to a company that the state claimed was having financial difficulties;

– Later approving more taxpayer money for the company without proper authorization; and

– Paying the firm most of the contract amount for a product that the state contended didn’t work.

That’s what happened at the S.C. Department of Labor, Licensing and Regulation (LLR), according to a recent S.C. Legislative Audit Council report.

The July report didn’t identify the company, though Lindsey Kremlick, spokeswoman for the S.C. Budget and Control Board, told The Nerve recently that the firm in question was Accela Inc., a government software company based in San Ramon, Calif.

Kremlick in a written response said LLR has filed a “contract controversy” claiming breach of contract, which, under state law, involves an administrative hearing before the state Procurement Review Panel. She said LLR is seeking more than $2 million in damages from Accela.

The Legislative Audit Council (LAC) report said LLR, which oversees 42 professional and occupational licensing boards, signed a five-year, $3.1 million contract with the company in March 2009 to install and maintain a licensing software system to “provide greater and easier access to licensing services and increase efficiency of the licensing process.”

By December 2010 – 21 months later – the firm had been paid nearly $2.2 million, or about 70 percent of the contract amount. In return, LLR had received a computer system that “did not function properly for one (licensing) board,” the report said.

In between that time, LLR – without getting authorization from the Budget and Control Board’s Procurement Services Division as required by the contract – approved five change orders for the project, extending the project deadline by more than a year and driving up the total cost by about $415,000, the report said.

On top of that, at the time of the contract signing in 2009, the company was “financially stressed and would probably need more cash to continue other projects to which it was already committed,” the report said, citing a BCB analysis of vendors that sought the contract.

In an interview last week with The Nerve, LLR Director Catherine Templeton, who was appointed this year by Gov. Nikki Haley to head the licensing agency, said she doesn’t dispute the LAC report.  She said, though, the problems occurred during the tenure of the previous director, Adrienne Youmans, and that she is working hard to fix it – using a staff employee at a fraction of the cost of Accela’s contract.

“We didn’t need to go and buy a fancy software package,” she said.

Templeton said she hired a computer programmer at a yearly salary of about $50,000 – pointing out there was an existing vacancy for the full-time position and that the employee has other duties –  to put the licensing process for all licensing boards online.

To date, nurses and real estate agents and brokers, who make up about 90,000 of the total approximate 300,000 licensees under LLR’s jurisdiction, can apply or renew their licenses online, she said, describing the paper-based licensing process before she became director as “so labor-intensive and so archaic.”

Asked about the LLR employees who were involved with Accela contract, Templeton replied, “Nobody who signed those change orders still works at LLR,” noting that a  lawyer and two other employees who worked in the “special projects” section were laid off.

Templeton, an attorney, said her agency is seeking reimbursement of more than $2 million, including about $1 million in licensing fees and $1 million for general services, from Accela. If the dispute can’t be resolved at the administrative hearing level, LLR will file a lawsuit to recover the money, she said, adding that an earlier mediation session with company representatives was “pretty much futile.”

Contacted last week by The Nerve, Paul Davis, Accela’s public relations director, denied the allegations against his company, which, according to its website, has offices in Beijing, Australia and Dubai.

“We really feel that the state’s claims are without merit; we feel the state bears a lot of responsibility for the endemic delays and problems,” Davis said. “We attempted at every stage to deliver on our obligations despite the mismanagement we encountered.”

Davis disputed the claim in the LAC report that the company was having financial difficulties when the contract was signed, noting that revenues for the company’s fiscal year that ended in June were up 15 percent over the previous fiscal year. He also said the 30-year-old firm has never been sued for breach of contract.

“I am thrilled to hear that because they can pay our $2 million back with no problem,” Templeton said when informed by The Nerve of Davis’ statements.

Davis said Accela has done major government software projects for states, counties and cities in the United States, as well as for municipalities in other countries.

An Accela press release, for example, said the state of Oregon recently won an award for an online building permit system designed by the company; another press release cited ongoing projects in Miami Beach, Fla; Lincoln, Neb; Baltimore County, Md.; Clackamas County, Ore; and the Australian city of Melbourne.

Under the South Carolina contract, Accela’s software system was supposed to “address the administration of a large amount of complicated programs related to professional licensing and discipline, in addition to fire services and elevator and amusement rides,” the LAC report said.

Besides regulating licensing of professionals, LLR also inspects elevators and amusement rides, and oversees the S.C. Fire Academy and Office of State Fire Marshal.

Before the change orders were approved by LLR, Accela’s system was supposed to be implemented by September 2010, the LAC report said. But LLR stopped payment last October after a BCB official informed the agency that the company was “in breach of contract due to the lack of deliverables received from the vendor,” according to the report.

In February, the BCB sent a “right to cure” letter to the company asking it to “provide the services expressed in the contract or fully refund all monies paid within 30 days,” the report said.

Nothing happened, Templeton told The Nerve, noting, “They couldn’t even tell us where they were in the project plan.”

Davis disputed that characterization, telling The Nerve that there were “a lot of problems” with “internal staff skill levels” at LLR, and that there was a “lack of accountability” at the agency under the previous administration.

Records show that the contract with Accela was awarded by the Procurement Services Division of the Budget and Control Board on behalf of LLR. BCB spokeswoman Kremlick in a written response to The Nerve said if a contract were awarded by the Procurement Services Division, any change orders to the contract would have to be approved by the division unless the chief procurement officer delegates that authority to the agency procurement director.

“Delegation is usually reserved for complex projects where a number of change orders are anticipated and the agency procurement staff is well qualified,” Kremlick said. “No such delegation was given in this instance.”

Over the past five years, change orders have been delegated just four times in all state contracts, Kremlick said. The Procurement Services Division has 15 procurement officers, she said.

Asked why it took the division more than a year to discover the unauthorized change orders at LLR, Kremlick declined to comment, saying only, “Since there is a pending contract controversy, it is not appropriate to provide details at this time.”

The LAC report, citing the Accela contract, said any document “signed or otherwise agreed to by persons other than the Procurement Officer shall be void and of no effect.”

Templeton said that going forward, she would generally welcome the Procurement Services Division’s oversight of LLR contracts with vendors.

“If you just make procurement changes internal to the agency, you open yourself to mistakes and abuse,” she said. “I think it’s better to have that second check.”

Reach Brundrett at (803) 254-4411 or rick@thenerve.org.