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Chan contract terminated; exchange board to hire outside investigator to find out how contract was awarded

Chan contract terminated; exchange board to hire outside investigator to find out how contract was awarded

Idaho Freedom Foundation staff
October 22, 2013
[post_thumbnail] Amy Dowd, executive director of the Idaho insurance exchange, responds to board member questions about a no-bid contract awarded to a former exchange board member.

Members of the board of directors for Idaho’s government-run insurance exchange met Tuesday in Boise to discuss last week’s controversial awarding of a $375,000 no-bid contract to former board member Frank Chan, a move that Rep. Kelley Packer, R-McCammon, described as inappropriate.

The meeting resulted in the board unanimously calling for an official outside review of the transaction, along with terminating Chan’s contract. Chan also exercised his right to terminate the contract.

“Five months ago we were given through the Legislature a challenge to see if we could create a state-based exchange,” said Stephen Weeg, board chairman, at the beginning of the meeting. “We faced this with a very tight time frame. Our desire for expediency overcame our need for good governance. We made a decision to hire one of our board members, and it was not unilateral, and it created a major mess.”

Weeg acknowledged the issuance of the contract to Chan was a mistake, adding that the board members need to find a better way to move forward.

“Part of the reason we’re here is that we as a board have not provided the kind of consultation and guidance that we should have,” commented House Minority Leader John Rusche, D-Lewiston, also a board member. “If we don’t find a way to make this (the exchange) responsive to not just the insurance environment, but the political environment as well, we may not have an exchange much longer.”

At issue was the decision of the exchange’s executive director, Amy Dowd, to award the contract to Chan and his company, Applied Computing, without consent of the board of directors.

Prior to the board going in to a behind-closed-doors executive session, discussion focused on Chan’s contract, the prospect of Chan continuing to work for the exchange and the overall procurement procedures that the exchange follows when extending contracts to vendors.

“I’ve been impressed with the way Frank (Chan) has always been willing to devote his time to this,” said board member Kevin Settles. Suggesting that Chan should perhaps continue to work with the exchange, Settles said that “our code lists three times that elected officials can have personal interests in this, but Frank could not. It was unfortunate that we weren’t able to step back and execute this better.”

“We haven’t made any provisions for anybody to make a living with this,” Sen. Jim Rice, R-Caldwell, said in response to Settles. Rice also said that he did not believe the exchange should continue to work with Chan and that the Chan contract was inappropriate.

“The negotiation of contracts prior to the resignation—Idahoans just don’t view that as acceptable,” Rice stated. “It’s just not. From here we can’t contract with him, in spite of the fact that he did a lot of volunteer work during his time on the board. It was something that was very commendable, but we can’t work with him going forward. There are a lot of realities with this entity (the exchange) that don’t exist with other entities. They don’t exist with businesses, they don’t exist with the department of insurance.”

Additionally, board member Hyatt Erstad proposed an amendment to the exchange’s procurement policy that if exchange employees wish to spend more than an approved amount they must seek approval from the board of directors.

“We don’t actually have any procurement policy,” noted board member Zelda Geyer-Sylvia. Both Erstad and Weeg then acknowledged that they were amending interim procurement policies.

The board then unanimously voted to cancel Chan’s contract, to not have Chan return to perform further work for the exchange and to set a $15,000 procurement limit on exchange staff expenses.

Several members of the state Legislature attended the board meeting as observers. Reps. John Gannon, D-Boise, Robert Anderst, R-Nampa, Rick Youngblood , R-Nampa, and Gayle Batt, R-Wilder, along with Sen. Fred Martin, R-Boise, were all present prior to the board going in to executive session.

During the executive session, IdahoReporter.com asked several legislators if they believed that there should be leadership changes made with either the exchange staff or with the board of directors.

“I suspect that’s part of what they’re going to discuss in executive session,” replied Martin. “I’ve discussed this in great length with Sen. Jim Rice, and I’m sure he’ll represent the Senate well. But I was very upset when I learned of the contract being issued without approval from the board of directors.”

Martin added that “Idahoans need to be able to get reliable insurance information and not have to use the federal exchange. The board needs to get off the federal system. The legislation we passed calls for a state-based insurance exchange and what we’ve got is not what I was expecting.”

“As a supporter of the state exchange, I think it’s important that we get to the bottom of how decisions are made, that they are made timely and appropriately, but that everyone on the board is involved,” Youngblood told IdahoReporter.com. “I’ve served on a lot of boards over the years, and when you have procurement figures of $15,000 in mind, but an expenditure is made for $375,000 without board approval, that’s a pretty big discrepancy.”

“This was an end run around the intent and language of Idaho's exchange law,” said Rep. Luke Malek, R-Coeur d’Alene, via email. “The remedy I am looking at is further clarification in the statute. I will let the board decide whether staffing needs to be adjusted.”

Similarly, Rep. Brandon Hixon, R-Caldwell, told IdahoReporter.com that “the board needs to review its contract policies in depth.”

After the board was called out of executive session, Rice called for a motion to authorize Weeg to hire an outside investigator to review the procedures that led to the controversial contract award, which the board unanimously approved.

When asked what the outside investigation might entail, Erstad told IdahoReporter.com, “I’ll leave that to the chairman.” Weeg could not be reached for comment.

At one point during the day’s meeting, Weeg questioned his own status as the chairman of the board, saying “do I still have the governor’s faith and confidence? I’ll have to talk to him about that.”
To this end, IdahoReporter.com contacted Gov. Butch Otter’s office asking about Weeg’s status.

In response, Otter spokesperson Jon Hanian released this statement: “This is why the board was appointed, to address challenges and issues as they arise. Today’s action shows once again how important it is to have Idahoans like Chairman Weeg and the board in place to ensure transparency, accountability and integrity in the process.”

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